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In Memoriam: Gilbert “Gibby” Rodriguez: 1943–2024
By the Honorable Fred Biery, United States District Judge
For over fifty years Gibby was the epitome of court and law firm support staff who know far more about the actual practice of law than is taught in law school. May we honor his memory and appreciate all he did for us in Bexar County and Texas Western courts.
The election season of 1977–78 brought together two young men. That began a fortysix-year family, professional, and friendship relationship which will never end. Indeed, over these last few weeks, I have read or seen something and think to myself, “I need to tell Gibby about that.”
As a child, Gibby lived in the Alazan-Apache Courts, was a tough competitor as an All-District linebacker against much bigger guys, was gentle as a lamb with children, and became one of the longest serving civil servants in Bexar County and American history. Most importantly, he became husband, father, grandfather, padrino, and compadre.
His ancestor, Damacio Jimenes, gave his life at the Alamo for Texas freedom, but those freedoms and civil rights did not all apply to people named Rodriguez when Gibby was a young man. He only half-jokingly would say that, north of Hildebrand, he said his name was “Rodrigay.” When he and Rose married, the good folks of Harlandale would not rent to him because of the color of his skin and his name, so Anglo Rose obtained housing in her name. And of course he, like others, was punished for speaking Spanish in certain places. He always voted for candidates who would fight for the rights he was denied.
But he overcame, and became one of the smartest people I’ve ever known. He was fluent in five languages: English, Spanish, Spanglish, common sense, and street smarts. He had a great memory for linguistic malapropisms and would tease someone about their mistakes, including his mother and me.
I once referred to my brother-in-law, Dr. Tamez, as “mi conejo.”
“No, Judge, he’s not your rabbit. It’s cuñado.”
And his mother: “Gibby, did you hear about Tio and Tia? They sold their house. They are moving to a condom.”
“No, Mom, it’s condominium.”
He didn’t have a law degree, but he taught hundreds of young lawyers how to navigate the practical and real world of the courthouse—things not learned in law school.
For me, he was an anchor, not afraid to tell me if I was messing up; and a godfather to Anna Lisa, helping me raise her for the first four years of her life. We were somewhat like Walter Matthau and Jack Lemmon in “The Odd Couple,” traveling South Texas to put up campaign signs and taking training breaks with her potty chair in the back of the pickup truck. And now, her daughters like coming to the courthouse because “Uncle Gibby always has tacos and cookies for us.”
And there were the fun times, poker games with Jim Pearl, Peppy Dial, and Bobby Myers, and hunting trips to Colorado with Tom Stolhandske. We thought we were Robert Redford and Paul Newman in Butch Cassidy and the Sundance Kid Surely, you can see the resemblance. But Katherine Ross never found us.
Daughter Molly said, “I will miss Uncle Gibby’s kind spirit and his wonderful hairdo,” referring to its jet blackness accentuated by the “mechón blanco.”
And that white streak brings a wonderful memory of our trip to Acapulco. It was his first trip there. We were walking down the sidewalk when a young woman and her six-year-old boy were approaching us. The little boy had the same black hair and a mechón blanco. I turned to Gibby and said, “I thought you had never been here before.”
We credit our coaches for teaching us discipline and hard work, and keeping us from going in the wrong direction. But Gibby and I often commented how very glad we were that there were no cell phone cameras forty years ago. Like a bottle of fine wine, two smart and rambunctious thirtysomethings aged to become wise over our almost five decades together.
Two closing thoughts: A teaching from the Gospel of John, Chapter 15, Verse 13. Jesus of Nazareth said, “There is no greater love than that a man would lay down his life for a friend.”
We never had to, but we would have. Rest in peace my compadre and friend.
Colorado Hunting Camp, 1980
Fred Biery has served as a Texas and United States Judge for forty-six years.
Gilbert “Gibby” Rodriguez
By June Moynihan
Patty manages her professional and family obligations because everyone helps in the Vargas family!
Photos by Mewborne Photography
The Quiet Architect of Order Patricia “Patty” Rouse Vargas
In the bustling heart of San Antonio’s legal community, a quiet revolution is unfolding. At its center stands Patricia “Patty” Rouse Vargas, the incoming San Antonio Bar Association president. But don’t expect fiery speeches or dramatic courtroom antics from this legal luminary. Patty’s revolution is one of order, structure, and a refreshing dose of humor. It has been nearly two decades since a transactional practitioner has led SABA. “Transactional attorneys tend to stay in the background and partner with the litigators when needed,” Patty jokes.
Patty manages a practice of probate and estate planning at the law firm of Davis & Santos, PLLC, working alongside her husband, litigator, and SBOT President-elect Santos Vargas. Santos says, “Before Patty joined the firm, we routinely referred transactional work to her firm, and her firm was referring out litigation to us. Patty is a strategic addition professionally, and it was a great decision for our family.”
Patty reflects on her path to the Bar Association’s presidency as we sit in her office, surrounded by meticulously labeled Redwells and yellow pads covered in her precise handwriting. “I don’t have any remarkable controversy or hardship that inspired me to become a lawyer,” she admits with a wry smile. “I just like rules.” This penchant for order is not merely a professional quirk; it is the cornerstone of Patty’s entire worldview. In a profession often characterized by adversarial relationships and high-stakes conflicts, she stands out as a quiet but powerful force for collaboration and structure. Her weapon of choice? Probate and estate planning—a field that allows her to create order from chaos and build bridges where others might see only walls.
Patty’s journey to the top of San Antonio’s legal community is as unconventional as her approach to law. The eldest of four children born to a cardiothoracic surgeon and a radiologist, Patty grew up in a household where expectations were high and teamwork was essential. “There were a lot of expectations, and we all went with the flow,” she recalls. “Whether it was something every day, like helping around the house—or monumental, like going to college—we knew the expectations, and all four of us wanted to do our part.”
This early training in managing chaos served Patty well. Her mother, Dr. Veronica Rouse, remembers those early years with a mix of pride and amusement. “It was the early eighties, and women in medicine were not represented in large numbers,” she recalls. “I was the first woman in the practice, and there were few role models to look to. I loved my work, but balancing it all was not easy. At home, everyone pitched in, kids included.”
Perhaps this early exposure to problem-solving led all four Rouse children—Patty, Katy, Steven, and Patrick—to choose law as their career path, much to their parents’ surprise. Their mother muses, “It was a given that they would all attend graduate school. While it would have been nice for at least one of the children to try medicine, the siblings influence one another so much.” It only took one to demonstrate that law was an interesting and feasible career path for the rest to see the benefit. Patty graduated from St. Mary’s University School of Law in 2002, Katy graduated from Georgetown Law in 2003; Steven and Patrick followed Patty’s footsteps at St. Mary’s, graduating in 2006 and
2008, respectively. Patrick noted that they all participated in the San Antonio Young Lawyers Association: “I am pretty sure there was always a Rouse SAYLA member for at least a decade.” This included Patty’s first go at bar leadership when she served as the 2014 SAYLA President.
As the eldest, Patty naturally assumed a leadership role within the family. Patrick jokingly refers to it as “just being bossy,” but there’s an undercurrent of admiration in his tone. Steven offers a more nuanced take: “She always preferred ordered chaos to standard chaos. Our home was always humming with activity. If we started a game, Patty immediately wanted to set up rules and inject some structure.” These early tendencies for order and fairness manifested in amusing and touching ways. Her sister Katy recalls a lovely example when they were all very young, involving a pull-out couch in the family playroom. “Somehow, opening the couch into a bed became a privilege everyone fought over. It evolved into Patty’s creating this ritual to keep it civil.” Whenever the siblings had a sleepover, every child solemnly waited to take their ceremonial turn to flip out the couch, which would be closed immediately for the next child or guest to open. “She never questioned how lame it was that you wanted to open the couch. She affirmed your right to open the couch, and everyone got a turn, so it was fair,” Katy recalls.
This commitment to fairness and support has remained constant in Patty’s life, informing her relationships and professional approach. Ashley Gray, a longtime friend and fellow attorney, notes, “Patty is so supportive and without judgment. If you say something is important to you, Patty treats it as important.” Ashley is part of an attorney-mom foursome that meet for coffee. “We have known each other since our formative years as St. Mary’s Hall classmates. She has always been this way. We have worked together, and we have worked on opposite sides. I can trust that Patty will be a team player to get the issue resolved.”
But do not mistake Patty’s fairness for a lack of competitive spirit. The Rouse family’s tight bond extends to the next generation, totaling twenty-one adults and children who often gather at the family’s house on Lake Buchanan. Here, summers are filled with family traditions and friendly competitions, where Patty’s competitive streak sometimes breaks through. There are tournaments where randomly assigned teams of two (one child, one adult) compete in everything from cornhole to a shoetoss. Up for grabs is a much-coveted traveling trophy. Steven shares some new family lore that “[t]here is some question about the 2020 summer championship with claims that Patty underfilled her balloon toss balloons so they would not break,” he explains, his tone a mixture of exasperation and amusement. “The award ceremony was slightly tainted that year.”
