The plan to amend Federal Rule of Evidence 702, the rule that governs admissibility of expert witness testimony, is progressing toward fruition.

On May 6, 2022, the Judicial Conference Advisory Committee on Evidence Rules (“Advisory Committee”) approved the amendment and recommended it to the Judicial Conference Committee on Rules of Practice and Procedure (“Standing Committee”). On June 7, 2022, the Standing Committee unanimously approved the amendment for submission to the Judicial Conference of the United States, the national policy-making body for the federal courts.

If the Judicial Conference concurs with the rule modifications, it will recommend the revised rule to the U.S. Supreme Court. If the Court concurs and U.S. Congress does not enact legislation to reject, modify, or defer the rule, the Rule 702 amendment will take effect on December 1, 2023.

Impetus for the Rule 702 Modification

Committee scrutiny of Rule 702 was first inspired by a 2015 William & Mary Law Review article written by Professor David E. Bernstein and Eric G. Lasker, Esq. The authors asserted that despite the fact that Rule 702 was amended in 2000 to codify doctrines set forth in the Supreme Court cases Daubert v. Merrell Dow Pharmaceuticals, General Electric v. Joiner, and Kumho Tire v. Carmichael, some federal court judges were not assuming their proper gatekeeping role in regard to assessment of the admissibility of expert witness testimony.

In particular, some judges were ignoring the Rule 702 instruction to not only scrutinize the principles and methods used by an expert witness but to also ensure those principles and methods were reliably applied to the facts of the case. The authors pointed to numerous federal court decisions in which judges had allowed unfounded expert testimony to be admitted before juries.

The authors claimed, “Judicial protection from unreliable expert testimony has become dependent upon the happenstance of the jurisdiction in which a case is filed, or even the particular judge the parties happen to draw.” They said that disparate standards concerning admissibility of expert testimony have resulted in “uneven administration of justice” in the federal courts.

Advisory Committee scrutiny of Rule 702 was also inspired by a 2016 report to President Obama from the President’s Council of Advisors on Science and Technology (“PCAST”). In that report, members of the scientific community expressed concerns that expert testimony touting the accuracy of forensic feature-comparison methods (i.e., methods for comparing DNA samples, bitemarks, latent fingerprints, firearm marks, footwear, and hair) was not always supported by empirical evidence. Courts were relying on longstanding precedents in which forensic feature-comparison methods had been assumed rather than established to be valid, thus enabling some expert witnesses to overstate the error rates of their conclusions.

Lead-Up to a Rule 702 Amendment Draft

Formal consideration of problems and possible solutions related to forensic expert testimony and application of Daubert began when the Advisory Committee held a symposium at Boston College Law School on October 27, 2017. For the next five years, the committee held a series of conferences on the matter of potential Rule 702 revisions and invited public input.

Advisory Committee Reporter Daniel J. Capra noted throughout the project that Rule 702 was not incorrectly worded—the problem was that “wayward courts” were not following the rule. When contemplating solutions to this issue, he remarked that a language change to Rule 702 might look something like this: “We weren’t kidding. We really mean it. Follow this rule or else.”

Given that federal courts were divergently applying Rule 702, it was clear, however, provision of more definitive instruction was necessary. The Advisory Committee was particularly concerned about admission of forensic expert testimony that overstated results, that is, testimony that offered conclusions unsupported by methodology. To address this issue, the committee considered drafting a freestanding rule, adding a subdivision (e), or adding a detailed Committee Note.

The committee also considered PCAST’s suggestion that the Judicial Conference issue a best practices manual to provide guidance to federal judges concerning the admissibility of expert testimony that is based on forensic feature-comparison methods. The committee determined that while such a manual would be helpful, its effect would be limited because it would not have the force of law.

Ultimately, committee members decided they could address the problem of overstated forensic results by clarifying judges’ gatekeeping obligations overall. Some general additional guidance concerning forensic testimony was offered in the Committee Note.

The proposed amendment follows with new material underlined in red; matter to be omitted is lined through.

Amended Rule 702: Testimony by Expert Witnesses

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if the proponent demonstrates to the court that it is more likely than not that:

1. 1. the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
   2. the testimony is based on sufficient facts or data;
   3. the testimony is the product of reliable principles and methods; and
   4. the expert has reliably applied expert’s opinion reflects a reliable application of the principles and methods to the facts of the case.

The amendment clarifies that the proponent of expert testimony is required to demonstrate to the court that it is “more like than not” that the testimony meets the admissibility requirements set forth in the rule. The Advisory Committee, in accordance with the standard required under Rule 104(a), had originally amended Rule 702 to read that the proponent had to demonstrate the rule’s sufficiency and reliability standards “by a preponderance of the evidence.” However, many members of the plaintiffs’ bar opposed that wording during the public comment period (which lasted from August 6, 2021, until February 16, 2022), fearing it would limit courts’ consideration during a Daubert hearing to only admissible evidence and would shift the factfinding role from jurors to judges.

The committee disagreed that the term “by a preponderance of the evidence” implied a court should only consider admissible evidence. Its rationale, as relayed in its May 15, 2022, report to the Standing Committee, was that the plain language of Rule 104(a) allows the court deciding admissibility to consider inadmissible evidence. Furthermore, the committee felt worries about the factfinding role shifting from jury to judge were misguided because, when it comes to making preliminary determinations about admissibility, the factfinding role has always belonged to the judge.

In an effort to assuage commentators’ concerns that “evidence” might refer to only admissible evidence, the Advisory Committee replaced the term “preponderance of the evidence” with “more likely than not,” and the amended Rule 702 Committee Note states the meaning of the terms is essentially the same.

And in order to appeal to commentators at the other end of the spectrum (largely members of the defense bar) who felt the amendment did not go far enough to stress that matters of admissibility are the purview of judges not jurors, the committee added that the proponent of testimony had to establish the testimony’s reliability “to the court.”

Finally, in order to stress that the court is responsible for determining the reliability of expert witnesses’ testimony in toto, including conclusions, the Advisory Committee revised section (d) to read “the experts’ opinion reflects a reliable application of the principles and methods to the facts of the case.” This revision safeguards against overstated conclusions by directing judges to ensure that experts’ opinions result from reliable methodologies that are reliably applied.

Effects of the Rule 702 Amendment

The Advisory Committee’s intent for the Rule 702 amendment is to establish proper and uniform admissibility standards across the federal courts so that litigation parties, regardless of the venue in which they appear, receive fair and predictable treatment. Based on the more than five hundred public comments the committee received, members of the legal community hold differing views on whether the amendment will benefit their clients.

Commentators opposed to the amendment, in addition to expressing concerns that the rule would preclude inadmissible evidence and transform judges from gatekeepers to factfinders, offered criticisms such as: the amendment places too much authority in the hands of the judge; it will diminish the role of jurors; judges will go too far and make decisions about the weight of testimony; judges will have to play scientists; litigation will become lengthy and expensive; and the number of Daubert challenges will increase.

At the Advisory Committee videoconference hearing held on January 21, 2022, personal injury attorney Michael J. Warshauer of Warshauer Law Group opposed the amendment, asserting it could, to the benefit of defendants, turn trial judges “into fences and not gatekeepers.”

Other speakers at the hearing voiced support for the new amendment. Rebecca E. Bazan, who spoke on behalf of Duane Morris LLP, said by clarifying the court’s gatekeeping function, the proposed changes will minimize jury exposure to speculative or unreliable expert testimony. Mary Massaron, for Plunkett Cooney, agreed that the new rule will protect jurors from being misled. Eric G. Lasker, attorney at Hollingsworth LLP, whose law review article was the catalyst for the proposed amendment, testified at that hearing that “the amendment now being considered will go a long way towards improving the administration of justice in the federal courts.”

Given that the amendment has received unanimous approval from both the Advisory and Standing Committees, it is likely that federal courts will start closely adhering to the revised rule even before it achieves final approval. After all, the Advisory Committee has made clear that the amendment clarifies what should have been courts’ proper interpretation of Rule 702 all along.

Therefore, attorneys, particularly those who have been advocating in federal courts that were biased toward admissibility, should ensure their expert witnesses are prepared now to lay a foundation for their testimony that meets Rule 702 amendment standards. All attorneys should become familiar with their judges’ history deciding cases in specific areas of law, and that information should inform the degree of explanation experts will need to relay in reports and testimony.

Tim Kirkman, senior director of innovation at IMS Consulting & Expert Services, believes if the amendment is approved, Daubert challenges will increase. Kirkman, who has spent sixteen years ensuring attorneys at AM Law 100 firms are aligned with effective expert witnesses, urges attorneys to be very careful to choose expert witnesses who are knowledgeable about the new rule and who are capable of relaying information simply and clearly in the courtroom. He also suggests attorneys align themselves with experts early in case development so those experts remain apprised of case facts as they evolve.

Experienced counsel have for some time advised companies to consider ESG factors in their mergers and acquisitions. While environmental, social, and governance (ESG) or “sustainability” factors are not included on financial statements, increasing pressure for sustainability, data collection, and transparency on climate risk, social justice, and corporate governance now make ESG risk due diligence a must. This note explains some recent legal changes that make these matters even more pressing in M&A deals and gives information on an upcoming CLE program that will discuss these development in the U.S. and Europe.

