All lawyers know something about taxes: we all pay them, and we all know that legal fees are income. In fact, legal fees are ordinary income, and are even subject to self-employment taxes. Lawyers occasionally try to argue that legal fees are capital gains, but that is an awfully tough sell with the IRS. So, you must figure that you will be paying full freight in taxes on your legal fees, no matter what.

But what about timing? Much in the tax law is about timing. In general, a classic tenet of tax planning is to try to defer income and to accelerate deductions. For generations, tax lawyers have explored all manner of tax deferral strategies, so there are many decades of tax lore to draw from.

According to the IRS, you have income for tax purposes when you have an unqualified, vested right to receive it. Asking for payment later doesn’t change that. The idea is to prevent taxpayers from deliberately manipulating their income. The classic example is a bonus check available in December, where the employee asks to have the employer hold it until January 1. You might think that normal cash accounting suggests that the bonus is not income until paid. But the employer tried to pay in December and made the check available. To the IRS, that makes the bonus income in December, even though it is not collected until January.

Lawyers are subject to these rules just like everyone else, but there is a surprising exception for contingent fee lawyers. Plaintiff lawyers often lament the unpredictability of their own income. They may also lament the need to resort to borrowing to finance their cases. In some cases, plaintiff lawyers complain that they cannot take the cases they really want to take, given the financial realities of contingent fee practice.

However, plaintiff lawyers can actually use a benefit most other people—including other lawyers—can’t: structured legal fees. Reduced to simplicity, the concept of structured legal fees is a kind of tax-advantaged installment plan that doesn’t rely on the credit worthiness of either the defendant or the client. Like much else that is tax-advantaged, this exception has some rigidity. Yet it involves a tried-and-true tax structure that works, and it is grounded in economic reality.

In essence, the contingent fee lawyer can decide before settlement that instead of taking a contingent fee upon settlement of the case, he wants that fee paid over time. The lawyer must decide to do this before the case settles—but that can be right before it settles, even the night before. As a practical matter, the lawyer has “earned” his contingent fee over the course of the case. Yet the tax authorities say that the lawyer hasn’t technically earned his fee for tax purposes until the settlement documents are actually signed.

Amazingly, the attorney can have complete discretion whether to structure all of his fee or a percentage of it. The tax case uniformly cited as establishing the bona fides of attorney fee structures is Childs v. Commissioner, 103 T.C. 634 (1994), affirmed without opinion 89 F.3d 56 (11th Cir. 1996). For a few years, there was concern that the IRS might disagree with contingent fee structures despite the Childs case. But over the last several decades the IRS has often favorably cited Childs.

But care is still needed when using structured legal fees. The settlement agreement must call for it, and no lawyer wants to rely on the defendant to pay the fees over time. So frequently the settlement agreement requires the defendant to pay the full amount to a third party, which then distributes the payments over time to the plaintiff lawyer. In the early days of structured fees, the third party was invariably a life insurance company that funded annuities for the benefit of the lawyer. Then the annuity payments would be taxed over time.

Although annuities still work fine today, most lawyers seem to want a better return than life insurance annuities, so most structured fees today are done with a portfolio of stocks and securities. Whether the structure is done with annuities or securities, the format and documents are important. The plaintiff lawyer can’t own the annuities or the securities, but instead is the named payee of the structure.

But what if you don’t want the defendant to know about your payment structure? Or what if you just need time to sort out what kind of structured fee you want, and which company you want to trust with it? These days, most structured legal fees are not implemented by defendants directly, but rather by qualified settlement funds. The settlement agreement provides that instead of paying the settlement to the law firm trust account, it goes to a qualified settlement fund (QSF). Then, the QSF pays the plaintiff—or implements structured settlements for any plaintiffs who want one. And it is the QSF that implements the lawyer’s structured fees too.

Done properly, an attorney fee structure obviates the normal tax doctrines of constructive receipt and economic benefit. These fearsome tax doctrines can often result in amounts being taxed to someone even before they actually receive the income. In the case of properly structured attorney fees, the attorney will be taxed only when and as he receives each payment, according to the schedule the lawyer has set. Why is this such a good deal? Paying tax later is nearly always better. It’s simple economics. Would you rather pay $100,000 of tax today or in ten years?

