Does anything epitomize the current economic situation quite like the Twitter lawsuit against Elon Musk?
What started as a giant piece of M&A has hit the rocks and ended up in the courts. It’s exactly what the textbooks say should happen. As soon as deals slow down, disagreements grow.
There is no doubt that deals are slowing down. Global deal volumes in the first of the year fell 17%, while value fell 21%, according to data from Refinitiv. The second half of the year could be even quieter, and big law firms are noticing the difference.
Always a forward-looking indicator of corporate activity, they have begun to slow down their hiring activity in preparation. I recently heard of a US firm pulling out of a private equity hire in London because the sector had cooled in America.
The next question is whether other practice areas can effectively fill the transactional void.
An increase in disputes will be welcomed by law firm executives, given that these mandates can be so lucrative. Wachtell, Lipton, Rosen & Katz and Wilson Sonsini Goodrich & Rosati are advising Twitter, which argues that Musk has no good reason to back out of his $44 billion purchase. Hourly billing rates are likely to be more than $1,000 and, if the case goes the distance, the total legal bill is estimated to easily reach eight figures.
Granted, not all odds are this big, and there aren’t always enough big mandates to go around. Some even question the notion that litigation is truly countercyclical. One partner told me that he believes the litigation process is more non-cyclical, in that it is not really affected by market cycles. Another said there is an increase in disputes during the economic downturn, but this does not compensate for the decline in corporate income of law firms.
But let’s not forget that corporate collapses in recent decades have occurred in low-interest, low-inflation environments, allowing companies to more easily restructure debt and helping shareholders and investors absorb losses. Factor in the current rising interest rates and high inflationary environment and increased stress may mean that more parties feel the need to contest litigation. And those cases can be larger and last longer, leading to higher fees.
What everyone agrees on is that there is always a short-term spike in disputes as companies collapse and things start to deteriorate. Perhaps this is the phase we are entering now.
In the past week alone, a number of major disputes have progressed, each of which points to broader trends.
The latest development in the group’s actions came at a UK appeals court, where more than 200,000 claimants were given the green light to pursue compensation for damages caused by a devastating dam collapse at a BHP Group-owned mine in Brazil. There are so many developments in the classroom action space that it is difficult to keep up. Here’s a handy summary piece in case you missed it.
In Canada, local journalist Gail J. Cohen last week reported how a Toronto law firm is seeking a judicial review of the Canadian government’s decision to grant a special export permit, which it argues runs afoul of Canada’s sanctions regime. established after Russia invaded Ukraine. There may be many other similar disputes.
In Europe, Brussels correspondent Linda A. Thompson wrote a fascinating article about how three non-governmental organizations have sued a Dutch subsidiary of Air France KLM over the airline’s environmental claims. The case is significant because allegations of greenwashing are on the rise and lawyers say the claim against KLM should be seen as part of a wider trend.
The same lawyers add that enforcers are expected to begin cracking down on misleading environmental claims in advertising. And that’s not the only regulatory change that could lead to more legal battles.
One of Europe’s highest courts has given its blessing to a new merger control approach adopted by the European Commission aimed at curbing certain takeovers, particularly in the pharmaceutical and technology industries. And Canada’s government has amended its Competition Act, giving its authorities more teeth to tackle big tech companies like Amazon and Facebook. It’s probably safe to assume that the corporate giants will find ways to fight back.
In addition to all this, there is another area that can drive the growth of litigation. In the crypto world, which seems ripe for a series of fraud disputes, there is a potential glut of cases on the way.
China is the latest country to provide a key regulatory framework in its first case dealing with non-fungible tokens (NFTs) – and the copyright infringements they sometimes face. Legaltech News reporter Isha Marathe wrote that in its ruling, the Chinese court held NFT markets responsible for lax verification of copyright violations in its database, imposing stricter burdens on them than in e-commerce platforms.
Meanwhile, in the United Kingdom, a court has allowed a plaintiff to litigate through an NFT in a decision with potentially far-reaching implications. Crypto exchanges will follow the ruling ‘very closely’, according to a lawyer, and it paves the way for further litigation in the space. And this is not limited to the UK. Some now believe that other countries are likely to follow suit and allow blockchain-based legal proceedings.
And if this becomes common, what else might we start to see?
Here is a possible answer. Germany’s Gleiss Lutz has become one of the first major law firms to set up shop in the ‘metaverse’—a 3D world billed as a game-changing development in online social networking.
The firm even offered pictures of its office in the virtual world, which you can see in the story of German journalist James Carstensen. Advice from attorney Gleiss Lutz avatars is a feature the firm intends to activate once it becomes a widespread client need, a spokesperson said.
What’s next, litigation in the metaverse? It is certainly well on its way.
