OCTOBER 202 1 VOLUME 1 8 / NUMBER 7 TODAYSGENER ALCOUNSEL.COM
Building A Legal Department From The Ground Up
• Lesson one from Cosby’s release • Antitrust and the Supreme Court’s NCAA decision $199 SUBSCRIPTION RATE PER YEAR ISSN: 2326-5000 ISSUU.COM/TODAYSGC
• Experiments with non-lawyer ownership of law firms
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contents
OCTOBER 2021 Volume 18 / Number 7
4 EDITOR’S DESK GENERAL COUNSEL INTERVIEW
8 Q&A WITH SARAH SCHOTT Combining roles of GC and Chief Compliance Officer.
COLUMN / THE ANTITRUST LITIGATOR
10 ANTITRUST LESSONS FROM THE SUPREME COURT'S NCAA DECISION No formula for “Rule of Reason,” says Supreme Court. By Jeffery M. Cross LABOR & EMPLOYMENT
12 COSBY RELEASED, BUT NOT EXONERATED Temple University’s botched response was the first mistake. By Phillip R. Voluck and Jennifer L. Prior
COMPLIANCE 14 REGULATORY SANDBOXES AND NON-LAW OWNERSHIP States examining new ways to provide legal services. By Heather Thomas
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EDITOR’S DESK
T
he first high-profile conviction of the #MeToo era was reversed in June, and Bill Cosby walked out of the Pennsylvania prison where he was serving a ten-year sentence for drugging and
raping a Temple University sports administrator. In their article in this issue of Today’s General Counsel, Phillip Voluck and Jennifer Prior make the case that this does not signal a systemic betrayal of sexual harassment victims. The Pennsylvania Supreme Court’s reversal of Cosby’s conviction rested on the fact that he had an agreement that he wouldn’t be prosecuted for the rape if he sat for a deposition in a civil case filed by the same victim, and the prosecution violated that agreement. In other articles in this issue, Jeffery Cross considers the broader antitrust implications of the Supreme Court’s NCAA decision concerning payment to student athletes, and Heather Thomas discusses experiments with alternative legal service models going on in several states. In our general counsel interview, we talk to Sarah Schott, who was recently hired as Chief Compliance Officer as well as General Counsel at a health-benefits company.
Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com
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General Counsel Interview with Sarah Schott
S
arah Schott is the General Counsel and Chief Compliance Officer of Gravie, a health benefits company
that creates employer-sponsored health benefit solutions. She sets the overall legal and compliance strategy and helps mitigate legal and regulatory risk. She previously served as Chief Compliance Officer of Northwestern Mutual, where she was responsible for all regulatory compliance operations and chaired the Enterprise Compliance Committee. She has also served as Senior Managing Director, General Counsel and Corporate Secretary of B.C. Ziegler & Company, a publicly traded broker-dealer, mutual fund advisor and investment banking firm.
Why did Gravie decide to combine the roles of GC/CCO and hire at this time? Gravie has experienced tremendous growth in recent years, and we expect the growth will continue to accelerate. Combining the GC and CCO roles makes sense at this point, given the need to integrate both legal and compliance perspectives into executive level conversations. Because we are in a highly regulated industry, it is critical that we have excellent oversight of operational and regulatory risks and develop repeatable, high-quality processes as the business adds scale quickly. That work draws heavily from the compliance side of the business. My prior experience as a GC of a financial services company and CCO of an insurance company helps me to wear both hats at the same time and know which role needs emphasis at any particular time. It is also
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valuable for compliance to have a strong presence in conversations at the board level during a time of rapid growth.
How big will your department be? The GC position is new for Gravie, and we don’t yet have plans for adding more in-house positions. Gravie has an established team in the compliance space, including a vice president of operations and compliance with deep technical expertise and many years of experience in health insurance.
What legal specialties will particular members of your team have? As a health benefits company, many of our legal issues involve the Employee Retirement Income Security Act (ERISA), health insurance and captive insurance company regulations, and privacy. Like other companies, we also have employment, general corporate and financing/fundraising-related legal work.
retention rates. We know there may be bumps in the road, but our work to grow the company the right way and deliver a quality experience will help minimize our litigation risks overall.
Any thoughts on legal technology, the tech you’ve adopted and what, if any, you’ve rejected? Since our in-house legal function is new, we get to build things from the ground up. We are currently exploring contract management solutions that are supportive of an efficient sales and servicing process, and management of many other contracts across the company. We’ve also recently added a platform to manage some corporate governance functions.
