Legal market overview in United States
2018 was an interesting year on the appellate side of the US judicial system.
From a practical perspective, the total number of cases filed fell by 2%, according to statistics provided by the Chief Justice of the United States. However, the Administrative Office of the United States Courts reported that the Seventh Circuit and the DC Circuit have heard the highest number of oral arguments in the course of the last fiscal year — respectively, 55% and 45% of competitive proceedings involved oral arguments. An identifiable tendency in this regard is that, over the years, there has been a gradual drop in the number of cases decided on the merits which have involved an oral stage — arguments were held in only 20% of the cases in federal appeals courts nationwide. This decline has prompted legal commentators to express polarized opinions regarding the elimination of oral arguments in courts of appeals altogether — either pointing out potential benefits stemming from this diminished role of oral arguments (such as maximizing efficiency, decreasing costs, etc.), or voicing concern over potentially negative consequences (such as decreasing billing rates, less efficient client representation, and fewer opportunities to provide training to appellate advocates).
At the US Supreme Court, the workload remained virtually the same, with an increase of merely ten filings compared to the preceding term. The focus this year was elsewhere, as the Court underwent significant structural changes, which became a focal point of intense international debate. First, following the announcement of Justice Anthony Kennedy’s retirement, 9 October 2018 marked the first official day on the bench for Justice Brett Kavanaugh, who had previously spent 12 years of service on the DC Circuit; however, Kavanaugh’s elevation to the US Supreme Court was surrounded by controversy due to sexual assault allegations. Another occurrence to note was Justice Ruth Bader Ginsburg’s absence for oral arguments in January and February 2019, which marked the first time that Ginsburg had missed an oral argument in her 25 years on the bench.
The legal market was equally tumultuous, with significant reshuffles at several litigation powerhouses. January 2019 saw the move of Kannon K. Shanmugam (the only practitioner to have joined Williams & Connolly LLP as a lateral partner in 32 years) to Paul, Weiss, Rifkind, Wharton & Garrison LLP. In February, following a career in both government service and private practice (most recently with Arnold & Porter), Lisa Blatt took over Shanmugam’s role as practice leader and re-joined Williams & Connolly LLP, where she started as an associate decades ago. Nicole Saharsky is now a practice co-head at Mayer Brown, while Allyson Ho left Morgan, Lewis & Bockius LLP for the Dallas office of Gibson, Dunn & Crutcher LLP.
This increased market movement, as well as the decision of Paul, Weiss, Rifkind, Wharton & Garrison LLP, among others, to open an appellate practice, signal another trend which has been persisting on the US legal market for more than a decade now: the need for appellate specialization. Lawyers have noted that both law firms and clients appreciate the value that a dedicated appellate practice adds to a firm. Firms in particular have realized that an efficient appellate practice affords a competitive advantage that goes far beyond simply burnishing a firm’s litigation reputation. Moreover, clients are willing to pay more for greater confidence in reaching a favorable outcome at appeal, and are increasingly looking to engage appellate specialists early on to develop a strategy for the trial courts and agency proceedings, especially when potential issues may need to be preserved for appellate review.
Of the many trends observed in the international litigation space, the most notable are perhaps in relation to cybersecurity and data protection disputes, which are expected to rise across all industry sectors. Further, financial services litigation, particularly securities litigation, has remained a wellspring of complex high-value disputes. In this context, class actions against financial institutions have been especially prevalent.
The international arbitration space has seen a profound shift in investor-state disputes settlements (ISDS) with the landmark Achmea ruling calling into question the legality of intra-EU investment treaties, and ultimately concluding that it is incompatible with EU law. At the time of publication, it remains uncertain whether future arbitration will be conducted under this new design.
In addition, although concrete action has yet to be taken, the future of NAFTA is at least slightly precarious. As the tripartite trade agreement has one of the historical drivers of international arbitration in the US, market onlookers will look closely indeed at the future of trade arbitration between the US and its neighbors to the north and south.
