Human Judgment in an AI-Driven Legal World

Thank you for having me. I am looking forward to this conversation very much.

So I have had the career I will say a joke about myself. My wife will say there are people that are glass half full. There are people that are glass half empty, and then I'm usually glass half broken. And so I've had before Brobeck, I was at Milbank Tweed where I was in the project finance group and I started my career at Milbank in 1997, which was generally a really good time to start your legal career. I But was in the international project finance group, and there were all sorts of things happening on in Indonesia and Mexico, etcetera, that made that a really difficult time in overseas project finance. And I really wanted to get closer to what was going on in tech in Silicon Valley and so I joined Brobeck in 2000. Studying for the bar, I think it was 2000, maybe 1999, but in that range.

Right after I joined effectively the Nasdaq crashed and I think there was a whole host of things that were not built in the institutions to withstand that kind of crash. And so I actually left Brobeck about a year before it went bankrupt.

And I was looking around thinking, not that it was gonna go bankrupt, but at the time I was in Southern California. And I was like, I think these offices are gonna have a lot of problems for a host of reasons. One, I think we had gotten really expensive and we're competing on price with Skadden, for example. And I don't mean competing on price. We were as expensive as Skadden.

Two, our clientele weren't the blue chip, in particular in the Southern California offices where I was. We're not as capitalized as those kind of clients.

And we were had expensive real estate and expensive labor. And I was like, I wonder if this is a durable model going forward.

And so I started looking for a job and I left in about a year before the firm went bankrupt. Interestingly, I got a job at Credit Suisse and I was there for six and a half years and I got promoted a couple times and in 2007 I started to look around while I was at Credit Suisse because I thought things don't feel right, our deals aren't selling, I wonder if, you know, the institution itself, not the institution but that macro environment is right. And I left in March 2008 Credit Suisse and had not that Credit Suisse went bankrupt immediately, but, you know, was able to move from out of investment banking, you know, right before the financial crisis as well. So I think it impacted me a lot by seeing what people thought was a safe institution become an unsafe institution very quickly.

Well, I think I'm gonna take the question and not necessarily answer it specifically about Qatalyst because Okay. Cool. Not there. That's for them to talk about, you know, how they view their business. But I guess what I would say is clients often need different clients need different things. Right? And every situation what a client's needs is usually not cookie cutter.

And what was great about working in that environment was that they and we built that business so that it was as independent as we could be.

So a lot of the bulge bracket banks are, because of their size and scope, are on many different sides of many different transactions, whether they are, you know, taking a company public or they're giving advice or they have a loan or they are, you know, a counterparty of some kind of security transaction or credit default swap, like they touch companies in many different ways.

And many times that is like fantastic.

And sometimes when you're looking for advice from someone, you wanna make sure that their interests are aligned, if not 100%, but you mitigate the agency principal problem as much as possible.

And I think the boutique model often allows that easier than the bulge bracket model sometimes.

I think the hypothesis that we talked about at the time that was in the media as well and part of our initial press releases was that we believed there was a hole in the marketplace.

That there were the Qatalyst, Goldman, Morgan Stanley's of the world that wanted to do the biggest, largest, most prominent transactions.

There were the bulge bracket banks that often were involved in financings, large buy sides, all sorts of capital raises. There were a lot of boutiques that tended to focus on the private equity world because those folks are deal machines. And there were fewer boutiques that focused on the venture capital sell side to strategics.

And we knew that because as we talked to venture capitalists about who they hire for the $23.04, $500,000,000 deals that they might have in their portfolio, we didn't get a lot of answers of we have go to banks to do that. And I'm sure there are a lot of other great banks in that, and I'm there are I know for sure there aren't. We can talk about some of them too. But we thought that there was a hole if we kept hearing that the VCs didn't know who to hire for these type of deals. So we skated where we kept hearing that there may have been a hole to start with.

That's a really interesting question. So I thankfully have I have been at places that failed mostly after I left. So I think the legal risks show up in a lot of different places. And you see them in the financial world in part because of people's incentive structures a little. I think they've been changed a bit over time.

But for a long time, right, people got paid on revenue.

And if there was risks in deals, that usually happened post revenue and post bonus cycles.

Right? And so the risk would show up later in people's deals. And there was not at the time early or in the century. It was hard to claw back bonuses and whatnot.

