Kentucky Legislature Ends Judicial Deference To State Agencies
In a realignment of judicial review standards, the Kentucky General Assembly overrode Governor Andy Beshear’s (D-KY) veto of Senate Bill (SB) 84, effectively abolishing judicial deference to all agency interpretations of statutes and regulations. This development marks a shift in administrative law in the Commonwealth.
A RESPONSE TO CHEVRON AND TO KENTUCKY COURTS
SB 84 invokes the Supreme Court of the United States’ 2024 decision in Loper Bright Enterprises v. Raimondo, which overturned the Chevron doctrine and ended judicial deference to federal agency interpretations of statutes. The bill’s preamble provides:
In Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), the United States Supreme Court ruled that the federal judiciary’s deference to the interpretation of statutes by federal agencies as articulated in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and its progeny was unlawful.
However, SB 84 does more than align Kentucky with the new federal standard. It also repudiates the approach taken by Kentucky’s own courts. The bill notes that decisions such as Metzinger v. Kentucky Retirement Systems, 299 S.W.3d 541 (Ky. 2009), and Kentucky Occupational Safety and Health Review Commission v. Estill County Fiscal Court, 503 S.W.3d 924 (Ky. 2016), which embraced Chevron-like deference at the state level, is a practice that the legislature now declares inconsistent with the separation of powers under the Kentucky Constitution.
KEY PROVISIONS: DE NOVO REVIEW MANDATED
The operative language of SB 84 creates two new sections of the Kentucky Revised Statutes (KRS) and amends an existing provision by establishing a de novo standard of review for agency, including the Kentucky Department of Revenue, interpretations:
An administrative body shall not interpret a statute or administrative regulation with the expectation that the interpretation of the administrative body is entitled to deference from a reviewing court. (New Section of KRS Chapter 13A.)
The interpretation of a statute or administrative regulation by an administrative body shall not be entitled to deference from a reviewing court. (New Section of KRS Chapter 13A.)
A court reviewing an administrative body’s action… shall apply de novo review to the administrative body’s interpretation of statutes, administrative regulations, and other questions of law. (New Section of KRS Chapter 446.)
The court shall apply de novo review of the agency’s final order on questions of law. An agency’s interpretation of a statute or administrative regulation shall not be entitled to deference from a reviewing court. (Amended KRS 13B.150.)
This means Kentucky courts must now independently review all legal interpretations made by agencies, including in tax cases before the Kentucky Board of Tax Appeals, without any presumption of correctness.
A CONSTITUTIONAL FLASHPOINT
Governor Beshear vetoed the bill, arguing in his veto message that it violates the separation of powers by dictating to the judiciary how it should interpret laws. Governor Beshear’s message provides that:
Senate Bill 84 is unconstitutional by telling the judiciary what standard of review it must apply to legal cases…It prohibits courts from deferring to a state agency’s interpretation of any statute, administrative regulation, or order. It also requires courts to resolve ambiguous questions against a finding of increased agency authority. The judicial branch is the only branch with the power and duty to decide these questions.
Republican lawmakers countered that SB 84 strengthens the judiciary’s independence. Senate leadership said in a statement that:
SB 84 aligns Kentucky with a national legal shift that reaffirms the judiciary’s role in interpreting statutes. The bill does not weaken governance—it strengthens separation of powers by removing undue deference to regulatory agencies and restoring courts’ neutrality in legal interpretation.
The governor’s constitutional objections should not apply to cases before the state’s Office of Claims and Appeals (which includes the Board of Tax Appeals), which the legislature itself created.
CONSIDERATIONS FOR TAX PRACTITIONERS
For tax practitioners, SB 84 could reshape tax litigation strategy in Kentucky. Courts reviewing Department of Revenue guidance or interpretations – whether in audits, refund claims, or administrative appeals – are no longer bound by any deference. The Department of Revenue’s legal position is now just that – a position, not a presumption. Whether Kentucky courts fully embrace this legislative mandate or chart their own course remains to be seen.
Either way, this is a welcome development for taxpayers and practitioners who have long argued that state agencies should not have the last word on the meaning of tax statutes. By mandating de novo review, Kentucky reinforces a neutral playing field, one where legal questions are resolved by courts without institutional bias in favor of the agency.
Other states should take note and follow suit. Just last year, Idaho, Indiana, and Nebraska passed similar amendments restoring judicial independence from executive branch interpretations of state laws. SB 84 offers a legislative blueprint for restoring judicial independence and curbing agency overreach in the tax context. As more states grapple with the implications of Loper Bright, Kentucky’s approach provides a model for how legislatures can proactively realign administrative law with core separation of powers principles.
B2B BLUES: Residential Usage of Business Phone Continues to Trap Marketers
In Ortega v. Sienna 2025 WL 899970 (W.D. Tex. March 4, 2025) a company calling to offer inventory loans to businesses dialed a number that was being “held out” as a business. Yet the Plaintiff suing over those calls claimed the number was residential in nature.
The defendant moved to dismiss but the Court refused to throw out the case crediting the plaintiff’s allegation of residential usage:
At this stage in the litigation where the Court is limited to evaluating the pleadings and does not have an evidentiary record, it would not be proper to decide whether Mr. Ortega’s phone number is a business number or a personal/residential number for TCPA purposes. As the FCC has acknowledged, whether a cell phone is “residential” is a “fact intensive” inquiry. See id. This is a summary-judgment issue
Get it?
Even though Defendant claimed to have evidence of Plaintiff’s use of the number for business purposes that issue cannot be resolved at the pleadings stage. So the case lives on.
Plus although the court suggests a summary judgment might be appropriate here, past cases have found a question of fact where the plaintiff testifies to residential usage but the evidence shows otherwise. This means the issue might end up at trial!
The Court went on to find Plaintiff’s allegations his DNC request was not heeded demonstrated the caller may not have a DNC policy, which is a separate violation.
Last the Court determined a claim had been stated under under Texas Business and Commerce Code § 302.101 and § 305.053. Section 302.101 because the caller was allegedly marketing without a license, as required in Texas.
So there you go.
B2B callers need to heed the TCPA and particular the DNC requirements. Do NOT think you are exempt merely because you’re not calling residences or for a consumer purpose. You are not!
Plus state marketing registration requirements DO apply to you. Don’t get confused!
Virginia Expands Non-Compete Restrictions Beginning July 1, 2025
At the end of March, Governor Glenn Youngkin signed SB 1218, which amends Virginia’s non-compete ban for “low-wage” workers (the “Act”) to include non-exempt employees under the federal Fair Labor Standards Act (the “FLSA”).
The expanded restrictions take effect July 1, 2025.
What’s New?