When acquirers consider a target, or sellers prepare to go market, all ESG matters associated with historic and projected operations should be evaluated with the goal of identifying and, if necessary, mitigating all financial, reputational, environmental, and human rights risks. The process for deep environmental and employee inquiry to inform target representations and warranties is well developed, but due diligence to identify human rights violations, the target’s ESG ratings, and the use of ESG standards has just begun in earnest. Unlike traditional due diligence, which addresses how the entity responds to incidents, human rights due diligence (HRDD, or HREDD when including environmental factors) focuses on both past incidents and ongoing possibilities of adverse human rights impacts.

In the context of the “S” in ESG, particularly with respect to human rights impacts, customary representations and warranties cannot meaningfully mitigate the financial, reputational, or evolving regulatory risks without documenting adoption and ongoing compliance with human rights codes of conduct or guidelines. Qualifiers in merger agreements, including clauses on knowledge, materiality, or “no material adverse change,” will not be effective alone. Investors and consumers, and soon national and global regulators, now want to see proof of an ESG culture of concern and compliance. Assurances and documentation of historic investigation (with a negotiated lookback period of three to five years) and of robust, ongoing training and enforcement of corporate codes and guidelines are necessary to reflect such an ESG culture. Where problems are found, remediation should be documented, too. Current expectations often require “mapping and tracking,” and good HREDD needs to evaluate the severity of risks based on specific industry or product details.

Consider the significant financial and reputational damage resulting from adverse human rights impacts when Customs and Border Protection (CBP) discovers, post closing, seller’s imported goods tainted by forced or child labor. Imports of such goods have been prohibited for decades, but until recently, the “consumer demand exception” protected many imports in spite of the prohibition. This exception, which had largely swallowed the rule, was repealed by the 2016 amendments to the 1930 Tariff Act. Since the effective date of the amendments and the creation of the Forced Labor Division in 2018 within the CBP’s Office of Trade—the arm of the Department of Homeland Security (DHS) charged with enforcing amended Section 307 of the Tariff Act—CBP investigations into forced or child labor, product Withhold Release Orders (WRO), and adverse Findings have increased dramatically. There are fifty-five current WROs in place and nine Findings. Once a WRO is issued, shipments subject to the WRO are held indefinitely at the port of entry.

Perhaps most pressingly, trade lawyers are advising their clients that the Uyghur Forced Labor Prevention Act (UFLPA, effective June 2022) is a game changer. The UFLPA shifts the burden of proof away from CBP and onto the companies importing, in whole or in part, from China’s Xinjiang Uyghur Autonomous Region (XUAR, or Xinjiang). The law bans all imports from Xinjiang unless the importer can prove the products are not connected to forced labor or child labor. To be in compliance with UFLPA, companies must provide a comprehensive supply chain mapping, a complete list of all workers at an entity subject to the “rebuttable presumption” that there is a connection to forced labor, and proof that workers were not subject to conditions typical of forced labor practices.

Product importers out of the Xinjiang regions and companies seeking an M&A transaction with them should not be the only ones worried about the surge in CBP activity. On July 29, DHS announced a strategic partnership between the DHS’s Center for Countering Human Trafficking (CCHR) and Liberty Shared, an international NGO, to enhance DHS’s ability to investigate forced labor in supply chains and combat human trafficking. In its announcement CBP stated its commitment to stopping forced labor, estimated to be the predominant form of human trafficking, with victims of forced labor making up an estimated 80% of the twenty-five million people around the world affected. Increased partnerships between DHS and NGOs signals the likelihood of further surges in enforcement activity.

The ESG legal regimes in Europe are even more far-reaching, especially in relation to supply chains. Several nations already require HREDD to prevent, identify, and remedy or mitigate adverse impacts. Under proposed legislation, HREDD will be an obligation of many companies in or doing business in the EU. See European Commission Proposal for a Directive on Corporate Sustainability Due Diligence (Proposed Directive), 2019/1937, COM (2022) 71. Concurrently with the publication on Febrary 23, 2022, of the Proposed Directive, the EU Commission published a Communication on Decent Work Worldwide, COM (2022) 66, outlining plans to ban products made with forced or child labor from the EU market.

The Proposed Directive applies to companies established ouside the EU with either (i) a net turnover in the EU of more than EUR 150 million or (ii) a net worldwide turnover of more than EUR 40 million but a net turnover in the EU of less than EUR 150 million, if at least 50% of the net worldwide turnover was generated in high-risk sectors like textiles, leather, garments, and footwear; agriculture, forestry, fisheries, husbandry, food and beverages; and the extraction and manufacture of mineral and metal products, regardless of where extracted, including crude petroleum, gas, coal, and metal ores. Upon adoption by the European Parliament and the Member States, the EU Directive will work in tandem with the Sustainabile Finance Disclosure, Regulation (SFDR), Regulation (EU) 2019/2088, and the Taxonomy Regulation, Regulation (EU) 2020/852.

M&A lawyers should not miss the upcoming Business Law Essentials program at the Business Law Section Hybrid Annual Meeting in Washington, D.C., and online on Thursday, September 15, 10:00–11:30 AM ET. This program will provide a unique opportunity to hear from top government officials on developing trends shaping U.S. and global sustainability and legal requirements to collect data, disclose, and remediate ESG risks. In addition to covering proposed rules from the SEC and CBP enforcement of the UFLPA, there will be updates on the EU Proposed Directive that will affect most, if not all, international business operations. Speakers include: Erik Gerding, Deputy Director, SEC (Division of Corporate Finance—Legal & Regulatory Policy); Salla Saastamoinen, acting Director-General for Justice and Consumers, European Commission; Eric Choy, Executive Director, U.S. Customs and Border Protection (Trade Remedy Law Enforcement); Professor Claire Bright (Nova University, Lisbon, Portugal); and Professor David Snyder (American University, D.C.).

Susan Maslow, Vice Chair of the Working Group to Draft Model Contract Clauses to Protect Human Rights in International Supply Chains and Chair of the CSR Law Committee.

This article is the first in a series reviewing recent regulatory developments related to cryptoasset-related issues in the banking sector. Upcoming articles will feature legislative efforts to regulate stablecoins and the authority of banks to engage in cryptoasset-related activities.

On January 20, 2022, the Federal Reserve Board (“FRB”) released its paper on a potential U.S. central bank digital currency (“U.S. CBDC”).^[1] This article briefly reviews the FRB’s paper and related subsequent developments in the debate about a potential U.S. CBDC.

As defined by the FRB, a U.S. CBDC would be money used by consumers and businesses that would be a digital liability of the central bank (i.e., central bank money),^[2] as opposed to commercial bank deposits, which are not. The only “digital” central bank money used in the United States today is the digital balances held by commercial banks at the Federal Reserve (i.e., reserve balances). The FRB’s paper discussed the risks and benefits of a U.S. CBDC and requested comment on 22 questions; in response, the FRB received over 2,000 comments from a wide range of stakeholders.^[3] The FRB plans to publish a summary of the comments in the near future.^[4]

As a practical matter, the issuance of a U.S. CBDC may not happen for a number of years, if at all. According to the FRB, the CBDC paper was only the “first step” in a “broad [and essential] consultation with the general public and key stakeholders.” The FRB does not intend to proceed with the issuance of a U.S. CBDC unless there is clear support from the executive branch and Congress, “ideally” through a specific, authorizing law. Moreover, the FRB will only move forward with a U.S. CBDC if doing so is better than the alternatives and the benefits for households, businesses, and the economy at large exceed the risks.

The FRB outlined a number of benefits of having a U.S. CBDC in its paper. First, a U.S. CBDC could safely meet future needs and demands for payment services. A U.S. CBDC could mitigate the risks associated with the proliferation of private digital money while facilitating private-sector innovation for payments and the digital economy. Second, it could streamline cross-border payments (although the FRB noted that these improvements will require significant international coordination). Third, a U.S. CBDC also has the potential to preserve the dominant international role of the U.S. dollar, including the dollar’s status as the world’s reserve currency. Fourth, a U.S. CBDC could promote financial inclusion. Finally, a U.S. CBDC could extend public access to safe, central bank money. Cash use is declining in favor of digital payments, and a U.S. CBDC would be the safest form of a digital asset because it would carry limited credit or liquidity risk.

The FRB also discussed the potential risks and policy issues implicated by a U.S. CBDC. First, changes to the financial sector market structure—the substitution of a CBDC for commercial bank money—ultimately could reduce credit availability or increase credit costs. However, CBDC design choices, such as creating a non-interest-bearing U.S. CBDC or limiting the amount that an end user can hold, could alleviate some of these concerns. Further, there is concern for the safety and stability of the financial system. Because a U.S. CBDC would be the safest form of digital money available, runs on financial firms may be more likely during times of stress. Nonetheless, the FRB noted that the same design choices described above could alleviate this problem as well. Third, the efficacy of monetary policy implementation and interest rate control by the FRB could be impacted as a result of changes to the supply of reserves in the banking system. Moreover, the potential for substantial foreign demand could further complicate monetary policy implementation. The FRB also addressed concerns with privacy, data protection, and the prevention of financial crime. Ensuring that a U.S. CBDC has appropriate defenses against operational disruptions and cybersecurity risks could be particularly difficult because a CBDC network could have more entry points than existing payment services. However, providing for offline capability of the CBDC, if feasible, could enhance operational resilience of the digital payment system.