If you did a deal that had revenue, but then, oh, wait. There was disclosure problems or all sorts of other things that might have happened to it. And so on Wall Street in particular, think some of those things got changed for companies that do a bunch of capital raising, in particular, the bullish brackets where that more of the consideration is in stock and whatnot, which is easier to claw back and also other things. So I would say often the problem for legal compliance, kind of operational risks, I think, is that the people who are in the jobs who are responsible for those things usually have asymmetrical risk.

And that if things go wrong, they are likely to get fired.

And if things go right, nobody really notices.

Right? And that creates tension in the organizations for a host of things.

Right? And so I tend to think if you look at people's incentives, you'll get how they behave most of the time.

And then you'll remember when people act against their own incentives, like, oh, that person was really that banker told me not to do that deal or that lawyer gave me a bunch of free hours or whatever it is. That **** didn't do a merger that, like, they would have gotten their sponsorship things on. Right? Whatever it is when people act against their incentive structure.

But I do think the asymmetric risk for a lot of those chief legal, chief compliance, etcetera, office positions creates tension within organizations. Oftentimes, the senior revenue producers, the risk stuff are check the box, not places where they are really focused.

So I think you've asked a question that has a lot of things imbued in it. And just to be clear, look, my experience on some of the things I obviously, I spent most of my career in the financial sector around tech and so I think banks, particular bulge bracket banks, have their own things that I was referring to.

So I think there are worlds here where we will see how all of these things develop and whether legal advice if we all have access to the same tools and have the same facts, does everything converge to either a lowest common denominator or the middle? Right? And so I think for most things that's probably fine. And one of the things that I had in my career as I've changed jobs, someone said to me at one of my spots, look, you were trained to try to be perfect.

We don't have the time to be perfect here. We have to make decisions and move on. And a lot of startups are in that position where you just don't have the time normally or the resources to get to a 100%. And probably you don't need to on most things.

So I think your question is embedded with and I think this is a question about how law firms are doing, which I think as you said, people are trying to move away from law firms. I don't see that in the numbers yet. That's true. It's not showing up in the Amlaw 100 profits per partner revenues.

Like, I think the best law firms are making more money than they've ever have both from a profitability and a revenue perspective. So I know there's this thing out there in the zeitgeist. It may show up soon, but it's not showing up yet in the actual data. Right?

So that's the first thing. The second, I think people are trying to figure out how to both also I think the legal department becomes the repository not just for legal advice, but for us in times a lot of facts about the company.

What's this contract say? Well, that's not really at that point, like, what's legal advice? It's like, tell me what the pricing terms are or tell me what the x y z is. Right? And so I think a lot of the tools are both being developed to help people manage legal risk and legal flow, but also just to be fact gathers of where the facts of the organization lie in their commercial contracts and whatnot. And so I think there are people using the tools in a lot of different ways.

Some are leaving them legal, but they're not really legal tools. They're like information gathering tools and some are more legal tools. I don't know if Eric that answers your question or not.

That's a really interesting difficult question, and I think it's sort of you hit on things in the legal ecosystem from all sorts of angles with that question, Daniel. First, like, does law school education have to be completely rethought?

Right. Maybe. Maybe not. Right? Like, Berkeley came out with a public or was it became public a policy about AI use that I know was a source of a lot of debate.

I think Stanford has a different policy. You know what mean? But NYU has a third policy. Columbia has a different like, all of these places are trying, I think, groping for how should people use these tools in their education.

Are we a vocational training or are we thought training?

How you answer that question takes you in a very different direction.

What do the law firms want to hire young attorneys? Do they want them to be up to date in all these tools? Do they want them to be critical thinkers? Do they want both?

Like, there's an opportunity cost on all sorts of things when you choose to teach in different ways. Right? So I think you bring up a question like those to legal education. You bring up a question like, what are young associates or young lawyers gonna learn?

And are people gonna invest in these people? Because are they gonna be necessary in the short term? Like, I don't know the answer to that. I have children who are thinking about going to law school.

Like, it I don't know what world they'll be graduating into in three, four, five years. Right? So there's a question there. I think there's a question about judgment.