There is also investment return. Like a giant 401(k), structured legal fees put the full amount of your fee to work earning an investment return. If you take your fee in cash and pay tax, you can lose half or more in taxes, and then can only invest the after-tax amount. With structured fees, you are investing the full amount so your “principal” plus the investment return is taxed later when you receive the payments over time. Think of it as tax-free compounding, and the longer the attorney wants to stretch out the payments, the better the financial result.

In essence, the lawyer constructs a kind of unlimited individual retirement account. Structured fees are flexible, too: the payments might start right away and go for the next five or ten years, or the payments might be deferred entirely for ten or fifteen years, building up tax-free. Thereafter, they might begin paying out annually for the rest of the attorney’s life, or the joint life of the attorney and their spouse. There is almost infinite flexibility.

Finally, how about borrowing? With traditional life insurance annuities, there was no borrowing feature. But many of the structured legal fee companies today allow lawyers who structure fees to borrow money too. Not paying current tax on your fees, but being able to borrow money, is another double benefit. After all, when you borrow money, the amount you borrow isn’t income because you have to pay it back.

Of all the topics with structured fees, perhaps the one where the most care is needed concerns borrowing. You don’t want the IRS to think the arrangement is a sham and to call your loans income, considering them a payment of your own legal fees. But if you’re careful, structured legal fees can allow tax-free compounding, defer taxes, and help build a solid financial plan. There are estate planning advantages too.

What’s not to like?

Robert W. Wood is a tax lawyer with www.WoodLLP.com, and the author of numerous tax books including Taxation of Damage Awards & Settlement Payments (www.TaxInstitute.com). This discussion is not intended as legal advice.

When 2021 ended, many of us were unsure what 2022 would look like from a bankruptcy perspective. How would COVID-19 affect filings? Would state and federal governments continue to support and bail out businesses and consumers? Where was the proposed bankruptcy reform legislation headed in Congress? Was the dischargeability of student loans going to become reality? Was medical debt going to be eliminated? Would Subchapter V business bankruptcies continue to fast-track Chapter 11 proceedings? Would there be bankruptcy rulings from the U.S. Supreme Court that would affect the bankruptcy practice? What would the fallout be from the Supreme Court’s decision in City of Chicago v. Fulton? There is a lot to consider throughout 2022 and in reflecting on 2021.

Reduced Filings

In 2021, the total number of bankruptcy filings was 401,291. This was approximately a 24% drop in total filings and the lowest total since 1984. Consumer filings totaled 341,233. Of the business cases filed, there were 3,724 Chapter 11 cases, which was decline of 48% from the 7,129 Chapter 11 filings in 2020. On the consumer side, 1.31 individuals per 1,000 people filed a bankruptcy through the first eleven months of 2021. The states with the highest per capita filings over the last year were Alabama (3.14), Nevada (2.62), and Tennessee (2.43).^[1]

It is important to look at the cause of the reduced filings, as there are several reasons for the decline. One important reason is the moratorium on foreclosure and eviction. Despite numerous states releasing their moratoriums in mid-2021, the number of foreclosures and evictions that have resumed have not seen a correlating effect on bankruptcy filings. In addition, mortgage lenders have been more creative with forbearance agreements. Low interest rates have also helped keep individuals in their homes. The recent increase in interest rates by the Federal Reserve could have an impact on the number of bankruptcy filings. Borrowers who have adjustable rates will see their monthly payments increase. This effect, coupled with rising prices and supply chain issues, may cause consumers to look to bankruptcy to reorganize or seek a fresh start.

The court system has also played a role in the decreased number of bankruptcy filings due to COVID-19. With courts finally getting back up to speed and the historically long time it takes to complete a sale in judicial foreclosure states, there has been no feared tsunami of bankruptcy filings. Many had feared a rapid increase of new filings that could overwhelm their practices and the court system. In addition, outside of foreclosures, the time for creditors to obtain judgments and to proceed to execute on debtor assets has been extended, and the longer it takes for assets to be placed at risk, there is a correspondingly lower urgency to file for bankruptcy.