As we discussed in more detail here, since July 2020, the Act has prohibited Virginia employers from entering into, or enforcing, non-competes with low-wage employees. Prior to the amendment, the Act defined “low-wage employees” as workers whose average weekly earnings were less than the average weekly wage of Virginia, which fluctuates annually and is determined by the Virginia Employment Commission. In 2025, Virginia’s average weekly wage is $1,463.10 per week, or approximately $76,081 annually. “Low-wage employees” also include interns, students, apprentices, trainees, and independent contractors compensated at an hourly rate that is less than Virginia’s median hourly wage for all occupations for the preceding year, as reported by the U.S. Bureau of Labor Statistics. However, employees whose compensation is derived “in whole or in predominant part” from sales commissions, incentives or bonuses are not covered by the law.
Effective July 1, 2025, “low-wage employees” will also include employees who are entitled to overtime pay under the FLSA for any hours worked in excess of 40 hours in any one workweek (“non-exempt employees”), regardless of their average weekly earnings. In other words, the amendment will extend Virginia’s non-compete restrictions to a significantly larger portion of the Commonwealth’s workforce.
A Few Reminders
The amendment does not significantly alter the other requirements under the Act regarding non-competes, including the general notice requirements and ability for a low-wage employee to institute a civil action. Although Virginia employers are not required to give specific notice of a noncompete to individual employees as some other states require, they must display a general notice that includes a copy of the Act in their workplaces. Failing to post a copy of the law or a summary approved by the Virginia Department of Labor and Industry (no such summary has been issued) can result in fines up to $1,000. Therefore, Virginia employers should update their posters to reflect the amended Act by July 1, 2025.
Employees are also still able to bring a civil action against employers or any other person that attempts to enforce an unlawful non-compete. Low-wage employees seeking relief are required to bring an action within two years of (i) the non-competes execution, (ii) the date the employee learned of the noncompete provision, (iii) the employee’s resignation or termination, or (iv) the employer’s action aiming to enforce the non-compete. Upon a successful employee action, courts may void unlawful non-compete agreements, order an injunction, and award lost compensation, liquidated damages, and reasonable attorneys’ fees and costs, along with a $10,000 civil penalty for each violation.
While the law creates steep penalties for non-competes, nothing within the legislation prevents an employer from requiring low-wage employees to enter into non-disclosure or confidentiality agreements.
Takeaways
The amendment emphasizes the importance for Virginia employers to correctly classify their employees as exempt or non-exempt under the FLSA. Additionally, the amendment does not apply retroactively, so it will not affect any non-competes with non-exempt employees that are entered into or renewed prior to July 1, 2025. Nevertheless, enforcing non-compete agreements with non-exempt employees may be more challenging after this summer, so Virginia employers may wish to consider renewing such agreements without non-compete provisions to ensure other provisions can be properly enforced.
Attention Department of Labor Contractors and Grantees: A Federal Court Hits Pause on Executive Orders Related to Diversity, Equity, and Inclusion
Federal courts continue to grapple with challenges to President Trump’s executive orders (“EOs”) related to diversity, equity, and inclusion (“DEI”), particularly EO 14151, Ending Radical And Wasteful Government DEI Programs And Preferencing, and EO 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity. As we’ve noted in our coverage of the litigation first filed in the District Court of Maryland, there has been a sense of whiplash among the courts, with the District Court initially issuing a nationwide injunction that was then stayed by the Fourth Circuit Court of Appeals. Now a second federal court has weighed in, issuing a new, nationwide temporary restraining order (“TRO”). This new TRO is more limited than the prior preliminary injunction issued by the District Court of Maryland, in that the new TRO only applies to Department of Labor (“DOL”) contractors and grantees. Nevertheless, the Court’s reasoning could be helpful to the contractors and grantees of other agencies facing renewed demands to execute the DEI Certification.
Case Background
The case is Chicago Women in Trades v. Trump et al., 1:25-cv-02005. It was filed on February 26, 2025, in the U.S. District Court for the Northern District of Illinois by Chicago Women in Trades (“CWIT”), an Illinois-based non-profit and DOL grantee whose mission is to prepare women to enter and remain in high-wage skilled trades, such as carpentry, electrical work, welding, and plumbing.
On March 18, 2025, CWIT filed a Motion for a TRO broadly seeking to preclude “any and all federal agencies” from taking action adverse to a federally funded contract, grant, or other implementing vehicle, where that action is animated by either EO 14151 or EO 14173. Alternatively, CWIT sought an injunction prohibiting only DOL from (1) taking any adverse action animated by EO 14151 or EO 14173 on any of the federal grants by which CWIT receives funding, as either a grant recipient, sub-recipient, or subcontractor; and (2) directing any other grant recipient or contractor under which CWIT operates as a sub-recipient or subcontractor from taking any adverse action on any of those grants on the basis of the anti-diversity EOs. Thus, the Plaintiff essentially offered the Court a choice of whether to fashion broad relief, or narrow relief.
The Executive Orders
We have previously written extensively about the two EOs at issue. The EO provisions that are relevant to the CWIT litigation include (1) the Termination Provision of EO 14151 (requiring the termination of “equity-related” contracts and grants), (2) the Certification Provision of EO 14173 (requiring contractors and grantees to execute a certification that they do not operate DEI programs that run afoul of applicable antidiscrimination laws and stating that compliance with antidiscrimination laws is material to the government’s payment decisions under the False Claims Act (“FCA”)), and (3) the Enforcement Provision of EO 14173 (requiring the Attorney General to prepare a report identifying potential targets for investigation and enforcement related to DEI).
Scope and Effect of the March 27, 2025, TRO
The Termination Provision: Per the terms of the TRO, DOL “shall not pause, freeze, impede, block, cancel, or terminate any awards, contracts or obligations” or “change the terms of” current agreements “with CWIT” on the basis of the Termination Provision in EO 14151. Note that this part of the TRO does not apply to agencies other than DOL or to contractors or grantees other than CWIT.
The Certification Provision: The Court ordered that DOL “shall not require any grantee or contractor to make any ‘certification’ or other representation pursuant to” the Certification Provision of EO 14173. Note that this applies not only to CWIT, but to any and all DOL contractors and grantees. The Court found that a TRO precluding “any enforcement” of the Certification Provision is warranted in order to ensure that CWIT has complete relief, given that CWIT works in conjunction with other organizations that may be deemed to provide DEI-related programming, and because other similarly situated organizations would not need to show different facts to obtain the relief sought by CWIT.
The Enforcement Provision: The Court ordered that the Government shall not initiate any False Claims Act enforcement “against CWIT” pursuant to the Certification Provision of EO 14173.
The main takeaway for the federal contracting and grant community is that DOL cannot ask any of its contractors and grantees to sign the DEI Certification of EO 14173. The rest of the TRO is limited to CWIT. The Northern District of Illinois may have limited the relief available under the TRO due to the Fourth Circuit’s March 14, 2025, ruling to stay a much broader preliminary injunction that was issued by the District Court of Maryland. (According to Judge Rushing of the Fourth Circuit, “[t]he scope of the preliminary injunction alone should raise red flags: the district court purported to enjoin nondefendants from taking action against nonplaintiffs.”)
