The Third Circuit Orders Another Review in Cornelius v. CVS Pharmacy, Inc.—Resolution Will Wait for Another Day in New Jersey Federal Court, but Not Because of the EFAA
Case law related to the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”) continues to develop.
In late 2024, the Third Circuit seemed poised to bring further clarity as to which claims fall within the EFAA and, therefore, are shielded from pre-dispute arbitration agreements. On April 6, 2025, the Court provided guidance related to the timing of “disputes” as used in the statutory text, but remanded for further consideration of whether an arbitration agreement existed at all under New Jersey law. Cornelius v. CVS Pharmacy, Inc., 2025 WL 980309 (3d Cir. Apr. 2, 2025).
Cornelius was a longtime CVS employee who alleged that she experienced discrimination from her male supervisor. After Cornelius filed numerous internal complaints, CVS terminated her employment in November 2021. She brought a Charge to the EEOC, received a right-to-sue letter, and filed a lawsuit in the U.S. District Court for the District of New Jersey. CVS moved to compel arbitration pursuant to its “Arbitration Policy.” Plaintiff opposed, arguing that the EFAA rendered the arbitration agreement unenforceable as to her claims. The District Court disagreed, ruling that the EFAA did not apply to Cornelius’s claims because “her claims did not constitute a ‘sexual harassment dispute’” within the meaning of the statute, and compelled arbitration. Id. at *2.
The Third Circuit affirmed that the EFAA did not apply to Cornelius’ claims. Emphasizing that “[w]e begin and end with the text,” the Court focused on whether her “dispute” arose before or after the EFAA’s March 3, 2022 effective date. Based on the ordinary meaning of the words used in the statute, “dispute” was distinguishable from “injury” and the Court agreed that the EFAA did not apply, though on alternate grounds. The case, however, was remanded back to the District Court to consider whether discovery was necessary to resolve the motion to compel. Id. at *3-4.
Does the EFAA Apply to These Claims?
Congress codified the EFAA directly into the Federal Arbitration Act. Under 9 U.S.C. § 402: “at the election of the person alleging conduct constituting a sexual harassment dispute . . . no predispute arbitration agreement . . . shall be valid or enforceable with respect to a case which . . . relates to the . . . sexual harassment dispute.” The District Court ruled that Cornelius’ claims did not constitute a “sexual harassment dispute” under the EFAA. Id. at *2.
The statute also states that the EFAA is limited to “any dispute or claim that arises or accrues on or after the date of enactment of this Act,” which was March 3, 2022. Cornelius conceded that her claims accrued before November 2021. Focusing on the text of the statute, the Third Circuit found that a “‘dispute . . . arises’ when an employee registers disagreement—through either an internal complaint, external complaint, or otherwise—with his or her employer, and the employer expressly or constructively opposes that position.” The complaints that Cornelius submitted to CVS during her employment (i.e., prior to November 2021) were rejected (i.e., “disputed”) by CVS. Accordingly, per the Third Circuit, her “dispute arose” well before March 3, 2022, and the EFAA did not apply to her Title VII claim. Id. at *5.
Was Discovery Regarding the Existence of an Arbitration Agreement Required?
Next, the Court considered whether the District Court should have permitted discovery regarding the existence of an arbitration agreement between Cornelius and CVS under New Jersey law. The question arose because, “[w]hile the District Court intended to resolve CVS’s motion [to compel arbitration] under Rule 12(b)(6), which would give no occasion for the District Court to consider whether discovery was warranted, its consideration of materials outside of the Complaint placed its analysis within the realm of Rule 56 and the possible need for discovery.” Id. at *8.
In 2014, CVS rolled out its Arbitration Policy. The Arbitration Policy was presented to employees via a “PowerPoint training course” that included a hyperlink to a separate “Policy Guide.” The Policy Guide provided “a full copy of the Arbitration Policy” and separately explained how employees could accept the Arbitration Policy or opt out. Id. at *2. The employee’s acknowledgment of the Arbitration Policy, with the opt-out instructions, was found at the end of the PowerPoint, not the Policy. Id. The District Court held that there was a valid arbitration agreement between the parties based on information from the training course and Policy Guide. Id. at *6
On appeal, the parties agreed, as did the Third Circuit, that “the District Court applied the Rule 56 summary judgment standard because it considered facts and evidence outside Cornelius’s Complaint.” Id. at *6. Thus, from a procedural standpoint, it remained unresolved if Cornelius was entitled to discovery to support her argument that an arbitration agreement did not exist for these claims. Citing its decision in Young v. Experian Information Solutions, Inc.,119 F.4th 314 (3d Cir. 2024), which was decided after the District Court ruled in Cornelius, the Third Circuit noted that prior rulings should “be read as encouraging factual discovery when such discovery is warranted, which will often be the case,” but that “discovery is not required ‘when no factual dispute exists as to the existence or scope of the arbitration agreement.’” Id. at *6 (quoting Young).
