Ninth Circuit Upholds DFPI’s Commercial Financing Disclosure Rules
On September 30, 2018, California enacted SB 1235, codified at California Financial Codes sections 22800–22805. See California Will Soon Require Novel Disclosure Requirements Providers Of Commercial Financings. SB 1235 requires that an offer of commercial financing for $500,000 or less be accompanied by disclosures of: (1) the amount of funds provided, (2) the total dollar cost of financing, (3) the term or estimated term, (4) the method, frequency, and amount of payments, (5) a description of prepayment policies, and (6) the total cost of financing expressed as an annualized rate. Cal. Fin. Code §§ 22802(b) & 22803(a). Four years after SB 1235 was enacted, the Office of Administrative Law approved regulations implementing the disclosure requirements, 10 CCR § 900 et seq. See OAL Approves DFPI Commercial Financing Disclosure Rules – But Who Got Stuck With The Check? A few months later, , the Small Business Finance Association filed a Complaint a challenging the validity of those regulations as unconstitutional compelled commercial speech. Small Bus. Finance Ass’n v. Hewlett, 2023 WL 8711078 (C.D. Cal. Dec. 4, 2024).
Last December, U.S. District Court Judge R. Gary Klausner granted the Department of Financial Protection & Innovation’s motion for summary judgment, finding that the regulations do not violate the First Amendment under the Supreme Court’s test for compelled commercial speech established in Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 417 U.S. 626 (1985). In an unpublished decision last week, the Ninth Circuit Court of Appeals affirmed Judge Klausner’s ruling. Small Bus. Finance Ass’n. v. Mohseni, 2025 WL 1111493 (9th Cir. Apr. 15, 2025).
Let the Shakedowns Begin: Tax False Claims Legislation in California
Legislators in Sacramento, California, are mulling over one of the most (if not the most) troubling state and local tax bills of the past decade.
Senate Bill (SB) 799, introduced earlier this year and recently amended, would expand the California False Claims Act (CFCA) by removing the “tax bar,” a prohibition that exists in the federal False Claims Act (FCA) and the vast majority of states with similar laws.
If enacted, SB 799 will open the floodgates for a cottage industry of financially driven plaintiffs’ lawyers to act as bounty hunters in the state and local tax arena. California taxpayers would be forced to defend themselves in high-stakes civil investigations and/or litigation – even when the California Attorney General’s Office declines to intervene. As seen in other states, this racket leads to abusive practices and undermines the goal of voluntary compliance in tax administration.
While the CFCA is intended to promote the discovery and prosecution of fraudulent behavior, Senator Ben Allen introduced the bill specifically to “protect public dollars and combat fraud.” The enumerated list of acts that lead to a CFCA violation does not require a finding of civil fraud. In fact, a taxpayer who “knowingly and improperly avoids, or decreases an obligation to pay or transmit money or property to the state or to any political subdivision” would be in violation of the CFCA (See Cal. Gov’t Code § 12651(a)(7)).
This standard is particularly inappropriate in the tax context and is tantamount to allowing vague accusations of noncompliance with the law, leading to taxpayers being hauled into court. Once there, taxpayers would be held hostage between an expensive legal battle and paying an extortion fee to settle. The CFCA is extremely punitive: Violators would be subject to (1) treble damages (i.e., three times the amount of the underreported tax, interest, and penalties), (2) an additional civil penalty of $5,500 to $11,000 for each violation, plus (3) the costs of the civil action to recover the damages and penalties (attorneys’ fees).
To the extent the action was raised by a private plaintiff (or relator) in a qui tam action, the recovered damages or settlement proceeds would be divided between the state and the relator, with the relator permitted to recover up to 50% of the proceeds (Cal. Gov’t Code § 12652(g)(3)). If the state attorney general or a local government attorney initiates the investigation or suit, a fixed 33% of the damages or settlement proceeds would be allotted to their office to support the ongoing investigation and prosecution of false claims (Cal. Gov’t Code § 12652(g)(1)).