Conclusion
Although Judge Kennelly of the Northern District of Illinois issued a TRO that applies only to DOL contractors and grantees, his reasoning can serve as a roadmap for the contractors and grantees of other agencies who may receive the EO 14173 DEI Certification. Judge Kennelly expressed concern that the EOs likely violate the First and Fifth Amendments of the Constitution, as well as the Spending Clause and the Separation of Powers. As such, the Northern District of Illinois is now the second federal court to call out both the vagueness of the challenged EOs and the government’s unwillingness to define the EOs’ key concepts, such as “DEI” and “illegal DEI”. Accordingly, contractors and grantees faced with the DEI Certification should increasingly feel that it is reasonable to respond by bringing the ambiguities in the certification language to the attention of the Contracting Officer, while, as we have previously suggested, contemporaneously memorializing the basis for the contractor’s reasonable interpretation of the ambiguous certification, in order to assist in the defense of any potential FCA claim.
The Inspector General: A Primer on What Inspectors General Are, What They Do, and Why You Should Care [Podcast]
This first episode provides an overview of the role of federal Inspectors General and answers key questions, including:
Who appoints Inspectors General, and who can remove them?
What authorities do Inspectors General have, and what work do they do?
What are the differences between and among Inspector General investigations, audits and inspections?
What can prompt an Inspector General inquiry, and what happens following an inquiry?
Chapter 15: A More Efficient Path for Recognition of Foreign Judgments as Compared with Adjudicatory Comity
Chapter 15 of the United States Bankruptcy Code, which adopts the United Nations Commission on International Trade Law’s (“UNCITRAL”) Model Law on Cross-Border Insolvency, provides a streamlined process for recognition of a foreign insolvency proceeding and enforcement of related orders. In adopting the Model Law, the legislative history makes clear that Chapter 15 was intended to be the “exclusive door to ancillary assistance to foreign proceedings,” with the goal of controlling such cases in a single court. Despite this clear intention, U.S. courts continue to grant recognition to foreign bankruptcy court orders as a matter of comity, without the commencement of a Chapter 15 proceeding.
While it is tempting choice for a bankruptcy estate representative to seek a quick dismissal of U.S. litigation, without the commencement of a Chapter 15 case, it is not always the most efficient path.[1] First, because an ad hoc approach to comity requires a single judge to craft complex remedies from dated federal common law, there is a significant risk that such strategy will fail (and the estate representative will subsequently need Chapter 15 relief), increasing litigation/appellate risk and thus, the foreign debtor’s overall transaction costs in administering the case.[2] Second, the ad hoc informal comity approach is of little use to foreign debtors, who need to subject a large U.S. collective of claims and rights to a foreign collective remedy in the United States because it does not give the foreign representative the specific statutory tools available in Chapter 15—the ability to turn over foreign debtor assets to the debtor’s representative; to enforce foreign restructuring orders, schemes, plans, and arrangements; to generally stay U.S. litigation against a foreign debtor in an efficient, predictable manner; to sell assets in the United States free and clear of claims and liens and anti-assignment provisions in contracts; etc.[3]
Wayne Burt Pte. Ltd. (“Wayne Burt”), a Singaporean company, has battled to recognize a Singaporean liquidation proceeding (the “Singapore Liquidation Proceeding”) (and related judgments) in the United States, highlighting the inherent risks in seeking recognition outside of a Chapter 15 case. The unusually litigious and expensive pathway Wayne Burt followed to enforce certain judgments shows how Chapter 15 provides an effective streamlined process for seeking relief.
First, Wayne Burt sought dismissal, as a matter of comity, of a pending lawsuit in the U.S. District Court for New Jersey (the “District Court”). On appeal, after years of litigation, the Third Circuit concluded that the District Court did not fully apply the appropriate comity test and remanded the case for further analysis. Thereafter, the liquidator sought, and obtained, recognition of Wayne Burt’s insolvency proceeding under Chapter 15 in the U.S. Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”), including staying District Court litigation that had been in dispute for five years in the United States and ordering the enforcement of a Singaporean turnover order that had been the subject of complex litigation as well within two months of the commencement of the Chapter 15 case.
The Dispute Before the District Court
The Wayne Burt case originated, almost exactly five years ago, as a simple breach of contract claim and evolved into a complex legal battle between Vertiv, Inc., Vertiv Capital, Inc., and Gnaritis, Inc. (together “Vertiv”), Delaware corporations, and Wayne Burt. The litigation began in January 2020, when Vertiv sued Wayne Burt in District Court, seeking to enforce a $29 million consent judgment entered in its favor. At the time the consent judgment was entered, however, Wayne Burt was already in liquidation proceedings in Singapore. Thus, a year after the entry of judgment, the liquidator moved to vacate the judgment on the grounds of comity.
On November 30, 2022, the District Court granted Wayne Burt’s motion and dismissed the complaint with prejudice.[4] The District Court based its decision on a finding that Singapore shares the United States’ policy of equal distribution of assets and authorizes a stay or dismissal of Vertiv’s civil action against Wayne Burt. Vertiv appealed to the Third Circuit.
The Third Circuit Establishes a New Adjudicatory Comity Test
In February 2024, the Third Circuit, in its opinion, set forth in detail a complex multifactor test for determining when comity will allow a U.S. court to enjoin or dismiss a case, based on a pending foreign insolvency proceeding, without seeking Chapter 15 relief.[5] This form of comity is known as “adjudicatory comity.” “Adjudicatory comity” acts as a type of abstention and requires a determination as to whether a court should “decline to exercise jurisdiction over matters more appropriately adjudged elsewhere.”[6]
As a threshold matter, adjudicatory comity arises only when a matter before a United States court is pending in, or has resulted in a final judgment from, a foreign court—that is, when there is, or was, “parallel” foreign proceeding. In determining whether a proceeding is “parallel,” the Third Circuit found that simply looking to whether the same parties and claims are involved in the foreign proceeding is insufficient. That is because it does not address foreign bankruptcy matters that bear little resemblance to a standard civil action in the United States. Instead, drawing on precedent examining whether a non-core proceeding is related to a U.S. Bankruptcy proceeding, the Third Circuit created a flexible and context specific two-part test. A parallel proceeding exists when (1) a foreign proceeding is ongoing in a duly authorized tribunal while the civil action is before a U.S. Court, and (2) the outcome of the U.S. civil action could affect the debtor’s estate.
Once the court is satisfied that the foreign bankruptcy proceeding is parallel, the party seeking extension of comity must then make a prima facie case by showing that (1) the foreign bankruptcy law shares U.S. policy of equal distribution of assets, and (2) the foreign law mandates the issuance or at least authorizes the request for the stay.
