California Privacy Protection Agency Clarifies Application of the CCPA to Insurance Companies
The California Privacy Protection Agency board voted on November 8, 2024, to advance a proposed rulemaking package for, among other things, a proposed regulation to clarify the application of the California Consumer Privacy Act (CCPA) to insurance companies.
Quick Hits
The California Privacy Protection Agency voted in November 2024 to advance a proposed regulation to clarify the application of the California Consumer Privacy Act (CCPA) to insurance companies.
The proposed regulation defines “insurance company” and specifies that the CCPA applies to personal data not governed by the California Insurance Code.
Illustrations in the proposed regulation clarify that insurance companies must comply with the CCPA for personal data collected from website visitors and employees.
Information obtained in an insurance transaction is governed by the federal Gramm-Leach-Bliley Act. Given this, there has been uncertainty about the CCPA’s application to insurance companies, which are state regulated. In a brief proposed regulation, the agency attempted to clarify this issue to a certain degree.
As an initial matter, the proposed regulation defines the term “insurance company” as any person or company that is subject to the California Insurance Code and its regulations, including insurance institutions, agents, and insurance support organizations. The term “insurance institution” means “any corporation, association, partnership, reciprocal exchange, interinsurer, Lloyd’s insurer, fraternal benefit society, or other person engaged in the business of insurance.
The term “agents” means a person who is licensed to transact insurance in California and an “insurance support organization” means any person who regularly engages, in whole or in part, in the business of assembling or collecting information about natural persons for the primary purpose of providing the information to an insurance institution or agent for insurance transactions.
Having defined the scope, the proposed regulation states that the CCPA applies “to any personal information not subject to the Insurance Code and its regulations.” Although the statement lacks definite clarity, the proposed regulation provides some guidance with an additional statement that the CCPA’s requirements apply to information “that is collected for purposes not in connection with an insurance transaction, as that term is defined in Insurance Code, section 791.02.” Section 791.02(m) defines insurance transaction as “any transaction involving insurance primarily for personal, family, or household needs rather than business or professional needs that entails either of the following: (1) The determination of an individual’s eligibility for an insurance coverage, benefit, or payment. (2) The servicing of an insurance application, policy, contract, or certificate.”
The proposed regulation provides two illustrations that further clarify the application of the CCPA:
“Insurance company A collects personal information from visitors of its website who have not applied for any insurance product or other financial product or service from Company A. This information is used to tailor personalized advertisements across different business websites. Insurance company A must comply with the CCPA, including by providing consumers the right to opt-out of the sale/sharing of their personal information and honoring opt-out preference signals, because the personal information collected from the website browsing is not related to an application for or provision of an insurance transaction or other financial product or service.”
“Insurance company B collects personal information from its employees and job applicants for employment purposes. Insurance company B must comply with the CCPA with regard to employee information, including by providing a Notice at Collection to the employees and job applicants at or before the time their personal information is collected. This is because the personal information collected in this situation is not subject to the Insurance Code or its regulations.”
Insurers may also want to note that the second illustration applies only to California resident job applicants and employees. The notice to job applicants required under the CCPA should be provided if the company solicits applicants from California.
Finally, the CCPA is not the only privacy law or regulation that needs to be considered with regard to the collection and use of consumer data and information. In particular, California Penal Code sections 630 and 638.51 are currently the subject of numerous lawsuits.
GLP-1 Drugs: FDA Removes Semaglutide from the Drug Shortage List
On February 21, 2025, the U.S. Food and Drug Administration (FDA) issued a Declaratory Order determining that the semaglutide drug shortage has been resolved. The timing of this order was unexpected due to the ongoing litigation between FDA and the Outsourcing Facilities Association (OFA) involving tirzepatide, though the decision was not. Our prior blog “GLP-1 Drugs: FDA Sued Over Removing Tirzepatide from the Drug Shortage List” discusses the litigation. On February 24, 2024, OFA initiated a similar action against FDA challenging the removal of semaglutide from the drug shortage list.
FDA’s Declaratory Order: FDA’s 13-page order describes the process that FDA undertook to come to this conclusion and explains that FDA obtained information both from the manufacturer (Novo Nordisk) as well as from patients, health care providers, and others, including compounders. FDA concluded that based on the available evidence, that the supply of semaglutide “meets or exceeds current demand, and that, based on our best judgment looking at the available information with its limitations, supply will meet or exceed projected demand.”
FDA acknowledges in the Declaratory Order that:
[E]ven when a shortage is considered resolved, patients and prescribers may still see intermittent localized supply disruptions as products move through the supply chain from the manufacturer and distributors to local pharmacies.
Current Status of Compounding of Semaglutide: With respect to the current status of compounding of semaglutide, FDA noted that it wished to “avoid unnecessary disruption to patient treatment,” and outlined the current enforcement policy moving forward:
[T]he agency does not intend to take action against compounders for violations of the Federal Food, Drug, and Cosmetic Act (FD&C Act) arising from conditions that depend on semaglutide injection products’ inclusion on FDA’s drug shortage list:
For a state-licensed pharmacy under section 503A of the FD&C Act compounding, distributing or dispensing semaglutide injections within 60 calendar days from today’s announcement, until April 22, 2025.
For outsourcing facilities under section 503B compounding, distributing or dispensing semaglutide injections within 90 calendar days from today’s announcement, until May 22, 2025.
FDA may still take action regarding violations of any other statutory or regulatory requirements, such as to address findings that a product may be of substandard quality or otherwise unsafe.
In addition to the Declaratory Order, FDA also published an update to its website entitled “FDA Clarifies Policies for Compounders as National GLP-1 Supply Begins to Stabilize.” This update also included FDA’s enforcement policy described above, as well as stated that although dulaglutide remains “in shortage”, the manufacturers have reported all presentations are available. Liraglutide is also still in shortage, but the manufacturer has reported two presentations are available but three have limited availability. Finally, FDA notes that “[w]hen a status is noted as ‘available,’ that reflects the most current information from the manufacturer but is not an FDA determination that the shortage has been resolved.”