What do you look for in an attorney? One of Gravie’s core values is “Why? Think. Ask. Explain.” Our lawyers — internally and externally — need to be role models in this space. I expect legal and compliance experts will take the time to listen and understand the goals of their business partners, affirm that they are working towards achieving business partners’ goals, explain options and risks, and communicate the “why” behind their recommendations. We obviously can’t always get to the outcome our business partners want or prefer, but it goes a long way to a partner’s trust in our advice when they know that we understand and support their goals.
What are the major litigation issues you anticipate? Gravie has an exceptional track record with respect to litigation over the eight years it has been in business. Gravies’ strong commitment to putting the consumer first and developing innovative, highvalue health insurance solutions has helped avoid any material litigation with respect to our claims and business processes. We have also built strong relationships with our employer customers, which minimizes litigation risk and leads to excellent BACK TO CONTENTS
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COLUMN/ THE ANTITRUST LITIGATOR
Antitrust Lessons From the Supreme Court’s NCAA Decision By JEFFERY M. CROSS
I
n June, the Supreme Court issued its long-awaited decision in NCAA v. Alston, an antitrust case involving the NCAA’s restrictions on education-related payments to student athletes. It grabbed headlines and caused debate on whether student athletes should be paid, but the decision was also important
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with respect to antitrust law. It is important to consider how the Court approached its analysis, as well as its explanations for prior decisions. The Court reaffirmed its endorsement of a step-wise, burden-shifting approach to the rule of reason. The district court had applied a three-step,
TODAYSGENERALCOUNSEL.COM SEPTEMBER 202 1
burden-shifting approach. Under the first step, the plaintiff has the burden of establishing an anti-competitive effect. If plaintiff does so, the second step shifts the burden to the defendant to proffer plausible pro-competitive justifications for the restraint. If the defendant is successful, the burden shifts back to the plaintiff for step BACK TO CONTENTS
three, establishing whether the restraint is more restrictive than necessary to achieve the proffered pro-competitive benefits. The Supreme Court’s affirmation of the district court’s approach, however, should not be viewed as a hard and fast formula. The Supreme Court expressly stated that this approach should not be viewed as a “rote checklist.” It noted that the analysis should be flexible to adopt to a particular case. Additionally, other steps and considerations were suggested. For example, the cases cited by the Court mention a fourth step. If the defendant proffers pro-competitive benefits that withstand scrutiny, then the plaintiff has the ultimate burden of persuading the trier of fact that the anti-competitive effects outweigh them. The Court also referenced its seminal 1984 decision, NCAA v. Board of Regents of University of Oklahoma. That decision found that the NCAA had not proffered legitimate pro-competitive benefits. The Court had held that, even under a rule of reason analysis, the failure to offer any justifications for the restraint ended the case. The same would be true for justifications that were not cognizable under the antitrust laws. For example, among the justifications offered for the NCAA’s restrictions on televising games in 1984 was that live performances could not compete against televised games. The Court held that was not cognizable under the antitrust laws because it was a frontal assault on the very notion of competition, which Congress had determined was the best way to allocate resources in a market economy. Consequently, under the third step of the Court’s approach, the plaintiff could also establish that there were no plausible BACK TO CONTENTS
pro-competitive justifications, or that the justifications were not cognizable, given that the justifications were more restrictive than necessary to achieve the proffered pro-competitive benefits. The NCAA in the Alston case argued that this step-wise, burden-shifting approach should not have been applied. Rather, the trial court should have applied an abbreviated deferential review or a “quick look.” The Supreme Court disagreed. The Court did acknowledge that sometimes the rule of reason could be applied in the “twinkling of an eye,” but found that such a quick look must be reserved for the “opposite ends of the competition spectrum.” For example, the Court noted that if the market shares of the defendants were so low that the restraint could not have had an anti-competitive effect, then a quick look to exonerate might be appropriate. The Court also noted its prior NCAA decision, where it had held that a quick look to condemn might also be appropriate if the defendant did not offer any cognizable pro-competitive justifications. The Court also clarified the meaning of the rule of reason test evaluating whether there were substantially less restrictive alternative restraints. The Court held that the defendants should not be required to use the “least restrictive restraint to achieve the pro-competitive efficiencies.” It stated that the lower courts should not second-guess “degrees of reasonable necessity” so that “the lawfulness of conduct turns upon judgments of degrees of efficiency.” The Court noted that a skilled lawyer would have little difficulty in imagining less restrictive alternatives, but judicial parsing of
those alternatives could have the unintended consequence of stifling competition. It upheld the trial court’s determination that the NCAA’s restrictions on education-related payments to student athletes were “patently and inextricably stricter than necessary.” This holding makes sense. If the restraints are more restrictive than necessary to achieve the pro-competitive benefits alleged as their purpose, then in some ways they are “naked” restraints not based on plausible pro-competitive justifications.
Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group of Freeborn and Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com
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L ABOR & EMPLOYMENT
Cosby Released, But Not Exonerated By PHILIP R. VOLUCK AND JENNIFER L. PRIOR
T
he decade known as the “20-teens” will be remembered for the #MeToo Movement, which dramatically changed the way people behave at work. Awareness about sexual violence in the workplace soon followed, with the hope that it would empower victims to come forward. To that end, states such as New York and New Jersey have enacted laws prohibiting
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non-disclosure agreements in sexual misconduct settlements. As the #MeToo Movement gained momentum, the U.S. Equal Employment Opportunity Commission reported that while the overall number of workplace discrimination complaints it received decreased, sexual harassment complaints increased as more victims opted to formally report. Essentially, employers
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were put on notice that the old workplace mores were no longer acceptable. The first high-profile conviction came in Bill Cosby’s sexual assault trial. However, the Pennsylvania Supreme Court’s recent decision overturning the conviction has left the perception that the American worker was betrayed by the proverbial system. This simply did not happen. The conviction BACK TO CONTENTS
was overturned because the Court decided to enforce an agreement between Cosby and a prior District Attorney not to prosecute Cosby, in exchange for his deposition testimony in the civil case filed by “first victim” Andrea Constand, who ultimately became the face of Cosby’s downfall. The Court recognized that Cosby “freely” made incriminating statements during his deposition in reliance on the agreement. Those statements were later used against him in his criminal trial. The prosecuting District Attorney said that Cosby “was found guilty by a jury and now goes free on a procedural issue that is irrelevant to the facts of the crime.” Reliance on a District Attorney’s pledge not to prosecute is more than a mere procedural issue, but
totally botched its response to Constand’s complaint. Officially, the University stated that it awaited taking any action pending the outcome of the criminal investigation by the District Attorney, which concluded without an indictment against Cosby. David Adamany, Temple’s president at the time and Cosby’s fellow board trustee, stated that the Constand matter was never discussed and that it was a “non-issue,” since the alleged misconduct occurred off campus. That explanation just does not stand up legally. Employers are obligated to immediately investigate all harassment allegations, regardless of whether they arose outside the workplace, and regardless of the status of any criminal investigations. Companies should also have procedures in place for
Temple University totally botched its response to Constand’s complaint. the narrative that Cosby has been exonerated is false nonetheless and needs to be put to rest. Even prior to the recent Cosby decision, female employees generally felt uncomfortable reporting sexual harassment. According to the most recent literature review from the National Academies of Sciences, Engineering, and Medicine, female employees who experience sexual harassment tend to avoid their harasser or resign rather than formally reporting the harassment, often due to “an accurate perception that they may experience retaliation or other negative outcomes associated with their personal and professional lives.” There are multiple lessons employers can learn from the Cosby saga, beginning with its origins at Temple University, which BACK TO CONTENTS
Human Resources or face disciplinary action. In summary, employers need to be proactive in preventing the pendulum from swinging back to a pre-#MeToo culture in which harassment was widely tolerated, if not completely ignored.
