If The Shares of a Chinese Company Are Delisted, What Happens to Trading in California?
Yesterday’s Wall Street Journal includes a story about the possible delisting of shares of Chinese companies. Shares of companies that are listed, or authorized for listing, on a national securities exchange (or tier or segment thereof) are classified as “covered securities”under Section 18(b)(1) of the Securities Act of 1933. As such, state laws requiring registration or qualification are preempted. Therefore, delisting will result in covered security status. What does this mean for California?
Section 25130 of the California Corporations Code makes it unlawful for any person to offer or sell any security “in this state” (Section 25008) in any “nonissuer transaction” (Section 25011) unless it is qualified for sale or exempt from qualification. Thus, the immediate consequence of delisting will be that secondary trading of shares of the delisted companies will require either qualification or an exemption.
Following delisting, licensed broker-dealers to effect offers or sales but only if they are made pursuant to an unsolicited order or offer to buy. Cal. Corp. Code § 25104(b). For purposes of this exemption, an inquiry regarding a written bid for a security or a written solicitation of an offer to sell a security made by another broker-dealer within the previous 60 days is not considered a solicitation of an order or offer to buy. Id. A rule, 10 CCR § 260.104, establishes a presumption that an order or offer to buy is not unsolicited if the broker-dealer knows, or has reason to know, that the order or offer to buy is in response to one or more activities specified in the rule.
Bona fide owners may also offer or sell a security for their own account if the sale is (i) not accompanied by the publication (Section 25014) of any advertisement (Section 25002); and (ii) is not effected by or through a broker-dealer in a public offering.
It is also possible that other exemptions from Section 25130 will be available depending upon the particular circumstances (e.g., 10 CCR § 260.105.11).
The bottom line is that if a company is delisted from a national securities exchange, the company and those trading in the companies shares will need to consider applicable California requirements and exemptions.
Delaware Chancery Court Puts CFIUS Mitigation in Focus for M&A
What Happened
In a recent decision, the Delaware Court of Chancery (the Court) ordered Nano Dimension Ltd. (Nano) to enter into a national security agreement in the form proposed by the Committee on Foreign Investment in the United States (CFIUS), finding that Nano materially breached the CFIUS clearance provisions of a merger agreement (Merger Agreement) entered into with Desktop Metal, Inc. (Desktop) on July 2, 2024.
The Bottom Line
The Court’s decision to require Nano to execute a national security agreement proposed by CFIUS as a condition to clear the Nano-Desktop merger sets an important precedent for understanding the meaning of regulatory approval covenants generally, and CFIUS clearance covenants specifically.
The Full Story
According to the Court’s Post-Trial Memorandum Opinion, Desktop is a Massachusetts-based company that makes industrial-use 3D printers that create specialized parts for missile defense and nuclear capabilities. Nano is an Israeli firm, and sought to acquire Desktop in a $183 million all-cash transaction. Under the CFIUS rules, this is a “covered control transaction” and would therefore be subject to CFIUS review. To achieve the regulatory certainty that CFIUS would not later seek to force Nano to dispose of Desktop, the parties agreed to seek CFIUS approval on a voluntary basis as a condition to closing the merger. Given the national security implications of Desktop’s business, the parties anticipated that CFIUS approval would be complicated and would likely require that Nano enter into a national security agreement.
Desktop and Nano included in the Merger Agreement a relatively standard “reasonable best efforts” provision with respect to resolving government objections to the transaction generally. In addition, the parties specifically agreed to take “all action necessary” to receive CFIUS approval, including “entering into a mitigation agreement” in relation to Desktop’s business (a so-called “hell-or-high-water” provision). Nano included a narrow carveout that would allow it to refuse to agree to any condition imposed by CFIUS that would “effectively prohibit or limit [Nano] from exercising control” over any portion of Desktop’s business constituting 10 percent or more of its annual revenue, with clarifications that certain common mitigation requirements (e.g., US citizen-only requirements, information restrictions, continuity-of-supply assurances for US government customers, and notification/consent requirements in the event the US business exits a business line) would not impact the carve-out. In effect, the CFIUS approval condition in the Merger Agreement preserved wide latitude for conditions imposed by CFIUS in a mitigation agreement notwithstanding the control exception negotiated by Nano.
