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Y'all Street Law Podcast is your home of everything Texas Business Law!
Brian [00:02:15]:
The Scale LLP Yalls Street Law Podcast is intended to be your go to podcast for legal and business developments in the state of Texas. You'll stay informed about the latest developments that impact your business, plus get insights on market trends and strategies tailored to the Texas landscape. We also share actual case studies of local businesses and provide expert insights from our Texas based attorneys. Yall Street Law is here to help you thrive in the Lone Star State. You can find more about Yall street law content@www.scalefirm.com y'all street also linked in our bio. Now let's get into today's topics.
Chuck [00:03:04]:
Hey Chuck, welcome to 2025.
Brian [00:03:07]:
It's a whirlwind. I can't believe we're already a couple of weeks in, but the year ended, ended with a bang. Lots going on, I think lots of high profile news. We had an election in November and then flash forward to now, we're in early January. We've got flurry of executive orders coming out.
Chuck [00:03:33]:
We're so many two and a half.
Brian [00:03:35]:
Days into the Trump administration officially. And it's great to be back with you recording another y'allstreet episode. I think the theme for this one is a bit of reflection on 2024. Thinking about legal developments, thinking about things impacting our practices at AT scale and across Texas generally. And then maybe a bit of prognostication about 2025.
Chuck [00:04:00]:
A little bit look forward. That might be, might be difficult, but we'll see what we get.
Brian [00:04:05]:
Yeah, exactly. So we, we already recorded one episode speaking about the Texas Business courts.
Chuck [00:04:13]:
Yeah.
Brian [00:04:14]:
Was very popular.
Chuck [00:04:16]:
Yes. It's a blockbuster episode.
Brian [00:04:18]:
Right.
Chuck [00:04:19]:
Go check it out if you haven't heard it yet.
Brian [00:04:21]:
Exactly.
Chuck [00:04:21]:
That's a great one on all your.
Brian [00:04:26]:
Podcast, streaming channels, Spotify, Apple Podcast, etc. So let's do this. Let's spitfire a little bit back and forth some of the top stories. When you think about 2024 and things that clients called about, what's one that comes to your mind?
Chuck [00:04:50]:
Yeah, well, I mean I'll start with the Texas Business Courts. Right. Just to recap that.
Brian [00:04:54]:
Right.
Chuck [00:04:54]:
It's a, it's a major development for the state of Texas. It's a. And it's one that, you know, my clients do care about. They're in front of district courts all the time. And you know, we've had mixed results quite frankly. And the creation of the Texas Business Court allows a more focused attention to be put on corporate governance issues, shareholder issues and to streamline and also take care of the more high value dollar value cases to take it out of the same stream of work that judges are faced with every day dealing with family law matters and criminal matters and other things that, that clog up the docket. So it's a welcome change. We're still very, very new to it. I'll say that A number of the early cases that were filed once the court opened in September, there was a slow trickle, but cases were filed in the business court. But a lot of them were attempting to move cases that already existed on dockets into the business court as a more potentially advantageous venue. But those have largely been rejected because the rules are really allowed just for new cases starting in September going forward. Interesting. But lots of creative lawyers try to fit them in. Shoehorn these existing cases in so good for them.
Brian [00:06:27]:
For are there any data points on speed of adjudication in the new court versus the existing evidence?
Chuck [00:06:35]:
Yeah, not yet. It's a, it, it's nothing has been resolved yet as far as I know. So it's, we're still only a couple months into it, so it's a wait and see but it's a step in the right direction.
Brian [00:06:47]:
Right.
Chuck [00:06:47]:
If and what we talked about on the earlier episode was, you know, is this going to turn into a Delaware transferred court with a reputation and being able to handle the cases and therefore attract businesses to, to the state of Texas that want to have a, a set of law that they can rely on for precedent will way, way too early to determine whether that's going to happen or not. But it's at least the building block is there.
Brian [00:07:17]:
Yeah, I think that's right. And one of the things we talked about in that first episode, one of the issues I think the legislature was trying to correct by requiring written decisions from the new Texas business court is is development of that body of case law. If you just compare the tboc, the Texas Business Organization's Code Annotated versus the VGCL or General Corporation Law, there's just so much more, so many more published decisions that help interpret, give factual nuance to the flexibility of those statutes. And for better or for worse, that just doesn't exist in the state of Texas yet.
Chuck [00:08:01]:
Yeah, for worse, I would say for sure. Because there's no way to rely on past decisions right now until you get to the appellate level. And so many cases don't get there having those written opinions at the probable level. Right.
Brian [00:08:18]:
I think we'll talk about one of those decisions maybe a little bit later. There's certainly been lots of chatter on social media and Law review articles about conflicted controller transactions and Mr. Musk and all of that.
Chuck [00:08:35]:
Right, right. Yeah. Well, let's. What do you got? What was your highlight for 2024?
