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Will Climate Lawsuits Survive Supreme Court Review? · Bloomberg Law

0:02
Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
0:09
Speaker 2: The Supreme Court began its new term today with a
0:12
Speaker 2: major climate case, a showdown of sorts in climate change
0:16
Speaker 2: litigation going on across the country, carrying huge stakes for
0:21
Speaker 2: the environment and the energy industry. The city of Boulder, Colorado,
0:26
Speaker 2: is suing ExxonMobil and Suncor Energy under state law. claiming
0:31
Speaker 2: the oil companies misled the public about the risks of
0:35
Speaker 2: climate change while simultaneously contributing to the problem by producing
0:41
Speaker 2: and promoting fossil fuels. If the Supreme Court allows Boulder's
0:45
Speaker 2: case to go forward, it could give the green light
0:49
Speaker 2: to the dozens of climate-related lawsuits by state and local
0:53
Speaker 2: governments against fossil fuel companies, ultimately costing the industry billions
0:58
Speaker 2: of dollars. At the oral arguments today, Chief Justice John
1:02
Speaker 2: Roberts was one of the conservatives who expressed concern about
1:07
Speaker 2: a deluge of new suits against the energy industry.
1:10
Speaker 3: Presumably, if you prevail, the next day, a municipality in
1:16
Speaker 3: every single state will file a lawsuit. They'll probably copy
1:20
Speaker 3: your pleadings. And then there'll be at least 50, you know,
1:25
Speaker 3: different cities. One state could do it, I suppose. Causes
1:29
Speaker 3: of action— filed.
1:32
Speaker 2: One of the questions before the court was whether the
1:35
Speaker 2: case had reached a point at which the Supreme Court
1:37
Speaker 2: had the power to hear it at all. Liberal Justice
1:41
Speaker 2: Katonji Brown Jackson suggested the whole fight was premature, noting
1:46
Speaker 2: that the Colorado Supreme Court ruling didn't reach other arguments
1:50
Speaker 2: the companies are making for dismissing the lawsuit.
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Speaker 4: So a number of the discussions that you've had with
1:56
Speaker 4: my colleagues make me think that we're really early in
2:00
Speaker 4: this case, that this is sort of premature from the
2:03
Speaker 4: standpoint of this court exercising its jurisdiction.
2:08
Speaker 2: Joining me is an expert in environmental law, Pat Parenteau,
2:11
Speaker 2: a professor at the Vermont Law and Graduate School. Pat,
2:14
Speaker 2: what are the stakes in this case?
2:17
Speaker 5: Well, what's at stake are billions of dollars that would
2:20
Speaker 5: go towards climate adaptation and all these communities that are
2:23
Speaker 5: being hammered by runaway, frankly, climate disruption, right? Floods and
2:29
Speaker 5: fires and droughts, oh my. So that's what the county
2:33
Speaker 5: and city of Boulder are seeking is a contribution from
2:38
Speaker 5: the oil companies whose products are responsible for this damage
2:43
Speaker 5: and also responsible for the deception around what they knew
2:48
Speaker 5: about climate change and what they did about it and
2:51
Speaker 5: so forth. So, you know, it's a money- And the
2:55
Speaker 5: court was well aware that billions of dollars are at issue.
2:59
Speaker 5: Bankruptcy might be at issue. That came up in the argument.
3:03
Speaker 5: So it's a dollars case, but big dollars.
3:06
Speaker 2: This wasn't an argument about the merits of the case.
3:10
Speaker 2: One of the main focuses was whether federal law blocked
3:15
Speaker 2: these types of lawsuits. And a lot of the justices'
3:18
Speaker 2: questions focused on that.
3:20
Speaker 3: Yeah.
3:20
Speaker 1: Yeah.
3:21
Speaker 5: And what was interesting is the company's arguments have flipped.
3:26
Speaker 5: For a long time, I've been following all these cases,
3:28
Speaker 5: of course. For a long time, the companies were arguing
3:32
Speaker 5: the Clean Air Act preempts these state-based claims. Now, they're arguing, no, no,
3:40
Speaker 5: it's actually the Constitution itself, the structure of the Constitution,
3:46
Speaker 5: they say, that preempts not only these lawsuits, but any
3:52
Speaker 5: state tort lawsuit based on pollution. So the one disturbing point,
3:59
Speaker 5: I would say, if you're worried about a case going
4:03
Speaker 5: against Boulder, it is that most of the argument focused
4:09
Speaker 5: on pollution, on emissions. And frankly, The advocate for Boulder, Mr. Russell,
4:17
Speaker 5: I thought did a very poor job of emphasizing that
4:21
Speaker 5: the core of these cases is deception. It's lying. It's fraud.
4:28
Speaker 5: That's the tortious activity. That's what Colorado law is being
4:34
Speaker 5: used to assign liability for actions that took place in
4:38
Speaker 5: Colorado by these companies with damages in Colorado. So, You know,
4:44
Speaker 5: the fact that that didn't get a focal point in
4:47
Speaker 5: the case at any point is worrisome.
