NotBillable - 💰 Restructuring Bankruptcy, Robo-Lawyers, and Microsoft’s Deal

🗣️ DEBATE

Will SCOTUS Restructure Bankruptcy Court's Authority?

Is the future of bankruptcy protections (and who has access to them) set to change? That's one of the central questions facing the US Supreme Court as it deliberates a multi-billion dollar settlement reached between Purdue Pharma, the Sackler Family, and the thousands of families who have fallen victim to the opioid crisis.

At the heart of the case is a March 2021 restructuring plan which, as the New York Times reports, would dissolve Purdue Pharma and turn it into a public benefit company helping to combat the very opioid crisis it is accused of igniting. "In turn, members of the Sackler family would pour billions [$6 billion as of February 2022] from their personal fortune into aiding states, municipalities, tribes and others in fighting" the crisis, but would receive immunity from any future litigation in exchange. The deal was approved by more than 90 percent of families and state AGs involved in the case, yet the US Trustee Program (the DOJ arm responsible for overseeing bankruptcies) has appealed the case.

"The court of appeals’ decision is a roadmap for corporations and wealthy individuals to misuse the bankruptcy system to avoid mass-tort liability," the US Government has argued to SCOTUS, adding "such releases deprive tort victims of their day in court without consent." And some Supreme Court Justices agree. Justice Neil Gorsuch was most vocal about what he considered constitutional violations, specifically that plaintiffs who did not sign on to the immunity deal have had their due process rights violated. Yet, Justice Brett Kavanaugh wondered why a tactic that has been used in bankruptcy court for over 30 years was now being questioned.

The Texas Two-Step

Purdue Pharma and the Sackler family are not the only multi-billion dollar pharmaceutical entities dealing with a shift in bankruptcy practices. Earlier this year, Johnson & Johnson was blocked from attempting to use the Texas Two-Step tactic to rid itself of a roughly $9 billion mass-tort settlement related to its talc products. As Yahoo Finance notes, the judge ruled that Johnson & Johnson (with a market cap of nearly $400 billion) was not in financial distress, and thus was not using Chapter 11 bankruptcy appropriately.

While the Sackler family is not attempting the same maneuver, the Sacklers have never filed for bankruptcy yet are still securing personal immunity. This led Justice Elena Kagan to "pointedly asked whether such deals subverted the bankruptcy process: Did the settlement allow wealthy people like the Sacklers to shield themselves from lawsuits, including claims of fraud, without putting 'anything near their entire pot of assets on the table?'" In other words: are the Sacklers manipulating bankruptcy court to evade any potential liability?

THE VERDICT:

Whatever the Supreme Court decides on this case will have far-reaching implications—both for victims of the opioid crisis, and for other mass-tort cases—but the question remains the same: should bankruptcy court be an avenue for corporations and the wealthy to side-step legal accountability? Constitutionally, Justice Gorsuch has a point that such deals as the Sacklers receive deny victims due process. However, what SCOTUS deems the reach and authority of Bankruptcy courts will ultimately decide the outcome.

🤖 ARTIFICIAL INTELLIGENCE

Is AI Good For ESQs?

It's been about a year since ChatGPT was first introduced to the public, thus kicking off the modern AI boom. And though hype about AI reshaping every corner of the economy has reached a fever pitch, facts and figures are only starting to emerge. So, how about law?

‍A recent study by professors at USC Gould School of Law and the University of Minnesota law school tested just how much impact GPT-4 (the successor of ChatGPT) has on legal analysis. The results? Routine legal assignments can be done 32% faster—a significant advance in efficiency. But the quality of the work is still up for debate, and only showed modest improvements for lower-skilled participants in the study. "Standing alone, these results suggest that generative AI will almost certainly become a vital tool for many lawyers in the near future, comparable to more familiar legal-tech tools like Westlaw, Lexis and e-discovery software," the study's co-authors wrote.

But will it replace attorneys any time soon? Unlikely. The report suggests that lawyers and judges begin adopting AI assistants now, but co-author Jonathan Choi cautions that "the kinds of work not suited to AI are sophisticated judgments and unusual situations. Those are the tasks experienced partners at law firms are paid for." Well that's a sigh of relief for those who just made partner—unless you talk to Goldman Sachs.

In their own study released this year, Goldman Sachs envisions that "law firms are likely to see their pyramid-like hierarchies flatten out with the dissolution of the billable hour." Firms will offer value, they explain, by both leveraging AI technology and by excelling in irreplicable human skills: "the ability to build client relationships, advocate, empathize, understand a client's particular needs, provide discretionary judgment, and, ultimately, the ability to weigh all of the factors at hand and advise on a path forward for the client."

New Billing Models

If billable hours disappear, what will replace them? LexisNexis would like to propose a few options: contingency payouts (where attorneys get a share of pay-outs in won cases), flat fee models (which may help with efficiency), and "value-based billing, which focuses on the outcome and value provided to the client rather than the hours invested." Some ethical questions should also be addressed, like double billing. "If AI writes a draft for one client, while you meet with another client, can you bill for both?"

THE VERDICT:

Even a year in, it is too early to fully understand the power of AI, where the technology is heading, and how the legal profession and the wider economy will change. That being said, it is clear that those who adopt AI into their workflows now while also honing their client relationship skills will be best poised for the world to come.