Brian [00:08:41]:
Well, I don't know highlight, but I think something that consumed a lot of airspace that we can talk about this. There's been a slew of big pending federal regulations that a lot of clients have had to prepare for. And then, you know, at the 11th hour, just before implementation, a court intervenes and the statute is stopped. And there's, you know, three, at least two versions of that that occurred in 2024. One was the FTC nationwide ban on non competes, which through some Texas legislation. Sorry, through Texas Litigation, Ryan llc, you know, that was, that was stopped just before implementation nationwide, some 30 million non competes based on data that would have been just voided across the country. And that that legislation was found to be beyond the rulemaking authority of the ftc. I think the other one that all of us were texting about over the Christmas holiday break was Corporate Transparency Act. And what in the world happened? And it's paused and then it's not paused and then it's paused again. We spent lots of time counseling clients throughout the year about getting ready for this. If you were an entity organized before January 1, 2024, you had a deadline of January 1, 2025 to file. And all of a sudden, in December, it's all put on hold.
Chuck [00:10:26]:
Yeah. Daily upcheck, checking on the FinCEN website to see, do I file? Do I not file? Right. And that was quite, quite unusual. I think the. Let's go back to the. To not compete. Then if you could be. Here's, you know, there's a lot of debate about that. When it, when it came out, the rule were released and, you know, you can say what we want about, you know, federal rulemaking and how it trickles down to affect state law and things like that. But you know, just ultimately, like, I'm dealing with a client right now who is a small business.
Brian [00:10:59]:
Right.
Chuck [00:10:59]:
And a key employee walked out the door with a customer list and formulations. Right. And this is a situation where there was no. They didn't have a written employment agreement and that information just walked away. And it's really, it's really impacting the old business and there's nothing they can do about it. There are situations where, you know, non competes make sense and they can protect small businesses, they can save jobs, they can make sure that valuable intellectual property just doesn't walk away. Right. So in the face of that My clients are saying, well, what do we do now? Right? Like, what if, if the trend keeps going toward let's ban non competes. And that seems to be the sea change. What do we do? Right. And it's a, it's a great question.
Brian [00:11:49]:
Yeah, it's a great question. You know, and I think one of the touch points for that is some of the data that came out from the FTC as they were putting forward this rulemaking included some extreme examples of, I would say, incorrect or inappropriate beyond reasonable use of non competes. And it included putting them in place at hair salons or putting them in place at sandwich shops so that you can't, you can't go work for another sandwich shop. My advice to clients has been that, look, the non compete, non compete is a bit of a blunt instrument and I still think it makes a lot of sense in the sale of business. You're walking away, you receive a large payment and you're leaving a sphere where you have lots of context and influence. But even if this ban were implemented, it did not do away with the ability of the company to protect confidential information, to protect trade secrets, to prevent soliciting employees. It really was more narrow in just prohibiting a non compete, which, you know, we can get into the details, but is really a contractual promise that. In which you do not have to prove damages. Right. You do not have to prove harm, you do not have to prove an inappropriate theft, you just have to prove breach of contract. You promised you wouldn't do X, you have done X. And so I think there's some nuance to it that business owners can be comforted by. Even in a world where, or a state, for example, state of Minnesota or state of California, where non competes are not allowed. It's not as though you're completely unprotected.
Chuck [00:13:40]:
Yeah, but for sure, I think though, it does raise the cost of doing business.
Brian [00:13:46]:
Right.
Chuck [00:13:46]:
Because they, you've got to be much more vigilant than about your information and who has access to it. And you know, locking down, setting different permission levels on, on hard drives, it just, it just, you know, it adds a layer of complexity to small business that I think goes without, I don't, I don't know that that's all often considered in rule making.
Brian [00:14:06]:
Right.
Chuck [00:14:06]:
Is how does this, like, we know we want to preserve jobs and we want to let the hair salon worker, you know, go and preserve their ability to work at another place without any interference. But, you know, what are the, what are the additional burdens that it places on the business? Right. So it's just. We'll see how it plays out.
Brian [00:14:26]:
Yeah, I think that's exactly right. When you raise, you raise valid concerns. I think just the, the compliance, the compliance cost is high. Yeah. It's just different in one world versus the other. Even if you have the non compete, you still need to go and enforce it. Who have enforced both a non compete and enforced an equitable remedy would find enforcing the non compete can be a little bit easier, but that you can't ignore the examples where it's been abused by employers, unfortunately.
Chuck [00:15:03]:
So do you want to move to the Corporate Transparency Act?
Brian [00:15:06]:
Sure.
Chuck [00:15:07]:
So here's my take on that. Right. The problem we've got here is everybody's got to register their beneficial ownership. In theory, that seems to make sense. Right. But then there's 22 categories of exemptions. Right. So it's like who has the biggest lobbyists and got themselves exempted from the requirement. Right. So it just smacks of unfairness. Even if you are somebody who supports the idea that everybody should register and put their names on a list and identify all the beneficial owners. Talking about a blunt instrument. If the real purpose behind the rule was to ferret out fraud and those types of things, you know, getting every, every single, every like, you know, small family LLC that has a piece of property or something, that's just not going to do it. It just seems like a totally misdirected way to get around the problem. Yeah, that's exactly right.
Brian [00:16:11]:
Massive exemptions for public companies, for regulated industries or large employers. And you filter all that away. You, you were literally left with property owning LLCs, homeowners associations, volunteer organizations. And you know, there was, there, yeah, there seemed to be an exemption for everyone who could afford to hire a lobbyist.
