What Is a Securitization?

Securitization is a subset of structured finance. Structured finance transactions are generally finance transactions that involve the isolation of a pool of financial assets from the originator of those assets and a loan that relies on the strength of the assets rather than the creditworthiness of the owner. A securitization is a transaction in which a sponsor or originator obtains funding by causing a special purpose entity to issue securities backed by (and paid from) the proceeds of financial assets. The underlying assets are generally originated by companies seeking funds to finance operations or other corporate initiatives.

A variety of assets are used in securitizations. For example, securitizations may involve residential or commercial mortgages, credit card receivables, auto loans, student loans, corporate loans, or other financial assets.

A key feature of securitizations is legal isolation of the underlying assets. The underlying assets are transferred to the issuer of the securities on a “true sale” basis, and the issuer is structured in such a way as to be isolated from the bankruptcy risk of the originator.

Another feature of securitizations is credit enhancement. There are several methods for credit enhancement, including “tranching,” whereby the bonds are divided in a number of tranches^[1] with varying risk profiles (see Figure 1 for an example of tranches). Another is “overcollateralization,” which involves having more assets than necessary to cover payment on the securities.

Figure 1: Example of tranching. A flow chart illustrates that the most senior tranche is paid first and the most junior tranche last.

Why Securitize?

The credit enhancement inherent to securitizations, especially due to the aforementioned legal isolation techniques, permits the originating companies to obtain higher ratings than if such companies were to obtain a traditional loan. Consequently, the originating companies can obtain financing at a lower cost of funding.

Main Parties and Legal Documents

While securitizations come in a variety of structures, the following highlights the main parties and documents in a typical securitization.

Parties

The Originator/Sponsor

The originator generates (originates) and/or owns the receivables (the cash-flowing assets) that it seeks to securitize. A securitization may have many originators. The sponsor is the person who initiates and drives the securitization. In some transactions, the originator is also the sponsor of the transaction.

The Servicer

The servicer is the person who performs the administrative services related to the collection of the receivables. The servicer may also have active management responsibilities with respect to the receivables/underlying assets, if the securitization’s portfolio is “dynamic.”

The Trustee/Collateral Agent

The Trustee/Collateral Agent is the person/organization (typically a bank) that holds the security interest on behalf of the investors and may perform certain other duties under the transaction documents. The person serving as Trustee may have multiple additional roles in a transaction, such as serving as custodian, account bank, or collateral administrator.

The Issuer

The Issuer is an entity created solely for purposes of a securitization and is responsible, among other duties, for issuing the securities. Some transactions have more than one issuer.

The Underwriter

The underwriter is the person responsible for arranging for the sale of the Issuer’s securities to the initial investors.

The Investors

The investors are the persons who invest in the securitization transaction by purchasing the securities originally issued by the Issuer and placed by the underwriter.

(See Figure 2 for a relationship diagram with typical transaction parties.)

Figure 2: Securitization Parties. A flow chart indicates the relationships between the main parties in a typical securitization.

Main Legal Documents

The two main legal documents in a securitization transaction are generally the indenture and the offering document.

Indenture

The indenture provides the terms of the securities issued in the securitization and describes the rights and duties of transaction parties.

Offering Document

The offering document is the main disclosure document that investors use to make their investment decisions. The offering document includes a description of the risk factors, the structure of the transaction, and the terms of the securities.

Bankruptcy Law

One of the main objectives in a securitization is to isolate the portfolio of underlying assets from the bankruptcy risk of the originator of those assets. Features of a securitization that are designed to achieve this objective include structuring the Issuer as a special purpose entity and transferring the underlying assets from the originator to the Issuer in a true sale.

Securities Law

In securitization transactions not registered with the U.S. Securities and Exchange Commission (“SEC”), the structure of the transaction and the types of investors investing in the transaction have to be carefully considered in order to meet the requirements of a private transaction. In registered transactions, the SEC reviews the offering document, and the document has to meet the disclosure requirements of a public transaction.

Other Regulatory Regimes

A number of other regulatory regimes can be relevant to securitizations. Examples include the restrictions on ownership or sponsorship of a “covered fund” by a banking entity under the Dodd–Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the risk retention rules under the Dodd Frank Act, and, in transactions that securitize consumer loans, rules issued by the Consumer Financial Protection Bureau.

[1] From the French word tranche, or “slice” in English.

In the event of a management deadlock among owners of a closely held entity with a limited number of shareholders, partners, or members, the non-operating owners often pursue a resolution of the parties’ management disputes through state court litigation. The simplest example of corporate deadlock involves a company with two co-owners who are equal (50–50) shareholders or members and can no longer agree on how to run or capitalize their business leading to major animosity and a lack of goodwill between the parties. In cases such as this, when the breakdown of the interest holders’ relationship is irreparable, an aggrieved shareholder or member who wants themself or their business partner(s) to exit the company, or to even wind up the company as a whole, may seek to accomplish his goals through the appointment of a state court receiver.^[1]

In state court, receivers are generally appointed by filing an order to show cause along with a verified complaint.^[2] Because an action to appoint a receiver is an equitable remedy, and the receiver’s duties and powers are determined based on the specific facts of each case, such actions are generally heard by a chancery court sitting in equity.^[3] Notwithstanding the equitable nature of a receivership action, courts view the appointment of a receiver as an extraordinary remedy that requires imposing and persuasive proof.^[4] As such, it can take months or even years before a receiver is appointed and given a directive by the appointing court to run, liquidate certain assets, or even dissolve a deadlocked company. Accordingly, breaking a corporate deadlock by using a state court appointed receiver can be a time consuming, expensive, and arduous process, which, in the interim, can lead to the further deterioration of a company’s finances and ability to conduct business as a going concern.

In contrast to the drawn out nature of a receivership action, a non-operating owner can break a company’s management deadlock in a relatively short amount of time by electing to put his or her company in a Chapter 7 bankruptcy proceeding.^[5] Indeed, once a Chapter 7 proceeding is filed the day to day control and operations of the business immediately pass to a Chapter 7 trustee, an independent and objective third party, pursuant to § 541(a) of the Bankruptcy Code. The non-operating owner can then negotiate with the Chapter 7 trustee to sell the business entity as a going concern through a § 363 asset sale or even request that the company be liquidated outright. Both of these actions would result in the non-operating owner (and perhaps the operating owner if he or she does not elect to purchase the assets alone or through another entity) essentially selling his or her interest in the now-bankrupt company and cashing out, thereby breaking the management deadlock. This is the case because the funds derived from the sale of the business or its assets after paying the administrative expenses associated with the sale(s) and all outstanding pre-petition creditors will be distributed to the entity’s members or shareholders under Bankruptcy Code § 726(a)(6).^[6]

In regard to selling a business as a going concern, a non-operating owner can also request that a Chapter 7 trustee request authorization from the bankruptcy court to temporarily operate the business under Bankruptcy Code § 721 to preserve the debtor entity’s business relationships and by extension its going concern value while working toward completing the sale. Unlike the drawn out process of a party seeking a state court receiver, a bankruptcy court can grant a trustee the authority to run a debtor’s business temporarily within a week of the bankruptcy filing if the trustee deems it necessary to file an expedited motion during the first days of the case. What’s more, with the expressed interest of a motivated buyer, a going concern sale or full asset liquidation can be accomplished within weeks of a bankruptcy petition being filed if the trustee is aware of the potential purchaser of the company or its underlying assets. Such a purchaser may be one of the company’s owners who now seeks to operate the business or a successor entity without the constraints of his or her former business partner.

This was exactly the case in the recent Chapter 7 bankruptcy case of In re Key Metal Refining, LLC filed in the United States Bankruptcy Court for the District of New Jersey.^[7] In that case, the 51 percent majority owner of Key Metal Refining, LLC (the Debtor) was a separate entity that filed the Debtor’s Chapter 7 petition. The minority owner of the Debtor was also an entity that together with its sole principal owned the remaining 49 percent of the Debtor. The principal of the minority owner also owned a separate real estate holding entity that, in turn, owned the property on which the Debtor operated. Prior to the management deadlock, the real estate holding entity had leased the property to the Debtor with such lease remaining in effect as of the date of the Debtor’s bankruptcy filing.

Once appointed, the Chapter 7 trustee^[8] in this case expeditiously filed first day motions with the bankruptcy court for the authority to operate the Debtor’s business on an interim basis and to obtain post-petition financing directly from the majority owner to fund the projected shortfall in the Debtor’s business operations and the costs of administering the Chapter 7 case. The goal of both of these motions was to allow the trustee to continue to operate the Debtor’s business pending the negotiation and consummation of a sale of the business’s assets in an effort to maximize the value of the Debtor’s assets, which otherwise would have significantly deteriorated in value. The bankruptcy court granted both the trustee’s motions on an interim basis just three days after the Debtor’s bankruptcy filing.

Thereafter, the trustee negotiated with the two deadlocked members of the Debtor and ultimately came to a consensual settlement and asset purchase agreement, which provided, among other things, that the trustee would sell substantially all of the Debtor’s assets to the Debtor’s majority owner. The proceeds of the sale would be placed in a settlement fund and then go toward the claims of the Debtor’s non-insider general unsecured creditors. The minority owner of the Debtor benefited from the sale and settlement agreement because the trustee rejected the Debtor’s property lease with the real estate holding company controlled by the debtor’s minority owner under Bankruptcy Code § 365. As such, the principal of the minority owner and his real estate holding company were now free to use the property for their own independent business operations. Moreover, the parties stipulated that the minority owner was entitled to a substantial claim for damages stemming from the trustee’s rejection of the lease agreement. This rejection claim was paid pro rata with other non-insider unsecured creditors from the settlement fund. The entire sale and settlement agreement between the parties was negotiated, agreed, and consummated within approximately six months of the Debtor’s bankruptcy filing.

The Key Metal Refining, LLC case goes to show that the time constraints associated with a Chapter 7 asset sale are likely to incentivize the deadlocked owners of a company to come to some form of an agreement regarding their business’s or a successor entity’s future management structure within a relatively short amount of time. This is the case as the value of the debtor company and its associated good will continue to deteriorate the longer it remains in a Chapter 7 bankruptcy proceeding without the ability to conduct its normal business operations.

In sum, while putting a company in a Chapter 7 proceeding is not a panacea, it is certainly worth considering in the right situations. Indeed, such an approach can be an economical and expedient way to break a management deadlock and solve what could otherwise be a prolonged and complicated litigation battle in state court for the appointment of a receiver.

[1] Generally, a receiver appointed in state court has the power to acquire legal title of the debtor’s assets and to liquidate and dissolve the debtor entity. See e.g., N.J.S.A. § 14A:14-4. Depending on state law and the retention order, receivers can also have the authority to continue to operate the debtor’s business, assume or reject unexpired leases, sell assets, collect rents, and have the power to close the business.

[2] In New Jersey, the procedures governing receiverships are provided in Court Rule 4:53-1, et seq.

[3] See e.g., Roach v. Margulies, 42 N.J. Super. 243, 245 (App. Div. 1956) (holding that it is well recognized that a court of equity has inherent power to appoint a receiver for a corporation).

[4] See Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. v. Lowenstein Sandler, P.C., 365 N.J. Super. 241 (App. Div. 2003).

[5] A significant limitation to this strategy is that the non-managing owner must have the authority to place the business in a bankruptcy proceeding or else he or she risks the case being thrown out upon a motion to dismiss being filed by one or more of the remaining owners of the company. State laws differ regarding whether a consensus among an entity’s owners is a prerequisite for a bankruptcy filing. For instance, in New Jersey, unless the members otherwise agree in writing, the law governing LLCs requires the unanimous vote of the members of an LLC to undertake actions outside the ordinary course. N.J.S.A. § 42-2C-37(c)(1)-(4); see also In re Crest By The Sea, LLC, 522 B.R. 540, 545 (Bankr. D.N.J. 2014) (concluding New Jersey LLC statute applies when LLC operating agreements are silent as to the vote required to authorize a debtor’s bankruptcy filing). In contrast, New York law does not specify what type of consent is required by the members of an LLC prior to filing a petition for bankruptcy; consequently courts look to the entity’s operating agreement for guidance. See In re E. End Dev., LLC, 491 B.R. 633, 639 (Bankr. E.D.N.Y. 2013) (holding that LLC operating agreement that conferred on the managing member broad authority to take any action necessary to preserve the value of its assets and to further its business operations, authorized managing member to file for bankruptcy on behalf of the LLC).

[6] Section 726(a) governs the order of distribution of property of the estate in a Chapter 7 case. A debtor, or the equity owners thereof, can receive nothing from the estate until after all administrative expenses and claims held by creditors are paid in full with interest. In re Deer Valley Trucking, Inc., 569 B.R. 341, 347 (Bankr. D. Idaho 2017).

[7] In re Key Metal Refining LLC, Case No. 19-24581-VFP, filed on July 28, 2019.

[8] The co-author of this article, Eric R. Perkins, served as the Chapter 7 trustee in this case.

The dramatic increase in SPAC IPOs in 2020 and early 2021 and related de-SPAC merger transactions that followed are creating billions of dollars’ worth of privately-placed common stock and warrants of newly public companies. That means more demand for “no registration” and legend removal opinions from company and selling stockholders’ counsel.

SPACs are special purpose acquisition companies—shell companies, also known as blind pool or blank check companies—that are newly formed to raise equity capital in an IPO and, after they are public, to pursue an acquisition of a target company, effectively taking a private target company public. Because SPACs by their terms must offer to redeem their outstanding common stock at the time of the acquisition and the acquisition price of the target company often exceeds the SPAC’s capital, SPACs typically raise additional capital to fund their acquisitions through PIPEs offerings (Private Investment/Public Equity) at the time of the merger.

The SPAC IPO boom cooled rapidly after the first months of 2021 for a number of reasons, not least of which was renewed SEC scrutiny. The SEC staff announced changes to the accounting for SPAC warrants, and the acting head of the Division of Corporation Finance questioned the availability of the safe harbor for forward-looking statements as applied to projections used in connection with de-SPAC transactions.^[1] There have also been high profile failures and stock price volatility of some de-SPAC companies. The perceived risk of de-SPAC transactions has increased and with it the pressure to get liquidity in the shares, which could mean increased urgency for legend removal when the Rule 144 exemption permitting public resales becomes available.

“No registration” and legend removal opinions are often needed for all types of public companies, but these opinions for a former SPAC company present a specific set of problems. In particular, because every SPAC is a shell company prior to its de-SPAC transaction, Rule 144 is not available until a year after the de-SPAC transaction. Also, to maintain Rule 144 eligibility, the company must have filed all of its reports (other than Form 8-K reports) required under the Securities Exchange Act of 1934 (the “’34 Act”) with the SEC for the 12 months prior to the sale. That means a critical part of diligence for giving “no registration” and legend removal opinions is determining whether the issuer of the shares is or was a SPAC or other shell company and, if so, whether it has filed all the required periodic reports.