In June 2022, U.S. Rep. Jim Himes (D-CT, 4th District) published a white paper making the case for a U.S. CBDC.^[5] Himes believes a U.S. CBDC will keep U.S. currency and payment systems innovative and competitive and that the potential benefits meaningfully outweigh the risks.^[6] Rep. Himes commented and elaborated on many of the issues raised in the FRB’s CBDC paper, including the choice between a wholesale or retail CBDC, architectural decisions (he advocated for using a permissioned semi‑distributed system), account-based wallets, and non-bank participants. More importantly, he explicitly called for Congress to “begin the process of dialogue, education and debate that will lead to draft legislation to authorize further studies, pilot projects, and the possible creation of a U.S.‐issued CBDC.”^[7]

FRB Vice Chair Lael Brainard recently made conceptually similar points. Specifically, in a July 8, 2022, speech, she stated that “[a] digital native form of safe central bank money could enhance stability by providing the neutral trusted settlement layer in the future crypto financial system” and that the development of a U.S. CBDC could be a “natural evolution” in payments.^[8]

To summarize, the FRB’s paper has brought the discussion of a potential U.S. CBDC to the forefront. While it remains unclear what a U.S. CBDC may look like or when it could be created, the discussion is moving forward, as illustrated by Rep. Himes’s whitepaper and Vice Chair Brainard’s recent remarks.

1. Money and Payments: The U.S. Dollar in the Age of Digital Transformation, The Board of Governors of the Federal Reserve (January 2022). ↑

2. The paper briefly discussed the merits of retail versus wholesale CBDCs. The paper focuses mostly on a potential retail U.S. CBDC with banks acting as intermediaries between the FRB and the holder. However, the FRB noted that “narrower-purpose CBDCs could also be developed, such as one designed primarily for large-value institutional payments and not widely available to the public.” Id. at n. 19. ↑

3. Digital Assets and the Future of Finance: Examining the Benefits and Risks of a U.S. Central Bank Digital Currency, Vice Chair Lael Brainard, Federal Reserve (May 26, 2022). ↑

4. Id. ↑

5. Winning The Future of Money: A Proposal For A U.S. Central Bank Digital Currency, Jim Himes, U.S. Congressman (June 2022). ↑

6. Id. ↑

7. Id. ↑

8. Crypto-Assets and Decentralized Finance through a Financial Stability Lens, Vice Chair Lael Brainard, Federal Reserve (July 8, 2022). ↑

The FDA Safety and Landmark Advancements Act of 2022 (“FDASLA”), introduced in May, contains provisions regarding importing prescription drugs from Canada and the UK. After two years, the FDA could expand the FDASLA’s reach to allow the import of drugs from other Organization for Economic Co-operation and Development (OECD) countries.^[1] Although not originally included, the drug import provisions were added as an Amendment to FDASLA by the U.S. Senate Committee on Health, Education, Labor, and Pensions in June 2022.^[2] The full legislation was referred out of committee to the full Senate on July 13, 2022.

While this may seem like an important event in the ongoing debate over the benefits and risks of allowing certain prescription drugs to be imported from Canada or other foreign countries, the language within the Amendment is virtually identical to existing language within the FDA Importation of Prescription Drugs final rule effective November 30, 2020.^[3]

Multiple problems with the existing regulation were raised at the most recent NABP Task Force meeting held in September 2021.^[4] The primary issue dealt with basic supply chain issues. The representatives of Colorado’s and New Mexico’s Section 804 Importation Programs made it clear that the Programs lacked consideration of the details within supply chain logistics of moving medications from manufacturers to patients and, instead, focused on obtaining drugs from foreign sources. NABP Task Force members judged that the route from manufacturer to patient needed to be as short as possible to minimize risk. Members feared that countries like China and India provided most of the ingredients used to manufacture the drugs with “questionable oversight.” Such issues are significant and make it extremely difficult for the NABP or any state or federal agency with oversight authority to protect public health and ensure that prescription drugs are safe and effective for patients within the United States.

Concern was also raised regarding which agencies would be given enforcement responsibilities.^[5] Cases that arise could potentially involve multiple agencies in different countries worldwide. Even if issues only involved drugs manufactured in and imported from Canada, it is not clear who would be responsible for ensuring that no counterfeit or unsafe drugs were provided to patients within the United States. Multiple Task Force members questioned whether there would be any cost savings for U.S. patients who purchased prescription drugs from foreign sources.

The language within the pending (July 2022) version of FDASLA and the 2020 Importation of Prescription Drugs final rule both require state Section 804 Importation Programs to have procedures to ensure each prescription drug imported under their programs is safe and effective for its intended use.^[6] For example, the Importation Program proposed by Colorado requires authenticity testing and relabeling of the imported medication, including new National Drug Codes. Colorado will also incur costs associated with the administration of the program.^[7] The Department of Health Care Policy & Financing in Colorado, charged with administering the program, stated on its website that it was pursuing a vendor to perform supervision functions. That vendor would perform administration functions to the Foreign Seller (Canadian Wholesaler) and Colorado Importer (U.S. Wholesaler or Pharmacist), responsible for testing, relabeling, and drug distribution to participating pharmacies. With no current vendor to perform these administrative functions, it is difficult to determine actual cost savings for U.S. patients.

Issues regarding the reimbursement of imported prescription drugs were also raised by NAPB members.^[8] Would such drugs be approved by the FDA, and would the costs for those drugs be eligible for submission to federally funded programs for reimbursement? Also, would U.S. patients living outside a state with an approved Section 804 Importation Program be allowed to purchase imported prescription drugs from another state?

A concern seldom expressed within the import debate is whether Canada would have enough supply of the needed drugs as more and more states begin importing. Would such programs result in drug shortages for Canadian consumers? Under the Drug Importation Program Frequently Asked Questions section of the Colorado Department of Health Care Policy and Financing website, one of the FAQs was whether a Colorado representative had spoken to Canadian representatives about the program.^[9] The response was that the Department has had conversations with the Denver Canadian consulate and would welcome and anticipate more communication down the road.

Pharmaceutical professionals, health officials, and their legal advisors should monitor the progress of FDASLA to determine whether and how these issues are addressed as the legislation evolves.

1. FDASLA Act of 2022, S. 4348, 117th Congress (2022), https://www.congress.gov/bill/117th-congress/senate-bill/4348. ↑

2. At the time of writing, a transcript of the hearing was not available. However, video of the hearing is available on the committee’s website, at https://www.help.senate.gov/hearings/s-4348-s-958-s-4353-hr-1193-and-s-4053. ↑

3. See, 21 C.F.R. § 251.1, et seq. (2022). ↑

4. Nat’l Ass’n of Bds. of Pharmacy, Report of the Task Force on State Oversight of Drug Importation (2021), https://nabp.pharmacy/wp-content/uploads/2021/12/Report-of-the-Task-Force-on-State-Oversight-of-Drug-Importation.pdf. ↑

5. Id., at 2. ↑

6. Senate Bill 4348, at § 906, which amends the Food, Drug, and Cosmetic Act (21 U.S.C. § 384) to include the final rule’s definition of “section 804 importation program sponsor” to include “a State or Indian Tribe that regulates wholesale drug distribution and the practice of pharmacy”; cf. 21 C.F.R. § 251.2 (2022). ↑

7. Colo. Dep’t of Health Care Policy & Fin., Colorado’s Canadian Drug Importation Program: Frequently Asked Questions (2021), at 6, https://hcpf.colorado.gov/sites/hcpf/files/ Drug%20Importation%20Program%20FAQs%20Jan%202021.pdf. ↑

8. Supra note 4, at 3. ↑

9. Supra note 7, at 2. ↑

During the COVID-19 pandemic, litigants’ struggles to meet deadlines have resulted in a patchwork of local rules and general orders aimed at easing the strain on the judicial system and litigants. The CARES Act tasked the Judicial Conference of the United States with formulating amendments to the Rules Enabling Act to “address emergency measures that may be taken by the Federal courts” when a national emergency has been declared. Recognizing the need for a more centralized mechanism to expand rules deadlines in emergency situations, the Judicial Conference has proposed three new rules: Civil Rule 87, Criminal Rule 62, and Bankruptcy Rule 9038. This article highlights new Bankruptcy Rule 9038.

The Existing Landscape: Rule 9006(b)

Pursuant to Rule 9006(b), courts may expand the deadlines contained in the rules for cause if the request is made prior to the expiration of the deadline; courts may permit late action if the request is made after the deadline has passed when the failure to act was due to excusable neglect. But Rule 9006(b) is limited in its application.

First, Rule 9006(b) may not expand the deadlines for:

• filing a list of the 20 largest unsecured creditors in chapter 9 and 11 cases;
• holding the meeting of creditors and addressing the election of trustees in chapter 7 cases;
• filing a motion to amend a judgment or for additional findings; or
• requesting a new trial or relief from judgment.

Second, the Rule is still constrained by the limitations contained in other specific rules. For example, Rule 1006(b)(2) sets a hard deadline of 180 days from the petition date for the filing fee to be paid, which cannot be expanded under Rule 9006(b).