Upon a finding of a prima facie case for comity, the court then must make additional inquiries into fairness to the parties and compatibility with U.S. public policy under the Third Circuit Philadelphia Gear[7] test. This test considers whether (1) the foreign bankruptcy proceeding is taking place in a duly authorized tribunal, (2) the foreign bankruptcy court provides for equal treatment of creditors, (3) extending comity would be in some manner inimical to the country’s policy of equality, and (4) the party opposing comity would be prejudiced.
The first requirement is already satisfied if the proceeding is parallel.[8] The second requirement of equal treatment of creditors is similar to the prima facie requirement regarding equal distribution but goes further into assessing whether any plan of reorganization is fair and equitable as between classes of creditors that hold claims of differing priority or secured status.[9] For the third and fourth part of the four-part inquiry—ensuring that the foreign proceedings’ actions are consistent with the U.S. policy of equality and would not prejudice an opposing party—the court provided eight factors used as indicia of procedural fairness, noting that certain factors were duplicative of considerations already discussed. The court emphasized that foreign bankruptcy proceedings need not function identically to similar proceedings in the United States to be consistent with the policy of equality.
In the Wayne Burt appeal, the Third Circuit vacated the District Court’s order finding that although there was a parallel proceeding, the District Court failed to apply the four-part test to consider the fairness of the parallel proceeding.
The Chapter 15 Case
On remand to the District Court, Wayne Burt’s liquidator renewed his motion to dismiss. Following his renewed motion, protracted discovery ensued, delaying a District Court ruling on comity.
Additionally, during the pendency of the appeal, Wayne Burt’s liquidator commenced an action in Singapore seeking that Vertiv turn over certain stock in Cetex Petrochemicals Ltd. that Wayne Burt pledged as security for a loan from Vertiv (the “Singapore Turnover Litigation”). Wayne Burt’s liquidator contended that the pledge was void against the liquidator. Vertiv did not appear in the Singapore proceedings and the High Court of Singapore entered an order requiring the turnover of the shares (the “Singapore Turnover Order”).
As a result, Wayne Burt’s liquidator shifted his strategy to obtain broader relief than what adjudicatory comity could afford in the pending U.S. litigation—recognition and enforcement of the Singapore Turnover Order. The only way to accomplish both the goal of dismissal of the U.S. litigation and enforcement of the Singapore Turnover Order is through a Chapter 15 proceeding.
On October 8, 2024, Wayne Burt’s liquidator commenced the Chapter 15 case (the “Chapter 15 Case”) by filing a petition along with the Motion for Recognition of Foreign Proceedings and Motion to Compel Turnover of Cetex Shares (the “Motion”). Vertiv opposed the Motion, contending that, under the new test laid out by the Third Circuit, the Singapore Liquidation Proceeding should not be considered the main proceeding because it may harm Vertiv.[10] Vertiv further contended that even if the Singapore Liquidation Proceeding was considered the main proceeding, the Bankruptcy Court should not “blindly” enforce the Singapore Turnover Order and should itself review the transaction to the extent it impacts assets in the United States.[11]
Less than two months after the Chapter 15 Case was commenced, the Bankruptcy Court overruled Vertiv’s objection, finding that recognition and enforcement of a turnover action was appropriate.[12] In so ruling, the Bankruptcy Court applied the new adjudicatory comity requirements set forth by the Third Circuit, in addition to Chapter 15 requirements.
The Bankruptcy Court began its analysis with finding that recognition and enforcement of the Singapore Turnover Order is appropriate under 11 U.S.C. §§ 1521 and 1507. Under Section 1521, upon recognition of a foreign proceeding, a bankruptcy court may grant any additional relief that may be available to a U.S. trustee (with limited exceptions) where necessary to effectuate the purposes of Chapter 15 and to protect the assets of the debtor or the interests of creditors. Courts have exceedingly broad discretion in determining what additional relief may be granted. Here, the Bankruptcy Court found that the Singapore insolvency system was sufficiently similar to the United States bankruptcy process.
Under Section 1507, a court may provide additional assistance in aid of a foreign proceeding as along as the court considers whether such assistance is consistent with principles of comity and will reasonably assure the fair treatment of creditors, protect claim holders in the United States from prejudice in the foreign proceeding, prevent preferential or fraudulent disposition of estate property, and distribution of proceeds occurs substantially in accordance with the order under U.S. bankruptcy law. Here, the Bankruptcy Court found that the Singapore Turnover Litigation was an effort to marshal an asset of the Wayne Burt insolvency estate for the benefit of all of Wayne Burt’s creditors and that enforcement of the Singapore Turnover Order specifically would allow for the equal treatment of all of Wayne Burt’s creditors.
Finally, the Bankruptcy Court found that recognition and enforcement of the Singapore Turnover Order was appropriate under the Third Circuit’s comity analysis. Specifically, the Bankruptcy Court found that the Singapore Turnover Litigation is parallel to the Motion, relying on the facts that: (1) Wayne Burt is a debtor in a foreign insolvency proceeding before a duly authorized tribunal, the Singapore High Court, (2) Vertiv has not challenged the Singapore High Court’s jurisdiction over the Singapore Liquidation Proceeding, and (3) the outcome of the Bankruptcy Court’s ruling would have a direct impact on the estate within the Singapore Liquidation Proceeding as it relates to ownership of the Cetex shares. The Bankruptcy Court concluded that the Singapore Liquidation Proceeding and the Chapter 15 Case are parallel.
The Bankruptcy Court’s analysis primarily focused on the third and fourth factors of the Philadelphia Gear test, determining that it was clear that the first factor was met because the Singapore Liquidation Proceeding is parallel to the Chapter 15 Case and that the second factor did not apply as there was no pending plan. The third inquiry was also satisfied for the same reasons detailed above for the Singapore insolvency laws being substantially similar to U.S. insolvency laws. The fourth inquiry—whether the party opposing comity is prejudiced by being required to participate in the foreign proceeding—was satisfied for the same reasons stated for Section 1507.
In recognizing and enforcing the Singapore Turnover Order, the Bankruptcy Court overruled Vertiv’s opposition finding it rests on an “unacceptable premise” that the Bankruptcy Court should stand in appellate review of a foreign court. Such an act would directly conflict with principles of comity and the objectives of Chapter 15. The Bankruptcy Court noted that this is especially true where the party maintains the capacity to pursue appeals and other necessary relief from the foreign court.
Vertiv appealed the Bankruptcy Court’s decision to the District Court, and the appeal is still pending.
