Author: National Law Forum

A group of in-house attorneys developed the National Law Review on-line edition to create an easy to use resource to capture legal trends and news as they first start to emerge. We were looking for a better way to organize, vet and easily retrieve all the updates that were being sent to us on a daily basis.In the process, we’ve become one of the highest volume business law websites in the U.S. Today, the National Law Review’s seasoned editors screen and classify breaking news and analysis authored by recognized legal professionals and our own journalists. There is no log in to access the database and new articles are added hourly. The National Law Review revolutionized legal publication in 1888 and this cutting-edge tradition continues today.

Smart Lawyer Marketing: The Benefits of Becoming an Adjunct Professor or Guest Lecturer

If you’re a lawyer looking to stand out and grow your practice, here’s a strategy worth considering: becoming an adjunct professor or guest lecturer. This isn’t just about adding a title to your resume; it’s about enriching your professional credentials, elevating your personal brand, building connections with the community and opening doors to new opportunities. Here’s why venturing into academia could be a smart move for your legal career and how to do it.

  • A Spotlight on Your Expertise: Engaging in a teaching role will elevates your visibility within the academic and legal communities. Universities are vibrant ecosystems of learning, networking and professional exchange. By sharing your knowledge and experience in such settings, you not only enrich the learning environment but also spotlight your expertise to a broader audience. It’s an effective way to get noticed and remembered in the circles that matter.
  • Networking with Purpose: Teaching at a university isn’t just about imparting knowledge; it’s a dynamic platform for meaningful networking. Every semester offers a new opportunity to connect with ambitious students, fellow educators, and visiting professionals. These connections can lead to new business opportunities, collaborations and referrals. Building a network in such a rich environment can provide a steady stream of advantages for your legal practice.
  • Establishing Your Thought Leadership: There’s no better place to showcase your legal acumen than in a classroom or lecture hall. Teaching allows you to demonstrate your depth of knowledge and commitment to your field, helping to establish you as a thought leader among your peers and potential clients. Engaging with students and faculty on complex legal issues not only reinforces your standing but also keeps you at the cutting edge of legal developments.
  • The Dual Benefit of Learning: While teaching, lawyers often find themselves learning alongside their students. Because a professor and lecturer must stay current and deeply understand the subjects they teach acts as a catalyst for personal and professional growth. This continuous learning cycle not only enhances your legal practice but also ensures that your teaching is informed, relevant and highly valued.

How to Become an Adjunct Professor or Guest Lecturer

If you’re interested in becoming an adjunct professor or guest lecturer, here are some steps to get you started:

  • Get Your Credentials and Experience in Order: An advanced degree is usually required for adjunct positions, but if you’re eyeing more prestigious spots or specialized subjects, a PhD might be necessary. Beyond degrees, real-world experience in your field isn’t just icing on the cake—it’s another layer of cake. It shows you can apply what you teach outside the classroom, making your lessons more relevant and engaging.
  • Network Like a Pro: Building connections is key in academia, but think of it as making friends rather than networking. Attend events, engage in discussions and be active in online communities related to your field. It’s about finding your tribe—people who share your interests and can tip you off to opportunities you might not find on your own.
  • Bolster Your Teaching Credentials: If teaching isn’t something you’ve done a lot of, look for opportunities to get some practice. This could be anything from volunteer teaching gigs, leading workshops or even taking on a teaching assistant role. These experiences are valuable not just for what they teach you about instructing others, but they also give you stories and insights you can share when you apply for jobs.
  • Polish Your Application: Your application is your chance to shine. Make sure your CV is not only comprehensive but clear and engaging. Cover letters should be tailored to each application, showing why you’re excited about the position and what makes you a great fit. Don’t forget a teaching statement that reflects your unique approach and philosophy towards education.
  • Apply Thoughtfully: While casting a wide net could result in the kind of role you are seeking, aim for opportunities that truly resonate with your expertise and teaching style. Explore various institutions, from community colleges to universities, and don’t overlook less traditional teaching environments that might be in need of your particular skill set.
  • Stay Curious and Keep Growing: Staying informed and continually developing your skills is important. Seek out professional development opportunities, stay abreast of new research in your field and be open to new teaching techniques (including technology advancements) and methodologies. Your growth as a professional not only enriches your teaching but also makes you more attractive to potential employers.

KEY TAKEAWAYS

  • Enhanced Visibility: Teaching roles at universities put you in front of an engaged audience, amplifying your professional visibility.
  • Strategic Networking: The academic environment offers unparalleled networking opportunities with future and current lawyers, colleagues and industry experts.
  • Thought Leadership: Sharing your expertise as a teacher reinforces your status as a knowledgeable and respected professional in your field.
  • Continuous Learning: The act of teaching encourages ongoing education, keeping you at the forefront of legal developments and practices.

Teaching as an adjunct professor or guest lecturer offers a lawyers strategic benefits beyond traditional networking and marketing efforts. It provides a platform for visibility, a hub for networking, a stage for establishing thought leadership and an opportunity for personal growth.

Copyright © 2024, Stefanie M. Marrone. All Rights Reserved.
For more news on Law Firm Marketing, visit the NLR Law Office Management section.