Chuck [00:16:38]:
And that's what it seems.
Brian [00:16:40]:
And not exemptions for everybody else.
Chuck [00:16:41]:
Yeah.
Brian [00:16:43]:
So look, I think ultimately, you know, there's, there's still multiple cases and some varying decisions on cta. It seems like that one is headed from the fifth Circuit to the US Supreme Court. And there's some strong, passionate arguments on, on both sides of it. I think just, you know, as we said at the outset, we just had an election. The wind seems to be blowing pretty hard in the face of federal rulemaking. I would, if I had to predict, I would say that that's a challenging law to uphold, just given the way the wind is blowing right now. But we'll see.
Chuck [00:17:25]:
Well, it puts the spotlight on the really small businesses and adds, if nothing else, administrative burden for them. Right. And subjects small businesses across the country to fines and punishments if they don't comply. Right. Which is contrary to. I think what the new administration wants to do would be pro small business and economy that way. But I think I would take issue, though, with, with the idea that the new administration may, may not be as, as, I mean, there's, on day one, Trump released whatever 200 executive orders. Right. That's rulemaking. Right. This rulemaking from the top. And he's not holding back and he's, he's doing it right away and issuing these orders. So I think there's going to be continued robust federal government rulemaking in 2025. And I think it's going to, it's just going to be a different flavor.
Brian [00:18:20]:
Right.
Chuck [00:18:20]:
It's going to be, you know, the MAGA Trump flavor, not what we had before.
Brian [00:18:27]:
Yeah, I think that's a fair comment for sure. You know, it leads to the other, the other topic that I lumped under the idea of sort of judicial curtailment of federal rulemaking, which is the demise of the Chevron doctrine or the Chevron deference, which I think that decision came out. That's a monumental decision that we haven't even begun to see the broader implications of that. So we should talk about that a little bit, too.
Chuck [00:18:59]:
Yeah, I think the, these are. I, I don't have any doubt that the, that the Chevron doctrine will not be as impactful as people are saying it will be. Right. Here's, here's a, here's my theory on this. Right. Right now, courts have the, you know, up until this, the ruling courts would give deference to agency rulemaking. Okay. That, that's, now it's not going to stop agencies from making rules, and it's not going to stop courts from, from looking to agencies and rulemaking. All it's going to do is sort of shift around the emphasis that we put on the different components of the, of these cases as they go in front of courts. Right. What I fear.
Brian [00:19:53]:
Right.
Chuck [00:19:53]:
Is that it's going to shift, you know, more to judicial rulemaking, judicial interpretation. Right. And then you've got an access to justice, access to courts issue where if you have the, you know, the biggest war chest and can afford to litigate.
Brian [00:20:09]:
Issues, we're going to be, we're going.
Chuck [00:20:10]:
To be having rulemaking through litigation.
Brian [00:20:12]:
Yeah.
Chuck [00:20:13]:
And that's, and we've already seen that it exists now. I just think it's going to happen more. Right.
Brian [00:20:18]:
Yeah.
Chuck [00:20:19]:
But I just don't know that. Interesting, your take on it. But I just think all we're doing is shifting the pieces on the chessboard and not really making any red.
Brian [00:20:31]:
Yeah, I think that's right. You're still going to have new legislation proposed. I think now there's less deference, obviously, which is the core of that decision. There's less deference to the agency where there's ambiguity and look, that's where our litigation colleagues operate. Right. Is in the ambiguity and space between. In the space between the statutory language. So I think on that point, you're right that we're just shifting the type of argument.
Chuck [00:21:08]:
Yeah, I think that, I think the, you know, the big money, you know, went. Has gone to influence rulemaking at the agency level.
Brian [00:21:16]:
Right.
Chuck [00:21:16]:
I think now it's going to. The big money is going to shift.
Brian [00:21:18]:
To influence rulemaking.
Chuck [00:21:21]:
In the courts and that's. The same money is going to be there that's going to still influence the same rulemaking. Just going to change the focus.
Brian [00:21:29]:
Yeah, I think, I think that's right. One of the, you know, one of the prognostications for 2025 coming out of that, as I advise clients that particularly have to report publicly SEC rulemaking, there's been on the docket now for years. Lots of proposed rulemaking around climate risk disclosure. You saw the SEC sort of finalize rules, then lose a couple of cases and have those rules paused. I think it's just going to create even more uncertainty similar to the CTA uncertainty. Do I comply? Do I not comply? Should I do this voluntarily? Should I not?
Chuck [00:22:11]:
So I don't think the.
Brian [00:22:13]:
I don't think the landscape has gotten any easier to navigate.
Chuck [00:22:19]:
No, that's for sure. And I think that's one of the truths in this industry. I'm not sure that's going to change every time soon. Yeah, that's right.
Brian [00:22:27]:
Okay. So we talked about Texas business courts, number one. Number two, we talked about these issues of the judicial curtailment of federal rulemaking. What else would you throw on the list?
Chuck [00:22:42]:
I think the, you know, close to home. I think that there's been a lot of change in the overall economy for Texas.
Brian [00:22:52]:
Right.