4:49
Speaker 2: The oil companies argue that climate change is a global
4:53
Speaker 2: phenomenon that doesn't lend itself to state-by-state litigation the way
4:59
Speaker 2: fights over local pollution do. But Colorado comes back and
5:04
Speaker 2: says we're not trying to control emissions.
5:09
Speaker 5: Not at all. The nuisance claims that are in the
5:11
Speaker 5: case are probably most at risk. I would certainly acknowledge that.
5:15
Speaker 5: Because they do implicate directly, more directly, emissions. They're basically
5:21
Speaker 5: saying your products are an unreasonable interference with the environment
5:28
Speaker 5: in Colorado, right? So that's somewhat problematic. But what isn't
5:32
Speaker 5: problematic is that the Clean Air Act and no federal
5:36
Speaker 5: law regulates emissions. consumer fraud in the way that Colorado does.
5:41
Speaker 5: That's a traditional state function. And so, again, the fact
5:45
Speaker 5: that the court didn't really tease out whether this isn't
5:49
Speaker 5: truly a case about just emissions or is it really
5:53
Speaker 5: a case about the company's conduct in Colorado, that got lost,
5:59
Speaker 5: I'm afraid, in the welter of issues that were flying around.
6:03
Speaker 5: There was so much interruption of question and an answer
6:07
Speaker 5: that it was almost impossible to follow the flow, if
6:11
Speaker 5: there was one, to the argument. So I guess that's
6:14
Speaker 5: not completely surprising. Although I thought of late, the court
6:19
Speaker 5: was more disciplined in allowing questions to get answered and
6:23
Speaker 5: then go to the next one. This one was a jumble, frankly.
6:27
Speaker 2: The chief justice seemed to say things on both sides,
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Speaker 2: questions on both sides. He said, I guess I'm not
6:32
Speaker 2: quite sure what makes this situation different from all the
6:35
Speaker 2: other ones where we've allowed litigation, you know, that state
6:40
Speaker 2: lawsuits aren't barred. Can you tell where some of the
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Speaker 2: justices were on that issue?
6:47
Speaker 5: We can certainly tell where Justice Kavanaugh is coming down.
6:50
Speaker 5: Six times he interrupted or either asked questions or followed
6:55
Speaker 5: up with other questions in which he clearly signaled he's
6:59
Speaker 5: voting for the oil companies. And he sees this as
7:02
Speaker 5: a pollution case. He didn't even reference the consumer angle
7:06
Speaker 5: to the case much at all, if at all. And
7:09
Speaker 5: he thinks it's controlled by four Supreme Court precedents, which
7:13
Speaker 5: he talked about ad nauseum. The Milwaukee One case, which
7:16
Speaker 5: is a Clean Water Act case way back in the.
7:20
Speaker 4: 1980s, actually.
7:21
Speaker 5: And then the Ouellette case, which got a lot of attention.
7:24
Speaker 5: That's another Clean Water Act case that deals with this
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Speaker 5: savings provision that exists in both the Clean Water Act
7:31
Speaker 5: and the Clean Air Act. And so there was a
7:33
Speaker 5: lot of discussion around with Kavanaugh around, isn't this just
7:39
Speaker 5: an example of interstate, indeed global pollution, which is the province,
7:45
Speaker 5: as he said, of Congress, of the federal government, not
7:48
Speaker 5: the states. He did acknowledge that in the Ouellette case,
7:52
Speaker 5: you know, the court, the Supreme Court did say that
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Speaker 5: source state of pollution is not preempted. But affected state
8:01
Speaker 5: law is preempted. And he likened Colorado to Vermont, which
8:07
Speaker 5: was the state involved in the Ouellette case, and said,
8:10
Speaker 5: isn't Colorado just like Vermont? And therefore, Colorado's law is preempted.
8:15
Speaker 5: He got a positive response. from Mr. Russell at that point.
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Speaker 5: I think he should have been more guarded in the
8:22
Speaker 5: way he answered it. That was a trap question, and
8:25
Speaker 5: he didn't handle it very well. He just readily conceded that, yeah,
8:28
Speaker 5: Colorado's law is preempted. What he should have said, but
8:32
Speaker 5: not Colorado's consumer protection law, which is what this case
8:35
Speaker 5: is about. So missed opportunities, I would say.
8:39
Speaker 2: Kavanaugh said we don't have to reinvent the wheel. Was
8:42
Speaker 2: there anyone interested else who stood out as much? Well,
8:45
Speaker 2: not as much as Kavanaugh, but who stood out?
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Speaker 5: Well, you know, Kagan was also asking hard questions of
8:52
Speaker 5: both sides. She started off saying, you've got your theories
8:57
Speaker 5: jumbled up here. You know, you're arguing on the one
9:01
Speaker 5: hand that there's this extraterritorial doctrine, right, which says that
9:06
Speaker 5: states basically can't export their laws, their domestic laws, to
9:11
Speaker 5: other states and certainly not to other nations of the world.