California’s Housing Overhaul Brings Significant Changes for Landlords and Tenants in 2024

California Senate Bill 567, i.e., the Homelessness Prevention Act, which goes into effect on April 1, 2024, seeks to cap rent hikes at 10% and prevents landlords from evicting tenants without a legal cause. California Assembly Bill 12, i.e., the new residential security deposit law, which goes into effect on July 1, 2024, limits the amount landlords can charge for security deposits. Both bills were signed into law in 2023 by Governor Newsom, and while they signal new protections and legal benefits for tenants, the potential financial exposure for landlords is elevated.

Senate Bill 567

SB 567 changes the rules by which California property owners may remove tenants in certain instances. Effectively, this new law directly impacts two sets of property owners:

  1. Property owners and their close family members (i.e. spouse, domestic partner, children, grandchildren, parents, or grandparents) who plan to move into an occupied/leased property before the expiration of the lease term with the tenant.
  2. “Fix and flip” investors planning on substantially remodeling or rebuilding an occupied/leased property for resale.

Under the current law (California Civil Code § 1946.2), after a tenant has continuously and lawfully occupied a residential property for 12-months, the landlord is prohibited from terminating the tenancy without “just cause.” In fact, the “just cause” must be stated in the written notice to the tenant for the termination of the tenancy to be effectuated. Of note, existing law distinguishes between “at-fault just cause” and “no-fault just cause,” wherein “no-fault just cause” has nothing to do with the nonpayment of rent and/or criminal activity on premises, but rather is defined as:

  1. the intent to occupy the premises by the owner and/or the owner’s spouse, domestic partner, children, grandchildren, parents, and/or grandparents;
  2. the withdrawal of the residential real property from the rental market;
  3. the owner complying with specific government orders that necessitate vacating the real property; or
  4. the intent to demolish or to substantially remodel the residential real property.

Regarding an eviction based on an intent to occupy, the new law now requires the owner and/or the owner’s family member(s) under such a scenario to occupy (i.e., move into) the residential real property within 90-days for a minimum of 12 continuous months, and to use the property as the person’s primary residence. Historically, it was quite simple for property owners to use the “move in” provision under the law as an excuse to evict a tenant that they did not like or as a means to increase the rent by evicting the old tenant and moving in a new tenant who was willing to pay a higher rent. There were no specific guidelines and/or restrictions in this regard. But now, a strict timeline regarding personal occupancy has been codified into law, the violations of which could result in financial exposure for the property owner including, but not limited to, a civil monetary award to the tenant with potential for treble damages (3-times the actual damages amount) and punitive damages.

This new law also requires an owner who displaces a tenant in order to substantially remodel or demolish a unit to provide the tenant with written notice that includes a description of the substantial remodel to be completed and the expected duration of the repairs or the expected date by which the property will be demolished, as well as a copy of the permits required to undertake the substantial remodel or demolition. This means that the property owner must do more than just advise the existing tenant that they are being evicted due to the substantial remodeling of the property or because of the intent to demolish it. Under the new law, the property owner must provide the tenant with written notice and documents setting forth a construction timeline and copies of the permitting for said work.

Importantly, the new law prescribes new enforcement mechanisms, including making an owner who attempts to recover possession of a rental unit in material violation of this new law liable to the tenant in a civil action for damages up to three times the actual damages amount, as well as punitive damages and attorney’s fees/costs. Furthermore, the new law also authorizes the California’s Attorney General, and/or the City Attorney, and/or County Counsel within whose jurisdiction the rental unit is located, to bring actions for injunctive relief against the owner who is in violation of this new law. Also, many cities and counties throughout California have different (and often more restrictive) requirements when removing tenants. As such, it is always recommended for landlords to check the rules, regulations, and laws related to the jurisdiction where the property is located for any additional guidelines and requirements.

When using any of the “no fault” grounds for removing a tenant, the tenant is entitled to relocation costs equal to one month’s rent. However, landlords should be mindful that many cities and counties throughout California have even more stringent and/or more substantial relocations costs and requirements. As such, landlords should always check to see if there are any additional jurisdictional costs and/or requirements for removing a tenant.

Further, until January 1, 2030, the current existing law prohibits an owner of residential real property from, over the course of any 12-month period, increasing the gross rental rate for a dwelling or a unit more than 5% plus the percentage change in the cost of living, or 10%, whichever is lower, of the lowest gross rental rate charged for that dwelling or unit at any time during the 12-months before the effective date of the increase, subject to specified conditions. This new law, however, makes an owner who demands, accepts, receives, or retains any payment of rent in excess of the maximum increase allowed liable in a civil action to the tenant from whom those payments are or were demanded, accepted, received, or retained for certain relief including, upon a showing that the owner acted willfully or with oppression, fraud, or malice, damages up to three times the amount by which any payment demanded, accepted, received, or retained exceeds the maximum allowable rent. This new law also authorizes the California attorney general and/or the city attorney or county counsel within whose jurisdiction the residential property is located to enforce the new law’s provisions and to bring action for injunctive relief.

Assembly Bill 12

Under AB 12, landlords are permitted to ask for security deposits equivalent to one month’s rent for both furnished and unfurnished dwellings. This is a notable shift given that under the current existing law, landlords can charge up to two months’ rent for an unfurnished dwelling and three months’ rent for a furnished one. This law does not take effect until July 1, 2024, allowing landlords time to make any necessary adjustments to their practices given this new approach on the security deposit amount.