And I think all of these jobs as you get more and more senior go from being like a legal job to counseling and therapy. The banking job, you know, it goes from being a numbers job to a people psychologist job. All of the jobs, you have to bring your lens to it, but they're all about helping somebody on the professional service side solve a problem, avoid a problem, you know, get something done.

And that oftentimes becomes about knowing who your client is, what's important to them, etcetera etcetera. And then so people will say to me in some of the advisory roles that I have, do you think I should sell my company for x? I can't answer that for you.

I won't answer that for you. I don't know how much money you wanna make. I don't know what your goals are. I don't know your financial situation. I don't know how much you love going to work every day. Do you wanna go to this acquirer? Like, if the goal is risk adjusted easiest returns, That's easy, but that's not the only question for a lot of people.

And so I think there's a host of things that you're asking that we each situation person is unique, and I think you really can separate yourself going forward by actually listening to people about what they wanna try to accomplish and then helping them get there.

And AI, I'm not sure is able to do that yet.

Yeah.

I think in particular also, like, the way ethics rules work, if I remember them correctly, is that you're part of the ethics of being a lawyer is being up to date on the most on the technology of the time that you're Rule 1.1, and by the way, California, just to throw this in here as well, California has amended their or amending their rules of professional responsibility to include generative into artificial intelligence in the version of the model rules that says you have to keep up to date with the benefits and risks of technology.

Now they're actually including generative artificial intelligence there.

I don't want someone to listen to this conversation and come away saying, like, I am saying either you shouldn't be fluent in AI or, like, that's not at all what I'm saying. Right? I am saying, like, these things are going to become just like, you know, Google searches became thirty years ago or twenty five years ago. Like, they're going to be things that we have to use and things we use to I think the question is, do we control the tool or does the tool control us?

Right? And so I am not even sure, frankly, how you can ban AI in different directions now. Like, you do a Google search, like, does that mean you turn off your AI overview so that it's not giving like, I am not even sure. I'm not I'm not attacking Berkeley's policy at all.

I'm not even having it in front of me. I'm just saying if you wanted to ban AI, you actually have to go very deep into that to actually ban it. Right? And so I think the best lawyers going forward are going to be the ones that are able to marry the tools.

I'm gonna step back for a little bit from describing Theo because a, on being on their advisory board, I might always be a few weeks behind of where the product is, so I don't wanna describe it incorrectly in any way.

I will say in my career, I've had both personally and professionally times where I had to try to value litigation.

What was this litigation worth as a plaintiff or as a defendant?

And I worked at Silver Lake's Credit Fund for a while, like, you can imagine in litigation around credit, if you're a credit holder or all sorts of other things. Our prime broker was Lehman Brothers. Like, there are times that litigation valuation was really important.

And that's a multivariable process about, like, do you think you can win on the law? If you do win, what is your claims worth? How much time and energy are you gonna spend?

All these other kind of variables to go into it.

I was intrigued when I started talking to Theo if there were ways to help companies and general counsels do that.

And you can imagine if you could really do that, then there would be hedge funds that might be interested or litigation financing or all sorts of other things, like, if you can really have a view on what is a litigation claim worth.

Now I think what's harder is and I think law firms are pretty good at giving you advice, and they can't tell you whether you're gonna win or lose under the ethics rules. Right? And they don't know. But they're pretty good at saying, like, I think we have a sixty forty, seventy thirty, like, you have a strong claim. Right? Or we claim. But I think they're less good at them saying, well, like, well, what is that actually worth?

Is this a claim worth pursuing? Is this a claim worth not pursuing? You know, we're get into this for settlement conversations. How strong is your view to get to settle? Like, it's a whole host of economic things that I think law firms are probably some are better than others, but not as good as saying, do you have a good claim under the law? Then I think it's harder for law firms because they don't they're a step outside your organization.

How much time and energy is this gonna take?

How distracting is this gonna be for people?

How reputationally damaging is it going to be if someone has to go through a deposition and it becomes public? All sorts of things that are disconnected from the actual case.

I'm sorry. Disconnection from the substance of the case, but the process of the case.

And so I was fascinated if there was a tool that could help, you know, not answer that question, but be another tool to give people information of how to look at those kinds of litigations.

Now I think the tool works better.