9:14
Speaker 5: So she was saying, on the one hand, you're arguing
9:16
Speaker 5: extraterritorial restrictions, but then when you're pressed on where in
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Speaker 5: the Constitution is there a text that supports the way
9:26
Speaker 5: you're interpreting it, then they shifted to, well, but it's
9:29
Speaker 5: the Clean Air Act that preempts. So she called them
9:32
Speaker 5: out on being inconsistent in their arguments. But then on
9:36
Speaker 5: the other hand, When it came to Mr. Russell's time,
9:40
Speaker 5: she pressed him on, but isn't this case really a
9:44
Speaker 5: pollution case? And aren't we really talking about whether or
9:47
Speaker 5: not the Clean Air Act is the source of whatever
9:53
Speaker 5: remedies that anybody has, because it is so comprehensive, so pervasive.
9:59
Speaker 5: She didn't make the argument. of field preemption, which I
10:02
Speaker 5: thought she might do, but she didn't go that far.
10:04
Speaker 5: But she certainly, at least she gave Russell the opportunity
10:10
Speaker 5: to say, no, this isn't a pollution case. Or if
10:14
Speaker 5: it is a pollution case, here's why Colorado still has
10:17
Speaker 5: the right to do what it's doing. So, You know,
10:20
Speaker 5: she pressed both sides, hard to read. Sotomayor's pretty clearly
10:24
Speaker 5: reading in favor of Boulder. Justice Jackson, I would say,
10:28
Speaker 5: is probably pretty clearly in favor of Boulder. When it
10:32
Speaker 5: comes to Roberts and Barrett and even Gorsuch, harder to
10:36
Speaker 5: figure out. They asked a lot of different questions, probing
10:40
Speaker 5: different theories. So, you know, it's still impossible to read
10:44
Speaker 5: how this is going to come down.
10:46
Speaker 2: Coming up next, we'll continue this conversation. Justice Samuel Alito
10:51
Speaker 2: recused himself from the case. How that might affect the outcome.
10:57
Speaker 2: I'm June Grosso, and you're listening to Bloomberg. At the
11:02
Speaker 2: first oral arguments of the new term, the Supreme Court's
11:06
Speaker 2: justices wrestle with whether to allow state and local lawsuits
11:10
Speaker 2: blaming oil companies for climate change to go forward. The
11:14
Speaker 2: suit by the city of Boulder, Colorado, is the latest
11:18
Speaker 2: in the efforts to use litigation to hold energy companies
11:22
Speaker 2: accountable for climate change. The companies are operating at a
11:27
Speaker 2: disadvantage because conservative Justice Samuel Alito decided to recuse himself
11:33
Speaker 2: from the case last week because of his wife's stock holdings.
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Speaker 2: That means the clash could end in a 4-4 split.
11:42
Speaker 2: I've been talking to environmental law professor Pat Parenteau of
11:46
Speaker 2: the Vermont Law and Graduate School. Pat, tell us what
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Speaker 2: a 4-4 split means for Boulder and the oil companies here.
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Speaker 5: That's a really important point. So, you know, 4-4 and
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Speaker 5: Boulder wins. And I can see a 4-4 here. I
12:00
Speaker 5: can actually see that. I can also see the court
12:04
Speaker 5: backing up on the jurisdictional question. That came up a
12:07
Speaker 5: number of times. You know, that's a hyper technical question
12:10
Speaker 5: of whether what the Colorado Supreme Court did was an
12:15
Speaker 5: original action. in the Colorado Supreme Court, which is what
12:20
Speaker 5: the oil companies are arguing? Or was it simply an
12:23
Speaker 5: appeal of the lower court's ruling, denying a motion to dismiss?
12:28
Speaker 5: So there is a really hyper-technical question. Does the Supreme
12:32
Speaker 5: Court actually have jurisdiction in this case? But there's enough
12:36
Speaker 5: ambiguity in that for the court to say, you know what?
12:39
Speaker 5: We're not going to reach a really thorny constitutional question
12:44
Speaker 5: with huge implications for state law on this kind of
12:48
Speaker 5: a record. You know, it came up repeatedly that the
12:52
Speaker 5: companies still have a bunch of defenses. You know, nobody's
12:56
Speaker 5: actually won a judgment against them yet, and they may
12:59
Speaker 5: never will because there are very serious causation challenges. There's
13:04
Speaker 5: personal jurisdiction defenses and so forth. So, you know, it
13:08
Speaker 5: may well be that cooler heads prevail and And they say,
13:12
Speaker 5: you know what? We don't have to decide this right now.
13:16
Speaker 5: I know the companies are complaining about having spent all
13:19
Speaker 5: this money on their lawyers. We've never used that as
13:22
Speaker 5: a reason to reach constitutional issues like this. So maybe
13:26
Speaker 5: the court will come to its senses, in my view,
13:29
Speaker 5: and say, let's hold our hand on this.
13:31
Speaker 2: Justice Jackson was the one who said that this is
13:34
Speaker 2: premature from the standpoint of this court exercising its jurisdiction.