Implications
Adjudicatory comity and Chapter 15 both aim to facilitate cooperation and coordination in cross-border insolvency cases. Indeed, Chapter 15 specifically incorporates comity and international cooperation into a court’s analysis, as Chapter 15 requires that a “court shall cooperate to the maximum extent possible with a foreign court.” In deciding whether to use adjudicatory comity and/or Chapter 15 it is important to consider the ultimate objective and the cost-benefit analysis of each approach. While seeking comity defensively in a U.S. litigation, without Chapter 15 relief, is possible, it can lead to inconsistent and unpredictable outcomes. Additionally, the multiple factors involved in applying adjudicatory comity can led to protracted discovery and, concomitantly, delaying recognition. By contrast, the Bankruptcy Court’s recent analysis demonstrates that the existing Chapter 15 framework, along with the well-established case law interpreting Chapter 15, provides an effective, reliable, and efficient tool for recognition and enforcement of foreign orders. That is particularly true, whereas here, a party seeks multiple forms of relief.
[1] Michael B. Schaedle & Evan J. Zucker, District Court Enforces German Stay, Ignoring Bankruptcy Code’s Chapter 15, 138 The Banking Law Journal 483 (LexisNexis A.S. Pratt 2021).
[2]Id.
[3]Id.
[4]Vertiv, Inc. v. Wayne Burt Pte, Ltd., No. 3:20-CV-00363, 2022 WL 17352457 (D.N.J. Nov. 30, 2022), vacated and remanded, 92 F.4th 169 (3d Cir. 2024).
[5]Vertiv, Inc. v. Wayne Burt PTE, Ltd., 92 F.4th 169 (3d Cir. 2024).
[6]Id. at 176.
[7]Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187, 194 (3d Cir. 1994)).
[8]Wayne Burt PTE, Ltd., 92 F.4th at 180.
[9]Id.
[10]See Vertiv’s Brief in Opposition to Motion for Recognition of Foreign Proceedings and Motion to Compel Turnover of Cetex Shares, Case No.: 24-196-MBK, Doc. No. 29, at 10-14 (D.N.J October 29, 2024).
[11]Id. at 13.
[12]In Re: Wayne Burt Pte. Ltd. (In Liquidation), Debtor., No. 24-19956 (MBK), 2024 WL 5003229 (Bankr. D.N.J. Dec. 6, 2024).
Human Authorship Required: AI Isn’t an Author Under Copyright Act
The US Court of Appeals for the District of Columbia upheld a district court ruling that affirmed the US Copyright Office’s (CO) denial of a copyright application for artwork created by artificial intelligence (AI), reaffirming that human authorship is necessary for copyright registration. Thaler v. Perlmutter, Case No. 23-5233 (D.C. Cir. Mar. 18, 2025) (Millett, Wilkins, Rogers, JJ.)
Stephen Thaler, PhD, created a generative AI system that he named the Creativity Machine. The machine created a picture that Thaler titled, “A Recent Entrance to Paradise.” Thaler applied to the CO for copyright registration for the artwork, listing the Creativity Machine as the author and Thaler as the copyright owner.
The CO denied Thaler’s application because “a human being did not create the work.” Thaler twice sought reconsideration of the application, which the CO denied because the work lacked human authorship. Thaler subsequently sought review in the US District Court for the District of Columbia, which affirmed the CO’s denial of registration. The district court concluded that “[h]uman authorship is a bedrock requirement of copyright.” Thaler appealed.
The DC Circuit reaffirmed that the Creativity Machine could not be considered the author of a copyrighted work. The Copyright Act of 1976 mandates that to be eligible for copyright, a work must be initially authored by a human being. The Court highlighted key provisions of the Copyright Act that only make sense if “author” is interpreted as referring to a human being. For instance:
A copyright is a property right that immediately vests in the author. Since AI cannot own property, it cannot hold copyright.
Copyright protection lasts for the author’s lifetime, but machines do not have lifespans.
Copyright is inheritable, but machines have no surviving spouses or heirs.
Transferring a copyright requires a signature, and machines cannot provide signatures.
Authors of unpublished works are protected regardless of their nationality or domicile, yet machines do not have a domicile or national identity.
Authors have intentions, but machines lack consciousness and cannot form intentions.
The DC Circuit concluded that the statutory provisions, as a whole, make human activity a necessary condition for authorship under the Copyright Act.
The DC Circuit noted that the human authorship requirement is not new, referencing multiple judicial decisions, including those from the Seventh and Ninth Circuits, where appellate courts have consistently ruled that authors must be human.
Practice Note: Only humans, not their tools, can author copyrightable works of art. Images autonomously generated are not eligible for copyright. However, works created by humans who used AI are eligible for copyright depending on the circumstances, how the AI tool operates, and to what degree the AI tool was used to create the final work. Authors whose works are assisted by AI should seek advice of counsel to determine whether their works are copyrightable.
Is Registration As A Foreign Corporation A Form Of Compelled Consent?
Not too long ago, I wrote about a bill that is currently pending in the Nevada legislature, AB 158. This bill would authorize Nevada courts to exercise general personal jurisdiction over entities on the sole basis that the entity:
is organized, registered or qualified to do business pursuant to the laws of this State;
expressly consents to the jurisdiction; or
has sufficient contact with Nevada such that the exercise of general personal jurisdiction does not offend traditional notions of fair play and substantial justice.
The first alternative is obviously grounded upon the U.S. Supreme Court’s decision in Mallory v. Norfolk Southern Ry. Co., 600 US 122 (2023). In the case, the Supreme Court in a 5-4 decision held that a Pennsylvania statute did not offend the Due Process clause of the United States Constitution. The Pennsylvania statute provided that a company’s registration as a foreign corporation” is deemed “a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over” the corporation. 42 Pa. Cons. Stat. § 5301(a)(2)(i).
In a forthcoming article, Professor Jason Jarvis argues:
Involuntary consent is an oxymoron. Consent must be knowing and voluntary, and consent extracted by threat is coerced and invalid.
Professor Jarvis posits a case-by-case approach to consent whereby the “voluntariness of a corporation’s decision to do business in a state depends on the particular state and the particular corporation”.
The provisions of the California Civil Code concerning contracts and consent line up nicely with Professor Jarvis’ premise. Consent is “essential” to the formation of a contract, Cal. Civ. Code § 1550(2), and that consent must be “free”, Cal. Civ. Code § 1565(1). Consent is neither “real” nor “free” when obtained through: duress, menace, fraud, undue influence or mistake. Cal. Civ. Code § 1567.
Texas Supreme Court Confirms Limits of Fifteenth Court of Appeals’ Jurisdiction
The Texas Supreme Court issued a per curiam opinion that resolved a split among Texas courts of appeals regarding the jurisdiction of the Fifteenth Court of Appeals. Addressing motions to transfer appeals out of the Fifteenth Court, in Kelley v. Homminga, No. 25-9013 and Devon Energy Production Co. v. Oliver, No. 25-9014, the Court held that the Fifteenth Court does not have jurisdiction over all civil appeals in Texas.
Instead, the Court concluded the Fifteenth Court’s jurisdiction is limited to appeals that are (1) within its exclusive jurisdiction (i.e., only those appeals involving the state or appealed from the Business Court), or (2) transferred to it by the Supreme Court for docket equalization as the Texas Government Code requires.