SBRA and PPP Effects

Another question to consider is if businesses are struggling due to COVID-19, why are we not seeing a substantial increase in commercial bankruptcy filings whether through Chapter 11, Subchapter V reorganizations, or Chapter 7 liquidations? As Paycheck Protection Program funding has continued, as well as other grants or low interest loans that are made available by the federal and state governments, businesses have been able to continue to operate. This is true even with the higher employee costs due to the difficulties in obtaining workers from the labor force. Commercial landlords have been more apt to work with distressed properties or leases, as the difficulty in finding a replacement owner or tenant may have been difficult. We know when some of the Small Business Reorganization Act provisions enacted during COVID-19 expired on March 27, 2022, we saw a slowdown in Subchapter V filings. The SBRA provisions of the CARES Act have now been reenacted for a two-year period, and the ceiling for Subchapter V liabilities will be $7.5 million. This should allow more companies to utilize the faster and less expensive Subchapter V process, which will benefit both debtors and creditors.

Courts Considering Automatic Stay Violations

Despite the decrease in bankruptcy filings, activity in the bankruptcy world has not stalled. The Supreme Court decided a very important consumer bankruptcy case with potential far-reaching ramifications in consumer bankruptcy. In City of Chicago v. Fulton^[2], the Court addressed the issue of the violation of the automatic stay and retention of property when a bankruptcy was filed. The Court held that it was not a stay violation for the City of Chicago to retain a vehicle that it was in possession of by way of failure to pay parking tickets. The Supreme Court found that maintaining the status quo was not a stay violation. The Court, however, did remand for further proceedings and stated that a Motion to Turnover might be the proper course of action to obtain possession of the vehicle.

The Ninth Circuit Court of Appeals also addressed this issue in Stuart v. City of Scottsdale,^[3] as it pertained to garnished funds that were being held. The Circuit Court found that the estate did not have an interest in the property and the failure to release the garnishment was not a violation of the automatic stay. Under 11 USC § 362(a)(3) and § 363(a)(2), the City did not take steps to collect on a pre-petition judgment. The Court also found that by the city promptly notifying the trial court, where the garnishment was filed, of the bankruptcy filing, it had maintained the status quo.

Recently, the bankruptcy court for the Northern District of Illinois in Cordova v. City of Chicago^[4] ruled on a Motion to Dismiss in a class action complaint that alleged the retention of vehicles by the City violated the automatic stay, specifically subsections 11 USC § 362(a)(3), (4), (6), and (7), as well as 11 USC § 542(a) concerning turnover of estate property. The Bankruptcy Court found that the Supreme Court’s decision in Fulton was not controlling. The Bankruptcy Court found potential claims for the violation of the automatic stay existed under § 362(a)(4) and (a)(6). The Court dismissed the count under § 362(a)(7) concerning the setoff of debt owed to the debtor against claims against the debtor without prejudice, which would allow the Debtor Plaintiffs to refile that claim after amendment. The Court allowed the § 542(a) claim addressing turnover of property of the estate. The Court dismissed the punitive damage claim with prejudice. As a result of this ruling, we anticipate seeing additional filings for the turnover of property in this case and potentially in other jurisdictions around the country.

Courts Considering Dismissals

Another issue that continues to be litigated is whether a debtor has the absolute right to dismiss a Chapter 13 proceeding under 11 USC § 1307(b). This section provides that a debtor has the absolute right to dismiss their Chapter 13 proceeding so long as the case was not previously converted. Several Circuit Courts and lower courts have addressed this issue and have issued contrary holdings: some courts have found that an absolute right exists, while others have held that the absolute right does not exist when there are issues of bad faith in the debtor’s filing. The most recent case is In Re Mingrove from South Carolina.^[5] The Court ruled that the debtor had an unconditional right to dismiss the case, but the court had the ability to issue sanctions based on the debtor’s bad faith filing. With Circuit Court splits on the issue, it is possible that we will see a writ of certiorari filed with the Supreme Court of United States.

Courts Considering Itemizations in Proof of Claims

Plaintiff and Debtor attorneys continue to raise the issues of the itemization of interest fees and costs in proof of claims. Although this issue has not been widespread throughout the country, we have seen an increase in activity in Florida, Georgia, and Virginia. And while we have no Circuit Court opinions, several Bankruptcy Courts have set forth their views as to how these amounts should be set out and whether damages exist. In Thomas v. Midland Funding LLC,^[6] the Bankruptcy Judge for Western District of Virginia issued a lengthy opinion setting forth her views on whether the breakdown of interest, fees, and costs satisfies the itemization requirement set forth in Federal Rule of Bankruptcy Procedure 3001(c)(2)(a), which requires “[i]f, in addition to its principal amount, a claim includes interest, fees, expenses, or other charges incurred before the petition was filed, an itemized statement of the interest, fees, expenses, or charges shall be filed with the proof of claim.”