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Speaker 2: And I think Justice Sotomayor brought up all the arguments
13:41
Speaker 2: that you were just mentioning, what they still have to
13:43
Speaker 2: litigate here.
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Speaker 5: Yeah, I mean, that's the point is, why jump in
13:48
Speaker 5: now when the companies may win these cases? So, you know,
13:53
Speaker 5: all this talk about bankruptcy and the floodgate of other
13:57
Speaker 5: lawsuits and so on and so forth. Yeah, well... Maybe.
14:01
Speaker 5: But we don't rule on maybe in the Supreme Court.
14:06
Speaker 2: There were several justices who talked about the fact that
14:09
Speaker 2: they were concerned about this flood of climate change lawsuits
14:14
Speaker 2: if they rule for Boulder here. So the chief justice said, presumably,
14:17
Speaker 2: if you prevail, the next day, a municipality in every
14:21
Speaker 2: single state will file a lawsuit that will probably copy
14:25
Speaker 2: your pleadings. How do you think that would work out
14:27
Speaker 2: on the ground?
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Speaker 5: Yeah, well, how do you think that will work out
14:31
Speaker 5: in all the red states which have intervened in this
14:36
Speaker 5: case to say there is no basis for state law?
14:39
Speaker 5: That's 27 states for Crown Out Loud. So, you know,
14:44
Speaker 5: and the Republican-led states have enacted immunity laws to protect
14:49
Speaker 5: the companies from even being sued. So, no, I don't
14:53
Speaker 5: see a 50-state avalanche. These are expensive cases. If anything...
14:58
Speaker 5: And frankly, a number of these cases have lost. I
15:01
Speaker 5: think the tally right now, the companies have won nine
15:06
Speaker 5: dismissals of these cases in various state courts. So it's
15:10
Speaker 5: not true that this is a highway to bankruptcy for
15:16
Speaker 5: all these companies. By no stretch of the imagination can
15:19
Speaker 5: the companies say, you know, we're going to lose all
15:22
Speaker 5: these cases.
15:23
Speaker 2: So we've talked before about how the Trump administration is
15:28
Speaker 2: saying now that it's not within the EPA's authority to
15:32
Speaker 2: regulate greenhouse gas. And Justice Gorsuch mentioned that. Should that
15:37
Speaker 2: have played a bigger part in this argument?
15:40
Speaker 5: Well, I was listening for more of that. There was
15:44
Speaker 5: just two questions. Barrett also asked a question on that
15:47
Speaker 5: same issue. But, you know, I think it was Kagan, perhaps,
15:51
Speaker 5: when that came up. said, well, we're not going to
15:55
Speaker 5: be deciding that issue as to whether or not EPA
15:59
Speaker 5: has authority. You know, that case is in litigation. It
16:03
Speaker 5: may get to us, but we're not going to make
16:04
Speaker 5: that decision. I think that's exactly right. I don't know
16:07
Speaker 5: how they can decide, you know, whether what EPA is
16:11
Speaker 5: doing to renounce its authority to regulate greenhouse gases plays
16:16
Speaker 5: into this case. This case is already complicated enough without
16:20
Speaker 5: introducing yet another lawsuit and complicated issues. So I don't
16:24
Speaker 5: think that's going to factor heavily in the outcome now.
16:28
Speaker 2: I mean, do you think they could make a decision
16:30
Speaker 2: that accepts certain of the claims, but not others? I mean,
16:34
Speaker 2: do you think they could chop it up that way?
16:35
Speaker 5: Yeah, I mean, you know, Gorsuch basically said, he asked
16:40
Speaker 5: the question, you know, before the Clean Air Act was enacted,
16:45
Speaker 5: what governed interstate pollution? And the answer was federal common law.
16:49
Speaker 5: So he did suggest that obliquely, I would say, that
16:54
Speaker 5: if it's true that EPA doesn't have authority because the
16:59
Speaker 5: Clean Air Act doesn't authorize EPA to regulate these emissions,
17:04
Speaker 5: would that actually bring federal common law back into play?
17:08
Speaker 5: So a tantalizing question for sure, but again, one that's
17:13
Speaker 5: not going to be decided in this case.
17:16
Speaker 2: What's your answer to what Kavanaugh said, how, you know,
17:19
Speaker 2: those four cases... answer this question.
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Speaker 5: I would acknowledge that those cases are relevant, particularly Ouellette,
17:30
Speaker 5: and that it's a complicated question of if the Clean
17:35
Speaker 5: Air Act preserves source state law, but allows affected states
17:44
Speaker 5: to use source state law to recover damages, right, in
17:50
Speaker 5: state court, What would be the source state? And I
17:54
Speaker 5: think it was Jackson who asked the question, what is Colorado?
