Future of Law Rapid Fire: Six Partners, One Microphone, San Diego

Transcript

Lightly edited from auto-transcription, ad reads removed, paragraphs grouped, speakers attributed via heuristic. For exact attribution, listen on Apple Podcasts, Spotify, or via the embedded player above.

Brian Elliott: No one thing is a marker of success. And, you know, your first round is just a first kind of external validation point. You have to prove it every, every day. Learn more at scalefirm.com.

Chuck Kraus: Hi, welcome back to the Scale LLP Y'all Street.law Podcast. We're here in San Diego doing a remote podcast. Decided to pull some of the Scale partners together to do a pass the mic roundtable. So we're going to start that off.

Brian Elliott: My co-host Chuck is going to join us in a few minutes. But we're just going to go ahead and get started and do some introductions. I am Bob Gans. I'm a litigation partner here at Scale.

Chuck Kraus: Heather Cantua, a partner in a real estate practice group. Dori Karjan, a partner in the corporate group. James Creedon, a partner in brand protection. Dave Lundin, a partner in fintech and financial services and also corporate.

Brian Elliott: Excellent. So what we've got today is a list of rapid fire questions. We're just going to throw some random legal topics out. See how y'all do.

Chuck Kraus: Right. So we're going to pass the mic. No more than, you know, 20 seconds on the mic. And then go to another person.

Brian Elliott: Try to get everybody's opinions in. If you feel strongly about an issue, raise your hand. Make sure the mic gets to you. Um, so we'll start here.

Chuck Kraus: Is an LOI worth the paper that is printed on? Absolutely. Uh, because I think, you know, an LOI gives an opportunity for the parties to kind of like set the expectations, uh, from the get go. So it's good for the client.

Brian Elliott: Uh, I'd say from the lawyer's perspective, it's really good because it allows you to force the client to focus on, you know, important terms as opposed to like getting straight into an 80 page operating agreement or something like that, where they really haven't like finalized anything. So I, I'm a big fan of LOIs. This is the difference between corporate and litigation. No.

Chuck Kraus: In my experience, I would say yes. If you're entering into really complicated business partnership to spend the time up front to make sure to still down the key principles that each client really cares about before you do all the digging on operationally, can we make this thing work? Uh, we'll save you a lot of time up front. I agree with Dori and Heather.