In the ongoing case with the OFA involving tirzepatide, the parties are currently filing briefs on the Plaintiff’s motion for preliminary injunction. Briefing will be completed on February 25, 2025. We expect the Court to rule on the motion sometime in March. Depending on the Court’s ruling, the outcome could have an impact on the continued availability of semaglutide as well.
On Monday, February 24, 2025, OFA filed a lawsuit against FDA in Fort Worth Texas over FDA’s decision to remove semaglutide from the drug shortage list. The lawsuit claims the FDA’s finding that there was no longer a shortage of semaglutide was arbitrary and capricious. We expect this case to proceed on a similar track as tirzepatide and the cases may be consolidated.
Key Takeaways. FDA’s determination to remove semaglutide from the drug shortage list is not surprising. The only surprise here is the timing. Compounding of semaglutide will continue until at least May 22, 2025, for 503B Pharmacies (also known as 503B Outsourcing Facilities, which are compounding pharmacies that can produce large batches of medications without patient-specific prescriptions). Whether it will extend beyond that timeframe will depend on the outcome of the OFA litigation and FDA’s reaction to the case.
It will also be very interesting to watch developments on certain GLP-1 products that continue to be compounded under the rationale that certain compounded products are required to meet the individual needs of patients. There are a number of different doses, different dosage forms, and combination of ingredients being compounded, and FDA has not yet taken a position with respect to these compounded products.
Want To Learn More? See our prior blogs.
FDA Targets GLP-1 Providers with Warning Letters
GLP-1 Drugs: FDA Removes Lilly’s Zepbound® and Mounjaro® (semaglutide injection) from its Drug Shortage List
GLP-1 Drugs: Brand Companies Push FDA to Limit Compounding
Contesting a Will in Pennsylvania: Understanding Your Rights
In Pennsylvania, contesting a will is a serious legal action that should not be taken lightly. It can be emotionally challenging, especially if you believe that the will does not reflect the true intentions of the deceased. However, the law in Pennsylvania provides specific grounds and procedures for individuals who wish to contest a will. This blog post will explore the grounds for of contesting a will.
Grounds for Contesting a Will in Pennsylvania
Under Pennsylvania law, there are several valid reasons to contest a will. Common grounds for contesting a will include:
Lack of Testamentary Capacity
A will may be contested if the individual who made the will (the testator) lacked the mental capacity to do so at the time it was executed. To have testamentary capacity, the testator must understand the nature of their estate, know who their heirs are, and comprehend the effect of the will. If the testator was suffering from dementia, mental illness, or was under the influence of medication that impaired their judgment, this could serve as a basis for contesting the will.
Undue Influence
A will may be contested on the grounds of undue influence if it is proven that the testator was coerced or manipulated by another person to create a will that does not reflect their true desires. In Pennsylvania, undue influence is difficult to prove and requires evidence that the person exerted such influence over the testator that the will would not have been made but for that influence.
Fraud or Forgery
If the will was procured through fraudulent means or if it is believed that the testator’s signature was forged, the will can be contested on the grounds of fraud or forgery. This might involve scenarios where the testator was deceived into signing the will or where the will was altered after it was signed.
Improper Execution
Under Pennsylvania law, a valid will must be executed in accordance with strict formalities. This includes the requirement that the will be signed by the testator in the presence of at least two witnesses who also sign the will. If these formalities are not followed, the will may be contested on the grounds of improper execution.
Revocation of the Will
A will can be contested if there is evidence that the testator revoked the will before their death. Revocation can occur through physical destruction (tearing, burning, etc.), a written revocation, or by creating a new will that explicitly revokes the previous one. If there is doubt as to whether the will was revoked, it can be contested.
Contact a Pennsylvania Litigation Attorney to Contest a Will
Contesting a will in Pennsylvania can be a complex and emotionally taxing process. Whether you believe a will is invalid due to lack of capacity, undue influence, fraud, or any other reason, it is crucial to have a clear understanding of the legal grounds and the steps involved. If you are considering contesting a will, it is highly advisable to consult with an experienced probate litigation attorney who can guide you through the process, help build your case, and ensure your rights are protected
DHS Secretary Noem Deputizes State Department Officials as Immigration Officers
Department of Homeland Security (DHS) Secretary Kristi Noem signed a memorandum deputizing up to 600 special agents within the State Department’s Diplomatic Security Service across the country to help with arresting and deporting illegal immigrants, DHS announced Feb. 20, 2025.
The memorandum authorized special agents within the State Department’s Diplomatic Security Service to perform the functions of an immigration officer, including investigating, determining the location of, and apprehending any alien who is in the United States in violation of Title 8, Chapter 12 or regulations issued thereunder and enforcing any requirements of such statutes or regulations.
DHS has also deputized Internal Revenue Service employees and Department of Justice employees to help with immigration enforcement actions. These deputations give law enforcement additional resources to contribute to President Donald Trump’s campaign promise of carrying out mass deportations.
NLRB’s General Counsel Initiatives Trumped: Here We Go Again with Dramatic Shifts in Labor Law
As the mainstream media has reported, President Trump is firing everyone he can (and maybe some he can’t) at the National Labor Relations Board. On day one, the president fired the NLRB’s general counsel, Jennifer Abruzzo, a former union lawyer who President Biden appointed in July 2021. Abruzzo had been known for her aggressive agency-directive “memos” sending the NLRB into uncharted territory in favor of employee and union rights. These memos covered a multitude of topics, including expansion of NLRB remedies, prohibition of employer-led workplace meetings, outlawing noncompete agreements, deeming student-athletes employees under the labor law, recommending aggressive use of preliminary injunctive relief, and many others. We previously blogged about many of the Abruzzo initiatives here. With Abruzzo’s discharge, and the appointment of new Acting General Counsel William Cowen, most of these extreme memos from Abruzzo’s term have gone away. So, the shift back to a more employer-friendly NLRB is underway.