17:59
Speaker 5: Is Colorado a source state? And she made the point
18:02
Speaker 5: was there's these fiendishly complicated factual questions, right, that haven't
18:08
Speaker 5: been answered. There's no record, no trial on any of
18:11
Speaker 5: this yet, right? So that is a complicated calculation. If
18:16
Speaker 5: you agree that this is an emissions case, or at
18:19
Speaker 5: least part of it, is an emissions case. And if
18:22
Speaker 5: you agree that the Clean Air Act does preempt affected
18:27
Speaker 5: state law, how does the court figure out what is
18:31
Speaker 5: the source state law for a pollutant like greenhouse gases, carbon,
18:37
Speaker 5: which is ubiquitous, for which there's no single source state,
18:42
Speaker 5: you know? That's a real, I would have to say
18:45
Speaker 5: that's a real serious problem with the way Our laws
18:50
Speaker 5: are structured and the way that the courts have to
18:53
Speaker 5: figure out, you know, what is the choice of law?
18:55
Speaker 5: That came up repeatedly as well. So that's really what
18:59
Speaker 5: this comes down to is, okay, so maybe Colorado, maybe
19:03
Speaker 5: Boulder has a claim, but what's the law to apply
19:07
Speaker 5: to that claim? What's the choice of law to apply
19:10
Speaker 5: to that claim? I'm not sure how to answer that
19:13
Speaker 5: one because it's brand new. You know, this is a
19:15
Speaker 5: further extension of, of the Ouellette case and other cases
19:19
Speaker 5: that Kavanaugh has cited, none of those cases answers this question,
19:25
Speaker 5: what would be the source state?
19:27
Speaker 2: So you mentioned Justice Kagan analogized this to the efforts
19:33
Speaker 2: to sue tobacco and opioid companies, saying that those were
19:37
Speaker 2: chapters one and two, and this is chapter three. Do
19:40
Speaker 2: you agree with that? Is this analogous?
19:43
Speaker 5: Oh, I think it is in terms of, once again,
19:46
Speaker 5: What's the case about? You know, the oil companies are
19:49
Speaker 5: trying to say it's about emissions. Boulder is saying it's
19:53
Speaker 5: about deception. And so Kagan's point is exactly right. What
19:57
Speaker 5: was at issue in both tobacco and opioids? Deception, misrepresentation, lying, fraud.
20:06
Speaker 5: And that was the core of those cases. Yeah, There
20:09
Speaker 5: was arguments about do cigarettes actually kill people? But the
20:13
Speaker 5: core of the tort that was alleged was deception. So
20:18
Speaker 5: that's it. If you see this case through the lens
20:21
Speaker 5: of deception, there's no preemption, no possibility of preemption, not
20:26
Speaker 5: in the Constitution, not in the statutes. There's no text,
20:31
Speaker 5: no source of authority that would say states are precluded
20:37
Speaker 5: from bringing people consumer fraud cases. But if you see
20:40
Speaker 5: this through the lens that Kavanaugh has, no, this is
20:45
Speaker 5: an emissions case. This is an attempt to backdoor regulation
20:49
Speaker 5: of emissions or cap them or prevent them or whatever.
20:53
Speaker 5: So if you see the world that way, which he does,
20:57
Speaker 5: then the oil companies win. If you see that the
21:00
Speaker 5: way Kagan was framing it, then Boulder wins. There you go.
21:04
Speaker 2: It might actually be unfair of me to ask you
21:07
Speaker 2: this question in this case because the oral arguments were
21:11
Speaker 2: all over the place. But do you have a feel
21:14
Speaker 2: for how this may turn out?
21:16
Speaker 5: I don't. But here's what I think may happen. I
21:19
Speaker 5: think the court is not going to make a decision
21:21
Speaker 5: on the merits. I think the court is going to
21:24
Speaker 5: stay its hand and say, let's let this case play out.
21:29
Speaker 5: And when we have a full record that's been tested
21:32
Speaker 5: by trial and has gone through the appeals process and
21:35
Speaker 5: all of the defense's that the companies have, have all
21:38
Speaker 5: been vetted and tested in trial, then we can decide
21:43
Speaker 5: these more thorny constitutional questions if we're inclined to do that.
21:48
Speaker 2: So why would they have taken the case then?
21:51
Speaker 5: I think they took it because they did think there
21:53
Speaker 5: were five to rule in favor of the companies, and
21:56
Speaker 5: now maybe they're not so sure.
21:57
Speaker 2: I don't know what could be sure after those arguments.
22:00
Speaker 4: Wow.
22:01
Speaker 2: But you helped to make it clearer, Pat. Thanks so much.
22:04
Speaker 2: That's Professor Pat Parenteau of the Vermont Law and Graduate School.
22:10
Speaker 2: Courts across the country have been wrestling with the increased
22:14
Speaker 2: use by attorneys of generative AI in their legal filings.
22:19
Speaker 2: Often it's about bad citations or quotes of prior case law.
22:24
Speaker 2: In fact, over the past few months, federal courts have
22:27
Speaker 2: warned or sanctioned attorneys in biased bankruptcy and Justice Department cases. Well,
22:34
Speaker 2: now California has enacted first-in-the-nation legislation to regulate attorneys' use
22:41
Speaker 2: of generative artificial intelligence tools in their work. Joining me
22:45
Speaker 2: is Jeff Lewis of Jeff Lewis Law. Jeff, start by
22:49
Speaker 2: telling us about how courts have been dealing with the
22:53
Speaker 2: problems of attorneys using AI.