Brian Elliott: Um, and if we're expanding LOI to include, include term sheets or other sort of non-binding documents, uh, more holistically, um, in addition to all of what has been said before, it can be a good way to make a deal, uh, or an attempted deal rather exclusive or, or create some sort of no shop opportunity. okay I think they are worthwhile as a process to narrow down what the issues are but also to let the lawyer on the deal early on identify some red flags and try to fix things earlier in the conversation before the parties get too committed to the deal in their minds and realize they have to back out on a portion of it okay we're gonna switch topics up a bit we're gonna go back to you James right here's an IP question but anybody feel free to join in on it how can you own a vibe how can you own a vibe yeah uh well as a technical matter you could maybe own a vibe if you're talking about fashion protection or if you're talking about uh your brand like the name that you use or the slogans that you use sometimes even the colors that you use the color combination or the music that you use are all protectable by intellectual property but really uh can anyone own a vibe I tend to think that creativity is best when it's spread around and shared and so I say don't try to own the vibe own the product and let the vibe go out and do its thing yeah I think that's a mic drop moment but uh maybe an international perspective to put it back to James can there be moral rights in a vibe why are we talking about moral rights really what we should be talking about is uh can chat gpt have a vibe well let's go go with that okay so future of legal practice it was a topic that we talked about today um at the partner retreat uh give us your take on what's the future of legal practice bob well yeah chat gpt ai is going to play a very significant role I think it's already playing a significant role I don't think I think we're a long way away from it getting to the higher levels of complex litigation I think that still requires some human thought so maybe we'll get there but I think you're going to see costs go way down and efficiency go way up for some of the more routine matters yeah I think right now we see ai trying to just make lawyers faster um which is beneficial but uh really is just getting you law faster and what I'd like to see ai or what I want to focus on with ai is how do we get ai to just get solutions for our clients instead of just faster legal memos how do we get it to you know be able to engage with the client to come up with kind of the business plan identify the key legal issues and then you know draft the templates faster but I think we're going to be a couple years away from from being able to do that but I think it's only a couple years yeah I mean I you know I mean technology reduces redundancies right that's what it does and so that's what it will do in the practice of law but I I'm old enough to remember when I went to law school and you had to look up uh you know Westlaw key cards like the actual digital cards and so I mean ai is a technology but there have been other innovations in technology during my career at at the end of the day I think anything that causes lawyers to be more valuable to their clients even if it in turn reduces the number of lawyers that's a good thing and you know there's this kind of like five percent thing that great lawyers do and they do it after they've learned a lot of the like forensic skills that maybe ai will take over and i don't think you're going to replace that and so i think it will just force us to be better at the core job that clients wanted from us you know in the first place so as the person at the firm who's uh running the impact initiatives i like to think about the future of legal practice as leveling the playing field i think technology will democratize legal practice more if you think about underserved communities who can't get access to legal services either because there's not lawyers available to them or because the cost is prohibitive i love to think about ways that technology can streamline processes that should be much easier whether it's citizenship applications whether it's adoption whether it's name changes or gender identity changes things that should not take a lot of money and a lot of time that have to go through legal services or non-profit organizations why can't we automate and streamline those and in the process have the law work for people more than it being an obstacle for people generative ai is overhyped overcapitalized oversold and underperforming that said that said i think it it and then the ai field more broadly which includes more than large language models and generative ai that we're all familiar with um does have some promising use cases i am neither a dystopian nor a utopian about it and i think it just remains to be seen how useful it is the hallucination problem is real and hallucination is a friendly arcane word for production of nonsense all right i have an addendum because i felt like my previous response was limited to ai but wanted to build off of what james was saying about technology and access to attorneys because scale as a fully remote law firm and working off of you know a tech platform has enabled me to move into a very remote area of washington state and that has really opened up my eyes to seeing how much what a population of our lawyers lives in dense urban areas and to me that's a huge access to justice issue we need more lawyers like me living out in the mountains living out in the woods and being in these rural communities to have more you know diverse uh representation excellent uh good comments uh we've been rejoined by my co-host chuck kraus so chuck will say hi in a second we'll get him uh on the mic here but um i do want to change the topic a little bit let's go a little bit lighter after those heavy thoughts on the future of the practice of law so uh the next question is going to be uh what is your walk-up song you to a court hearing, deposition, going to a deal table? What's the song playing in your head? Purple Rain.

Chuck Kraus: Oh my gosh, I have no idea. Is it, to my great shame, is it Taylor Swift? Is this some sort of Taylor Swift song? I don't know.

Brian Elliott: Hopefully Chuck has an answer. I just want to reinforce David Lundin's choice. As a Minnesota native, there is no better walk-up song than Purple Rain. I'm Still Standing by Elton John.

Chuck Kraus: I'm going to go with Higher Love by Whitney Houston, because you can just really belt it out and call for something greater. If I say the Rocky theme, will you throw me off the podcast? That's good. Okay, so let's do another one for, let's talk about AI.

Brian Elliott: Should AI have a right to legal representation? Oh, as the super AI optimist, I'm a big believer in artificial general intelligence coming sooner rather than later. And so I think to the extent we believe there is AGI, and we can figure out the big problem of consciousness, it should have legal representation and also IP ownership. I mean, that's very deep.

Chuck Kraus: I can't totally follow on that. But I think that to the extent that AGI acts as an agent for others, derivatively, sure. I mean, there should be a mechanism to kind of like enforce rights and protect rights and enforce obligations for AGI. But I don't know that, I mean, it's not a sentient being yet, but I suppose if it was.

Brian Elliott: Well, it can only have consciousness or be sentient if we reduce those terms to be computational, rational analysis. And I'm very against the reduction of my consciousness to be something that is just a computational. There's a spark of energy of life that exists within each of us that AI will never have, and therefore no right to representation. I wish I thought you were right, Heather, but as a big fan of the show Severance, I understand that's not technically AI, but I think the principle is the same.

Chuck Kraus: Like, you can see the future of AI moving towards sentience. And, yeah, I think that's an issue that we're going to face. It's in the future, but I hope it's in the very far future. I have nothing to add that wasn't already covered in the episode of Star Trek The Next Generation called, I believe, The Measure of a Man, where they tried this issue with Data.

Brian Elliott: And what was the result? Data was a person, I believe. Very good. Okay, we're going to get Chuck back on the mic here.