As anticipated by Desktop and Nano in the Merger Agreement, CFIUS informed the parties that it identified national security risks arising from the transaction and proposed a mitigation agreement to address those risks. Specifically, the mitigation agreement would have imposed information restrictions preventing the integration of Nano and Desktop IT infrastructure, restricted manufacturing locations for supply to US government customers, limited remote access software for products supplied to US government customers, required a US citizen board observer and appointed a third-party monitor. According to the Court’s recitation of facts, Nano’s cooperation with CFIUS in negotiating the terms of the mitigation agreement ceased following a proxy contest that resulted in a turnover on Nano’s board to a position opposed to the merger with Desktop. Desktop subsequently sued to enforce the terms of the Merger Agreement.
The Court held that Nano breached its obligations under the “reasonable best efforts” clause, noting that this language has been interpreted to require parties to take all reasonable steps and appropriate actions, which it found Nano failed to do. The Court also noted that good faith is relevant and that a “reasonable best efforts” clause does not allow parties to use regulatory approvals as a way out of a deal. Given the facts recited by the Court that Nano sought to use the CFIUS clearance condition as a way out of the deal, it is tempting to view the precedential weight of this part of the decision narrowly. However, “reasonable best efforts” provisions relating to regulatory clearances are commonplace and the Court’s discussion of this language merits attention. This is particularly true in the CFIUS context where remedies can be less predictable than those in other regulatory contexts due to the wide range of national security risks considered by CFIUS and the relative “black box” nature of CFIUS reviews.
The Court’s holding also provides important take-aways regarding the “hell-or-high-water” provision. These provisions are used to clarify “reasonable best efforts” in specific contexts and, as the Court noted, represent hard commitments in a merger agreement with respect to regulatory approval. Moreover, these firm commitments are relatively rare in CFIUS or other regulatory contexts. In this case, Desktop and Nano correctly anticipated that CFIUS would request a mitigation agreement and sought to identify a list of mitigation measures that would be acceptable. However, in the Court’s view, these mitigation measures were separate from the parties’ effort to define control with reference to the target’s financial performance. Rather, as CFIUS’s proposed mitigation concerned information restriction, supply assurances and monitoring requirements (which were specifically excluded from consideration of the loss of control exit provision), Nano’s ability to object to these requirements was quite constrained. The Court therefore rejected Nano’s argument that CFIUS’s conditions would impact Nano’s control over more than 10 percent of Desktop’s revenue-generating business lines.
The Court’s remedy of specific performance also merits consideration. The Merger Agreement stipulated to specific performance in the event of a breach. The Court’s recitation of facts explains that, in order to achieve greater deal certainty, Desktop proposed that CFUS clearance be subject to either a reverse termination fee or the “hell-or-high-water” provision backed by specific performance and that Nano opted for the latter. Transaction parties should note that generally, if a buyer needs greater flexibility to consider potential CFIUS mitigation given the unpredictability, a reverse termination fee can be used to purchase more discretion in deciding whether CFIUS’s proposed mitigation sufficiently erodes the value of the deal, provided that the parties carefully define the specific parameters of acceptable mitigation. Note, however, that the Court’s opinion with respect to the “reasonable best efforts” clause suggests that this does not simply allow a buyer to use mitigation as a pretext to refuse to go forward with the deal and transaction parties should carefully consider the degree of flexibility provided by regulatory approval conditions.
This case is a clear reminder that transaction parties should carefully consider the scope of regulatory approval conditions in negotiating merger agreements. No transaction party can predict exactly what mitigation measures CFIUS might require or even what national security risks it might identify, and parties will need to understand all possible mitigation remedies in order to successfully draft a CFIUS approval condition that effectively balances deal certainty with the flexibility necessary to turn down unacceptable mitigation requirements. To illustrate this uncertainty, the National Security Memorandum on America First Investment Policy issued by the President in February 2025 indicates some of the conditions required by CFIUS in its proposed mitigation agreement in this case (for example, indefinite monitoring conditions) may not have been required if the present administration negotiated the mitigation agreement continued. Transaction parties should consider emerging CFIUS trends and policy developments as relevant to the scope of a “reasonable best efforts” clause.