Also, please note that this new law has an exception for “small landlords” (as defined), if they own no more than two residential rental properties that collectively include no more than four dwelling units that are offered for rent. Additionally, to qualify as a “small landlord,” the owner must hold the real estate as a natural person, as a limited liability company where all members are natural persons, or as a family trust. If all these conditions are met, then the “small landlord” is permitted to collect up to two months’ rent as a security deposit. Again, AB 12 does not take effect until July 1, 2024, which gives California landlords who do not qualify as “small landlords” to make necessary adjustments. In enacting this new law, the California state legislators are hoping to make housing more accessible and affordable, especially for those residents who are struggling financially. Ironically, the law also is effectuating at a time when landlords are facing multiple hardships including limited rent increases, financial risk in the form of potential damage to their property and/or unpaid rent for which there will be no compensation, increasing maintenance and operational costs, having to navigate the complexities of local and state-level regulations, and stalled and/or slowed evictions of tenants who owe back-rent since the COVID-19 pandemic. These factors, amongst others, could hamstring landlords financially and potentially lead to significant portions of the housing market to fall into disrepair, as well as to cause a slow-down of development projects and community engagement. It also may cause landlords to become stricter with the screening processes of their tenants, including adopting higher income requirements and/or charging higher application fees, which can result in an even more challenging housing landscape for high-risk and/or low-income tenants. At this juncture, only time will tell.

Now What?

If you are a landlord, these new laws may seem onerous and riddled with potentially damaging financial exposure. We recommend consulting with a trusted attorney before entering into a landlord-tenant relationship, and also before terminating an existing lease in both the “at-fault just cause” or “no-fault just cause” scenarios.

© 2024 Much Shelist, P.C.
For more news on California’s New Housing Laws, visit the NLR Real Estate section.

The Imperatives of AI Governance

If your enterprise doesn’t yet have a policy, it needs one. We explain here why having a governance policy is a best practice and the key issues that policy should address.

Why adopt an AI governance policy?

AI has problems.

AI is good at some things, and bad at other things. What other technology is linked to having “hallucinations”? Or, as Sam Altman, CEO of OpenAI, recently commented, it’s possible to imagine “where we just have these systems out in society and through no particular ill intention, things just go horribly wrong.”

If that isn’t a red flag…

AI can collect and summarize myriad information sources at breathtaking speed. Its ability to reason from or evaluate that information, however, consistent with societal and governmental values and norms, is almost non-existent. It is a tool – not a substitute for human judgment and empathy.

Some critical concerns are:

  • Are AI’s outputs accurate? How precise are they?
  • Does it use PII, biometric, confidential, or proprietary data appropriately?
  • Does it comply with applicable data privacy laws and best practices?
  • Does it mitigate the risks of bias, whether societal or developer-driven?

AI is a frontier technology.

AI is a transformative, foundational technology evolving faster than its creators, government agencies, courts, investors and consumers can anticipate.

AI is a transformative, foundational technology evolving faster than its creators, government agencies, courts, investors and consumers can anticipate.

In other words, there are relatively few rules governing AI—and those that have been adopted are probably out of date. You need to go above and beyond regulatory compliance and create your own rules and guidelines.

And the capabilities of AI tools are not always foreseeable.

Hundreds of companies are releasing AI tools without fully understanding the functionality, potential and reach of these tools. In fact, this is somewhat intentional: at some level, AI’s promise – and danger – is its ability to learn or “evolve” to varying degrees, without human intervention or supervision.

AI tools are readily available.

Your employees have access to AI tools, regardless of whether you’ve adopted those tools at an enterprise level. Ignoring AI’s omnipresence, and employees’ inherent curiosity and desire to be more efficient, creates an enterprise level risk.

Your customers and stakeholders demand transparency.

The policy is a critical part of building trust with your stakeholders.

Your customers likely have two categories of questions:

How are you mitigating the risks of using AI? And, in particular, what are you doing with my data?

And

Will AI benefit me – by lowering the price you charge me? By enhancing your service or product? Does it truly serve my needs?

Your board, investors and leadership team want similar clarity and direction.

True transparency includes explainability: At a minimum, commit to disclose what AI technology you are using, what data is being used, and how the deliverables or outputs are being generated.

What are the key elements of AI governance?

Any AI governance policy should be tailored to your institutional values and business goals. Crafting the policy requires asking some fundamental questions and then delineating clear standards and guidelines to your workforce and stakeholders.

1. The policy is a “living” document, not a one and done task.

Adopt a policy, and then re-evaluate it at least semi-annually, or even more often. AI governance will not be a static challenge: It requires continuing consideration as the technology evolves, as your business uses of AI evolve, and as legal compliance directives evolve.

2. Commit to transparency and explainability.

What is AI? Start there.

Then,

What AI are you using? Are you developing your own AI tools, or using tools created by others?

Why are you using it?

What data does it use? Are you using your own datasets, or the datasets of others?

What outputs and outcomes is your AI intended to deliver?

3. Check the legal compliance box.

At a minimum, use the policy to communicate to stakeholders what you are doing to comply with applicable laws and regulations.

Update the existing policies you have in place addressing data privacy and cyber risk issues to address AI risks.

The EU recently adopted its Artificial Intelligence Act, the world’s first comprehensive AI legislation. The White House has issued AI directives to dozens of federal agencies. Depending on the industry, you may already be subject to SEC, FTC, USPTO, or other regulatory oversight.

And keeping current will require frequent diligence: The technology is rapidly changing even while the regulatory landscape is evolving weekly.

4. Establish accountability. 

Who within your company is “in charge of” AI? Who will be accountable for the creation, use and end products of AI tools?