Adding further insult to injury, the CFCA has its own statute of limitations independent of the tax laws. Specifically, the CFCA allows claims to be pursued for up to 10 years after the date the violation was committed (Cal. Gov’t Code § 12654(a)). A qui tam bounty hunter’s claim would supersede the tax statutes of limitations.
Next, the elements of a CFCA violation must only be shown “by a preponderance of the evidence” (Cal. Gov’t Code § 12654(c)). The common law burden of proof for fraud is by “clear and convincing evidence,” a much higher bar.
Absent amendments, SB 799 would put every significant California taxpayer in jeopardy when the taxpayer takes a legitimate tax return position on a gray area of the state or local tax law, even when the position was resolved through the California Department of Tax and Fee Administration, the California State Board of Equalization, the California Franchise Tax Board, or a local government. Settlement agreements, voluntary disclosure agreements, and audit closing agreements all would be disrupted if the attorney general or a plaintiff’s lawyer believes the underlying tax dispute or uncertainty is worth pursuing under the CFCA.
In countless cases in Illinois and New York, we have seen companies face False Claims Act shakedowns after the company already had been audited, had entered into a settlement with the state, or when the tax statute of limitations had long closed. SB 799 would bring the horrors experienced in Illinois and New York to taxpayers doing business in California.
Fundamentally, SB 799 threatens to open the litigation floodgates and undermine the authority of California tax administrators, putting tax administration in the hands of profit-seeking “whistleblower” bounty hunters. The goal of motivating whistleblowers and addressing tax fraud can be accomplished by simply adopting (and funding) a tax whistleblower program similar to the very successful programs offered by the Internal Revenue Service and many other states.
Ideally, SB 799 will be rejected in full or deferred for further consideration by an interim/study committee. With this in mind, the following amendments are essential to prevent the most severe abuses that stem from the CFCA’s application to tax.
Bring qui tam suits without government involvement. Eliminating the ability of private plaintiffs to bring qui tam suits without the involvement of the attorney general would significantly reduce the number of frivolous claims and give the state its sovereign right to decide whether a claim should be pursued under the CFCA. If this amendment is not accepted, companies that introduce new technology and innovative products will be at the greatest risk of being targeted for qui tam It is always the case that tax law does not keep up with technological advances. Thus, the gray areas of tax law will be most present for high-tech taxpayers.
Protect reasonable, good-faith tax positions. Companies should not be liable under the CFCA merely for taking a reasonable return position or otherwise attempting to comply with a reasonable interpretation of law. CFCA exposure should be limited to cases of specific intent to evade tax, proven by clear and convincing evidence. Tax law is notoriously murky, and good-faith disputes are what keep lawyers and accountants employed worldwide.
Defer to existing tax statutes. The CFCA should not override the California Revenue and Taxation Code provisions governing statutes of limitation or burden of proof.
Apply prospectively only. The CFCA should be limited in application to prospective matters (i.e., claims for taxable years beginning on or after January 1, 2026) to avoid retroactive liability and constitutional risk.
Additionally, there is an emerging body of caselaw involving the federal FCA, holding it violates the separation of powers under the US Constitution. Justice Thomas, in a dissent, suggested that the federal FCA might be unconstitutional because it transfers executive power to the private sector. A district court in Florida recently dismissed a qui tam action brought under the federal FCA on similar grounds. The California Constitution is structured like the US Constitution in this regard, with executive power vested in the governor and the attorney general serving as the chief law enforcement officer (See Cal. Const. art. V, §§ 1, 13). The qui tam provisions of the existing CFCA transfer these powers to private actors with no political accountability. It is likely these qui tam provisions of the CFCA similarly violate the California Constitution.