Deferring to the District Court’s “broad discretion to order and control the scope of discovery,” the Third Circuit vacated the lower court’s order and remanded “for consideration of whether discovery into the validity of the arbitration agreement is warranted under Rule 56(d) and for consideration of Cornelius’s legal challenges to the arbitration agreement under New Jersey law.” Id. at *8. Practitioners will need to wait and see how lower courts address the Third Circuit’s latest guidance to evaluate what is needed to enforce—and challenge—a motion to compel arbitration.
Explaining California’s Private Attorneys General Act
Employers in California more than likely have heard of the Private Attorneys General Act, commonly referred to as PAGA. However, understanding what it is, how it functions, and how it can affect them can be challenging.
PAGA is a California statute passed in 2004 to assist the State with its obligation to enforce the California Labor Code. More specifically, PAGA deputizes individuals to file lawsuits against current or former employers to recover civil penalties that were previously only recoverable by the State. PAGA claims are brought as representative actions, meaning that the employees who initiate the lawsuits seek to represent – and recover civil penalties – on behalf of themselves and other purportedly “aggrieved employees,” making a PAGA lawsuit function as a pseudo-class action.
Given the increased number of PAGA notices submitted each year (nearly 2600 so far this year) and the potential exposure employers face in connection with these claims, it is vital for employers to have a firm understanding of PAGA and how a PAGA suit can impact their business.
The PAGA Notice
Before filing a lawsuit under PAGA, employees must first file a notice with the state Labor Workforce Development Agency (LWDA) indicating their intent to bring a civil action. In addition to identifying the employer(s) at issue, the notice must specify the sections of the Labor Code alleged to have been violated and include sufficient facts and legal theories to support each alleged violation.
The notice is submitted online with the LWDA and must also be served on the employer(s) via certified mail. For employers receiving a PAGA notice for the first time, it is easy not to understand what the notice is when it comes in. This is because the notice itself is in the form of a letter directed to the LWDA. As employers have limited time to assess whether to take action to cure or take steps to prevent alleged violations, businesses must train those who receive the mail to identify PAGA notices.
Once notice is filed with the LWDA, the agency decides whether it will investigate the employee’s claims or allow the employee to proceed with a lawsuit. Typically, if the LWDA is not going to investigate, they simply do not respond to the employee’s PAGA notice. If the LWDA has not taken any action after 65 days, the employee may file a private lawsuit under PAGA in court. While the LWDA historically investigated only a tiny percentage of PAGA notices, there appears to be an increased effort to investigate since PAGA was overhauled in June 2024.
Curing Violations Early
PAGA allows employers to address certain violations during the notice period, thereby avoiding PAGA litigation and penalties in connection with those violations. For notices filed on or after June 19, 2024, the PAGA reform legislation broadened the range of violations that can be corrected. Curable violations now include claims related to minimum wage, overtime, meal and rest breaks, business expense reimbursements, and itemized wage statements, among others.
Depending on the size of the employer’s workforce, businesses may be able to submit a cure proposal to the LWDA prior to a lawsuit being filed, regardless of whether the LWDA chooses to investigate. Employer proposals to correct violations are treated as confidential settlement proposals and cannot be used to validate any claim or as an admission of liability. However, if accepted, the employer’s confirmation that the cure was completed, along with additional supporting records and information, must be shared with the employee who filed the PAGA notice.
Alternatively, employers not eligible to submit a pre-lawsuit cure proposal can request an early evaluation conference when making their initial appearance in the case. If granted, the company will be required to submit a confidential statement identifying which alleged violations it intends to cure and dispute (which will be shared with the plaintiff’s counsel), and a neutral evaluator will hold a conference to assess whether any alleged violations occurred and whether any of the plaintiff’s claims can be settled.
While employers can potentially avoid PAGA litigation by curing alleged violations, assessing whether it is in the company’s best interest to submit a cure proposal should not be taken lightly. The PAGA amendments provide strict requirements to successfully cure violations, including the payment of unpaid wages, liquidated damages, and interest, and the decision to submit a cure proposal typically requires a nuanced analysis of employees’ time and payroll records to calculate payments owed to each employee covered by the proposal.
PAGA Lawsuits
Once a lawsuit is filed, the individual plaintiffs are stepping into the shoes of the LWDA. This means the plaintiffs are suing to enforce the California Labor Code on behalf of the State and other alleged aggrieved employees.
A PAGA case is similar to a class action in that you have one or more individual plaintiffs seeking to represent other similarly situated workers, however, there are several differences. For example, while both actions are entitled to broad discovery, plaintiffs in PAGA actions are not required to certify their claims prior to trial as they would in a class action.
Because of the representative nature of the action, if a PAGA lawsuit is resolved, the potential settlement must be submitted to the court for approval in order for the release of PAGA claims to be valid.
Some of the most important changes under the 2024 amendments impact the potential civil penalties available under PAGA. The new legislation seeks to level the playing field for employers by reducing penalties for technical violations or where the employer can demonstrate it took “all reasonable steps” to comply with the Labor Code, either before or after a PAGA notice is filed. The amendments also impose stricter standing requirements – by requiring that plaintiffs personally experienced each Labor Code violation they seek to recover penalties for – and expressly grant courts discretion to limit the scope of PAGA claims and evidence presented at trial based on manageability arguments.