Policing a Private Offering Exemption

The Securities Act of 1933 (the “’33 Act”) requires all offers and sales of securities to be registered with the SEC or to fit within an exemption from registration. Private companies usually issue shares under exemptions based on Section 4(a)(2) of the ’33 Act, which exempts offers and sales of securities by issuers in transactions “not involving a public offering” (i.e., ‎private offerings).‎ PIPEs offerings rely on this exemption. However, subsequent resales of privately-placed securities could result in the chain of transactions being considered a public offering, thereby invalidating the private offering exemption. As a result, companies restrict resales of privately-placed securities. Typically, the stock certificates for such securities will bear a legend to the effect that:

The shares represented by this certificate have not been registered under the Securities Act of 1933 or the securities laws of any state, and have been acquired for investment and not with a view to, or in connection with, the sale or distribution thereof. No such sale or distribution may be effected without an effective registration statement related thereto or an opinion of counsel in a form satisfactory to the company that such registration is not required under the Securities Act of 1933 or the securities laws of any state. (Emphasis added)

So, to transfer shares with a legend like the foregoing on the stock certificate, the holder needs an opinion of counsel. Imposing transfer restrictions and placing legends on stock certificates are ways that companies strive to “police” their private offering exemptions. They do not permit transfers of privately-placed shares without an opinion of counsel that the transfer does not require registration under the ’33 Act, and they place a legend on the new stock certificate unless counsel advises that no legend is required. Broker-dealers and transfer agents involved in the resale of shares also enforce the transfer restrictions. Broker-dealers will conduct due diligence because of their role in buying or placing shares and potential ’33 Act liability. Transfer agents will require legal opinions to remove ’33 Act restrictive legends because of their regulation by the SEC and liability concerns.^[2]

Stock certificate legends are not the only way for issuers to police their private offering exemptions. Qualified institutional buyers (“QIBs”), as defined in Rule 144A, are often viewed as being capable of complying with the ’33 Act on their own, so a letter from the QIB to the issuer may under some circumstances substitute for legended physical certificates.

Unregistered Public Resales

While there are exemptions that permit the private resale of shares, the privately sold shares remain subject to restrictions and consequently do not trade at the same price as freely tradable shares.^[3] Often, sellers are not interested in reselling privately at the kind of discount required, so, in the absence of registration of the resale, will only be interested in an unregistered public resale under Rule 144, which allows counsel to give both a “no registration” and a legend removal opinion.

Rule 144 is a safe harbor for resales under Section 4(a)(1) of the ’33 Act, which exempts resales “by any person other than an issuer, underwriter or dealer.” If the seller holds restricted securities as defined in Rule 144(a)(3)(i), that is, securities acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of ‎transactions not involving any public offering‎, then by reselling through a broker (as it typically would), the broker could be viewed as an underwriter, engaged in a distribution of the securities to the public. A stockholder who resells securities in compliance with the applicable conditions of Rule 144 and its broker, however, is deemed not to be engaged in a distribution of securities and, therefore, not to be an underwriter.

Rule 144 generally permits resales of restricted securities that have been held for at least six months, in the case of an issuer that has been subject to the reporting requirements of the ’34 Act for 90 days and is current in its annual and quarterly reports, or held for at least one year in all other cases. In the case of resales by affiliates of the issuer, Rule 144 requires, in addition, that volume and manner of sale limitations be met and that the seller file a Form 144 with the SEC. However, Rule 144(i) provides that the rule is not available for a SPAC or other shell company, even after its de-SPAC transaction, until one year after it ceased to be a shell company and has filed with the SEC information that would satisfy the requirements of Form 10 or, for foreign issuers, Form 20-F (“Form 10 Information”). Although business combination related shell companies are excluded from the Rule 144(i) limitation, SPACs are not business combination related shell companies.

Another difference between Rule 144 for SPACs and Rule 144 generally is the requirement in Rule 144(i) that a former SPAC or other shell company must have filed all reports required under the ’34 Act, other than reports on Form 8-K, for the 12 months preceding the sale. Under Rule 144, for non-affiliate stockholders, once they have completed a one-year holding period, there is no current public information requirement for resales under Rule 144, so for ordinary companies there is no need in the case of non-affiliate resales to ascertain whether the company has filed its periodic reports. Even if the company has for some reason, such as accounting irregularities making it unable to finalize its financial statements, been unable to file its ’34 Act reports, non-affiliate stockholders with restricted stock and a one-year holding period can freely resell their shares under Rule 144. However, if the company was a SPAC, Rule 144 would not be available.

Affiliates are subject to the current public information requirement of Rule 144(c) even after a one-year holding period, which in the case of public companies is satisfied by the filing of reports required under the ’34 Act (other than on Form 8-K) for the 12 months prior to the sale. A note to Rule 144(c) allows a stockholder to rely on a statement in the most recent quarterly or annual report that the company has filed its ’34 Act reports, but that note does not appear in Rule 144(i) for former shell companies.

SPAC Opinion Considerations

Lawyers asked to give a “no registration” or legend removal opinion need to ascertain if the issuer is or was a SPAC or other shell company. If so, Rule 144 will not be available for resales until one year after the company ceased to be a shell company (accomplished its de-SPAC transaction) and has filed full Form 10 Information with the SEC.

Also, as described above, there is an additional requirement for all holders of securities in a former SPAC that the issuer has made periodic report filings for the preceding 12 months. Counsel will seek confirmation that those filings have been made before giving the opinion. That will likely mean, in the absence of other satisfactory policing arrangements, that legend removal will not be available for the holders of shares of issuers that were once SPACs until a sale occurs—compared to the otherwise common practice of removing legends for non-affiliate holders of restricted stock once they have a one-year holding period.

Unlike typical post-IPO companies, SPACs cannot provide the usual liquidity to their private placement investors or their directors, executive officers and other affiliates shortly after the private company “goes public.” In a traditional IPO of an operating company, non-affiliated private placement investors that have held stock for one year can sell immediately after the IPO registration statement goes effective and, 90 days after that, Rule 144 becomes available to insiders and non-affiliates with a six-month holding period, subject in each case to the underwriters’ lock-up (typically 180 days).

Former SPAC companies, following the de-SPAC transaction, often file a shelf registration statement on Form S-1 to register resales by PIPEs investors and other holders of restricted and control stock. Sometimes, counsel will be asked for a legend removal opinion for shares registered with the SEC. However, until the shares are actually sold pursuant to a registration statement, they remain restricted shares. The issuer risks allowing an indirect public offering by removing the legends before those sales take place (subject to the potential alternative for QIBs described above and imposing other policing arrangements).

Even when a resale shelf registration statement is in place for PIPEs investors and affiliates, as a practical matter, the ability to freely resell shares may be severely constrained. PIPEs investors and affiliates do not typically have the right to conduct underwritten offerings. As a result, investment banks and other broker-dealers often strictly limit the amount of resales they facilitate pursuant to resale shelfs. They are concerned about potential ’33 Act liability and the lack of due diligence procedures, negative assurance confirmations and other protections available in an underwritten offering.^[4]

SPACs are often initially capitalized with privately-placed warrants alongside shares of common stock and their PIPEs offerings may feature warrants as well. Warrants can complicate the “no registration” and legend removal analysis. The holding period for shares issued upon a cash exercise of privately-placed warrants typically begins when the warrants are exercised and the stock is issued, which means that a new Rule 144 holding period begins at that time. If, instead of paying cash to exercise the warrants, the warrants are net-share-settled (cashless exercise), then Section 3(a)(9) of the ’33 Act exempts the issuance and the holding period of the warrants may be tacked onto the holding period of the shares, potentially satisfying the Rule 144 holding period.

Conclusion

Lawyers who are asked to give “no registration” and legend removal opinions should exercise special care. If the issuer is or was a SPAC or other shell company, Rule 144 will not be available until one year after the de-SPAC transaction (and filing of the Form 10 Information) and then only if the issuer has filed all of its ’34 Act reports (other than on Form 8-K). As a result, lawyers should get assurance that the issuer satisfies the requirements of Rule 144(i) before issuing such an opinion, and should think twice before issuing an opinion for legend removal in the absence of a specific sale.

Lawyers should have in mind that legend removal and “no registration” opinions have been a source of liability for lawyers in the past, particularly involving penny stocks and “pump and dump” schemes. The SEC has even used its authority to deny lawyers the ability to practice before it for improper legend removal opinions.^[5] The lack of available liquidity sometimes can prompt investors and companies to find creative ways to allow resales of restricted shares, which can put added pressure on lawyers when they are asked to give these opinions. All these considerations add up to the need for lawyers to use extra caution when giving “no registration” and legend removal opinions for shares of former SPACs.

This article originally appeared in the Winter 2021–2022 issue of In Our Opinion, the newsletter of the ABA Business Law Section’s Legal Opinions Committee. Read the full issue and previous issues on the Legal Opinions Committee webpage.

1. See John Coates (Acting Director, Division of Corporation Finance) and Paul Munter (Acting Chief Accountant), “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (‘SPACs’)” (April 12, 2021), available here; John Coates, “SPACs, IPOs and Liability Risk Under the Securities Laws” (April 8, 2021), available here. ↑

2. See Subcommittee on Securities Law Opinions, Federal Regulation of Securities Committee, ABA ‎Business Law Section, No Registration Opinions (2015 Update), 71 Bus. Law. 129 (2015/2016), ‎available here. ↑

3. See ‎Subcommittee on Securities Law Opinions, Federal Regulation of Securities Committee, ABA ‎Business Law Section, “Legal Opinions on Section 4(1-1/2) Resale Transactions” (to be published in a 2022 issue of The Business Lawyer). ↑

4. See Subcommittee on Securities Law Opinions, Committee on Federal Regulation of Securities, ABA Section of Business Law, “Negative Assurance in Securities Offerings (2008 Revision),” 65 Bus. Law 395 (2009), available here. ↑

5. See, e.g., the order entered by the SEC In The Matter of Virginia K. Sourlis, dated July 23, 2013, available here, suspending attorney Sourlis for five years under Rule 102(e) of the SEC’s Rules of the Practice, 17 C.F.R. § 201.102(e), for issuing a false opinion letter that facilitated the illegal public offering of securities; see also SEC v. Sourlis, 851 F.3d 139 (2d Cir. 2016) (related litigation finding Sourlis liable for securities law violations arising from the issuance of the opinion letter). ↑

One of the more daunting obstacles encountered by companies involved in a merger is the need to respond to a Second Request under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. HSR Second Requests often involve reviewing and producing substantial numbers of documents within extremely tight time frames, which can be both costly and inefficient; however, there are solutions that allow you to be as proactive as possible in an inherently reactive situation. This article explains the keys to ensuring you use best practices for improving processes and reducing the inefficiencies that are common when responding to Second Requests.

The days are long gone when a client could rely on a law firm to prepare the response to a typical Second Request entirely in-house. The sheer volume is likely to outstrip the scale of any captive solution, and legal departments are looking to their outside counsel to partner with them to mitigate the cost impact through process efficiencies, without sacrificing quality. Creating the right team of in-house counsel, outside counsel, technology vendor, and managed document review provider is essential to achieving these goals. The following list sets out best practices surrounding managed document review to alleviate the burden associated with responding to a Second Request.

Experience with Second Requests is crucial. You want team members who have been there before and can demonstrate that this is not their first rodeo. This means that the entire review team—from the project managers to the technologists and any secondary stakeholders—should have all worked on multiple Second Requests and have been on the receiving end of many calls from outside counsel asking how they can meet the demands of a regulator holding substantial compliance over their heads like a sword of Damocles. This can only come from a team of permanent employees who have been together for years and have worked hand in hand with case teams to confront these issues and make the impossible seem possible. (Further, permanent employees can return to a review even if there is a gap in stages—either before a “second sweep” or “topping off,” or to help with a white paper, preparing for witness interviews, or responding to a challenge to a merger, which means the client retains institutional knowledge of this transaction as well as general Second Request experience.)

Bringing this experience to bear can ensure you meet the substantive goals of responding to a Second Request: producing all responsive, not privileged materials; withholding or redacting privileged content; and identifying and escalating important documents to counsel as quickly as possible. In addition to providing the subject matter expertise of their review teams, the managed document review provider must also be able to make informed recommendations as to the use of technology and/or search terms to cut through the volume and reduce the time to respond. If technology-assisted review is an option, the provider can help design and implement the TAR protocol, as well as identify and account for any blind spots to give the regulator confidence in the robustness of the process. This is especially true when using continuous active learning, or CAL. The review provider must be able to seamlessly adapt to any changes in priorities in terms of custodians, subjects, and/or time frames as the regulator changes the focus of the review. While CAL can certainly facilitate this process, the managed document review provider must monitor changes in scoring for documents that have previously been reviewed; move any new ones that have received a higher score into the first-level review workflow for review and possible production; and provide details so that outside counsel can report back to the regulator if needed. It should also document the decisions made as a team and approved by outside counsel throughout the review, in case the regulator seeks additional information about how the response to the Second Request was prepared.

Even if documents are deemed responsive to the Second Request, not all of them will be produced, as the team must make a determination as to whether they are fully privileged or require redaction prior to production. Important considerations regarding this aspect of the review include:

• Ensuring that there is a process in place for the law firm to sign off on any documents or members of a document family that were once in the privilege review but are now going to be produced.
• Utilizing a tool that streamlines and to a certain extent automates the creation of the log of documents that are withheld for privilege, and customizing that tool for the needs of the particular matter and requirements of outside counsel.
• Putting in place a process that makes sure that all documents redacted for privilege are redacted accurately and consistently. (Note: This applies to redactions of any kind that the review requires, including for data privacy.)

It is also important to avoid pitfalls common to Second Requests. It’s crucial to:

• Recognize when outside counsel wants to start asserting work product over documents related to the potential transaction. Determine any exceptions, such as for documents pertaining to the antitrust clause of the merger agreement or ones where outside counsel for both parties are working jointly to establish “rules of the road” for pre-closing sharing of information between the parties.
• Determine how counsel wants to treat parties for purposes of maintaining privilege, e.g., economists hired specifically to address the regulator’s concerns about market power vs. investment bankers copied on the deal document. While the former would certainly be privileged, outside counsel differ on the approach to the latter.
• Identify third parties with whom communications would normally be at arm’s length and not considered privileged, and be careful to avoid producing communications with members or the client’s board of directors because they communicated with their Gmail addresses. To mitigate this risk, outside counsel should work with the client to provide a list of email addresses—either company emails, personal emails, or emails associated with the directors’ “day jobs”—that they use to communicate with the company.

It is more efficient to address these issues at the start, as opposed to spending precious time and resources on them unnecessarily at the end of the review, when there is pressure from the regulators, the parties (especially if you are working for the target company), the shareholders, or any combination of the above.

Finally, it is imperative to find important documents and escalate them to outside counsel as quickly as possible for further investigation. Reviewers will identify helpful documents based on their experience and review-specific training provided by outside counsel. Examples of helpful documents include ones that show robust competition in the relevant market; conversely, they should also be able to spot instances of gun-jumping or anti-competitive behavior, which are sometimes not as obvious and require a subtler understanding. Managed review teams should also be able to leverage technology and/or search terms to identify any documents similar to the ones confirmed as important by the case teams, as slight differences might provide more context.

Responding to a Second Request might be a necessary evil that is part of the merger clearance process; however, that does not mean that you have to absorb the full brunt of the chaos and inefficiency inherent in the high-volume, time-sensitive process. There are best practices from both a process and substantive perspective that you can deploy to reduce the associated cost and inefficiency and that also ensure the response is as robust as possible.

The second edition of my book, Structured Negotiation, a Winning Alternative to Lawsuits, adds two new quotations from business lawyers. I’m proud of those quotations because they confirm that the way I’ve practiced law for a quarter century as a disability civil rights lawyer has value to lawyers and clients on all sides of the table.

Structured Negotiation is a collaborative way to resolve legal claims. Born at the intersection of technology, disability rights, and dispute resolution, the method has been used for twenty-five plus years to resolve disability rights and other claims. In my own practice, I’ve used the strategy to advance digital accessibility—the civil right of disabled people to participate in the digital world.

Structured Negotiation has allowed me to bring together my clients and some of the largest organizations in the country to build relationships, solve problems, and resolve legal claims.  All without lawsuits.  Yes, Structured Negotiation is a dispute resolution strategy that has helped me avoid the courthouse, the deposition table, and the expert battles for decades.