Out with the Old . . .
On February 14, 2025, Cowen issued Memorandum 25-05. This memo states very succinctly:
“Over the past few years, our dedicated and talented staff have worked diligently to process an ever-increasing workload. Notwithstanding these efforts, we have seen our backlog of cases grow to the point where it is no longer sustainable. The unfortunate truth is that if we attempt to accomplish everything, we risk accomplishing nothing.”
With this stated justification, Cowen “determined that the following actions are warranted.” Among the Abruzzo memos rescinded are (and these are just a few of them):
Statutory Rights of Players at Academic Institutions (Student-Athletes) Under the National Labor Relations Act
Electronic Monitoring and Algorithmic Management of Employees Interfering with the Exercise of Section 7 Rights
Non-Compete Agreements that Violate the National Labor Relations Act
Remedying the Harmful Effects of Non-Compete and “Stay-or-Pay” Provisions that Violate the National Labor Relations Act
Securing Full Remedies for All Victims of Unlawful Conduct
Ensuring Settlement Agreements Adequately Address the Public Rights at Issue in the Underlying Unfair Labor Practice Allegations
Section 10(j) Injunctive Relief
Guidance on the Propriety of Mail Ballot Elections
The Right to Refrain from Captive Audience and Other Mandatory Meetings
Ensuring Rights and Remedies for Immigrant Workers Under the NLRA
Goals for Initial Unfair Labor Practice Investigations
Undoubtedly, the new NLRB will address several other labor-relations issues. However, some of these other issues are not governed by general counsel memos; they are governed by NLRB decisions themselves. For example, the new card-check union recognition procedure and the ban on employer-led workplace meetings will have to be addressed in legal cases separately from these memo rescissions.
The New to Be Determined . . .
We will have to stay tuned for these developments. As of now, the NLRB basically is non-functional because of a shortage of confirmed members. Bringing the NLRB back to full operating status could take a year or more.
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Loper Bright Dealt a Blow to the FTC’s Noncompete Rule — Will the New FTC Chairman Deliver the Knockout?
The Supreme Court’s decision in Loper Bright Enterprises v. Raimondo has and will continue to alter the legality and enforceability of federal agency rules and regulations related to ambiguous federal statutes. As a reminder, Loper Bright abolished the Chevron doctrine, which instructed courts to give deference to federal agency interpretations of ambiguous statutes. In Loper Bright, the Supreme Court held that the Administrative Procedure Act (“APA”) requires courts to “exercise independent judgment” when evaluating the constitutionality of a federal agency’s rulemaking or interpretation of an ambiguous statute. For a more detailed discussion of the Loper Bright decision and its overruling effect on the Chevron doctrine, please refer to our earlier blog post, which discusses Loper Bright’s impact on the International Trade Commission. This blog post focuses on another agency that has already felt the impact of Loper Bright, the Federal Trade Commission (“FTC”).
Last year, the FTC issued a final rule banning employers from entering new noncompete clauses as well as enforcing some pre-existing noncompete clauses (“the Rule”). 16 CFR § 910. In its announcement of the Rule, the FTC stated that the ban will “promote competition . . ., protect[] the fundamental freedom of workers to change jobs, increas[e] innovation, and foster[] new business formation.” This employee-friendly ban, which in many ways mirrors the law of the state of California, was received with much concern by trade secret owners. Noncompete clauses are measures commonly used by rightsholders to protect their trade secrets. Rightsholders are thus concerned outgoing employees could freely move and disseminate valuable trade secrets to competitors.
Their concerns, however, may be assuaged due to two recent developments. First, an order from the Northern District of Texas, which set aside the Rule nationally, is pending appeal before the U.S. Court of Appeals for the Fifth Circuit. Second, the newly designated FTC Chairman, Andrew Ferguson, who was sworn in on January 20, 2025, has publicly criticized the Rule since its origin.
Below, we discuss the recent order from the Northern District of Texas and the pending appeal. Additionally, we evaluate the Rule’s likely fate following Chairman Ferguson’s appointment. And lastly, we provide rightsholders with a few helpful takeaways to protect their trade secrets amongst the uncertainty.
Ryan, LLC v. Federal Trade Commission
On the same day that the FTC promulgated the Rule, Ryan, LLC (“Ryan”) filed suit against the FTC challenging the constitutionality of the Rule. Shortly after filing suit, Ryan was joined by several plaintiff intervenors. Ryan, a global tax-consulting firm headquartered in Dallas, routinely requires its principals and other workers to agree to temporally limited noncompete clauses to protect Ryan’s trade secrets. Ryan argues the Rule threatens to harm its business secrets by allowing its employees to freely move to competitors. These harms, as Ryan alleges, cannot be mitigated through the use of non-disclosure agreements (“NDAs”) and trade secret law because of the violations of NDA and trade secret law are less visible and harder to prove than violations of noncompete agreements. Ryan further argues that this harm is not unique to its industry and that other businesses that own intellectual property and rely on skilled labor are exposed to the same risks under the Rule. After a litany of procedural and discovery challenges, Plaintiffs moved for summary judgment challenging the constitutionality of the Rule.
On August 20, 2024, District Court Judge Ada Brown issued an order granting Plaintiffs’ Motion for Summary Judgment holding the Rule unconstitutional and setting it aside with national effect. The Court, following the guidance of Loper Bright, explained that the APA was enacted “‘as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.’ Further following Loper Bright, the Court analyzed the constitutionality of the Rule under “the APA[, which] delineates the basic contours of judicial review of such action.” Under the APA’s Section 706(2)(A)-(C), “courts must ‘hold unlawful and set aside agency action, findings, and conclusions found to be … arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’ ‘contrary to constitutional right, power, privilege, or immunity;’ or ‘in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.’”