Rule 9006(b) also cannot override the requirement that an extension request be filed prior to the expiration of the following deadlines:

• the deadline to file a motion to dismiss for abuse;
• the deadline for filing a governmental proof of claim; and
• the deadlines for objecting to claimed exemptions, objecting to discharge, or objecting to the dischargeability of a debt.

Rule 9006(b) also cannot override the specific guidelines for extensions contained in the following Rules:

• Rule 8002(d) regarding the deadline to file a notice of appeal;
• Rule 9033 regarding the deadline to object to proposed findings of fact and conclusions of law; and
• Rule 1007(c) regarding the deadline to file statements and schedules.

Last, Rule 9006(b) was intended for use in specific instances, for cause. Thus, it is not helpful for district-wide deadline expansions across multiple cases such as are needed when the entire system is affected, as with a pandemic.

The Bunker: New Bankruptcy Rule 9038

Set to go into effect in December of 2023, Rule 9038 is intended to fill the gaps in Rule 9006(b). The Rule is divided into three subsections: subsection (a) contains conditions for an emergency; subsection (b) governs declaring an emergency; and subsection (c) has provisions about tolling and extending time limits.

Subsection (a) gives only the Judicial Conference the power to declare a Bankruptcy Rules emergency. The Judicial Conference may declare a Bankruptcy Rules emergency if it finds “that extraordinary circumstances relating to public health or safety, or affecting physical or electronic access to a bankruptcy court, substantially impair the court’s ability to perform its functions in compliance with these rules.”

Subsection (b) describes the procedure for declaring a Bankruptcy Rules emergency. First, the declaration must designate the affected courts and state any restrictions on the granted authority, and the duration of the emergency must be ninety days or fewer. This allows for greater flexibility if the emergency is limited to a specific region or state. Additional declarations may be issued under Rule 9038, and the Judicial Conference may terminate the declaration for one or more courts early.

Subsection (c) is the meat of the new rule. A chief judge may order the extension or tolling of a specific Bankruptcy Rule, local rule, or general order and includes directives that actions must be taken “promptly,” “forthwith,” “immediately,” or “without delay.” That power is also extended to presiding bankruptcy judges in specific cases. Such tolling ends on the later of thirty days after the date the emergency declaration terminates or the expiration of the original time period, unless the extension expires sooner than thirty days after the termination of the declaration, in which case the extended deadline applies. Such extensions may be either lengthened or shortened by a presiding judge in a specific case for cause after notice and a hearing. Last, the only deadlines excepted from tolling under the proposed rule are those contained in a statute as opposed to the rules.

Conclusion

Able to fill in the gaps left by Rule 9006(b), Rule 9038 will provide the flexibility needed to permit continued access to bankruptcy courts and the administration of their dockets during emergency situations. It is not constrained to national emergencies and only statutory deadlines are excepted from its reach. It is the doomsday bunker we hope to never use.

Imagine being denied a car insurance policy because an algorithm based on your publicly available social media posts determined that you were not a safe driver.^[1] This example highlights one of a number of difficult legal and ethical issues surrounding the data that is generated from processing of consumer data. The prediction about whether you are a safe driver is often referred to as “inferred data” to separate it from data that companies collect directly from users or indirectly from external sensors and sources (such as their public social media feed). But what exactly is inferred data, and why is it the subject of so much debate?

Users directly provide data about themselves (and others), and sensors indirectly provide data about people, often without their direct involvement (or consent). Companies and governments perform analytics on direct data to infer other characteristics of the data subjects. Inferred data is the result of this processing. There has been a huge growth of law regulating data provided directly by people and indirectly from sensors. Now, however, regulators and other legal scholars are beginning to ask whether and to what extent privacy laws and intellectual property laws ought to apply to inferred data.

It is important to understand how inferred data is created in order to ferret out whether it is the type of personal information that should be subject to different legal theories. We can think of data analytics as an input-output process in which people or sensors provide data that is analyzed to create a new output (data) that was inferred from that analysis. This analysis often occurs not based on a single input, but on large datasets using techniques like regression, classification, clustering, and machine learning. For ease of understanding, think of the process like cooking a meal. The input data is the ingredients, the analytical method is the recipe, and the actual analysis the cooking. The output—the inferred data—can be thought of as the final, cooked meal.

It is also important to understand how the analysis process works to set expectations for characterizing inferred data under different legal regimes. In one type of analysis process called machine learning, for example, an algorithm is first used to generate a machine learning model by training the algorithm with a large dataset. This training process results in a model that has a unique set of variables and weighting factors. Using the cooking analogy, you can think of the algorithm as the recipe and the model as a recipe variation that creates different outputs—like New York pizza versus Chicago pizza. Then, the machine learning model is used to analyze new input data to create inferences based on that input data. The same input data could result in different inferences depending on the version of the machine learning model used and how it was trained. This means that inferred data is often more like a prediction than a result. A model that was trained with Chicago pizza training data might interpret a set of underlying ingredients like flour, mozzarella cheese, tomato sauce, and mushrooms to predict a deep-dish pizza, while a model that was trained with New York pizza training data might predict a thin-crust pizza from the same underlying ingredients. Because of the potential for variations of models, the accuracy of inferred data is the subject of much debate.

Inferred Data as Intellectual Property

Companies have argued that inferred data is the knowledge a company generates from its processing activities and, therefore, is intellectual property that is owned by the creating company. However, inferred data can also be thought of as new data that is the output of processing. This difference is critical to intellectual property law, where data is not generally an appropriate subject for copyright or any other intellectual property protection. Under current U.S. copyright and U.S. patent law, a work can only be an original work of authorship or invention respectively if it was created by a human being.^[2] Thus, when an AI system generates an output result and the computer is considered the author or inventor of that result rather than a human being, the output cannot be given copyright or patent IP protection. However, not all countries share this view. In the United Kingdom, for example, the author of the AI program may be eligible for the copyright on the output of AI.

As a result of the current U.S. stance on IP protection for inferred data, the creators of inferred data often argue that this data is their trade secret and therefore owned by them. An analysis of whether inferred data can be considered as a trade secret would need to be done under each state’s version of the Uniform Trade Secrets Act,^[3] which states that a trade secret is essentially information that derives independent economic value from not being generally known to the public or others who might use it for economic advantage.^[4] Ownership of the inferred data would then remain with the entity that takes steps to protect it. In addition, companies that create inferred data have suggested that because it is a trade secret, it also should not be subject to privacy and other laws that would force disclosure of that information.

Inferred Data as New Data

Proponents of inferred data as new data argue that if the source data was covered by privacy laws, then this new data ought to also be covered by the same regulations as the base data from which it is derived, regardless of its IP designation. They argue that the purpose of data protection and privacy laws is to protect consumers from the misuse or publication of their personal information, and that this purpose applies as much to personal information that results from an analytics process as it does to personal information that is directly obtained. However, this means that inferred data may need to be evaluated based on the context of its use and how it is generated to determine whether that use triggers the protections that data protection and privacy laws offer.

How Inferred Data is Used Matters

Inferred data could be used to optimize internal business processes, in which case it may not have any relevance to consumers. But when inferred data is used to profile a person, it may have serious implications to that person. Because inferred data often represents predictions and not facts, the potential for harm may be greater than data provided by the person directly. In the context of profiling of individuals by identifying or predicting sensitive information about them, privacy regulations that intend to protect consumers would seem to be applicable to the inferred data. Similarly, when creditworthiness or likelihood of flight before trial are the predictions that are inferred, other consumer protection regulations would seem to apply strongly. It is important to note that there are laws that allow the input data to be corrected, such as reported credit data. But models could still produce a biased or unfair prediction based even on corrected inputs.

Furthermore, predictions based on machine learning models can be difficult to assess for accuracy because these models are trained and are often dependent on the input training dataset used to generate them. These models act like black boxes, where it is nearly impossible to understand how the unique variables and weighting factors were created. As a result, interpreting or correcting a prediction that is false or biased can be very difficult. Worse yet, these mistakes are difficult to litigate because the model cannot be cross-examined in court. Many privacy regulations, including the General Data Protection Regulation (GDPR) and the CCPA (California Privacy Protection Act) provide for a consumer right to correct data. If inferred data is subject to privacy regulations, this right of correction could be very difficult to apply.

In California, the attorney general has recently issued an opinion on the interpretation of inferred data under the CCPA.^[5] Specifically, the attorney general was asked whether a consumer’s right of access under the CCPA encompasses inferred data that a business has created about them. As is so often the case with a legal question, the answer is “it depends.” The attorney general determined that inferred data was within the definition of “personal information” under the CCPA only if it met two requirements. First, the inferred data must have been generated from specific categories of data that are identified in the statute regardless of whether that information was private or public, and regardless of how it was obtained.^[6] Second, the inferred data must have been generated for the purpose of creating a profile about a consumer that reflected their “preferences, characteristics, psychological trends, predispositions, behavior, attitudes, intelligence, abilities, and aptitudes.”^[7]

How Inferred Data is Generated Matters

Inferred data may be subject to privacy rules not only based on how it is used, but also based on how it is generated. For instance, the Federal Trade Commission (FTC) has seemed to determine through recent decisions that inferred data is sufficiently tied to the processing of input source data, even for training purposes, that if the processing is tainted by fraud, the machine learning algorithms and models that process that tainted data are also tainted, as well as any inferred data that results from the processing of that input data.^[8] In one recent decision, EverAlbum was accused of collecting input data without proper consent for its use in training a facial recognition algorithm. As part of the decision, the FTC required EverAlbum to delete the machine learning model that was trained with the faces, as well as the algorithm used to create the model, and the output data created by processing of new facial images by that tainted model. Thus, inferred data that was generated by fraud or misrepresentation was the result of misuse and protected by consumer protection laws.