Speaking of Litigation – Episode 16: Aligning Business Goals with Legal Strategies Amid Regulatory Change [Video, Podcast]
When businesses face regulatory uncertainty, how can they effectively adapt, respond, and, if necessary, challenge government action?
In this episode of Speaking of Litigation, Epstein Becker Green attorneys Mike Brodlieb, Jim Flynn, Jimmy Oh, and Jack Wenik navigate the complexities of regulatory action and inaction. The conversation dives into the changing administrative landscape and covers how businesses can strategize to challenge regulations, the pros and cons of litigation, and the critical importance of aligning legal goals with practical business objectives.
The panelists also explore how agencies’ evolving processes create both challenges and opportunities, including how internal agency relationships and unexpected legal arguments can shape outcomes. From assembling the right legal team to balancing risk and reward in high-stakes scenarios, they discuss real-world tactics for crafting solutions that address uncertainty while keeping business interests front and center.
Gain insight into how legal professionals are managing the intricate interplay between government regulation, litigation strategies, and client priorities in today’s dynamic environment.
Webinar Recording: The EU Omnibus Proposals on Sustainability and Simplification – What It Means for Your Reporting and Compliance Strategy [Video]
In April, we hosted a webinar featuring Thomas Delille, Marion Seranne, Begonia Filgueira, and Dr. Nora Thies to discuss the European Commission’s EU Omnibus Proposals, released in February 2025. These proposals could significantly reshape the EU regulatory landscape on sustainability reporting and corporate due diligence, with direct implications for frameworks like Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), EU Taxonomy and Carbon Border Adjustment Mechanism (CBAM).
Our expert panel covered the latest developments, member state positions, emerging legal risks, and the commercial impact of ESG reforms. With many businesses now facing an uncertain legislative timeline, the discussion focused on how to adapt compliance strategies and reporting plans to this evolving environment.
Watch the full recording below for key insights into how these proposals could affect your ESG obligations and what you can do to stay ahead.
CBP Unlawfully Detains U.S. Citizen for 10 Days
In April 2025, 19-year-old Jose Hermosillo, a U.S. citizen from New Mexico, was detained by Border Patrol agents in Nogales, Arizona, for nearly 10 days under suspicion of being an undocumented immigrant. Despite Hermosillo’s consistent claims of U.S. citizenship, agents alleged he admitted to entering the U.S. illegally. His release came only after his family provided documentation, including a birth certificate and Social Security card. A federal judge dismissed the case on April 17, 2025.
This incident underscores concerns about civil liberties and due process amid aggressive immigration enforcement policies. Between 2015 and 2020, 674 U.S. citizens were arrested by Immigration and Customs Enforcement (ICE), with 70 being deported. Critics argue that such policies can lead to violations of constitutional rights, particularly for individuals who may be wrongfully detained.
The broader context includes increased militarization of the U.S.-Mexico border. In January 2025, the Trump administration reinstated the “Remain in Mexico” policy and announced plans to deploy troops to the border, citing concerns over public safety and national security. These measures have sparked debate over the balance between border security and the protection of individual rights.
Jose Hermosillo’s case serves as a poignant example of the potential consequences of stringent immigration enforcement on U.S. citizens. It highlights the need for careful consideration of policies to ensure they do not infringe upon the rights of those they aim to protect.
Reminder: Los Angeles County Fair Workweek Ordinance Takes Effect in July
Retail employers should note that the Los Angeles County Fair Workweek Ordinance will go into effect on July 1, 2025.
This ordinance applies to employers in unincorporated areas of Los Angeles County. Businesses can check on the Los Angeles County Consumer & Business Affairs website to see if they are located in an unincorporated area of the county.
New obligations for retail employers under this ordinance, include:
Good-Faith Estimate: Provide new hires with a written good-faith estimate of their work schedule, including their rights under the ordinance.
Advance Notice: Post or transmit work schedules at least fourteen (14) days in advance.
Work Shift Intervals: Ensure employees have at least ten (10) hours between shifts unless they consent in writing and receive time-and-a-half pay for the second shift.