The Court begins its analysis by evaluating whether the FTC had statutory authority to promulgate the Rule. In its analysis, the Court agreed with Plaintiffs, holding that the FTC exceeded its statutory authority in promulgating the Rule. The Court ruled that “the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition, under Section 6(g).” This wide sweeping rule effectively limits the FTC’s ability to regulate unfair competition to rules proffered under Section 5 of the FTC Act. The Court held the plain reading of Section 6(g) only gave the FTC authority to make rule for the purpose of classifying and regulating corporations, not regulating unfair competition. The Court also looked to the historical use of Section 6(g) and found that it was seldomly used to promulgate rules, noting that the FTC hadn’t promulgated a rule under Section 6(g) since 1978. In view of the text, which may come as a surprise. After reviewing the text, structure and history of the Act, the Court concluded that the FTC lacked substantive rule making authority under Section 6(g) and was only intended as a “’housekeeping statute’ authorizing what the APA terms ‘rules of agency organization procedure or practice’ as opposed to ‘substantive rules,’” quoting Chrysler Corp. v. Brown, 441 U.S. 281, 310 (1979). This ruling certainly raises an eyebrow or two as it appears the Court gave too much weight to the lack of rulemaking activity. First, the Court discredits a period of sixteen years from 1962 to 1978 where the FTC did promulgate substantive rules under Section 6(g). Second, and most notably, the Court’s ruling is contrary to a holding from the D.C. Circuit that concluded the FTC had rulemaking authority under section 6(g). In that 1973 case, National Petroleum Refiners Ass’n v. FTC, the court stated, “Our conclusion [that the FTC has substantive rule making authority under] Section 6(g) is not disturbed by the fact that the agency itself did not assert the power to promulgate substantive rules until 1962 and indeed indicated intermittently before that time that it lacked such power.”
Despite reaching the conclusion that the FTC lacked rule making authority under Section 6(g), the Court continues its analysis to determine if the Rule passes muster under the APA’s arbitrary-and-capricious standard. A rule “is arbitrary or capricious only when it is so implausible that it could not be ascribed to a difference in view or the product of agency expertise,” quoting the 5th Circuit’s 1993 decision in Wilson v. U.S. Dep’t. of Agric.. In concluding that the Rule did not pass muster, the Court explained, “the Rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation” and “imposes a one-size-fits-all approach with no end date.” The Court found that the FTC’s reasons for the Rule were neither reasonable nor rationally connected to a categorical ban of noncompete clauses. Although the FTC had studied state policies on noncompetes, none of the states had enacted a categorical ban as the Rule seeks to do. Moreover, each state that the FTC had studied enacted noncompetes based upon specific facts that made the corresponding noncompete reasonable for that state, without any explanation why any the state-specific noncompete policies were appropriate for nationwide application. This was “completely inapposite to the Rule’s imposition of a categorical ban.” On these grounds, the Court held that the Rule was unlawful and set it aside with nationwide effect.
Appellate Review
As expected, shortly after the Court granted summary judgment for Plaintiffs, the FTC filed a notice of appeal setting this case up for review by the U.S. Court of Appeals for the Fifth Circuit. It is still early days for the appeal with the FTC filing its opening brief on January 2, 2025. It is worth noting that the brief was filed by the FTC under the Biden Administration, so we expect the arguments presented therein will not be representative of the FTC under the Trump Administration. Accordingly, we expect the current administration to move to dismiss the appeal.
In an effort to save the appeal, on January 13, 2025, a triumvirate comprising individuals claiming some potential harm from the lower court setting aside the Rule moved to intervene as defendant-appellants (“the Proposed Intervenors”). In their motion, the Proposed Intervenors argue intervention is justified because the change in administration and changes to the FTC’s leadership create a substantial likelihood that the government will stop defending the Rule. The Motion for Intervention is opposed by both Plaintiff-Appellee Ryan and Defendant-Appellant FTC.
The Proposed Intervenors, however, face an uphill battle. The Fifth Circuit allows “intervention on appeal only in an exceptional case for imperative reasons.” As Ryan pointed out in its Opposition Brief, the Fifth Circuit “denied sixteen States’ motion to intervene in National Association for Gun Rights, Inc. v. Garland, which was premised on the same grounds as the motion at issue. Ryan and the FTC, in their respective briefs, further argue that new presidential administrations commonly decline to defend the prior administration’s regulatory actions, which supports a finding that this case is not exceptional.
Regardless of the Proposed Intervenors’ efforts to overcome the high bar before them, the issues on appeal may become moot should the FTC choose to rescind the Rule. This outcome appears likely because newly appointed FTC Chairman Andrew Ferguson has strongly opposed the Rule since its inception.
New FTC Chairman Opposes the Rule
As mentioned above, Chairman Ferguson officially took office on January 20, 2025. Prior to being appointed Chairman, he was a commissioner on the FTC and was one of two commissioners who voted against the Rule’s promulgation. He also authored a strongly-worded dissenting statement that criticized the Rule as “the most extraordinary assertion of authority in the Commission’s history.” He criticized the FTC for overstepping its rulemaking authority by issuing the Rule without clear congressional authorization. But while his dissent is scathing, Chairman Ferguson is not in favor of unregulated noncompete agreements. He sees sound justifications for regulations, but his position is that regulation should be left to the states or Congress.
Chairman Ferguson’s dissent does not mince words, calling the Rule “unlawful” and “violat[ing] the basic requirements of the [APA].” Given his strong opposition to the Rule, it would be a surprise if Chairman Ferguson does not rescind the Rule once he has the votes to do so.