Scope of Geographic Reach Versus Subject-Matter Jurisdiction
The Texas Supreme Court explained that through a combination of state-wide geographic reach limited by legislated subject-matter jurisdiction, the Fifteenth Court has authority to decide appeals from any Business Court across the state. Senate Bill 1045, which created the Fifteenth Court, also granted it jurisdiction to decide “certain civil cases” that may arise anywhere in the state. The “certain civil cases” within the Court’s subject-matter jurisdiction is limited to only three substantive categories of civil appeals: (1) cases brought by or against the state, with enumerated exceptions; (2) cases involving challenges to the constitutionality or validity of state statutes or rules where the attorney general is a party; and (3) “any other matter as provided by law.” The third category includes two types of appeals: those from the newly created Business Court and those transferred to it by the Texas Supreme Court in order to equalize dockets among the courts of appeals.
Procedural Posture
In both Kelley (Galveston County) and Devon Energy (DeWitt County), defendants noticed their appeals to the Fifteenth Court, asserting that the court’s statewide jurisdiction authorized it to hear their cases. The plaintiffs in each case moved to transfer the appeals to the regional courts of appeals that traditionally hear appeals from the counties where the trial courts are located—specifically, the First or Fourteenth Courts in Kelley and the Thirteenth Court in Devon Energy.
The Fifteenth Court denied both transfer motions over dissents. Both majority opinions (2-1) held that because Texas statutes grant the Fifteenth Court general appellate jurisdiction over civil cases statewide, the Fifteenth Court could decide the appeals. While the First Court of Appeals agreed with the Fifteenth Court’s majorities, the Thirteenth and Fourteenth Courts of Appeals disagreed. Because neither the Kelley nor Devon Energy appeal fell into the three substantive categories of civil appeals over which the Fifteenth Court had subject-matter jurisdiction, the Texas Supreme Court granted the motions and ordered the appeals transferred back to the courts of appeals in the districts in which the trial courts resided.
New Jurisprudential Guidance
The Texas Supreme Court applied new terminology (gleaned from collaborative writings of Justice Antonin Scalia and Bryan A. Garner) to the jurisprudence guiding statutory interpretation. The “fair meaning” standard of statutory interpretation requires courts to discern a statute’s objectives from its plain text while also considering the broader statutory context. The Court’s view is that this approach differs from strict textualism, as it seeks to harmonize all provisions of a statute into a cohesive whole rather than focusing on the hyper literal meaning of individual words. Also animating its decision, the Court explained that reversal was necessary to avoid “gamesmanship” in seeking an appellate venue and thwarting the legislature’s intent that the Fifteenth Court give special attention to categories of cases in which it has exclusive jurisdiction and not be overburdened with cases outside of its exclusive jurisdiction. The Texas Supreme Court’s decisions in Devon Energy and Kelley provide welcome clarity on the jurisdiction of the Fifteenth Court of Appeals.
ADGM Courts and Dubai Courts Sign Memorandum on Reciprocal Enforcement of Judgments
On 14 January 2025, the Abu Dhabi Global Market (ADGM) Courts and onshore Dubai Courts signed a memorandum of understanding (MoU) for the reciprocal enforcement of judgments. The MoU, which is publicly available, took effect the day it was signed and the mechanism it sets forth is available for parties seeking to utilize its reciprocal enforcement mechanisms.
The MoU, which follows approximately seven years after a similar MoU was signed between the ADGM Courts and the onshore Abu Dhabi Courts in February 2018, is designed to facilitate judicial cooperation between the ADGM and Dubai relating to mutually enforceable judgments.
Prior to the enactment of the MoU, parties seeking to enforce an ADGM Courts judgment in Dubai had to either go through the onshore Abu Dhabi Courts and then seek to rely on Federal Law No. 10 of 2019 (known as the Judicial Relations Law), which provides for reciprocal judgment enforcement between the onshore courts of the seven emirates, or seek recognition and enforcement directly in Dubai without the benefit of a streamlined process.
Highlights of the MoU
Extends to various executory instruments: The MoU applies to “judgments.” However, it defines the term to include all final judgments, decisions, orders, ratified or recognized arbitral awards, certified memoranda of composition, as well as any other paper that is defined as a judgment or executory instrument by law.
No re-examination of judgments: The MoU makes clear that the court requested to enforce the judgment will not re-examine judgments on their merits.
Framework for reciprocal enforcement: The MoU sets out a clear framework for enforcement, either by direct application or deputization.
Enforcement Under the MoU
A party can either enforce a judgment by direct application or deputization.
Enforcement of ADGM Courts Judgments in Onshore Dubai
As a first step, parties must apply to the ADGM Courts for a certified copy of the judgment, enclosing an Arabic translation. The ADGM Courts will then affix an executory formula on the judgment. For the direct application procedure, the judgment creditor must apply directly to the onshore Dubai Courts’ enforcement division, submitting a certified copy of the judgment translated into Arabic and affixed with the executory formula.
If seeking enforcement through deputization, the judgment creditor must first file an application. The ADGM Courts enforcement judge will then deputize an enforcement judge of the onshore Dubai Courts to enforce the judgment by providing the court with a letter enclosing, among other materials, an order indicating the enforcement measures or actions to be taken.
Enforcement of Dubai Courts Judgments in the ADGM
A similar process applies to enforcing onshore Dubai Courts judgments in the ADGM, save that such judgments must be translated from Arabic into English.
Conclusion
The process outlined in the MoU seeks to align judicial processes across the UAE. It signals a commitment to enhancing justice, transparency, and efficiency within the UAE’s diverse legal systems, while also aiming to integrate the nation’s common law and civil law courts.
Chady Deeb also contributed to this article.
Two New Procedural Wrinkles That May Disincentivize Challenges to Federal Policies
The first weeks of the Trump Administration have been defined by executive orders and new policies that were immediately challenged on constitutional or statutory grounds.
Recently, the US Environmental Protection Agency indicated its intent to “launch” the “biggest deregulatory action in U.S. History” under which it will undertake 33 separate actions impacting regulations ranging from emissions limits for power plants to internal calculations for the “social cost of carbon.” Even preceding this effort, more than 100 legal challenges to other Trump Administration actions have been filed.
As these disputes move through the litigation process (including appeals and, for at least some cases, likely US Supreme Court review), district courts have issued numerous preliminary injunctions to pause or delay the effects of executive orders until litigation is complete. While some of the new efforts will be challenged in appellate courts due to venue provisions in statutes including the Clean Air Act or Clean Water Act, other challenges will proceed in district courts.