Philip R. Voluck is co-chair of the Labor and Employment Practice at Kaufman Dolowich & Voluck. He concentrates his practice in the area of employment practices liability defense. pvoluck@kdvlaw.com Jennifer L. Prior is an associate at Kaufman Dolowich & Voluck. She focuses her practice in the area of employment practices liability defense. jprior@kdvlaw.com
investigating allegations of misconduct against owners and upper management. Before the workplace becomes polluted with false information about the Cosby case, employers should double down on staff training, focusing on victim empowerment and the importance of reporting. The reason goes beyond justice for the victim. It helps create a workplace culture that rejects harassment and embraces employee safety. Procedures that remove barriers to reporting are essential. They should provide multiple options for complaints to avoid, for example, requiring the employee to complain to the person who was harassing her. Employers should train supervisors how to respond and require them to report the complaint to OCTOBER 202 1 TODAYSGENERALCOUNSEL.COM
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COMPLIANCE
Regulatory Sandboxes and Non-Law Ownership By HEATHER THOMAS
T
here is an increasing drive for legal industry standards to evolve and accommodate the present. One trend that general counsel (or any legal professional concerned with compliance, regulation and the legal issues that arise from new engagements) should watch for is the use of regulatory sandboxes and their ability to alter standards in industries normally resistant to change. In August 2020, Arizona courts pushed through a measure dropping regulations around lawyer
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exclusivity in companies practicing law. They join courts in Washington, D.C. and various countries abroad that are experimenting with non-law ownership in law firms. In the United States, most states are being more cautious in their approach and seeking confirmation that restructuring legal organizations would not cause a systematic collapse of legal ethics. Some states are turning to regulatory sandboxes as a method to experiment without disrupting
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the larger regulatory systems in place. Regulatory sandboxes allow changes to rules and regulations to be tested on a small scale under time constraints before permanent, large-scale adoption. Participants operate within a defined space under a new set of rules to see how the regulations fare under actual circumstances. A committee or team provides regulatory oversight, evaluating how well the participants can play by the new rules without larger repercussions. BACK TO CONTENTS
Depending on the success of the sandbox, the committee can make a recommendation to move forward, partially adopt or eliminate the prospect of the experimental changes from the conversation. These sandboxes can be an effective method for driving innovation across industries, including the legal industry, where regulatory bodies widely determine the industry’s ability to evolve.
NON-LAW OWNERSHIP Many legal professionals find the idea of testing before implementation to be far more palatable than outright change. In the United States, Utah and California currently have regulatory sandbox initiatives underway. The Utah Legal Sandbox is regulated by the Office of Legal Services Innovation, which will be selecting participants from a pool of appli-
Arizona courts pushed through a measure dropping regulations around lawyer exclusivity in companies practicing law. cants and evaluating their ability to provide proper service to clients in the legal industry while operating with an alternate business model or alternative business structure (ABS). In California, the state bar has assigned the Task Force on Access Through Innovation of Legal Services to “identify options for enhancing the delivery of, and access to, legal services through the use of technology, including artificial intelligence and online legal service delivery models.” BACK TO CONTENTS
Non-lawyer ownership is one option available. These initiatives will continue to evolve as other courts in the United States conduct preliminary investigations to gather recommendations for their own regulatory sandboxes. If non-law ownership does not disrupt the overall regulatory framework in these states, acceptance for ABSs may gain ground. Ultimately, though, the outcomes of these sandboxes, and their ability to demonstrate the efficacy of changes without disrupting the larger industry, could open the door to the larger acceptance of regulatory sandboxes for experimentation in the legal field. Non-law ownership of a law firm is considered an alternate business model because it goes against historical patterns in the U.S. legal system, which call for lawyers’ professional independence. Advocates for the change believe that non-law ownership of companies would allow for an influx of ideas and give law firms increased dexterity to react and adapt to changes in the world. Professionals in favor of non-lawyer ownership hope that giving influence to non-lawyers could help fill gaps between legal self-help sites and the services at a full firm that exceed smaller client needs and ability to pay. Ideally, this change could widen the audience and increase access to legal services as a whole.
FEAR OF LOWERING STANDARDS There is fear that allowing non-legal and legal players to intermingle would put the professional independence of lawyers at risk. Although some see this deregulation as a “lowering of the bar” as to who can participate in the
practice of law, it does not seem to be lowering the ethical bar for the industry or lowering the quality of service and innovation. Regulatory sandboxes have the potential to influence change to legal and compliance standards far faster than the industry is used to. General counsel will need to be especially aware of the activities of regulatory sandboxes. From afar, sandboxes offer a glimpse at regulatory changes that are under serious consideration. They are case studies that have the potential to set standards for future compliance and policy regulations that may need to be implemented quickly. As the industry continues to weigh tradition against change, sandboxes provide a compromise, allowing for a proof of concept. Regulatory sandboxes make change more acceptable through low-risk use case tests, lowering the barrier to entry for innovation and altering the acceptance criteria for change. This allows for the introduction of new perspectives and expertise, which can drive transformation. When involved in a sandbox, or working with businesses involved in a sandbox, there may be a need for additional reviews of contracts and terms, depending on how deeply engaged a business is with the regulatory changes. If nothing else, legal professionals should keep an eye on these experiments to know what is on the horizon within the industry.
Heather Thomas is the product marketing manager with ABC Legal Services. She manages projects and develops content. hthomas@ abclegal.com
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