Chuck [00:22:52]:
We've seen massive movement of over the last several years, especially since the pandemic. But even last year, more and more companies relocating headquarters. I think there are some high profile examples of that, but lots of small businesses as well. So that's continuing to add to a robustness of the Texas economy and it's providing headwind for Texas to take leadership.
Brian [00:23:22]:
Positions on a number of issues.
Chuck [00:23:23]:
So we see, you know, a lot of these national Issues have Texas roots on them. Right. So I think that's, that's one, one thing that happened last year that we should continue to see this year.
Brian [00:23:39]:
Well, certainly. Right. There's, there's lots of excitement, lots of enthusiasm about it. It is also bringing, it's bringing complexity too.
Chuck [00:23:48]:
Right.
Brian [00:23:48]:
Some of these large relocations are straining some of the local municipalities. There's, there's moratoriums on building permits in some of the northern suburbs. You just can't get infrastructure in soon enough. There are, there are bond issues where, where cities and counties are trying to get financing to expand infrastructure to meet the demand and facing, facing challenge because the body of citizens there isn't. Growth is great until you have to pay for it.
Chuck [00:24:26]:
Right.
Brian [00:24:27]:
And so we've seen pushback against increased taxes to pay for some of the services that are needed.
Chuck [00:24:37]:
Well, I mean, on that property taxes in Texas is a perennial topic that maybe never go away. Right. And that's the pressure to do more with the same pool of funds, you know, is, is always, is always a topic in, in Austin and how do you, you know, and then the temptation to, to increase taxes at the same time you've got to push to lower or even eliminate property tax and taxes. That's happening this year, but it's always talked about, it's a nice topic to think about.
Brian [00:25:11]:
Yeah. Certainly differentiator to, to not have any state income tax, but property tax, property tax makes, makes up for it most certainly. Yeah. So I guess a couple of other topics on, on the issue of, you know, sexist being sort of a magnet, drawing a bunch of attention and drawing a bunch of business. One, One of the other things that we saw was the, the announcement of the Texas Stock Exchange, which is, which is exciting, which has still some unanswered questions about, you know, can, can the stock exchange, you know, actually take some of the business, you know, move it from New York down. We're still at this point waiting for their listening roles to be announced. They, they've said in press release that, that they will have higher standards than New York and nasdaq. In fact, I don't, I don't remember the exact statistic because it's some percentage of currently listed NYSE and NASDAQ companies wouldn't qualify under the rules they're contemplating. So that was interesting. I think the other, the other thing though that they, they highlighted in their stats is they're really focused on that southeast quadrant of the United states and some 14,000 companies by their account that are private equity backed. Where an exit to go public via.
Chuck [00:26:46]:
The stock exchange would be something you.
Brian [00:26:50]:
Would encourage companies to look at.
Chuck [00:26:52]:
Yeah, and that's one of the interesting things to me about the text that proposed, I guess because it's not here yet, but the text stock exchange is that it in itself is private Equity backed. Right. BlackRock and others. Right. And that's a little bit different from the other exchanges that we have that were originally membership based and then became publicly traded. Right. So this is a different. So I think that this is setting up to be a private equity focused exchange. Right. Would be a vehicle to exit those investments. Have. Do you what. Do you hear any buzz with your clients about the socket change? Is anybody looking forward to taking advantage of it at this time or what's the word?
Brian [00:27:38]:
Well, I think one of the themes that has come through in conversations I've been part of, you know, as you know, I do a bunch of work across border between Canada and the U.S. particularly Alberta and Texas. And there's certainly a view that there's subject matter expertise that, that Texas could particularly bring in terms of being a place for energy companies to, to find supportive capital. So that's, that's an interesting one. You know, it's highly regulated space, there's unique rules around, around reserve evaluations and things like that. And so you could potentially see part of the play being to attract energy companies. You saw in Canada, for example, the Toronto Stock Exchange is known around the world as being a great exchange for energy companies, whether that's traditional energy or alternative energy and newer forms of energy, just because there's a subject matter expertise among the brokers that participate there and the market makers. So I think there's some potential to, to do that same sort of thing in Texas.
Chuck [00:28:49]:
So do you hear any. I mean, this seems to me that like we've got a great economy set up our own stock exchange. Is this feeding into the Texas movement? You know, the secessionist idea of, you know, we should, we should do things on our own?
Brian [00:29:04]:
I don't, I don't think so personally. I think it's, you know, it's, it's just another demonstration that the Texas economy is very diverse and there's enough demand here. Why, why can't we provide some of these solutions ourselves? So I think that's, that's the main driver. I don't know that it's necessarily, you know, secessionist sort of thing.
Chuck [00:29:33]:
Well, I think for the, the proof is going to be, you know, in, in the rulemaking and the, the quality of companies that they're able to attract for for listings. I I expected last time I heard they were expecting to open listings this year in 2025. Is that still.
Brian [00:29:50]:
Yeah, that's still the plan we had. They originally said that the initial filing would be made with the SEC before the end of the year. When I checked the other day, that's now the move to Q1 25. They're still saying they expect to to have their first listings later this calendar year. So I think, pardon, part of what I'll be watching for is what's the critical mass coming out the gate. You certainly don't want to be the one company listed. So I'm expecting that there's some background work being done to line up a series of initial listings to sort of fill the pipeline and it'll be interesting to see how those initial however many companies come out or whatever products come out. Will will there.