Her siblings claimed that Patty enjoyed special treatment because she was the oldest and illustrated this point by sharing that Patty was the only child entrusted with cutting the grass with the riding mower. “Well,” their father explains diplomatically, “Patty was the only one who stuck around to learn how to ride it.” One summer, all four kids insisted on learning to operate the mower. During the demanded lesson, the mower broke down, as it occasionally did. Dr. Rouse completed the simple but labor-intensive repair to discover that the three youngest had abandoned the project. Patty remained, handing him tools, and thereafter remained the only kid allowed on the mower. “Patty has
always finished what she started, no matter how difficult, and continues to exhibit that tenacity in her professional and personal life,” her father concludes.
Santos shares that Patty was instrumental in the success of his recent State Bar of Texas presidential campaign. “Patty is an amazing life partner, and if she is on your team, you just feel like you can do it. You want Patty on your side; she is determined.”
The Bar community witnessed Patty’s determination during the most recent legislative session. San Antonio probate
attorneys have been asking for a third Probate Court for nearly twenty years. It is an unwritten acknowledgment that a community needs one Statutory Probate Court for every 500,000 residents, so at 2 million residents, Bexar County was especially understaffed. The pandemic-related spike in probate court cases highlighted what was to come if the infrastructure did not expand.
Also, the leaders and the community did not completely understand the nature of probate courts. While most courts have a clear beginning and ending with their cases, probate
courts handle matters with indeterminate end dates. Probate courts hold hearings and trials but they also handle administrative cases that can last years, if not decades, as they monitor mental health cases, conservatorships, and guardianships. This quieter docket requires annual reports related to the client’s physical and mental well-being but also to the state of the client’s home and financial situation. Probate Courts are a key player in how a community delivers on the promise to care for the most vulnerable members of the population.
The path to adding a court is winding. Stakeholders include local elected officials and county staff, legislative committees, and the various elected state officials and staff needed to build a bill and authorize funding. The 2023 legislative session was shaping up to be a promising possibility. In January 2022, Patty was the SABA Probate Court Committee Chair, and one of her priorities was to advocate for the creation of a third probate court.
Probate Court #1 Judge Veronica Vasquez explains, “We saw an opportunity in the 2023 legislative session to work on achieving her goal. I remember phoning her in January for us to get started. You can always count on Patty to work hard and make things happen, from the third Probate Court to the [Polly Jackson Spencer Probate] American Inns of Court, Patty Vargas has made a tremendous impact on the Probate Court system,” Judge Vasquez adds.
Patty immediately picked up the phone and began rallying the troops to make it happen. Between the lobbyists and legislators, Patty made sure to keep everyone informed and on track. “Every week,” Patty recalls, “the feedback from the legislature was so mixed; we were not sure how this would end.” When the bill was finally signed, there was little fanfare. Patty remembers, “We logged into the system to check the bill’s status. It had been signed a few days prior! It was such a mix of reward and relief.”
The Rouse early years: L-R Steven, Dr. Roni Rouse, Patty, Katy, Patrick, and Dr. Richard Rouse
The Rouse siblings celebrate Patrick’s passing the bar exam, officially making it four Rouse lawyers. L-R Patrick, Steven, Patty, and Katy.
Looking forward to her year as SABA President, Patty hopes to use her unique perspective and past leadership experience to benefit the Bar and the community. Her blend of competitiveness and fairness serves Patty well in her professional life. “Litigators often have to argue that someone is right and the other is wrong,” Patty reflects. “Hopefully, my work as a transactional attorney can help avoid much of that discord. A properly prepared document can preserve family harmony.”
Patty’s ability to create harmony extends beyond her immediate circle. She serves in leadership roles in SABA, the Polly Jackson Spencer Probate American Inn of Court, and the San Antonio Estate Planners Council, which brings together CPAs, wealth managers, trust officers, and other professionals in the field. Amelia Edelman, a fellow attorney who counts Patty as a mentor and friend, describes her as “a supportive and quiet leader” who has an “incredible ability to make” people “feel heard and valued.” As Edelman explains, “Patty celebrates our triumphs and supports us through our challenges. It’s not just about the law with her; it’s about building a community.”
As Patty prepares to take on her role as president of the San Antonio Bar Association, she brings this unique blend of competitiveness, fairness, and a deep-seated desire for order and harmony. Her plans for her tenure reflect this approach. “I have been working on a project to present to the county for the installation of portable mother’s rooms that lawyers and the public can access at the Bexar County Courthouse complex,” she explains. “This would eliminate worry and stress for those in this important stage of life.”
She also hopes to help bring a Bench Bar CLE conference to members. “Through my bar work, I’ve been lucky to develop relationships with judges and a variety of practitioners. Because of these relationships, I’ve been able to extend my referral network, which will be
Celebrating Santos’s SBOT election night win: L-R Santos, Patty, Steven, Katy, and Patrick
of assistance in my service to the Bar.” Patty wants to ensure that more practitioners share in those advantages. “I think all practitioners benefit from knowing their professional community outside of their practice area,” she continues, “and a learning Bench-Bar event is a great way to allow people to contribute as organizers, presenters, and participants.”
Patty reflects on some of her early life decisions that led her to this point. “My plan A was to go to a giant football school in a small college town and immerse myself in tradition,” she muses. “Instead, I landed at a small college of 2,000 students in a city with a vibrant nightlife. It was the ideal scale for me to navigate as a young adult.” She pauses, then smiles and adds, “The backup plan was better than the original plan.”
Indeed, it seems the universe—or perhaps just Patty’s innate ability to find order in chaos—has guided her to exactly where she needs to be. As she steps into her new role at the San Antonio Bar Association, one thing is clear: the legal community of San Antonio is in for a different kind of leadership. We are about to experience the quiet, transformative power of Patty Rouse Vargas: a leader who knows that sometimes the most effective way to create change is not through bold declarations or dramatic gestures, but through careful planning, fair play, and a steadfast commitment to bringing out the best in others.
In a world that often celebrates the loudest voices and the most aggressive players, Patty Rouse Vargas reminds us of the power of quiet competence, fairness in the face of competition, and the profound impact that can be made by someone who seeks to create a little more order in the chaos of life. As she takes the helm of the San Antonio Bar Association, one cannot help but feel that the legal community is in excellent hands—hands equally adept at drafting complex estate plans, encouraging friendly competition, and gently steering a community toward greater harmony and collaboration.
TEXAS CHAPTER MEMBERS IN SAN ANTONIO
Joseph CASSEB
Don PHILBIN
Wade SHELTON
Hon. John SPECIA, Jr.
Hon. Phylis SPEEDLIN
Dan POZZA
John BOYCE
Roberto RIOS
Roger BRESNAHAN
Gary JAVORE
Hon. Catherine STONE
Hon. Karen POZZA
Kevin MICKITS
Krishna REDDY
Aric GARZA
The Vargas family: L-R Laura, Santos, Lucia, Patty, and Santos, Jr.
Editor’s Note: This is the final installment of a three-part series. The prior installments, published in the May–June 2024 and July–August 2024 issues of San Antonio Lawyer provided a basic overview of the relevant technology and discussed ethical and practical considerations. Part III examines how the confluence of this emerging technology may continue impacting the practice of law in the future.
This article was previously published as Artificial Intelligence (AI) and the Practice of Law in Texas, 63 STXLR 1 (Fall 2023) and is reprinted with permission.
The previous installments of this series provided lawyers with an understanding of technological advances that haven enabled artificial intelligence (AI) tools to be incorporated into the practice of law, and provided an overview of how AI affects particular practice areas. The technology is new and quickly evolving, so the savvy and ethical practitioner should be thinking not only about whether—and how—to incorporate it into their practice now, but also about how it might be used in the future.