CBP Unlawfully Detains U.S. Citizen for 10 Days
In April 2025, 19-year-old Jose Hermosillo, a U.S. citizen from New Mexico, was detained by Border Patrol agents in Nogales, Arizona, for nearly 10 days under suspicion of being an undocumented immigrant. Despite Hermosillo’s consistent claims of U.S. citizenship, agents alleged he admitted to entering the U.S. illegally. His release came only after his family provided documentation, including a birth certificate and Social Security card. A federal judge dismissed the case on April 17, 2025.
This incident underscores concerns about civil liberties and due process amid aggressive immigration enforcement policies. Between 2015 and 2020, 674 U.S. citizens were arrested by Immigration and Customs Enforcement (ICE), with 70 being deported. Critics argue that such policies can lead to violations of constitutional rights, particularly for individuals who may be wrongfully detained.
The broader context includes increased militarization of the U.S.-Mexico border. In January 2025, the Trump administration reinstated the “Remain in Mexico” policy and announced plans to deploy troops to the border, citing concerns over public safety and national security. These measures have sparked debate over the balance between border security and the protection of individual rights.
Jose Hermosillo’s case serves as a poignant example of the potential consequences of stringent immigration enforcement on U.S. citizens. It highlights the need for careful consideration of policies to ensure they do not infringe upon the rights of those they aim to protect.
Federal Court Finds False Claims Act Penalty Unconstitutionally Excessive
On February 26, 2025, the U.S. District Court for the Northern District of Texas issued a significant False Claims Act (FCA) ruling in United States of America ex rel. Cheryl Taylor v. Healthcare Associates of Texas, LLC, finding that the application of the FCA’s mandatory per-claim penalty violated the Eighth Amendment. The Court upheld the jury verdict finding the defendants liable under the FCA, but substantially reduced the $448 million in penalties imposed, citing the Eighth Amendment’s Excessive Fines Clause.
The relator-whistleblower alleged that the defendants employed fraudulent Medicare billing practices in violation of Medicare billing rules. After a two-week trial, the jury found that Healthcare Associates of Texas (HCAT) submitted 21,844 false or fraudulent claims and collected $2,753,641.86 in overpayments.
In assessing potential damages under the FCA, the overpayment amount—roughly $2.75 million in this case—is merely the starting point. The statute allows private whistleblowers or the Government to seek up to three times that amount and to impose penalties between $13,946 and $27,894 for every single false claim. As a practical matter, the Department of Justice often settles FCA cases by applying a multiplier between 1.25 and 2 times the amount of actual damages, while seeking per-claim penalties is far less common.
Relator sought treble damages as well as the maximum statutory penalties. Although the amount of the overpayment was less than $2.75 million, the jury imposed per-claim penalties and awarded Relator $448,817,000—more than 100 times the amount the Government actually reimbursed Defendants for the allegedly fraudulent claims.
HCAT argued that such an award would violate the Excessive Fines Clause, which prohibits “grossly disproportional” fines relative to the offense. The Court agreed, noting that the ratio of statutory to actual damages was over 100 to 1 and that the conduct at issue was based on rules violations as opposed to more egregious conduct like billing for fictitious services. Thus, based on constitutional concerns under the Excessive Fines Clause, the Court reduced the statutory damages to three times the actual damages, setting total liability at $16,521,851.16.
While the FCA mandates per-claim penalties, which often result in extraordinary damage calculations, courts increasingly ask whether they are constitutional and may reduce excessive fines when they result in disproportionate liability. Given these concerns, those facing disproportionally large FCA penalties may consider raising Eighth Amendment arguments early in the litigation, particularly when statutory fines vastly exceed actual damages.
This ruling highlights critical considerations for health care providers and their legal counsel navigating FCA enforcement actions.
International Students Face Visa Revocations & Status Terminations – What Does that Mean for Higher Education Institutions?
Over the past two weeks, institutions of higher education have been faced with the challenges of notifying members of their campus communities about visa revocations and status terminations, and advising affected international students on what to do next. Unlike more high-profile immigration cases that followed student protest activity, the latest round of visa revocations and status terminations appear to be happening because students are “failing to maintain status.” But what does that mean and how should institutions react?