Chuck [00:30:39]:
We'll have to do a revisit and do a deep dive when the the guidelines get posted and take a look at closer look at the Tech Stock Exchange as it comes along.
Brian [00:30:51]:
Yeah, we'll do that for sure. You know, one of the other things that we saw, I don't remember if this was in 2024 calendar year or maybe launched in 23, but there was the launch of a Texas based ETF by one of the local financial firms. And last time I looked it was, I think it was performing pretty well but I think that's just another, another bellwether for the Texas economy. And for those that want to want to bet on that economy, there's now bespoke ETF that represents those public businesses.
Brian [00:31:28]:
This podcast is brought to you by Scale llp, a distributed national law firm that's been called the wave of the future by Reuters. Scale is a revolutionary distributed law firm that offers a fresh alternative to traditional practices. By leveraging cutting edge technology and a flexible structure, Scale empowers attorneys with a more satisfying and lucrative career and delivers efficient, efficient connected legal solutions for clients. To keep up with how Scale LLP supports clients with its tech driven approach, check out the website linked in our podcast bio.
Brian [00:32:11]:
Okay, so yeah so we had, we had the, the launch of Texas Stock Exchange. We talked about talked about relocations. What else on the theme of the Texas economy?
Chuck [00:32:24]:
Well, I mean there are a couple of, couple of new rules as it relates to real estate. I think that this isn't just a Texas thing but it's a, the brokers are not permitted to advertise at splits anymore on yamls systems. Right that's caused some, some consternation in the, in the, in the, in the residential market for sure. Right. And, and this is, you know, it adds complexity to what's already a difficult residential real estate economy where you've got people who are locked into these mortgages that they took out, you know, at 2% and the interest rate environment is much different. So they're locked in, they don't want.
Brian [00:33:10]:
To move, so it's frozen.
Chuck [00:33:11]:
They. Exposing the market to a certain extent. The change in the, in the, in the rules for how brokers split fees isn't, you know, a fundamental issue. It can be it's going to get negotiated on a case by case basis and it'll work out, but it just adds that one more layer of complexity to what's already a difficult situation, but one that, you know, we can continue to see markets in, in pockets around Texas are continuing to, to perform quite well in, in real estate.
Brian [00:33:52]:
Right.
Chuck [00:33:52]:
And values are holding. But the question is, will it continue to hold? How interest rates play out over, over 2025. I don't have any crystal ball there, but it's a, certainly it goes hand in hand with growing the pump.
Brian [00:34:06]:
Yeah, I think that's right. I think certainly the real estate agents I've spoken to, you know, sort of any, anytime you get a big settlement or big decision like this, you know, everybody has to go back to the drawing board and figure out what are the, what are the ripples, both the immediate, immediate changes, but then how is the market going to settle out after this? And I think one of the, one of the themes that also plays into this is just the availability of information, the availability of individuals to access valuation on their smartphone, to list your own home directly and sort of the taking of those services which used to be all bundled together and other service providers coming in and offering, offering pieces of that service. Basically, you know, as I understand it now, the buyer can, can or has to negotiate with their agent about levels of compensation. And that's a conversation that buyers either didn't have the opportunity or didn't have the requirement to have previously. If I'm, if I'm following sort of the rough implication of, of that, of that settlement is now that fee to the buyer's agent is separately negotiated.
Chuck [00:35:34]:
Yeah. And the theory is that it should have a positive effect on price because it's not a guaranteed percentage of the sale anymore. Right. It can be done on an hourly basis or a flat fee or whatever you negotiate. And the idea was that this would then allow prices to Come down because we could take that 3% split, we could take that off the price, but of course prices never come down. Right. That's not going to happen.
Brian [00:36:08]:
Yeah, that's exactly right. So I think it remains to be seen what the unintended consequences of that decision will be. Yeah, yeah. So that's, that's real estate. What else, what else do we have in the, in the state of Texas? Looking back on 24.
Chuck [00:36:31]:
So we, last year we passed the, or enacted the Texas Privacy Act. Right, Right. So it brings Texas in line with a growing number of states who have passed comprehensive price laws. Right. Texas didn't make any gold moves here. It's just putting itself in the same playing field again on the theme of increasing the cost of doing business. It certainly does that. But arguably most Texas businesses are probably already required to apply with the CCPA of California or the GDPR based on.
Brian [00:37:08]:
Where we're doing business.
Chuck [00:37:10]:
So this, so this is, this, this is, was, from my perspective, it was a MeToo legislation. Well, not in that sense, but it was, it was a follow on legislation that caught up Texas to where everybody else is and says that we're going to have the same, the same privacy rules and protections that other states have. A couple of things we don't. There's no private right of action. So you know, it won't clog up the court system and things like that. But it's a, we'll see what, what type of long term action has. But Texas certainly wasn't the leader in this. So yeah, at least it's caught up to where it should be.