Litigating these challenges can be expensive for both sides, but two recent developments could make litigation costs — particularly in challenges lodged in district courts — higher for challengers. First, the Trump Administration issued a Memorandum titled “Ensuring the Enforcement of Federal Rule of Civil Procedure 65(c),” and subsequently a related Executive Order on the same subject, seeking to require challengers to post bond before seeking preliminary injunctions. Second, the Supreme Court recently decided Lackey v. Stinnie, which — separate and apart from the Memorandum — makes it harder for some challengers to recover attorneys’ fees after a preliminary injunction is granted.
Below, we discuss these developments and how they might apply in the litigation context.
How to Challenge Executive Branch Actions
We have outlined some of the Trump Administration’s initial actions: initial Executive Orders; initial environmental policies; initial efforts to pause government grants; and policies in the energy space. We have also addressed the new Administration’s trade policies here and here.
Individuals and entities generally initiate a challenge to the legal basis for an executive order or other action by filing a complaint in a federal district court. Depending on what is at stake and whether the facts of the case require rapid resolution, the court may use briefings, hearings, or a trial to evaluate whether the order or action should be upheld, struck down, or modified. Parties that lose in district courts may appeal, and some disputes make their way to the Supreme Court, which has the final say on most constitutional issues.
Often, challengers ask for injunctive relief, which is a legal remedy in the form of a court order compelling a party to do, or not do, a particular thing. Injunctive relief is warranted when an award of a money judgment would be insufficient to resolve the harm. Injunctive relief can be temporary — a “preliminary injunction” — or permanent, requiring a party in perpetuity not to do a particular thing.
Courts will often use preliminary injunctions to temporarily preserve the “status quo” while litigation is ongoing. This means that a challenger may win a preliminary injunction, but ultimately lose the case (or have the case mooted if the government changes course on its own before a final judgment).
The White House Memorandum on Fed. R. Civ. P. 65(c)
On March 6, after district courts had issued numerous restraining orders and preliminary injunctions temporarily delaying or reversing executive orders, the Trump Administration issued a new memorandum titled “Ensuring the Enforcement of Federal Rule of Civil Procedure 65(c),” seeking to require plaintiffs to post a bond before requesting preliminary relief. (The White House fact sheet on the Memorandum is here.)
The memo asserts that the slate of lawsuits and preliminary injunctions constitutes an “anti-democratic takeover … orchestrated by forum shopping organizations that repeatedly bring meritless suits … without any repercussions when they fail.” The memo argues that taxpayers are harmed when program cuts are enjoined and substantial government resources are spent “fighting frivolous suits instead of defending public safety.”
In response to the issues it identifies, the memo invokes Federal Rule of Civil Procedure 65(c), which requires parties seeking a preliminary injunction to post security in an amount the court determines is sufficient to cover the costs and damages of the enjoined party if the enjoined party ultimately wins the case on the merits. The memo directs all federal department and agency heads to formally request security under Rule 65(c) in every case where plaintiffs seek a preliminary injunction against the government. It requires that the requests remind the court that Rule 65(c) is mandatory, reiterate that the government’s requested bond amount is “based on a reasoned assessment,” and demand that any party failing to comply with Rule 65(c) should lead to the “denial or dissolution of the requested injunctive relief.”
But despite its strong language, the memo is largely just a reminder of an already existing procedural rule. Judges have discretion to determine the appropriate amount for any Rule 65(c) bond, and, in the context of challenges to executive actions, many courts have determined that amount is zero. Federal judges are presumably aware of Rule 65(c), and many of the judges enjoining the Trump Administration already determined that Rule 65(c) did not require a bond in those cases. Two weeks before the memo, a federal district judge in Maryland granted a college diversity officer’s request for a preliminary injunction against executive orders cancelling diversity, equity, and inclusion (DEI) grants and contracts, but set the Rule 65(c) bond at $0 because the plaintiff’s constitutional rights were at issue and “a bond of the size Defendants appear to seek would essentially forestall Plaintiffs’ access to judicial review.”
Going forward, Rule 65(c) bonds will likely become a more actively contested issue and challengers to any executive action will need to provide arguments why they should not be required to pay.
Lackey v. Stinnie and Plaintiffs’ Attorney Fees
Separately but relatedly, the challengers who have successfully obtained preliminary injunctions blocking Trump Administration executive actions may have a harder time recovering their attorneys’ fees — after the recent Supreme Court decision in Lackey v. Stinnie, plaintiffs will need to see their cases through to final judgment before recovering legal fees.
42 U.S.C. § 1988 provides that civil rights plaintiffs may win reimbursement of their attorneys’ fees if they are the “prevailing party.” Historically, this fee-shifting mechanism has helped advocacy groups and law firms shoulder the substantial cost of civil rights lawsuits. For example the Lackey plaintiffs estimated that the federal appellate litigation in the case cost $800,000. In a procedurally similar case, the New York Civil Liberties Union was seeking $200,000 in attorneys’ fees against two upstate New York counties.
The Supreme Court has addressed when exactly a plaintiff becomes a “prevailing party” (and thus eligible for reimbursement) on several occasions. In Buckhannon Board and Care Home v. West Virginia Department of Health and Human Resources, the Court ruled that a party prevails only when it achieves a “judicially sanctioned changed in the legal relationship of the parties.” 532 U.S. 598, 601 (2001). If a plaintiff files a lawsuit and the defendant voluntarily does what the plaintiff asked for, the plaintiff does not “prevail” for purposes of attorneys’ fees. To prevail, the plaintiff must win a merits judgment from a court.
What if a plaintiff wins a preliminary injunction but loses a final merits judgment? That plaintiff also does not prevail, the Supreme Court has held, because the victory was only temporary, not enduring. Sole v. Wyner, 551 U.S. 74, 86 (2007). The Sole decision left open what happens when a plaintiff wins a preliminary injunction and then the defendant voluntarily provides the relief plaintiff was seeking.
That issue has now been resolved. Until last month, 11 federal appeals courts held that a plaintiff that wins a preliminary injunction can be a “prevailing party” under some circumstances. Not so, said the Supreme Court in Lackey. The Court held that a plaintiff “prevails” when it wins permanent, on-the-merits judicial relief that materially alters the legal relationship of the parties. A plaintiff that wins only a preliminary injunction, which would include several plaintiffs suing the Trump Administration at this juncture, is not yet entitled to reimbursement of its attorneys’ fees. As a result, it’s not yet clear whether plaintiffs challenging the Trump Administration’s policies will receive attorneys’ fees. It will depend on how they are ultimately resolved.
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Two New Procedural Wrinkles That May Disincentivize Challenges to New Federal Policies
The first weeks of the Trump Administration have been defined by executive orders and new policies that were immediately challenged on constitutional or statutory grounds.
Recently, the US Environmental Protection Agency indicated its intent to “launch” the “biggest deregulatory action in U.S. History” under which it will undertake 33 separate actions impacting regulations ranging from emissions limits for power plants to internal calculations for the “social cost of carbon.” Even preceding this effort, more than 100 legal challenges to other Trump Administration actions have been filed.