Who will manage AI vendor relationships? Is their clarity as to what risks will be borne by you, and what risks your AI vendors will own?

What is your process for approving, testing and auditing AI?

Who is authorized to use AI? What AI tools are different categories of employees authorized to use?

What systems are in place to monitor AI development and use? To track compliance with your AI policies?

What controls will ensure that the use of AI is effective, while avoiding cyber risks and vulnerabilities, or societal biases and discrimination?

5. Embrace human oversight as essential.

Again, building trust is key.

The adoption of a frontier, possibly hallucinatory technology is not a build it, get it running, and then step back process.

Accountability, verifiability, and compliance require hands on ownership and management.

If nothing else, ensure that your AI governance policy conveys this essential.

Copyright © 2024 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more on AI Governance, visit the NLR Communications, Media & Internet section.

Lawsuit Challenges New USCIS Fee Rule

Significant increases to U.S. Citizenship and Immigration Services (“USCIS”) filing fees are set to go into effect on April 1, 2024. However, a lawsuit filed in U.S. District Court for the District of Colorado may delay that implementation. The plaintiffs in the lawsuit, the ITServe Alliance (a group that represents technology companies), the American Immigrant Investor Alliance, and a Canadian investor, have asked for a preliminary injunction to stop the planned fee increases.

As previously reported, the fee rule would require employers to pay 70% more for H-1B petitions, 201% more for L-1 petitions, and 129% more for individuals on O-1 petitions. One of the more controversial aspects of the new rule requires a $600 Asylum Program Fee to be charged to certain petitioners who are filing an I-129 Petition for Nonimmigrant Worker or an I-140 Immigrant Petition for Alien Workers, which are common forms employers use when filing employment-based nonimmigrant and immigrant visa petitions.

The lawsuit argues three things:

1. The fee rule was promulgated without following proper rule making procedures;

2. The fee rule doubles immigrant investor fees through the EB-5 program in violation of law. Specifically, the USCIS imposed new fees on immigrant investors and regional centers without completing the fee study that Congress required as part of the EB-5 Reform and Integrity Act of 2022; and

3. The asylum-related fee “arbitrarily and without legal justification” shifts the burden to certain employers to fund the government’s handling of asylum cases.

The full complaint can be accessed here.

As of today, the fee increases are scheduled to go into effect on April 1.

© 2024 Dinsmore & Shohl LLP. All rights reserved.
For more news on Challenges to USCIS Filing Fee Increases, visit the NLR Immigration section.

Court Finds Corporate Transparency Act Unconstitutional and Unenforceable as to NSBA Members

On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act (“CTA”) is unconstitutional.[1] The CTA requires many U.S. entities to disclose their individual beneficial owners in a report filed with the U.S. Treasury. The CTA statute was enacted in 2021.[2] Its implementing regulations require many entities formed in 2024 to report beneficial ownership information within 90 days of formation.[3] The CTA requires many entities formed prior to 2024 to report beneficial ownership information by January 1, 2025.[4]

The federal court’s ruling arose in the context of a constitutional challenge by plaintiffs the National Small Business Association (“NSBA”) and one of its individual members, Isaac Winkles. In granting summary judgment for the plaintiffs, the court held that:

  • the Commerce Clause, the Necessary and Proper clause, the taxing power, and the U.S. government’s authority over foreign affairs and national security do not provide sufficient authority for the Corporate Transparency Act (“CTA”), and the CTA is unconstitutional as a result; and
  • the U.S. government is enjoined from enforcing the CTA as to the NSBA and Isaac Winkles.

The court did not issue a nationwide injunction barring the U.S. government from enforcing the law against other entities within the scope of the CTA’s reporting requirements.

On March 11, 2024, the U.S. Government filed a notice of appeal of the court’s ruling.[5]  The same day, the Financial Crimes Enforcement Network (“FinCEN”), which is the U.S. Treasury bureau that administers the CTA, stated that it will continue to implement the CTA while complying with the court’s order.[6]

FinCEN clarified that it is not currently enforcing the CTA against two categories of persons:

  • individual plaintiff Isaac Winkles and reporting companies for which he is a beneficial owner; and
  • the NSBA and its members as of March 1, 2024.

FinCEN stated, “[o]ther than the particular individuals and entities subject to the court’s injunction [. . .] reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”[7]

[1] https://www.govinfo.gov/content/pkg/USCOURTS-alnd-5_22-cv-01448/pdf/USCOURTS-alnd-5_22-cv-01448-0.pdf.

[2] National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283, div. F, title LXIV, § 6403 (adding 31 § U.S.C. 5336), available at: https://www.govinfo.gov/content/pkg/PLAW-116publ283/pdf/PLAW-116publ283.pdf.

[3] 31 C.F.R. § 1010.380.

[4] Id.

[5] https://fincen.gov/sites/default/files/shared/54_Notice_of_Appeal.pdf

[6] https://fincen.gov/news/news-releases/updated-notice-regarding-national-small-business-united-v-yellen-no-522-cv-01448

[7] Id.

© Copyright 2024 Cadwalader, Wickersham & Taft LLP
For more news on the Constitutionality of the CTA, visit the NLR Corporate & Business Organizations section.