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Speaker 1: Well, the problems are when lawyers who don't particularly understand
23:00
Speaker 1: the limits of AI are are using tools, sometimes the
23:04
Speaker 1: publicly available free tools like ChatGBT, to research and draft
23:10
Speaker 1: legal briefs and then submitting those legal briefs without sufficient
23:14
Speaker 1: checking to make sure the cases aren't hallucinated and that
23:17
Speaker 1: the briefs follow California law. That's a big problem right now.
23:22
Speaker 2: I'm surprised when you see so many instances where lawyers
23:25
Speaker 2: are not checking sites. I mean, that seems to be
23:28
Speaker 2: a very basic thing. concept that you give the court
23:32
Speaker 2: the right site to the case.
23:34
Speaker 1: Absolutely. And that you won't be making up cases or
23:37
Speaker 1: even if it's a real case, this is a problem.
23:40
Speaker 1: Lawyers are citing real cases, but for propositions or quotes
23:45
Speaker 1: that don't appear anywhere in the case, it's a huge problem.
23:48
Speaker 1: And courts have kind of a hodgepodge of responses right now.
23:51
Speaker 1: You see federal courts banning AI outright. And then you
23:56
Speaker 1: see state courts doing a variety of things from imposing
23:59
Speaker 1: monetary sanctions to reporting to the state bar to letting
24:02
Speaker 1: people off with a warning. This new law we're going
24:05
Speaker 1: to talk about brings a little bit of uniformity in
24:07
Speaker 1: terms of how courts are supposed to rein in this
24:10
Speaker 1: unchecked use of AI.
24:11
Speaker 2: And so why has California singled out lawyers? I mean,
24:14
Speaker 2: there's a lot of misuse of AI.
24:16
Speaker 1: Well, California has a tradition of being on the leading
24:19
Speaker 1: edge of passing laws in the area of tech. It
24:22
Speaker 1: was the first state in the nation to for example,
24:25
Speaker 1: to pass an anti-SLAPP law. It's not surprising that California
24:28
Speaker 1: is on the edge of this particular law. And lawyers
24:32
Speaker 1: are the most visible in terms of publicly available acts
24:36
Speaker 1: of misconduct. When you make a citation in a brief,
24:40
Speaker 1: your opponent knows it, the court knows it, and it's
24:42
Speaker 1: public documents in terms of being sanctioned. So it's very
24:45
Speaker 1: much in the news.
24:46
Speaker 2: Okay, so tell us about this new law.
24:49
Speaker 1: Yeah, so the new law is SB 574, and it's
24:51
Speaker 1: got four components. Two of them are not really controversial,
24:55
Speaker 1: don't merit much discussion, but two are controversial. The first
24:59
Speaker 1: thing the law does, it says, hey, all lawyers have
25:02
Speaker 1: a duty of confidentiality. When you have a client's personal information,
25:07
Speaker 1: like financial records, bank records, health records, you can't load
25:11
Speaker 1: it to general artificial intelligence that doesn't have sufficient confidentiality
25:17
Speaker 1: restrictions in it. Meaning, the only person who should be
25:20
Speaker 1: able to access that data are lawyers, or people who
25:23
Speaker 1: have contracts with the lawyers that respect confidentiality obligations. Some
25:29
Speaker 1: AI tools will train its AI data on the prompts
25:34
Speaker 1: and the data that have been uploaded by lawyers. That
25:37
Speaker 1: is against the law now or effective January 1st. That's
25:40
Speaker 1: the first component of this law. Not terribly controversial. This
25:44
Speaker 1: is already things that lawyers are aware of in terms
25:47
Speaker 1: of obligations. The next component of the law pertains to
25:52
Speaker 1: delegation of law to AI. And this is nothing new.
25:55
Speaker 1: Existing law says a lawyer can't start a 1-800 number
25:59
Speaker 1: or a chat bot on their website and have the
26:02
Speaker 1: receptionist analyzing client data and giving out legal advice. That's
26:05
Speaker 1: the unauthorized practice of law. This is nothing new. The
26:08
Speaker 1: law clarifies, hey, in addition to not having a receptionist
26:12
Speaker 1: practice law, you can't use an AI bot without human intervention.
26:17
Speaker 1: analyze client information, and provide legal advice. Again, not controversial.
26:22
Speaker 1: But here's where we start getting controversial. The third thing
26:26
Speaker 1: this law provides is that arbitrators are no longer allowed
26:31
Speaker 1: to use artificial intelligence in any part of their decision making.
