Tag Archives: Cornell Tech

Using AI in Transactional Law Practice

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The Role of AI in Legal Decision-Making: Opportunities and Ethical Concerns

© Romain Vignes CC BY-NC-SA 3.0

Celia Bigoness and I published a column in Law360, What 2 Profs Noticed As Transactional Law Students Used AI (behind a paywall). It reads,

We teach entrepreneurship law clinics in which our students do transactional work on a wide range of matters, including business formation, contracts, intellectual property protection and regulatory compliance.

This past semester, we had access to generative artificial intelligence tools from Lexis, Westlaw and Bloomberg Law, as well as those that are more broadly available to the general public, including ChatGPT and Perplexity.

While we have not done a rigorous study of these tools, we have some early observations about how AI is changing how transactional lawyers do their jobs, particularly new transactional lawyers. Our own experience has been mostly positive, when these tools are used responsibly. But there are many caveats that experienced and new practitioners should be aware of.

Potential Applications

For a transactional lawyer, one tempting potential use case for legal AI tools is to provide first drafts of transactional documents, such as contracts or company bylaws. Most lawyers love to start with a draft — any draft — rather than starting from scratch.

In our experience, though, using an AI-generated draft provides, at best, only an incremental benefit over starting with a precedent and modifying it oneself. Asking an AI tool to come up with a first draft is more like having a junior colleague take a stab at drafting the document, given the extensive review and editing that the draft will require.

There may be some value to this approach in the rare circumstance in which the lawyer does not have access to any relevant precedents, but the lawyer will need to be extremely diligent in reviewing the AI-produced draft.

One AI query that we have found to be more helpful has been to ask whether an existing draft or standard form is missing any important provisions. The AI tool may generate a list of a half-dozen suggested clauses to consider adding to the draft. For instance, it might suggest adding a force majeure clause if your draft does not contain one.

Again, this is not like waving a magic wand over your document: You need to understand what a force majeure clause is, whether it makes sense in your draft and what type of force majeure clause makes the most sense in it.

Also, the suggestions can range from not helpful to redundant to downright useful. But it generally doesn’t take long to parse through the suggestions, and the process can be an efficient way of testing the strength of a document.

Bloomberg Law’s Clause Adviser tool has the very useful ability to evaluate whether a particular clause favors one side in a transaction — e.g., pro-buyer or seller, or pro-tenant or landlord — drawing from thousands of real-life examples that can be found on the U.S. Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval database.

A transactional lawyer can find comparable market analysis otherwise — for example, Lexis’ and Westlaw’s annotated forms will often indicate provisions that may sway in favor of one party or another — but Bloomberg’s tool is unique in that it is based on actual, negotiated transaction documents on EDGAR.

Similarly, the legal databases’ AI tools can review whether a draft contract or set of bylaws complies with relevant laws — state, federal and foreign jurisdictions. Again, this is helpful, but Lexis’ and Westlaw’s annotated forms already provide a lot of the same guidance.

One excellent use of legal AI tools is to summarize and compare documents. This feature is helpful when you are summarizing one document, but it can be really useful in summarizing a bunch of documents, perhaps pulling all of the assignment clauses out of a bunch of agreements to understand how they differ from each other.

We used to do this in a more labor-intensive way — hours and hours of reading and cross-referencing — and getting almost instantaneous results can feel like AI magic. But again, junior lawyers need to understand that they are responsible for checking the AI work product for accuracy. So we’d consider any summary or comparison to be merely a starting point for the lawyer’s own analysis.

Based on our experience so far, we believe the current suite of legal AI tools may be most useful to transactional lawyers in developing general skills, like contract drafting and analysis. For example, we can design exercises for our law students in which we give the students a few precedents of a particular contract, and ask them to compare the precedents and figure out what they’re missing.

Using both legal AI tools and conventional research, this type of exercise could help the students learn about how the particular provisions of a contract fit together. But we would be much more hesitant about using these AI tools to draft documents from scratch.

Challenges

Given these potential use cases and their limitations, in our view, the biggest challenge is to train junior transactional lawyers to approach these AI tools with a healthy skepticism.