PAGA Prevention
Employers can take various steps to mitigate the risks associated with PAGA claims, and the recent amendments incentivize and reward employers for making good faith efforts to comply with the Labor Code both before and after a PAGA notice is filed. Proactive steps include:
Conducting regular audits of time and payroll practices and records to ensure employees are being properly compensated and receiving state-mandated breaks.
Regularly reviewing policies and procedures to ensure compliance with the California Labor Code.
Conducting periodic trainings to educate supervisors and managers about company policies and relevant provisions of the California Labor Code.
Implementing corrective actions if violations occur.
In addition to wage and hour issues, employers should also be mindful of potential PAGA claims based on alleged health and safety violations.
Importantly, given the strict deadlines imposed by the new amendments, an employer should promptly review any PAGA notices it receives to determine whether to utilize PAGA’s newly expanded cure and early evaluation options.
EDNY OneTaste Prosecution Faces Extraordinary Challenge: Defense Goes Over Judge’s Head to Second Circuit
In a dramatic development in the contentious prosecution of OneTaste co-founder Nicole Daedone and former sales leader Rachel Cherwitz in a novel one-count indictment of forced labor conspiracy, defense attorneys have taken the rare step of petitioning the Second Circuit Court of Appeals to intervene directly in the ongoing case before Judge Diane Gujarati in the Eastern District of New York. U.S. v. Cherwitz, et al., No. 23-cr-146 (DG) (E.D.N.Y.).
The extraordinary mandamus petition, filed March 7, 2025, effectively asks the appellate court to overrule Judge Gujarati’s decisions regarding allegedly stolen privileged documents belonging to OneTaste—a move that legal experts describe as both a high-risk strategy and a decisive escalation after repeated unfavorable rulings from the district court.
Mandamus: The “Nuclear Option” of Legal Remedies
A writ of mandamus—Latin for “we command”—represents one of the most drastic remedies in federal court. Reserved for situations where a judge has clearly exceeded authority or failed to perform required duties, successful mandamus petitions are exceedingly rare in criminal proceedings. Legal experts describe mandamus as the procedural equivalent of a judicial emergency brake—pulled only when a lower court has gone so far off the rails that waiting for a normal appeal would be inadequate.
The petition asks the Second Circuit to reverse Judge Gujarati’s September 2024 and February 2025 orders regarding privileged documents, and either dismiss the indictment outright or order an evidentiary hearing on the government’s use of allegedly stolen privileged materials.
Alleged FBI Misconduct Takes Center Stage
The mandamus filing comes on the heels of a heated February 26 court conference, after which defense attorneys Jennifer Bonjean and Celia Cohen held an impromptu press conference on the courthouse steps, directing pointed accusations at FBI Special Agent Elliot McGinnis who has been the subject of over two dozen defense motions. When asked by a reporter about a confrontation in the courtroom, Bonjean stated:
“I would not accuse the prosecutor, or even the law enforcement (agent) of misconduct unless I had the goods. And as for McGinnis, we have the goods, there is a record, and yes, absolutely, it should be investigated for criminal misconduct.”
Bonjean went on to call for direct intervention from the Department of Justice:
“We think the case should be thrown out. We think that if the Department of Justice looks at this case closely–and we hope they are–that this is exactly the type of case where you have extraordinary FBI misconduct. I don’t say that lightly, but THIS is the case they should be looking at…We hope they will and we hope that it will result in a great result, which is dismissal.”
Privileged Documents: The Smoking Gun?
At the heart of the mandamus petition lies a bombshell allegation: FBI agent Elliot McGinnis knowingly used stolen privileged corporate documents to investigate OneTaste and build a case against Daedone and Cherwitz.
According to the mandamus and previous defense filings, a former IT contractor named Mitch Aidelbaum illegally accessed OneTaste servers and stole a large volume of material including privileged OneTaste documents in 2017 after his employment ended. Per defense motions, Agent McGinnis obtained a privileged company legal risk assessment in January 2021 and recognized the privileged nature but failed to pass it to a “taint team” or notify OneTaste that its corporate documents had been stolen. Instead, McGinnis reportedly used the privileged document as a roadmap for the investigation, interviewing 20 witnesses specifically identified in the stolen material.
The government did not disclose these documents until late 2024, prompting defense motions to dismiss the indictment. Judge Gujarati denied these motions, finding the documents non-privileged, ruling that defendants lacked standing to assert privilege, and deeming the motions untimely despite their recent discovery.
Judge Gujarati Under Scrutiny
The mandamus petition places Judge Gujarati, who joined the federal bench in 2020 and has presided over only one criminal trial, in a precarious position. Her consistent pattern of rulings favoring government positions despite mounting evidence of misconduct now faces appellate scrutiny.