International trade lawyers have been busier than ever in 2018/19 as they advise clients on the ramifications and impact of a fairly forthright protectionist trade policy, courtesy of the Trump administration. On the trade remedies front, China is a prime target. Following a formal investigation in 2017 into its intellectual property practices, the Trump administration imposed billions of dollars of tariffs on Chinese goods, with Beijing responding in kind. Despite a current impasse in the ‘trade war’, with both countries locked in talks from December 2018 until March 2019, this trade antagonism has led to a huge flow of work for trade lawyers acting either for petitioners, or respondents seeking to challenge the fairness of the duties imposed on imports.
However, it is not only China that has been targeted; the EU, Canada and a multitude of other conventional trading allies have been impacted by a policy which has delved back into the archives to utilize rarely used legislation to achieve its aims. In particular, the weaponization of Section 232 of the Trade Expansion Act of 1962 – a measure that ‘authorizes the President of the United States, through tariffs or other means, to adjust the imports of goods or materials from other countries if it deems the quantity or circumstances surrounding those imports to threaten national security’ – has drawn scrutiny from many, and opprobrium from some. Consequently, following a Department of Commerce investigation, tariffs were imposed on both steel and aluminum imports. This has led to a significant amount of work for international trade lawyers, not just on the litigation front, but also in terms of policy – with companies impacted by the tariffs, either directly or through the supply chain, seeking a variety of exclusions.
On the sanctions and export controls front, the US government’s unilateral withdrawal from the Joint Comprehensive Plan of Action with Iran (“the Iran nuclear deal”) in May 2018 had huge ramifications on the global trade landscape. The nature of the US government’s withdrawal has created significant uncertainties in the market, particularly in relation to foreign companies without a US nexus, which had re-entered the Iranian market following the signing of the original plan in July 2015. Secondary sanctions – namely those economic restrictions designed to inhibit non-US citizens and companies abroad from doing business with a target of primary US sanctions – are proving especially problematic for internationally operating corporates.
Indeed, there has been open discontent from major trading partners and allies, who resent the perceived intrusion on their trading sovereignty, particularly in light of the Iranian government’s apparent compliance with the terms of the original deal. Although solutions have been suggested (such as the EU’s proposal to create SPVs that would facilitate non-dollar trade with Iran and circumvent US sanctions) in reality, the threat of economic retaliation by the US has effectively smothered any willingness to continue economic relationships with Iran.
The international trade ranking covers all elements of the market from trade remedies and WTO disputes, to economic sanctions, export controls compliance and enforcement, and trade policy advice. Most of the firms in the ranking have a presence in Washington DC, reflective of the need to be close to the seat of government and the key regulators, as much of the work in this space involves policy as much as pure legal work.
Many of the prominent firms in this practice area are staffed with numerous lawyers holding former high-ranking governmental positions, not only enabling them to have greater insight into the inner workings of the Hill, but also affording them significant credibility before the agencies. While by no means essential, a global footprint can also be beneficial to clients, particularly in matters involving both an EU and US regulatory component. Certainly for WTO litigation, a Geneva office provides a significant advantage, as does an office in Brussels for EU trade policy matters.
Domestically, judges in Delaware, where the vast majority of M&A-related litigation takes place, have made efforts to reduce the number of disclosure-only settlements going through the court system. These cases challenge deals seeking extra disclosure and a fee for the plaintiff lawyer but are regarded as having little merit. Following judgment in the Trulia case, disclosure-only cases have often come up in a different form and in different fora – usually as securities cases in federal court – but are essentially the same deal-related matters.
As a result, the number of challenges to M&A deals, or to their valuation, has remained fairly constant, and most public M&A transactions of more than $100m in value still give rise to lawsuits. Cases under Section 14 of the 1934 Act (which allege that proxy materials are insufficient) are increasingly prevalent, as are Section 220 books and records requests. The Delaware courts remain just as busy, and two more judges have been added, bringing the number of Vice Chancellors to seven.