26:38
Speaker 1: And I say this is controversial because the AAA, one
26:42
Speaker 1: of the largest arbitration or alternative dispute resolution providers in
26:46
Speaker 1: the world, has been touting a pilot program offering in
26:50
Speaker 1: the construction law context, quote, fast, cost-effective dispute resolution powered
26:56
Speaker 1: by AI with final decisions issued by human arbitrators. That program,
27:01
Speaker 1: in my opinion, is jeopardized by this new law effective
27:05
Speaker 1: January 1st that says an arbitrator can't use AI as
27:09
Speaker 1: part of the decision-making. So that's a really big deal.
27:13
Speaker 2: Was this law hard to pass or easy to pass?
27:17
Speaker 1: I will say this, it kind of flew under the
27:19
Speaker 1: radar in terms of there wasn't much press about it beforehand.
27:24
Speaker 1: And the count in the assembly was 75 votes for
27:28
Speaker 1: and no against in the Senate, 44 and no against.
27:32
Speaker 1: So it passed pretty easily and quietly.
27:35
Speaker 2: What in the law is duplicative of already existing ethics rules?
27:41
Speaker 5: Yeah.
27:42
Speaker 1: So we covered one already. A lawyer has a duty
27:44
Speaker 1: of confidentiality. You can't leave private information laying around desk.
27:47
Speaker 1: You can't throw it up on Dropbox without protections. And
27:49
Speaker 1: now you can't load it up to AI in the
27:52
Speaker 1: cloud with some confidentiality protection. That's not really groundbreaking. And
27:57
Speaker 1: the fourth component of the law we haven't talked about
27:59
Speaker 1: yet kind of has some overlap with existing law. Existing
28:02
Speaker 1: law says when a lawyer signs a brief and hands
28:05
Speaker 1: it to a judge, that lawyer certifying that all of
28:09
Speaker 1: the factual and legal positions are reasonable and are made
28:12
Speaker 1: in good faith. And what this new law does is
28:15
Speaker 1: it extends it a bit and says, hey, you lawyer,
28:18
Speaker 1: when you hand this brief over to the court, you
28:21
Speaker 1: are certifying that you have read every citation, both to
28:24
Speaker 1: the law and to the facts. And if you haven't
28:28
Speaker 1: read that, or if you're found to have violated that duty,
28:31
Speaker 1: you could be sanctioned by court.
28:34
Speaker 2: What parts of this law do you think lawyers will
28:36
Speaker 2: find hardest to comply with?
28:39
Speaker 1: Well, I'll say this. The most controversial part of this
28:42
Speaker 1: law isn't so much what it forbids doing, but what
28:45
Speaker 1: it requires lawyers to do in terms of disclosure. Because
28:51
Speaker 1: from now on, starting January 1st, when a lawyer uses
28:54
Speaker 1: artificial intelligence in connection with a brief, that lawyer has
28:58
Speaker 1: to disclose to the court and the parties, hey, I
29:01
Speaker 1: used artificial intelligence. Now, most lawyers would agree that there's
29:05
Speaker 1: nothing controversial about disclosing that when you've used AI to
29:08
Speaker 1: generate the text in a brief. But the wording of
29:11
Speaker 1: this new law is broader. It says lawyers must disclose
29:16
Speaker 1: the use of generative artificial intelligence to the court for
29:19
Speaker 1: all documents submitted to the court. To me, when I
29:22
Speaker 1: read that language, it's much broader than hey, I use
29:25
Speaker 1: ChatGVT to draft my brief. It is, let's say I
29:28
Speaker 1: go to Google and I do a quick search about
29:30
Speaker 1: what a law means and the top search result is
29:33
Speaker 1: an AI generated text by Google. And I have read
29:38
Speaker 1: that and I don't quote it but now I've used
29:41
Speaker 1: it in connection with my brief. I have to disclose
29:43
Speaker 1: that use of Google's AI.
29:45
Speaker 2: Do you think most lawyers use AI these days?
29:47
Speaker 1: Most lawyers are using some form of AI. Now, Westlaw
29:51
Speaker 1: and Lexis, the biggest legal research providers in the nation,
29:54
Speaker 1: They have AI products which are not as robust as
29:58
Speaker 1: Claude or ChatGBT, but most lawyers are using either the
30:02
Speaker 1: traditional legal research products with an AI component or branching
30:06
Speaker 1: out and using Claude. And I'll go a step further.
30:09
Speaker 1: I think most lawyers have a duty to become aware
30:12
Speaker 1: of these tools and incorporate these tools responsibly in order
30:16
Speaker 1: to fulfill their duty of competence to be a lawyer
30:19
Speaker 1: who can provide legal services to the public.
30:21
Speaker 2: This law will weigh most heavily on which? Big firms
30:25
Speaker 2: or solo practitioners?
30:28
Speaker 1: This law is not going to impact big law that
30:30
Speaker 1: much because big, large law firms are already using the
30:33
Speaker 1: largest providers of AI that have the highest degree of
30:38
Speaker 1: confidentiality provisions. And so you're not going to see much
30:43
Speaker 1: change in the way big law uses AI. It is
30:47
Speaker 1: going to hurt the little guy. Some small firms will
30:50
Speaker 1: use the publicly available free versions of ChatGPT. that doesn't
30:54
Speaker 1: have any confidentiality provisions or that will train on a
30:58
Speaker 1: lawyer data, which is a huge violation of the duty
31:00
Speaker 1: of confidentiality already. But this law confirms lawyers should not
31:05
Speaker 1: be doing that.