To understand the impact, the meaning of key terms like “visa” and “status,” have to be understood, because they are distinct concepts in U.S. immigration law. When people speak of how long someone can stay in the United States, they might say “their visa expires in June” or “they have to leave because their visa is expiring,”; such statements are technically incorrect, however, because they confuse a visa with status.
While a visa is a critical immigration document, it does not actually determine how long someone can stay in the United States. A visa is issued by the U.S. government and allows a noncitizen to apply for entry to the country, but does not guarantee that the noncitizen will be actually allowed to enter or remain in the United States. In contrast, a noncitizen’s status determines how long and under what conditions they can stay in the United States. Notably, noncitizens can change status, for example from F-1 student status to H-1B specialty occupation status, without ever leaving the United States.
Most higher education students come to study in the United States. on an F-1 student visa. F-1 visas are issued by the U.S. Department of State. Once students enter the United States., they are granted F-1 student status, and their F-1 status is tracked by the Department of Homeland Security’s Student and Exchange Visitor Program (SEVP). As long as a student continues to maintain their F-1 student status, the requirements of which are set by law, they are permitted to remain in the United States.
While visa revocations have not traditionally been common, they are a tool available to immigration authorities. One of the scenarios that has historically led to visa revocation is an arrest for driving under the influence (DUI) leading to a visa revocation on health-related grounds (on the basis of suspected alcoholism or other substance abuse issues). A visa revocation, while significant, only impacts a person’s ability to return to the United States. following international travel. It does not impact status. An F-1 student can have their F-1 visa revoked, expire or cancelled, but can still remain in the United States with their valid F-1 student status.
Termination of status, however, ends a person’s permission to stay in the United States. A student’s F-1 student status can be terminated if a student “fails to maintain status” or due to an agency “termination of status.” Historically, a student’s failure to maintain their F-1 status was reported by the colleges and universities themselves if, for example, an international student engaged in unauthorized employment, failed to maintain a full course of study, or was convicted of certain crimes. The agency-initiated termination of status is limited by statute.
During the past two weeks, the U.S. government has changed its practices related to visa revocations and status terminations, and has begun terminating international students’ F-1 student status, either in addition to or instead of revoking their F-1 visas. As a result, F-1 students whose F-1 student status has been terminated no longer have permission to stay in the United States, even if they have a valid F-1visa.
Institutions are finding out about students’ F-1 status terminations by auditing their SEVIS (Student and Exchange Visitor Information System) record. SEVIS is a web-based system that colleges and the Department of Homeland Security use to maintain information about F-1 students. In some cases, students report being unaware that their F-1 status had been terminated until they receive outreach from their school after such audits, because they received no communication from the U.S. government about their status termination.
These changes have caused stress and uncertainty for institutions of higher education and their international students. In light of concerns expressed by higher education clients, we suggest that clients and higher education institutions work closely with in-house counsel, and recommend international student offices to keep abreast of the latest developments in this area. Specifically, colleges and universities should:
Regularly check SEVIS to determine if students’ F-1 status has been terminated and communicate any developments to the affected students as soon as possible.
Prepare to refer international students to immigration lawyers for individualized assistance. Many institutions of higher education have referral lists, but legal clinics available on some campuses are also an option.
Consider options for international students who may choose to leave the United States, specifically how they can continue their studies or transfer to another college or university in their home country. These considerations may be especially important or acute for graduate-level students engaged in fellowships, research, and TA-ships on campus.
Prepare for possible federal immigration enforcement activity on or around campus, including the types of requests for information federal agencies might make, and the institution’s obligations under state and federal law.
Develop and implement a plan to handle campus community and leadership, local community, and political concerns. In addition to planning for internal and external communications, expect that individual immigration cases and class action lawsuits related to F-1 visa revocations and F-1 status terminations may occur.