Why Structured Negotiation

The process is called “Structured” Negotiation because it is comprised of building blocks that have brought win-win results in the disability community’s cases with dozens of public and private organizations including Walmart, Bank of America, Houston’s public transit agency, and CVS. Those building blocks include:

• writing an invitation to negotiate instead of a harsh demand letter
• negotiating ground rules (that replace court rules) for the collaboration
• sharing information without formal discovery (or discovery battles)
• meetings that build relationships for long-term results that stick
• using joint experts and relying on client skills and knowledge to bring needed expertise to the process
• drafting a settlement agreement without posturing
• a media strategy that does not attack potential negotiating partners at the outset, but waits for a positive resolution for a shared announcement
• monitoring commitments with flexibility to account for the unexpected

These elements of Structured Negotiation have helped my clients and our negotiating partners achieve results without lawsuits. And in the past few years, other lawyers have used the Structured Negotiation building blocks with a lawsuit on file to reduce the animosity, reputational damage, and excessive costs seemingly built into the United States litigation process.

But none of these elements would work—either outside of or within litigation—without the secret sauce of Structured Negotiation: a collaborative mindset. The Structured Negotiation mindset, and the language that accompanies it, are essential to successfully resolving claims outside the litigation system.  

I often refer to the elements of the mindset as dolphin skills.  Why? To emphasize that being a shark is unnecessary. Being a shark limits the possibility of collaboration. And in my experience, being a shark often makes lawyers miserable.

What are the dolphin skills that comprise the Structured Negotiation mindset? 

• Active patience and equanimity
• Good listening skills and not making assumptions
• Understanding and dismantling the fear that prevents so many people and organizations from resolving claims in efficient ways
• Transparency and trust

These qualities can be learned, just as lawyers have long learned that aggression, hiding the ball, and mistrust are tools of the trade. I’m sure of this because I have learned (and am still learning) these skills with each new case I resolve in Structured Negotiation. Read more about dolphin skills in Structured Negotiation.

What about language?

Did you know that the French root of the word “plaintiff” means “wretched complainer”? Should “defendants” always have to defend instead of problem solve?  Do lawyers representing different parties always have to oppose each other wearing the hat of “opposing counsel”? When you want something of someone, is it helpful to demand it in a terse letter, or invite participation in a collaborative process?

As the stories I share in my book reveal, in Structured Negotiation every communication (email, meetings, phone calls) is made with a collaborative intent. And that means language choices matter. Language that invites cooperation is a fundamental building block of this dispute resolution method.

What do business lawyers say?

Back to the two business lawyers whose quotations are mentioned earlier. One quotation comes from Brian Frumkin, Associate General Counsel at Bank of America.  Brian has been involved in many Structured Negotiations with Bank of America and my clients over the past 21 years.  (The very first web accessibility agreement in the United States in 2000 was the result of a Structured Negotiation between blind customers and the bank.)

Brian Frumkin’s quotation in the second edition of my book came from his remarks at a 2019 gala at which Bank of America received an award from a disability rights organization. In his speech, he said:

Bringing the collaborative approach to my practice has, I think, made me a more effective lawyer and, perhaps, a happier person.

The second quotation is from Priya Sanger, who was Deputy Legal Counsel at Patreon during a 2020 Structured Negotiation with that company. Start-ups, Sanger explained:

are mission-driven. As a rule, we tend never to have enough people or money to meet our big visions. Start-ups are solution-oriented. When we identify a problem, we want to get it fixed quickly and cost-effectively, with a focus on people. We don’t like spending money on litigation. These qualities make Structured Negotiation particularly well suited for our type of business.

[With Patreon] Structured Negotiation quickly brought the right people to the table and the process created room to educate teams on the value of adding disability awareness and inclusion in the digital space.

Sanger and Frumkin’s words underscore the value of Structured Negotiation to both business lawyers and their clients. In writing my book I interviewed many other lawyers who represented companies in Structured Negotiation. They too shared similar views on the value of Structured Negotiation to both themselves as lawyers and to their corporate clients.

Structured Negotiation is of course not suited for every dispute. But in many cases, there is nothing to lose (and much to gain) by trying it. Michael Bruno is a defense lawyer who has worked in Structured Negotiation. As he says in my book:

In court, discovery cut-offs, motion deadlines, and sometimes judges themselves force the parties to take expensive depositions that may be of little utility. I found Structured Negotiation to be fairer to my client than litigation. I like the process because it gives my client the opportunity to do the right thing and avoids costly litigation. And if the negotiation does not succeed, my client has not waived the right to engage in an aggressive, strategic defense.

I love hearing about how lawyers have used the tools of Structured Negotiation to advance their client’s interest with collaboration instead of conflict.  If you try it, please let me know!

“The Important Role of Business Lawyers as Custodians of the Rule of Law” is the sixth article in 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.

What is the Rule of Law? Different organizations have answered that question using varying formulations. We have been working with the World Justice Project (which was founded in 2006 by William Neukom when he was president of the American Bar Association), which answers that question as follows:

The rule of law is a durable system of laws, institutions, and community commitment that delivers four universal principles:

• Accountability
  The government as well as private actors are accountable under the law.

• Just Laws
  The law is clear, publicized, and stable; and is applied evenly. It ensures human rights as well as property, contract, and procedural rights.

• Open Government
  The processes by which the law is adopted, administered, adjudicated, and enforced are accessible, fair, and efficient.

• Accessible & Impartial Dispute Resolution
  Justice is delivered timely by competent, ethical, and independent representatives and neutrals who are accessible, have adequate resources, and reflect the makeup of the communities they serve.

The World Justice Project maintains a Rule of Law Index that measures the following nine factors: Constraints on Government Powers; Absence of Corruption; Open Government; Fundamental Rights; Order and Security; Regulatory Enforcement; Civil Justice; Criminal Justice; and Informal Justice.

The Rule of Law is the foundation that supports the pillars of democracy and freedom, and it is in decline in the United States. The World Justice Project’s 2021 Rule of Law Index reflects that our country’s overall score declined, once again, and that our global ranking also declined—and this is in the context of an index that shows the Rule of Law in decline globally. The legal profession must take the lead in strengthening the Rule of Law, and the first step is to acknowledge the magnitude and urgency of the problem, and the consequences of inaction.

“Lack of Civic Literacy Threatens Our Republic” was the title of an opinion piece by Professor David Adler in July 2014. Professor Adler wrote: “The alarming deficit in civic literacy threatens the future of the republic.”^[1] He elaborated, “This is not a partisan position or conclusion. Studies and assessments conducted by a variety of organizations, including the conservative Intercollegiate Studies Institute, document a widespread lack of knowledge of politics and government, alienation and apathy, and low levels of civic engagement.”^[2]

Professor Austin Sarat, a professor of jurisprudence at Amherst College, found that “among millennials, support for the Rule of Law is even lower than it has been in previous generations: Only 33 percent of people who were born after 1980 believe it is ‘essential to live in a democracy,’ compared to 72 percent of people born before World War II.”^[3]

People frequently think of democracy as dying “at the hands of men with guns” but democracies can also die because they “erode slowly, in barely visible steps.”^[4] So there is an urgent need to educate the public about our democracy, and at the heart of our democracy is the Rule of Law.

The preamble to the Rules of Professional Responsibility states:

A lawyer, as a member of the legal profession, is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice.

So business lawyers, no less than trial lawyers, are officers of the legal system and public citizens having a special responsibility with respect to our system of laws. Also, while people may have a tendency to think about issues related to the Rule of Law in terms of the rights of individuals, businesses benefit from the Rule of Law to no less a degree than do individuals.

When Kenneth C. Frazier was the Chairman and CEO of Merck & Co., Inc., he wrote:

Some may argue that, from a corporation’s perspective, it suffices to focus on business aspects of the law—for instance, a well-functioning patent system for corporations like Merck that depend on patent rights—and that if business law works well, that is enough. Some may posit further that a legal system (by design or not) that has strong institutions for businesses but not for individuals, and particularly not for the disadvantaged, is exactly what corporations should want. Improving the system for others could undermine the advantages to corporations of a system disproportionately favorable to them.

These positions are shortsighted and unrealistic. Certainly, corporations have an interest in the segments of the law that most directly affect them. But while corporations may always place a higher value on advocating for reform and success in those areas, it is not an either-or proposition. A healthy corporation should nevertheless appreciate the extent to which it depends on a well-functioning system as a whole. Effective corporations take that broader perspective. Corporations may have little direct interaction with various segments of the law—family law and the world of indigent criminal defense, among others—but they have just as much at stake as individuals in the fairness of how justice is dispensed. Forward-thinking companies realize that compartmentalized justice is unlikely to work for them or others.^[5]

Consequently, the Rule of Law Working Group has as its mission engaging business lawyers and the business community in advancing the Rule of Law. We hope to increase the awareness of business lawyers of their responsibility for maintaining and encouraging support for the Rule of Law, as required under the Rules of Professional Responsibility.

The Working Group would like to get business lawyers actively involved in helping support the Rule of Law, and it is starting an initiative with the goal of doing so.  The Working Group will ask members of the Section to commit to making a presentation to a business client or a business group sometime during the month of May, which has been chosen because May 1 is Law Day.  The Working Group will provide support for members who commit to making such a presentation.  More details about this initiative will be coming soon.

For the Rule of Law Working Group,

John H. Stout, Co-Chair
Alvin W. Thompson, Co-Chair
Winda Chan, Vice Chair

[1] Idaho Press-Tribune, July 20, 2014, Page 12.

[2] Id.

[3] Remarks by Asha Rangappa, Connecticut Lawyer (January/February 2019) at 15.

[4] How Democracies Die, Steven Levitsky & Daniel Ziblatt (Crown 2018) at 3.

[5] Kenneth C. Frazier, “Why Big Business Should Support Legal Aid”: Daedalus (Jan. 1, 2019), 148 (1): 150–159, at https://doi.org/10.1162/daed_a_00548.

The COVID-19 pandemic nudged the legal industry to adopt virtual business practices more widely. While lawyers have rarely been early adopters when it comes to tech, the pressures of the pandemic on attorneys’ bottom line (and greater demand from clients) have forced firms of all sizes to adapt or die.

In fact, in the American Bar Association’s recent study “Practicing Law in the Pandemic and Moving Forward,” it was reported that 52% of lawyers thought that securing new business was harder or much harder than the previous year. This was regardless of age, gender, or race. To survive, law firms have been forced to accelerate their adoption of services that can be done remotely, like the e-signing of contracts, electronic billing, and virtual client meetings, among many other activities. But that’s not all…

Law firms have had to manage a three-fold pandemic-driven challenge:

1. Adapt to the changing needs of the lawyers and employees who work for them—many of whom remain remote or in a hybrid work situation.
2. Step up and find ways to deliver legal services that are more accessible for clients and their various pandemic-related communications needs.
3. Manage an explosion in video, chat, and social communication that has become more pervasive and relevant in the practice of law.

The Zoom Boom’s Impact on Lawyers & Firms:

Digital platforms like Zoom and others have made it possible for lawyers to collaborate and become closer than ever before. With video, audio, and real-time chat, the functionality of these tools has led to greater collaboration during very difficult times.

Digital communication platforms have enabled lawyers to follow through with their mandatory continuing education requirements (CLE)—allowing them to stay on top of changes in the legal field, best practices, and technology training without taking time away from their actual jobs. Zoom and others have also been key to facilitating virtual trade shows and conferences, such as the ABA TECHSHOW and others. While in-person is typically preferred, Zoom and the like have allowed for these learning opportunities to continue.

Let’s also not underestimate the impact Zoom has had on businesses. During the heart of nationwide lockdowns, and still to this day, lawyers and their clients have been able to continuously communicate in a safe and effective way. Yes, security concerns have been top-of-mind. However, many firms have taken internal steps and outlined requirements on how to create a secure virtual environment that all parties feel comfortable with.

Digital Communication and the Proliferation of Data:

While Zoom and other platforms offer some real benefits during COVID, and continue to do so as we emerge from the worst of the pandemic, such platforms also offer significant challenges—especially when it comes to the data they produce. The Zoom platform and others like it contain video, audio, and real-time chat functionalities between participants. When you consider that some professionals are now spending 6–8 hours a workday in some form of Zoom, meeting the potential scope of the electronically stored information (ESI) generated is potentially daunting.

However, Zoom isn’t the only means of communication that has exploded in usage since the beginning of the pandemic:

Texting

Texting is the leading communication style of mobile device users, with over 23 billion messages sent daily. Unfortunately, the text messaging data directly exported from collection tools like Cellebrite is challenging to understand and quickly review. It is important to identify solutions that can render text messages in an easy-to-understand manner to accelerate time to insight.

Gadgets & IoT

The Internet of Things (IoT) refers to the network of physical objects (things) that are embedded with sensors, software, and other technologies to connect and exchange data with other devices or systems via the internet. The IoT is a vast ecosystem of over 30 billion web-enabled things (from smartwatches to doorbell cameras to smart refrigerators) that are constantly performing tasks, collecting data, and in some cases, sharing it. As these IoT devices have become commonplace, they have created a vast digital fingerprint that savvy legal practitioners are beginning to mine for ESI.

Self-destructing messages 

A new type of “self-destructing” short-form messaging known as ephemeral messaging is further complicating the discovery process by automatically encrypting or destroying messages to erase their digital footprint entirely. Relatively new ephemeral messaging tools like Wickr, Signal, and Telegram, some of what are aimed at businesses, have recently been involved in litigation cases. In one case, Uber v. Waymo, the use of Wickr by all engineering staff in a theft of IP case was determined to be intentionally obfuscating and led to an adverse inference.

Social media

Social media is big business, and a source of a wealth of potentially relevant ESI relating to deceptive marketing, user privacy, and corporate security, or simply general information about litigants. Organizations and their individual employees rely on social media platforms like LinkedIn, Twitter, Facebook, TikTok, and Instagram to interact directly with potential clients, raise brand awareness, and answer customer complaints. This vast digital social footprint at the organizational and individual employee level is all potentially discoverable if deemed relevant to a case. Social media requires the same consideration as any electronic evidence source and must be defensibly preserved.

Mobile devices and apps

The largest single driver for this data explosion has been the increasing ubiquity of mobile-powered business communication. With this shift to mobile, an influx of new short-form communication applications have burst onto the scene in the last decade, and now some like WeChat, WhatsApp, and Facebook Messenger boast user counts in the billions. The informal, rapid-fire, short-format nature of apps makes them a treasure trove for identifying potentially highly relevant data, but the various formats and short nature of the communication can make review more difficult.

How to find evidence today: 

Understanding how your organization communicates and conducts business will enable paralegals to construct a plan to manage the burgeoning data volumes. A linear approach of throwing as many attorneys as possible in a room and going page by page through the data is no longer going to cut it. Getting the big picture of how people are actually communicating is critical and requires a deeper investigative approach than simply requesting a data map from IT. Practitioners must engage in conversations with key custodians across a variety of business functions to ensure that they understand and are collecting from all relevant communication channels.

• Ask key custodians and members of their team what tools are used to communicate. 
• Prioritize key custodians’ data sources based on frequency and type of communication. 
• Determine situations when certain tools may be used (work-related texts or Slack messages are often sent after hours).
• Inquire where various data sources reside (on premises, in iCloud, on backup servers). 
• Determine how employees are using new data types (social communication vs. work product). 
• Research what kind of licenses the enterprise has for each tool (some licenses are limited in what data is exportable).

The pandemic has rocked the entire legal community, with both lasting positive and negative effects. COVID-19 will continue to impact the legal profession and the court system, and many will have to react and adapt quickly to these changes. Those who embrace the usage of digital communications tools, along with managing the vast amounts of data they generate, will be at a massive competitive advantage.