Courts have also been looking closely at appraisal cases that challenge the price at which an M&A transaction was concluded. These post-closing cases could generate income for appraisal arbitrage funds, which would challenge a deal’s price and earn interest at the discount rate plus 5% regardless of the court’s decision on fair value and could potentially make further gains if the original deal price is judged to be too low. The slow death of such cases may have been signalled in the Dell and DFC cases, which caused Delaware to look closely at this issue. Now, the prevailing attitude is that if a company ran a robust and transparent deal process, then the court will defer to the deal price.
Another case that will have on-going impact involved German healthcare company Fresenius, which the Delaware Court of Chancery ruled was justified in cancelling its agreement to acquire Akorn, Inc. for $4.8bn. This decision could bring more cases citing material adverse change as a reason for terminating a deal.
Among the firms active in M&A litigation, the plaintiff side is characterised by firms that bring fewer cases, but are known for being selective about highly meritorious cases; Bernstein Litowitz Berger & Grossmann LLP and Grant & Eisenhofer P.A. are among them. On the other hand, firms such as Robbins Geller Rudman & Dowd LLP file a higher number of cases and are ever-present in the market.
On the defense side, many of the large New York firms, including Paul, Weiss, Rifkind, Wharton & Garrison LLP, Skadden, Arps, Slate, Meagher & Flom LLP and Wachtell, Lipton, Rosen & Katz are still the most prominent players, partly due to their impressive corporate client rosters. Delware-based firms like Morris, Nichols, Arsht & Tunnell LLP, Richards, Layton & Finger, P.A. and, increasingly, smaller firm Ross Aronstam & Moritz LLP, are the local counsel of choice for national defense firms.
The business litigation market has not seen any kind of cataclysmic shift, but by and large firms reported another busy year for commercial disputes in 2018. Accounting for the continued activity are areas that have been dominating the litigation landscape for several years: consumer class actions, antitrust litigation and data privacy issues, to name a few. Trade secrets disputes are also on the rise, while breach of contract and business tort disputes are the bread and butter for many litigation departments.
With so many commercial contracts now including arbitration clauses, there are concerns that the art of trial advocacy is being lost – an issue particularly for the younger generation of lawyers. Compounding this is the fact that many companies do not feel comfortable entrusting their high-stakes disputes to less experienced attorneys, meaning that courtroom experience is harder to obtain. Recognizing the critical importance of trial-readiness, many firms have intensive training and development programs for their associates.
Meanwhile, litigation funding is also starting to impact the commercial litigation market. Law firms and clients have become increasingly comfortable with the use of third-party funding, and sophisticated financial institutions are eyeing the substantial returns that litigation funders are making; some law firms expect to see more hedge funds dedicated to litigation funding in the near future.
Firms have also seen the #metoo movement having a trickle-down effect on general business litigation. Indeed, sexual harassment allegations and other allegations of improper workplace conduct are being brought both as standalone suit and also in the context of larger litigation.
In securities litigation, the era of mega-cases is over for now, as the financial crisis litigation has all but played out. While no single trend dominates the market, as mortgage-backed securities cases once did, there are pockets of activity involving financial benchmark rates or complex financial instruments such as credit default swaps, interest rate swaps and stock lending. There has also been a rise in cases filed against non-US entities, and a shift away from class actions towards opt-out cases and direct actions, as large institutions seek larger recoveries than could be had in a class action.
Growth in these areas has, to some extent, counteracted the dip in the number of securities class actions that is normally associated with a healthy stock market, though growing volatility has recently brought an uptick in 10b5 stockdrop cases, as plaintiffs see an opportunity to look for fraud or market manipulation. In addition, event-driven cases in industries such as pharmaceuticals or technology, and a rising number of IPO-related cases are keeping both defense and plaintiff firms busy. Another feature of the market is the growing number of securities cases arising from corporate governance issues including whistleblower claims and charges of sexual harassment against directors and officers, as well as breaches of cybersecurity and data privacy.