The CFPB Shuts Down Controversial “Regulation Through Guidance” Practices
The acting head of the Consumer Financial Protection Bureau (CFPB) continues to winnow out regulatory tools used by agency staff under the prior administration. Just a month after revoking certain interpretative rules and announcing the deprioritized enforcement of others, the CFPB has now reportedly discontinued the Bureau’s longstanding practice of “regulation through guidance.”
An internal agency memorandum circulated last week by Acting Director Russell Vought apparently did not mince words in criticizing the Bureau’s prior use of “guidance” to effectuate backdoor rulemaking: “For too long this agency has engaged in weaponized practices that treat legal restrictions on its authorities [to engage in rulemaking] as barriers to be overcome rather than laws that we are oath-bound to respect. This weaponization occurs with particular force in the context of the Bureau’s use of sub-regulatory ‘guidance.’” Vought’s concern: “[G]uidance materials [have been used] improper[ly] where they impose rights or obligations on private parties outside of the notice-and-comment process prescribed by the Administrative Procedure Act [APA].” That is, to create new regulatory rules, the APA—5 U.S.C. § 553—requires federal agencies like the CFPB to first publish a Notice of Proposed Rulemaking in the Federal Register and to allow the public an opportunity to comment “through submission of written data, views, or arguments.” The prior CFPB regime’s practice of publishing informal “guidance” to impose de facto rules and obligations on covered parties, without prior notice, did not comply with these statutory requirements. Much of the CFPB’s prior guidance left ambiguous their non-binding nature and whether non-compliance would trigger enforcement action by the CFPB. Vought seeks to remedy that concern.
Importantly, the CFPB directive last week seeks more than just a prohibition of future guidance that “purport[s] to create rights or obligations binding on persons or entities outside the Bureau.” The CFPB is also reportedly committed to “rescind[ing] all ‘guidance’ that has unlawfully regulated private parties in the past.” As the agency’s comprehensive internal review concludes in the coming weeks, the CFPB is expected to ultimately renounce significant existing guidance—from advisory opinions to blog posts—that contravene the APA and the Bureau’s constitutional authority for regulatory rulemaking.
Vought’s internal messaging at the CFPB notably occurred on the same day last week that the White House published its own “Memorandum for the Heads of Executive Departments and Agencies.” See Directing the Repeal of Unlawful Regulations, Presidential Memoranda (Apr. 9, 2025). In that Memorandum, the administration instructed agency heads to review and repeal all “facially unlawful regulations” within the next 60 days that do not conform with the recent Loper Bright decision and nine other Supreme Court opinions. With the assistance of its agency heads, including at the CFPB, the executive branch thus continues its path forward to deregulate.
Employment Law This Week – Can the President Fire NLRB Members Without Cause? SCOTUS May Decide [Video, Podcast]
This week, we’re examining the potential shake-up in presidential power over independent federal agencies and what a review of a 90-year-old precedent by the Supreme Court of the United States (SCOTUS) could mean for regulatory authority and employers nationwide.
Can the President Fire NLRB Members Without Cause? SCOTUS May Decide
With presidential power over independent federal agencies entering uncharted territory, SCOTUS may soon revisit its 1935 Humphrey’s Executor decision, which limits a president’s ability to fire members of independent federal agencies—such as the National Labor Relations Board (NLRB) and the Equal Employment Opportunity Commission—without cause. SCOTUS could choose to:
reaffirm Humphrey’s Executor,
overturn the case entirely (potentially politicizing agency functions), or
define “for cause” and allow terminations only under stringent circumstances.
Former Acting Attorney General of the United States and Epstein Becker Green attorney Stuart Gerson explores how a shift in this precedent could impact employers, industries, and the balance of federal power.