Throughout pretrial proceedings, Judge Gujarati has repeatedly denied defense requests to conduct hearings over alleged government misconduct, often citing procedural grounds, like timeliness, rather than addressing substantive concerns. During the February 26 conference, she sharply rebuked defense counsel for suggesting prosecutorial impropriety, despite growing evidence of investigative irregularities.
Legal observers note that judges facing mandamus petitions must choose between defending their rulings to the appellate court or reconsidering them in light of the petition—a particularly uncomfortable position for a relatively new jurist with limited trial experience. Notably, a majority of Gujarati’s rulings have been “from the bench” in oral rather than written arguments. This may increase the odds of review as the appellate court does not have a written argument upon which to evaluate the district court’s decisions.
The Netflix Connection Deepens
New evidence has also emerged regarding the controversial “journals” created for Netflix’s documentary on OneTaste. In a motion for reconsideration filed March 4, defense attorneys revealed that Autymn Blanck—sister of key government witness Ayries Blanck—testified in a civil deposition that she accessed her sister’s hard drive, extracted photos, and sold them to Netflix for $25,000 in 2022.
This testimony directly contradicts the government’s representation that Ayries gave the hard drive to Autymn merely for “safekeeping,” a claim Judge Gujarati relied upon in denying defense access to the drive’s contents. Moreover, it strengthens the defense narrative that evidence, in this case, originated in commercial media production rather than legitimate investigation and that the made-for-Netflix material was used to secure an indictment. In oral argument at the February 26 conference, Jennifer Bonjean referred to the government’s use of an unnecessary search warrant to selectively access the hard drive as an “elaborate construct” to evade Brady and Giglio obligations. In a show of defiance, Bonjean filed a March 4 motion with the court urging Judge Gujarati to reconsider her denial of defense access to the full hard drive.
The government had already withdrawn Ayries Blanck’s journal entries from their case-in-chief after defense challenges to their authenticity, despite previously characterizing them as central evidence. In the February 26 conference, Judge Gujarati repeatedly pressed lead prosecutor Gillian Kassner to declare whether the government believed the journals to be authentic. Unsatisfied with the response, Gujarati ordered the government to put in writing its position on their authenticity. In a bombshell filing on March 12 that left observers aghast, the government admitted the journal entries it had relied upon were fakes. It withdrew Ayries Blanck as a witness along with all previous statements regarding the journals made by the prosecution. Celia Cohen and Michael Roboti acting for Rachel Cherwitz immediately called upon the government to dismiss the case and prosecute Ayries Blanck for falsifying evidence and lying to Federal agents. Reaction elsewhere was swift. The Daily Mail declared the government’s case to be teetering “on the brink of collapse.” In the California civil matter of OneTaste Inc v. Ayries Blanck, the high-profile law firm of Reed Smith filed noticed that it was dropping Blanck as a pro bono client in the wake of the EDNY news.
DOJ Reform on Collision Course with EDNY
The timing of these developments is particularly significant given the Department of Justice’s shifting priorities under the Trump administration. Attorney General Pam Bondi’s February 5 directive instructed prosecutors to focus on “the most serious, readily provable offenses,” including actual human trafficking operations.
President Trump’s January 20 executive order “Ending The Weaponization of The Federal Government” specifically cited another EDNY prosecution—United States v. Douglass Mackey—as an example of prosecutorial overreach. Both Mackey and the OneTaste prosecution involve novel applications of conspiracy charges without substantive crimes, supported heavily by media narratives.
With the upheaval in the Southern District of New York resulting in the reassignment of Mayor Eric Adams’ case to DOJ headquarters and the termination of numerous SDNY prosecutors, EDNY’s traditionally independent approach may face similar scrutiny.
Trial in Doubt as Clock Ticks
While jury selection remains scheduled for May 5, 2025, the mandamus petition casts considerable doubt on whether the trial will proceed as planned. A stay request filed on March 3 asks the district court to pause proceedings pending resolution of the mandamus petition. Should the Second Circuit grant the petition, it could fundamentally reshape the evidence available at trial or potentially end the prosecution entirely.
The case presents novel legal questions with implications far beyond OneTaste executives: Can the government use stolen privileged corporate material to prosecute executives without company consent? Does such conduct constitute the kind of outrageous government behavior that warrants dismissal of an indictment? And how will the new DOJ administration’s focus on reform affect long-running prosecutions initiated under previous leadership? This case is rapidly becoming a litmus test for whether the DOJ’s new emphasis on reform extends to cases already in the pipeline. The extraordinary step of seeking mandamus relief signals the defense’s belief that normal remedies have failed—and may force a reckoning that extends well beyond this single prosecution.