What Now for Rightsholders
Although it seems extremely likely that the Rule will be rescinded, this is not likely to happen quickly. The Trump Administration has not identified rescinding the rule as a priority, and Chairman Ferguson has not made public statements about it following his appointment. Instead, the comments out of the FTC suggest that its focus is elsewhere. Another reason for delay is that a fifth commissioner must be appointed, necessitated by Lina Khan’s resignation. Therefore, it is likely that the Rule will be stuck in purgatory for the time being.
Therefore, rightsholders may want to exercise caution if they choose to enter or enforce contracts that contain noncompete clauses, since that action would technically violate the Rule. Industry experts think it is unlikely the FTC under Chairman Ferguson will take action against such technical violations. “Unlikely,” however, is not a guarantee, so rightsholders should beware that they are exposed to some risk if they choose to ignore the Rule under the assumption that it will be rescinded. In fact, the FTC has published a notice stating that it may still address unlawful “noncompetes through case-by-case enforcement actions.” Thus, to the extent a rightsholder is at all nervous about the legality of its noncompete clause but still feels the need to bring an action against a former employee based on trade secret misappropriation, it might consider whether the breach of the noncompete is truly additive to the process—that is, will the rightsholder have more leverage or be able to obtain better or greater relief by bringing the noncompete claim? For example, in many cases, a rightsholder could forego the breach of contract claim over the noncompete, and instead pursue claims under the Defend Trade Secrets Act. Proceeding in this manner would have the effect of minimizing the risk of FTC action while also preserving claims as to what the rightsholder really cares about: the misappropriation of its trade secrets.
In fact, there are numerous other trade secret protection mechanisms at their disposal that are just as, if not more, effective than noncompete clauses. For example, NDAs offer protection through contractual means, like noncompete clauses. Another excellent option is conducting exit interviews of outgoing employees. Exit interviews give the employer the opportunity to learn where the employee is leaving to and whether the new job is a competitor that should be subsequently monitored. Additionally, exit interviews let the employer remind the outgoing employee of any NDAs and inform them about the legal consequences of trade secret misappropriation. Further, an employer can control the number or level of employees with access to the hardware, software, and documents containing trade secrets. Further, where practicable, the rightsholder can employ software that tracks which employees access, edit, and/or copy what files. While this software sounds exotic, standard programs like Office 365 usually have these types of logs for basic data. Finally, rightsholders can limit access to facilities containing trade secrets to only those employees that are necessary for either utilizing or improving the trade secrets.
So, fret not, rightsholders, your trade secrets can still be adequately protected whether or not the Rule is rescinded.
Australia – Compensation Scheme of Last Resort (CSLR)
Underfunded From Inception
The operator of CSLR has released the latest actuarial report commissioned on the scheme and the initial estimates of projected levies for 2025 / 26 (3rd levy period), triggering widespread concern across the financial services industry and immediately prompting the Treasury to announce a comprehensive review of the scheme.
The proposed financial advice sub-sector levy for 2025 / 26 of AU$70 million will significantly exceed (by nearly four times) the legislated AU$20 million sub-sector cap in only its second full year of operation with the main drivers of the increase being:
The recent failures of a second advice firm, United Global Capital, which in addition to Dixon Advisory are responsible for 92% of the claims estimated to be paid by the scheme for 2025 / 26; and
The failure by Government to ensure that the scheme was adequately funded at commencement bearing in mind the then known failure of Dixon Advisory.
Prior to this latest announcement from CSLR the Senate had already launched an inquiry into the collapse of Dixon Advisory and the implications for the establishment of the CSLR.
K&L Gates has assisted in the making of submissions to the Senate inquiry late last year and identified a number of significant flaws in the design and implementation of the CSLR. The release of the projected levies for the 3rd levy period bears out many of the concerns which were raised in those submissions including the following:
There was an insufficient understanding of the potential claims emerging from the known circumstances of Dixon Advisory at the time of commencement of CSLR.
This led to insufficient initial contributions from both the Federal Government and Australia’s 10 largest financial institutions to fund the commencement of the CSLR being set too low.
The role of AFCA in assessing claims results in claimants more often than not being eligible to receive compensation payments near the maximum amount available from CSLR.
The inclusion in CSLR funding estimates of projected liabilities of the fees and costs incurred by AFCA, CSLR, and ASIC have added significantly to the total liabilities which needs to be funded by the advice sub-sector.
There is no evidence that claimants are required to demonstrate that they have exhausted all other compensation avenues such as against product issuers in the case of Dixon Advisory.
The existence of compensation available through CSLR reduces the incentive for parent companies’ administrators and other stakeholders to contribute to the administration of insolvent firms.
These factors undermine the CSLR’s objectives of enhancing trust and confidence in the Australian financial system and promoting sound and ethical business practices.
The release of the actuarial report confirms that without significant and prompt remedial action, the CSLR will be a material and growing liability for the advice sub-sector for years to come.
The Story of the Ghost: How a “Loophole” Created a Behemoth of Intoxicating Cannabis Products and What (If Anything) Congress Intends to Do About It
I feel I never told youThe story of the ghost
To paraphrase the legendary Dave Chapelle, in the midst of impersonating Rick James, “cannabis is a hell of a drug.” Thankfully I don’t mean that in the same sense as Mr. Chapelle/James did. I mean that marijuana and its relatively newly defined sister plant “hemp” are unique in that they have experienced explosive growth and remarkable evolutions in legal status even though marijuana has, for the entirety of this growth and evolution, remained a Schedule I substance under the federal Controlled Substances Act.