Chuck Kraus: Chuck, pick us a topper. Let's, yeah, this is a mixture of light topic, but getting back to the substance. We all attend barbecues. We're asked for informal advice.

Brian Elliott: If there's one piece of legal advice you think should properly be on a t-shirt, what would it be? This is not a legal problem. Don't be your own lawyer. Okay, my wise guy answer is don't write anything down.

Chuck Kraus: My real answer is put a merger clause in every contract. And that's the clause that says this constitutes the full and complete agreement of the parties, which no one understands how important that is, but it's the most important thing in any contract you sign. It's a large t-shirt. Uh, don't talk to the police without a lawyer.

Brian Elliott: Three words. It's trademark time. All right, let's go, uh, a couple of more. Um, what is the number one legal mistake founders make after they've raised their first round?

Chuck Kraus: Dory, I think you have perspectives on this. What's the, what's the number one mistake founders make? They, they've raised the money. They've, they've convinced someone to invest in the idea.

Brian Elliott: Where does it go wrong? Um, that's a great question. Um, I mean, I think, I think what I've seen time and time again is founders at that point, especially if they're young founders, you know, it's very exciting. Like if you're a young founder and you get into, um, you know, I see, or you, you, you get a VC check, there's a tendency to think that that has validated you as a founder.

Chuck Kraus: And, um, you know, what I've seen time and time again is that, you know, the road from idea to IPO or, or, you know, sale or whatever. I mean, it's just fraught with so many roadblocks. So many of them are out of your control. Um, and so I think probably the most important thing for any first time founder is to understand that every event that feels like validation is just, you kind of passing one of the obstacles that could have killed it.

Brian Elliott: and killed the idea and killed the project and to you know remain aggressively positive about your vision but humble and understand that like you know they're not no one thing is a a marker of success and you know your first round is just a first kind of external validation point you have to prove it every every day so that's i would see founders who come to me who don't understand which parts of their business or haven't made real clear decisions of which part of their business is you know copying other things that are out there and which part of their businesses are truly innovative and where they need to like spend their focus and time and energy and you know i have clients come to me and say like oh well it's just off the shelf just you know get me a template and i'm like but this is the core part of your business that you are calling innovative and new let's not skip over that part dive deep on that part but obviously if there are examples out there that you're following for other aspects of the business copy and paste all day well i think this is a mistake they make before they raise their first round after they raise their first round and it's undervaluing um their come not their company but the value of their equity that their equity and your equity in your company as a founder is the most valuable currency you have and when you sell that you better make sure you're getting full value otherwise you're going to wind up not being in control of your own company uh i think that's all well taken i would also add uh having a misalignment between what the next the next sort of commercial milestone is for the company versus what the expectation is of the the investors that that led that round and i'll double click on bob i think undervaluing the equity and thinking that the way you get great talent in or you keep great talent is by giving them equity as opposed to some other mechanism of compensation one more on the on the capital markets governance topic and then we can shift gears what advice do you give founders based on the experiences you've seen about selecting board members and um the the traps to be wary of when bringing in you know companies get to a size where they need that independent board um what what should they look for in selecting board members competence and experience basically you want grown-ups on your board uh 100 agree and i would also say uh making sure that the board members especially those who are truly independent uh can devote sufficient time and attention to the matters at hand there are some people who shall remain nameless that serve on many many many many boards and and my own view is that that's sort of incompatible with uh what what ought to reason i believe so you you be expected of a board number. That's not even a question. It's Texas all day long. Pro-business state, booming economy, plenty of opportunity, plenty of space to grow, great people, highly educated workforce, top universities, people are moving there, and some of the best lawyers you'll find anywhere in the world.

Chuck Kraus: I mean, I see the value in Texas. I obviously would plug Oklahoma as an adjacent state to Texas with far better people and a better football team, but yeah, you know, I think that the, I think there's a lot of brouhaha about it. I think it's six and one half dozen the other. You know, I think, especially if you're, you know, a young company, there become shifts and, you know, I would see this like in Web3 and blockchain all the time.

Brian Elliott: All of a sudden, everybody's like, we've got to be a Wyoming LLC. And you're like, why? Because everybody else is. But you know what?

Chuck Kraus: If that's where people are going to invest, do it in Wyoming. If you're seeking traditional capital that wants it to be in Delaware, do it in Delaware. That's it. All right.