AI Got It Wrong, Doesn’t Mean We Are Right: Practical Considerations for the Use of Generative AI for Commercial Litigators

Picture this: You’ve just been retained by a new client who has been named as a defendant in a complex commercial litigation. While the client has solid grounds to be dismissed from the case at an early stage via a dispositive motion, the client is also facing cost constraints. This forces you to get creative when crafting a budget for your client’s defense. You remember the shiny new toy that is generative Artificial Intelligence (“AI”). You plan to use AI to help save costs on the initial research, and even potentially assist with brief writing. It seems you’ve found a practical solution to resolve all your client’s problems. Not so fast.

Seemingly overnight, the use of AI platforms has become the hottest thing going, including (potentially) for commercial litigators. However, like most rapidly rising technological trends, the associated pitfalls don’t fully bubble to the surface until after the public has an opportunity (or several) to put the technology to the test. Indeed, the use of AI platforms to streamline legal research and writing has already begun to show its warts. Of course, just last year, prime examples of the danger of relying too heavily on AI were exposed in highly publicized cases venued in the Southern District of New York. See e.g. Benajmin Weiser, Michael D. Cohen’s Lawyer Cited Cases That May Not Exist, Judge Says, NY Times (December 12, 2023); Sara Merken, New York Lawyers Sanctioned For Using Fake Chat GPT Case In Legal Brief, Reuters (June 26, 2023).

In order to ensure litigators are striking the appropriate balance between using technological assistance in producing legal work product, while continuing to adhere to the ethical duties and professional responsibility mandated by the legal profession, below are some immediate considerations any complex commercial litigator should abide by when venturing into the world of AI.

Confidentiality

As any experienced litigator will know, involving a third-party in the process of crafting of a client’s strategy and case theory—whether it be an expert, accountant, or investigator—inevitably raises the issue of protecting the client’s privileged, proprietary and confidential information. The same principle applies to the use of an AI platform. Indeed, when stripped of its bells and whistles, an AI platform could potentially be viewed as another consultant employed to provide work product that will assist in the overall representation of your client. Given this reality, it is imperative that any litigator who plans to use AI, also have a complete grasp of the security of that AI system to ensure the safety of their client’s privileged, proprietary and confidential information. A failure to do so may not only result in your client’s sensitive information being exposed to an unsecure, and potentially harmful, online network, but it can also result in a violation of the duty to make reasonable efforts to prevent the disclosure of or unauthorized access to your client’s sensitive information. Such a duty is routinely set forth in the applicable rules of professional conduct across the country.

Oversight

It goes without saying that a lawyer has a responsibility to ensure that he or she adheres to the duty of candor when making representations to the Court. As mentioned, violations of that duty have arisen based on statements that were included in legal briefs produced using AI platforms. While many lawyers would immediately rebuff the notion that they would fail to double-check the accuracy of a brief’s contents—even if generated using AI—before submitting it to the Court, this concept gets trickier when working on larger litigation teams. As a result, it is not only incumbent on those preparing the briefs to ensure that any information included in a submission that was created with the assistance of an AI platform is accurate, but also that the lawyers responsible for oversight of a litigation team are diligent in understanding when and to what extent AI is being used to aid the work of that lawyer’s subordinates. Similar to confidentiality considerations, many courts’ rules of professional conduct include rules related to senior lawyer responsibilities and oversight of subordinate lawyers. To appropriately abide by those rules, litigation team leaders should make it a point to discuss with their teams the appropriate use of AI at the outset of any matter, as well as to put in place any law firm, court, or client-specific safeguards or guidelines to avoid potential missteps.

Judicial Preferences

Finally, as the old saying goes: a good lawyer knows the law; a great lawyer knows the judge. Any savvy litigator knows that the first thing one should understand prior to litigating a case is whether the Court and the presiding Judge have put in place any standing orders or judicial preferences that may impact litigation strategy. As a result of the rise of use of AI in litigation, many Courts across the country have responded in turn by developing either standing orders, local rules, or related guidelines concerning the appropriate use of AI. See e.g., Standing Order Re: Artificial Intelligence (“AI”) in Cases Assigned to Judge Baylson (June 6, 2023 E.D.P.A.), Preliminary Guidelines on the Use of Artificial Intelligence by New Jersey Lawyers (January 25, 2024, N.J. Supreme Court). Litigators should follow suit and ensure they understand the full scope of how their Court, and more importantly, their assigned Judge, treat the issue of using AI to assist litigation strategy and development of work product.

© 2024 Proskauer Rose LLP

by: William T. Walsh Jr of Proskauer Rose LLP

For more news on Artificial Intelligence, visit the NLR Communications, Media & Internet section.

How Big is the Permanent Tax Benefit in the Pending Tax Bill for Research Credit?

Congress perhaps made an unintended drafting error in the Tax Cuts and Jobs Act [1] (TCJA) when it required a taxpayer to decrease its deduction for research and experimental expenditures. The apparent drafting error is in IRC §280C(c)(1), which provides that if a taxpayer’s research credit for a taxable year exceeds the amount allowable as a deduction for research expenditures for the taxable year, the amount of research expenses chargeable to capital account must be reduced by the excess and not by the full amount of the credit.

H.B. 7024 (1-17-24) [2] proposes to correct the drafting error for tax year 2023 and expressly states that the amendment made for taxable year 2023 should not be construed to create an inference with respect to the proper application of the drafting error for taxable year 2022. [3] The “no inference” congressional language could be interpreted as inviting the IRS to attempt an administrative fix of the drafting error.