Predictability Pay: Compensate employees for changes to their schedules that occur after the advance notice period.
With regard to predictability pay, employers must provide:
One additional hour of pay for each change to the work schedule that results in no loss of time or additional work time exceeding fifteen (15) minutes.
Half the regular rate of pay for time not worked due to subtracted hours, changes to start or end times, date changes, cancellations, or on-call shifts where the employee is not called in.
Retail employers must also post notice of the covered employee’s workweek rights, which will be published by the Department of Consumer & Business Affairs. The Department of Consumer & Business Affairs has not published this Notice yet. Retail employers must also retain all required records for three years.
Navigating the New Era of Workplace Immigration Enforcement: A Comprehensive Guide for HR Professionals
In 2025, the Trump administration has intensified immigration enforcement, leading to a notable increase in workplace raids conducted by U.S. Immigration and Customs Enforcement (ICE). Industries such as manufacturing, agriculture, construction, hospitality, and food processing are particularly affected. These raids often result in the sudden loss of workers and potential administrative and criminal penalties for employers.
Understanding ICE Raids
ICE raids are typically unannounced and occur when the agency suspects a business of employing undocumented workers. During these raids, agents may seize documents like payroll records, I-9 forms, and tax documents. Unauthorized workers found on-site can be arrested.
Proactive Measures for HR Departments
To mitigate risks and ensure compliance, HR professionals should consider the following steps:
Audit and Remediate I-9 Forms Regularly review I-9 forms to ensure accuracy and completeness. Consider partnering with immigration compliance experts to conduct thorough audits and address any discrepancies.
Develop a Preparedness Plan Collaborate with legal counsel to create a comprehensive plan outlining procedures for various types of ICE visits. This plan should include guidance on determining the nature of the ICE visit and steps to take in response. citeturn0search5
Establish Communication Protocols Assign specific roles to key personnel, such as HR, security, and reception, in the event of an ICE visit. Create a concise “cheat sheet” with step-by-step instructions for responding to ICE agents.
Train Staff Appropriately Provide training materials to prepare staff for potential ICE visits. Ensure they understand their rights and responsibilities, and how to handle interactions with ICE agents professionally and legally.
Addressing Employee Concerns
Beyond legal compliance, it’s essential to support employees who may be affected by increased immigration enforcement. Provide resources to help them understand and navigate their immigration status and foster a workplace culture that values diversity and inclusion.
Conclusion
The heightened focus on immigration enforcement necessitates that HR professionals take proactive steps to prepare their organizations. By auditing I-9 forms, developing response plans, establishing communication protocols, and supporting employees, businesses can navigate this challenging landscape effectively.
Joint SEC Whistleblowers Awarded $6 Million for Disclosure
On April 21, the U.S. Securities and Exchange Commission (SEC) announced that it had awarded $6 million to joint whistleblowers who voluntarily provided original information which led to the opening of an examination resulting in a successful enforcement action.
According to the SEC, the whistleblowers’ “tip and supplemental submissions were helpful in connection with the Commission Examination as well as Exams’ ultimate examination findings.” The award order further notes that Exams referred the matter to Enforcement staff who “found the referral from Exams to be helpful as a roadmap to the investigation that resulted in the Covered Action.”
“Today’s award illustrates that the agency can leverage whistleblower information in various ways, including by prompting an examination,” said Jonathan Carr, Acting Chief of the SEC’s Office of the Whistleblower. “If that examination ultimately results in an enforcement action, the whistleblower may be eligible for an award.”
Through the SEC Whistleblower Program, qualified whistleblowers are eligible to receive monetary awards of 10-30% of the sanctions collected in connection with their disclosure when their information contributes to an enforcement action where the SEC is set to collect at least $1 million.
The SEC weighs a number of factors in determining the exact percentage to award a whistleblower. In this case, the Commission notes that it considered the following factors: “(1) the significance of information provided; (2) the assistance provided; (3) the law enforcement interest in deterring violations by granting awards; (4) participation in internal compliance systems; (5) culpability; (6) unreasonable reporting delay; and (7) interference with internal compliance and reporting systems.”