Brian Elliott: Drill down on this question a little bit for Mr. Gans. From the litigation perspective, you know, Texas is adopting right now a number of pieces of legislation that are aimed at stopping what is viewed as fishing expedition litigation, litigation, litigation going after boards that have made informed decisions and challenging those decisions. What do you think about that playing field right now targeting, targeting companies and targeting boards?

Chuck Kraus: I don't think that's any different than what any state is doing right now, including Delaware. Delaware just recently made a lot of changes to its corporations code to avoid a lot of strike suits, a lot of the ability to dig into corporate records and things like that. I mean, with all due respect to the Texas business courts, which have been in existence for, what, 20 minutes now or whatever? I mean, look, if you're looking to incorporate in an area that has a great court, a great bench, and a well-developed law that everyone else is mimicking, you want to be in Delaware.

Brian Elliott: So I'll just amplify Bob's response, and I would say, you know, I said Delaware as a single-word answer before. I don't really believe that, right? I mean, I think it depends. I think it depends on your goals.

Chuck Kraus: However, if what you want is a well-reasoned, you may not always agree with it, but well-reasoned body of case law interpreting core sort of corporate governance and shareholders' rights disputes, Delaware exists. Right now, the rest, you know, I don't want to slight other states that have, you know, sophisticated judges and litigants, but the rest is sort of a blank slate, and that could be good or bad. I think part of the perspective of the Delaware legislators, sorry, the Texas legislators that are bringing forward these amendments are, we shouldn't have to rely on a body of case law interpreting our statutes. We should just be able to read the statute and see that it's clear or not.

Brian Elliott: So I think that's an important part of it. You know, I think they're trying to attract boards that are spending a lot of money on litigation. And in fact, one of the statutes that's being passed is one that says basically internally, a judge must read the Texas statutes as written and cannot interpret or cannot bring in outside Revlon, for example. You can't read Revlon into the Texas statutes.

Chuck Kraus: And I guess I wonder, is that a good approach or is that an approach that's going to backfire? I'm trying to think of a statute that isn't subject to interpretation other than like a traffic law or something. I mean, red means stop, green means go. Beyond that, that's what judges do.

Brian Elliott: They interpret statutes. No, I don't. I think clarity and efficiency are most important when you're thinking about a potential worst case scenario, which litigation normally is. And Delaware offers a combination of that.

Chuck Kraus: You have predictability. You have an experienced bench. And you have a chancery court that disposes of matters expeditiously. Now, maybe Texas will get there.

Brian Elliott: But I wouldn't, with all due respect to the Texas lawyers around the table, I wouldn't just jump in without at least thinking about it. And something like that, I just don't understand that thinking. Thank you. I think a great irony might be if the body of case law that emerges from Texas's new, or any other state's really, new attempt to become sort of a magnet or haven for incorporation.

Chuck Kraus: It would be interesting if the body of law largely mimicked what the Chancery Court and the Supreme Court of Delaware have produced. And then it would be a double irony if Delaware attempted, as perhaps they have already done, to remove that body of case law from their own state, such that Delaware could Texify and Texas could Delaware-ify. All right. I think we've beat that one up enough.

Brian Elliott: Let's move on. Let's change gears a little bit. But what clause do you wish every founder understood in their commercial contracts? What's the one clause that you wish founders understood?

Chuck Kraus: On the broken record here, but the intellectual property ownership clauses and understanding that simply because you have emails or other documents with your co-founders or vendors or employees doesn't mean the company owns the IP. You have to have very clear, explained policies and procedures for how that IP is transitioned over to the entity. I would say if I'm talking just across the broad field of commercial contracts, the area that I think trips up most folks is not having a sort of clear pricing and deliverables and performance measure or mechanism. That's good.

Brian Elliott: I don't want to give too much time for everyone else to think about answers, so we're going to switch after two. Bob Gans, litigation hold. Explain it in 10 words or less. Don't destroy anything.

Chuck Kraus: OK, that's what it comes down to. Do not. If you get sued, don't destroy anything. You're just going to make things worse.

Brian Elliott: It's never the crime. It's the cover up. I went way over 10 words. I'm sorry.

Chuck Kraus: All right. Dory and Heather, what's the dumbest reason you've seen someone get sued?, I can start with that. The dumbest reason I ever saw somebody get sued was when a CEO of the company wanted to terminate the COO of the company.

