Recently thousands of New York attorneys met in New York City to attend the Annual Meeting of the Commercial and Federal Section (ComFed) of the New York State Bar Association. Of particular interest, ComFed litigators considered some of the ways technology is changing the practice of law and business, including the emerging role of AI in the legal system (and beyond).

Our discussion began with an overview of the technology that has permitted computers to do “intelligent” things, including completing the review and analysis of massive volumes of data in a very short period of time, and the profound impact such technological advancements has had on the legal profession.

With the advent of supervised machine learning in the past several years, lawyers and businesses have been introduced to programs that rely upon Technology Assisted Review (“TAR”) that, with the input of trained professionals, review and analyze data quickly in order to identify key documents and data to be further reviewed by trained professionals.

Specifically, TAR technology is defined as: “A process for prioritizing or categorizing an entire collection of documents using computer technologies that harness human judgments of one or more subject matter expert(s) on a small subset of the documents, and then extrapolate those judgments to the remaining documents in a collection.”

You might ask yourself, “Why do I care about TAR?” Here’s why: TAR technology is becoming more common in the business world amongst in-house and outside counsel as a tool to manage data-driven discovery. Further, TAR programs can be used to implement and monitor regulatory compliance and risk management programs. In short, TAR technology has the potential to save businesses money and headaches both inside and outside the context of litigation and is a budding technology concept that is worth exploring within the context of your business and within the context of litigation.

We also discussed how predictive analysis based upon a proprietary algorithm, COMPAS (Correctional Offender Management Profiling for Alternative Sanctions), is being used by many courts throughout the country in connection with sentencing persons convicted of crimes. The premise behind computer-generated recommendations is that the algorithm considers vast quantities of data, applies that data to the specific case at issue, and generates an assessment of the convicted person’s predicted risk of recidivism. However, because the program is proprietary, the specific information considered by COMPAS is not known by the general public, including those receiving the recommendations.

Similarly, predictive analytics about judges and the likely outcome of particular cases before trial is now readily available to lawyers and litigants. According to the providers, these predictions are based upon proprietary programs powered by natural language processing, data science, and machine learning.

Predictive analysis programs are available in other contexts as well. For example, predictive analysis algorithms have been used in designing programs for Human Resource Departments as a tool to eliminate bias in hiring personnel, amongst other things.

In theory, such predictive analysis is a means to provide an “unbiased” assessment of persons. In practice, though, any flaws in the algorithms used, flaws in the data sets, or flaws in the information provided for consideration would necessarily skew the results.

So, what is the takeaway here? Predictive data analytics/analysis is becoming more commonplace in courts and in the workplace. As technology continues to improve, its use will likely only grow. Thus, the users of such information have an increasing responsibility to monitor and assess the algorithms and data sets applied by such programs to ensure that they are meeting the goal of eliminating bias in the courts and workplace rather than inadvertently perpetuating it.

 

22 NYCRR § 130.1–1, well known among New York litigators, provides for the award of costs and sanctions for frivolous conduct in litigation. In far too many commercial cases, practitioners make motions under this rule not for legitimate reasons, but in order to intimidate, harass or obtain a strategic advantage.

In 1999, a Westchester County court noted that the practice of opposing a motion with a cross-motion for sanctions had become a “knee-jerk” response, and an “increasingly disturbing aspect of civil litigation.” Shelley v. Shelley, 180 Misc. 2d 275, 276-277. Nearly ten years earlier, a New York County court offered a similar sentiment, stating:

“This Court, and others, are losing patience with those attorneys who make motions for sanctions almost as a matter of course. Such conduct cannot be condoned, for it may have a chilling effect on some litigants, and leads to needless expenditure of time and money by litigants, not to mention the Court’s time.”

Chinn v. Plastino, 206 N.Y.L.J. 80 (NY Civ Ct, New York County 1991).

It’s safe to say that recent years have not been witness to significant improvements. But neither attorneys nor courts are without recourse when faced with such conduct. Section 130-1.1(c) provides a remedy insofar as it includes within the definition of sanctionable conduct “the making of a frivolous motion for costs or sanctions.”

Patterson v. Balaquiot is a case about dueling sanctions motions that is often cited. In this 1992 decision, the First Department deemed a motion for sanctions frivolous and awarded $250 to the cross-movant. (188 A.D.2d 275 (1st Dept 1992)).

A few years later, a Civil Court in New York County, similarly faced with dueling sanctions motions, made an example of counsel for using Rule 130 as an “intimidation device,” finding no basis in law or fact for his request for sanctions. S. Blvd. Sound v. Felix Storch, Inc., 165 Misc. 2d. 341, 342-343 (Civ Ct, New York County 1995). In that instance, the Court awarded $50 to each plaintiff.

While an award of $50 is hardly sufficient to deter frivolous motion practice in today’s climate, an award of $10,000 for each single occurrence might suffice. That is the statutory limit for sanctions awarded pursuant to Rule 130, though as one court noted, “costs are not so constrained and may include attorneys’ fees and actual expenses.” D.I. v S.I., 2008 N.Y. Misc. LEXIS 6033, at *9 (Sup Ct., Westchester County Aug. 4, 2008, No. 14749/06). And, attorneys may be held personally responsible to pay such sanctions and costs, at least where the frivolous act at issue is directly attributable to counsel rather than the client.

 

Bookkeeper or financial inspector and secretary making report, calculating or checking balance. Internal Revenue Service inspector checking financial document. Audit concept.

Shareholders in a closely held corporation, especially those who are minority shareholders, may believe that the financial affairs of their business are off limits in a divorce case. However, discovery in New York civil actions, including divorce actions, is guided by the principal of full disclosure of all matter material and necessary to the action. In other words, if the documents sought are relevant to the matrimonial case, they will need to be turned over to your spouse and his or her lawyer if requested. In the world of divorce, the entire financial history of the marriage is relevant and subject to discovery.

What does this mean for your closely held corporation? Generally, if a party to the divorce proceeding is a shareholder of such a corporation (even if only a minority shareholder), he or she must be prepared to disclose a fairly extensive audit of the corporation’s financial affairs. This type of disclosure is designed to enable one spouse to meaningfully evaluate the value of the other’s corporate interests.

This rule does not necessarily apply if you are a CEO or president of a closely held corporation, but not a shareholder. In those circumstances, disclosure may be mandated, but will likely be less expansive. For example, under New York law, a CEO may be required to produce certain documents within their possession and control, such as agreements to which they are a party and documents relating to fringe benefits or expenses incurred by the CEO but paid for by the corporation.

What happens if a corporate shareholder refuses to produce corporate records to his or her spouse? Generally, a spouse can obtain relevant financial records directly from the corporation by serving it with a nonparty subpoena. However, when a party is a corporate officer but not a shareholder, courts generally do not allow the issuance of non-party subpoenas to the corporation.

If you are faced with the prospect of disclosing financial records related to a closely held corporation, you should seek advice from an experienced attorney. You may be able enter into confidentiality agreement with your spouse in order to limit the ways in which financial and business records and proprietary information may be used by the parties.