Background of Research Expenditure Deduction and Credit for Increasing Research Activities: Beginning with the Internal Revenue Code of 1954, a taxpayer engaging in research activities in the experimental or laboratory sense in connection with its trade or business could elect to deduct the cost of its research currently rather than capitalizing the cost to the project for which the research was conducted. The Economic Recovery Tax Act of 1981 added a credit for the cost of research incurred in carrying on a trade or business. The manner in which the deduction and credit operated permitted a taxpayer both to deduct and credit the same research dollar.

Pre-TCJA (2017) law: The Omnibus Budget Reconciliation Act of 1989 ended the possibility deducting and crediting the same research dollar. If a taxpayer currently deducted its research expenditures, the taxpayer had to decrease its deduction by the amount of the research credit that it claimed for the taxable year.[4] The policy reason for the decrease was that a taxpayer should not be entitled to a deduction and a credit for the same dollar expended for research. Put another way, if the government “pays” for research by allowing a credit, the taxpayer did not really pay for the research and should not be entitled to deduct the amount for which the government paid.

TCJA Amendment: The TCJA now requires a taxpayer to capitalize research expenditures paid or incurred in the taxable year and claim an amortization deduction for the expenditures ratably over a five-year period.[5] The TCJA also amended IRC §280C(c)(1), the provision that prevents a taxpayer from receiving a credit and a deduction for the same dollar of research expenditure. The amendment provides that if the research credit amount for the taxable year exceeds the amount allowable as a deduction for the taxable year for qualified research expenses, the research expenses chargeable to capital account for the taxable year must be reduced by the excess.[6] This might have been a drafting error. The research credit for the taxable year might not exceed an amortization deduction for the year.[7] If for a taxable year the credit does not exceed the amortization deduction, a taxpayer could reasonably conclude that no reduction in the amount of capitalized research expenditures is required. The taxpayer would be interpreting the deduction for qualified research expenses as meaning the amount of the amortization of the capitalized expenses.

The IRS might have an opposing interpretation. The phrase, “the amount allowable as a deduction for such taxable year for qualified research expenses” in IRC §280C(c)(1) could be interpreted as always equaling zero because the TCJA amendment requiring amortization of research expenditures for the taxable year nullifies the “deduction … for qualified research expenses.” In other words, there were no “deductible” qualified research expenses for the year after enactment of the TCJA for purposes of IRC §280C(c)(1). [8] The result would be that the capitalized research expenses are decreased by the amount of the credit.

H.B. 7024: On January 31, 2024, the House passed 353 to 70 H.B. 7024, “Tax Relief for American Families and Workers Act of 2024.” Action on the bill is pending in the Senate. The bill restores the current deduction for research expenditures (but only for research performed in the United States), beginning with taxable year 2022,[9] and defers the requirement to amortize research expenditures until taxable year 2026. For taxable years beginning in 2023, the bill requires a taxpayer to decrease the research expenditure deduction for domestic research by the amount of the research credit for the year, thus reinstating, for domestic research, IRC §280C(c)(1) as it had read prior to its amendment by the TCJA. [10]

But for taxable year 2022, the bill does not expressly require a taxpayer to reduce its deduction for research expenditures by the amount of the research credit even though the bill permits the taxpayer to deduct it research expenditures currently for taxable year 2022. Thus, for taxable year 2022, a taxpayer may deduct its research expenditures but must decrease the deduction only by the amount, if any, that its 2022 research credit exceeds its 2022 deduction for qualified research expenditures, which amount may be zero. Moreover, the bill provides that the amendment requiring a decreased deduction for research expenditures for taxable years beginning in 2023 should not be construed to create “any inference” with respect to the proper application of IRC §280C(c) to taxable year 2022.

IRS Notice: In Notice 2023-63 – obviously published before H.R. 7024 – the IRS asks for comments about to interpret the current version of IRC §280C(c)(1). If H.R. 7024 is enacted, the IRS request for comments would appear irrelevant.

Taxpayer Actions: If H.R. 7024 is enacted, taxpayers must consider whether to change their accounting method for research expenditures from amortizing them to currently deducting them. A change would affect many tax calculations, and obviously the only means by which to be certain of the effect is to run the change using various scenarios through the taxpayer’s tax software.

One of the effects to consider if the bill passes is the item discussed in the alert in which the taxpayer reads IRC §280C(c)(1) advantageously for taxable year 2022 and reduces its research expenditure deduction by the amount that the research credit exceeds the deduction for research expenditures for the year, which reduction amount may well be zero. The taxpayer would have a substantial permanent tax benefit by not decreasing its credit and not decreasing it deduction.

If H.B. 7024 is not enacted, a taxpayer might moderate the risk that the IRS will prevail on the interpretation of IRC §280C(c)(1) by electing to decease its credit under IRC §280C(c)(2).[11] But the taxpayer could be more aggressive by taking the position that it is applying IRC §280C(c)(1) and rarely, if ever, does it have to reduce its deduction for research expenditures. That means that the taxpayer that had historically decreased its credit in order to take the full deduction might not have to do so. That might be a very substantial permanent tax benefit.

[1] P.L. 115-97 115th Cong. 1st Sess. (12-22-17).

[2] 118th Cong., 2d Sess.

[3] H.B. 7024, Sec. 201(e)(4).

[4] Instead of decreasing the deduction, the taxpayer could elect to decrease its research credit by multiplying the credit amount by the corporate tax rate. IRC §280C(c)(2). Regardless of whether the taxpayer reduced its deduction or its credit, the federal income tax cost was the same. Many taxpayers elect to reduce the credit so that the full amount of the deduction flows into taxable income of states that conform state taxable income to federal taxable income.