Established in 2010 with the passage of the Dodd-Frank Act, the SEC Whistleblower Program has now awarded a total of more than $2.2 billion to 444 individuals.
In FY 2024, the SEC Whistleblower Program received a record 24,980 whistleblower tips and awarded over $255 million, the third highest annual amount. According to SEC Office of the Whistleblower’s annual report, the most common fraud areas reported by whistleblowers in FY 2024 were Manipulation (37%), Offering Fraud (21%), Initial Coin Offerings and Crypto Asset Securities (8%), and Corporate Disclosures and Financials (8%).
Crossing Borders with Electronics: Know Your Rights and Risks
With increasing digitalization of our lives and businesses, privacy concerns from border searches of phones, laptops and tables are a growing concern for professionals, executives, and frequent international travelers. U.S. Customs and Border Protection (CBP) has broad authority to inspect travelers and their belongings at ports of entry. This includes electronic devices, which may be searched without a warrant under what’s known as the “border search exception” to the Fourth Amendment.
In 2024, CBP conducted approximately 47,047 border searches of electronic devices, including 42,725 basic media searches, 4,322 advanced media searches, 36,506 non-U.S. citizen electronic media searches and 10,541 U.S. citizen electronic media searches. Notably, there has been a recent string of legal U.S. residents (people with work visas, permanent resident cards, etc.) facing deportation or visa revocation based on information discovered on their electronic devices.
In one case, a Lebanese physician was deported after CBP officers found photos and videos related to Hezbollah on her cellphone. In another, an Indian Ph. D student at Columbia University had her visa revoked following scrutiny of her social media activity and participation in campus protests. Last month, a French scientist was denied entry to the U.S. after Department of Homeland Security (DHS) alleged he was carrying confidential information from an American lab. However, the French government claimed he was targeted for expressing political opinions on the U.S. government.
Although U.S. citizens generally cannot be denied reentry for refusing to unlock a phone, CBP agents can detain a device for further inspection. As for non-citizens, they may face additional consequences, including delays, detention or denial of entry. The line between what is permissible and what is excessive remains unsettled, as federal courts across the country have issued conflicting rulings.
CBP classifies device searches into two categories, a basic search and an advanced search. A basic search is a manual inspection of an unlocked device and can be conducted without suspicion. An advanced search involves connecting the device to external equipment for forensic review and requires “reasonable suspicion” that the device contains unlawful material. Although CBP and ICE policies remain in effect, some courts have begun to push back on this authority, particularly in cases involving U.S. citizens.
Border Search Cases and 2018 DHS Policy
Courts consistently uphold the “border search exception”, reasoning that the government’s interest in controlling who and what enters the country is at its highest at the border. As the Supreme Court explained in United States v. Ramsey and later reaffirmed in United States v. Flores-Montano, routine, suspicion-less searches of persons and property at the border are generally considered “reasonable” by virtue of the location.
In the past two decades, as digital privacy concerns have grown, courts have increasingly grappled with how these principles apply to smartphones, laptops, and other electronic devices. To address this evolving legal landscape, the DHS issued a policy directive in 2018 requiring that forensic or advanced searches of electronic devices be supported by reasonable suspicion. However, in general, border searches of electronic devices do not require a warrant or suspicion.
United States v. Smith: change from reasonable suspicion to probable cause?
The reasonable suspicion framework was disrupted in May 2023, when Judge Jed Rakoff of the Southern District of New York issued a groundbreaking decision in United States v. Smith, holding that the government must obtain a warrant supported by probable cause before searching and copying an American citizen’s phone at the border, absent exigent circumstances.
In this case, Jatiek Smith was stopped by CBP officers at Newark Liberty International Airport in March 2021. He had been under investigation by DHS Investigations and the FBI before his arrival, and federal agents used CBP’s border authority as a means to conduct a search without seeking a warrant. Agents forced Smith into revealing his phone password under the threat of indefinite detention, copied the contents of his device, and returned it. Weeks later, the government obtained a search warrant for the data it had already reviewed and later secured a wiretap based in part on the findings from the initial search.