Not surprising. Like, I think all the AI works better based on whatever information goes into it. And so if you are a company that faces I'll choose any names, but if you're like a big store, for example, on a company that runs thousands of franchises that has, you know, a lot of slip and fall litigation, Maybe it's easier to figure out what something is worth because you and your own data have thousands of examples you can compare it to.

If you do one litigation a year, probably has less utility. That kind of tool that would allow you to predict where things are. So I think I was intrigued by it for a host of reasons about both how I have struggled with that issue personally and professionally. I was intrigued by it, a, because I think the CEO is really quite impressive.

And it came to me from I was introduced to CEO by a gentleman, Morian ****, who's a partner at Morrison Foster, who I think the world of. And so all those things, Eric, for me, came to the point of and they had actually obviously want me to be involved as on the advisory board. I'm not on their board, but on their advisory board.

So all of those things from the I thought it an interesting concept. Could you help people have a better view of how litigation would play itself out and the people involved?

Struck me as something, you know, that I would be willing to dig in a little deeper and spend some time on.

It's interesting. I sometimes with these rules, I struggle with what is what we're trying to accomplish.

So I don't know if the rule about law firms have to be owned by lawyers.

Does it improve or decrease the value of legal advice? Like, I just I'm not sure I understand how it flows to the client.

Then that's exactly kinda Maybe it does.

I just I'm not sure. It doesn't strike me intuitively. As long as I have my obligations as a lawyer, does it matter if it's owned by a private equity firm or owned by now if you have a view that private equity I'm not saying this is my view, but if your view is that private equity makes things worse that it touches, like maybe hospital care or something, then law firm and you want to make sure people the best access to legal services.

But I don't think that's what people are saying as as part of this. So I think the law firm model is going to be moving around over time, both the model as well as the services and how they're delivered. And you see that from the ownership of private equity buying certain firms. You see that from venture capital, what kind of things that they're investing in, both as tools but also as, like, firms.

You see that in M&A. Right? As Carta just bought a law firm. So I think you will see in different ways the model change and move around.

Does that mean the law firm model is dead? That would surprise me.

I do think the billable hours like, think all a lot of this comes back to people hate the billable hour and can't come up with something that works better.

I don't know the answer to this, but I know it is a question. Right? How much law firm work right now is being done by tools?

And are people now billing that as the amount of time it would have taken without the tools, or are they billing it for the same time it takes to do with the tool?

And I don't know the answer. I'm not sitting inside a law firm right now doing bills. Right?

I have a hypothesis of what the answer is, but I'm I don't know for sure. I don't think we've come up with something systemically better than the billable hour. Right? I think there are bespoke arrangements, and there are other regulatory environments that also create friction with this. Right? So if you're an M&A lawyer, for example, and you're doing M&A advice, if you were to take contingent consideration on the deal closing, you may inadvertently fall into the FINRA rules.

There are other things out there. Like, if you take contingent consideration, you might be a banker by definition. If you don't take consideration contingent consideration, you have to do something else, right, for deals. And there are project based.

There are fixed fees. There's all sorts of other things, but it does change the risk allocation of, like, for the vendor or the adviser. And so I think writ large, I don't think the system has come up with anything else. When I'm being my most supportive of law firms, I will say something like, I think probably many hours you're getting overbilled.

I don't mean overbilled, that someone's miss billing, but your pro that advice is probably not worth the $2,000 it cost for that hour.

But there'll be some hours where the advice might be worth millions or billions, and you're still only paying $2,000 for that hour too. If you're lucky, you'll have lawyers that you'll overpay for most of the hours and then underpay dramatically for the most important hours.

What that does do is it makes legal service almost unreachable for the vast majority of Americans, which is a different problem.

My daughter's smarter than I am, so, like, she's definitely academically speaking, she doesn't need a whole lot of assistance or advice from me. I would say I can remember very few things that I learned in college or law school this many years later.

I can tell you though with pretty good clarity, which of my classmates or professors intrigued me, inspired me, wanted me better, person, lawyer, etcetera.

And I have worked very hard to keep those people as close to me as possible over the intervening twenty to thirty years. And so what I would tell my daughter and I would tell other people is when you meet someone in law school, whether they be a professor, student, an administrator, and you think they are great at what they do and a great person, try to hold on tight to them. So that would be but that is advice that I would give to people irrespective of being in law school also.

Thank you so much for having me.