Congress Reintroduces the NO FAKES Act with Broader Industry Support
Congress has reintroduced the Nurture Originals, Foster Art, and Keep Entertainment Safe (NO FAKES) Act— a bipartisan bill designed to establish a federal framework to protect individuals’ right of publicity. As previously reported, the NO FAKES Act was introduced in 2024 to create a private right of action addressing the rise of unauthorized deepfakes and digital replicas—especially those misusing voice and likeness without consent. While the original bill failed to gain traction in a crowded legislative calendar, growing concerns over generative AI misuse and newfound support from key tech and entertainment stakeholders have revitalized the bill’s momentum.
What’s New in the Expanded Bill?
The revised bill reflects months of industry negotiations. Key updates include:
Subpoena Power for Rights holders: The revised bill includes a new right to compel online services, via court-issued subpoenas, to disclose identifying information of alleged infringers, potentially streamlining enforcement efforts and unmasking anonymous violators.
Clarified Safe Harbors: Both versions of the bill include safe harbor protections for online services that proactively comply with notice and take-down procedures, a framework analogous to the protections afforded to online service providers under the Digital Millenium Copyright Act (DMCA). The revised bill introduces new eligibility requirements for these protections, including the implementation of policies for terminating accounts of repeat violators.
Digital Fingerprinting Requirement: In addition to removing offending digital replicas following takedown requests, the revised bill requires that online services use digital fingerprinting technologies (e.g., a cryptographic hash or equivalent identifier) to prevent future uploads of the same unauthorized material.
Broader Definition of “Online Service”: The revised bill broadens the scope of the definition to explicitly include search engines, advertising services/networks, e-commerce platforms, and cloud storage providers, provided they register a designated agent with the Copyright Office. This expansion further ensures that liability extends beyond just the creators of deepfake technologies to also include platforms that host or disseminate unauthorized digital replicas.
Tiered Penalties for Non-compliance: The revised bill introduces a tiered structure for civil penalties, establishing enhanced fines for online services that fail to undertake good faith efforts to comply ranging from $5,000 per violation, up to $750,000 per work.
No Duty to Monitor: Unlike the prior version, the revised bill explicitly states that online services are not required to proactively monitor for infringing content, acknowledging the practical limitations and resource constraints of such monitoring. Instead, the responsibility is triggered upon receipt of a valid takedown notice, after which the online service must act promptly to remove or disable access to the unauthorized material to maintain safe harbor protections. This approach mirrors the notice-and-takedown framework established under the DMCA.
If enacted, the NO FAKES Act would establish nationwide protections for artists, public figures, and private individuals against unauthorized use of their likenesses or voices in deepfakes and other synthetic media. Notably, the revised bill has garnered broad consensus among stakeholders, including the major record labels, SAG-AFTRA, Google, and OpenAI.
While the bill seeks to create clearer legal boundaries in an era of rapidly evolving technology, stakeholders remain engaged in ongoing discussions about how best to balance the protection of individual rights with the imperative to foster technological innovation and safeguard First Amendment-protected expression. As the legislative process unfolds, debate will likely center on whether the bill’s framework can effectively address the complex legal and operational challenges posed by generative AI, while offering enforceable and practical guidance to the platforms that host and disseminate such content.
Importantly, the NO FAKES Act aims to resolve the challenges posed by the current patchwork of state right of publicity laws, which vary widely in scope and enforcement. This fragmented approach has often proven inefficient and ineffective in addressing inherently borderless digital issues like deepfakes and synthetic content. By establishing a consistent federal standard, the NO FAKES Act could provide greater legal clarity, streamline compliance for online platforms, and enhance protections for individuals across jurisdictions.
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Are Many Nasdaq Global Select Corporations Subject To The California General Corporation Law?