The law students we work with are increasingly comfortable outsourcing aspects of their daily lives to ChatGPT — our students regularly ask ChatGPT to draft or summarize emails, or even to take on more nuanced tasks, such as proposing an itinerary for a post-bar exam trip. They understand that ChatGPT’s output can be a mixed bag when it comes to quality, and they seem to spend a fair amount of time double-checking the results.

But when a law student or junior lawyer is given an AI tool branded by a trusted source such as Bloomberg, Lexis or Westlaw — let alone a tool funded and hosted by that individual’s own law firm — they can become overly confident about that tool’s capabilities. We’ve seen that our students, unless specifically instructed by us, can be too deferential to the drafting and analysis produced by a legal AI tool.

So, whether in a law clinic or a law firm setting, transactional lawyers will face the dual task of staying up-to-date on potential applications for these tools, without abdicating our professional responsibilities to our clients.

Another related concern presented by these AI tools — and particularly by how law students and junior lawyers use them — relates to the disclosure of confidential client information.

Any law student who has taken a professional responsibility course or spent a semester representing clients in a law clinic understands that a lawyer cannot disclose confidential client information without getting the client’s informed consent. But that same law student may not realize that putting client information into a ChatGPT prompt, for example, may constitute disclosure.

The American Bar Association noted in July 2024 that the extent of this disclosure, and the corresponding requirement to obtain the client’s informed consent, will vary from one AI tool to the next, depending on each tool’s policies and practices.

Client Relationships

While we and our students were using AI this past year, so were our clients. Save for a few technology companies, most of our clients have no particular AI expertise. Accordingly, their AI usage is fairly representative of how small businesses around the U.S. are using AI.

The biggest challenge that we are encountering with our clients’ use of AI is the potential for interference with the attorney-client relationship. As business advisers, we build long-term relationships with clients, and the advice we provide is customized and iterative. For law students who are learning how to represent business clients, one key learning outcome of the clinic is the skill to curate legal advice for a client’s particular circumstances.

For example, at the start of the semester, a new startup client founded by a team of graduate students might ask our team to advise on the appropriate equity allocations for the founding team. We may have several conversations with the clients, learning more about each founder’s role within the company and about the company’s future plans. We might learn that one founder is planning to leave the company after graduation, but the others are planning to stay. This fact would necessarily influence our recommendations about the founders’ equity allocations.

This past year, for the first time, we found that a few clients were — without telling us — feeding legal advice that we had provided to them into AI tools and responding to us, again without telling us, with the AI-generated content.

To the law students’ frustration — and ours — the responses generated by the AI tools invariably took no account of the clients’ particular factual circumstances. So when our clients reacted to our advice, their reactions were completely disconnected from the relationship we had built up with them, and were often incongruous with the conversations we’d had before rendering our advice.

One question is whether this dynamic is unique to, or at least particularly acute in, a context where clients are receiving pro bono legal services. If our clients were paying for legal advice, would they invest more time in digesting and responding to that advice?

Perhaps. But with all of the recent discussion about how generative AI will change how lawyers work, we believe there has been insufficient attention paid to how generative AI is going to affect the lawyer-client relationship in the coming years.

Takeaways

This article just touches on the surface of our use of AI in the clinic, and the opportunities and challenges it presents to transactional lawyers — and new transactional lawyers, in particular.

Our main takeaway after a semester is that legal AI tools are an incremental improvement upon the sophisticated tools available to lawyers already. While some uses may be transformative, many just speed up legal tasks, reduce mistakes and provide a second set of virtual eyes to the drafting process. No doubt there are many uses we have not yet considered, but these early experiences may be illuminating.

The Importance of Mentorship for New Lawyers

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I interviewed Connor Blancato, an up-and-coming real estate lawyer, for the New York Real Property Law Journal. The interview emphasizes the importance of mentorship  for new lawyers.

Click on the picture to read the interview.

Cornell’s Entrepreneurship Center Expands in Its First Year

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modern office space looking out at new york city skyline

Cornell Law School just posted this about the new Entrepreneurship Law Clinic on Roosevelt Island:

In the summer of 2024, with a transformative gift from Franci J. Blassberg ’75, J.D. ’77, and Joseph L. Rice III, Cornell formally launched a center for entrepreneurship law in New York City. Bridging Cornell Law and Cornell Tech, the Blassberg-Rice Center for Entrepreneurship Law has continued to grow in the months since, establishing a new Entrepreneurship Law Clinic on Roosevelt Island, welcoming its first cohort of J.D. and LL.M. students, and hiring a second faculty member, David Reiss, clinical professor of law and research director, to lead the New York City program.