Brian Elliott: And the CEO was determined under no circumstances whatsoever would the guy get any severance. The guy was willing to take a year's severance, keep his email. And the CEO was just adamant that he was going to go to the mats. And so the COO used himself as a lawyer, spent five years litigating against the company.

Chuck Kraus: There was an indemnification clause in the operating agreement that allowed for even indemnification, even in the event that an employee or member sued the company. So the company had to pay all. his legal fees once he hired a lawyer. So he started out by himself.

Brian Elliott: Anyway, I was general counsel of this company and I told him, please give him, you know, the severance. Anyway, we wanted to settle for $150,000. This ended up costing about $3 million in the legal fees of the company and destroyed the company. And it was pure, it was pure pride, right?

Chuck Kraus: And that was the only reason. So I guess the real answer is when you act out of pride and emotion and not out of logic and what's best interest with the company, that's the dumbest reason you see it. Yeah. The dumbest reasons I've seen is when an attorney will start talking up to a client about, you know, travel damages and all of these like extra things that a client's going to get.

Brian Elliott: And so I had a, you know, a vendor dispute. The vendor thought, you know, maybe they were owed X amount of dollars. Attorney was like, oh, it's 10X. We spend a bunch of money on attorney's fees, waste months.

Chuck Kraus: I don't even know, maybe a year's worth of time. And the settlement ended up just being X. And it was like, we could have just done X from the beginning. Great.

Brian Elliott: Okay. Let's go around. Favorite legal movie? Oh.

Chuck Kraus: The Rainmaker. No question. I have mixed feelings about Tom Cruise, but I will say A Few Good Men is a great legal movie. Liar, liar.

Brian Elliott: Oh, I've got a, I've got a runner up. Oh my God, I got a head rush from there. As a runner up, the underappreciated Coen Brothers comedy, Intolerable Cruelty, starring George Clooney as supposedly the best divorce lawyer in Los Angeles. All right.

Chuck Kraus: Two more. What is one thing every lawyer should unlearn? Heretofore. Using Latin phrases without knowing what they mean, when English will suffice.

Brian Elliott: Using Latin phrases even if you do know what they mean. All right. And let's see, Heather, what, what is one, what is the one legal show that gets it most wrong? Oh, I know that.

Chuck Kraus: I don't watch TV. Oh. L.A. Law.

Brian Elliott: It probably used to be L.A. Law. I would say the show Suits, while very entertaining, definitely gets it wrong. There's just no universe in which the best litigator in Manhattan is also the best mergers and acquisitions lawyer in Manhattan.

Chuck Kraus: I have to believe that the old show Night Court had it 100% correct. See you in the next one. sunshine and knowing that you're ready. because if we're not bringing mules and donkeys into the courthouse, what kind of law are we practicing?

Brian Elliott: Any Law & Order spinoff. Okay, this has been great. Good conversation, everybody. Glad to have the time to spend with partners in San Diego.

Chuck Kraus: We don't get together as much as we should. I'd like to go around the mic one more time. Let's give a sign-off. Just say hello to the folks in the audience and any parting thoughts.

Brian Elliott: It's been great to be here with my fellow partners. As Brian said, we don't get together in person that often. We're a remote firm and that has its advantages, but it's really nice to exchange thoughts this way. I honestly and truly think being a lawyer is one of the best jobs you could ever have in the world, and it's made better by having good people to practice law alongside of.

Chuck Kraus: So happy to be here. I will echo James on that. You know, I joined Scale three years ago. I'd been at GC for like 15, 18 years.

Brian Elliott: And, you know, getting to be in this environment and getting to work with the clients I work with and this team, it's absolutely like reinvigorated my kind of love and appreciation for being a lawyer. So it's been great to be together with everybody. Yeah, echoing what everyone else has said, Joining Scale has enabled me to open up a whole new life path that I didn't even know was imaginable. And so to anybody who is listening to the podcast, if you're a potential client, an attorney, you know, reach out to us.

Chuck Kraus: We love meeting like-minded folk. Thank you, Chuck and Brian, for having us. It's a great podcast. I love it.

Brian Elliott: And for all of you out there who haven't subscribed yet, subscribe. All right. That closes us out. Thanks, everybody.

Chuck Kraus: It's been fun. For more insights and updates, visit www.scalefirm.com or follow us on LinkedIn. .