Only a few publicly traded corporations are incorporated in California. Most either started life in Delaware or later decamped to that state (and more recently other states). Nonetheless, many of these corporations have their principal offices in California and/or significant operations and shareholders located in California. The Golden State has long been sensitive to the phenomenon of pseudo-foreign, or “tramp”, corporations. In response, it has peppered its General Corporation Law with provisions that expressly apply to foreign corporations, provided they have certain specified nexus to the state. The most far-reaching of these provisions is Section 2115 which imposes numerous provisions of the GCL to foreign corporations “to the exclusion of the law of the jurisdiction in which it is incorporated”. In general, a foreign corporation will be subject to 2115 if more than one-half of its business and one-half of its shares are held of record by persons with addresses in California (there is, of course, much more detail in the statute, but hanc marginis exiguitas non caparet.
Corporations listed on major stock exchanges for the most part do not perseverate excessively over Section 2115 because the statute expressly exempts “with outstanding securities listed on the New York Stock Exchange, the NYSE American, the NASDAQ Global Market, or the NASDAQ Capital Market”. On closer inspection, however, there appears to be a noticeable omission in this list of exchanges. Nasdaq has three listing tiers, the Nasdaq Global Select Market, the Nasdaq Global Market, and the Nasdaq Capital Market, and the statute only lists the last two tiers. The omission of the Nasdaq Global Select Market is unlikely to have been intentional because that market has the highest listing criteria. Apparently, the omission arises from California’s view that the Nasdaq Global Market itself is comprised of two tiers. Apparently, this was the view of the Commissioner of Corporations when he certified the Nasdaq Global Market for purposes of an exemption under the Corporate Securities Law of 1968: “Moreover, effective July 1, 2006, the Nasdaq National Market was renamed the NASDAQ Global Market. The NASDAQ Global Market now contains two tiers (NASDAQ Global Market and NASDAQ Global Select Market) . . .”. The Commissioner, however, has no authority to administer or enforce Section 2115.
Some readers will likely protest that Section 2115 is unconstitutional. Indeed, that was the conclusion of the Delaware Supreme Court in Vantage Point Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108 (Del. 2005). However, a California Court of Appeal has arrived at the opposite conclusion in Wilson v. Louisiana-Pacific Resources, Inc., 138 Cal. App. 3d 216, 187 Cal. Rptr. 852 (1983). Therefore, the status of Section 2115 may depend upon where the case is brought.
DExit And The Concomitant Malapropisms Continue
On Friday, the global entertainment company, AMC Networks Inc., filed preliminary proxy materials that include a proposal to approve the company’s “redomestication to the State of Nevada by conversion”. Readers will recognize that this statement makes no sense because it conflates two different processes, domestication and conversion. See Converting A Corporation Is Not Domestication.
Redrawing the NIL Playbook: Key Legal Takeaways from MLB Players Inc. v. DraftKings and Bet365
Introduction
The recent decision by U.S. District Judge Karen Marston in MLB Players Inc. v. DraftKings and Bet365[1] represents a pivotal development in the legal landscape surrounding name, image, and likeness (NIL) rights. The ruling explores critical intersections between publicity rights, commercial speech, First Amendment protections, and the legal boundaries of “news reporting.” The implications extend far beyond baseball, potentially affecting companies using athlete or celebrity NIL in commercial marketing across sports betting, digital advertising, and beyond.
Case Background
MLB Players Inc. (MLBPI), the group licensing subsidiary of the Major League Baseball Players Association, brought this action against DraftKings and Bet365, alleging unauthorized commercial use of player NIL in promotional campaigns. The complaint specifically cited examples where players’ images—including Yankees star Aaron Judge—were used in digital and social media promotions without proper authorization or compensation.[2]
Judge Marston’s ruling denied the defendants’ motion to dismiss claims related to right of publicity violations, misappropriation and unjust enrichment. Only one misappropriation claim was dismissed as duplicative.[3] The case now advances to discovery, where the courts will examine the factual context and intent behind the disputed content.
Defining the “News Reporting” Defense
A central question in this case concerns the scope of the “news reporting” defense under Pennsylvania law.[4] This exemption typically allows use of an individual’s identity without consent when it appears in legitimate news reporting on matters of public interest.