“Humans will go to the outer solar system not merely to work, but to live, to love, to build, and to stay. But the irony of the life of pioneers is that if they are successful, they conquer the frontier that is their only true home, and a frontier conquered is a frontier destroyed.”^[1]

The Outer Space Treaty (“OST”),^[2] ratified in 1967, is the foundation of all international space regulation. The OST establishes space as the “province of all mankind,”^[3] and promotes the peaceful use and exploration of space for the “benefit and in the interests of all mankind.”^[4] The Treaty requires that the parties to the OST “bear international responsibility for national activities in outer space … whether such activities are carried on by governmental agencies or by non-governmental entities,”^[5] and requires that each party be “internationally liable” for damages caused by an object launched into outer space.^[6] The OST prohibits claims of “national appropriation” of both outer space and celestial bodies “by claim of sovereignty, by means of use or occupation, or by other means.”^[7] This prohibition, however, has not been deemed applicable to resources extracted from celestial bodies.^[8] In 2015, responding to a rising chorus of demand from the private space industry, Congress passed the U.S. Commercial Space Launch Competitiveness Act (“Space Act”),^[9] which “facilitate[s] commercial exploration for and commercial recovery of space resources by [U.S.] citizens.”^[10] It notes that a U.S. citizen “engaged in commercial recovery of [a] space resource … shall be entitled … to possess, own, transport and sell [that resource] in accordance with applicable law.”^[11] The Space Act exempts companies from regulatory oversight until 2023, which raises critical legal and regulatory questions.

As the Space Act recognizes,^[12] there are open questions as to who should exercise authorization and supervision over emerging commercial space activities, and what authority are required for such activities.^[13] Within this regulatory void, commercial exploration of space continues to evolve, including companies hoping to bring space resources out of orbit and back to Earth.^[14] Billionaire entrepreneurs and prominent companies, such as Google,^[15] invest in these companies, many of whom are willing to risk substantial capital now for promising returns in 20 to 50 years.^[16] Indeed, as renowned astrophysicist Neil deGrasse Tyson^[17] argues, “[t]he first trillionaire there will ever be is the person who exploits the natural resources on asteroids.”^[18]

Given the hazardous, high-risk, high-reward dynamic of space-mining ventures,^[19] the privatization of title offered by the Space Act likely operates to ensure that owners internalize small and medium-scale externalities,^[20] though will likely fail to ensure that owners internalize large-scale externalities,^[21] such as the field of “orbital debris”^[22] currently encircling the Earth,^[23] which is primarily due to the profit-maximizing and “perfect externalizing machine”^[24] nature of the modern multinational corporation.^[25] The private space industry and the prospect of space-mining is creating very real and tangible legal struggles for the U.S. and the international community, as it is concerning to legal experts that these corporate entities will be paving the way and making up many of the rules as they go along.^[26] The exciting prognostications of cosmic entrepreneurialism notwithstanding, this piece will argue that outer space should be proactively defended from the laissez-faire approach that often characterized exploration and colonization here on Earth.^[27]

The purpose of this article is to demonstrate fatal flaws in how the U.S. regulates its nascent commercial space industry by examining how Federal Communications Commission (“FCC”) regulations enable the creation of orbital debris in a manner that may violate the OST, and recommend legislative language that will ensure these regulations are in compliance with the OST. This article proceeds in four parts: Part I describes the problems that orbital debris presents to all space activities.^[28] Part II details how FCC regulation of satellite mega-constellation projects,^[29] now unfurling around the Earth like an exoskeleton^[30] in Low Earth Orbit (“LEO”),^[31] likely increases the creation of orbital debris. Part III details how this FCC regulatory regime arguably violates the OST. Part IV recommends language to amend Title 51 of United States Code, which governs national and commercial space programs, with two provisions that: (1) declares outer space, including LEO orbits, to be a global commons, which could trigger the applicability of the National Environmental Policy Act (“NEPA”) to the treatment of orbital debris in LEO orbits;^[32] and (2) establishes the creation of an orbital use fee (“OUF”), which will then fund orbital debris clearing projects and research related to orbital debris removal. These amendments help operationalize the OST’s language that space faring activities be for the “benefit and in the interests of all mankind”^[33] by requiring that space-faring companies internalize their orbital debris-creating externalities.

I. Earth’s Orbital Tragedy of the Commons

Currently, long-dead satellites, spent rocket stages, and other debris from outdated spacecraft remain in Earth orbits, and have been endangering space activities for decades.^[34] NASA estimates that there are approximately 27,000 pieces of orbital debris larger than a softball,^[35] 500,000 marble-sized pieces of debris, and more than 100 million pieces one millimeter or smaller, orbiting at speeds of up to 17,500 mph.^[36] At these speeds, even tiny flecks of paint can damage spacecraft.^[37] Much more debris that is too small to track, though large enough to imperil both human spaceflight and robotic missions, also remains in Earth orbits.^[38] This untracked debris can lead to potentially dangerous orbital collisions on a regular basis, which is due to the self-generating nature of orbital debris once the amount of debris in orbit reaches a critical mass.^[39] Succinctly explaining this phenomena in the New Yorker Magazine, Raffi Khatchadourian writes that:

[e]ven a minuscule shard could smash a satellite to pieces, dispersing more high-velocity debris. If the population of objects became dense enough, collisions would trigger one another in an unstoppable cascade. The fragments would grow smaller, more numerous, more uniform in direction, resembling a maelstrom of sand—a nightmare scenario that became known as the Kessler syndrome. At some point, the process would render all of near-Earth space unusable. Theoretically, Kessler mused, our planet could acquire a ring akin to Saturn’s, but made of garbage.^[40]

Simulations of the evolution of orbital debris suggest that LEO is currently in the protracted initial stages of the Kessler syndrome.^[41]

Into this debris field, companies are launching satellites at an exponential rate to build mega-constellations of communications satellites.^[42] In just two years, the number of active and defunct satellites in LEO has increased by over 50% to roughly 5,000 as of March 30, 2021.^[43] SpaceX alone launched 1,740 satellites in construction of its Starlink mega-constellation since 2019,^[44] received authorization to launch an additional 30,000 Starlink satellites by the FCC in 2021,^[45] now accounts for over half of close encounters between two spacecraft,^[46] and is projected to be involved in 90% of all close approaches. Quoting Professor Lewis’s description of the likely scenario of cascading orbital debris created by SpaceX’s Starlink mega-constellation, Pultarova writes that:

[i]n a situation when [satellite operators] are receiving alerts on a daily basis, you can’t maneuver for everything … . The maneuvers use propellant, the satellite cannot provide service. So there must be some threshold. But that means you are accepting a certain amount of risk. The problem is that at some point, you are likely to make a wrong decision.^[47]

Other multinational corporations have similar mega-constellation plans, including Amazon,^[48] OneWeb,^[49] and Telesat.^[50]

II. FCC Regulation of Satellite Mega-constellations Incentivizes the Creation of Orbital Debris

The international legal regime governing space activities was created at a time when those activities were almost exclusively conducted by government actors.^[51] Consequently, the domestic laws implementing these international legal obligations reflect the fact that space was largely the domain of government.^[52] With corporate actors increasingly becoming involved in space activities,^[53] domestic laws must ensure that corporate space activities are properly authorized and regulated, both for domestic policy purposes and ensuring that such activities comply with international legal obligations.^[54] While the domestic legal regime is well-developed regarding established corporate activities (such as the early regulation of telephone and television satellite communications^[55]), the current proliferation of satellite mega-constellations^[56] exposes a void in this legal regime.^[57]

Regarding the allocation of geostationary orbits (“GEO”),^[58] FCC regulations implement U.S. obligations as a member of the International Telecommunications Union (“ITU”). The ITU is the United Nations treaty organization responsible for international telecommunications, including the allocation of global radio spectrum and satellite orbits.^[59] These coordination activities are underpinned by the ITU’s constitution, which reminds States “that radio frequencies and any associated orbits … are limited natural resources and that they must be used rationally, efficiently and economically … so that countries … may have equitable access to those orbits,”^[60] indicating a commons-based approach to governing GEO. However, no corresponding international rules exist for allocating LEO orbits, giving rise to the FCC’s current practice of assigning orbital shells to mega-constellations on a first-come, first-served basis.^[61]

Given the exoskeleton-like nature of mega-constellations unfurling around the Earth,^[62] and the orbital debris likely to result from their deployment,^[63] any further addition of satellites to these orbital shells could become prohibitively dangerous.^[64] Such a de facto occupation of orbital shells is arguably in violation of the OST’s language that space be the “province of all mankind,”^[65] and there be no “national appropriation” of outer space “by means of use or occupation, or by other means.” ^[66] Moreover, the FCC assigns LEO orbits without either formally assessing the effects on the use of LEO orbits by other countries^[67] or the likely orbital debris-related environmental impacts to LEO orbits resulting from satellite mega-constellations.^[68] Under this legal regime, there is neither recognition by the FCC that LEO orbits are a finite resource^[69] nor that space and Earth environments are indeed connected.^[70] In this regulatory void, multiple tragedies of the commons are likely to occur,^[71] particularly tragedies caused by orbital debris.^[72]

III. How FCC Regulatory Practices Arguably Violate the OST

As noted earlier, the OST is the foundation of all international space regulation.^[73] Furthermore, the Liability Convention was adopted to clarify the intent of Article VII of the OST.^[74] While the Liability Convention does not specifically address orbital debris, as the problem was considered “relatively exotic” at the time of its adoption, it arguably creates a remedial mechanism for orbital debris damage.^[75] However, a State is only liable for damage to another State’s space objects if “the damage is due to [the State’s] fault or the fault of persons for whom [the State] is responsible.”^[76] Moreover, it is difficult to demonstrate fault with regard to the space environment, as collecting and producing physical evidence is impossible in most instances.^[77] As such, neither the OST nor Liability Convention compellingly disincentivize debris creation in orbit.

The Space Act, which exempts companies from regulatory oversight until 2023,^[78] leaves in place the FCC’s current practice of assigning orbital shells to mega-constellations on a first-come, first-served basis,^[79] which is problematic for three reasons. First, due to the exoskeleton-like nature of mega-constellations unfurling around the Earth,^[80] and the orbital debris likely to result from their deployment,^[81] though FCC regulators are not claiming sovereignty over these orbital shells, allowing national companies to saturate them with satellites could constitute appropriation of outer space by “other means,” which is arguably in violation of Articles I, II, and IX of the OST.^[82] Second, unlike the FCC’s allocation of GEO orbits, which is limited by the ITU’s constitutional principle that “any associated orbits … are limited natural resources and that they must be used rationally, efficiently and economical,”^[83] no similar commons-based principle limits the FCC’s allocation of LEO orbits.^[84] This practice is arguably in violation of NEPA,^[85] which “requires federal agencies to take a hard look at the environmental consequences of their projects before taking action.”^[86] Third, while the FCC’s 2020 “Mitigation of Orbital Debris in the New Space Age” guidelines^[87] may appear to substantively address the cascading problems caused by orbital debris,^[88] they only require disclosure of whether mitigation plans exist, not any statement or analysis of whether the plans are effective.^[89] Responding to the National Science Foundation and Department of Energy’s request to assess the possible growth and impact of future mega-constellations on orbital debris under the FCC’s enforcement regime, a recent JASON Report found that the FCC’s guidelines:

… fall well short of what the FCC evidently thinks are required for safe traffic management in space, the new constraints on applicants are minimal … are not retroactive for existing licenses … so an applicant could meet these new FCC regulations and still suffer the catastrophic [debris creation] seen in our rate equations.^[90]

The toothlessness of these guidelines underwrite the economic incentive for satellite companies to continue viewing their orbital debris as externalities incidental to the costs of doing business.^[91]

By way of illustration, the worst known space collision in history occurred when the U.S. telecommunication satellite, Iridium 33, and Russia’s defunct military satellite, Kosmos-2251, collided and spawned over 1,000 pieces of orbital debris larger than 4 inches.^[92] Many of these fragments were then involved in further orbital incidents.^[93] Of the 95 Iridium satellites launched, 30 malfunctioned and remain stuck in LEO.^[94] When Iridium CEO Matt Desch was asked if Iridium would be willing to fund the removal of their debris, he said that it would, “for a low enough cost.”^[95] Desch somewhat jokingly floated the idea of paying $10,000^[96] per deorbit while acknowledging, “[I] expect the cost is really in the millions or tens of millions, at which price I know it doesn’t make sense,” and argued that there is no financial incentive for removing his company’s orbital debris, explaining that “[i]ncremental ops cost saved is zero. Decreased risk to my network equals zero (all are well below). Decreased regulatory risk is zero (I spend the $$, and someone else runs into something). Removing 1 or 2 things from a catalog of 100,000 is perhaps worth only PR value.”^[97]

Professor Hugh Lewis, Head of the Aeronautics Research Group at the University of Southampton, and Europe’s leading expert on space debris, highlights the consequences of such an inadequate orbital debris mitigation regime, arguing that:

[w]e place trust in a single company to do the right thing … [and] are in a situation where most of the maneuvers we see will involve Starlink. [T]hey are the world’s biggest satellite operator, but they have only been doing that for two years so there is a certain amount of inexperience … SpaceX relies on an autonomous collision avoidance system to keep its fleet away from other spacecraft. That, however, could sometimes introduce further problems. The automatic orbital adjustments change the forecasted trajectory and, therefore, make collision predictions more complicated. Starlink doesn’t publicize all the maneuvers that they’re making … [which] causes problems for everybody else because no one knows where the satellite is going to be and what it is going to do in the next few days.^[98]

Further echoing the problems of placing singular trust in SpaceX, for example, to do the right thing in this new space age, its terms of service for beta users of its Starlink mega-constellation broadband service are revealing in this regard, as one clause provides that:

[f]or services provided on Mars, or in transit to Mars via Starship or other colonization spacecraft, the parties recognize Mars as a free planet and that no Earth-based government has authority or sovereignty over Martian activities. Accordingly, Disputes will be settled through self-governing principles, established in good faith at the time of the Martian settlement.^[99]

As failing to recognize the applicability of the OST to the planet Mars is arguably in violation of the OST,^[100] any general expectation that the company now responsible for over half of near collisions in LEO^[101] would do the right thing is unrealistic. Accordingly, the FCC’s laissez-faire enforcement regime is in substantive need of reform in a manner that ensures compliance with the OST’s language of prohibiting claims of “national appropriation” of outer space “by other means” and promoting the peaceful use and exploration of space for the “benefit and in the interests of all mankind.”^[102]

IV. Suggested Amendments to Title 51 of the United States Code

A. Recommendation One: Amend Title 51 of United States Code to Ensure that Outer Space is Regulated as a Global Commons, which Triggers the Applicability of NEPA to the Governance of LEO Orbits Under the OST

NEPA “requires federal agencies to take a hard look at the environmental consequences of their projects before taking action.”^[103] Notably, this “hard look” extends beyond an agency’s individual actions to any actions by third parties that the agency authorizes.^[104] Moreover, if federal actions have a significant impact on the global commons, which are defined as areas in which no nation maintains exclusive jurisdiction, but in which every nation has a stake,^[105] NEPA applicability is similarly triggered.^[106] In such instances, NEPA requires the completion of an Environmental Assessment,^[107] an Environmental Impact Statement,^[108] or the classification of the action as categorically excluded from environmental review.^[109] Accordingly, Courts have applied NEPA’s requirements when federal actions occur in the global commons.^[110]

Regarding whether outer space should be considered a global commons in the context of mitigating orbital debris, Professor Robert C. Bird argues that:

[a]t its core, regulation of space debris is an environmental problem of international proportions. Emission of space debris is more likely to negatively affect the community of nations as a whole, rather than an individual state. Outer space is a classic example of a global commons, similar to the open seas. When a nation discharges space debris, it reduces the utility of the space commons for all states.^[111]

Indeed, just as the FCC finding^[112] that satellite mega-constellations are categorically excluded from NEPA review is legally dubious,^[113] the FCC’s similar disregard of viewing outer space as a global commons by merely doubting whether “alleged impacts in space are even within the scope of NEPA,”^[114] is similarly unavailing. Accordingly, the FCC’s findings need further clarification, and its seemingly laissez-faire enforcement regime is in substantive need of reform.