There are several reasons for this almost unprecedented legal anomaly, including federal guidance documents and a federal appropriations rider discouraging state-authorized medical cannabis use. But the thousand-pound gorilla in the room – or the ghost, for this title to make sense – is the development of intoxicating cannabinoids that Congress arguably (if unwittingly) allowed when it passed the 2018 Farm Bill. In a few short years, intoxicating cannabinoids have exploded on the scene, as anyone who walks into a gas station, grocery store, or convenience store can attest. This multibillion-dollar industry grew from scratch to become a thorn in the state-licensed marijuana industry and poses challenging questions for Congress as it debates the next Farm Bill this year.
Let’s get into it.
A Law, a “Loophole,” or a Trojan Horse?
If you talk to marijuana operators, you will almost certainly hear about the “loophole” in the 2018 Farm Bill that allowed for the creation and subsequent explosion of non-marijuana products that compete with marijuana products.
So, what exactly is this “loophole”?
At the federal level, the Controlled Substances Act has defined “marijuana” for more than 50 years as:
The term [marijuana] means all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.
In the 2014 and 2018 Farm Bills, Congress created a legal definition of “hemp”:
the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.
Shortly after Congress created this separate definition of hemp, savvy (and, in some instances, unsavory) operators concluded that Congress had created a loophole of sorts that would allow for products that contained cannabinoids from the cannabis plant – even those with psychoactive or intoxicating effects – as long as the concentration of delta-9 THC on a dry weight basis is not more than 0.3%. It was this interpretation of the Farm Bill, replicated in the 2018 version, that led to the proliferation of consumable products containing delta-8 THC, delta-10 THC, and the like.
Ergo, the loophole. And it makes me think of these lyrics:
For this was my big secretHow I’d get ahead
His answer came in actionsHe never spoke a word
I somehow feel forsakenLike he had closed the door
I guess I just stopped needing himAs much as once before
In this author’s opinion, Congress did not intend in 2018 for the intoxicating hemp boom as we know it today. I also believe the Farm Bill on its face allows for many of the intoxicating hemp products we now see today, be it at a dispensary that resembles an Apple Store to a row of shelves at a gas station. I further believe that most legislators probably didn’t have the first idea of what they were voting on in 2018. Maybe that makes me a simpleton or maybe someone who can keep more than one idea in my head at the same time.
Those dual concepts pose an interesting challenge to those who consider whether one should look to the words of a statute or the intent of those who enacted the law. As a general principle, I tend to look to the former, but I certainly understand those who take the position that an unintended loophole should not be used to end-run legislative intent.
I guess there are some people out there who could argue that Congress knew it was creating an expansive legal hemp market, but (1) I haven’t seen many people whose opinion I value seriously press that argument, and (2) I would have expected Congress to create a regulatory framework to accompany this broad new category of intoxicating products.
So, What’s Next?
Regardless of how you view the implications of the 2018 Farm Bill, it is hard to disagree that it led to the development of a substantial industry in intoxicating hemp. Intoxicating hemp companies have generated hundreds of millions (if not billions) of dollars in tax revenue for state and federal coffers and have offered millions of Americans jobs and therapies that were not previously available. Whether that is a good thing or a bad thing is, I suppose, in the eye of the beholder.
And that brings us to the next Farm Bill and what it may portend for intoxicating hemp products. Though the cannabis portion of the bill will make up a tiny percentage of the Farm Bill’s text and there are enormous consequences to so many other provisions of the massive legislation, one would be wrong to assume there isn’t a street fight occurring in Washington between marijuana operators and hemp operators. Tens of millions of dollars – at least – are being spent on lobbying efforts to influence federal cannabis policy. Lawmakers are regularly fielding questions from constituents and their local media about the proliferation of hemp in its various forms. This is going to come down to the wire, and the specific language (likely with tweaks imperceptible to the average American and even many in Congress) will have enormous consequences for the cannabis industry in America. Truly, the devil – ahem, ghost – will be in the details.
At the end of the day, I suspect Congress will land on some sort of compromise that allows for at least some versions of intoxicating hemp products. If true, I would expect Congress to direct some agency or agencies to adopt regulations governing the manufacturing, testing, marketing, and sales of such products. Operators targeting children or making health claims aimed at vulnerable populations are in the most jeopardy, and purveyors of novel cannabinoids and high-THC products should be concerned as well. Low-THC products, including the increasingly popular hemp beverages, seem to have occupied a different place in the public eye and may be codified, albeit subject to more definite regulation.
If I’m right, marijuana operators won’t be completely satisfied, but neither will hemp operators. Maybe I’m just crazy enough to believe Congress can find a compromise.
Conclusion
For the past almost seven years, intoxicating cannabinoids have — in the eyes of many — become a sort of ghost haunting marijuana industry. I’m not sure that’s the right way to look at it. While I have no doubt, and certainly understand why, many marijuana operators would prefer to exist in a world without the perceived competition from these hemp products, I’ll ask again: Why can’t weed be friends?
Federal Court Issues Partial Preliminary Injunction Halting Enforcement of DEI-Related EOs
On February 21, 2025, the U.S. District Court for the District of Maryland issued a preliminary injunction pausing enforcement of several provisions of President Trump’s DEI-related executive orders on Ending Radical and Wasteful Government DEI Programs and Preferencing (“EO 14151”) and Ending Illegal Discrimination and Restoring Merit-Based Opportunity (“EO 14173”).
Notably, the ruling prevents the federal government from enforcing a clause of EO 14173 which would have required federal contractors and grantees to certify both that they: (i) do not operate “illegal” DEI programs; and (ii) are in material compliance with federal anti-discrimination laws – provisions which would have raised potential False Claims Act (“FCA”) liability for covered entities.