Judge Rakoff ruled that this process violated Smith’s Fourth Amendment rights. Relying heavily on the Supreme Court’s reasoning in Riley v. California, which held that law enforcement must obtain a warrant before searching an arrestee’s cell phone, Judge Rakoff reasoned that the vast quantity and sensitivity of digital information carried on modern devices demands greater constitutional protection and the border search exception did not justify the warrantless search and forensic copying of Smith’s phone.
Despite finding a constitutional violation, the court declined to suppress the evidence under the “good faith” exception. Judge Rakoff concluded that the agents had reasonably relied on existing CBP policy and that a subsequently obtained warrant covered much of the forensic review.
This case is currently on appeal at the Second Circuit. Smith remains a bold but isolated ruling. Judge Rakoff’s decision has not gained traction in other jurisdictions and in 2023, the Fifth Circuit declined to adopt Judge Rakoff’s reasoning in a similar case. To date, CBP has not issued any new guidance or directives in response. Whether Smith signals the start of a broader judicial shift, or remains an outlier cautionary case, will likely be determined by future decisions. In the meantime, individuals should assume that their devices may be subject to search or seizure at the border, even without a warrant. Therefore, to preserve digital privacy prepare accordingly. If a device is seized or an individual is detained, they should promptly contact a lawyer knowledgeable in border search and digital privacy law.
Key Takeaways
Travel light, digitally.Travelers should consider carrying “clean” devices that contain only the data needed for the trip. If a device is seized, having only limited data can help ensure a faster review and return, with less risk of compromising privacy or confidentiality.
Device searches are not limited to phones and laptops.Border agents may search any electronic storage device, including flash drives, portable hard drives, SIM cards, and other accessories. Travelers should consider removing or securing peripheral media before traveling.
Encryption and shutdown protocols matter.Ensure all devices are protected with full-disk encryption and power them off before arrival. (Apparently, CBP are able to remotely access devices in the customs areas.)
All documentation must be updated and valid.Non-citizens who are required to have a visa or work permit for entry need to ensure all documentation is valid (i.e. not expired or incomplete). Otherwise, the traveler will be turned away or possibly detained.
Protect your confidential and sensitive information. While device seizure at the border does not automatically signal a criminal investigation, information obtained during a border search may later be used in criminal, civil or immigration proceedings. Importantly, many travelers carry sensitive or protected data – such as trade secrets, privileged communications, HIPAA protected medical information, or confidential financial information on their devices. These categories of data may not be adequately protected from disclosure during a border search. Consulting with counsel in advance of travel can help protect this information appropriately.
Organizations should develop internal guidance.Employers, universities, and other institutions whose personnel travel internationally should consider developing clear protocols for cross-border travel with sensitive information. Consulting with counsel in advance of travel, particularly for individuals in sensitive roles, can help mitigate legal and reputational risks. It is important to know your risks and rights at the border.
U.S. Department of Education and the Department of Justice Initiate Title IX Enforcement Against Maine
The U.S. Department of Education (“ED”) is seeking to terminate federal education funding of the Maine Department of Education (“Maine DOE”) for noncompliance with Title IX of the Education Amendments of 1972 (“Title IX”). Colleges, school districts, and other regulated entities may learn valuable lessons about the Administration’s approach to federal civil rights compliance by following this story.
On February 21, 2025, the ED’s Office for Civil Rights (“OCR”) launched a directed investigation, alleging that Maine DOE had violated Title IX by allowing boys to compete on girls’ sports teams in Maine. Specifically, OCR alleged that Maine law, which permits student athletes in public school districts to compete on teams according to their gender identity, violates Title IX, citing the Executive Order, “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government.” Shared in a previous client alert, this Executive Order sought to limit the definition of sex under Title IX, and rescinded ED’s guidance protecting LGBTQIA+ students from harassment and discrimination under Title IX..
On March 19, 2025, OCR concluded that Maine DOE was in violation of Title IX, as its public school districts, which receive federal financial assistance, had policies or practices that “allow[ed] boys to participate in girls’ athletics programs and/or den[ied] female students access to female-only intimate facilities.” The speed of the investigation was surprising; previous OCR investigations of alleged civil rights violations often took months, and sometimes years, to complete. In fact, the speed with which OCR here acted has led commenters to question whether the investigation was sufficiently thorough.