In support of the OST’s language establishing space as the “province of all mankind,”^[115] promoting its peaceful use and exploration for the “benefit and in the interests of all mankind,”^[116] prohibiting claims of “national appropriation” of both outer space and celestial bodies “by claim of sovereignty, by means of use or occupation, or by other means,”^[117] and requiring that parties “bear international responsibility for national activities in outer space … whether such activities are carried on by governmental agencies or by non-governmental entities,”^[118] this article’s proposed amendment to Title 51 of United States Code would read:

Title 51, of the United States Code, is amended by adding at the end the following:

Subtitle VIII – Authorization and Supervision of Nongovernmental Space Activities

CHAPTER 801—CERTIFICATION TO OPERATE SPACE OBJECTS

§ 801**. Global commons

Notwithstanding any other provision of law, outer space shall be considered a global commons.

§ 801**. Certification authority, application, and requirements

(A) The Federal Government shall presume all obligations of the United States under the Outer Space Treaty are obligations to be imputed upon United States nongovernmental entities.

(B) The Federal Government shall interpret and fulfill its international obligations under the Outer Space Treaty in a manner that ensures nongovernmental entities are in conformity with the Outer Space Treaty.

B. Recommendation Two: Amend Title 51 of United States Code to Establish an Orbital Use Fee that will Fund Orbital Debris Clearing Projects and Research Related to Orbital Debris Removal

A number of technological and regulatory solutions, such as active debris removal^[119] and voluntary orbital debris mitigation guidelines,^[120] are currently being explored by regulatory authorities.^[121] While these efforts are important in ensuring the sustainable use of LEO orbits, they do not address the underlying incentive problem for satellite operators. Namely, they are incentivized to view both their orbital debris and the costs that it imposes on others as externalities.^[122] As such, without the internalization of these externalities, efforts to fully address the orbital debris problem will likely be ineffective.^[123] Notably, a National Academy of Sciences study found that orbital debris removal may worsen the economic damages from congestion by increasing incentives to launch.^[124] As satellite operators are prohibited from securing exclusive property rights to orbital shells under the OST,^[125] and are unlikely to recover economic damages resulting from orbital debris collisions under the Liability Convention,^[126] prospective operators “face a choice between launching profitable satellites, thereby imposing current and future collision risk on others, or not launching and leaving those profits to competitors.”^[127] This dynamic represents a classic tragedy of the commons problem.^[128] However, under Article VI of the OST,^[129] this problem can be partially solved through an OUF^[130] levied by the FCC. The monies received from this fee would then be used to fund private orbital debris clearing projects^[131] and research related to orbital debris removal.

Though such an OUF may be seen as an unreasonable growth restraint on the nascent space industry,^[132] a Pew study found that in the case of nearly a dozen industries, the costs of implementing new regulations were less than estimated while the economic benefits were greater than estimated.^[133] Moreover, these regulations did not significantly impede the economic competitiveness of the industry.^[134] An OUF consistent with what this article proposes would even the playing field for commercial-satellite operators in a manner consistent with OST principles^[135] and, as OneWeb’s founder argued, while “thoughtful, common-sense rules” likely increase operating costs for commercial-satellite operators, they protect the environment and ensure that the U.S. commercial satellite industry continues to grow.^[136] While the U.S. cannot address the issue of reducing orbital debris on its own, it can make a substantial contribution through demonstrating responsible orbital debris mitigation measures, such as those advocated in this article.

In support of the aforementioned OST language,^[137] this article’s second proposed amendment to Title 51 of United States Code would read:

Title 51, of the United States Code, is further amended by adding at the end the following:

CHAPTER 802—ADMINISTRATIVE PROVISIONS RELATED TO CERTIFICATION AND PERMITTING

§ 802XX. Orbital use fee purpose

The Administrator, in conjunction with the heads of other Federal agencies, shall take steps to fund orbital debris removal projects, technologies, and research that will enable the Administration to decrease the risks associated with orbital debris.

§ 802XX. Administrative authority

In order to carry out the responsibilities specified in this subtitle, the Secretary may impose an orbital use fee for the placement of objects in low Earth orbits on a nongovernmental entity holder of, or applicant for:

(1) a certification under chapter 801; or

(2) a permit under chapter 802.

V. Conclusion

The OST establishes space as the “province of all mankind”^[138] and promotes its peaceful use and exploration for the “benefit and in the interests of all mankind.”^[139] The OST further requires that “Parties to the Treaty … bear international responsibility for national activities in outer space … whether such activities are carried on by governmental agencies or by non-governmental entities,”^[140] and requires that each “Party to the treaty … [be] internationally liable” for damages caused by an object launched into outer space.^[141] Finally, the OST prohibits claims of “national appropriation” of both outer space and celestial bodies “by claim of sovereignty, by means of use or occupation, or by other means.”^[142] The Space Act “facilitate[s] commercial exploration for and commercial recovery of space resources by [U.S.] citizens … ”^[143] and exempts companies from regulatory oversight until 2023.^[144] However, the FCC’s laissez-faire enforcement of satellite mega-constellation projects is arguably in violation of the OST^[145] due to the saturation of these mega-constellations in LEO and their likely resulting orbital debris.^[146]

While the exploitation and use of space resources, as conceived under the Space Act, is likely two or three decades away,^[147] proactive legislation is critical for ensuring that regulations are in place to address problems that will inevitably arise, such as the debris created by harvesting asteroids in near Earth orbits.^[148] Indeed, the existing legal regime is unresponsive to both current and future problems arising from the orbital debris expanding like planetary rings of garbage around our homeworld.^[149] Consistent with the language of the OST,^[150] this article’s recommendations will help ensure that outer space not become an orbital debris strewn battle-ground for the national and corporate appropriation of orbital and celestial resources, but rather, the “province of all mankind.”^[151]

* The author would like to thank Adam M. Burton, Jeremy A. Schiffer, and the editors of Business Law Today for their helpful comments and suggestions.

[1] See, Robert Zubrin., On the Way to Starflight: The Economics of Interstellar Breakout, in Starship Century: Toward the Grandest Horizon 101 (Microwave Sciences, 2013) (detailing several scientific, economic, and anthropological perspectives on the challenges and requirements for humans to become a sustainable interstellar species).

[2] See The Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, Including the Moon and Other Celestial Bodies, Jan. 27, 1967, 610 U.N.T.S. 205 (hereinafter the OST) (ratified in 1967, the OST was the first international space law treaty and serves as the foundation of all international space law).

[3] Id. at Art. I.

[4] Id. at Part Two, A.

[5] Id. at Art. VI.

[6] Id. at Art. VII; see also Convention on International Liability for Damage Caused by Space Objects art. 2, Mar. 29, 1972, 24 U.S.T. 2389, 961 U.N.T.S. 187 [hereinafter Liability Convention], which was adopted to clarify the intent of Art. VII of the OST. See Meghan R. Plantz, Note, Orbital Debris: Out of Space, 40 Ga. J. Int’l & Comp. L. 585, 603 (2012).

[7] Id. at Art. II.

[8] See Spurring Private Aerospace Competitiveness and Entrepreneurship Act of 2015, Pub. L. No. 114-90, 129 Stat. 704 (2015) (codified as amended at 51 U.S.C. § 10101) at § 51303 (hereinafter the Space Act).

[9] Id.

[10] Id. at § 51302.

[11] Id. at § 51303.

[12] Id. at § 51302.

[13] Under Article VI of the OST:

[p]arties to the Treaty shall bear international responsibility for national activities in outer space, including the Moon and other celestial bodies, whether such activities are carried on by governmental agencies or by non-governmental entities, and for assuring that national activities are carried out in conformity with the provisions set forth in the present Treaty.

The OST further provides that: “[t]he activities of non-governmental entities in outer space, including the Moon and other celestial bodies, shall require authorization and continuing supervision by the appropriate State Party to the Treaty.” See supra note 2 at Art. VI.

[14] See generally, Michael Jensen, Asteroidae Naturae: What it Takes to Capture an Asteroid, 45 Sw. L. Rev. 757, (2016) (noting that while space mining is in its beginning stages, companies are announcing plans for prospecting near Earth asteroids); Tomas R. Irwin, Space Rocks: A Proposal to Govern the Development of Outer Space and its Resources, 76 Ohio St. L.J. 217 (2015) (noting that, increasingly, private companies are becoming involved in space exploration, including plans for resource extraction and utilization); Craig Foster, Excuse me, You’re Mining my Asteroid: Space Property Rights and the U.S. Space Resource and Utilization Act of 2015, 2016 U. Ill. J.L. Tech & Pol’y 407 (2016) (describing the current technological era as a merging of science fiction into science fact, Foster details a number of companies and their plans for space mining); Matthew Schaefer, The Need for Federal Preemption and International Negotiations Regarding Liability Caps and Waivers of Liability in the U.S. Commercial Space Industry, 33 Berkeley J. Int’l L. 223 (2015) (noting that the maturing commercial space industry is critical to both U.S. economic interests and national security); Andrew Lintner, Extraterrestrial Extraction: International Implications of the Space Resource Exploration and Utilization Act of 2015, 40 SUM Fletcher F. World Aff. 139 (2016) (arguing that the emergence of private companies and their desire to commercialize the cosmos are becoming more feasible and profitable); Major Susan J. Trepczynski, New Space Activities Expose a Potential Regulatory Vacuum, 40 No. 3 The Reporter 12 (2016) (arguing that since private companies are becoming increasingly involved in, and vital to, space activities, domestic law must evolve to ensure that such activities are compliant with U.S. obligations under the OST); Caroline Arbaugh, Gravitating Toward Sensible Resolution: the PCA Optional Rules for the Arbitration of Disputes Relating to Outer Space Activity, 42 Ga. J. Int’l & Comp. L. 825 (2014) (noting that a number of private companies have plans, and the potential technology in the near future, to mine celestial bodies for precious metals).

[15] Goldman Sachs Equity Research Report, Space: The Next Investment Frontier (April 4, 2017), http://www.fullertreacymoney.com/system/data/files/PDFs/2017/October/4th/space%20-%20the%20next%20investment%20frontier%20-%20gs.pdf at 55 (noting that “a lot of investment has been from or into well-known players in the sector—like Google and Fidelity Investing in SpaceX or SoftBank investing in OneWeb. But there have been dozens of small investment firms putting money into smaller privates, as well”).

[16] See, e.g., Space: Investing in the Final Frontier, Morgan Stanley (July 24, 2020), https://www.morganstanley.com/ideas/investing-in-space (estimating that the global space industry could generate revenue of more than $1 trillion or more in 2040, up from the current $350 billion); Capital Flows as Space Opens for Business, Morgan Stanley (July 21, 2020), https://www.morganstanley.com/ideas/future-space-economy (describing the nascent space economy as demonstrable fertile grounds for private investment). The article notes that this new “space race is being powered not just by government but by a new crop of startups and visionaries. …entrepreneurs, strategic partnerships, and venture capital have been leading the charge on funding” for these ventures and that, for some of these investments, “the exit plans can be 50 years out.” The article further discusses that “[we’re] seeing a tremendous amount of interest in this area from angel investors, venture capital and private-equity firms…” and that much of this is real passion in the industry, though “some of it is simply fear of being late to the party. Things are changing at such a rapid pace that investors are saying they have to keep up with the times… [and] [b]ecause success in space promises to be a multidecade endeavor—with returns on some lofty endeavors that could be many years away—this new economy requires patient investors. One sign of investors’ willingness to wait is the increasing reliance on permanent and long-term capital funds.” Id; European Space Agency, ESA Space Resources Strategy (May 23, 2019), https://sci.esa.int/documents/34161/35992/1567260390250-ESA_Space_Resources_Strategy.pdf (concluding that 88 billion to 206 billion dollars over the 2018–2045 period are expected from space resource utilization). Id. at 5. The report further argues that:

The resources of space offer a means to enable sustainable exploration of the Moon and Solar System… [and the] utilisation of space resources for exploration may be within reach for the first time; made possible by recent advances in our knowledge and understanding of the Moon and asteroids, increased international and private sector engagement in space activities and the emergence of new technologies.

Id. at 2; Luxembourg Space Agency, Opportunities for Space Resources Utilization: Future Markets & Value Chains (Dec. 2018), https://space-agency.public.lu/dam-assets/publications/2018/Study-Summary-of-the-Space-Resources-Value-Chain-Study.pdf (noting that the nascent space resources utilization industry is expected to generate a market revenue of 88 billion to 206 billion dollars over the 2018–2045 period, supporting a total of 845,000 to 1.8 million full time employees). Id. at 9. The report further notes that the “[i]ncorporation of space resources into exploration missions will reduce costs and improve their economic viability” and that, as such, “[s]pace resources will play a foundational role in the future of in-space economies.” Furthermore, the report argues that:

[t]he exploitation of volatiles – mainly water – and other resources such as raw regolith or metals available on celestial bodies requires the establishment of new supply chains for effective utilization. Although the time horizon for the first operational applications is expected to be in the next decade, preparatory steps are being taken today in developing the enabling technologies and obtaining prospecting information on future exploitable space resources. It is in the interest of pioneering space companies, space agencies, and other visionary organizations to ensure they capture early opportunities and anticipate future needs for the space resources utilization.

Id. at 3; See supra note 15 at 4 (noting that “[w]hile relatively small markets today, rapidly falling costs are lowering the barrier to participate in the space economy, making new industries like space tourism, asteroid mining, and on-orbit manufacturing viable.”).

[17] Neil deGrasse Tyson is the fifth head of the world-renowned Hayden Planetarium, in operation since 1935, recipient of NASA’s Distinguished Public Service Medal and the U.S. National Academy of Sciences Public Welfare Medal, a research associate of the Department of Astrophysics at the American Museum of Natural History, and is a television host. Neil deGrasse Tyson, https://www.haydenplanetarium.org/tyson/index.php (last visited June 7, 2021).

[18] See Katie Kramer, Neil deGrasse Tyson Says Space Ventures Will Spawn First Trillionaire, NBC News (May 3, 2015), https://www.nbcnews.com/science/space/neil-degrasse-tyson-says-space-ventures-will-spawn-first-trillionaire-n352271 (providing a favorable comparison with the exploits of Christopher Columbus in the Americas, Tyson argues that such commercial activity is vital to both the pursuit of space sciences and the national interest).

[19] See supra note 14 and accompanying text; see supra note 16 and accompanying text.

[20] For an influential account, see generally, Robert C. Ellickson, Property in Land, 103 Yale L. J. 1315 (1993); Jared B. Taylor, Note, Tragedy of the Space Commons: A Market Mechanism Solution to the Space Debris Problem, 50 Colum. J. Transnat’l L. 254 (2011).

[21] Id. at 1334.

[22] See, e.g., United Nations Office for Outer Space Affairs: Space Debris Mitigation Guidelines of the Committee on the Peaceful Uses of Outer Space, http://www.unoosa.org/pdf/publications/st_space_49E.pdf (last visited June 3, 2021) (Defining “space debris” as “all man-made objects, including fragments and elements thereof, in Earth orbit or re-entering the atmosphere, that are non-functional”); Astromaterials Research & Exploration Science Orbital Debris Program Office, https://www.orbitaldebris.jsc.nasa.gov/faq/# (last visited May 31, 2021) (Defining “orbital debris” as “any human-made object in orbit about the Earth that no longer serves any useful purpose”); see also David Tan, Towards a New Regime for the Protection of Outer Space as the “Province of All Mankind,” 25 Yale J. Int’l L. 145, 151 n.21 (2000) (noting space debris can be defined as “[a]ny man-made earth-orbiting object which is non-functional with no reasonable expectation of assuming or resuming its intended function or any other function for which it is or can be expected to be authorized”); see also Jennifer M. Seymour, Note, Containing the Cosmic Crisis: A Proposal for Curbing the Perils of Space Debris, 10 Yale J. Geo. Int’L Envtl L. Rev 891, 895 (1998) (“There is no internationally accepted definition of the term ‘space debris.’ However, the term’s popular meaning is any non-functional human-made object or objects in outer space”).