The Need for Attorneys to Monitor Regulatory and Statutory AI Developments
To adequately counsel clients, attorneys will need to keep abreast of regulatory and statutory developments in this area. Although, as of this writing, Texas has not passed any significant legislation related to implementing AI, other states have.1 In addition, the Equal Employment Opportunity Commission,2 the Federal Trade Commission, and the White House Office of Science and Technology Policy3 have all issued guidelines on the use of AI.4 The Consumer Financial Protection Bureau issued interpretative guidelines that require lending companies to provide notices to credit applicants of the specific reasons they were denied credit, to include arguably whether AI was used in that decision-making process.5 In April 2021, the European Commission proposed the first EU regulatory framework for AI. The EU Artificial Intelligence Act is “the world’s first rules on AI” and went into effect on August 1, 2024.6
AI and the Impact on Individual Privacy
As more states enact privacy statutes, attorneys should know about how such statutes may affect the ability of their clients to sell data they collect and how such statutes may impact what data they are even allowed
Artificial Intelligence and the Practice of Law in Texas: Part III
By The Honorable Xavier Rodriguez
to store or process. This is especially relevant considering the just-passed Texas Data Privacy and Security Act, which became effective on July 1, 2024.7 AI algorithms require large sets of data to confidently produce their results. This data is scraped from many sources, and questions are being raised as to whether consumers have provided informed consent to the storage, use, and resale of any data collected8 regarding their purchases, internet viewing, medical data, etc.9 Companies may also need to be able to quickly respond to consumer requests about data collected, as well as requests to delete the data. For attorneys with clients gathering data from overseas, the European Union, General Data Protection Regulation,10 and the EU Artificial Intelligence Act11 should be considered, given that any data privacy violations could result in large fines.12
AI and Use by Pro Bono and Non-Attorney Providers
AI platforms offer the possibility of expanding the ability of pro bono providers to provide legal resources to those otherwise unable to afford an attorney. Relativity, an eDiscovery provider, has been providing an AI product, Translate, to legal aid organizations. The advantages provided by AI in helping to close the access to justice gap, however, need to be weighed by pro bono providers. AI tools cannot replace human interaction, evoke empathy, or adequately address nuances that may not be adequately expressed by a non-lawyer using the AI tool. Pro bono providers will need to exercise care that any advice or work product generated by the AI tool is vetted for accuracy prior to being delivered to the client. Attorneys using AI tools without checking on the accuracy of their output may ultimately bear sole or joint liability with the AI provider.13 This article expresses no comment on whether AI tools used without attorney oversight could be engaging in the unauthorized practice of law.14 Further, any liability for advice or filings generated by a “robot lawyer” will need to be adjudicated by the courts. An example of a so-called “robot lawyer” could be DoNotPay, a platform that uses a chatbot to help contest parking tickets.15
AI and ADR
Largely because of the COVID pandemic, many mediators and arbitrators shifted to an online platform to conduct mediations and arbitrations (so-called ODR or online dispute resolution). AI tools might help improve accessibility to the ADR process in both the physical (live) and ODR sessions. Arbitrators could benefit from AI tools to help
summarize large data sets and generate insights. Without the parties’ consent, an issue exists as to whether this would constitute some ethically impermissible ex parte communication, or an inappropriate review of material not submitted in the arbitration proceeding itself. Mediators, however, in some cases could use such AI tools to help guide the parties to an understanding of any weakness in their case. Some mediation platforms have been developed already that offer asynchronous, virtual mediation. Maintaining confidentiality and security of any documents posted to such sites will be essential. At present, the efficacy of an entirely online ODR session driven by an AI tool without a human neutral does not seem to be a viable option that would effectively resolve most disputes. In any event, its value in small claims court and other cases with a small monetary amount in controversy should be explored.
In 2016, British Columbia launched the Civil Resolution Tribunal (CRT), the first online tribunal to implement ODR mechanisms in Canada. CRT is part of the British Columbia public justice system and aims to provide an accessible and affordable way of resolving civil disputes. In July 2023, CRT closed 51 Strata property claims, 287 small claims, 56 motor vehicle injury/accident benefits/accident responsibility claims, and 4 miscellaneous cases.16 There is little independent research on the effectiveness of the CRT, but the aggregate participant satisfaction survey results for 2022/23 show 78% of the participants who responded would recommend the CRT to others.17 For low-value matters in particular, the benefits of a speedy resolution may outweigh the risks.
AI and Use in Law Firm Marketing
AI platforms can offer instructions on how to create or improve websites, and build content on the site, as well as generate ideas for advertisements, marketing materials, and social media postings. Smaller law firms that do not have the resources of a marketing person might benefit from this assistance, so long as any content is proofed and verified to comply with existing attorney advertising regulations.18 Chatbots could assist with client communications, onboarding, and responding to routine questions. That said, care should be exercised to ensure that an improper attorney-client relationship has not been established and that confidentiality is maintained. Answering substantive queries from clients using a chatbot is not advised. But since failure to keep clients informed about the status of their matter is often an item of grievance, chatbots could assist in this regard.
In addition, the development of imagegenerating AI (e.g., Dall-E 2) may offer law firms the ability to generate unique graphics19 that otherwise would have been too expensive for inclusion in their marketing.
Additional Training or Skillsets Required
If AI tools are used, AI should be used to complement human judgment. Lawyers and legal professionals should contemplate how to leverage this collaboration effectively and efficiently.20 Prior to using any AI tool, lawyers should consider what processes currently used could be improved through AI technology. If AI tools are adopted, personnel will likely require training on how to properly construct prompts/ queries and how to evaluate any results. Akin to Boolean searches that required some knowledge of how to construct a “good” search, AI tools
require “good” prompts.21 One advantage of generative AI prompts and responses is that the tool has “thread” conversations. A person can ask clarifying questions. Users can ask the AI tool to clarify previous responses or ask the AI tool to customize the tone or persona of the response. Personnel will also need training on compliance with confidentiality concerns, as well as considerations involving bias. Some commentators envision a new category of employee being employed – a “prompt engineer.” Other commentators speculate that the technology will become much easier to use and prompt writing specialization will be unnecessary.
AI and Cybersecurity Concerns
AI will likely be used by bad actors to penetrate law firm and client IT systems. As noted by Bloomberg Law News, even before the advent of AI, financial fraud scams have proliferated. Concerns now have arisen that AI voice-synthesizing tools could allow scammers to download short voice samples of individuals from social media, voicemail messages, or videos and create new content that would enable a false transaction to occur.22 To counter these threats, some banks have deployed suspicious transaction detection systems using Natural Language Processing (NLP) models.23 Though adoption of AI by threat actors is still limited to social engineering, AI has the potential to affect the threat landscape “in two key aspects: the efficient scaling of activity beyond the actors’ inherent means; and their ability to produce realistic fabricated content toward deceptive ends.”24 On August 9, 2023, the Biden Administration together with the Defense Advanced Research Projects Agency (DARPA) launched a two-year $20 million “AI Cyber Challenge” to identify and fix software vulnerabilities using AI.25 Law firms should adopt a “proactive approach to breach preparedness by understanding the full scope of costs, conducting simulations, involving key stakeholders, and implementing the right technology solutions.”26 To this end, the National Institute of Standards and Technology (“NIST”) released the AI Risk Management Framework (AI RMF 1.0) to better manage risks to individuals, organizations, and society. The Framework was published on January 26, 2023, along with a companion NIST AI RMF Playbook, AI RMF Explainer Video, an AI RMF Roadmap, AI
RMF Crosswalk, and various Perspectives.27 Attorneys and law firms can use the Framework to develop their own best practices and standards for using AI systems and managing the many risks of AI technologies.
Ethical Implications of Billing Practices and AI
How should attorneys bill for the use of AI? It is anticipated that law firms will need to hire staff with a greater understanding of technology and data. How does that overhead get absorbed? How does a court determine what is a “reasonable fee” if AI is employed? If a firm makes an investment in AI and then employs that tool to provide value for the client, should the law firm be able to charge for that?
Florida, California, and North Carolina have amended their MCLE requirements to add a requirement that attorneys complete some hours of continuing education dedicated to technology concerns. Cybersecurity, privacy concerns, and AI concerns should also lead Texas to consider amending its MCLE requirements. The state of New York now requires continuing legal education credits to be obtained regarding cybersecurity, privacy issues and data protection.28 Texas may wish to consider amending its MCLE requirements.
Law Schools
In many respects, the learning needs for the provision of technologically enhanced legal services mirror the “21st century skills” seen in other professions, such as data-oriented and agile thinking, but law students are traditionally not educated in these skills or the field of digital technology in general.29
Given that technology will play a more prominent role in the practice of law, law schools should consider adding to the course offerings additional classes centered on technological and data literacy.30 Law schools should prioritize allowing law students access to AI tools and the ability to practice using them in a guided classroom setting. Additionally, law schools should create clear guidelines and update their university policies to include permitted and prohibited uses of generative AI for both staff and students. It is likely that many high school and college students will become dependent on generative AI, so practical and legal reasoning skill sets may require reinforcement in law school. Law schools will need to reflect on how to react to this challenge.
AI Impact on the Judiciary and Judicial Training
As discussed above, AI issues will inevitably appear before judges, and judicial officers should be cognizant of the fundamentals.