The Thomas court went on to state that the Creditor, for failing to properly itemize, did not comply fully with FRBP 3001(c), and it opened itself up to potential sanctions under FRBP 3001(c)(2)(D). The court has the ability to “award other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.” We will see where the Western District of Virginia proceeds on this issue, but it has laid out a current road map for creditors to follow.

Conclusion and Future Expectations

2021 was an interesting year from a bankruptcy standpoint. We saw reduced filings, Supreme Court and Circuit Court decisions, and continued proof of claim and automatic stay litigation.

There are currently several bankruptcy bills pending before Congress. One of the bills that has the most bipartisan support deals with student loan dischargeability: Senator Durbin of Illinois and Senator Cornyn of Texas introduced the Fresh Start Through Bankruptcy Act. The key provisions of the bill would allow federally backed student loans to be discharged if the borrower has been paying for ten years. As student loan liability continues to be a hot topic for both Congress and the White House, we may see some movement on this issue as the mid-term elections approach.

Bankruptcy is off to an interesting start in 2022. As the year progresses, we expect to see more activity, but whether that activity will equate to an increase in bankruptcy filings remains to be seen.

1. All bankruptcy statistics obtained through EPIQ and the ABI. ↑

2. 141 S. Ct. 585 (2021). ↑

3. CV-20-00755-PHX-JAT (D. Ariz. 2021). ↑

4. 19-00684 (Bankr. N.D. Ill. Dec 6, 2021). ↑

5. 2021 WL 445589 (Bankr. D. SC 2021). ↑

6. Adv. P. No. 17-05010, 578 B.R. 355 (Bankr. W.D. Va. Nov. 30, 2017). ↑

This article is related to a Showcase CLE program that took place at the ABA Business Law Section’s Hybrid Annual Meeting on Friday, September 16, 2022. The program featured three experienced Supreme Court advocates as panelists: Miguel A. Estrada, Partner at Gibson, Dunn & Crutcher LLP; Nicole A. Saharsky, Partner at Mayer Brown LLP; and Seth P. Waxman, Partner at WilmerHale. All CLE programs were recorded live and will be available for on-demand credit, free for Business Law Section members.

The United States Supreme Court is a generalist court, not a business court. But a significant part of its docket affects businesses directly. The October 2021 Term, which concluded in June 2022, was no different. Although the subject matters of the business cases varied widely, some themes can be discerned in the docket.

First, the Court clearly regards arbitration as a positive part of the legal system. The Court lavished significant attention on arbitration, deciding four arbitration cases this past term. Morgan v. Sundance decided that a waiver of rights under an arbitration agreement should be treated the same as a waiver under any other agreement, without additional requirements such as a showing of prejudice. Badgerow v. Walters was a statutory construction case where, based on the language of the Federal Arbitration Act, the Court found that a federal court has subject matter jurisdiction over a motion to confirm arbitration only if there is subject matter jurisdiction over the confirmation motion itself. It makes no difference whether the underlying dispute could be subject to federal jurisdiction. Viking River Cruises v. Moriana held that, where an arbitration agreement contains a class/collective action waiver, the FAA preempts a California statute that permits private parties to sue as private attorneys general or in collective actions. Such disputes must be arbitrated rather than litigated. Finally, Southwest Airlines v. Saxon held that disputes involving airport cargo loaders are not covered by the FAA because those employees are “a class of workers engaged in foreign or interstate commerce” excluded by FAA § 1.

Statutory construction also occupied a large part of the Court’s docket. ZF Automotive v. Luxshare held that 28 USC § 1782 can be used to assist only foreign or international tribunals operating under governmental auspices. Private arbitration panels, and even treaty-based arbitrations that use non-governmental sponsoring organizations, do not qualify for § 1782 assistance. In Cassirer v. Thyssen- Bornemisza Collection Foundation, the Court held that choice of law rules for claims under the Foreign Sovereign Immunities Act are the same as in private litigation. Because one of the main exceptions to sovereign immunity is for a sovereign’s commercial activity, the effect on business is obvious.

Another statutory construction case was Hughes v. Northwestern University, which held that a customer’s ultimate control over its account is not a defense to a fiduciary duty claim against ERISA plan administrators, who have continuing duties to monitor investments. Unicolors v. H&M Hennes & Mauritz was a straightforward application of the language of Copyright Act § 411(b)(1)(A): a registration is valid even if it contains errors, so long as the registrant lacked knowledge of the inaccuracies.