Brian [00:37:51]:
Yeah, I think, I think that the general view is that states like California were leading on those issues in terms of data privacy. Certainly involved in a lot more conversations now. I'm sure we'll talk about it. But just, you know, AI everything was another one of the themes for this year. And obviously data and privacy, always a part of those conversations. I think 2024 was, was one of the years where certainly executive teams, boards, the topic of AI was making its way into every one of those conversations. I think that's going to continue in 2025 as well.
Chuck [00:38:40]:
Yeah, I think, you know, as it relates to Texas. Right. We got this new announcement from the Trump administration that they're going to do its big infrastructure stem focused on AI. Right. And I read in the press just this week about all the new data centers that are going up across Texas. Right. So I think it will have, continue to have an impact not only on the way that we do business Using artificial intelligence tools to enhance a lot of what we do, but also from the infrastructure and the build out and what that knowns for jobs and the continuing growing of the Texas economy, that's going to continue to be technology focused and AI focused.
Brian [00:39:29]:
Yeah, I think that's right. And this is another area where I'm following this story as it develops. Both in the state of Texas, but also in the province of Alberta. The provincial government up there has announced investing millions of dollars in building data centers in northern Alberta. And there's a couple of unique things about that location that makes it quite attractive. Number one, you have a naturally cool environment and cooling data centers. You know, there's a lot of, there's a lot of power that goes into keeping the processing cool. You have a natural ability to do that when it's minus 30. The other thing that's unique about it is they're locating these data centers literally on top of a large supply of natural gas produced energy. And so there's feedstock right there to do co generation to generate the electricity right there and feed the data centers. So that's very interesting. And I'm sure our colleagues that work for the governments in both Alberta and the state of Texas are collaborating and talking about those things. And I just love to see, love to see both jurisdictions kind of learn from each other and these things forward together. Yeah, absolutely.
Chuck [00:40:52]:
And you know, and I was talking about AI and our practice.
Brian [00:40:56]:
Right.
Chuck [00:40:57]:
I mean that's going to be, continue to be a big change there. Lots of tools are coming out.
Brian [00:41:02]:
Right.
Chuck [00:41:02]:
So you can't, can't go a day without a new AI tool being launched, mentioned, promoted. Right. I've adopted several in my practice so far using every day. But it's one that's going to continue to grow as we understand limitations and what the tools can and can't do and what you can rely on. But how has it impacted your practice so far?
Brian [00:41:26]:
Yeah, similarly, there's a number of ways that it's making me more efficient. I think we're delivering faster results. The clients, you probably see the same hand wringing on LinkedIn and elsewhere about it being the end of lawyers. I don't, I don't think that's true in the broadest sense. I do think it's bringing a lot of efficiency to practice and I think the, the types of things that, that you and I are spending our time on aren't, aren't degrading. I think if anything they're high grading and we're able because we leverage These tools to focus on real value add tasks and speeding up some of the. Some of the more administrative tasks.
Chuck [00:42:12]:
Right. If it gives us some time efficiency and allows us to do more in less time, then we have more time to do podcasts.
Brian [00:42:19]:
That's exactly right.
Chuck [00:42:20]:
Yeah.
Brian [00:42:21]:
And prognosticate about these things. I think at the end of the day, you know, we're being paid to deliver thoughtful advice and results. You certainly see the pressure from clients. There's even greater expectation that we can respond quickly. And I think in a lot of ways, these tools are allowing us to collaborate in more real time with clients. I think some of the solutions that are being brought forward as AI have really existed for a long time. Someone. Someone said they're like fancy mail merge. And look, fancy mail merge is not AI, but there's. There's certainly lots of focus on, on delivering things more efficiently, which is great.
Chuck [00:43:15]:
Yeah, yeah. Well, it's a. And then it presents a challenge in the legal industry for, you know, how, how these tools are used and, and you only think that might come up around it, particularly as it relates to attorney client privilege and other things. So these are all issues that will no doubt dominate 2025.
Brian [00:43:37]:
Yeah, I think that's exactly right. You know, we spent a bunch of time in 24 advising a couple of different companies that were leveraging AI tools to speed up service delivery. You know, one. One was in sort of a. The counseling space. Let's talk generically about it. But able to do work in sort of free screening, interviewing, organizing responses. You know, think. You know, years ago, this was walk into the doctor's office, and the first thing you have to do is fill out the form. Right. And that took some time. And then that information, which was written down in pen, needed to be transcribed and entered somewhere. And now that, now there's an ability to just capture that information conversationally and make it much more efficient, less potential for mistakes. But all along the way, we need to ensure its privacy. Others gave examples of. Remember when we were in school, Internet is just becoming a thing. I went to the library and I was told to do research by going to the. The card catalog and getting the coordinates for the book and then walking to the correct aisle and finding that book and then cracking it open and doing the research. And some of the teachers, professors, they didn't have a model to think about how that would possibly work. If I could just type the question into a search bar and get the answer. Technology changed all that. And I think in a lot of ways, what we're seeing with AI is, is another version of that step change. The way we access information is changing.