Some judges (primarily federal) have entered orders requiring attorneys to disclose whether they have used AI tools. This development first occurred because an attorney in New York submitted a ChatGPTgenerated brief to the court without first ensuring its correctness. The ChatGPT brief contained several hallucinations and generated citations to non-existent cases. In response, some judges have required the disclosure of any AI that the attorney has used. As noted above, that is very problematic considering how ubiquitous AI tools have become. Likely these judges meant to address whether any generative AI tool had been used in preparing the motion or brief. That said, if any order or directive is given by a court, it should merely state that attorneys are responsible for the accuracy of their filings.31 Otherwise, judges may inadvertently be requiring lawyers to disclose that they used a Westlaw or Lexis platform, Grammarly for editing, or an AI translation tool.32
In addition, for the reasons discussed above, judges and law clerks should be cautious in using generative AI tools in rendering decisions and drafting opinions. At least two foreign judges have acknowledged using ChatGPT to verify their work.33 The Texas Code of Judicial Conduct is written using broad language. Arguably, a judge relying solely on an AI tool with no subsequent verification would violate Canon 1 (upholding the integrity and independence of the Judiciary), but the Code is remarkably silent about principles of impartiality, integrity, transparency, avoiding advocacy, and considering diverse perspectives and interpretations of the law. The State Commission on Judicial Conduct may wish to consider whether to amend the Code considering generative AI developments.34
Another concern raised about using AI in adjudicative systems is the possibility that AI adjudication will make the “legal system more incomprehensible, data-based, alienating, and disillusioning.”35 Historically, the law has valued explicit reasoning stated in a judicial opinion. But AI may adjudicate based on the analysis of a vast amount of data without constructing any explanation.36 Nonquantifiable values like mercy presumably would not be considered by the AI tool.37 No doubt “human judging” has its flaws and biases. Unlike humans, computers never
get tired or sick or have a bad day. Data-driven decision-making is consistent and predictable. But as thought is given as to how far AI adjudicative models should be deployed, there will be a tension and tradeoff between the AI’s capacity for efficiency and mass deployment and the desire for procedural due process and transparency.38 Texas courts probably will not wish to pursue a “smart court” model of justice now being implemented in some Chinese cities. In the latter model, AI tools generate pleadings for litigants, analyze the litigation risk and issue a judgment—all done virtually.39 But some have made the argument that “we should be considering the efficiencies of AI on the bench, applied as a dispute resolution tool for cases not economical to litigate or simply require an impartial, ‘quick-and-dirty’ resolution for those who simply need to move on, and move on quickly.”40
The Texas Center for the Judiciary may wish to consider providing training and resources regarding AI.41
Concluding Remarks
AI platforms will probably not replace lawyers soon. Through gains in efficiencies there may, however, be fewer attorneys and paralegals needed in the long term.42 It is likely that lawyers and paralegals will be able to identify and retrieve relevant information from large data volumes more readily. Initial drafts of contracts and pleadings produced by AI platforms may result in time efficiencies but will still require attorney review and validation.43 Still, the overall result may lessen costs to the client and make justice more accessible to unrepresented parties. It is likely that because of this increase in automation, lawyers will need to focus on “strategic and other higher-value work.”44
On November 16, 2023, The State Bar of California, Committee on Professional Responsibility and Conduct released a memorandum and Practical Guidance for the Use of Generative Artificial Intelligence in the Practice of Law.45 Florida, New York, and New Jersey have also published guidance. The State Bar of Texas is currently undertaking a review.. California’s work included a survey of lawyers regarding their current and planned use of generative AI. The likelihood that there will be a consolidation of AI service providers is likely; and in the short to mid-term, lawyers will need continued guidance on the legal issues that will arise as AI becomes ubiquitous, and what practical tools the vendor community offers that may help to meet these challenges.
Born in San Antonio, Texas, Xavier Rodriguez is a former Texas Supreme Court Justice and currently is a United States District Judge for the Western District of Texas. Special thanks are extended to Prof. Josh Blackman of South Texas College of Law Houston, Tara Emory of Redgrave Data, Prof. Maura Grossman of the University of Waterloo, Chris Davis of Gray Reed, Professor Marissa J. Moran of CUNY - New York City College of Technology, Judge Ron Hedges (U.S. M.J. ret.), Jeremy Pickens of Redgrave Data, and Jackie Schafer for their review and comments of earlier drafts of this article or providing resource materials to consider. Thanks are extended to Emily Formica, a student at the St. Mary’s University School of Law for her research assistance, comments, and edits to this article.
ENDNOTES
1A limited attempt was tried in Texas with the introduction of House Bill 4695, which would have prohibited the use of AI to provide mental health counseling. Tex. H.B. 4695, 88th Leg., R.S. (Tex. 2023). The bill was filed on March. 10, 2023 by Jacey Jetton and has not been enacted into law. In June 2023, Governor Abbott established the Artificial Intelligence Advisory Council. It will “study and monitor AI systems developed, employed, and procured by state agencies, . . . assess the need for a state code of ethics
for AI in state government, review automated decision systems, evaluate potential benefits and risks as a result of implementing automated decision items, and recommend administrative actions state agencies may take to ensure AI systems are thoughtfully and ethically developed.” Press Release, Off. Tex. Governor, Governor Abbott Establishes New Artificial Advisory Council (June 13, 2023), https://gov.texas.gov/news/ post/governor-abbott-establishes-new-artificial-intelligence-advisory-council [https:// perma.cc/G83L-WA45]. The Electronic Privacy Information Center summarizes state AI laws and legislation. See AI Policy, Elec. Priv. Info. Ctr., https://epic.org/issues/ai/ ai-policy/ [https://perma.cc/4X5R-QXL3].
2See Artificial Intelligence and Algorithmic Fairness Initiative, U.S. Equal Emp. Opportunity Comm’n, https://www.eeoc.gov/ai [https://www.eeoc.gov/ai [https://perma.cc/ DW79-DFCE].
3White House Off. of Sci. & Tech. Pol’y, Blueprint for an AI Bill of Rights: Making Automated Systems Work for the American People (2022), https://www. whitehouse.gov/wp-content/uploads/2022/10/Blueprint-for-an-AI-Bill-of-Rights. pdf[https://perma.cc/2SRE-VBWS] [hereinafter Blueprint for an AI Bill of Rights].
4See, e.g., Leslie F. Spasser, Denver K. Ellison & Brennan Carmody, Artificial Intelligence Law and Policy Roundup, LAW.COM: Legaltech News (Mar. 1, 2023, 9:02 AM), https://www.law.com/legaltechnews/2023/03/01/artificial-intelligence-law-and-policyroundup/ [https://perma.cc/2KTC-4XW4]; see also Blueprint for an AI Bill of Rights, supra note 3.
5Consumer Fin. Prot. Bureau, Consumer Financial Protection Circular 2022-03:Adverse Action Notification Requirements in Connection with Credit Decisions Based on Complex Algorithms, (May 26, 2022),https://files.consumerfinance.gov/f/documents/cfpb_202203_circular_2022-05.pdf [https://perma.cc/2QYX-345Z].
6EU AI Act: First Regulation on Artificial Intelligence, Eur. Parliament (June 8, 2023), https://www.europarl.europa.eu/news/en/headlines/society/20230601STO93804/euai-act-first-regulation-on-artificial-intelligence [https://perma.cc/96H9-RA9H].
7Daryl W. Bailey, Chris Davis & London England, Deep in the Heart of Privacy: Understanding the Texas Data Privacy and Security Act’s Impact on Businesses, Gray Reed: Thought Leadership (July 13, 2023), https://www.grayreed.com/NewsResources/ Thought-Leadership/233610/Deep-in-the-Heart-of-Privacy-Understanding-the-TexasData-Privacy-and-Security-Acts-Impact-on-Businesses [https://perma.cc/MSH8-FL4G]
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8At least one lawsuit has been filed in federal court arguing that Google’s BARD AI product is “secretly stealing everything ever created and shared on the internet by hundreds of millions of Americans” and “putting the world at peril with untested and volatile AI.” See Complaint at 13, J.L. v. Alphabet Inc., No. 23-cv-0344078 (N.D. Cal. July 11, 2023) (putative class action on behalf of all persons whose personal information was used as training data).
9See Paul W. Grimm, Maura R. Grossman & Gordon V. Cormack, Artificial Intelligence as Evidence, 19 Nw. J. Tech. & Intell. Prop. 9, 53-57 (2021).
11Amendments Adopted by the European Parliament on 14 June 2023 on the Proposal for a Regulation of the European Parliament and of the Council on Laying Down Harmonised Rules on Artificial Intelligence (Ar-
tificial Intelligence Act) And Amending Certain Union Legislative Acts, Eur. Parl. Doc. (P9_TA 236) (2023), https://www.europarl.europa.eu/doceo/document/TA9-2023-0236_EN.pdf [https://perma.cc/SFZ4-AU8U].
12See id. at amend. 647 (administrative fines of up to €30 million or 6 % of the total worldwide annual turnover depending on the severity of the infringement are set as sanctions for non-compliance with the AI act.). See also 2016 O.J. (L 119), supra note 94, at 83 (administrative fines up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher).
13See Michael Loy, Comment, Legal Liability for Artificially Intelligent “Robot Lawyers”, 26 Lewis & Clark L. Rev. 951, 957-58 (2022).
14See Unauthorized Prac. of L. Comm. v. Parsons Tech., Inc., 179 F.3d 956 (5th Cir. 1999) (sale and distribu-
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15See Sara Merken, Lawsuit Pits Class Action Firm Against ‘Robot Lawyer’ DoNotPay, Reuters (Mar. 9, 2023, 2:10 PM), https://www.reuters.com/legal/lawsuit-pits-class-action-firm-against-robot-lawyer-donotpay-2023-03-09/ [https://perma.cc/EU84-3MYR]; see also Faridian v. DoNotPay, Inc., No. CGC-23-604987 (Cal. Super. Ct. filed Mar. 3, 2023).
18Model Rules of Pro. Conduct R. 7.1 cmt. 3 (Am. Bar Ass’n. 2023); see also Tex. Disciplinary Rules Prof’l. Conduct R. 7.02.