[23] See generally, Joseph Kurt, Triumph of the Space Commons: Addressing the Impending Space Debris Crisis Without an International Treaty, 40 Wm. & Mary Envtl. L. & Pol’y Rev. 305, 307 (2015); Chelsea Muñoz-Patchen, Regulating the Space Commons: Treating Space Debris as Abandoned Property in Violation of The Outer Space Treaty, 19 Chi. J. Int’l L. 233 (2018); Robert C. Bird, Procedural Challenges to Environmental Regulation of Space Debris, 40 Am. Bus. L.J. 635, 664 (2003); Plantz, supra note 6 at 592; Gabrielle Hollingsworth, Comment, Space Junk: Why the United Nations Must Step in to Save Access to Space, 53 Santa Clara L. Rev. 239, 264 (2013); Scott J. Shackelford, Governing the Final Frontier: A Polycentric Approach to Managing Space Weaponization and Debris, 51 Am. Bus. L.J. 429, 430 (2014); Michael W. Taylor, Trashing the Solar System One Planet at a Time: Earth’s Orbital Debris Problem, 20 Geo. Int’l Envtl. L. Rev. 1, 56-57 (2007); Natalie Pusey, The Case for Preserving Nothing: The Need for a Global Response to the Space Debris Problem, 21 Colo. J. Int’l Envtl. L. & Pol’y 425, 426 (2010); Taylor, supra note 2; Sophie Kaineg, The Growing Problem of Space Debris, 26 Hasting Envtl. L.J. 277 (2020); Michael W. Taylor, Trashing the Solar System One Planet at a Time: Earth’s Orbital Debris Problem, 20 Geo. Int’l Envtl L. Rev. 1, 25-26 (2007).

[24] See, e.g., Lawrence E. Mitchell, Corporate Irresponsibility: America’s Newest Export, 276-78 (2001) (noting that since American companies are legally incentivized to focus on the short-term wealth maximization of their shareholders, and that a defining feature of these companies are their limited liability, such companies are necessarily incentivized to become externalizing machines). Indeed, Mitchell argues that the “corporation is an externalizing machine, in the same way that a shark is a killing machine… [it] is deliberately programmed, indeed legally compelled, to externalize costs without regard for the harm it may cause to people, communities and the natural environment.” Id. at 49-53.

[25] See, e.g., Harold Demsetz, 57 America’s Am. Econ. Rev. 347-50 (1967) (providing a foundational conception of property rights, Demsetz famously observed that property rights in a resource tend to emerge to help “internalize externalities when the gains of internalization become larger than the cost of internalization”). An externality arises when “the activity of one entity … directly affects the welfare of another in a way that is not transmitted by market prices.” America’s Am. Econ. Harvey S. Rosen, Public Finance 86 (5th ed. 1999). Indeed, this productivity impulse is reflected, for example, in the doctrine of first possession; see also Mario Rizzo, Law Amid Flux: The Economics of Negligence and Strict Liability in Tort, 9 Am. Econ J. Legal Stud. 291, 298 (1980) (describing a major purpose of tort law as a means of internalizing the cost of external harms, thereby incentivizing actors to find ways to reduce their cost by decreasing external harms); see also Joel Bakan, The Corporation: The Pathological Pursuit of Profits and Power, 1-2 (2004) (Discussing the behavioral characteristics of the corporate form, the author notes that the “corporation’s legally defined mandate is to pursue, relentlessly and without exception, its own self-interest, regardless of the often-harmful consequences it might cause to others”). As such, that millions of pieces of unattributed space junk currently orbit Earth should surprise no one.

[26] See generally Thomas E. Simmons, Deploying the Common Law to Quasi-Marxist Property on Mars, 51 Gonz. L. Rev. 25 (2016); Robbie Gramer, Striking Gold in Space, Washington Lawyer, (2016); Arbaugh, supra note 14; see also Kara Swisher, Why Are Elon Musk and Jeff Bezos So Interested in Space?, February 26, 2021, NYTimes, available at https://www.nytimes.com/2021/02/26/opinion/mars-nasa-musk.html. Noting the considerable influence of Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin in Earth’s nascent commercial space industry and much of the fawning media coverage of their exploits, Swisher argues that:

[w]e have handed over so much of our fate to so few people over the last decades, especially when it comes to critical technology. As we take tentative steps toward leaving Earth, it feels like we are continuing to place too much of our trust in the hands of tech titans. Think about it: We the people invented the internet, and the tech moguls pretty much own it. And we the people invented space travel, and it now looks as if the moguls could own that, too. Let’s hope not. NASA, and other government space agencies around the world, need our continued support to increase space exploration.

Id.

[27] Matthew Feinman, Mining the Final Frontier: Keeping Earth’s Asteroid Mining Ventures from Becoming the Next Gold Rush, 14 Pitt. J. Tech. L. & Pol’y 202 (2014) (noting the excitement in the nascent space industry of extracting precious metals from asteroids, Feinman argues that “[b]efore these companies can begin mining, stronger property laws are needed to ensure that the Asteroid Belt of our solar system is not described as the next California Gold Rush and as having the lawlessness associated with it”); Samuel Roth, Developing a Law of Asteroids: Constants, Variables, and Alternatives, 54 Colum. J. Transnat’l L. 827, 866 (2016) (detailing the moral concerns triggered by the prospect of asteroid mining, Roth argues that “[i]In recent decades, men and women from around the globe have come to profoundly regret the choices of previous generations to consume Earth’s natural resources in ways that have left lasting scars”); see generally, Intergovernmental panel on climate change, climate change 2014 synthesis report (2015), https://www.ipcc.ch/site/assets/uploads/2018/05/SYR_AR5_FINAL_full_wcover.pdf.

[28] See generally supra note 23.

[29] Mega-constellations are groups of dozens, or even hundreds, of mass-produced satellites united in a common task. This recent technological development is leading to an increasingly congested LEO environment, which increases the potential of orbital collisions between spacecraft, which then creates more orbital debris that in turn increases the likelihood of more collisions. See e.g. Aaron C. Boley & Michael Byers, Satellite Mega-Constellations Create Risks in Low Earth Orbit, the Atmosphere and on Earth. Sci. Rep. 11 10642 (2021) (arguing that the current regulatory framework is insufficient to curtail the likely multiple tragedies of the commons to the availability of Earth orbits, due to orbital debris, the Earth’s upper atmosphere, due to emissions from spacecraft, and ground-based astronomy, due to the number of satellites that can obstruct ground-based telescopes); Leonard David, Space Junk Removal Is Not Going Smoothly, Scientific American, April 14, 2021, available at https://www.scientificamerican.com/article/space-junk-removal-is-not-going-smoothly/ (arguing that the increasing satellite congestion in low Earth orbits is creating a “Space Age ‘tragedy of the commons’” fueled by increasing orbital debris); Nathaniel Scharping, The Future of Satellites Lies in the Constellations, Discover Magazine, June 30, 2021, available at https://www.discovermagazine.com/the-sciences/the-future-of-satellites-lies-in-the-constellations (noting the advent of mega-constellations as a driving force in the increasing the odds of collisions that create more orbital debris).

[30] See Marina Koren, Private Companies are Building an Exoskeleton Around Earth, The Atlantic, May 24, 2019, available at https://www.theatlantic.com/science/archive/2019/05/spacex-satellites-starlink/590269/ (noting the development of mega-constellations by several companies, the article quotes the CEO of SpaceX, Elon Musk, regarding how its Starlink mega-constellation, the aim of which is to provide high-speed and low latency broadband internet across Earth, will unfurl. Once thousands of these satellites are in LEO, Musk notes that they will fan out across LEO “like spreading a deck of cards on the table.”) Id.

[31] LEO is defined as the region from Earth’s edge to 2,000 kilometers of altitude, or roughly 1,200 miles above Earth’s edge. See NASA, https://www.orbitaldebris.jsc.nasa.gov/photo-gallery.html; Center for Strategic and International Studies, https://aerospace.csis.org/aerospace101/popular-orbits-101/ (last visited September 6, 2021). The majority of all orbital debris is located in LEO. See NASA Office of Inspector General: NASA’s Efforts to Mitigate the Risks Posed by Orbital Debris, January 27, 2021, https://oig.nasa.gov/docs/IG-21-011.pdf at 3.

[32] NEPA “requires federal agencies to take a hard look at the environmental consequences of their projects before taking action.” 42 U.S.C. § 4321 (2018). An agency is responsible for NEPA review of its actions if it is reasonably foreseeable that those actions could lead a third party to engage in activity that could significantly impact the environment. See, e.g., Brady Campaign to Prevent Gun Violence v. Salazar, 612 F.Supp. 2d 1, 13 (D.D.C. 2009); see, e.g., Ramon J. Ryan, The Fault in Our Stars: Challenging the FCC’s treatment of Commercial Satellites as Categorically Excluded from Review under the National Environmental Policy Act, 22 Vand. J. Ent. & Tech. L. 923, (2020) (arguing that the FCC’s current stance that commercial satellite mega-constellation projects are categorically excluded from environmental reviews may not survive judicial scrutiny, as the FCC’s stance is best understood as conclusory. Ryan contends that the FCC has opened itself up to litigation by not following the NEPA statute and assessing environmental impacts of commercial satellites, such as the orbital debris likely resulting from mega-constellations. These impacts, he argues, clearly merit an assessment under the NEPA statute, which requires the FCC to assess the environmental impacts of commercial satellite projects before approving them for launch). see also discussion infra Part IV, A.

[33] See supra note 2 at Part Two, A.

[34] See Ryan Morrison, International Space Station is Forced to Carry Out and Emergency Manoeuvre to Avoid Being Hit by a Piece of Debris From a 2018 Japanese Rocket, Daily Mail, September 22, 2020 available at https://www.dailymail.co.uk/sciencetech/article-8761867/ISS-initiates-avoid-space-debris.html; see also Samantha Masunaga, A Satellite’s Impending Fiery Demise Shows How Important it is to Keep Space Clean, L.A. Times, June 27, 2021, available at https://www.latimes.com/business/story/2021-06-27/satellites-self-destruct-clean-up-space-junk; Adrian Moore & Rebecca Van Burken, It’s Time for US to Get Serious About Cleaning Up Space Junk, The Hill, July 27, 2021, available at https://thehill.com/opinion/technology/564945-its-time-for-us-to-get-serious-about-cleaning-up-space-junk.

[35] See Space Debris and Human Spacecraft, National Aeronautics & Space Administration, https://www.nasa.gov/mission_pages/station/news/orbital_debris.html (last visited August 12, 2021).

[36] Id.

[37] NASA reports that “a number of space shuttle windows were replaced because of damage caused by material that was analyzed and shown to be paint flecks.” Indeed, NASA further documents that “millimeter-sized orbital debris represents the highest mission-ending risk to most robotic spacecraft operating in [LEO].” Id.

[38] Id.

[39] See e.g., Boley & Byers supra note 29; see also supra note 30 and accompanying text.

[40] See Raffi Khatchadourian, The Elusive Peril of Space Junk, The New Yorker Magazine, September 28, 2020, available at https://www.newyorker.com/magazine/2020/09/28/the-elusive-peril-of-space-junk; see also, e.g., Donald J. Kessler & Burton G. Cour-Palais, Collision Frequency of Artificial Satellites: The Creation of a Debris Belt, J. Geophys. Res. 83, 2637 (1978); see also Paul B. Larsen, Solving the Space Debris Crisis, 83 J. Air L. & Commerce 475, 476-82 (2018); Stephan Hobe, Space Law 112-14 (2019); Alexander William Salter, Space Debris: A Law and Economics Analysis of the Orbital Commons, 19 Stanford Tech. L. Rev. 221, 224-27 (2016).

[41] See Boley & Byers supra note 29 at 11; see also, e.g., NASA Office of Inspector General, supra note 31 at 14:

Multiple studies by NASA and other space agencies have found that orbital debris has already reached critical mass, and collisional cascading will eventually happen even if no more objects are launched into orbit. According to NASA, by 2005 the amount and mass of debris in LEO had grown to the point that even if no additional objects were launched into orbit, collisions would continue to occur, compounding the instability of the debris environment and increasing operational risk to spacecraft by 2055 unless measures were taken to curb the growth of the debris population. However, the amount of orbital debris has not decreased, or even stabilized, since 2006. Instead, the largest increases of new spacecraft and debris generation have occurred in LEO since 2006.

Id.

[42] See Masunaga supra note 34. Quoting Assistant Professor at Arizona State University’s School for the Future of Innovation in Society, Masunaga writes:

[t]he rate at which we’re launching is increasing exponentially and is proposed to increase five to tenfold over the coming decade… [w]e don’t want to raise [sic] alarm by saying it’s so, so terrible, but the thing is, it potentially could be so, so terrible if we don’t do anything about ensuring that people think more sustainably about how to do space activities.

Id; see also supra note 29 and accompanying text.

[43] See Boley & Byers supra note 29 at 11 (noting that the exponential development of mega-constellations “risks multiple tragedies of the commons” to all LEO orbits, the chemical makeup of Earth’s upper atmosphere, and ground-based astronomy, due to the increased likelihood of orbital collisions and other externalities associated with such satellite launches. The article further argues that “international cooperation is urgently needed, along with a regulatory system that takes into account the effects of tens of thousands of satellites”). Id.

[44] See Michael Sheetz, SpaceX Adding Capabilities to Starlink Internet Satellites, Plans to Launch Them with Starship, CNBC, August 19, 2021, available at https://www.cnbc.com/2021/08/19/spacex-starlink-satellite-internet-new-capabilities-starship-launch.html (describing an amendment to Starlink’s FCC authorization, Sheetz notes that these Gen2 Starlink satellites will be both heavier and larger than originally designed); see also supra note 30 and accompanying text regarding the purpose of the Starlink project.

[45] See In the Matter of Space Exploration Holdings, LLC, FCC 21-48 (April 23, 2021) https://docs.fcc.gov/public/attachments/FCC-21-48A1.pdf.

[46] See see, e.g., Tereza Pultarova, SpaceX Starlink Satellites Responsible for Over Half of Close Encounters in Orbit, Scientist Says, Space.com, August 18, 2021, available at https://www.space.com/spacex-starlink-satellite-collision-alerts-on-the-rise. Quoting Professor Hugh Lewis, Head of the Aeronautics Research Group at the University of Southampton and Europe’s leading expect on space debris, Pultarova writes:

I have looked at the data going back to May 2019 when Starlink was first launched to understand the burden of these mega-constellations… . Since then, the number of encounters picked up by the Socrates database has more than doubled and now we are in a situation where Starlink accounts for half of all encounters.

Id.

[47] Id; see also discussion infra Part II.

[48] See Elizabeth Howell, Amazon’s 1^st Kuiper Megaconstellation Satellites will Launch on a ULA Atlas V Rocket, Space.com, April 20, 2021, available at https://www.space.com/amazon-kuiper-megaconstellation-atlas-v-rockets.

[49] See Jonathan Amos, OneWeb Lays Path to Commercial Broadband Services, BBC News, July 1, 2021 available at https://www.bbc.com/news/science-environment-57674882.

[50] See Eva Mathews & Steve Scherer, Telesat Closer to Financing Satellite Network after Canada Investment, Reuters August 12, 2021, available at https://www.reuters.com/technology/telesat-get-14-billion-investment-canadian-government-2021-08-12/.