Texas Supreme Court Declines The Chance To Rule On Whether There Is A Right To A Jury Trial In A Trust Modification Suit
First Appellate Decision. In In re Troy S. Poe Trust, a co-trustee of a trust filed suit to modify the trust to increase the number of trustees and change the method for trustees to vote on issues as well as other modifications, including, incredibly, directing the trustees to ignore duties to remainder beneficiaries. No. 08-18-00074-CV, 2019 Tex. App. LEXIS 7838 (Tex. App.—El Paso August 28, 2019). The trial court denied the defendant co-trustee’s request for a jury trial on underlying fact issues and held a two-day bench trial. After the trial court granted all of the plaintiff’s modifications, the defendant co-trustee appealed and argued that the trial court erred in refusing him a jury trial. The court of appeals held that Texas Property Code did not waive a party’s right to a jury trial regarding a claim to modify a trust, and that the defendant co-trustee had a right to a jury trial on underlying fact questions involved in a trust modification case. The court reversed and remanded for further proceedings.
Second Appellate Decision. In In re Poe Trust, the Texas Supreme Court reversed and remanded the court of appeals. 646 S.W.3d 771 (Tex. 2022). The Court held that parties to trust modification proceedings were not entitled to a jury trial under the Texas Property Code. But the Court remanded for the court of appeals to consider whether the defendant co-trustee had a right to a jury trial under the Texas Constitution:
The Texas Constitution provides “two guarantees of the right to trial by jury” in civil proceedings. The Bill of Rights ensures that the “right of trial by jury shall remain inviolate.” Our cases have said, and the parties here do not dispute, that this provision maintains a jury right for the sorts of actions tried by jury when the Constitution was adopted and, thus, “only applies if, in 1876, a jury would have been allowed to try the action or an analogous action.”
At the time of the Constitution’s adoption, there was no common-law right to a jury trial in equitable actions and, consequently, our courts have held that the Bill of Rights did “not alter the common law tradition eschewing juries in equity.” However, to provide a jury right in equitable actions, “a special clause was introduced.” In our present Constitution, that guarantee is found in Article V, the Judiciary Article. It provides: “In the trial of all causes in the District Courts, the plaintiff or defendant shall, upon application made in open court, have the right of trial by jury; but no jury shall be empaneled in any civil case unless demanded by a party to the case, and a jury fee be paid by the party demanding a jury, for such sum, and with such exceptions as may be prescribed by the Legislature.” We have held, and no party here disputes, that the Judiciary Article “covers all ’causes’ regardless of whether a jury was available in 1876.”
…
The court of appeals confronted none of these constitutional arguments, which were first presented on rehearing. By that time, the court of appeals had concluded that the Trust Code’s incorporation of the Rules of Civil Procedure conferred a right to a jury trial. That holding made in-depth treatment of the constitutional arguments unnecessary. Our holding today, however, changes that… Following our preferred practice, we remand the case to the court of appeals to address petitioners’ constitutional arguments in the first instance. And we echo the concurrence’s view that amici input could greatly aid the court of appeals’ decisional process.
Id.
Third Appellate Decision. In In re Poe Trust, the court of appeals held that the co-trustee defendant did not have a constitutional right to a jury trial in a trust modification case, and then affirmed the trial court’s modification of the trust. 673 S.W.3d 395 (Tex. App.—El Paso, 2023). The court held that there was no right to a jury trial under the Texas Bill of Rights. The court then turned to the Judiciary Article and stated:
[T]he “Judiciary Article” states: “In the trial of all causes in the District Courts, the plaintiff or defendant shall, upon application made in open court, have the right of trial by jury; but no jury shall be empaneled in any civil case unless demanded by a party to the case, and a jury fee be paid by the party demanding a jury, for such sum, and with such exceptions as may be prescribed by the Legislature.” In contrast with the Bill of Rights, this provision expanded the jury-trial right to all “causes” in both law and equity, regardless of whether a jury trial was available for the same in 1876. However, there are differences in opinion regarding how the term “causes” in this provision should be defined.
Id. The court then held that a trust modification proceeding is not a “cause” as that term is used in the Judiciary Article:
Bock, on the other hand, argues that “cause” should include only “ordinary” causes of action, also referred to as “personal” actions, in which a plaintiff is seeking a personal judgment against a defendant based on the defendant’s breach of a duty or other wrongdoing. He posits that a plaintiff must be asserting some “personal right” for which he may obtain a remedy or enforceable judgment against the defendant. And he argues that a trust-modification proceeding lacks the attributes of an ordinary cause of action—it is not brought by a plaintiff seeking a judgment against a defendant, but instead is brought in the interest of the beneficiary and will not result in an enforceable judgment against any of the interested parties.
We conclude that Bock’s approach is the correct one, as it more closely aligns with the 1876 Constitution drafters’ intent in formulating the Judiciary Article’s jury-trial right and best comports with Texas jurisprudence over time.
Id. The court further explained:
Professor Harris later described the proceeding in which a plaintiff sues a defendant seeking a personal judgment against the defendant as the “ordinary cause of action,” which he contrasted with “special civil proceedings” that do not share this key attribute… This interpretation of the term cause as meaning the ordinary cause of action in which a plaintiff seeks recourse against a defendant further comports with the Judiciary Article’s “plaintiff” and “defendant” terminology. During the era in which the 1876 Constitution was adopted, Bouvier’s Law Dictionary defined a plaintiff as a person “who, in a personal action, seeks a remedy for an injury to his rights.” Plaintiff. It defined the term “defendant” in the opposing stance as a “party who is sued in a personal action.” And in turn, it defined a “personal action” as one “brought for the specific goods and chattels; or for damages or other redress for breach of contract or for injuries of every other description; the specific recovery of lands, tenements and hereditaments only excepted.” In other words, a personal action encompasses a situation in which a party seeks a judgment against a defendant as a remedy for a violation of a personal right… [W]e find the ordinary-cause-of-action framework to be the correct framework or test by which to determine whether a proceeding can be considered a Judicial Article cause versus a special proceeding that falls outside its scope.