19This article does not opine as to whether any AI-generated graphic may be entitled to trademark or copyright protection, as that issue will need to be resolved through the intellectual property regulatory and litigation process. See Copyright Registration Guidance: Works Containing Material Generated by Artificial Intelligence, 88 Fed. Reg. 16190 (Mar. 16, 2023) (to be codified at 37 C.F.R. pt. 202), https://www.govinfo.gov/content/pkg/ FR-2023-03-16/pdf/2023-05321.pdf [https://perma. cc/QAS4-9QU7] (the U.S. Copyright office has taken the position that AI-generated works cannot be copyrighted); see also Franklin Graves, DC Court Says No Copyright Registration for Works Created by Generative AI, IPWatchdog (Aug. 19, 2023, 3:34 PM), https:// ipwatchdog.com/2023/08/19/copyright-registrationworks-created-by-generative-ai/id=165444/# [https:// perma.cc/N924-XT6K] (J. Beryl Howell agreed, stating in an August 2023 opinion that “[h]uman authorship is a bedrock requirement of copyright”).
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20See Barclay T. Blair et al., Law Firms of the Future Will Be Different in Three Critical Ways, Bloomberg L. (Aug. 21, 2023, 3:00 AM), https://news.bloomberglaw.com/ environment-and-energy/law-firms-of-the-future-willbe-different-in-three-critical-ways [https://perma.cc/ WUJ5-Y9JE] (arguing that AI will augment the work attorneys perform and be woven into daily tasks such as word processing, timekeeping, and communication platforms. Secondly, AI will assist in the review of evidence and drafting of briefs. Because these transformative processes will displace routine tasks and the billings associated with these tasks, lawyers will need to focus on complex problem solving and strategic thinking).
21See, e.g., Maxwell Timothy, Unlocking the Potential of ChatGPT, Advanced Prompting Techniques to Get More Out of ChatGPT 4 (2023).
22Nabila Ahmed et al., Deepfakes Are Driving a New Era of Financial Crime, Bloomberg L. (Aug. 22, 2023, 6:17 PM), https://news.bloomberglaw.com/privacy-and-data-security/deepfakes-are-driving-a-whole-new-era-offinancial-crime [https://perma.cc/3ZJW-2VR3].
23Id.
24Michelle Cantos, Sam Riddell & Alice Revelli, Threat Actors are Interested in Generative AI, but Use Remains Limited, Mandiant (Oct. 19, 2023), https://www. mandiant.com/resources/blog/threat-actors-generativeai-limited [https://perma.cc/7LHR-CS46] (Google’s Mandiant has tracked treat actors’ use of AI since 2019).
26CyberScoop, Understanding the Economic Impact of a Breach, YouTube (July 31, 2023), https://youtu.be/BbUhn2dtwQ [https://perma.cc/MH3C-SJWR].
27U.S. Dep’t of Com., Nat’l Inst. of Standards & Tech., NIST AI 100-1, Artificial Intelligence Risk Management Framework (AI RMF 1.0) (2023), https://nvlpubs.nist.gov/nistpubs/ai/NIST.AI.100-1. pdf [https://perma.cc/KJ4G-7QQQ].
28See New York State CLE Program Rules 22 NYCRR § 1500.2(h) (2023).
29Václav Janeček, Rebecca Williams & Ewart Keep, Education for the Provision of Technologically Enhanced Legal Services, 40 Comput. L. & Sec. Rev. (Electronic Issue) 1, 5 (2021).
30See, e.g., Tammy Pettinato Oltz, Educating Robot-Proof Attorneys, 97 N.D. L. Rev. 185, 186-87 (2022) (discussing the introductory technology course introduced at UND Law). See generally Joseph E. Aoun, RobotProof: Higher Education in the Age of Artificial Intelligence (2017) (discussing the need for universities to broaden their technology offerings and the need for students to better understand technology).
31The federal court in the Eastern District of Texas recently amended its General Order Amending Local Rule CV-11 to caution pro se litigants that AI tools may produce faulty or legally inaccurate content, and that must verify any computer-generated content to ensure its accuracy. See Txed.uscourts.gov.
32See Maura R. Grossman, Paul W. Grimm & Daniel G. Brown, Is Disclosure and Certification of the Use of Generative AI Really Necessary, 107 Judicature 68, 7172 (2023) (arguing that Fed, R. Civ. P. 11 and 26(g) are sufficient and that individualized standing orders are unnecessary and deter the legitimate use of GenAI applications); Isha Marathe, 4 Generative AI Issues That Are Likely Keeping Judges up at Night, LAW.COM: Legaltech News (Aug. 10, 2023, 6:40 PM), https:// www.law.com/legaltechnews/2023/08/10/4-generativeai-issues-that-are-likely-keeping-judges-up-at-night/ [https://perma.cc/7FKR-LLGE].
33See Colombian Judge Uses ChatGPT in Ruling on Child’s Medical Rights Case, CBS News (Feb. 2, 2023, 4:37 PM), https://www.cbsnews.com/news/colombianjudge-uses-chatgpt-in-ruling-on-childs-medical-rightscase/ [https://perma.cc/3LXK-MP8Z] (“In this case, [Judge] Padilla said he asked the bot: ‘Is autistic minor exonerated from paying fees for their therapies?’ among other questions. It answered: ‘Yes, this is correct. According to the regulations in Colombia, minors diagnosed with autism are exempt from paying fees for their therapies.’”). See also Aman Gupta, This Indian Court Has Used ChatGPT on a Criminal Case, Mint (Mar. 29, 2023, 9:03 AM), https://www.livemint.com/ news/india/this-indian-court-has-used-chatgpt-on-acriminal-case-11679977632552.html [https://perma. cc/BH6Q-7JDE] (prompting ChatGPT: “What is the jurisprudence on bail when the assailants assaulted with cruelty?” and then denying the defendant’s application for bail).
34The State Bar of Michigan recently promulgated Ethics Opinion JI-155 that states: “Judicial officers must maintain competence with advancing technology, including but not limited to artificial intelligence.” The opinion cautions judges that using AI platforms that are impartial or unfair because of the algorithm’s flaws may cause the judicial officer to render an incorrect decision. Notably, the ethics opinion does not bar a ju-
dicial officer from using an AI tool. See https://www.michbar.org/opinions/ethics/numbered_opinions/JI-155
35Richard M. Re & Alicia Solow-Niederman, Developing Artificially Intelligent Justice, 22 Stan. Tech. L. Rev. 242 (2019).
36Id. at 246.
37Id. at 246-47; see also Charles Lew, The AI Judge: Should Code Decide Your Fate, Forbes: Small Bus. (Aug. 22, 2023, 9:30 AM) https://www.forbes.com/sites/forbesbusinesscouncil/2023/08/22/the-ai-judge-should-codedecide-your-fate/?sh=6c6f4cd24597 [https://perma. cc/42Y6-NA37] (arguing that AI may be fair but would lack the “intangible human qualities of empathy, sensory perception and comprehension of contexts such as cultural, historical and social factors that influence and impact critical decision making.” At the same time, the author promotes the use of prudent AI tools to counter the public perception that our current court system no longer delivers impartial or non-biased rulings).
38See Re & Solow-Niederman, supra note 35, at 255-69.
39See, e.g., Ummey Sharaban Tahura & Niloufer Selvadurai, The Use of Artificial Intelligence in Judicial Decision-Making: The Example of China, Int’l J. L., Ethics & Tech., Winter 2022, at 1 (discussing the pros and cons of “smart courts” – “human judges are more inconsistent than AI systems . . . [because of] personal values . . . and irrelevant extraneous factors.” AI tools, however, reflect the mindset of the code writer and how the tool was trained, leading to bias concerns); See also Press Release, Council of Bars & L. Soc’ys of Eur., CCBE Statement on the Use of AI in the Justice System and Law Enforcement (May 25, 2023) https://www. ccbe.eu/fileadmin/speciality_distribution/public/documents/Statements/2023/EN_ITL_20230525_CCBEStatement-on-the-use-of-AI-in-the-justice-system-and-lawenforcement.pdf [https://perma.cc/U8XM-7XXS] (“The CCBE is convinced that effective human oversight of the use of AI tools in the field of justice is a precondition of a justice system governed by the rule of law and stresses that the decision-making process must remain a human driven activity. In particular, human judges must be required to take full responsibility for all decisions and a right to a human judge should be guaranteed at all stages of the proceedings.”). But see Frederick Pinto, Can AI Improve the Justice System?, The Atlantic (Feb. 13, 2023) https://www.theatlantic.com/ideas/archive/2023/02/ai-in-criminal-justicesystem-courtroom-asylum/673002/ [https://perma.cc/ YQ6H-MKW5] (“Judges who are free from external meddling are nevertheless subject to a series of internal threats in the form of political prejudice, inaccurate prediction, and cognitive error . . . . In such cases—and many more—less humanity could lead to more fairness . . . . Justice may be blind, but human beings are fallible. Our thinking is clouded by more prejudices than we can count, not to mention
an excessive confidence in our judgment. A fairer legal system may need to be a little less human.”).
41The United Nations Educational, Scientific and Cultural Organization (UNESCO) has recently established a massive online open course (MOOC) that explores admissibility of AI-generated evidence and virtual and augmented reality in courts. See AI and the Rule of Law: Capacity Building for Judicial Systems, unesco (Aug. 2, 2023), https://www. unesco.org/en/artificial-intelligence/rule-law/mooc-judges [https://perma.cc/VTG7-KUT3].