“We are thrilled to have David on board,” says Celia Bigoness, director of the Blassberg-Rice Center and clinical professor of law, who continues to lead the Entrepreneurship Law Clinic at the Ithaca campus. “This is the first time we’ve been able to offer a clinical experience that’s entirely embedded in the technology ecosystem of Cornell Tech, and there’s been tremendous demand among students and clients for the work that we’re doing.”

The upstate and downstate clinics operate in parallel, with the two halves meeting together throughout the semester to share lessons and progress. In both locations, students represent entrepreneurs in setting up the business entities for their startups, representing them on a range of matters involving commercial contracts, data privacy, employment, equity allocation, founders’ agreements, governance, intellectual property, and real estate.

student working at a computer with New York City in the background

Alex Cho ’25 is working with social entrepreneurs, including one that has released an AI-powered chatbot that helps tenants navigate their relationship with their landlords.

“We’re giving students an exposure to the breadth of knowledge that is key to serving entrepreneurs,” says Reiss, who began teaching in January. “Just as important, we’re spending time on the soft skills that will help students not just understand the law, but understand how to effectively counsel their clients. Every student who passes through these programs will come out with hands-on transactional skills that can best be learned in a clinical setting.”

In Ithaca, seven of Bigoness’ twelve current students are continuing from the fall semester, working on increasingly challenging questions for startups in biomedical engineering, food services, product development, technology, and youth sports. In New York City, where the spring semester’s clients are drawn from Cornell Tech, Weill Cornell Medicine, and the Queens Chamber of Commerce, Reiss’ six students are counseling clients in the early stages of creating startups in climate tech, software, and transportation.

“It’s been a great experience, and I think the thing I have gained the most from it is confidence,” says Maria Hatzisavas, LL.M. ’25, who is attending Cornell Tech in the year between earning her J.D. and beginning her first job in corporate law. “At Notre Dame, I developed as a law student, and here, I’m developing more as a lawyer. I’m learning skills I’ll use throughout my career, and I’m gaining new insights into the practice of law because so many attorneys come in to teach us.”

“As someone who wants to do transactional work but hasn’t had an extensive background in accounting or finance, this clinic has shown me the legal side of business,” adds Kylee Nguyen ’25, whose 3L year in the Ithaca clinic has given her a taste of life as a general counsel. “It’s sharpened my soft skills, taught me how to think in the real world, and helped me make a tangible difference in the lives of my clients. I’m taking everything I’ve learned in this clinic into my practice, and I’m not leaving anything behind.”

“This launch is incredibly exciting. I’m grateful to Celia Bigoness, Franci Blassberg, Joe Rice, Jens Ohlin, Eduardo Peñalver, and Shawn Gavin for their vision and to all involved for the hard work it took to bring this about,” says Beth Lyon, clinical professor of law and associate dean for experiential education and clinical program director.

Trump’s Plans to Privatize Fannie and Freddie

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from Cato Institute website, https://www.cato.org/people/mark-calabria

Mark Calabria, OMB Associate Director for Treasury, Housing, and Commerce

I was interviewed on  WBUR-FM’s On Point (distributed by American Public Radio), hosted by Meghna Chakrabarti for an episode on How Trump Plans To Get Government out of the Mortgage Business. The link has the recording of the show as well as a transcript.

The transcript of the interview starts,

CHAKRABARTI: Now that President Trump is back in the White House, it seems that he intends to get the job done this time around. Mark Calabria has returned to Trump’s administration, this time working on housing policy at the Office of Management and Budget. Bill Pulte is now director of FHFA, and he just made the highly unusual move of appointing himself chair of both Fannie Mae and Freddie Mac, making the regulator and the regulated basically the same.