Chuck [00:45:25]:
Yeah, I agree with that. I think the, it's a, it's another, another step in the same direction. You know, the Internet didn't revolutionize everything on one hand, but then, you know, it didn't really change fundamentally. Things that we do just change how we do them. Right. I think AI is going to do the same thing. It's going to change. It's going to change a lot of how we do things first, and then we'll get to the more radical changes down the road. But I think in 2025, I think we're just going to embrace new tools that will give us new capabilities.
Brian [00:46:02]:
Yeah, I think that's right. And similar to what we experienced with the Internet, we quickly learned that not everything you could trust on the Internet was true. And still. Still. Yeah, still. Thanks. And you know, clearly, clearly people are jumping, getting to the same conclusion with respect to some of the AI models. Right. You know, some of the, some of the examples we're seeing people doing legal research, it. Giving citations to cases that are either incorrect or didn't exist. And so I think to add to your point, one of the themes we're going to see develop more in 2025 is sort of the proprietary large language models and how the usefulness of the tool is going to change a lot depending on the source of the data and the veracity of that data. And I think the, the proprietary nature of some of the data sets is going to be the real differentiator.
Chuck [00:47:04]:
Yeah, yeah, no doubt it's.
Brian [00:47:07]:
It'll be good.
Chuck [00:47:07]:
We got to get there. Let's go.
Brian [00:47:09]:
Yeah, exactly. So, shifting gears. What, at what point do you want to talk about. About Mr. Musk? We're a few minutes into, into this podcast and his name has barely come up, but certainly in Texas news, he's either the favored son or.
Chuck [00:47:34]:
Yeah. The pariah.
Brian [00:47:35]:
Or the pariah. Sure.
Chuck [00:47:37]:
It's a look. He's a personality, Right. But you got to deal with it. Musk has obviously he's done a lot. He added tremendously to the Texas colony and brought a huge number of jobs here and technologies. Right. So whether it's SpaceX or Tesla or the Optimus robot or whatever, he's doing so much. Right. So that's great. But it puts a spotlight like his. Call it corporate antics. Right. Put a spotlight on issues like corporate governance and domicile and things like that.
Brian [00:48:19]:
And that's been all over the news.
Chuck [00:48:20]:
And you And I are going to talk about equity on another presentation coming up. And it puts a spotlight on that as well in terms of how senior executives and very important key members of founders and key people and companies are compensated and what are the appropriate rules around that? Right. And you know, he had a dust up in Delaware.
Brian [00:48:48]:
We'll just say.
Chuck [00:48:49]:
Right. And we can go into some of the details there. But you know, the result is he redomiciled into Texas and that for me in my practice got ended up with a lot of phone calls from clients who say, should I do the same? Right, right. What, what does he know that we don't know?
Brian [00:49:11]:
Right.
Chuck [00:49:11]:
And what should we follow that?
Brian [00:49:13]:
What's your, what's your take? Yeah, I think, number one, more non Texas lawyers cracked open the Texas Business organization code this year, 2024, than probably ever before. Because one of the open questions and you're alluding to it, was, is anything different? You know, people were looking at that decision, the tremendous versus Musk decision, and they were armchair quarterbacking it or trying to draw conclusions about would this decision have been different in the state of Texas? And I think that'll continue to be debated and there's a whole lot there. We could spend an entire episode or two talking about it. I think for me, one of the takeaways is its, it's less about Delaware versus Texas and it's more about governance generally and how regardless of the jurisdiction you're in, process is important. And process really matters when you're granting equity or when you have a large shareholder who's, to use the term out of the case, a superstar CEO that has large influence.
Chuck [00:50:27]:
Yeah, yeah. I mean, it's about process. Right. And, and it really puts a spotlight for me on, on that, the, that we want to talk about these issues of executive compensation and equity, but really what we're talking about is a corporate governance issue. Right. And these aren't not just about, about paying people. It's not just about fundraising and getting money into your company. It's about, you know, how is this going company run under what rules? And are we, are we following those rules? And is everything appropriately documented? And that's going to need to happen in Texas anyway.
Brian [00:51:06]:
Yeah, that's exactly right. And I think one of the other things that you include about this case is you read, you read the decision and we'll get into it here. But you know, there's this, there's this heightened standard that applies if you have a conflicted controlling shareholder called entire fairness in Delaware. And if you end up in that box, number one, the burden shifts to you to prove that it's entirely fair and not just, not just in process, but in, in the substance. And I think there was, there was always going to be a very high bar just given the sheer magnitude of the number we were talking about here in terms of a 55 or $56 billion win. There were always going to be. Someone said, I don't care how much value you created, that's more money than was required. So it's a fascinating case from that perspective.
Chuck [00:52:07]:
Yeah. Not to get too deep into it, but the other part that was fascinating to me was the legal fees that were associated with it because the, the plaintiff's firm made a fee request for a $5 billion legal fee which got cut down by the court to only $350 million. Right. And the question is, is that fair? Right. And do those kinds of fee awards provide an incentive to plaintiffs firms to go find these plaintiffs and go create cases where whether.
Brian [00:52:43]:
Right, yeah, it's exactly right. It's exactly right. So I think, you know, the jury's still out on longer term impacts of that decision. I don't think from my perspective, you can't conclude that you would have necessarily had a different outcome if that had been tried under Texas, Texas statute, I think.