42But see David Runciman, The End of Work: Which Jobs Will Survive the AI Revolution, The Guardian (Aug. 19, 2023) (stating “[w]orries about automation displacing human workers are as old as the idea of the job itself,” yet also acknowledging that the “experience of work is far more likely to involve a portfolio of different occupations”).
43The Florida Bar Board of Governors’ Review Committee on Professional Ethics has issued Proposed Advisory Opinion 24-1. In summary, the proposed advisory opinion states that a “lawyer may ethically utilize generative AI technologies but only to the extent that the lawyer can reasonably guarantee compliance with the lawyer’s ethical obligations. These obligations include the duties of confidentiality, avoidance of frivolous claims and contentions, candor to the tribunal, truthfulness in statements to others, avoidance of clearly excessive fees and costs, and compliance with restrictions on advertising for legal services.” See https://www. floridabar.org/the-florida-bar-news/proposed-advisoryopinion-24-1-regarding-lawyers-use-of-generative-artificial-intelligence-official-notice/
44 Natalie A. Pierce & Stephanie L. Goutos, Why Law Firms Must Responsibly Embrace Generative AI, at 22 (June 14, 2023), ssrn.com/abstract=4491772 [https:// perma.cc/8MUQ-EW8B].
45Among the practical guidance recommendations are that lawyers should anonymize client information and avoid entering details that could be used to identify a client, conduct due diligence to ensure that an AI provider adheres to security and data retention protocols, that a lawyer critically review and validate any output from a generative AI tool, that a lawyer consider disclosing to their client the use of any generative AI tools, and that a lawyer may not charge hourly fees for any time saved by using generative AI tools. See https:// board.calbar.ca.gov/docs/agendaItem/Public/agendaitem1000031754.pdf
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If an individual transfers business interests or assets to another, and the transfer is “adequately disclosed,” the Internal Revenue Service (IRS) has three years to challenge the valuation of the asset or to claim that the transfer was actually a gift or a partial gift. If the transfer is deemed to be not “adequately disclosed,” the IRS can seek unpaid gift taxes, plus penalties and interest, even decades after the transfer. Thus, it is imperative to understand the byzantine disclosure requirements; and, in certain situations, it might be prudent to report a transfer on a gift tax return simply to commence the limitations period.
This topic is particularly pertinent now, as the IRS is expecting that a huge number of gifts will be made before the 2026 drop in the estate tax exception. This anticipated gift rush, on top of past gift booms, pose a significant problem for the IRS: How to screen and audit a huge number of gifts, in the three-year window. In response, IRS lawyers have made public statements to the effect that they will handle the problem by nit-picking. Of course, statements by IRS employees do not represent the official position of the Service. Still, this does point to a practical solution.
The 2001 revision to the statute “Exceptions to General Period of Limitations on Assessment and Collection” provides that the three-year time period does not start until a detailed list of conditions is met. Nitpicking would logically consist of looking for
Why Your Gift Tax Return Requires Adequate Disclosure
By C. P. Schumann, CPA, CVA, MAFF
facts leading to one of the exceptions, and then claiming gift-related discounts were overstated. Anyone snagged through such means in four, five, or many more years could face quite an inflated assessment, even if the initial deficiency was fairly small. This might be a good time to check that the statute’s shopping list is covered.
The statute provides a long list of exceptions. With respect to valuation, the method used to determine fair market value and its related detail may be satisfied by submitting an appraisal by a qualified, unrelated appraiser that includes the information considered, including financial data sufficiently detailed so that another person can replicate the process, and many other specific items. This essentially is the content of a qualified appraisal. To avoid creating an easy IRS challenge, the shopping list should be faithfully covered in the documentation accompanying the gift tax return. If a gift is adequately disclosed on a Form 709 Gift Tax Return, then generally the IRS cannot effectively change the gifts after the three-year statute of limitations has expired. However, if the IRS finds that a gift is not adequately disclosed, the statute of limitations is extended, and the gifts can be reviewed at any time.
What Does “Adequate” Really Mean?
According to the rules under Internal Revenue Code Section 6501, a transfer will
be adequately disclosed on a return if it is reported in a way adequate to apprise the IRS of the nature of the gift and the basis for the value reported. To be considered adequately disclosed by the IRS, each return should provide the following information:
1. Sufficient description of the transferred property and any consideration received by the transferor (person making the gift), which should also include:
a. Identification of number of stock shares or percentage(s) of interests transferred;
b. All nine digits of the entity’s Employer Identification Number (EIN);
c. Full (unabbreviated) entity name, including: Inc., LLP, LP, LLC;
d. Identification of the type of interest transferred: general, limited, limited liability, assignee; and
e. Information about whether the transferee provided any consideration (money or other assets in exchange).
2. The identity of, and relationship between, the transferor and each transferee (person receiving the gift).
3. Detailed description of the method used to determine the fair market value (FMV) of the property transferred, including:
a. Any discount claimed in valuing any assets owned by the entity being gifted;
b. For entities whose value is determined based on the Net Asset Value Method, disclosure of the FMV of 100% of the entity and how it was valued;
c. Description of the methodologies (including comparable sales) used to discount the value;
d. Any restrictions on the transferred property that were used to determine FMV, including formation documents, shareholder agreements and by-laws; and
e. Explanation of the different discount regimes or the basis for using such discounts.
4. A statement describing any position taken that is contrary to any proposed, temporary, or final U.S. Treasury regulations or revenue rulings published at the time of the transfer.
Adequate Disclosure Items Related to the Valuation Report
• The date of the appraisal
• The date of the transfer
• The purpose of the appraisal
• A description of the property
• A description of the appraisal process employed, including the valuation method(s) used
• A description of any hypothetical conditions considered
• The information considered in determining the value, including all financial information in sufficient detail to allow the reader to replicate the appraisal analysis and valuation
• The appraisal procedures followed, and the reasons that support the analysis, opinions, and conclusions
• The valuation method utilized, the rationale for the procedure used in determining the fair market value of that asset transferred
• The specific basis for the valuation, such as specific comparable sales or transactions, sales of similar interests, asset based approaches, merger-acquisition transactions, etc.
Adequate Disclosure and the IRS’s Strategy of More Information Reporting
Historically, the IRS has taken a very restrictive view of what constitutes adequate disclosure on a federal gift tax return. For example, in a 2015 IRS Field Advice memo, a gift of a partnership interest was found to not be adequately disclosed on a Form 709 Gift Tax Return because the partnership’s EIN was missing just one digit.
Relatedly, for many years, the IRS has taken steps to increase the information reporting burden on taxpayers. Notice 200783, making an identified abusive trust arrangement a listed transaction, requires taxpayers to disclose substantial information regarding these transactions. Notice 201666 requires taxpayers involved in certain microcaptive insurance arrangements to disclose substantial information regarding these “transactions of interest.” Recently, the IRS issued new instructions to Schedules UTP, Uncertain Tax Position Statement; K-2, Partners’ Distributive Share Items — International [or Shareholders’ Pro Rata Share Items — International]; and K-3, Partner’s [or Shareholder’s] Share of Income, Deductions, Credits, etc. — International, that require substantially more information than has been acceptable in the past (Schedule UTP) and substantially more information than may be available to the taxpayer (Schedules K-2 and K-3). And Field Attorney Advice (FAA) 20214101F requires substantially more information to support a research credit refund claim than has been acceptable in the past.
Recently, two courts have spoken, holding that the IRS’s information reporting efforts
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violate the Administrative Procedure Act (APA). In Mann Construction, Inc., et al. v. United States, 27 F.4th 1138 (6th Cir. 2022), the Sixth Circuit, reversing a district court, held that before Notice 2007-83 was promulgated and enforced, the IRS was required to comply with the APA rulemaking procedures. In CIC Services, LLC v. Internal Revenue Serv., 592 F. Supp. 3d 677, 683 (E.D. Tenn. 2022), the district court applied Mann Construction and held that the IRS was required to comply with the APA before promulgating Notice 2016-66. The court ordered the IRS to return the documents obtained from the disclosure. See id. at 688. On reconsideration, the Court amended the judgment to remove the requirement that the IRS return the documents obtained from the disclosure during the five years the disclosure requirements of Notice 2016-66 were enforced. CIC Services, LLC v. Internal Revenue Serv., No. 3:17-CV-110, 2022 WL 2078036, at *4 (E.D. Tenn. June 2, 2022).
Schlapfer v. Commissioner, Tax Court Memo 2023-65 (May 22, 2023).
However, the IRS’s highly restrictive view of what constitutes adequate disclosure may soon be changing in light of a recent Tax Court decision: Schlapfer v. Commissioner, Tax Court Memo 2023-65 (May 22, 2023).