Pulte also fired 14 of the 25 sitting board members at Fannie and Freddie. A shakeup many are suspecting is a first step in leading these two companies out of government control and into privatization. We’re talking about a huge part of the U.S. economy that underpins the housing market. So this hour, we want to explore what privatization of Fannie and Freddie actually means, what it should look like, and how it might have an impact on homeowners and the housing market.

So to do that, David Reiss joins us. He’s a clinical professor of law at Cornell Law School and Cornell Tech, an expert in housing finance and policy. Professor Reiss, welcome to On Point.

DAVID REISS: Meghna, thank you so much.

CHAKRABARTI: I have to tell you that I actually can’t believe that it’s been 17 years since the financial crisis of 2008.

Let’s dust off the memory banks professor and go back to before 2008 and start there. Can you just remind us like what Fannie Mae and Freddie Mac were, what their purpose was, who owned them, et cetera?

REISS: I’m gonna go even a little bit further back than Fannie and Freddie’s creation, because I think it’s really gonna help people visualize what’s at stake here.

And if you think back to the 19th century and somebody was trying to buy a house, they didn’t have that many options. A house has always been a very expensive thing to buy, so they need to borrow some money to buy a house. And how could you do that?

Maybe if you’re rich, you could do it, or had a rich uncle, but otherwise you need to go to somebody who has capital and that you could borrow it and give them some interest in return. And pay them back over time, and be able to live in that house while you’re paying back the amount of money that you borrowed. And so if people think of It’s a Wonderful Life where there’s the Bailey Brothers building in loans and where they, people deposit their small savings into the buildings and loan.

And then some people are then able to borrow some money from the buildings and loan for mortgages. And there’s the famous scene where there’s a panic at the bank. And Jimmy Stewart says, Mrs. Kennedy, your money is in Mrs. Smith’s house. And Mrs. Smith, your money is in Ms. Macklin’s house.

And that’s the way it was done in the 19th century and the early 20th century. But there were real limitations to that. Sometimes communities didn’t have a lot of capital to lend people, so maybe in out west or in the Midwest there wasn’t a lot of capital, like there might’ve been back east in Boston or New York.

And so people who could have handled the mortgage just didn’t have access to it. It was like they were living in a dry area, and the fresh flowing credit didn’t reach their dry community. So during the Great Depression and the New Deal the government started to intervene, to spread credit out across the country in a way that kind of provided liquidity to all the communities where people wanted to borrow.

And Fannie Mae was a creature of the New Deal, but really took off in the ’70s along with its sibling Freddie Mac. And effectively, what those two companies were designed by Congress to do was to ensure that capital could go across state borders in a way that banks were typically not allowed to do. And they effectively created at first a national market for mortgage credit, and effectively when they access the global credit markets over time, an international global market for credit. So they’re really intermediaries.

Move Fast and Break the Mortgage Market

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Bill Pulte, FHFA Director and Chair of Fannie Mae & Freddie Mac

I was quoted in the American Prospect’s story, Move Fast and Break the Mortgage Market. It reads, in part,

This week, the Donald Trump–appointed chief regulator for the two quasi-governmental companies that own or control about half of the residential housing market anointed himself the board chair of both those companies. This maneuver could signal a host of shenanigans: the culmination of a 17-year hedge fund get-rich-quick scheme, a balance-sheet fiction to justify tax cuts, a new favor factory for apartment developers with ties to the president, a data transfer so Elon Musk’s everything app can learn how to sell mortgages, or something equally problematic.

But what gives former board members, market observers, and officials at the regulator greater concern is the distinct possibility that mucking around with the $7.7 trillion secondary mortgage market could lead to breaking it.

If that happens, homebuyers may not be able to get mortgages, homebuilders may be reluctant to break ground, and uncertainty would abound in a market that has brought down the economy on more than one occasion in U.S. history, most recently in 2008. “It could freeze sales, freeze refinances, stop people from forming households, cause people to be afraid of moving, freeze up developers of housing and the secondary market,” said David Reiss, a professor at Cornell Law School.

* * *

Multifamily Glad-Handing

The GSEs have a pretty sober business on the single-family side, and since the housing collapse really originated there, a lot of work was done to clean up that part of the business. But Fannie and Freddie also make loans in the multifamily market to support building of apartments and condos. A former official with one of the GSEs told me that business is a little looser, with ways to enhance those loans.