Background
Plaintiffs, the National Association of Diversity Officers in Higher Education, American Association of University Professors, Restaurant Opportunities Centers United, and the Mayor and City Council of Baltimore (collectively, “Plaintiffs”), are federal contractors and grantees that fund DEI-related research, offer professional development services to individuals from underrepresented backgrounds, and conduct other “DEI-related activities.” On February 3, 2025, Plaintiffs brought suit against President Trump, Attorney General Pam Bondi, and various federal agencies and agency heads, claiming the following provisions of EOs 14151 and 14173 pose an imminent threat of harm to members of Plaintiffs’ organizations and violate the First Amendment, Fifth Amendment, and constitutional separation of powers principles:
“Termination Provision” (EO 14151 § 2(b)(i)), which orders each “agency, department, or commission head” to “terminate, to the maximum extent allowed by law, all ‘equity-related’ grants or contracts”;
“Certification Provision” (EO 14173 § 3(b)(iv)), which orders each agency to include certifications in every contract or grant award that the contractor or grantee does not operate illegal DEI programs and that compliance with federal anti-discrimination laws is “material to the government’s payment decisions for purposes of” the FCA; and
“Enforcement Threat Provision: (EO 14173 § 4(b)(iii)), which orders the Attorney General to submit recommendations and a strategic plan for enforcement actions to challenge illegal DEI in the private sector.
Plaintiffs moved for a declaratory judgment that the EOs are unlawful, as well as a temporary restraining order and/or preliminary injunction barring the federal government from enforcing the EOs.
Court’s Opinion and Reasoning
District Judge Adam B. Abelson issued a nationwide injunction partially enjoining the EOs, finding Plaintiffs had shown a likelihood of success on the merits of their First and Fifth Amendment challenges. The court concluded that the irreparable harms Plaintiffs faced, including “widespread chilling of unquestionably protected speech,” outweigh the government’s interest in “immediately imposing a new, not-yet-promulgated interpretation of what it considers ‘eradicating discrimination.’” The court declined to consider Plaintiffs’ separation of powers arguments because it found that Plaintiffs had already made a sufficient showing under their First Amendment claims to grant the preliminary injunction.
First, the court found that Plaintiffs were likely to succeed on their claim that the Certification Provision of EO 14173 violates the First Amendment. Given the potential threat of FCA liability and that the EO covers all contractor activity – not just actions related to federally sourced funds – the certification “constitutes a content-based restriction on the speech rights of federal contractors and grantees.” Moreover, the court found that the EO targets speech in support of DEI without imposing “a similar restriction on anti-DEI principles that may also be in violation of existing federal anti-discrimination laws.” The court explained that “[b]ecause even the government does not know what constitutes DEI-related speech that violates federal anti-discrimination laws,” federal contractors and grantees are “highly likely to . . . self-censor” in order to be compliant with the Certification Provision.
Second, the Court found that Plaintiffs would likely succeed on their claim that the term “‘equity-related’ grants or contracts” in the Termination Provision is unconstitutionally vague under the Fifth Amendment because: (i) it is a broad, undefined term that is likely to result in arbitrary and discriminatory enforcement between and within federal agencies; and (ii) the term does not provide contractors and grant recipients with notice of “what, if anything, they can do to bring their grants into compliance such that they are not considered ‘equity-related.’”
However, the court declined to pause the portion of the Enforcement Threat Provision that directs the Attorney General to create an enforcement plan and engage in investigations “to deter DEI programs or principles . . . that constitute illegal discrimination or preferences,” which is “merely a directive from the President to the Attorney General,” and does not implicate separation-of-powers principles.
As a result of this ruling, federal agencies: (i) may not enforce the Certification Provision while the injunction is in effect; (ii) must pause efforts to identify organizations for civil compliance evaluations; and (iii) must halt contract rescissions and contract modifications under the EOs. But any provision of EOs 14151 and 14173 not expressly enjoined by the ruling remains in effect – including the requirement for the Attorney General to develop a plan to deter illegal DEI efforts, which the Justice Department has indicated may involve potential criminal investigations.
Importantly, the decision does not foreclose private litigation challenging the use of DEI programs, including cases brought by prospective employee plaintiffs, attorneys general and organizations that have already taken the lead in pursuing such actions since the Supreme Court’s June 2023 ruling in Students for Fair Admissions v. Harvard.
In Another Blow to Delaware’s Hegemony Another Company Proposes Reincorporation in Nevada
Yesterday, another Delaware corporation, Aerovate Therapeutics, Inc., filed a Form S-4 registration statement that includes a proposal to reincorporate from Delaware to Nevada. The proposal is unfortunately titled “The Redomestication Proposal” even though the company is seeking approval for a conversion rather than a domestication under Nevada and Delaware law. See Converting A Corporation Is Not Domestication. Given that Aerovate is proposing a conversion, and not a domestication, transaction, it is surprising to see that the proxy statement/prospectus uses the term “redomestication” some 174 times while referring to a “plan of conversion” only 31 times.
The reasons for the move are consistent with those given by other emigrants from Delaware:
The Aerovate and Jade boards of directors believe that there are several reasons why the Nevada Redomestication is in the best interests of Aerovate and Aerovate’s stockholders. First, the Nevada Redomestication will eliminate the Combined Company’s obligation to pay the annual Delaware franchise tax, which Aerovate and Jade expect will result in substantial savings to the Combined Company over the long term. In addition, the Nevada Redomestication may help the Combined Company attract and retain qualified management by reducing the risk of lawsuits being filed against the Combined Company and its directors and officers. Aerovate and Jade believe that for the reasons described in this proxy statement/prospectus, in general, Nevada law will provide greater protection to the Combined Company and its directors and officers than Delaware law. The Aerovate board of directors believes that the Nevada Redomestication will give the Combined Company more flexibility and predictability in various corporation transactions.
It is still early in the proxy season and it remains to be seen the extent to which other Delaware corporations decide to convert into Nevada corporations.
