Author: TSA Press

Perhaps it’s unfair to suggest there’s never been a clear explanation of blockchain for lawyers before now. Casey Kuhlman of Monax can provide a pretty good primer. David Berger from Integra can get into the technical details for you. And Katherine Lowry tried to demystify the blockchain just this week.

But for a crystal clear account of real use cases, I sat down with Steve McNew of FTI Consulting to ask bluntly, “What’s the deal with blockchain for lawyers?”

For FTI, what blockchain can bring is big savings by automating pain points that are simply too onerous to deal with manually. Take the oil and gas sector. When companies haul crude from Canada to the Gulf, it comes down on railcars that are constantly monitored to ensure they’re delivering what’s promised. Insurers charge a premium to cover full railcars, yet on the return trip — when the cars are empty — the company continues to pay the premium because going back and turning off the premium for tens of thousands of individual cars would cost more than it’s worth. Using the existing sensors, a smart contract can flip the switch whenever a sensor records that the car is empty, saving the company on the order of $4-6 million every year.

Or, perhaps, a peanut company that purchases crops from Mexico and then sells them to a major food company. The manufacturer wants assurances that any peanuts it buys are organic, legally in the U.S., and not tied to violent cartels. In this case, Block 1 might maintain all origination information about the crop: who owns the farm, the deed, are there leins on the property, any connection to known cartels, etc. Meanwhile, Block 2 might track everything about the crop itself: when it was harvested, when it left Mexico, crossed the border, etc. Everything has to match. Ultimately, the FDA is going to want some of this information too. No problem, instead of giving them a report, just give them access to the data.

For all the hype, basically smart contracts are just code that automatically executes when objectively verifiable triggers are met.

But McNew notes that there are legal quandaries out there that the blockchain world still needs to address. “In a lot of ways, smart contracts flip the plaintiff and defendant,” he says. When a party breaches a normal contract, they don’t pay and get taken to court. In a smart contract the payment is made automatically, so the aggrieved party is the one looking to get their money back. And in these cases it’s not always clear how one heads to court. Developer code — all a smart contract is at the end of the day — doesn’t have the venue and choice of law provisions we all take for granted in standard agreements. Should lawyers be out there developing a UCC or writing boilerplate language into forms parties need to click like a software agreement?

And that’s all before we get into where cryptocurrency is headed. Forget Bitcoin, McNew sees the future of cryptocurrency in unconventional places like municipal bonds and healthcare. Berkeley is already moving this way with microbonds on blockchain. For McNew, companies should think about cryptos like frequent flier miles with customers earning rewards that they can only use for other services within the same ecosystem. One example he posed was a healthcare provider rewarding us for going to the gym with tokens that can be exchanged for co-pays. Could law firms themselves follow a path like this? Maybe. For firms trying to keep clients landlocked, a frequent flier program is one way to do it.

It’s hard to say where blockchain’s going to take the legal industry, but once you grasp some solid use cases, it’s easy to start coming up with more and more interesting hypotheticals.

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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After years of litigating a hard-fought commercial dispute in which we represented a domestic importer of foreign goods in a breach of contract action, my colleagues and I found ourselves in a relatively unique position: the other side suddenly gave up and defaulted, after which point, we were awarded a default judgment. Next step was an unopposed hearing in the form of an inquest in which we would itemize our damages and offer proof of the same.

While inquest hearings — single party trials without opposition — can be conducted via examination or on the papers, our judge requested paper submissions which we prepared and submitted. However, consistent with our firm’s practice of mooting arguments whenever one could arise, we brought our client’s vice president into our office to moot the inquest hearing.

Although we weren’t expecting a full argument, we knew that there was a chance that we may have to put him on the stand to clarify some points in his affidavit which itemized our client’s damages or, alternatively, to answer questions from the judge herself. We made good use of our preparation time, and asked our client-representative the toughest questions we could anticipate the judge asking him — and some which we were almost positive that the judge would not ask.

Feeling overprepared, we arrived at the courthouse expecting a very brief hearing in which we would only be required to answer limited clarification points which the judge had on our papers (although we did bring a slew of redweld folders, and a laptop, containing nearly all relevant documents in the case just in case necessary). However, as soon as our case was called, the judge immediately proved us wrong, and requested that we call our first witness, thus signaling that she wanted the entire examination conducted in court.

Rather than panic, we knew that our pre-argument mooting of the hearing encompassed a mini direct examination with the client’s vice president in which we rehearsed the procedure to offer evidence under the New York rules. Armed with our extensive preparation, we were able to put on a direct examination and offer documentary evidence of our damages into the record without incident after requesting only a brief moment to confer amongst ourselves and organize the materials which we had prepared for this very purpose.

When the hearing was over, the judge awarded us the entirety of the damages which we sought, and, to our surprise, even complimented our presentation. As is our practice, we conducted a post-mortem and made a note to always prepare for a full-blown argument or examination in the future.

David Forrest is an attorney for Balestriere Fariello. He graduated from Benjamin N. Cardozo School of Law in June 2018. David works on all aspects of complex commercial litigation and arbitration from pre-filing investigations to trial and appeals. You can reach him by email at david.a.forrest@balestrierefariello.com.