West Virginia v. EPA is perhaps more difficult to categorize. In that case, the Court held that § 111(d) of the Clean Air Act did not authorize parts of the EPA’s Clean Power Plan regulations. The Court held that the regulations would have worked a major change in environmental regulation, and that such a major change must be clearly set forth by Congress. Is this more of a statutory construction case, which looked at the scope of the Clean Air Act? Or is it more of a separation of powers case, which deems major changes to existing practice to be a legislative function? Or a bit of both?

City of Austin v. Reagan National Advertising was a classification issue, asking whether the city’s rule governing billboards was a “time, place and manner” restriction that survives first amendment scrutiny, or was an impermissible content regulation. In that case, different rules applied to on-premises and off-premises signs. The Court held that the different treatment was based on location, not content.

The so-called “shadow docket” saw a split decision on vaccine mandates. NFIB v. OSHA held that the Occupational Safety and Health Administration did not have authority to impose vac- cine mandates on employees of private businesses. But Biden v. Missouri held that facilities accepting Medicare and Medicaid funds could be required to mandate vaccines for their employees.

The Court has granted certiorari in a number of important cases that will be heard during the coming term, which will start in October 2022. Among the subjects the Court will address:

• 303 Creative v. Elenis – Does a public accommodation law violate freedom of speech under the first amendment if it compels a web designer to create content for a same-sex wedding?
• Students for Fair Admissions v. Harvard; SFA v. UNC – Are race-conscious admissions in education permissible under Title VI of the Civil Rights Act and the equal protection clause of the 14^th Amendment?
• Mallory v. Norfolk Southern Railway Co. – Is a state law requiring corporations to consent to suit as a condition of doing business in the state unconstitutional?
• Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith – What is “transformative” for purposes of “fair use” exception to copyright infringement?
• National Pork Producers Council v. Ross – Does state regulation with effect outside the state violate the dormant commerce clause?

Standing out can be a daunting task for today’s law firms.

Google’s algorithms are getting trickier, and people are tired of digital advertising. For firms lacking in know-how, marketing their services can feel like operating on a wing and a prayer. The good news is, you can DIY build a solid online presence and let clients come to you from there.

Why do law firms need digital marketing?

In an age of digital marketing, the legal sector has to work harder to maintain its customer retention rate as clients are more inclined to shop around. Back in the day, clients used to stick around for life. True, customer retention has always been the key to success in every industry. However, this development presents an excellent opportunity for law firms that can increase their retention rate.

Understanding your clients and their preferences is one of the best ways to grow a successful practice. Beyond that, a sound digital marketing strategy is one of the fastest. Here’s how.

By creating content that establishes trust, you can generate awareness for your brand and win more clients, not to mention stay fresh in the minds of existing clients.

Although many marketing decisions will depend on your firm’s practice area and size, as a rule, modern marketing is personal, and digital marketing prizes quality over quantity

Once you’ve determined your goals and budget, as well as understood your client persona and your own unique strengths, start implementing these five tips to really make your law firm stand out in a digital landscape.

1. Invest in your website’s UX

Your website is your firm’s home base. Therefore, clients’ experience navigating it should be your number one priority. An optimized website with a clean, responsive design will improve your firm’s authority online and help it to show up higher on a search engine results page (SERP).

Source: Unsplash.

Page load speed is essential, as is using alt text—short written descriptions of images for accessibility. It is equally important to optimize your website for the growing number of mobile devices consumers use (oh, how cellphones have changed our lives!).

Your site should include details on operating hours, giving clients plenty of ways to contact you with a simple call-to-action on every page.

A landing page may suffice if your site’s needs are simple. Website builders—Squarespace and Wix, for example—are a quick and easier option for many of the less technologically minded. To offer a seamless experience that is pleasing to clients, you can integrate your landing page with your other digital tools like a sentiment analysis tool, used for opinion mining.

2. Be accessible on social media platforms

It’s hard to overstate how important social media is for digital marketing. Social media levels the playing field. Every major channel holds the same potential for building your digital presence, regardless of your law firm’s size.

Facebook

The biggest audience, with billions of daily users. Its algorithm prioritizes content from friends and family, but most law firms still stand to benefit from being active on Facebook unless their practice area is pretty specialized.