As these disputes move through the litigation process (including appeals and, for at least some cases, likely US Supreme Court review), district courts have issued numerous preliminary injunctions to pause or delay the effects of executive orders until litigation is complete. While some of the new efforts will be challenged in appellate courts due to venue provisions in statutes including the Clean Air Act or Clean Water Act, other challenges will proceed in district courts.
Litigating these challenges can be expensive for both sides, but two recent developments could make litigation costs — particularly in challenges lodged in district courts — higher for challengers. First, the Trump Administration issued a Memorandum titled “Ensuring the Enforcement of Federal Rule of Civil Procedure 65(c),” and subsequently a related Executive Order on the same subject, seeking to require challengers to post bond before seeking preliminary injunctions. Second, the Supreme Court recently decided Lackey v. Stinnie, which — separate and apart from the Memorandum — makes it harder for some challengers to recover attorneys’ fees after a preliminary injunction is granted.
Below, we discuss these developments and how they might apply in the litigation context.
How to Challenge Executive Branch Actions
We have outlined some of the Trump Administration’s initial actions: initial Executive Orders; initial environmental policies; initial efforts to pause government grants; and policies in the energy space. We have also addressed the new Administration’s trade policies here and here.
Individuals and entities generally initiate a challenge to the legal basis for an executive order or other action by filing a complaint in a federal district court. Depending on what is at stake and whether the facts of the case require rapid resolution, the court may use briefings, hearings, or a trial to evaluate whether the order or action should be upheld, struck down, or modified. Parties that lose in district courts may appeal, and some disputes make their way to the Supreme Court, which has the final say on most constitutional issues.
Often, challengers ask for injunctive relief, which is a legal remedy in the form of a court order compelling a party to do, or not do, a particular thing. Injunctive relief is warranted when an award of a money judgment would be insufficient to resolve the harm. Injunctive relief can be temporary — a “preliminary injunction” — or permanent, requiring a party in perpetuity not to do a particular thing.
Courts will often use preliminary injunctions to temporarily preserve the “status quo” while litigation is ongoing. This means that a challenger may win a preliminary injunction, but ultimately lose the case (or have the case mooted if the government changes course on its own before a final judgment).
The White House Memorandum on Fed. R. Civ. P. 65(c)
On March 6, after district courts had issued numerous restraining orders and preliminary injunctions temporarily delaying or reversing executive orders, the Trump Administration issued a new memorandum titled “Ensuring the Enforcement of Federal Rule of Civil Procedure 65(c),” seeking to require plaintiffs to post a bond before requesting preliminary relief. (The White House fact sheet on the Memorandum is here.)
The memo asserts that the slate of lawsuits and preliminary injunctions constitutes an “anti-democratic takeover … orchestrated by forum shopping organizations that repeatedly bring meritless suits … without any repercussions when they fail.” The memo argues that taxpayers are harmed when program cuts are enjoined and substantial government resources are spent “fighting frivolous suits instead of defending public safety.”
In response to the issues it identifies, the memo invokes Federal Rule of Civil Procedure 65(c), which requires parties seeking a preliminary injunction to post security in an amount the court determines is sufficient to cover the costs and damages of the enjoined party if the enjoined party ultimately wins the case on the merits. The memo directs all federal department and agency heads to formally request security under Rule 65(c) in every case where plaintiffs seek a preliminary injunction against the government. It requires that the requests remind the court that Rule 65(c) is mandatory, reiterate that the government’s requested bond amount is “based on a reasoned assessment,” and demand that any party failing to comply with Rule 65(c) should lead to the “denial or dissolution of the requested injunctive relief.”
But despite its strong language, the memo is largely just a reminder of an already existing procedural rule. Judges have discretion to determine the appropriate amount for any Rule 65(c) bond, and, in the context of challenges to executive actions, many courts have determined that amount is zero. Federal judges are presumably aware of Rule 65(c), and many of the judges enjoining the Trump Administration already determined that Rule 65(c) did not require a bond in those cases. Two weeks before the memo, a federal district judge in Maryland granted a college diversity officer’s request for a preliminary injunction against executive orders cancelling diversity, equity, and inclusion (DEI) grants and contracts, but set the Rule 65(c) bond at $0 because the plaintiff’s constitutional rights were at issue and “a bond of the size Defendants appear to seek would essentially forestall Plaintiffs’ access to judicial review.”
Going forward, Rule 65(c) bonds will likely become a more actively contested issue and challengers to any executive action will need to provide arguments why they should not be required to pay.
Lackey v. Stinnie and Plaintiffs’ Attorney Fees
Separately but relatedly, the challengers who have successfully obtained preliminary injunctions blocking Trump Administration executive actions may have a harder time recovering their attorneys’ fees — after the recent Supreme Court decision in Lackey v. Stinnie, plaintiffs will need to see their cases through to final judgment before recovering legal fees.
42 U.S.C. § 1988 provides that civil rights plaintiffs may win reimbursement of their attorneys’ fees if they are the “prevailing party.” Historically, this fee-shifting mechanism has helped advocacy groups and law firms shoulder the substantial cost of civil rights lawsuits. For example the Lackey plaintiffs estimated that the federal appellate litigation in the case cost $800,000. In a procedurally similar case, the New York Civil Liberties Union was seeking $200,000 in attorneys’ fees against two upstate New York counties.
The Supreme Court has addressed when exactly a plaintiff becomes a “prevailing party” (and thus eligible for reimbursement) on several occasions. In Buckhannon Board and Care Home v. West Virginia Department of Health and Human Resources, the Court ruled that a party prevails only when it achieves a “judicially sanctioned changed in the legal relationship of the parties.” 532 U.S. 598, 601 (2001). If a plaintiff files a lawsuit and the defendant voluntarily does what the plaintiff asked for, the plaintiff does not “prevail” for purposes of attorneys’ fees. To prevail, the plaintiff must win a merits judgment from a court.
What if a plaintiff wins a preliminary injunction but loses a final merits judgment? That plaintiff also does not prevail, the Supreme Court has held, because the victory was only temporary, not enduring. Sole v. Wyner, 551 U.S. 74, 86 (2007). The Sole decision left open what happens when a plaintiff wins a preliminary injunction and then the defendant voluntarily provides the relief plaintiff was seeking.
That issue has now been resolved. Until last month, 11 federal appeals courts held that a plaintiff that wins a preliminary injunction can be a “prevailing party” under some circumstances. Not so, said the Supreme Court in Lackey. The Court held that a plaintiff “prevails” when it wins permanent, on-the-merits judicial relief that materially alters the legal relationship of the parties. A plaintiff that wins only a preliminary injunction, which would include several plaintiffs suing the Trump Administration at this juncture, is not yet entitled to reimbursement of its attorneys’ fees. As a result, it’s not yet clear whether plaintiffs challenging the Trump Administration’s policies will receive attorneys’ fees. It will depend on how they are ultimately resolved.