Overall, the number of federal securities class actions continued at near-record levels in 2018, with 403 filed compared to 413 in 2017. The number of filings against technology and communications companies rose last year, and nine cases were filed that related to initial coin offerings or cryptocurrencies.
The wave of private litigation and regulatory enforcement actions that has flooded the market for almost a decade since the financial crisis, most notably relating to the mis-selling of toxic mortgage-backed securities (MBS), has largely come to an end. One of the major current financial services market trends concerns antitrust-related matters, from the perspective of both collusion among financial services entities regarding financial benchmarks and boycott-type matters seeking to discourage competition from other platforms for swaps trading (for example in the interest rate swap market).
In the retail market, the relative inactivity of consumer finance watchdog the Consumer Financial Protection Bureau (CFPB) has been offset somewhat by an increased appetite by state attorneys general, as well as increased activity by the Federal Trade Commission (FTC), to pursue cases against financial services entities across a range of matters, including, inter alia, as they relate to student loans and marketing and privacy issues in the fintech space.
Financial services litigators will also be closely watching the impact within the sector of the Democrats’ midterm election victories. Some commentators have suggested that the increased scrutiny and investigations proposed by the Democratic Party, if successfully instituted, will lead to a flurry of potential private litigation class actions.
Firms at the top of the financial services litigation ranking demonstrate a strong and overarching capability across a wide range of disputes impacting the industry, and have the expertise to handle both the government agency enforcement actions and investigations, as well as the private litigation which invariably follows in its wake. Although firms are active throughout the US, New York remains the primary location for this work.
In the investigatory and regulatory space, white-collar enforcement agencies have been continually losing personnel to private practice across the board. As a result, lawyers are reporting that there are fewer investigations and far fewer enforcement actions in the pipeline. The relevant regulatory agencies are still being kept afloat by career professionals, but their activities have become much slower and more diffuse.
Although former Attorney General Jeff Sessions presided over a period of relative continuity with the Obama administration, before he resigned in November 2018, attorneys note that the focus of enforcement had started to shift towards the Trump administration’s priorities, such as immigration, opioids and a significantly altered civil rights agenda – issues that are not the traditional work of white-collar lawyers.
In addition, with more limited human resources, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have been taking a lighter touch, for instance reflecting Deputy Attorney General Rod Rosenstein’s advice that monitorships should be used less frequently and in a more targeted manner. Where in previous eras, the Foreign Corrupt Practices Act (FCPA) might have been applied to the behaviour of US companies abroad, it is now being applied mainly to foreign companies with exposure in the US. In the False Claims Act space, the Granston memo, issued by the Director of the Fraud Section at the DOJ, urges prosecutors to more actively dismiss qui tam whistleblower cases. That being said, increased cooperation among international regulators does still provide a steady flow of anti-corruption and anti-bribery work, even if matters are enforced abroad.
There are a number of issues to look out for going forward. Some practitioners are hopeful that the confirmation of the new Attorney General, William Barr (who re-joined the government from Kirkland & Ellis LLP in what was 2019’s biggest team move), might bring about a period of renewal at the DOJ. Barr is an institutionalist and his appointment is likely to draw talented lawyers back into government, restarting enforcement activity and shifting the department back to its more traditional priorities. There might also be a new focus on sanctions and criminal cases relating to international trade flowing from President Trump’s international trade and foreign policy objectives. Also of note, following victories for the Democrats in the 2018 midterm elections, lawyers are expecting an increase in congressional investigations, with many reporting pre-emptive instructions from corporate and individual clients in relation to an array of issues, including general business practices and environmental matters.
This year, we have added e-discovery to the US guide. A relative new-comer to the field of law, it has steadily developed from the early 2000s into a sophisticated area of practice, crossing the boundary between technology and advocacy. This evolution has been driven by cost, a need to catch-up with advances in the way people use communications technologies, evolving e-discovery techniques, data privacy laws and a concerted effort by e-discovery practitioners to educate the judiciary on these advances, through publications and the establishment of authoritative industry think tanks at Georgetown and Sedona.