31:06
Speaker 2: Yeah, I was surprised that in one case, at least,
31:09
Speaker 2: a judge scolded a Justice Department lawyer for using AI
31:13
Speaker 2: and coming up with a non-existent appeals court case. You
31:17
Speaker 2: would think that the Justice Department has... Not only higher standards,
31:21
Speaker 2: but more people checking.
31:24
Speaker 1: Yeah, look, there are a number of AI tools or
31:27
Speaker 1: even non-AI tools, but computer tools that could be used
31:31
Speaker 1: to easily identify the fake cases, the made up cases.
31:35
Speaker 1: The harder point is using those tools to find before
31:38
Speaker 1: filing a brief that cites a case for a quote
31:42
Speaker 1: that doesn't exist or a legal principle that doesn't exist.
31:45
Speaker 1: But you're right. the government and most firms should employ
31:48
Speaker 1: these tools and read these cases personally.
31:51
Speaker 2: What do you recommend that firms do before this goes
31:54
Speaker 2: into effect on January 1st?
31:57
Speaker 1: Well, four things. First, if you don't have an AI
32:00
Speaker 1: policy yet, you better get one by January 1st, that
32:03
Speaker 1: in writing, that employees sign, both lawyers and non-lawyers, suggesting
32:08
Speaker 1: what the firm's policy is regarding AI. That's number one.
32:11
Speaker 1: Number two, lawyers need to Educate members of the firm
32:16
Speaker 1: about the difference between traditional legal research using Westlaw and
32:20
Speaker 1: the use of generative artificial intelligence. Third, educate members of
32:25
Speaker 1: the bar, the lawyers, that when they sign a brief,
32:28
Speaker 1: it is now their bar card on the line if
32:31
Speaker 1: they haven't read each citation. They won't be able to
32:34
Speaker 1: go to court when they're caught with a fake case
32:36
Speaker 1: and say, well, it's my paralegal or my secretary. That
32:39
Speaker 1: excuse is not going to fly. And then finally, making
32:43
Speaker 1: sure that every brief that's submitted in state court has
32:48
Speaker 1: a footnote or certificate disclosing the use of artificial intelligence
32:52
Speaker 1: as required.
32:53
Speaker 3: By this new law.
32:54
Speaker 2: Do you think that other states are going to follow
32:57
Speaker 2: California's lead?
32:59
Speaker 1: I think other states are going to wait and see
33:00
Speaker 1: how this is implemented after January 1st to see if
33:04
Speaker 1: there's any hiccups in terms of the broad language employed
33:08
Speaker 1: in the statute. I will say some federal courts have
33:10
Speaker 1: already impose local rules saying you just can't use it,
33:14
Speaker 1: or you have to disclose what parts of your brief
33:17
Speaker 1: have used AI and what parts haven't, which is effectively
33:20
Speaker 1: a ban on AI. Because if you have to do that,
33:23
Speaker 1: you might as well just write the brief yourself.
33:24
Speaker 2: Your First Amendment lawyer, is there a First Amendment issue here?
33:28
Speaker 1: Yes and no. This is not a content-based restriction by
33:31
Speaker 1: the government. The government's not saying you can't say this
33:34
Speaker 1: and you can't say that. But in terms of the
33:36
Speaker 1: disclosure of whether or not you've used AI, there are
33:41
Speaker 1: First Amendment implications anytime the government is compelling speech or
33:45
Speaker 1: compelling a disclosure. But I think given the grave risks
33:48
Speaker 1: to the public associated with lawyers misusing AI and the
33:53
Speaker 1: harm to the courts of misusing AI, that any court
33:57
Speaker 1: challenge to this law would survive First Amendment muster.
34:00
Speaker 2: And what about people who are representing themselves? How does
34:04
Speaker 2: the law apply to them?
34:05
Speaker 1: The law does not apply with the same force and
34:08
Speaker 1: effect to improper parties. Improper parties are given a little
34:12
Speaker 1: bit more latitude in terms of whether or not they're
34:15
Speaker 1: going to be sanctioned for not reading a fake case.
34:19
Speaker 1: The law is a little more, let's just say, gray
34:21
Speaker 1: in terms of improper. So it does provide a little
34:24
Speaker 1: bit of an uneven playing field for lawyers who are
34:26
Speaker 1: in litigation against improper parties.
34:29
Speaker 2: That's all coming up January 1st in California. Thanks so much, Jeff.
34:33
Speaker 2: That's Jeff Lewis of Jeff Lewis Law. And that's it
34:37
Speaker 2: for this edition of the Bloomberg Law Show. Remember, you
34:40
Speaker 2: can always get the latest legal news on our Bloomberg
34:42
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34:46
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34:55
Speaker 2: Wall Street time. I'm June Grosso, and you're listening to Bloomberg.