This president, of course, is a multifamily real estate developer himself, who has friends in multifamily real estate development. Hamara, one of the new board members, is a vice president at Tri Pointe Homes, a major homebuilder. You could imagine these relationships leading to the GSEs pushing risk limits, loosening credit standards, or raising loan-to-value ratios for favored borrowers. There is a secret mortgage blacklist at Fannie Mae for condos without enough property insurance or in need of repairs; controlling the board could make that blacklist go away, at least for certain developers.

This kind of setup resembles the opportunity zones that were a feature of the 2017 Trump tax cuts. They gave significant tax breaks to investors in certain communities deemed in need of development. Trump administration officials credit opportunity zones with increasing housing construction, but critics argue that the investments were rife with corruption and favor-trading.

That could also be the case here: New criteria guiding the new boards might lead to more multifamily housing, but with uneven results, favors to friends, and idiosyncratic deals that would be more about boosting allies than building housing. And as Calabria has pointed out, Fannie and Freddie are likely under Trump to cancel affordable-housing initiatives, meaning that sweetheart deals might only extend to the developers, rather than the public. Plus, there is the potential for dramatic losses if lending standards erode.

Reiss, of Cornell, agreed that this was all a possibility. “If someone gets to one of the directors, and they are there not acting as a fiduciary for the company, it opens the door to political favoritism,” he said.

* * *

What If It Breaks

Pulte is expected to force job cuts at the GSEs, which employ roughly 15,000 people. He has already been making familiar noises about DEI and remote work. One possibility on the table at the GSEs is merging Fannie and Freddie; you don’t usually have the same person chair the boards of two direct competitors. The regulatory agency is also likely to see cuts; already at FHFA, according to one source, fair lending and consumer protection groups have been put on administrative leave, along with employees at the Division of Research and Statistics.

Controlling the boards would limit dissent about these actions. But cuts in the name of efficiency could strain or even rupture the numerous functions the GSEs carry out, with consequences for the entire housing market.

Due to the conservatorship, the GSEs are limited in what they can pay their employees, which has led to a talent drain. Some systems have not been integrated, and others are not up to industry standards. Fannie and Freddie have a cautious internal culture that doesn’t move quickly. Hacking away at their already weakened structure could easily create operational harm.

But Reiss explained that nothing has to overtly break to lose the confidence of the markets; even a lack of workforce to move the paper around could create that impression, and disrupt the flow of credit. “If there is any kind of uncertainty, the spread between Fannie and Freddie securities and Treasury bonds will increase,” he said. “Investors will ask if the government will make good on Fannie and Freddie bonds. This uncertainty and direction could increase costs over time for all borrowers.”

Structured Finance Journal Launch

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I am excited to be part of the launch of the Structured Finance Journal (SFJ), a double-blind, peer-reviewed publication dedicated to advancing the practices within the structured fixed-income markets. The press release continues,

SFJ is more than just a platform for publishing research—it is a collaborative effort led by an esteemed editorial board and guided by a distinguished advisory council, ensuring the highest quality and relevance of the work we publish.

In tribute to the highly respected but now defunct Journal of Structured Finance, formerly edited by Mark Adelson, we believe in the power of original research to drive practical applications and foster innovation in the field. SFJ is designed for professionals who are dedicated to contributing valuable insights that will help shape the industry’s future.

We invite submissions from industry experts and academics alike. If you have research that offers fresh insights and practical implications, we want to hear from you. Manuscripts should be between 2,500 and 3,500 words, excluding abstracts and references, and must be original work that has not been previously published or is under consideration elsewhere.

In line with our commitment to integrity and transparency, any use of AI tools in your manuscript should be limited to mechanical tasks like editing or citation management, with full disclosure required. Our strict guidelines ensure that only high-quality, relevant, and ethically produced research is featured in the journal.

Submissions must adhere to the Chicago Manual of Style (CMS) for formatting, with specific requirements for typography and content organization. We encourage authors to carefully structure their work, starting with a clear and concise title and abstract, followed by a compelling introduction, organized headings, and a well-rounded conclusion. Exhibits should be properly sourced, and permissions obtained for any previously published material. Details may be found on our online submissions platform.