Id. The court then held that a trust modification proceeding is more of a special proceeding and does not involve an ordinary cause of action:
Utilizing the ordinary-cause-of-action framework, we agree with Bock that a trust-modification proceeding does not have any of the attributes of a cause for which a Judicial Article jury-trial right exists; instead, its nature is that of a special proceeding for which no jury-trial right exists. As Bock points out, in a trust-modification proceeding, there is no plaintiff seeking a right of recovery or a judgment against a defendant who has committed some wrong.
Id. So, the court of appeals affirmed the trial court’s decision to deny the defendant co-trustee’s request for a jury trial. The court then looked at the merits of the trust modification and affirmed it as well. The court essentially rejected the unambiguous intent expressed by the settlor in the trust document and focused on other evidence to modify the trust.
There was a dissenting justice who found that the defendant co-trustee did have a constitutional right to a jury trial. The dissenting justice stated:
In the years when the 1875 Constitution was drafted, Texas law used “cause” broadly… In other words, “cause” was viewed comprehensively as encompassing contested questions before a court… Moreover, as this Court held in our prior decision in this case, the record here establishes that statutory prerequisites include disputed questions of fact. Specifically, this Court concluded that “the predicate questions of whether the trust needed to be modified was a fact question that should have been decided by a jury[.]”We observed in our earlier decision that, “as a general rule, ‘when contested fact issues must be resolved before equitable relief can be determined, a party is entitled to have that resolution made by a jury.’” Because this suit is based on a long recognized equitable cause of action, I would hold it falls squarely within the meaning of “all causes” as included in the Judiciary Article’s terms.
The majority views a material distinction between the term “cases,” as included in the Constitution of 1869, and the term “causes,” as currently included. Specifically, the majority describes the term “causes,” as “narrower language.” On that point, I disagree. Controlling authorities of the era inform that “all cases of law or equity,” as included in the 1869 version, essentially means the same thing as “all causes,” which was adopted in 1876. Given the historical use of these terms, I see no indication that the voters of that era drew back from the otherwise expanding guarantee of a right to a jury trial.
Additionally, the majority places heavy importance on the use of the terms, “plaintiff” and “defendant,” as appearing in the Judiciary Article. Based in part on these terms, the majority concludes that the term “cause” can only be interpretated as meaning an “ordinary cause of action.” Again, I disagree… First, these same terms, “plaintiff” and “defendant,” appear in the Constitution of 1845, where the jury-trial guarantee was otherwise provided in “all causes in equity.” Second, the terms “plaintiff” and “defendant” are not used as terms of limitation but rather to describe that a jury trial is guaranteed to all participants when “application [is] made in open court.” Third and lastly, I see no indication here of any special circumstance that would cause a jury trial to be prohibitive. On that score, Justice Busby’s concurring opinion in Poe, which is joined by Justice Devine and Justice Young, largely provides the analytical framework for making that determination. Because this modification suit is a statutory substitute for a cause in equity, I would classify it as falling into the second category of Justice Busby’s framework. To that extent, the jury-trial right would extend in part to the disputed issues of fact of this suit while questions of equitable discretion should be decided by the court. Unlike the majority, I would hold that a trust modification proceeding qualifies as “a cause” within the meaning of the Judiciary Article’s guarantee.
Id.
Three Justices Concur in The Decision To Deny The Petition For Review. The defendant co-trustee filed a petition for review in the Texas Supreme Court on both the jury trial right issue and on the trust modification issue. The both issues are of great importance to Texas jurisprudence as they certainly impact trust modifications and many other equitable proceedings under the Trust Code and Estate’s Code.
One would think that the Texas Supreme Court would accept the petition in this case, again, and finally determine whether a party has a constitutional right to a jury trial on underlying fact disputes in these types of proceedings. Alas, the Court denied the petition for review without an explanation. However, three justices issued a concurring opinion that gave some insight on their thinking. In re Poe Trust, No. 23-0729, 2024 Tex. LEXIS 658, 2024 WL 3836556 (Tex. August 16, 2024) (concurring order). The concurring justices stated that they agreed with denying the petition because there was no showing of a fact issue that should have been presented to a jury. That in and of itself is very odd. The trial court held a two day bench trial where both parties introduced evidence to support both sides on the issue of whether the modifications should have been granted on fact specific elements of: “(1) [whether] the purposes of the trust have been fulfilled or have become illegal or impossible to fulfill; (2) because of circumstances not known to or anticipated by the settlor, the order will further the purposes of the trust…” Id. (citing Texas Trust Code Section 112.054(a)(1), (2)). Whether the purposes of the trust have been fulfilled and whether circumstances not known to or anticipated by the settlor justify modification seem to be pretty fact specific issues. The court of appeals first decision clearly thought there was a fact issue because it remanded for a jury trial. The Texas Supreme Court’s first opinion clearly assumed that there was a fact issue because it went into great length in reversing and remanding the court of appeals for an analysis of the co-trustee’s constitutional right to a jury trial. Why would the Court waste its time and resources and the court of appeals’s time and resources, including the parties’ time and resources, if it felt that there was no fact issue?