On the same day that OCR concluded its directed investigation, OCR proposed a Resolution Agreement requiring Maine DOE and Maine public school districts to fulfill a number of conditions to demonstrate compliance with Title IX.
Under the Resolution Agreement, Maine public school districts would be required to submit an annual certification of compliance with Title IX, and promptly notify OCR of any violations, such as the participation of transgender female athletes in girls’ sports. Under the same agreement, Maine DOE would be required to:
rescind or revise any prior guidance documents or rules which permitted transgender female athletes to participate in girls’ teams and categories;
revoke individual recognitions from transgender female athletes;
award those recognitions and send a letter of apology to cisgender female athletes who received the next highest score or demonstrated the next best performance;
direct to all Maine public school districts that they must not allowing transgender female athletes to participate in any athletic program, access any locker room, or access any bathroom that is designated for females; and
clarify that if that state law conflicts with Title IX, a public school district must comply with Title IX or risk losing its federal funding.
In the intervening weeks, both the Maine Principal’s Association and Maine School Administrative District No. 51 refused to sign the Resolution Agreement, citing that compliance would violate the Maine Human Rights Act (“MHRA”), which prohibits discrimination based on a range of protected characteristics, including sex, sexual orientation, and gender identity. On April 11, 2025, the Maine Attorney General confirmed to ED that the state would not sign the Resolution Agreement.
On April 12, 2025, ED referred its Title IX investigation of Maine DOE to the U.S. Department of Justice (“DOJ”) for further enforcement action and ED initiated an administrative proceeding to terminate Maine DOE’s federal K-12 education funding, including formula and discretionary grants. Notably, under OCR’s current Case Processing Manual, the process allows for a referral to the DOJ or an administrative proceeding to terminate federal funds, not both. On April 16, 2025, the DOJ filed a civil suit against Maine.
Importantly, ED is not the only executive agency that has recently investigated Maine for alleged Title IX. The Department of Agriculture froze funding used for school lunch programs on the basis of alleged violations of Title IX, and Maine has filed its own lawsuit against the Department of Agriculture seeking to stop the freeze. The Department of Health and Human Services conducted its own investigation and, like DOE, concluded that Maine had violated Title IX and referred the matter to the DOJ. The Social Security Administration also terminated a contract with Maine in early March; however, the termination was later rescinded.
While not all jurisdictions have the same gender-based protections as Maine, all entities regulated by the DOE should follow Maine’s experience for indication of OCR and DOE’s approach to that type of investigation. Institutions alleged to have violated civil rights laws should expect speedy agency action, and possibly from multiple agencies.
Prescription Drugs: Executive Order Aims to Lower Prices
On April 15, 2025, President Trump signed an executive order (EO) with the aim of reducing the cost of prescription drugs. Although the EO is wide-ranging, its main provisions include:
Directing the Secretary of the U.S. Department of Health and Human Services (the Secretary) to seek comments on guidance for improving transparency and drug selection in the Medicare Drug Price Negotiation Program provisions of the Inflation Reduction Act (the Program) while minimizing negative impacts on drug development and pharmaceutical innovation.
Directing the Secretary to work with Congress to modify the Program to align the treatment of small molecule drugs with that of biologics. Biologics currently must be on market for 13 years prior to becoming eligible for price negotiation, as compared to the nine-year eligibility time period for small molecule drugs.
Aligning Medicare payments for outpatient drugs with hospital acquisition costs of such outpatient drugs.
Conditioning grants to community health centers on the health center’s establishment of practices to make insulin and injectable epinephrine available at or below the discounted price paid by the health center under the 340B Prescription Drug Program (plus a minimal administration fee) to certain low-income individuals.
Directing the Secretary, through the Commissioner of Food and Drugs, to improve the U.S. Food and Drug Administration Importation Program, which allows states to obtain approval to import drugs from foreign countries.
Directing the Secretary to evaluate and, if appropriate, propose site neutral regulations to ensure Medicare is not encouraging a shift in drug administration volume away from less costly doctor’s offices to more costly hospital settings.