Chuck [00:53:08]:
Well, we can't tell how the Texas business courts would treat it because we don't have the precedent yet.
Brian [00:53:13]:
Right.
Chuck [00:53:14]:
So that's a good way to bring it right back to the beginning.
Brian [00:53:17]:
Yeah, that's exactly right. What else is on the list for 2024?
Chuck [00:53:23]:
I guess, you know, there was some, there was a dust up in the legislature. We had an impeachment of Ken Paxton. You know, the fallout of that, I think is a, you know, Texas business as usual. Right. It's nothing, Nothing really changes. You can, you can debate on both sides the, you know, the strength of the charges that were brought against them and the political motivations for doing it and all of those types of things. But at the end of the day, you know, it's a, it's, it's our, our elected officials spending time on, not Texas business. Right. Like we're not advancing the anything for the people of Texas and we're spending time focused on these other clear flow issues. So that was a, that took a big portion of the airwaves over the summer.
Brian [00:54:23]:
Yeah. I think another on that theme, another topic that, that I was involved in during the year that we saw a bunch in Texas is some of the time that parents and officials were spending on Books in public libraries and school libraries. Right. You had in the fall, it was Fort Worth isd, the delayed opening because there was some new Texas legislation that was requiring libraries to go in and inventory all their books. And there was a burden on publishers to categorize books and notify.
Chuck [00:55:08]:
What, what.
Brian [00:55:09]:
What was in the library or not. And you had these library administrators who were sort of stuck having to comply with this and no tools to be able to do it. Thankfully, there are technology solutions that are trying to sort of stand in the gap, not be partisan about the ultimate question of whether the book should be in or out of the library, but at least empower the decision makers to make informed decisions. So I think that's another area where technology is providing some solutions to these problems.
Chuck [00:55:45]:
Yeah. And it's, it's more than just books. Right. And libraries. It's also, you know, access to, to applications. The UT system, the university system banned TikTok or the federal government banned Tick tock.
Brian [00:55:59]:
Right.
Chuck [00:55:59]:
So had to uninstall it from all the, all the school computers and they blocked it. So it's a, you know, there are free speech implications obviously. Right. It's, it's access to information implications. And these are, these are the issues that I think should be more, more in focus.
Brian [00:56:20]:
Right. Is.
Chuck [00:56:23]:
What, you know, the fundamental issues of access to information and freedom of speech I think are much more important than, you know, just knee jerk banning of materials.
Brian [00:56:37]:
Yeah, I think that's exactly right. Another, another topic similar to that theme was there's a lot of controversy around the OpenAI organization in particular. Right. And they're sort of founding as a, as a not for profit organization proposal that they change their, their structure to be, to be a for profit organization and all the perils to be involved in that. So I think there's a convergence of a number of these topics. We've got governance and we've got information and privacy motivations and all of those things coming together.
Chuck [00:57:20]:
Yeah, yeah, we could do a. And maybe we will in future episodes really drill into corporate governance and how it impacted by all these different processes.
Brian [00:57:31]:
Yeah, exactly. Right. Well, prognostications for 2025.
Chuck [00:57:37]:
I'm gonna, I'm gonna go way out on a limb here. My hot take for 2025 is it's gonna be more the same. We got, we got, look, it's, it's a, it's. We got a brand new president who wants to make some bold changes. I think that's going to dominate the headlines for the next, you know, several months. If not all 20, 25. Right. 200 executive orders pass on the first day and at least a half a dozen lawsuits filed on the same day that were already written in the bag waiting for these executive orders to be enacted. Right. So the sides have, they're in their corners, they're ready to fight. And I think that's what.
Brian [00:58:17]:
Yeah, I think that's right. You've seen similar things. Again, coming back to my cross border practice, there's lots of conversations on the north side of the border about tariffs and the impact of tariffs and will they be implemented or not. It's providing some conversations nationally in Canada about reliance on the US Market and some of the infrastructure projects that were proposed and opposed by some, some of the eastern provinces. And now they're thinking we really put ourselves in a tough spot turning those down if our sole source of product is out of the United States. So perhaps a little bit more focus on some longer term decisions. And yeah, I say more of the same. It'll be interesting.
Chuck [00:59:14]:
There seems to be a leadership change of foot in Canada, right?
Brian [00:59:18]:
Yeah, that's right.
Chuck [00:59:19]:
So we'll see how that shakes out and what that means for Texas, I don't know, but it's a, you know, they're the Canada remains a very, you know, strong trading partner for the state of Texas.
Brian [00:59:32]:
Yeah, that's exactly right. Yeah. I think we're going to continue to see in 2025 businesses looking at, at the opportunities in the state of Texas. You do have, you have a very strong workforce. You have the ability to attract great people. You have some energy around it and we're just looking forward to it. To continue.
Brian [01:00:00]:
Thanks for tuning in to the Scale LLP Yall Street Law podcast. We hope you enjoyed today's episode and found it valuable. If you liked what you heard, don't forget to subscribe and leave us a review. For more insights and updates, visit www.scalefirm.com or follow us on LinkedIn. Until next time, we'll see y'all.