Twitter

Twitter is an excellent source for legal news.

What it lacks in users relative to the other social media juggernauts, it makes up for by being home to legal influencers whom you can cultivate informal relationships with. This platform is especially useful for niche practice areas such as sports and entertainment law.

LinkedIn

This professional networking channel works well for firms that serve professionals or companies. Practice areas such as compliance and corporate law can benefit immensely from using LinkedIn. Get involved in online discussions and share industry stats, data, or trends to gain new followers and pique interest.

Test the waters of different social platforms’ algorithms to see what gets results. It’s absolutely vital to carve out a virtual presence on the channels where your target audience is most active. There, you can showcase your values and expertise and manage your firm’s reputation. Using social listening tools to track mentions can help your firm to take a proactive approach in responding to questions and reviews.

It’s not a bad idea to use an editorial calendar and leverage tools to schedule posts. But don’t let scheduling replace direct interaction on social media platforms with potential clients. Be mindful of following wrongheaded vanity metrics like impressions and “likes” too closely when measuring your social media marketing’s success.

3. Commit to SEO

You can follow a clear roadmap for a successful SEO strategy, but it takes time and effort.

Say a law firm partner interested in streamlining how they process new queries Googles “chatbot customer service.” The search engine will consider hundreds of factors before ranking the results. These factors include how well you’ve optimized your web design, whether you have well-written code, the quality of your site content, and how many good quality inbound links the website boasts.

How does one develop a winning SEO strategy? Start by working backwards, researching the keywords clients search for to find your legal advice. Then, begin to incorporate organic keywords relevant to your region and practice area to maximize your reach. You can create a keyword list with the keyword toolbox from Google or other free tools. It might also help to check the Google Search Console to discover which keywords are already driving qualified leads to your firm.

Effective SEO means building your audience around a few targeted content topics. Google wants to provide users with the best answers to the questions they’re asking, so make sure to craft content that provides the solutions your clients need to improve your rankings.

Besides your site’s content, focus on your off-page SEO via backlinking and local SEO, which you can do by creating a Google My Business page to get set up on relevant listings.

Source: Unsplash.

4. Leverage online ads

Results from your other marketing efforts typically take longer to bear fruit. While you’re busy working on client cases, you can drive traffic to your website quickly by investing in pay-per-click (PPC) ads. It’s a fantastic tool for launching a new service. However, exercise caution, since returns on these ads are usually speculative.

Take your time getting to know online advertising platform options such as Google Ads. Spend a little money and see what gets traction—if you begin to see results, you can always double down.

More than anything, it’s imperative to build ad campaigns that convey what your law firm brings to the table. Putting thought into designing a core message helps get clients to take the action you want. You might even perform a competitor analysis to uncover potential opportunities for your law firm—as well as to see what keywords other firms target and the unique selling propositions they offer. A clear understanding of the digital landscape you’re operating in is a top priority if you want to be heard through the noise.

Finally, you can measure your ads’ performance for valuable insights into your website traffic. Hook up your Google Ads Account to Google Analytics and make the necessary adjustments to spend your budget wisely.

5. Utilize email marketing

Email marketing is a cost-effective digital marketing method for law firms. Most of us are tired of our clogged inboxes, but they’re proof positive that this channel works. Not to mention, a list of email subscribers is a serious asset for your firm.

Start by thinking about the response you’re hoping to elicit. Perhaps your goal is to keep clients in your network—those who have ongoing legal requirements or upcoming cases—onside. Or maybe it’s promoting your legal services, lodging your firm at the forefront of clients’ minds when they need to entrust someone with their legal needs.

Whatever the case, the key to success is making it easy for clients to see the benefits they’ll get when they open your email.

Source: Unsplash.

Of course, it pays to know how to send email like a startup to drive your bottom line. But the takeaway here should be to share valuable or newsworthy content that recipients will find engaging, rather than overwhelming your email marketing list with promotional emails.

The trick is to think about the value that your message offers potential clients. Newsletters are having a moment, but webinars, industry articles, and other free resources are also ideal for building connections and nurturing leads.

Get clear from the beginning on what metric matters most, be it open rates, click rates, or conversions. That way, you can both shape your next email campaign and measure its effectiveness.

Play around with A/B testing to gain insight into the best times to send your emails and leverage analytics to dig deeper into your clients’ journey on your website. Then, segment your audience to target them with more resonant messages.