Join us in advancing the structured finance industry by sharing your expertise and research. Submit your manuscript today and contribute to the growing body of knowledge that SFJ proudly supports. Please contact Elen Callahan at elen.callahan@structuredfinance.org with your questions and interest.

I am excited to join Elen Callahan and the other members of the Editorial Board in this venture:

Mark Adelson, Independent Consultant Content Director, Portfolio Management Research

William Black, Founder and Principal, Black Analytics

Nicole Byrns, Founder and Principal, Dumar Capital

Chun Lin, Managing Director and Head of U.S. Residential Mortgage Modeling, Bank of America

Debra Lofano, Partner, Alston & Bird LLP

Phillip Millman, Advisor, Federal Housing Finance Agency

Tim O’Neil, Managing Director and Head of Canadian Structured Finance, Morningstar DBRS

David Reiss, Clinical Professor of Law & Research Director of the Blassberg-Rice Center for Entrepreneurship Law, Cornell Law School & Cornell Tech

Jeff Schwartz, CFA, Securitized Products Investor

Cornell Law Set to Launch First NYC-Based Law Clinic

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Hannah Rosenberg/Sun File Photo

 

 

 

 

 

 

 

 

 

 

The Cornell Daily Sun just ran an article about the expansion of Cornell Law School’s Entrepreneurship Law Clinic to the Cornell Tech campus in NYC, where I am now located:

Cornell Law School is set to launch its first law clinic in the Big Apple.

Beginning in January 2025, the Entrepreneurship Law Clinic will expand from Ithaca to the Cornell Tech campus on Roosevelt Island.

Through the Entrepreneurship Law Clinic, law students provide pro-bono legal services to emerging businesses, entrepreneurs and startups in the Ithaca area and under the guidance of law school faculty.

Students assist with business formation, hiring and employment, intellectual property management, commercial contracts and public service initiatives, such as aiding small businesses during COVID-19.

All of the law school’s other clinics are located in Ithaca, where the law school is based.

Established in 2018, the Entrepreneurship Law Clinic stands as the law school’s only transactional clinic, which means students gain hands-on legal experience in business.

The law school received a donation from Franci Blassberg ’75 J.D. ’77 and Joseph Rice III in 2023, which helped establish the Blassberg-Rice Center for Entrepreneurship Law. The center will use the funding to expand the Entrepreneurship Law Clinic to New York City.

Prof. Celia Bigoness, law, is the founding director of the Blassberg-Rice Center and the Entrepreneurship Law Clinic. Bigoness emphasized the benefits of the new location.

“Law clinics serve two principal purposes, and our expansion to NYC serves both purposes … — providing pro-bono legal services and hands-on clinical training experience for students,” Bigoness stated to The Sun.

“The clinic has been hugely successful — so successful that its capacity isn’t nearly enough to satisfy student demand,” Cornell Law Dean Jens David Ohlin wrote to The Sun. “This expansion will allow us to scale the program while keeping the intensive, hands-on approach that makes it so effective.”

Law students may join the clinic in their second or third years and often stay for the remainder of their degrees.

Kathleen Joo J.D. ’23, participated in the Entrepreneurship Law Clinic in her second and third years of law school and is now an associate at Simpson Thacher & Bartlett LLP. She believes that the expansion will advance the clinic.

“While I was a student there, … [the clinic] was the closest experience we could get to full-time work,” Joo said. “I imagine the expansion also means that students will get access to a greater variety of clients and projects.”

With this development, students will also be able to spend a semester at Cornell Tech with the J.D. Program in Information and Technology Law.

The law school also hired its second full-time clinical instructor to facilitate the expansion.

Prof. David Reiss joined the law school in July and is the research director of the Blassberg-Rice Center for Entrepreneurship Law. He will teach at the clinic’s New York City location and Bigoness will continue teaching at its Ithaca location.

Reiss previously taught at Brooklyn Law School where he founded its Community Development Clinic. He explained that he is enthusiastic to apply his experiences to the clinic.

“I have represented entrepreneurs and social entrepreneurs over the course of my legal career, first in practice and then as a director of a law clinic, and can’t wait to get started at the [Cornell] Tech campus,” Reiss said.