The directives set forth in the EO are slated for implementation within the next year. Many of the directives, particularly those relating to drug prices and price negotiations, require legislative action by Congress. Bipartisan legislation has already been introduced in the House that would align the timeline for eligibility and price negotiation for small molecule drugs with biologics as set forth in the EO. However, many other provisions in the EO, such as the Importation Program, have historically not received broad bipartisan support.
Despite the hope of some pharmaceutical manufacturers to the contrary, the Trump administration has continued the Biden-era regulations relating to the Program and asserts that doing so could lead to greater savings than originally projected.
Interested parties should continue tracking legislative developments to discern which of these provisions will materialize.
Professional Services Exclusion Leaves Pharmacy’s Coverage Order Unfilled
Coordinating various insurance products to avoid coverage gaps can be a complex undertaking as exposures are shifted from one policy to another across different insurers, policy forms, and coverages. One recent case, Singh, Rx, PLLC, et al. v. Selective Insurance Company of South Carolina, et al., No. 24-1678, left a pharmacy without coverage when a professional services exclusion barred coverage that was not covered under a separate professional liability policy geared at covering those risks. The case is a reminder of the importance of understanding insurance policy exclusions, particularly in the context of professional services, and especially where the excluded risks are not covered by other policies.
Factual Background
SRX’s coverage dispute arose when a pharmaceutical manufacturer sued a specialty care pharmacy for allegedly distributing counterfeit HIV medication. The lawsuit included multiple claims, including trademark infringement and unfair competition, which prompted the pharmacy to seek defense and indemnification from its general liability and professional liability insurers.
The general liability insurance policy covered business liabilities arising out of bodily injury, property damage, or personal and advertising injury. However, the policy explicitly excluded claims related to the performance of professional services, including the practice of pharmacy. The professional liability policy covered professional liability due to a medical incident and liability for personal injury claims. But coverage was limited to claims made by a natural person. The underlying claim involved professional services and was brought by a company (not an individual). Both insurers denied coverage based on the exclusions and limitations in their respective policies.
The Sixth Circuit
The Michigan district court and the United States Court of Appeals for the Sixth Circuit agreed with the insurers’ denials, granting summary judgment and affirming that the claims made by the pharmaceutical manufacturer fell outside the coverage of the policies. For their analysis under the general liability policy’s professional services exclusion, the courts relied on Michigan law, which defines professional services as acts “involving specialized skill of a predominately intellectual nature.” The Sixth Circuit explained that Michigan courts have interpreted professional services exclusions broadly to encompass “acts reasonably related to the overall provision of professional services.”
In this case, the Sixth Circuit determined that even routine tasks associated with pharmacy practice required a level of expertise that placed them under the umbrella of professional services. For example, according to the court, buying and selling medications constitute actions that “implicate a pharmacist’s specialized knowledge, because pharmacists need to select the right drugs to target specific conditions.” The court reasoned that the alleged injury was the pharmacy’s failure to perform its professional duty to prescribe the right medicine to treat HIV and, as a result, held that the general liability policy’s professional services exclusion barred coverage.
Unfortunately for the policyholder, the professional liability policy did not cover the lawsuit either. That policy contained a limiting endorsement modifying the definition of “claim” to mean only “a demand for money or services alleging injury or damage” brought “by a natural person.” Because the lawsuit was brought by a pharmaceutical manufacturer—a corporate entity and not a natural person—the “claim” definition was not met.
The Sixth Circuit rejected the policyholder’s arguments that the limited endorsement conflicted with definitions of “claim” elsewhere in the policy and that the endorsement rendered coverage illusory. Accordingly, the court held that the professional liability insurer had no duty to defend or indemnify the claims.
Conclusion
This case underscores the importance for all companies, especially those providing specialized services, to understand not only what kinds of liability policies they have but whether those policies are tailored appropriately to work together and avoid unexpected denials. It serves as a cautionary tale for businesses that may assume they are covered for a broader range of claims than their policies actually allow.
As the critical endorsement showed in the SRX dispute, liability policies are highly negotiable and customizable. Policyholders should ensure they are adequately protected against potential liabilities by conducting a holistic review of their insurance programs, as coordinating insurance coverage across various insurance products is often key to protecting a business against potential coverage gaps.