Ready for digital transformation?

Successful law firms are built on loyalty and trust. Digital marketing can help you gain recognition for your practice, acquire more clients, and much more.

Times are changing, and it’s important to be comfortable with that, and stay open to learning new things.

Start by coming up with a realistic plan, give readers something they value, and check your progress at regular intervals.

This article is related to a Showcase CLE program that took place at the ABA Business Law Section’s Hybrid Annual Meeting on Saturday, September 17, 2022. All CLE programs were recorded live and will be available for on-demand credit, free for Business Law Section members.

Ethics compliance and risk management in law firms and in-house legal departments start with issue spotting. Some issues—like “Who is the client?”—are fundamental to complying with legal ethics rules. Other such questions include:

• “What does the engagement letter say?”
• “What is the scope of work?”
• “Are there outside counsel guidelines?”
• “Have you conducted client due diligence?”
• “What are the client’s expectations with respect to protecting the confidentiality of their information?”
• “Have we updated our business continuity plan?”

This article and the accompanying program will tackle these issues and more.

To analyze an ethical conflict of interest situation, one must answer the age-old question: who is the client? An attorney-client relationship does not depend upon the existence of a signed engagement letter, nor is the identity of the client necessarily determined by who pays the lawyer; rather, one test for the existence of an attorney-client relationship is the subjective reasonable belief of the would-be client that the lawyer represents the client. Stated somewhat differently: if a person seeks legal advice from a lawyer; that person shares, in confidence, information about the matter; and the lawyer does not disavow an attorney-client relationship, it is likely that an attorney-client relationship has been formed.

Many lawyers give little thought to an engagement letter. The engagement letter is the contract between the lawyer and the client for services the lawyer is being engaged to provide. It identifies the parties to the contract, the scope of the services the lawyer will provide, and how much (or at what rate) the client will pay the lawyer for those services. Engagement letters may also contain other important terms, such as an “advance waiver” provision that allows the lawyer to be adverse to the client on unrelated matters. Clients, too, may have their own Outside Counsel Guidelines that establish terms and conditions for the representation, including the client’s expectation (and the lawyer’s corresponding agreement) as to what other entities are to be considered the client for conflict of interest purposes.

Due diligence on the potential client is also important. Not only can such due diligence identify the “bad actor” client or the “difficult client,” it can also identify the “slow pay” client or “no pay” client, (i.e., one for whom a retainer may be useful to help ensure that the lawyer is compensated for the services rendered).

General counsel and other risk managers also expect lawyers to have a strong grasp of the lawyer’s ethical obligations with respect to confidentiality. Under ABA Model Rule 1.6(a), “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).” Far broader than the attorney-client privilege evidentiary rule, the lawyer’s ethical obligation of confidentiality encompasses any information relating to the representation of the client, whatever its source.

Advances in technology and the proliferation of devices that may contain client information has prompted the ABA to impress upon lawyers the importance of appreciating the risks that technological advances present. In 2012, the ABA adopted a series of “Technology Amendments” to the ABA Model Rules and Comments that address this issue. First, Comment 8 to ABA Model Rule 1.1 regarding “Competence” was amended as follows: “To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology, engage in continuing study and education and comply with all continuing legal education requirements to which the lawyer is subject.” Model R. Prof’l Conduct 1.1, cmt 8 (emphasis added). Perhaps more importantly, the ABA added Model Rule 1.6(c) to highlight a lawyer’s ethical obligations to take reasonable steps to prevent the unauthorized use or disclosure of confidential information. Model Rule 1.6(c) reads: “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.”

As a result, lawyers should establish policies and procedures designed to help prevent the inadvertent disclosure of or unauthorized access to client information; train other lawyers and non-lawyer staff members on cyber-security issues; and communicate with clients about the confidentiality of their information. Lawyers should also have business continuity plans and incident response procedures in place should unexpected circumstances make it difficult to continue seamlessly representing a client. Regardless of whether those unexpected circumstances are a result of a natural disaster (or a once-a-century pandemic), or a “simple” cyber-attack, the lawyer and the law firm should have contingency plans in place for how to address the adversity.