In summary, inferred data is widely agreed to be data that is the output of processing, rather than data that is provided directly or indirectly from a person. That may be where the agreement ends. Issues of to what extent inferred data is subject to privacy regulations and whether inferred data can be treated as intellectual property are still undecided, as are issues of automated decision-making based on inferred data. These issues will, in all likelihood, be the subject of much discussion as the amount and uses of inferred data continue to grow. For companies whose business models depend on their ability to generate and use inferred data, the outcome of these discussions could be critical to their future.

1. Graham Ruddick, “Admiral to Price Car Insurance Based on Facebook Posts,” The Guardian, Nov. 1, 2016, https://www.theguardian.com/technology/2016/nov/02/admiral-to-price-car-insurance-based-on-facebook-posts. ↑

2. See Compendium of U.S. Copyright Office Practices, Chapter 300, pg. 307, 3rd ed., Jan. 28, 2021 (https://copyright.gov/comp3/chap300/ch300-copyrightable-authorship.pdf); see also, Naruto v. Slater, 888 F.3d 418 (9th. Cir. 2018). See also, Thaler v. Hirshfield, 2021 WL 3934803 (E.D. Va. Sep. 2, 2021) and “AI Machine Is Not an ‘Inventor’ Under the Patent Act: E.D. Va.,” Legal Update (https://us.practicallaw.thomsonreuters.com/w-032-5362). ↑

3. Uniform Trade Secrets Act With 1985 Amendments. ↑

4. Id. ↑

5. Cal. Op. Att’y. Gen. No. 20-303 (Cal. A.G.). ↑

6. Civ. Code, S 1798.140, subd. (o)(1)(A)-(K). ↑

7. Civ. Code, S 1798.140, subd. (o)(1). ↑

8. Everalbum, Inc., Docket No. C-4743, Decision and Order, F.T.C. (2021). ↑

As a lawyer business development coach, I regularly receive questions and feedback from my clients as to the efficacy of joining and participating in professional associations and board service.

Some practitioners seek to give back to the community that has created an environment for them to succeed in practicing law, while others hope the exposure will lead to new business opportunities. Still others are flattered that an organization is interested in their brainpower.

Whatever your objective (and this is definitely something you need to identify before joining any organization), I discuss below factors to take into consideration when choosing an organization to join and ways you can maximize your time and engagement.

Why get involved?

• Expand your network: New connections with professionals who can hire or refer you for the type of matters you seek is key to growing your practice. Participating in an organization should provide you with many opportunities to connect with professionals on a local, regional, national, and sometimes global level. Participating in special interest groups, sections, or discussion boards sponsored by an organization is another way to connect with people who are likeminded and/or working in the same niche you are.
  Best practice: Merely attending the quarterly board meetings will not maximize your intended exposure. Individually invite fellow members to coffee, lunch, or drinks as a way to get to know them better outside of the group environment.
• Boost your credibility and visibility: Being actively involved in your professional community can boost your credibility among your peers, your clients, and your prospects. Associations generally look to their members to share their unique expertise and their connections through their participation in the organization. Raise your hand for a leadership role to not only develop your skills as a leader but also to boost increase your visibility. Relating to other professionals who share common interests is a great way to strengthen your reputation.
  Best practice: Align your talents, personal interests, and passions with an organization’s mission and available roles and volunteer opportunities. Your service will be more fulfilling and feel less like a “chore.”
• Professional development: Joining a professional organization that directly aligns with your practice (like your practice area section at a bar association) is a great way to further your legal acumen. Organizations often offer articles, webinars, reports, white papers, courses, workshops, seminars, conferences, and certifications to keep their members current on the latest industry research, innovations, and trends.
  Best practice: Involvement in trade organizations within your client industry focus is a great way to get an in-depth and more complete understanding of your ideal client and their circumstances, and along with opening up professional opportunities, it allows you to better serve them.
• Mentorship opportunities: Finding professionals—junior and senior—who can support your growth is a huge benefit in joining a professional association. There are also meaningful rewards in mentoring others, including honing your leadership abilities, learning new perspectives and insights, and feeling a sense of contribution.
  Best practice: Just as senior professionals have extended a hand to provide you with guidance throughout your career, make sure to identify ways you can leverage your talent in assisting others to grow.
• Build a support system: Making connections outside of your firm who understand your circumstances and can offer guidance and insight is one of the most important reasons to join a professional organization. Strong bonds within professional organizations will improve your career opportunities, will help you garner more influence, and most importantly, will make work and life more fun.
  Best practice: Don’t wait until you are in need to build your support system. Make the investment into developing authentic relationships early to build a network of advocates who want to see you succeed and are happy to help as needs arise.

How to pick the right organization to join?

As is the case with any activity that takes time away from your practice, your family, or your hobbies, deciding on the right organizations to spend your time with is critical to your success and happiness.

• Get clear on your intent: What is most important to you right now? Bar associations can be effective for professionals who are interested in building their reputations and connections among professionals with a similar practice emphasis, as well as staying on the cutting edge of their specialties. On the other hand, trade organizations can provide a more direct opportunity to connect with the prospective client.
  Best practice: Ensure the organization aligns with your intended purpose. Write down your short-, mid-, and long-term professional goals, and then match associations with your objectives.
• Do your research: Spend time reviewing the online biographies of professionals in your practice area whom you admire to learn of their outside-of-the-office involvements. Find out what organizations your ideal clients and prospects are involved in. Exploring organizations and gathering information could be a great reason to reach out to these individuals directly, initiating or bolstering relationships, so that you can ask what their experience has been like and where they see the organization heading.
  Best practice: Explore the websites of organizations you are interested in to learn if their missions are congruent with your objectives. Does the organization have multiple ways to interact—various sections, committees, special interest groups, leadership opportunities, recognitions, newsletters, publications, webinars, meetings, conferences? Reach out to volunteer leadership at the organizations you are interested in to find out more.

How to get the most out of your involvement?

Once you have identified an organization of interest, be sure to maximize your gain by being proactively involved. Your return on investment (your time and dues paid) will likely be directly tied to your activity level within the organization.

• Develop relationships: Meaningful relationships take time, intention, and proactive effort. Get involved by joining a committee, volunteering for a project, planning an event… you want to get to know members on an individual basis. The better you know the other professionals in an organization, the more effective you can be as a member, and the more value you can add. Remember that the way you show up for committee or board work is the way people will assume you show up to everything.
  Best practice: Personally reach out to the individuals leading committees and those on the executive committee to set up one on one time to learn more about what they are looking to accomplish and to strategize on how you can best be of service. Then make sure you are checking in with them every few months, keeping the momentum moving forward on both your contribution to the organization and your personal relationship.
• Keep your directory profile updated with your current biography and contact information. Make it clear what you do for whom.
  Best practice: Consider adding specific representative matters into your biography to give your peers and prospective clients an idea of the challenges you have solved for clients. Set a recurring calendar reminder every six months to review and update your online profiles. (This is also a best practice for your website, LinkedIn, third-party review sites like SuperLawyers and AVVO, and anywhere else a profile of yours may pop up through a Google search.)
• Share your expertise and insights: Volunteer to write for the organization’s publication, speak at an event, provide webinar presentations, or offer to assemble a panel. Organizations look to the membership to provide the organization with learning content so raise your hand and highlight your hard won expertise. It benefits the organization and your peers and it raises your credibility and visibility as the go-to authority in your specialty.
  Best practice: Remember to make sure the topics you present on are directly associated with the ideal types of matters you seek. Thought leadership topics outside of your focus will only confuse your target audience, and you will not be memorable.

How to assess whether to stay or go?

It takes some forethought to methodically decide whether your involvement is panning out or not.

• Tracking: You can improve on what you measure. On a monthly basis, record the amount of time you are spending serving within the organization. Keep track of inbound and outbound member referrals and opportunities for visibility.
  Best practice: Calendar time to review and capture your business development activity at the same time every week or month. Make a goal to take advantage of a specific number of thought leadership opportunities per year, and track what your activity looks like on that front every month.
• Effort: You will reap what you sow. When joining any organization, determine at the outset how much time you want to spend deciding whether or not the organization is serving your needs. Before you give up, determine if you have given it your all. Is there anything else you could be doing to get more out of your involvement?
  Best practice: Without a strategy and some conscientious planning, it is easy to find yourself a passive member of an organization. Come up with a goal of how many one-on-one meetings you want to have throughout the year with people involved, and then plan exactly how and when you will do outreach to coordinate them.
• Business development: For your involvement in any organization or association to lead to new business, the following three elements must be present: clarity in your messaging (in your work, what specific value do you provide and to whom?), direct effort in building relationships (do you only attend general meetings, or have you been proactive around individual interactions?) and visibility among the members (does the membership know your name?). If you have accomplished these three elements and opportunities have yet to result, it is likely time to pull the plug and find a new group.
  Best practice: It usually takes at least eighteen months of active involvement in any organization before you start to see measurable results. Determine on the onset what you are going to do to educate the membership on your expertise. This should include some kind of visibility opportunity related to your expertise and/or one-on-one discussions. After a year and a half of consistent conversations and/or strategic thought leadership, you still are not uncovering any opportunities, it may be time to reevaluate your participation.