MIDDLE EAST: New Saudi Netting Regulation Creating a Buzz
There was a buzz during the joint association conference in Riyadh, Saudi Arabia on the 19 February. A collaboration by ISDA, ISLA and ICMA, the industry associations representing parties that enter into transactions such as derivatives, securities lending and repurchase transactions, is indeed unusual.
However, it was the introduction two days prior, on the 17 February, by the Saudi Central Bank (SAMA) of the Close-out Netting and Related Financial Collateral Regulation that caused the excitement. It is effective from that date. The regulation establishes the enforceability of netting agreements and related financial collateral arrangements with SAMA supervised entities, particularly in the event of a failure by one of the parties to such transactions. The primary objective is to ensure that the contractual provisions of netting agreements are enforceable both inside and outside bankruptcy proceedings, reducing credit risk exposure and enhancing financial stability.
The impact of this regulation on cross-border transactions and business in Saudi Arabia is significant. By streamlining the process of settling obligations between defaulting and non-defaulting parties, the regulation reduces the risk and uncertainty associated with financial transactions. Firms can now engage in transactions with greater confidence, knowing that their netting agreements will be upheld even in the event of a default.
The next step is for the associations to publish legal opinions that support the enforceability of close out netting provisions, in their published agreements, on a cross-border basis. These annual opinions are published globally. Parties rely on these opinions to reduce credit risk exposure and, where applicable, reduce their regulatory capital requirements. Publication will provide the ‘green light’ for financial institutions to commence trading of such transactions on a greater scale. This development can certainly be regarded as another step in Saudi’s Vision 2030 to become a global investment powerhouse. Hence the buzz.
Common Issues and Strategies in Business Breakups
Business breakups can be as complex and emotionally charged as personal divorces. Whether due to financial difficulties, disputes among partners, or unforeseen circumstances, businesses often face separations that require careful legal and financial planning.
Common Reasons for Business Breakups
Every business faces challenges, but not all survive long-term. Some owners fail to plan, while others encounter external circumstances beyond their control. Janel Dressen explains that owners can recognize warning signs early by understanding the most common reasons for business breakups. The three most common factors that can lead to business separations are:
Emotional Factors: Disagreements, fraud, or perceived inequities among owners.
Financial Factors: Retirement, bankruptcy, or a partner seeking better opportunities elsewhere.
Unforeseen Circumstances: Death, disability, or market shifts that make continued operation unsustainable.
John Levitske adds that mismanagement and poor planning also play significant roles. Failure to adapt to market changes, regulatory shifts, or inflationary pressures can gradually erode a business’s foundation.
The Eight ‘D’s’ of Business Breakups
Even the most successful businesses can face unexpected challenges that lead to dissolution. Experts have identified eight common triggers that often force companies into breakups. The most common 8 reasons for business breakups are:
Death: What happens when a key owner passes away?
Divorce: Can an owner’s spouse claim a stake in the company?
Disability: What if a leader becomes unable to fulfill their role?
Dissension: Disputes among owners can lead to gridlock.
Dissolution: Sometimes, shutting down is the best option.
Departure: Retirement or voluntary exit of a key stakeholder.
Debt Overload: When financial strain leads to insolvency.
Decline of Market: External economic conditions forcing closure.
Megan Becwar explains that businesses can avoid turmoil by proactively addressing these scenarios through legal agreements that outline the process for handling ownership changes.
The Importance of Buy-Sell Agreements
A buy-sell agreement is a legally binding contract that outlines how a partner’s share of a business may be reassigned if that partner dies or otherwise leaves the business. This agreement can prevent conflicts by setting terms for the transfer of ownership. For instance, in the event of an owner’s death, the agreement can stipulate that the remaining owners have the option to purchase the deceased owner’s share, preventing unwanted parties from acquiring a stake in the business. The broader point is that the parties are free to contract as they desire.
Addressing Shareholder Oppression
Shareholder oppression occurs when majority shareholders take actions that unfairly prejudice minority shareholders. This can include withholding dividends, denying access to information, or forcing the sale of shares at an unfairly low price. Implementing protective provisions, such as supermajority voting requirements or rights to compel dissolution, can safeguard minority shareholders’ interests.
Valuation Methods in Business Breakups
There are three primary valuation approaches:
Income Approach: This method assesses the present value of expected future cash flows, often using the Discounted Cash Flow (DCF) method.
Asset Approach: This approach evaluates the company’s tangible and intangible assets, subtracting liabilities to determine net asset value.
Market Approach: This method compares the business to similar companies that have recently been sold, using metrics like price-to-earnings ratios.
Selecting the appropriate valuation method depends on the business’s nature and the specific circumstances of the breakup. While a business owner can certainly take a position on its value, it is common to hire qualified business valuation experts.
Alternative Dispute Resolution: Arbitration and Mediation
Litigation can be costly and time-consuming. Alternative dispute resolution (ADR) methods, such as arbitration and mediation, can often address conflicts more efficiently. ADR can be conducted in many ways. For example, ’baseball arbitration’ requires each party to submit a proposed resolution, and the arbitrator selects one, encouraging reasonable proposals from both sides.
Planning Ahead to Prevent Disputes
Proactive measures, such as drafting comprehensive agreements and regularly reviewing them, can help prevent conflicts. Harold Israel notes that many business owners avoid planning for potential breakups due to optimism or a focus on daily operations. However, failing to plan can make disputes more expensive and time-consuming when they arise.
Conclusion
Business breakups are challenging, but with proactive planning and clear agreements, owners can navigate these situations more effectively. Consulting with legal and financial professionals to establish buy-sell agreements, protect minority shareholders, and determine appropriate valuation methods can mitigate risks and ensure a fair resolution.
To learn more about this topic view Complex Financial Litigation / Common Issues and Strategies in Business Breakups. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about business breakups.
This article was originally published on February 21, 2025.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.