This article is related to a Showcase CLE program that took place at the ABA Business Law Section’s Hybrid Annual Meeting on Thursday, September 15, 2022. The program, co-sponsored by the Government Affairs Practice Committee, featured Jason Abel, Partner, Steptoe & Johnson LLP, and former chief counsel for U.S. Senate Committee on Rules and Administration Chairman Charles Schumer; former U.S. Representative Charles F. Bass (NH 2^nd District), Senior Director, Greenberg Traurig, LLP; and Ryan Guthrie, Head of Government Affairs, Chipotle Mexican Grill. The program was chaired by Jonathan Bing, Shareholder, Government Law & Policy, Greenberg Traurig, LLP, and moderated by Caitlin Anderson, Associate, Harter Secrest & Emery LLP.

All CLE programs were recorded live and will be available for on-demand credit, free for Business Law Section members.

United States elections, especially over the past decade, have become increasingly tense events. The heightened political tensions, spilling over into such events like the January 6^th Capitol Attack, impact not only the fabric of our nation, but businesses operating in the country. The political temperature in the United States is high and is proving to be a challenge for businesses to navigate.

It is important for business lawyers to consider how the possible change of control of one or both houses of Congress will affect their personal and professional lives. Business lawyers will have to adjust their expectations and “asks” accordingly depending upon their clients’ and/or company’s interests, which may or may not be in vogue under a new regime. Building or reestablishing relationships with those newly in power will be key.

If the midterm elections promise one thing, it is some significant change in the makeup of Congress. Currently, the Democrats have a razor-thin majority in Congress. The Senate has a 50-50 split, with Vice President Kamala Harris providing Democrats with the tie-breaking vote. For the 2022 election, all 435 House seats and 35 of the 100 Senate seats are on the ballot. In the Senate, 21 of the 35 seats up for election this year are currently held by Republicans. There are seven total retirements, six of which are Republicans. In the House, 50 of the voting members in the chamber are retiring: 31 Democrats and 19 Republicans. Additionally, the 2022 election will be the first after the 2020 redistricting cycle. There has been significant litigation regarding state redistricting efforts, with more than 70 cases having been filed challenging congressional and legislative maps.

The uncertainty caused by the midterm elections—be it from the change in political party in control to the potential for violence in the leadup to and aftermath of the election—places stress on both individuals and companies. Internal company policies that may be in vogue with the current party in power may fall out of favor in Washington by 2023. Business lawyers will need to wrestle with the pressures of Washington and the expectations of company employees. For example, we have seen dozens of companies offer to pay for the travel expenses of employees, their spouses, and their partners to receive reproductive healthcare access if they live in states that have tightly restricted such access in the wake of Dobbs v. Jackson Women’s Health Organization. These policies have largely been embraced by employees and will likely be considered a major selling point to companies looking to attract and retain talent. On the other hand, these polices may cause companies to face scrutiny if even one chamber of Congress switches hands. In addition, if the chambers switch hands, business lawyers will need to establish and/or reestablish relationships with the officials and staff in power.

Even in the highly polarized political atmosphere that we currently live in, there will be areas for potential bipartisan compromise. We have seen recent bipartisan success with the bipartisan infrastructure bill and the gun safety bill. Further, there are certain things that Congress must pass in order to keep the government functional, including governmental funding and the debt ceiling. We may see bipartisan compromise surrounding immigration policies; the CHIPS Act of 2022 to strengthen semiconductor manufacturing, design, and research and improve national security; and certain privacy reforms. With the growing pressure on the U.S. labor market, Congress is being pushed by companies to expand immigration access. Business lawyers need to be prepared to potentially see changes in those areas and weigh in with concerns appropriately.

Beyond legislative activity, there is a high chance that if one or both of the chambers change hands, we will see an increase in Congressional investigational activities. Currently, we are seeing specific industries facing increased scrutiny, including big tech, oil and gas, healthcare and prescription drug manufacturers, and firearm manufacturers. If the House of Representatives switches hands, we may see investigations into which companies received funding from the American Rescue Plan Act of 2021. We may see clean energy companies come under an investigative magnifying glass. Further, despite the Supreme Court’s decision in West Virginia v. Environmental Protection Agency, we may see administrative agencies increase enforcement action and regulatory activity.

Overall, the American political atmosphere is rapidly changing. By the time this program is presented, some of the information contained herein will have already changed. It is imperative that a business lawyer working in this area stay abreast of each development so that they are properly advising their clients. The goal of this program is to provide the business lawyer with background and tips for how to keep current in this evolving world.

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. ↑