[5] IRC §174(a)(2)(B). The deduction is spread over six taxable years because the taxpayer may deduct for the first amortization year only half of a full year’s amortization. If the research is performed outside the United States, the amortization period is fifteen years.

[6] IRC §280C(c)(1).

[7] For example, assume qualified research expenses for the taxable year 2022 of $1,000 and minimum base amount of $500. The research credit is $100 (20% times $500). The credit does not exceed the amortized deduction – $100 for the first taxable year.

[8] Of course, there were qualified research expenses identified for the research credit.

[9] Proposed IRC §174A(a). A taxpayer that had capitalized and amortized its research expenditures as required by the TCJA may file an amended return for tax year 2022 and deduct research expenditures paid or incurred for that year. Alternatively, the taxpayer may elect to adjust its taxable income under IRC § 481 by taking a favorable adjustment into account in taxable year 2023. Alternatively, it may elect to make the adjustment over taxable years 2023 and 2024. H.B. 7024, sec. 201(f)(2).

[10] The taxpayer could still elect to decrease its credit in lieu of reducing its deduction.

[11] See supra note 4.

© 2024 Miller, Canfield, Paddock and Stone PLC
For more on the Research Credit Tax Bill, visit the NLR Tax section.

News Alert: USCIS Fees Will Increase Starting Apr. 1, 2024

The U.S. Citizenship and Immigration Services (USCIS) and Department of Homeland Security (DHS) released their final rule on Jan. 31, 2024, adjusting the price for certain immigration and naturalization fees. Every two years, the USCIS conducts a fee review. In the most recent biennial review, they determined that the “fees do not recover the full cost of providing adjudication and naturalization services.” In tandem with USCIS, DHS adjusted their fee schedule to also recover costs and maintain their services.

The fee increase will be established on all benefit requests postmarked Apr. 1, 2024, and after.

What Are the Fees Used for and Are There Exceptions?

Benefit request fees make up the primary source of funding for USCIS services. The fees fund benefit requests for “refuges, asylum [seekers], and certain other applicants and petitioners.” Most of the fees adjusted in 2024 have not been increased since 2016, so they now reflect inflation costs from the past 8 years.

The USCIS hopes this increased revenue will help slash processing times and address application backlogs that were affected by increased application volume and the COVID-19 pandemic. However, achieving this will depend on staffing and continued volume of applications.

Acknowledging that some applicants will not be financially able to meet fee requirements, the USCIS determined that an applicant with “an annual gross household income at or below 125 percent of the Federal Poverty Guidelines” meets the requirements for a fee waiver. These household income numbers will continue to update along with the U.S. Department of Health and Human Services’ Federal Register. Applicants seeking a waiver will need to provide documentation of their income including:

  • Form 1040,
  • IRS Form W-2,
  • Pay stubs, or
  • Support/benefits statements or affidavits from organizations sending financial aid.

A USCIS Deputy Director has the authority to grant a fee exemption required by 8 CFR 106.2. According to USCIS Fee Schedule, to be granted a waiver, the Deputy Director “must determine that such action would be in the public interest, the action is consistent with the applicable law, and the exemption is related to one of the following:”

  • Asylees;
  • Refugees;
  • National security;
  • Emergencies or major disasters declared in accordance with 44 CFR part 206, subpart B;
  • An agreement between the U.S. government and another nation or nations; or
  • USCIS error.

USCIS Fee Increases

Please note that the above chart does not reflect all fee increases. For the full list of adjusted fees, please visit USCIS’s Filing Fee FAQs page with the entire breakdown.

Fee increases range from anywhere between $10 to ~$30,000 and affect individual, entrepreneurial, and employment related forms. For reference, the I-956F Application for Approval of an Investment in a Commercial Enterprise is increasing $29,900 while the USCIS Immigration Fee is increasing only $15. For some forms, especially those that consider biometric services, the fees are decreasing or are completely free.

For applicants who are still in the visa process and worried about the fee increase, getting in all materials PRIOR to Apr. 1, 2024, may ensure that the current fee is charged.

©2024 Norris McLaughlin P.A., All Rights Reserved
For more news on USCIS Fee Increases, visit the NLR Immigration section.

Veep Urges DEA to Reschedule Marijuana “As Quickly as Possible”

In case you missed it, Fat Joe visited the White House late last week to discuss federal marijuana policy. 2024, man.

During a roundtable discussion with Mr. Joe (?), Kentucky Gov. Andy Beshear, and several individuals who have received pardons from President Joe Biden for prior federal marijuana convictions, Vice President Kamala Harris “urged the Drug Enforcement Administration to work as quickly as possible on its review of whether to reschedule marijuana as a less-dangerous drug.”

The vice president, in direct terms, stated that it was “absurd” and “patently unfair” to keep the drug in the same highly restrictive tier as heroin and fentanyl. “Nobody should have to go to jail for smoking weed,” Harris said, according to NPR, framing the issue of marijuana reform as a criminal justice issue that disproportionately hurts Black and Latino men.

As to timing, Harris reportedly said: “I cannot emphasize enough that they need to get to it as quickly as possible, and we need to have a resolution based on their findings and their assessment.”

The vice president’s remarks follow Biden’s urging of marijuana rescheduling during the recent State of the Union. Biden has previously granted pardons for federal crimes of marijuana use and possession and has encouraged governors to do the same for state law convictions.