In any event, the three concurring justices addressed whether the court of appeals correctly analyzed the constitutional right to a jury trial and would find that it did not:
That guarantee, which appears in the Judiciary Article, provides that “[i]n the trial of all causes in the district courts, the plaintiff or defendant shall, upon application made in open court, have the right of trial by jury.” We have held that this guarantee applies, among other things, to “ultimate issues of fact” in “equitable action[s],” analogous actions, and statutory or rule-based substitutes for such actions, as well as when challenging disputed facts addressed in proceedings ancillary to a cause. For example, it applies to contested matters of fact arising from receivership and probate proceedings.
We have also explained that the Judiciary Article guarantee was “intended to broaden the right to a jury,” and that the word “cause” had a “broad meaning . . . when our present Constitution was drafted” that included any “suit, litigation, or action” involving a “question . . . litigated or contested before a court” or “legal process . . . to obtain [a] demand” or “seek[] [a] right.” Thus, a “special reason” is necessary to conclude that particular “adversary proceedings” do not “qualify as a ’cause’.” Because we have identified certain special reasons—such as separate constitutional provisions—that some proceedings do not require a jury, “not all adversary proceedings are ’causes’ within the meaning of the Judiciary Article.” …
But on remand, a majority of the court of appeals panel did not examine whether there was a “special reason” of the sort we have held sufficient to exclude such an adversary equitable action from the Judiciary Article guarantee. Instead, the panel majority excluded these claims by disregarding the broader definition of “cause” we endorsed in Credit Bureau and selecting a narrower alternative definition derived from the common law: an “ordinary cause of action” or “personal action” in which a plaintiff alleges that a defendant breached a legal duty or violated a legal right and seeks recourse for that conduct…
Several weaknesses, however, underlie the panel majority’s definition and reasoning. First, the panel’s definition impermissibly departs from the “broad” definition of “cause” we endorsed in Credit Bureau, which was drawn from contemporaneous sources. Indeed, an amicus helpfully points out that Texas cases used the term “cause” in the 1870s to describe a wide variety of proceedings involving trusts. Second, the panel’s definition is based on the common law and thus excludes equitable actions, which we have long held the Judiciary Article guarantee was specifically enacted to include. The panel’s definition would collapse the Judiciary Article guarantee into the Bill of Rights guarantee, rendering the former surplusage…
For this additional reason, the panel majority erred in choosing a different and much narrower common-law definition of “cause,” which led it to depart improperly from several other binding precedents of this Court… Under these and other precedents, the court of appeals erred by adopting a binary view of the options for defining the scope of the Judiciary Article’s jury-trial guarantee and selecting the narrower option. Instead, it should have followed the middle path charted by our cases (hodgepodge though they may be), proceeding to examine whether there is a “special reason” of the kind we have held sufficient to deny a jury trial even though this adversary equitable action otherwise falls within the broad meaning of “cause” in the Judiciary Article guarantee. If any departure from our precedent is warranted, it must come from this Court. I do not analyze either point here, however—whether a “special reason” applies in this context under our existing jurisprudence or whether that jurisprudence is well grounded in the Constitution’s text and history. Because I conclude that there are no disputed questions of material fact in this case for a jury to resolve, those questions must await a future case.
Id. Of course, this order is just three justices’ opinion out of the nine-member Court as to the validity of the court of appeals’ reasoning. The Court could have accepted the case, affirmed the result, but corrected the reasoning of the court of appeals. The Court did not do that. So, as we sit today, the court of appeals’s analysis and narrow reading of “cause” in the constitutional right to a jury trial is the precedent in Texas.
The Nuts & Bolts of a Lift Stay Motion in a Bankruptcy Case
The automatic stay is one of the most powerful protections available to debtors in bankruptcy, immediately halting most collection efforts, foreclosures, and lawsuits. This mechanism provides the debtor with breathing room to reorganize finances and prevents creditors from racing to recover assets.
However, creditors are not without options. They can challenge the stay through a motion for relief, which can lead to enabling them to proceed with foreclosure, repossession, litigation, or other action under certain conditions. Understanding the nuances of this process is crucial for legal and financial professionals working in bankruptcy law.