Involvement in professional organizations provides value and opportunity for lawyers at every stage of practice if it is done with purpose and intention. As the world transitions more and more towards virtual and hybrid environments, finding opportunities to authentically connect with people requires a bit more effort than it may have in the past. But these human connections are what makes work and life fulfilling and enjoyable, so this focused intention and energy is well worth it.

“How General Counsels Battle the Weaknesses in the United States Rule of Law” is part of a series on intersections between business law and the rule of law, and their importance for business lawyers, created by the American Bar Association Business Law Section’s Rule of Law Working Group. Read more articles in the series.

Most discussions about the Rule of Law (“ROL”) in the United States focus on either the criminal legal system or how the U.S. ROL is a goal to be attained by developing nations. Less attention is given to evaluating how the fundamental structures of the United States legal system impact its ROL strength. While the ROL in the United States is a standard, I have found in my practice as a General Counsel (“GC”) that the U.S. ROL is not the gold standard.^[1] Further, the current state of the U.S. ROL is not an inherent side effect of a developed legal system; rather, it is a product of choices we have made about how to structure the U.S. ROL.^[2]

A country with a healthy ROL “requires the law be: validly made and publicly promulgated, of general application, stable, clear in meaning and consistent, and ordinarily prospective.”^[3] As a GC, I have found that certain features of the U.S. ROL make it harder for businesses to uphold the ROL. For example, instead of an independent government body in charge of legislative language and drafting, we have chosen the collaborative, and often adversarial, process of having statutes born out of political parties’ compromises and deal-making.^[4] This process does not ensure clear, concise, and coherent statutes that the public can easily understand but instead tends to produce convoluted and incoherent statutes that are the product of so much give and take that by the time they reach the president’s desk, the entire point of drafting the law in the first place may be lost. Another example is that instead of having a judicial system that encourages trials and frequent judicial opinions, our system encourages settlements and plea deals, thus reducing how often the law is applied to new facts.^[5] While settlements and plea deals are efficient, they limit the public’s ability to learn how the law will apply to different facts and scenarios to help guide the public on what can and cannot be done. While the ROL in the U.S. has many healthy features, its struggles with indeterminacy and a new shift toward inconsistency weaken the ROL and play a large role in the challenges I face as a GC.

How the ROL Impacts My Practice

The above-stated design choices make it difficult for GCs to advise business clients trying to scale their operations. Our clients’ customers expect their businesses to follow them all over the country as seamlessly as information travels across the internet. Our clients also expect their GCs to advise them on exactly how to meet client and customer expectations while operating within the confines of applicable laws. However, the deficiencies in the U.S. ROL make this job an extraordinary challenge by: (1) increasing how much time GCs must spend with our clients explaining why they must try to be compliant, because it discourages them that total compliance is impossible in many areas; (2) increasing the difficulty of translating the law to our business stakeholders clearly and concisely, since our ROL is neither clear nor concise; and (3) increasing the difficulty in advising businesses on legal strategy because legal outcomes are unpredictable.

Time Spent Convincing the Business Impossible Compliance is Worth its Time and Money

ROL principles concerning the generality, clarity, publicity, stability, and prospective nature of the norms that govern a society^[6] offer significant value and benefits to business. Rarely do business stakeholders intend to operate their business outside of the confines of the law. However, their motivation to put effort into ensuring compliance is decreased by uncertainty that full compliance is even possible within the U.S. legal system. These compliance challenges become magnified when businesses operate across state lines, as: (1) following the law in one jurisdiction does not ensure compliance with another jurisdiction; (2) it may be unclear which laws apply to the business; and (3) the lack of uniform enforcement makes it appear as though some businesses are allowed to operate outside of the law while others are not.^[7] This creates a challenge for GCs, who constantly have to start compliance programs by convincing our clients that compliance, even while elusive, is worth the effort and resources. We must spend time and energy convincing them that it is better to try to comply rather than to ignore and deal with the consequences later. When the law is unclear or impossible to fully follow, unhelpful questions leak into the compliance discussion. Our clients start to wonder, what is the probability of enforcement? Are any of my competitors also following this law? The lack of clarity in the U.S. ROL fills my day with keeping business stakeholders motivated to try to become compliant, even when full compliance is not attainable.

Translate the Law to Business Stakeholders Clearly and Concisely

As in-house attorneys, we often get questions about the law in a format where the business stakeholder wants to know just enough law to legally run their business, but not so much as to become experts in the legal field. However, due to the complexity of the ROL, it is a constant challenge to successfully translate the law in a way that will be understood—and understood in a way that fosters compliant behavior. We try to come up with phrases that are easy to remember and simple to perform. One method of communicating the law to increase compliance is to pick the strictest state law and apply that policy requirement across all business operations across the country. The drawback of that approach, however, is that it gives local businesses a potential advantage because a local business does not have to comply with the laws of stricter states. We are often battling how much to rely on these cheat codes for communicating legal concepts to our clients because they come with legal and business risks.

At the core of why translating the law to our clients is so difficult, is that if you tell your clients everything they need to know and do to become compliant, they will not be able to internalize it and are therefore unlikely to follow the law (which is the ultimate goal). I see my job as a GC as one that entails not simply the act of informing the business about the law, but rather informing the business in a way that moves stakeholders’ behavior toward compliance. A good example of this dilemma is the length of employee handbooks. It is generally accepted that as the length of employee handbooks increases, the likelihood that employees will read them decreases. This catch-22 would not exist if there was more consistency in employment laws across the country. Playing the balancing act—providing just enough information to make sure the business is advised, but not so much information the individuals who implement the advice feel overwhelmed and ignore all guidance—feels like walking a tightrope on the best of days. As the internet inevitably pushes business across borders, a simplified legal system that is consistent across state lines would mitigate how much legal information is required for a business to simply sell its widgets and services across the country and thus limit the legal communication gymnastics required of a GC.

Advising the Business When Legal Outcomes Are Unpredictable

As stated above, the structure of the ROL in the United States makes it especially difficult to predict how a judge or regulator will interpret specific facts due to how infrequently guidance and decisions are issued. However, it is our job to give our client the likelihood of legal outcomes to help the business allocate resources and decide on business strategy. Recently, fast-changing political and legal regimes have made it even harder to predict where a court or regulator will land on a legal issue. Because more laws and policies, no matter how generic, are now interpreted in ways that have more to do with the personal and local politics of the government adjudicator than their text, there is even less predictability for legal outcomes.

As a GC, I experience the negative impacts of local unwritten rules when we go to court in jurisdictions all over the country. Some local courts prefer local attorneys. It is not a written rule, but it is the local ROL. How do you advise your client on the winnability of a case if an unwritten local rule is going to play a larger role in the success of your case than the written law and the facts? As a GC, I have to spend time investigating whether unwritten home rules could impact our case in certain jurisdictions. This is a breakdown in one of the main ROL principles, which is that laws must be public. Local unwritten ROL is often discussed in the context of business risk in developing nations, but it is very much a feature of the U.S. ROL that needs far greater attention.^[8]

How GCs Can Support the ROL

GCs must advocate for clear, coherent, and consistent laws that apply across the country. We should push our clients to see the long-term benefits of moving lobbying away from advocating for confusing loopholes that benefit our clients in the short term and toward lobbying for laws that increase the determinacy of our ROL. To be clear, this is not a call for “de-regulation.” I don’t believe in that approach because I have found no difference in the complexity of a statute advertised as “de-regulated” versus “regulated.” I have to read them both, and a “de-regulated” statue still requires me to train staff on what they must do to get the benefit of the “de-regulation.” A better framework is to focus on what our clients actually need, clarity. Our clients need clarity in both their legal obligations and the advice they receive from their GC so that they can make the best business decisions possible. Most of all, our clients need to focus as much of their time as possible on providing the best products or services to their customers, not on state-specific compliance training.

As in-house attorneys, we should always remember that we play an active role in creating or damaging the ROL in the United States. Every time we advise our clients, advocate to regulators, and go before a judge, we ask for a certain type of ROL to exist in the country. The question is, will our request improve or damage the ROL we seek in the U.S.?