Facts: [The following facts are a bit convoluted but stick with me.] The donor was born in Switzerland. He worked as a banker in the United States and Switzerland. He had a United States green card for a while. In 2008, the donor became a United States citizen. In 2006, the donor had purchased a Swiss life insurance policy. As permitted under Swiss law, the donor funded the life insurance policy purchase with stock in a corporation that he owned and also with cash. The ownership of that life insurance policy was then assigned to the donor’s mother, aunt, and uncle. In 2006, Mr. Schlapfer filed a gift tax return that reported a gift of the stock in his company to his mother, aunt, and uncle. He also included in that filing Form 5471 for a foreign corporation that was used to fund the life insurance policy. Mr. Schlapfer took the position on his gift tax return that he was not domiciled in the United States in 2006 because he had not (yet) formed the intention to remain in the United States and, therefore, he was not subject to the United States gift tax. Despite this stated plan, the insurance company initially issued the policy to Mr. Schlapfer as its sole policyholder. It was only in May 2007 that formal ownership of the insurance policy was corrected and put into the names of the donor’s mother, aunt, and uncle.
Disclosure to the IRS: The gift transaction only came to the attention of the IRS in 2013 when Mr. Schlapfer participated in the IRS’s Offshore Voluntary Disclosure Program (the “Program”) because he had not filed United States income tax returns for the years 2004 through 2009. As part of the Program’s compliance rules, Mr. Schlapfer had to furnish copies of his past income and gift tax returns. This led to the IRS’s follow up questions when it asked Mr. Schlapfer to document his gift of the company stock to his mother, aunt, and uncle, and to substantiate his claim that he was not domiciled in the United States in 2006.
Initial Determination in 2016—No Gift in 2006: The IRS examined his 2006 gift tax return and agreed to extend the statute of limitations for a year. Initially, after several months of examination, the IRS concluded that Mr. Schlapfer did not make any gifts in 2006 because the ownership of the insurance policy was ‘wrong,’ the gift was not completed until sometime in 2007.
Tax Court Decision: The Tax Court held that Mr. Schlapfer’s disclosure in his 2006 gift tax return was sufficient to commence the three-year statute of limitations running on that return and thus would time bar any
assessment of tax, whether that gift was made in either 2006 or 2007. Schlapfer v. Comm’r of Internal Revenue, T.C.M. (RIA) 2023-065 at *19 (T.C. 2023). The Court explained that “[a] disclosure is adequate if it’s sufficiently detailed to alert the commissioner and his agents as to the nature of the transaction so that the decision as to whether to select the return for audit may be a reasonably informed one.” Id. at *6 (citations and internal quotation marks omitted).
Takeaways from the IRS Decision in Schlapfer v. Commissioner
So, what can we learn from this? If we are in a planning situation, I do not want you to learn anything from this case because—if you are in a planning situation—you should try to comply strictly with the requirements and the regulations, and comply with them in full.
But if you find yourself in a dispute with the IRS and you want to argue that there has been adequate disclosure of the gift and, therefore, that the statute of limitations has run and that it is too late to assess gift tax, we now have a really strong opinion in Tax Court to back us up on the position that
strict compliance with the adequate disclosure regulations is not necessary. The disclosure just has to be adequate to provide the IRS with a way to determine whether the gift tax return should be examined.
On January 1, 2026, the estate and gift tax exclusion will be essentially cut in half. Now is the time to start talking to high-networth clients about their transfer plans and making sure that those transfers are adequately disclosed to prevent problems from cropping up unexpectedly many years from now.
C. P. “Salty” Schumann is the managing director and founder of his firm, C.P. Schumann, P.C., which offers traditional accounting and tax services, as well as business valuation, forensics, and litigation support nationwide. He is a Certified Public Accountant and holds both the Certified Valuation Analyst and the Master Analyst in Financial Forensic designations from the National Association of Certified Valuators and Analysts (NACVA).
Family Law Specialist
*Kimberly A. Edgington kim@whitten-law.com
Tim Whitten has practiced in family law since 1992. He has been certified as a Family Law Specialist by the Texas Board of Legal Specialization.
Western District of Texas Court Summaries
By Soledad Valenciano, Melanie Fry, and Jeffrie Lewis
If you are aware of a Western District of Texas order that you believe would be of interest to the local bar and should be summarized in this column, please contact Soledad Valenciano (svalenciano@svtxlaw.com, 210–787–4654) or Melanie Fry (mfry@dykema.com, 210–554–5500) with the style and cause number of the case, and the entry date and docket number of the order.
Rule 41(b) Motion to Dismiss; False Claims Act; Anti-Kickback Statute; Statute of Limitations
United States ex rel. Hueseman v. Prof. Compounding Ctrs. of Am., Inc., SA-14-CV00212-XR (Rodriguez, X., May 3, 2024)
One of twelve named defendants, Professional Compounding Centers of America (PCCA), filed a Rule 41(b) motion to dismiss for want of prosecution against the United States government, which intervened in this lawsuit in 2021. The suit was originally filed in 2014 by the plaintiff, Relator Peter Hueseman, a licensed pharmacist formerly employed by one of the defendants. The plaintiff brought this qui tam complaint under seal, alleging “a nationwide fraud scheme against several federal healthcare programs in violation of the False Claims Act (“FCA”) . . . and the Anti-Kickback Statute (“AKS”) . . . .” Under the AKS, once a potential violation is identified, the government is afforded a 60-day timeframe, during which the complaint remains sealed, to “diligently [] investigate” so as to determine whether or not to intervene in the lawsuit. The statute also allows the government “to move the court for extensions of time during which the complaint remains under seal” on a showing of “good cause.”
Due to the passage of time, granting PCCA’s motion would result in a dismissal with prejudice. In such cases, dismissal requires: (1) “a clear record of delay or contumacious conduct by the plaintiff and (2) [that] the court determine[] that lesser sanctions would not prompt diligent prosecution . . . .” A clear record of delay involves “significant periods of total inactivity[,]” and contumacious conduct is defined as “stubborn resistance to authority.” Furthermore, in most cases in which dismissal would bar refiling, one of three aggravating factors is also required: (1) the plaintiff per-
sonally caused the delay; (2) prejudice to the defendant; or (3) intentional conduct caused the delay. Therefore, to prevail on its motion to dismiss, the defendant must show a record of the government’s delay or contumacious conduct plus one aggravating factor, and the court must determine that no lesser sanctions would prompt diligent prosecution.
The government first requested an extension of its statutory 60-day timeframe in 2014, warning that “[a]n extensive investigation will likely be necessary to determine whether to intervene.” The court granted this extension, as well as fourteen additional extensions, before the government filed its notice of partial intervention in 2021. The defendant’s 41(b) motion to dismiss arose out of these fifteen extensions, specifically. The court analyzed the government’s activities during the timeframe in question and found neither delay nor contumacious conduct. On the contrary, it found that in more than one instance, the defendant caused delays in the investigation. It also highlighted that, over this time, the defendant gradually produced almost 400,000 documents responsive to the government’s requests, the contents of which prompted interviews of the defendant’s employees— current and former. While reviewing its production and conducting the interviews, the government repeatedly presented its findings to PCCA. As a result, the parties discussed an ability-to-pay settlement over the course of several years. In 2019, the government and several defendants entered into a settlement agreement. Ultimately, PCCA did not submit the requested financial information. Nonetheless, the parties continued settlement discussions into 2021. By summer 2021, the government determined settlement was not a viable option and intervened in the lawsuit.
In support of its motion to dismiss, PCCA relied on a 2023 Fifth Circuit opinion in which
the court criticized the government’s eighteen extensions of the sealing period granted by the district court. See United States ex. rel. Aldridge v. Corp. Mgmt., Inc., 78 F.4th 727 (5th Cir. 2023). However, in Aldridge, the Fifth Circuit declined to find that the district court should have granted a 41(b) motion to dismiss with prejudice, based in large part on a lack of precedent. PCCA tried to distinguish the Hueseman case from Aldridge by alleging that the government received a draft of the complaint before it was filed, as well as a report referring PCCA for investigation—a fact that PCCA characterized as “the most critical,” not only because the report outlined the claims that would be asserted by the government “eight years later[,]” but also because the report contained “mere allegations—not evidence—that [PCCA] violated the FCA.” The court clarified that “the FCA does not permit the Government to intervene on the basis of well pled allegations; it must investigate and must find that the FCA has been violated before filing a complaint.” The court found that neither the draft complaint nor the referral report relieved the government “of its statutory obligation to investigate the allegations[,]” and rationalized the court’s granting of the fifteen extensions, since “[t]he realities of managing such an [extensive] investigation continued to color the good-cause analysis in later extensions.” The court concluded that “[the defendant] has failed to pinpoint when the [c]ourt’s ‘cumulative indulgence of the Government’s snail’s pace rose to an abuse of discretion.’” The court further explained that had it denied an earlier extension, the government would have been forced to decide, then, to intervene, to dismiss the case, or not to intervene, allowing the relator to pursue the action; in any case, an earlier extension denial “would not have resulted in the termination of the action—as PCCA now seeks.”