We previously reported that in October 2022 Biden ordered Secretary of Health and Human Services Xavier Becerra “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.” Last August, we noted that the U.S. Department of Health and Human Services officially recommended to DEA that marijuana be moved from Schedule I to Schedule III under federal law.

Last Friday, Harris expressed urgency, concluding: “I’m sure DEA is working as quickly as possible and will continue to do so… And we look forward to the product of their work.”

On the one hand, you could be excused for believing this was simply an inconsequential meeting on a Friday during Spring Break without any chance for advancing the ball. I think, however, that it is meaningful to hear the sitting vice president unequivocally and in stark terms call for the prompt rescheduling of marijuana and make the case that it would be unfair not to do so. In that sense, the marijuana industry has come a long way.

© 2024 Bradley Arant Boult Cummings LLP
For more on Marijuana, visit the NLR Biotech, Food, Drug section.

Insurance — Do You Know What’s in Your Bank’s Policies?

There are many different types of insurance — directors and officers (D&O), employment practices liability (EPLI), and general liability, to name a few. Unfortunately, many clients do not know what is in their policy or policies, including what is covered, their deductibles or retention, or, in some unfortunate cases, that they have no policy at all.

This article attempts to help you answer some simple questions about what to look for when you are buying a policy and what to look for in a current policy when you need to use it. It is not an attempt to promote any particular policy, as each policy has to be read in light of the specific facts at issue.

Buying the cheapest — you may get what you pay for.

In too many cases, we find that clients have simply purchased the cheapest policy they can find. The reasons for this vary. Maybe the client asked for the cheapest policy, maybe the agent simply got the client the cheapest policy, or maybe there was no real conversation at all between the insured (client) and the agent except to “get some insurance.”

This is never an issue — until it is. By way of example, let’s say a lawsuit is filed against you that should kick in your D&O or EPLI policy. You then turn the lawsuit over to your agent for defense and coverage. And then, one of several increasingly common scenarios occurs. You discover that your deductible or retention is very high, e.g., the first $100,000 is on you. Or you discover that many employment cases could be resolved or dismissed for less than that, and that for a little more on the front end, you could have had a lower deductible. Or you discover that what you purchased does not cover alleged fiduciary breaches by your directors and officers, and you could have purchased that coverage if you had asked.

You also might discover that you could have purchased, for a small additional amount, wage and hour coverage that would have covered the overtime lawsuit you were just served, but no one ever specifically talked with the agent about that. You also might discover that the attorney you have worked with for years will not be able to handle the case because there is no “choice of counsel” in the policy. In many cases, spending 30 minutes with your agent (and probably an attorney who has experience working with you) could have resolved these issues — that now are out of your control.

The point is, spending the necessary time with your agent (and attorney) is something that should be done before any policy is purchased or renewed. This allows you to express what you want and consider the options available. It also allows you to avoid issues such as not being able to use the attorney of your choice.

Do you have a claims-made or an occurrence policy?

While each policy and case must be examined individually, generally, an occurrence policy covers claims arising from acts or incidents that occurred during the policy period. This means that if the incident occurred during the policy period and the policy was in effect and in good standing, the claim will be covered, even if you get sued over that incident after the policy has expired.

Claims-made policies are entirely different animals. Claims-made policies generally cover only claims made during the policy period. The claim must also be reported to the insurer as required by the policy.

Generally, claims-made policies are cheaper, as they usually provide coverage for a shorter period of time. Again, however, be aware of “going cheap.” Claims-made policies that are not renewed or are canceled — and for which tail coverage is not purchased — can create exposure for an incident that occurred during the policy period. This can happen, for example, if you simply let the policy lapse and a year or so later someone files a suit against you that would have been a “claim” under your claims-made policy but it was not reported when the policy was effective. It can also occur if you change insurers.

The above is a very general description, and any discussion about the type of policy you should buy or what to do when you renew is beyond the scope of this article, but you should absolutely consult with your agent (and likely your attorney) about any specific needs or concerns you know of prior to purchasing or renewing any policy.

Do you have coverage and defense, or just defense?

Be aware that some policies provide for attorney’s fees and costs to defend claims made against you as well as coverage for any settlement or judgment against you. Some policies, however, only provide for attorney’s fees and costs. Again, this goes to what type of policy you want, what you can afford, and knowing the risks of what you have versus what you do not have.

I have had the unfortunate situation where a client thought they had a policy providing coverage and defense, but the policy provided only defense. The matter involved multiple plaintiffs and conflicting witness testimony that made dismissal of the case prior to any trial impossible. While the resolution of the case was not substantially out of line for the average federal court employment case, the money came directly from the client’s pocket because the policy only provided for defense costs, not coverage for any settlement or verdict. When questions arose about why that type of policy was provided by the agent, it was clear the client had only told the agent to “get some insurance” and made no specific requests.

To sum up, it is unfortunately common that when purchasing insurance of any kind, insureds do not actively engage their agent (or ask for any advice from their attorney) about what types of policies and coverage they may need. This creates many issues (deductible, choice of counsel, lack of coverage, etc.) that likely could have been avoided. There is no guarantee that any issue could be avoided, as no one knows what type of claim or claims might be made in the future, but spending the necessary time on the front end could save many headaches on the back end if your agent gets as much specificity as possible from you.

© 2024 Jones Walker LLP
by: Joseph (Jojo) Lee Adams of Jones Walker LLP
For more news on Insurance Policies, visit the NLR Insurance Reinsurance & Surety section.