Understanding the Automatic Stay
The automatic stay takes effect immediately upon the filing of a bankruptcy petition under Section 362(a) of the US Bankruptcy Code. It serves several key functions:
Halting litigation against the debtor
Preventing asset repossession and foreclosure
Stopping debt collection efforts, including garnishments
Maintaining the status quo while the debtor works toward financial rehabilitation
As Matt Christensen of Johnson May explains, the automatic stay applies without any need for a separate court order, meaning that creditors must cease collection efforts as soon as they become aware of the filing. Courts take violations of the stay seriously, and creditors who ignore it risk facing sanctions or penalties.
Grounds for Lifting the Automatic Stay
Creditors may seek to lift the automatic stay under Section 362(d) of the Bankruptcy Code. The most common justifications include:
1. ‘For Cause,’ Including Lack of Adequate Protection
One of the strongest arguments for lifting the stay is that a secured creditor’s interests are not adequately protected. This is especially relevant when a secured asset (such as real estate or equipment) is losing value and the debtor is not making payments or maintaining insurance.
Tim Anzenberger of Adams and Reese noted that creditors should provide evidence, such as declining property values or unpaid property taxes, to demonstrate that the value of their collateral is at risk. Inadequate protection can be grounds for relief, as courts aim to ensure that secured creditors do not suffer undue losses while the bankruptcy case proceeds.
2. ‘Lack of Equity’ and ‘Non-Essential’ to Reorganization
If a debtor owes more money to a secured creditor whose collateral is worth less than the amount of the debt (i.e., the debtor lacks equity in the collateral), and the asset is not necessary for reorganization, the stay can be lifted to allow the creditor to recover the collateral.The court will weigh whether the asset is essential for the debtor’s long-term viability before deciding on stay relief on this basis.
For example, Ryan Hardy, a partner with Levenfeld Pearlstein, explains that, in the case of a failing business, non-essential equipment or real estate might be subject to foreclosure, especially if liquidation is the likely outcome.
3. Single Asset Real Estate Cases
In single asset real estate (SARE) cases, a special provision applies. If the debtor does not file a reorganization plan or make payments within 90 days, the creditor may automatically seek stay relief. This prevents debtors from using bankruptcy as a mere delay tactic without a legitimate plan for restructuring.
4. Bad Faith Filings
Courts scrutinize bankruptcy cases to prevent abuse of the system. If a debtor files for bankruptcy solely to delay a foreclosure or to frustrate creditors without a valid reorganization plan, the court may find bad faith and lift the stay.
Maria Carr of McDonald Hopkins highlights that repeated filings right before a foreclosure sale are often viewed as a red flag. Creditors can present a history of past filings and delays to demonstrate that the debtor is acting in bad faith, strengthening their case for stay relief.
Procedure for Filing a Motion To Lift the Stay
A motion for relief from the stay follows a structured legal process:
Filing the Motion – The creditor submits a written motion explaining why relief is warranted, citing legal grounds and supporting evidence.
Notice to Interested Parties – The debtor and other affected parties must be formally notified.
Court Hearing – If the debtor objects, a hearing is scheduled where both sides present arguments.
Court Ruling – The judge decides whether to lift, modify, or keep the stay in place.
A contested motion often requires valuation evidence, financial projections, and expert testimony from appraisers or financial analysts.
Conclusion
The automatic stay is a critical component of bankruptcy law, preventing immediate collection actions. Understanding how courts evaluate lift stay motions is essential for attorneys, creditors, and financial professionals involved in bankruptcy litigation. Courts carefully balance debtor protections and creditor rights, weighing the evidence presented.
Filing a motion for relief requires a strategic approach, including valuation analysis and legal justification. By knowing the rules, legal strategies, and key arguments, parties can better protect their interests in Chapter 11 and other bankruptcy cases.
To learn more about this topic, view the webinar The Nuts & Bolts of Chapter 11 (Series I) / The Nuts & Bolts of a Lift Stay Motion. 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 in reading other articles about Chapter 11.
This article was originally published here.
©2025. DailyDACTM, LLC. This article is subject to the disclaimers found here.
Class Action Litigation Newsletter | 4th Quarter 2024
This GT Newsletter summarizes recent class-action decisions from across the United States.
Highlights from this issue include:
First Circuit addresses four questions of first impression relating to CAFA jurisdiction and “home state” and “local controversy” exceptions.
Second Circuit holds class representative’s susceptibility to unique defenses is not a basis for finding lack of adequacy, though it may go to typicality.
Fourth Circuit reverses certification of FLSA class action, finding conclusory allegations of company policies were insufficient to satisfy commonality requirement.
Sixth Circuit vacates class certification based on individualized questions in automotive defect case.
Seventh Circuit affirms decertification of Rule 23(c)(4) issues class for lack of superiority.
Ninth Circuit holds unexecuted damages model sufficient to demonstrate damages are susceptible to common proof at the class certification stage.
Continue reading the full GT Class Action Litigation Newsletter | 4th Quarter 2024
Additional Authors: Richard Tabura, Aaron Van Nostrand, Gregory A. Nylen, David G. Thomas, Angela C. Bunnell, R. Morgan Carpenter, Gina Faldetta, and Gregory Franklin.
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).