1. The World Justice Project Rule of Law Index 2021 ranks ROL in the United States as 27^th in the world, with an overall score of 0.69 out of 1. Denmark was ranked 1^st in the world with an overall score of 0.90. https://worldjusticeproject.org/sites/default/files/documents/WJP-INDEX-21.pdf ↑

2. See James R. Maxeiner, Legal Indeterminancy Made In America: U.S. Legal Methods and the Rule of Law, 41 Val. U. L. Rev.522, 520 (2007). ↑

3. James R. Maxeiner, Legal Indeterminancy Made in America: U.S. Legal Methods and the Rule of Law, 41 Val. U. L. Rev. 522 (2007). ↑

4. Id. 534. ↑

5. Id. 552. ↑

6. https://plato.stanford.edu/entries/rule-of-law/. ↑

7. According to the World Justice Project’s Rule of Law Index for 2021, the United States is ranked 109^th out of 139 nations when it comes to ensuring equal treatment and absence of discrimination. Additionally, the U.S. is ranked 122^nd out of 139 nations when it comes to the question of whether civil justice is free of discrimination, https://worldjusticeproject.org/rule-of-law-index/country/2021/United%20States/Fundamental%20Rights/; https://worldjusticeproject.org/rule-of-law-index/country/2021/United%20States/Civil%20Justice/. ↑

8. Relatedly, the World Justice Project ranks the US as 41^st out of 139 nations with respect to the strength of ROL in the US civil justice system. Under this category, the US is ranked 126^th out of 139 nations for the access and affordability of the civil justice system. Finally, the US is ranked 41^st out of 139 nations when it comes to the absence of improper government influence on the civil justice system, https://worldjusticeproject.org/rule-of-law-index/country/2021/United%20States/Civil%20Justice/. ↑

On June 21, 2022, President Biden signed a bill into law that retroactively raises the cap on debt for eligibility for subchapter V status. In the author’s opinion, the legislation falls under the category of “better late than never.”

In August 2019, when Congress amended the Bankruptcy Code to create a new subchapter V for small business debtors, the cap for eligibility to file under that subchapter was $2,725,625 in total noncontingent, liquidated, secured and unsecured debt. Like many provisions of the Bankruptcy Code, that number was subject to adjustment every three years to reflect consumer price index changes.^[1]

Then, in 2020, COVID-19 arrived. Among the many legislative responses to the crisis, Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act raised the cap on eligibility for bankruptcy under subchapter V to $7.5 million, with an expiration date of one year from its enactment: March 27, 2021. As COVID-19 continued to burden the economy, in early 2021 the increased cap was extended to March 27, 2022, by the COVID-19 Bankruptcy Relief Extension Act. Despite the late March expiration of the increased cap, Congress as a whole failed to act until June 2022, even though the bill had bipartisan support. The President signed the bill (S. 3823, Bankruptcy Threshold Adjustment and Technical Corrections Act) into law on June 21, 2022.^[2] The law addresses four subjects: subchapter V, eligibility for Chapter 13, the definition of “small business debtor” applicable to small business cases, and the United States Trustee System Fund. Here are the amendments:

Subchapter V. The Bankruptcy Threshold Adjustment and Technical Corrections Act reinstates the $7.5 million cap for two years and applies the revised cap to any cases filed on or after March 27, 2020, and pending on or after June 21, 2022. This enlarged cap is scheduled to sunset two years after the June 21, 2022, effective date of the amendment.

Chapter 13. The Bankruptcy Threshold Adjustment and Technical Corrections Act also makes a major temporary change to the eligibility requirements of Chapter 13. Before the amendment, eligibility was capped at $1,395,875 in secured debt and $465,275 in unsecured debt, for a total of no more than $1,861,150. The June amendment gets rid of the distinction between secured and unsecured debt and sets the cap for noncontingent, liquidated debts at less than $2,270,000. Unlike the changes related to subchapter V, the change only took effect on June 21, 2022. It will also, however, expire two years after its effective date (June 21, 2024) unless Congress acts to extend it.

Other Less Dramatic Changes. The definition of subchapter V “debtor” in Code section 1182 has also been narrowed somewhat to only exclude any debtor or affiliate of any debtor that is subject to the reporting requirements under section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)).^[3] This amendment as written also sunsets two years after the amendment’s effective date, but because at the time of the sunset the ongoing definition of “small business debtor” will apply to subchapter V cases, and because that definition was also amended to incorporate the same restriction, the restriction will continue to apply to subchapter V debtors.

Moreover, the law modifies the feasibility requirement for confirmation of a subchapter V plan. Before the amendment, the Bankruptcy Code stated that in order to confirm a subchapter V plan without the consent of all impaired classes, any the plan had to be “fair and equitable” to all impaired, non-consenting classes. “Fair and equitable” was defined in section 1191(c)(3) to require, among other things, that the debtor show:

(A) (i) The debtor will be able to make all payments under the plan; or
      (ii) there is a reasonable likelihood that the debtor will be able to make all payments under the plan; and

(B) the plan provides appropriate remedies, which may include the liquidation of nonexempt assets, to protect the holders of claims or interests in the event that the payments are not made.

Thus, as written, it appeared that even if the debtor established by a preponderance of the evidence that it would be able to make all payments under the plan, the plan had to incorporate provisions to protect holders of claims and interests “in the event that the payments are not made.” That apparently was a glitch, and the provision, as renumbered, makes it clear that the plan must include the “remedies” only if the debtor has not proven it would be able to make all payments under the plan. This change also applies to any case filed on or after March 27, 2020, and pending on or after June 21, 2022. It does not sunset.

In addition, Bankruptcy Code section 1183 is amended to provide that a subchapter V trustee may be authorized to operate the business of a subchapter V debtor that is removed from being a debtor-in-possession. Before the amendment, the Code provided for the removal of a debtor-in-possession but did not specify that the subchapter V trustee needed authorization to operate the business of the debtor. This change also applies to any cases filed on or after March 27, 2020, and pending on or after June 21, 2022. It, too, does not sunset.

Small Business Cases. Notwithstanding the introduction of subchapter V for small business debtors, there remain special provisions for small business debtors that elect not to reorganize under subchapter V. These debtors, which are subject to the rules for “small business cases” rather than subchapter V cases, are subject to tight deadlines for plan submission and confirmation and do not have subchapter V trustees appointed in their cases. The definition for debtors in these cases had excluded “any debtor that is a corporation that is an affiliate of an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).” Now the exemption is narrower: entities that may not be “small business debtors” only include any debtor or affiliate of any debtor that is subject to the reporting requirements under section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)). This amendment also applies to any cases filed on or after March 27, 2020, and pending on or after June 21, 2022. It, too, does not expire.

U.S. Trustee System Fund. The Bankruptcy Threshold Adjustment and Technical Corrections Act also makes technical corrections to the law regarding the United States Trustee System Fund. These amendments are effective “as if enacted on October 1, 2021” and do not sunset.

Clearly, Congress has had a great deal of issues to address, including war in Europe, climate change, and inflation. That being understood, it is unfortunate that Congress failed to act more quickly: subchapter V has proven to be extremely popular and leaving the matter in limbo may well have led to confusion, additional restructuring costs, and additional stress on potential debtors. Between COVID-19, inflation, and supply chain problems, small businesses had already undergone too much stress in the last few years.

These changes were implemented too late for inclusion in the recently published 2022 edition of The Portable Bankruptcy Code & Rules, which contains changes to the Bankruptcy Code through March 2022. All these changes will be set forth in the 2023 edition of The Portable Bankruptcy Code and Rules, which will also feature the many amendments to the Bankruptcy Rules that are expected to become effective in December.

1. 11 U.S.C. § 104(a). ↑

2. The text of the bill is available at https://www.congress.gov/bill/117th-congress/senate-bill/3823. ↑

3. For an in-depth discussion of this change, see In re Phenomenon Mktg. & Entm’t, LLC, No. 2:22-bk-10132-ER, 2022 Bankr. LEXIS 2105, 2022 WL 304241 (Bankr. C.D. Cal. Aug. 1, 2022). ↑

The Pride Parades were back this summer—after a two-year hiatus because of COVID—and the large crowds and enthusiasm demonstrated acceptance and support of the LGBTQ community in our society. Many business law firms are committed to serving and supporting LGBTQ staff, clients, and initiatives as part of their diversity programs.

Below is a sampling of how five business law firms have institutionalized their approach to LGBTQ inclusion through policies, working groups, and programs.

Cassels Brock & Blackwell LLP 

The 2SLGBTQ+ Affinity Group at Cassels Brock & Blackwell LLP exists to ensure that 2SLGBTQ+ firm members are enabled and motivated to succeed to their maximum potential, while being comfortable bringing their full and complete selves to work. The Group works to support the recruitment, retention, and promotion of 2SLGBTQ+ talent to and within the firm. All firm members who identify as 2SLGBTQ+ and allies are welcome to attend the Group’s monthly meetings and events to support one another’s career development and discuss issues particular to the 2SLGBTQ+ community.

For 2022, the Group is kicking off Pride season with its second annual virtual drag show featuring a dynamic and diverse cast of local drag queens and a drag king who will dance, lip sync, and discuss everything surrounding drag, gender expression, allyship, and queerness. The Group will also be attending Pride runs and walks in Toronto and Vancouver to raise funds for local 2SLGBTQ+ community spaces and resources. In addition, the Group has recently announced that it is in the process of establishing an independent peer support group to better provide more well-rounded support to firm members who identify as 2SLGBTQ+. In recent days, the Group has begun exploring the possibility of hosting, together with the Parents of Young Families Affinity Group, a recurring drag story-time.

Finally, the Group has been working closely with the firm’s larger Inclusion and Diversity Committee to bring in speakers to address topics such as pronouns and gender/sexual identities, the progressive pride flag, and court challenges to anti-2SLGBTQ+ legislation.