Kinney v. Dolgencorp of Tex., Inc., SA-22CV-00575-JKP (Pulliam, J., May 28, 2024)
In this trip and fall suit, the court granted the defendant’s motion for summary judgment with prejudice because the plaintiff could not establish that the defendant had knowledge of the condition alleged to have caused the fall. The plaintiff claimed to have tripped on a loose thread from a frayed door mat as she entered a store, and that the store had constructive knowledge of the damaged door mat. Put differently, “[the plaintiff] allege[d] the hazardous condition ‘existed long enough for [the defendant] to have discovered it upon reasonable inspection.’” What constitutes “long enough” or “a reasonable time for a premises owner to discover a dangerous condition[,]” the court noted, depends on the facts of the case. Nonetheless, in any case, the plaintiff must be able to prove the hazardous condition existed for the case-specific length of time required to establish premises liability. The policy underpinning this standard is the prevention of imposing “strict liability for any dangerous condition” on an owner’s premises—and the plaintiff was unable to meet this standard. In response to the defendant’s motion for summary judgment on these grounds, the plaintiff offered deposition testimony and affidavits regarding the general condition of the store and the door mat. For example, the store manager admitted that the rugs get worn out over time, and the plaintiff testified that she noticed mud caked on the mat she tripped on. However, because the plaintiff mentioned nothing in the way of the exposed threading alleged to have caused her fall, the court found that she was unable to establish that the store had constructive knowledge of the hazardous condition because she could not show that the rug had been frayed long enough to give the store a reasonable opportunity to discover it. Finally, the plaintiff argued that the defendant should not be rewarded for failing to preserve evidence by not saving the video evidencing the fall. The court declined to address this argument, pointing to the fact that the plaintiff had filed no spoliation claim or other related motion.
Allen v. Experian Info. Sols. Inc., SA-24-CV00157-XR (Chestney, E., June 13, 2024)
The plaintiff sought to compel Rule 30(b) (1) depositions of two non-US-based dispute associates who conducted Experian’s statutorily required investigation of her credit dis-
pute. Rule 30(b)(1) allows a party to compel the deposition of a specific officer, director, or managing agent of a corporate party. Here, the defendant refused to produce the individuals on several grounds, including that they did not work for the defendant and that the plaintiff failed to comply with foreign law and international treaties. The court denied the plaintiff’s motion to compel, holding that the
sales for deferral of Capital Gains tax on Business and Real Estate transactions.
plaintiff failed to meet the “modest” burden to show that the individuals were “managing agents” of the defendant. The court relied on caselaw explaining that the standard for what a managing agent is “remains a functional one to be determined largely on a case-by-case basis” and one that should not be “read too restrictively to be limited to persons in the upper management of the corporation.” The person, however, should have “significant independence and/or supervisory responsibility with respect to the aspect of the corporation’s activities that are at issue in the case.” Here, the undisputed evidence, a declaration from the defendant, stated the individuals sought to be deposed held entry- or low-level positions with no managerial or supervisory powers over the defendant or its foreign entities. The court also refused to “comb through [p]laintiff’s exhibits on its own in an attempt to piece together [p]laintiff’s arguments.”
Carmack Amendment; Offers of Judgment; Costs of Court; Local Rule CV-54
Arnold v. Allied Van Lines, Inc., SA-21-CV00438-XR (Rodriguez, X., June 14, 2024)
The plaintiffs sued the defendant under the Carmack Amendment, a federal statute governing the liability of those who provide transportation services in interstate commerce within the jurisdiction of the Surface Trans-
portation Board. After the plaintiffs rejected the defendant’s offer of judgment of $32,500 for damages to the plaintiffs’ household goods, a jury awarded the plaintiffs $31,909 in damages. The plaintiffs were not eligible for attorney’s fees under the Carmack Amendment because the interstate move was not a C.O.D. (collect on delivery) transaction. Although the bill of lading signed by both parties identified the transaction as C.O.D., the plaintiffs paid for the delivery of their household goods before delivery. The court declined to tax costs in favor of the plaintiffs because they failed to file a bill of costs as required by Local Rule CV-54. The court concluded that the defendant was entitled to costs under Rule 68(a) because the defendant timely served an offer of judgment on the plaintiffs, and the plaintiffs’ judgment was “not more favorable” than the unaccepted offer. The court awarded the defendant the costs allowed by 28 U.S.C. § 1920, including deposition transcripts and exhibits “necessarily obtained for the use in the case” but denied costs for video depositions and trial exhibit notebooks. Expert witness fees, which are also governed by Rule 54(d)(1) and 28 U.S.C. § 1821, are limited to the expert’s appearance at court or at a deposition, travel, and a subsistence allowance when an overnight stay is warranted, with such subsistence allowance equal to the per diem rate for official travel in the area of attendance (here,
$64 for a full day and $48 for the first and last day of travel). Although the defendant also did not file a bill of costs, Rule 68’s award of costs is mandatory.
Soledad Valenciano practices commercial and real estate litigation with Spivey Valenciano, PLLC. Melanie Fry practices commercial litigation and appellate law with Dykema Gossett PLLC.
Jeffrie B. Lewis is Assistant General Counsel with Zachry Group.
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No-Contact Rule
By Justice Irene Rios
In a recent case of first impression, we held that Rule 4.02 of the Texas Disciplinary Rules of Professional Conduct prohibits a pro se lawyer from contacting an opposing party represented by counsel without the consent of that party’s counsel. Ruth v. Comm’n for Law. Discipline, 04-22-00796-CV, 2024 WL 3056655, at *5 (Tex. App.—San Antonio June 20, 2024) (no pet. h.).
In Ruth, the Commission for Lawyer Discipline initiated a disciplinary action against Ruth for alleged violations of the disciplinary rules in a prior disciplinary action the Commission took against Ruth. See id. at *1 & n.1, n.2. In that litigation, Ruth appeared pro se and directly served individual members of the Commission with two motions by adding them to the e-service list. See id. at *1. Disciplinary counsel for the Commission informed Ruth that this conduct was improper communication with her client and asked Ruth to cease the communications. See id. Ruth continued to directly serve filings on members of the Commission and wrote a letter directly to the Commission chair. See id.
After Ruth failed to heed counsel’s warning to cease communications with her client, the Commission initiated the disciplinary proceeding at issue in Ruth, alleging Ruth violated the no-contact rule under Rule 4.02(a). See id.; see also Tex. Disciplinary Rules Prof’l Conduct R. 4.02(a), reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G, app. A (Tex. State Bar R. art. X, § 9).
Rule 4.02(a) of the Texas Disciplinary Rules of Professional Conduct states:
In representing a client, a lawyer shall not communicate or cause or encourage another to communicate about the subject of the representation with a person, organization or entity of government the lawyer knows to be represented by another lawyer regarding that subject, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.
Tex. Disciplinary Rules Prof’l Conduct R. 4.02(a).
Ruth argued the prefatory clause “[i]n representing a client” shows the supreme court intended for Rule 4.02(a) to apply only to attorneys who are representing a client’s interest, as opposed to their own interest. See Ruth, 2024 WL 3056655, at *2. The Commission argued Ruth was representing himself as a client, and therefore, the no-contact rule applies to him regardless of his status as a pro se litigant. See id. Applying the principles of statutory construction while considering other resources, ethics opinions, and other jurisdictions’ approaches to this issue, we concluded the no-contact rule applies to pro se lawyers for two reasons. See id. at *2-4.
First, the plain language of Rule 4.02 applies to a pro se lawyer because a pro se lawyer “does represent a client when representing himself or herself in a matter[.]” See Runsvold v. Idaho State Bar, 925 P.2d 1118, 1120 (Idaho 1996); see also In re Disciplinary Action Against Haley, 126 P.3d 1262, 1269 (Wash. 2006) (holding that a lawyer acting pro se is representing a client for purposes of the no-contact rule). “[A]n attorney who proceeds pro se in a matter functionally occupies the roles of both attorney and client.” In re Steele, 181 N.E.3d 976, 980 (Ind. 2022); see also Sandstrom v. Sandstrom, 880 P.2d 103, 109 (Wyo. 1994). It is not possible for a pro se lawyer to take off the lawyer hat and circumvent the no-contact rule by communicating solely as a client. See ABA Comm. on Ethics & Pro. Resp., Formal Op. 22-502 (2022).
Second, the purpose of Rule 4.02 is “to preserve the integrity of the client-lawyer re-
lationship by protecting the represented party from the superior knowledge and skill of the opposing lawyer.” In re News Am. Pub., Inc., 974 S.W.2d 97, 100 (Tex. App.—San Antonio 1998, orig. proceeding). The rule “is directed at efforts to circumvent the lawyerclient relationship existing between other persons, organizations or entities of government and their respective counsel.” Tex. Disciplinary Rules Prof’l Conduct R. 4.02 cmt. 1. Therefore, a party who has employed counsel as an intermediary between himself and opposing counsel should not lose the protection of the rule merely because opposing counsel is also a party to the litigation. See Ruth, 2024 WL 3056655, at *4.
Based on these reasons, as more thoroughly explained in the opinion, we concluded Rule 4.02 prohibits a pro se lawyer from contacting an opposing party without the consent of that party’s counsel. See id. at *5.
Justice Irene Rios has served on the Fourth Court of Appeals since January 2017. Justice Rios previously served as Judge of County Court at Law No. 10, in Bexar County, for fourteen years. Prior to her appointment to the bench, Justice Rios spent nine years in private practice. She is a Fellow of the Texas Bar Foundation and a Fellow of the San Antonio Bar Foundation, and she has served as a Special Master of major litigation.