[51] See Paul Stephen Dempsey, National Laws Governing Commercial Space Activities: Legislation, Regulation, & Enforcement, 36 Nw. J. Int’l L. & Bus. 1-4 (2016); see also, e.g., NASA Office of Inspector General, supra note 31 at 14:

Ten years ago, the number of spacefaring entities was relatively small, limited mainly to government space agencies with budgets capable of supporting the development of complex technology, spacecraft, and launch vehicles. However, the advent of the commercial launch industry and miniaturized satellites have significantly decreased the costs of owning and launching spacecraft over the last 10 years, enabling more countries and even commercial entities to develop, own, and launch space-based assets. … This rapid increase of space activity has simultaneously accelerated the creation of orbital debris.

Id; see also supra note 2 and accompanying text.

[52] Id. See generally Ian Blodger, Reclassifying Geostationary Earth Orbit as Private Property: why Natural Law and Utilitarian Theories of Property Demand Privatization, 17 Minn. J. L. Sci. & Tech. 409 (2016); Foster, supra note 14; Diane Howard, Safety as a Synergistic Principle in Space Activities, 10 Fiu L. Rev. 713 (2015); Steven A. Mirmina, Astronauts Redefined: The Commercial Carriage of Humans to Space and the Changing Concepts of Astronauts Under International and U.S. Law, 10 Fiu L. Rev. 669 (2015); Ross Meyers, The Doctrine of Appropriation and Asteroid Mining: Incentivizing the Private Exploration and Development of Outer Space, 17 Or Rev. Int’l L. 183 (2015).

[53] See supra note 15 and accompanying text.

[54] See supra note 13 and accompanying text regarding the obligation of OST signatories to authorize and continuously supervise the activities of their non-governmental entities in outer space.

[55] See supra note 51 and accompanying text.

[56] See supra note 29 and accompanying text; see also supra note 30 and accompanying text.

[57] See supra note 16 and accompanying text; see supra note 26; see also generally Lintner supra note 14 (arguing that the Space Act counterintuitively creates more business uncertainty due to its questionable compatibility with U.S. obligations under the OST); see also Kevin MacWhorter, Sustainable Mining: Incentivizing Asteroid Mining in the Name of Environmentalism, 40 Wm. & Mary Envtl. L & Pol’y Rev. 645 (2016) (arguing that without an amendment to the OST that creates privity of title in the resources extracted from celestial bodies, both domestic and international law are insufficient to incentivize sustainable space industries); see generally Thomas J. Herron, Deep Space Thinking: What Elon Musk’s Idea to Nuke Mars Teaches Us About Regulating the ‘Visionaries and Daredevils’ of Outer Space, 41 Colum. J. Envtl. L. 553 (2016); Matthew Schaefer, The Need for Federal Preemption and International Negotiations Regarding Liability Caps and Waivers of Liability in the U.S. Commercial Space Industry, 33 Berkeley J. Int’l L. 223 (2015).

[58] GEO is an orbital zone above Earth’s equator where the satellite remains above the same point on Earth. GEO is important for satellite communication because it allows permanent installations on Earth to point directly to the satellite, receiving information without constant recalibration. The number of satellites that can use a GEO at a time is limited to approximately 2000 satellites due to the potential for communication frequency interference. GEO differs from LEO in that LEO objects are closer to Earth’s surface and do not remain fixed over a specific location. See Basics of Space Flight; Planetary Orbits, https://solarsystem.nasa.gov/basics/chapter5-1/ (last visited September 2, 2021); see also generally Michael J. Finch, Comment, Limited Space: Allocating the Geostationary Orbit, 7 NW. J. Int’l L. & Bus. 788, (1986).

[59] For more information on ITU regulatory publications see the ITU Radiocommunication Sector (ITU-R) webpage at: https://www.itu.int/en/ITU-R/Pages/default.aspx. The United States is bound by ITU documents and implements many of the specific technical obligations through regulations, such as those promulgated by the FCC. See generally Lawrence D. Roberts, A Lost Connection: Geostationary Satellite Networks and the International Telecommunication Union, 15 Berkeley Tech. L.J. 1095, 1106, 1111 (2000).

[60] See ITU Const. of 2018 art. 44 § 196, available at https://www.itu.int/en/council/Documents/basic-texts/Constitution-E.pdf.

[61] See, e.g., FCC Fact Sheet, Updating Rules for Non-Geostationary-Satellite Orbit Fixed-Satellite Service Constellations, Sept. 7, 2017, available at https://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0907/DOC-346584A1.pdf; see also Boley & Byers supra note 29 at 15.

[62] See supra note 30 and accompanying text.

[63] See supra note 29 and accompanying text.

[64] See e.g., Boley & Byers supra note 29.

[65] See supra note 2 at Art. I.

[66] Id. at Art. II. Although FCC regulators are not claiming sovereignty over orbital shells, allowing national companies to saturate them with satellites could constitute appropriation by “other means;” see also supra note 30 (describing the of SpaceX’s mega-constellation in LEO, Koren argues that “the thought of a commercial company’s satellites outnumbering all the rest, and in such a short period of time, is rather astonishing. If extraterrestrial beings were to swing past Earth and check the tags on the artificial objects shrouding the planet, they might think the place belonged to SpaceX”); see also Boley & Byers supra note 29 at 15.

[67] See Boley & Byers supra note 29 at 15. Unlike the FCC’s assignment of GEO orbits, namely, that the assignment be made in a manner that ensures other countries “may have equitable access to those orbits,” no similar regulatory language regarding the assignment of LEO orbits exist. See supra notes 58-61 and accompanying text.

[68] See, e.g., 47 C.F.R. § 1.1306 (2019). There are three exceptions to the FCC’s lack of NEPA review for commercial satellite operators. The first exception is when an applicant proposes a communications facility in a certain location, such as a designated wildlife preserve. The second exception is when an applicant proposes a communications facility that would use high-intensity lighting near a residential area. The third exception is when an applicant proposes a communications facility that would expose humans to radio-frequency radiation above the FCC’s designated safety standards. As such, the FCC considers all satellite mega-constellations, in a most conclusory fashion, as categorically exempt from NEPA review. Id. at § 1.1306(b)(1); § 1.1307(a); § 1.1306(b)(2); § 1.1307(a); § 1.1306(b)(3); see, e.g., Ryan supra note 32 and accompanying text. Since 1986, the FCC considers commercial satellite projects as “categorically excluded” from NEPA review. Id; see, e.g., JASON Report, Mitre Corp., The Impacts of Large Constellations of Satellites (2021), available at https://www.nsf.gov/news/special_reports/jasonreportconstellations/JSR-20-2H_The_Impacts_of_Large_Constellations_of_Satellites_508.pdf. JASON was asked by the National Science Foundation and Department of Energy to assess the possible growth and impact of future mega-constellations on orbital debris. In addition to assessing the likely increased orbital debris resulting from mega-constellations in LEO, JASON was also asked to assess mega-constellation impacts on optical astronomy generally, infrared astronomy, radio astronomy, cosmic microwave background studies, and laser guide-star observations. Id. Noting that the only real FCC regulations that constrain the growth of mega-constellations regard the availability of radio spectrum, and arguing that the FCC’s 2020 orbital debris guidelines, which are only requirements for disclosure rather than mandated thresholds, JASON concluded that FCC regulations fail to effectively mitigate orbital debris in LEO and “fall well short of what the FCC evidently thinks are required for safe traffic management in space …”. Id at 101-2; see also supra note 29 and accompanying text.

[69] See Benjamin Silverstein & Ankit Panda, Space is a Great Commons. It’s Time to Treat it as Such, Carnegie Endowment for International Peace, March 9, 2021, available at https://carnegieendowment.org/2021/03/09/space-is-great-commons.-it-s-time-to-treat-it-as-such-pub-84018 (arguing that the U.S.’s failure to manage LEO orbits as a commons undermines safety and predictability in a manner that exposes space operators to growing risks, such as collisions with other satellites and orbital debris).

[70] See In the Matter of Space Exploration Holdings, LLC, FCC 21-48 (April 23, 2021) https://docs.fcc.gov/public/attachments/FCC-21-48A1.pdf (discounting arguments against their approval of SpaceX’s Starlink mega-constellation project that increasing the density of satellites in LEO will increase the amount of orbital debris, which negatively impacts the human environment in a manner that triggers the applicability of NEPA, the FCC argued that “[w]ithout deciding whether such alleged impacts in space are even within the scope of NEPA (which applies to effects on the quality of the human environment),” satellite mega-constellations are “categorically excluded” from NEPA’s environmental review process). Id at 50.

[71] See supra note 29 and accompanying text.

[72] Id; see also JASON Report supra note 68 and accompanying text. The worst known space collision in history took place in February 2009 when the U.S. telecommunication satellite, Iridium 33, and Russia’s defunct military satellite, Kosmos-2251, crashed at the altitude of 490 miles. The incident spawned over 1,000 pieces of debris larger than 4 inches. Many of these fragments were then involved in further orbital incidents. See Leonard David, Effects of Worst Satellite Breakup in History Still Felt Today, January 28, 2013, available at https://www.space.com/19450-space-junk-worst-events-anniversaries.html.

[73] See supra note 2.

[74] See infra supra note 6 and accompanying text.

[75] Howard A. Baker, Space Debris: Legal and Policy Implications 25, 79 (1989). The Liability Convention established a basic framework of tort law applicable to space activities and was a response to concerns about the danger that space objects pose on Earth as they re-enter the atmosphere. Damage caused by space objects while they are in space, however, did not motivate the formation of the Liability Convention, which explains why terrestrial damage has a stricter liability scheme under the Liability Convention than does damage that occurs in space. Id.

[76] See Liability Convention supra note 6. at Art. III.

[77] See Baker supra note 75 at 85-86.

[78] See supra note 8.

[79] See supra note 61.

[80] See supra note 30 and accompanying text.

[81] See supra note 29 and accompanying text.

[82] See supra note 2 at Art. I; Id. at Art. II; Id at Art IX (prohibiting “potentially harmful interference with activities in the peaceful exploration and use of outer space”). Id.

[83] See supra note 60.

[84] See discussion infra Part II.

[85] But see supra note 70 and accompanying text.

[86] See supra note 32 and accompanying text; see also discussion infra Part IV, A.

[87] See https://docs.fcc.gov/public/attachments/FCC-20-54A1.pdf; see also, Federal Register, 85, 165, 52422, & 52455.

[88] See supra note 29 and accompanying text; see also supra note 59 and accompanying text.

[89] See, e.g., JASON Report supra note 68 and accompanying text.

[90] Id at 101-2.

[91] See supra note 20 at 1334.

[92] See David, supra note 22.

[93] Id.

[94] See Caleb Henry, Iridium Would Pay to Deorbit its 30 Defunct Satellites — for the Right Price, SpaceNews, December 30, 2019, available at https://spacenews.com/iridium-would-pay-to-deorbit-its-30-defunct-satellites-for-the-right-price/.

[95] Id.

[96] At current launch prices, $10,000 would barely be enough to launch several pounds of fuel, let alone a spacecraft. Id.

[97] Id. Desch went on to note that his $10,000 price point suggestion was “intentionally provocative and for thought purposes.”

[98] See supra note 46.

[99] See Starlink Pre-Order Agreement, available at https://www.starlink.com/legal/terms-of-service-preorder.

[100] As Mars is considered a “celestial body” under the OST, the OST applies to Mars. See supra note 2 at Art. I, II, III, VI, and VIII; see also Antonio Salmeri, No, Mars is Not a Free Planet, no Matter What SpaceX Says, SpaceNews, December 5, 2020, available at https://spacenews.com/op-ed-no-mars-is-not-a-free-planet-no-matter-what-spacex-says/.

[101] See supra note 46 and accompanying text.

[102] See supra note 2 at Art. II; Id at Part Two, A; see also supra note 29 and accompanying text; see also supra note 59 and accompanying text; see also generally Kessler & Burton, supra note 40.

[103] See supra note 32 and accompanying text.

[104] Id; see also Scientists’ Inst. for Pub. Info., Inc. v. Atomic Energy Comm’n, 481 F.2d 1079, 1088-89 (D.C. Cir. 1973).

[105] See Beattie v. United States, 756 F.2d 91, 99 (D.C. Cir. 1984).

[106] See NEPA, supra note 32 at § 4332(F) (requiring support for international efforts to prevent environmental degradation); see also Lawrence Gerschwer, Informational Standing Under NEPA: Justiciability and the Environmental Decisionmaking Process, 93 Colum. L. Rev. 996, 1000-1008 (1993) (describing procedural process for NEPA review). It is long established that federal agencies must analyze impacts that are caused by proposed federal actions, even if the impact will be felt in “the global commons outside the jurisdiction of any nation.” See Exec. Order No. 12,114, § 2-3(a), 44 Fed. Reg. 1957 (Jan. 4, 1979).

[107] An EA is a “concise public document” that provides evidence and analysis as to whether the agency’s action will have a significant impact on the environment. See 40 C.F.R. § 1508.9(a)(1).

[108] See Greenpeace v. Stone, 748 F. Supp. 749, 766 (D. Haw. 1990) (holding certain circumstances may require application of NEPA to programs abroad); Sierra Club v. Adams, 578 F.2d 389, 392 (D.C. Cir. 1978) (refusing to decide issue of NEPA’s extraterritorial application according to impacts within United States); Environmental Defense Fund v. Massey, 986 F.2d 528, 530-31 (D.C. Cir. 1993) (stating NEPA should be interpreted broadly).

[109] 42 U.S.C. § 4332(C) (2018); 40 C.F.R. § 1508.4 (2019). A categorical exclusion is a “category of actions which do not individually or cumulatively have a significant effect on the human environment.” Id. at § 1508.4.

[110] See Massey, supra note 108 at 532 (finding NEPA applicable when a federal action’s environmental impacts affect more than one nation).

[111] See Bird, supra note 23 at 674-5; see generally Shackelford, supra note 23 (arguing that outer space is best considered a global commons in the same manner as is the deep ocean seabed); see e.g., supra note 69 and accompanying text. In support of considering outer space as a global commons, Silverstein & Panda argue that:

[t]raditionally, commons are areas beyond state dominion that host finite resources available to all (like the oceans) or that provide non-excludable global benefits (like the atmosphere). Outer space is no different … the only natural resource in near-Earth space is the volume of Earth orbits themselves. Space is available for all to use, and states and commercial enterprises use satellites in Earth orbits to deliver agricultural, educational, financial, and security benefits to communities around the globe … . New conventions or regulatory mechanisms for governing Earth orbits will not appear overnight, but states can build toward these goals by clarifying their commitments to treat space as a commons and pursuing governance arrangements that reflect this commitment. New policies in the United States should reflect that Earth orbits are a great commons.

Id.

[112] See supra note 71 and accompanying text; see also Ryan supra note 32 and accompanying text.

[113] See e.g., supra note 70 and accompanying text; see also supra note 68 and accompanying text; see also Ryan, supra note 32 at 938 (detailing the courts’ treatment of the type of conclusory findings that the FCC provided in its review of SpaceX’s Starlink mega-constellation project, Ryan argues that “the goal of examining the cumulative impacts of a project is to prevent an actor from engaging in an activity that has a minimal impact on the environment but, when combined with the activity of other actors, results in a significant impact on the environment”). See Friends of the Earth, 109 F. Supp. 2d at 41 ((citing Nat. Res. Def. Council, Inc. v. Hodel, 865 F.2d 288, 297 (D.C. Cir. 1988)). The court went on to argue that “[c]onclusory remarks … do not equip a decisionmaker to make an informed decision about alternative courses of action or a court to review the Secretary’s reasoning.” Id. (citing Hodel, 865 F.2d at 298). Accordingly, when a federal agency argues that its actions have no significant environmental impact, as the FCC argued regarding its review of the Starlink mega-constellation, without providing supporting evidence for this argument, these arguments may be rejected by the court. Id. at 42.

[114] See supra note 70 and accompanying text. Under the provisions of the OST, every nation has a stake in outer space. See supra note 2 at Part Two, A.

[115] See supra note 2 at at Art. I.

[116] Id. at Part Two, A.

[117] Id. at Art. II.