Cleary Gottlieb Steen & Hamilton LLP

Cleary Gottlieb believes that fostering interactions among lawyers with similar affinities, as well as those with diverse experiences and perspectives, makes the firm a more welcoming and supportive place—and one that is better positioned to serve the firm’s clients and support the Cleary community. Cleary’s affinity groups collaborate with firm leadership, conduct continuing legal education programs, raise awareness about topics relevant to the members of their respective groups, identify culturally relevant pro bono matters and potential partnerships, and organize networking activities. Affinity groups are empowered to be active participants in the firm’s efforts to achieve greater inclusion.

Cleary is pleased to support the LGBTQ+ Affinity Group and the Pride Professionals’ Affinity Network. These groups were created to connect LGBTQ+ associates and professional staff across the firm, and they have grown from the firm’s efforts to highlight the unique experiences of LGBTQ+ individuals. These groups cultivate an inclusive culture, where the values, voices, and perspectives of Cleary’s LGBTQ+ professionals are celebrated and reflected. Cleary is proud to host impactful and robust programming, including cultural events and talks with LGBTQ+ activists and trailblazers, to raise awareness about the issues these individuals face and the contributions they make to our communities. We regularly invite provocative and dynamic speakers to engage with our community, and we endeavor to showcase and highlight intersectionality, especially across racial/ethnic identities.

Additionally, Cleary Gottlieb engages and partners with leading LGBTQ+ stakeholders inside and outside of the legal industry. Cleary advances these efforts with national organizations and minority bar associations to demonstrate its solidarity with the LGBTQ+ community and showcase and reinforce its dedication to supporting this community.

Covington & Burling LLP

Covington’s LGBT+ Affinity Group has a global presence and invites the participation of the firm’s lawyers and staff. The affinity group leads work closely with Covington’s Diversity & Inclusion (D&I) Team to implement strategic initiatives in response to the needs of the LGBT+ community within the firm. Most recently, the group developed its first-ever strategic action plan focused on belonging, retention, and development of affinity group members. Their plan objectives will be accomplished through multiple activities, including hosting regular affinity group meetings; implementing inclusionary practices to support all LGBT+ colleagues in the workplace; and creating more visibility opportunities with key clients for LGBT+ lawyers. Covington’s LGBT+ Affinity Group also provides mentoring, learning, and development opportunities for its members and promotes intersectional efforts by collaborating on programs and events with the firm’s six other affinity groups.

In an effort to be more inclusive of individuals across the spectrum of gender and gender identity, the LGBT+ Affinity Group championed the firm-wide use of pronouns in email signatures. Words matter, and the use of pronouns in email signatures sends a clear message of solidarity and support to future and current Covington colleagues, as well as clients. In alignment with this initiative, the affinity group collaborated with the D&I team to develop a reference guide to instruct colleagues on how to modify their email signature blocks.

This year, Covington celebrated Pride in a big way, supporting the LGBT+ community in Brussels and Frankfurt (May), the U.S. (June), and London (July). These events encouraged Covington colleagues to learn about and reflect on the achievements and diverse identities of members of the LGBT+ community. These events included:

• Participation in the London 2022 Pride March wearing an exclusive Pride Month T-shirt that was distributed to members in the U.S. and London offices.
• A conversation with Amy Schneider, the most successful woman ever to compete on Jeopardy! This engaging discussion touched on her being the first openly transgender contestant to qualify for the Tournament of Champions, her role in amplifying trans voices, and how everyone can act as an ally for trans rights.
• A discussion in partnership with UCLA’s Williams Institute on federal policy under President Biden, state legislation targeting LGBT+ youth, and what the Supreme Court’s recent decision on abortion rights could mean for the LGBT+ community.
• An educational workshop on LGBTQI+ awareness that included colleagues in Brussels and Frankfurt.

White & Case LLP

White & Case’s LGBT+ affinity group—Spectrum—has three affinity networks, one of which is available for all U.S.-based colleagues, both lawyers and business services staff. These groups provide ongoing peer support and regular networking opportunities, making the firm a more attractive prospect for potential LGBT+ recruits by demonstrating that diversity is valued, and facilitating professional networking opportunities with clients’ and other law firms’ LGBT+ networks.

White & Case has joined the community of organizations that support and adhere to the UN Standards of Conduct for Business Tackling Discrimination against Lesbian, Gay, Bi, Trans, and Intersex People. The UN Standards contain five principles aimed at helping businesses improve LGBT+ equality and inclusion. White & Case is working closely with its Spectrum LGBT+ Networks to translate this support into actionable goals. For example, the firm rolled out a new gender pronoun signature template globally in 2021 to show those who wish to share their pronouns that doing so is supported by White & Case. This was accompanied by ongoing onboarding and global educational materials, such as videos and FAQs, to encourage all colleagues to increase their understanding of the use of pronouns.

White & Case is a long-term sponsor of the Lavender Law Conference & Career Fair, the largest LGBT+ legal conference in the country, as well as other LGBT+ initiatives, such as the Lambda Liberty Awards National Dinner. Its lawyers also staff the LGBT Bar Association of Greater New York’s monthly legal clinic, which provides assistance for low­-income members of the LGBT+ community in need of brief legal advice on a range of topics. As part of the firm’s Global Citizenship initiative, its Pro Bono legal services are the centerpiece, with White & Case being one of the largest providers of pro bono legal services in the world. Many cases relate to LGBT+ issues, including immigration and asylum challenges for LGBT+ people. Whitman-Walker Health is a common pro bono partner for the firm, and we also sponsor and participate in the organization’s annual Walk to End HIV. Most recently in 2022, White & Case partnered with one of its key clients to refresh the IGLYO’s Inclusive Education Report across forty-five countries. IGLYO is a nonprofit organization that builds the skills and experience of LGBT+ youth to become leaders within the LGBT+ and human rights sectors. The firm’s LGBT+ lawyers continue to achieve peer and community recognition, such as the 2020 40 Under 40 Awards from the LGBT Bar, which recognized two firm LGBT+ lawyers as having distinguished themselves in their field and demonstrated a profound commitment to LGBT+ equality. Other awards have included 2020 Asian Law Alliance Diversity Award.

In addition, White & Case hosts annual Pride celebrations and events across multiple offices in the U.S. The firm organizes educational events to discuss diversity and inclusion issues specific to the LGBT+ community. In the most recent event, “An Audience with Olympic Champion Tom Daley,” the Olympic champion in diving discussed how he triumphed over negativity and bias throughout his career, covering a range of issues including homophobia and challenges with mental health.

White & Case also conducts personalized outreach to law school LGBT+ affinity groups, and previous panel and speaker sessions have included law school professors discussing Supreme Court cases and decisions around LGBT+ diversity issues.

Holland & Knight LLP

Holland & Knight proudly supports the LGBTQ community and has long welcomed and encouraged the celebration of Pride Month. Throughout Pride Month 2022, as in years past, the firm offered an array of information, resources, and additional ways to show support, including a feature on the front page of the firm’s website, as well as a social media graphic and special Pride Month email signatures for use by employees. Other Holland & Knight efforts and outreach included:

Social Media Pride Profiles: Holland & Knight’s social media channels provided “Pride Profiles” featuring members of the firm’s Pride Planning Committee, including Associates Amy O’Brien and Cameron Rivers. Partner Jessica MacAllister and Associates Brian Goodrich and Fernando Tevez also were highlighted. In addition to posting on LinkedIn, the firm shared the profiles on its Twitter, Facebook, YouTube, and Instagram accounts. As Ms. MacAllister stated in her profile, Holland & Knight’s LGBTQ Affinity Group “has served as a safe space for me to share in our communities’ successes and disappointments” and “is a place where empathy meets action. I am proud to be a member of a group that works tirelessly towards equality and inclusion in both our workplace and in our communities.”

Going Beyond the Pride Flag: On June 22, the firm hosted a webinar for employees and clients titled “Beyond the Pride Flag: Breaking Barriers as an Openly Gay Executive,” featuring Habitat for Humanity Vice President for Individual Giving Jeremy Kraut-Ordover. Mr. Kraut-Ordover discussed the challenges he faced growing up, the importance of being an advocate, and how he ended up thriving in his role as a high-ranking executive of a Christian organization as an openly gay and Jewish man.

Charitable Fundraiser: Holland & Knight’s LGBTQ Affinity Group sponsored a Pride Month fundraiser, with donations shared between the Equality Florida Institute and Equality Texas Foundation. These organizations work to secure full equality for LGBTQ+ individuals in Florida and Texas—two strongholds of the firm. Donations, which topped more than $11,000, were accepted through the Holland & Knight Charitable Foundation’s donation portal and payroll deduction.

Holland & Knight’s support of the LGBTQ community doesn’t end with Pride Month. Throughout the year, through its representation on the firm’s Diversity Council, the LGBTQ Affinity Group works to ensure that Holland & Knight remains a leader among law firms with regard to its LGBTQ-friendly policies and initiatives. Externally, members of the LGBTQ Affinity Group participate in various pro bono and community service efforts to improve the lives and rights of the LGBTQ community. These include furnishing essential services to LGBTQ youth, providing outreach and support to families impacted by HIV/AIDS, and participating in name and gender marker change clinics for transgender individuals.