[118] Id. at Art. VI.

[119] See Jeff Foust, Rocket Lab to Launch Astroscale Inspection Satellite, SpaceNews, September 23, 2021, available at https://spacenews.com/rocket-lab-to-launch-astroscale-inspection-satellite/ (describing current company projects to remove orbital debris); see also Masunaga supra note 64 (detailing private efforts to develop orbital debris removal technology); see also generally, Akhil Rao, Matthew G. Burgess, & Daniel Kaffine, Orbital-Use Fees Could More Than Quadruple the Value of the Space Industry, 23 Proceedings of the National Academy of Sciences, 117 (2020); J. Pearson, J. Carroll, E. Levin, & J. Oldson, Active debris removal: EDDE, the ElectroDynamic Debris Eliminator in Proceedings of 61^st international astronautical congress (2010).

[120] See e.g., NASA Office of Inspector General, supra note 31 at 16. Detailing the conditional effectiveness of voluntary orbital debris mitigation guidelines, the report notes that:

…at the February 2020 United Nations Committee on the Peaceful Uses of Outer Space meeting in Vienna, Austria, the United States urged all spacefaring nations, emerging space nations, international organizations, and non-government organizations to implement orbital debris mitigation guidelines to limit the generation of debris. However, adopting voluntary guidelines does not ensure compliance, as demonstrated when China and India—both signatories of the Inter-Agency Debris Coordination Committee—conducted their anti-satellite tests in 2007 and 2019, respectively, resulting in the creation of additional orbital debris. At a September 2020 congressional committee hearing, NASA’s Administrator commented, “… there has been a lot of activity from our international friends who don’t necessarily follow the guidelines. While countries sign on to the guidelines, it does not necessarily mean they fully adhere to the guidelines.”

Id.

[121] Id; see also Jamie Morin, Four Steps to Global Management of Space Traffic, Nature, March 5, 2019, available at https://doi.org/10.1038/d41586-019-00732-7; see also Jeff Foust, Space Force Backs Development of Commercial Orbital Debris Removal Systems, SpaceNews, September 15, 2021, available at https://spacenews.com/space-force-backs-development-of-commercial-orbital-debris-removal-systems/ (describing efforts by the United States Space Force to support the development of private sector solutions that address the growing problem of orbital debris); see also supra note 87.

[122] See supra note 20; see also, e.g., supra note 25 and accompanying text; Khatchadourian supra note 40. Quoting Chris Blackerby, Chief Operations Officer of Astroscale, the world’s first private orbital debris removal company on the incentive structure of satellite operators, Khatchadourian writes:

“[w]e recognize the operators don’t see a current impetus to bring [their debris] down … ”. “One of the problems is, when does the price point for paying for the removal of the debris reach the level in the minds of those operators that it’s worth it to mitigate that risk?”

Id; see supra notes 94-97 and accompanying text; see also discussion infra Part III.

[123] See Rao et al., supra note 119, at 12756.

[124] Id.

[125] See supra note 2 at Art. II.

[126] See Liability Convention supra note 6. at Art. III; see also Baker supra note 75 at 85-86.

[127] See Rao et al., supra note 119 at 12756; see also supra notes 94-97 and accompanying text; discussion infra Part III.

[128] This dynamic will likely doom outer space to Garrett Hardin’s seminal 1968 formulation of the tragedy of the commons: “[r]uin is the destination toward which all men rush, each pursuing his own best interest.” Garrett Hardin, The Tragedy of the Commons, 162 Science 1243, 1244 (1968); see also Setting Barry C. Field & Nancy D. Olewiler, Environmental Economics 64-81 (1995) (explaining the international tragedy of the commons in pollution); see also supra note 20 and accompanying text; David, supra note 29 and accompanying text; Muñoz-Patchen, supra note 23; see also Matthew Weinzierl, Space, the Final Economic Frontier, J. Econ Perspect. 32, 173–192 (2018); Alexandra Witze, The Quest to Conquer Earth’s Space Junk Problem, Nature 561, 24–26 (2018); Nodir Adilov, Peter J. Alexander, & Brendan Michael Cunningham, Earth Orbit Debris: An Economic Model. Environ. Resour. Econ. 60, 81–98 (2015); see also discussion infra Part IV, A.

[129] See supra note 2 at Art. VI.

[130] See e.g., Rao et al., supra note 119. Based on the calculations in this study, which focuses on the source of the externality, the object in orbit:

the optimal OUF starts at roughly $14,900 per satellite-year in 2020 and escalates at roughly 14% per year (aside from some initial transition dynamics) to around $235,000 per satellite-year in 2040. Rising optimal price paths are common in environmental pricing such as carbon taxes… although declining optimal price paths are also possible. The rising price path in this case partly reflects the rising value of safer orbits … [resulting] from the OUF. For comparison, the average annual profits of operating a satellite in 2015 were roughly $2.1 million. The 2020 and 2040 OUF values we describe amount to roughly 0.7 and 11% of average annual profits generated by a satellite in 2015.

[131] See NASA Office of Inspector General, supra note 31. Regarding the U.S. government’s funding need for orbital debris removal projects, NASA argues that:

[a]lthough it is important for NASA to continue to support efforts to encourage spacefaring entities to adopt orbital debris mitigation guidelines, it is equally important that the Agency act on the multiple presidential and congressional directives to pursue active debris removal technologies … . NASA has been directed by the President and Congress multiple times over the past 10 years to develop active debris removal technology; however, the Agency has not … received funding to support these efforts … . In response to the directive to develop an interagency strategy, NASA led an effort to develop the U.S. government’s collaborative framework for active debris removal. The framework was presented to NASA leadership and the Office of Science and Technology Policy in 2014. However, no action was taken to share (beyond the Office of Science and Technology Policy), adopt, or implement the framework. According to NASA officials, this was due to both internal and external factors including a lack of dedicated funding … .

Id.

[132] See e.g., Rao et al., supra note 119 at 12758 (arguing that “[w]ithout OUFs, [economic] losses [to satellite operators] remain substantial even when active debris removal … is available.” Id. The authors go on to argue that an unambiguous growth restraint on the nascent space industry is the escalating costs of inaction regarding orbital debris, explaining that:

[e]scalating costs of inaction are a common feature of the tragedy of the commons, evident in several other sectors in which it went unaddressed for lengthy periods. For example, tens of billions of dollars in net benefits are lost annually from open-access or poorly managed fisheries globally. Similarly, open access to oil fields in the United States at the turn of the century drove recovery rates down to 20 to 25% at competitively drilled sites, compared with 85 to 90% potential recovery under optimal management. Open access to roadways—somewhat analogous to orbits—is estimated to create traffic congestion costs in excess of $120 billion/y in the United States alone. In contrast, there is still time to get out ahead of the tragedy of the commons in the young space industry.

Id.

[133] See Government Regulation: Costs Lower, Benefits Greater than Industry Estimates, Space Pew Charitable Trs. (May 26, 2015), https://www.pewtrusts.org/-/media/assets/2015/05/industry/government_regulation_costs_lower_benefits_greater_than_industry_estimates.pdf [https://perma.cc/7WWV-KLH8].

[134] Id.

[135] See supra note 2 at Part Two, A.

[136] See The Commercial Satellite Industry: What’s Up and What’s on the Horizon: Hearing Before the S. Comm. on Commerce, Sci., and Transp., 115th Cong. 5 (2017) (statement of Greg Wyler, Founder and Executive Chairman, Worldvu Satellites Limited (OneWeb)).

[137] Id. at Part Two, A. and Id. at Art. VI.

[138] Id. at Art. I.

[139] Id. at Part Two, A.

[140] Id. at Art. VI.

[141] Id. at Art. VII; see also See Liability Convention supra note 6; see Meghan R. Plantz, Note, Orbital Debris: Out of Space, 40 Ga. J. Int’l & Comp. L. 585, 603 (2012).

[142] Id. at Art. II.

[143] Id. at § 51302.

[144] See supra note 8.

[145] See discussion infra Part III.

[146] See supra note 22 and accompanying text; supra note 29 and accompanying text; see also JASON Report supra note 68 and accompanying text.

[147] See supra note 16 and accompanying text.

[148] See generally, Jensen, supra note 14; Irwin, supra note 14; Foster, supra note 14; Lintner, supra note 14.

[149] See discussion infra Part III.

[150] See supra notes 2-7 and accompanying text.

[151] See supra note 2 at Art. I.

Recently, a Delaware bankruptcy judge reminded potential buyers or acquirers of assets from a distressed entity they have important protections. The judge was overseeing the restructuring of Ruby Tuesday and its affiliates and highlighted the protection afforded to buyers who purchase assets under Section 363(f) of the Bankruptcy Code.[1]

Before RTI Holding Company, LLC (RTI) filed for bankruptcy in late 2020, it negotiated and accepted a purchase and sale agreement with BNA Associates (BNA) to sell its leasehold interest to the RT Lodge, a historic hotel and event space in Knoxville, Tennessee. Under the agreement, BNA would purchase RTI’s 50-year leasehold interest in the RT Lodge for $5.25 million. However, the agreement was subject to the consent of a specialty lending unit of Goldman Sachs, which was RTI’s secured lender. While the property owner consented to the transaction, BNA could not obtain consent from Goldman Sachs. Before the deal between BNA and RTI could close, RTI and other Ruby Tuesday affiliates filed for bankruptcy.

BNA attempted to purchase the leasehold interest through an auction conducted under the Bankruptcy Code with a $5.3 million bid, but it was unsuccessful when the debtors cancelled the auction after determining that BNA was not a “qualified bidder” under the bidding procedures order. BNA later objected to the debtor’s plan of reorganization, stating, among other things, that Goldman Sachs was interested in acquiring the leasehold interest prior to withholding their consent to the purchase and sale agreement between BNA and RTI. Ultimately, Goldman Sachs acquired the leasehold interest in the RT Lodge under the confirmed plan, which granted Goldman Sachs 100% equity in the affiliate holding the leasehold interest.

In May 2021, BNA filed suit against Goldman Sachs in Tennessee state court, alleging that Goldman Sachs improperly used its position as RTI’s secured lender to withhold its consent to the purchase and sale agreement, and prevented BNA from acquiring the leasehold interest before the bankruptcy filing. Goldman Sachs sought relief from the bankruptcy court by filing a motion that stated the Tennessee suit was an impermissible collateral attack on the confirmation order. In its motion, Goldman Sachs cited cases in which tortious interference suits that were filed against purchasers were dismissed, arguing the same protections should apply here. The bankruptcy court disagreed, pointing out that, while the plan contemplated a sale under Section 363 could occur, the debtor never conducted one. Thus, Goldman Sachs was not protected from lawsuits that arose prepetition related to the asset. This decision highlights the important protections bestowed upon a purchaser in a Section 363 sale, namely the freedom from prepetition claims that comes with purchasing assets “free and clear” under the Section 363 of the Bankruptcy Code.

Under Section 363(f), the trustee or debtor-in-possession may sell property “free and clear” of interests, liens and encumbrances if one of the following conditions is met:

1. applicable nonbankruptcy law permits sale of such property free and clear of such interest;
2. such entity [holding the lien or encumbrance] consents;
3. such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
4. such interest is in bona fide dispute; or
5. such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.[2]

A Section 363 sale benefits both a debtor and a buyer. The debtor benefits from the often expedited pace of Section 363 sales, which usually take between 60 and 90 days from commencement to conclusion. This accelerated timeline allows debtors to quickly dispose of assets that may otherwise sit idle, depreciate, or require expensive upkeep. Section 363 sales also benefit debtors by encouraging a higher price for assets that may be potentially less marketable due to unknown or unasserted claims against the assets by allowing the debtor to sell such assets “free and clear.”

It is similarly beneficial to a purchaser to acquire an asset “free and clear” of any interests and the risk of legacy obligations. Bankruptcy courts have held that a wide range of different situations qualify as an “interest” within Section 363(f), including prepetition economic tort claims of a business competitor of the winning bidder, state-assessed unemployment tax rates, and a debtor’s workers’ compensation experience rating.[3] After the sale, if a third party attempts to enforce its lien, encumbrance, or claim against the buyer, the buyer can avail itself of the ‘shield’ of Section 363 and seek relief in the bankruptcy court that issued the sale order, as Goldman Sachs attempted to do with its motion.

However, as noted by Judge Dorsey, a Section 363 sale effectively “puts the entire world on notice, including nonparties,” while a sale or transfer pursuant to a confirmation order “does not give the world the same notice and therefore does not have the same shield.” By transferring its interest in the RT Lodge to Goldman Sachs under the confirmation order instead of conducting a Section 363 sale, Goldman Sachs took the interest subject to liens and encumbrances and, thus, was vulnerable to BNA’s lawsuit.

[1] Judge Dorsey’s opinion can be found at In re: RTI HOLDING COMPANY, LLC, et al., No. 20-12456, 2021 WL 4994414 (Bankr. D. Del. Oct. 27, 2021).

[2] 11 U.S.C. § 363(f).

[3] See Massachusetts Dep’t of Unemployment Assistance v. OPK Biotech, LLC (In re PBBPC, Inc.), 484 B.R. 860 (B.A.P. 1st Cir. 2013); In re ARSN Liquidating Corp. Inc., 2017 WL 279472, at *4-6 (Bankr. D.N.H. Jan. 20, 2017); In re Christ Hospital, 502 B.R. 158, 172 (Bankr. D.N.J. 2013).

Contracts need to be reviewed. Messages to customers approved. Signatures need to be gathered. At the end of the day, all of these documents need to be archived in a compliant manner. These small tasks happen every day in an enterprise organization’s legal department and can be the leading cause of bloating overhead.

These small tasks quickly add up, sometimes so much so that they divert the department’s daily focus away from the organization’s overarching goals. Suddenly, priority projects become crisis projects because not enough of the department’s resources are immediately available.

Automation can be a solution. This is a role that’s less seen within legal but can be just as useful with the same significant results seen in areas like HR and Finance, where it’s already shown to play vital roles.

But why automate what’s already simple to do manually?

Bloating overhead is a common cause of slow growth, and the use of manual processes could be what’s dragging down your profitability. Streamlining processes with automation saves a great deal of time, and therefore labor hours. Instead of chasing signatures or tracking down who has a form they need, your people can be working on more productive tasks—meaningful work that contributes to growth, and not overhead.

Digital documentation opens the door for so many of a legal department’s more mundane responsibilities to be effectively automated. The easiest scenario to imagine is eliminating the labor hours spent filing and retrieving documents. Whether physical or digital, it’s redundant work that can be easily left to automation and robust document management.

Most automation protocols for filing newly entered documents can be as simple or advanced as you want, but the more complex the rules behind a protocol are, the less there’s room for human error to play a role.

Human error when it comes to documentation costs organizations tens of thousands of dollars every year at best. Major compliance issues that are systematic are known to cost millions. Automation effectively reduces those errors that are typically born from the redundancies and assumptions made when managing legal documentation.

How do you automate legal work?

Automation can serve a role in making your document filing processes nearly hands-free. Optical character recognition is a common component of automated documentation systems. It identifies data within a document, physical or digital, and then uses that information to automatically route a file to the appropriate location within your document management system, based on the set of rules you create.

Templates for standard forms allow the software to recognize what kind of form it is and identify the content in selected fields of the document. The document management system can then use that recorded metadata to file those documents in the right place, in accordance with how the company wants it filed. With just some preplanning and setup, going paperless is just a matter of scanning in documents and letting the software do the complicated work for you. Time is a resource that should always be coveted by an efficient legal organization—and it’s one that software can help you gain.

Good legal automation can at a minimum, help you gather signatures, file paperwork, send reminders of tasks to people, and send and receive messages securely. Great legal automation can help you further by utilizing workflows built around rules to perform complicated, yet routine tasks involving digital documents. That way you don’t even have to think about those tasks. You just get notified when they’re done.