Judge Marston’s ruling made the following critical distinctions:
Content about newsworthy topics differs legally from content that constitutes actual news reporting;
Athlete identities cannot be used in commercial promotions under the guise of “news reporting”—even when discussing newsworthy sporting events; and
Pennsylvania applies a narrower interpretation of this exemption than some other jurisdictions.[5]
The court cited Abdul-Jabbar v. General Motors Corp. (1996)[6], where the Ninth Circuit found that even content comprised of factually accurate information about an athlete’s accomplishments loses protection from right of publicity claims when used primarily for commercial advertising. The decisive factor is not the truthfulness of the content, but whether the use serves a commercial purpose.
The Clear Line: Advertising vs. Journalism
The ruling provided concrete examples illustrating impermissible commercial use. In one instance, a Bet365 social media post featured Aaron Judge alongside betting odds about MLB teams winning 100+ games. Critically, the post made no substantive reference to Judge’s performance or provided any meaningful context—his image simply served to attract attention to the sportsbook’s offerings.[7]
Judge Marston emphasized that content merely resembling editorial or journalistic material, while actually serving an advertising function, cannot claim news exemptions under right of publicity statutes. This creates a clear standard: Content adopting the look and feel of news coverage while fundamentally promoting a product or service remains subject to right of publicity laws and a higher standard for legal clearance than a use of the same content for news or entertainment purposes.
First Amendment Arguments: Limited Protection for Commercial Use
The defendants’ First Amendment arguments referenced cases involving expressive works such as video games and artistic renderings.[8] However, Judge Marston distinguished those precedents, noting they involved transformed or creatively interpreted athlete images—unlike the straightforward use of player photos in this case.
The court found limited grounds for strong First Amendment protection at this stage because the promotional content relied on direct, unaltered use of athlete likenesses primarily for commercial gain. While deferring a complete First Amendment analysis until further factual development, the ruling signals that purely commercial uses face an uphill battle under free speech protections.[9]
Strategic Implications for Industry Stakeholders
This ruling carries significant implications for how NIL is used across industries—particularly in digital marketing, advertising, sports, betting, and branded content. When NIL is used for commercial promotion rather than legitimate reporting, organizations face potential liability without proper licensing.
Key Action Items:
Conduct content audits to identify where athlete or celebrity NIL appears in marketing materials.
Implement more rigorous legal clearances processes for NIL-related promotions.
Review existing licensing agreements to ensure they cover intended uses.
Develop clear internal guidelines distinguishing between news reporting and promotional content.
Consider jurisdictional differences in right of publicity laws when planning national campaigns.
The Evolving NIL Landscape
As NIL continues to grow in commercial value, legal efforts to protect these rights are intensifying. Athletes, celebrities, and their representatives are becoming more assertive in controlling NIL usage—with courts increasingly supporting their position.
Several states are enacting or revising right of publicity laws, expanding individual NIL protections and increasing potential liabilities for unauthorized commercial use. This state-by-state evolution has amplified calls for uniform federal NIL legislation—potentially modeled after copyright protections—to prevent a fragmented legal landscape that encourages forum shopping and inconsistent outcomes.
Conclusion
The MLB Players Inc. ruling marks a significant shift in NIL jurisprudence that affects brands, platforms, advertisers, and content creators across industries. The distinction between legitimate news reporting and commercial promotion is becoming more defined—and legally consequential.
In an environment where “earned media” and “sponsored content” demand different legal approaches, organizations must adapt their NIL practices to this evolving landscape. Those who implement comprehensive compliance strategies will be best positioned to avoid liability while effectively leveraging NIL in their marketing efforts.
Footnotes
[1] MLB Players, Inc. v. DraftKings, Inc., No. 24-4884-KSM, 2025 U.S. Dist. LEXIS 47600 (E.D. Pa. Mar. 14, 2025).
[2] Complaint, MLB Players Inc. v. DraftKings, ¶¶ 23–36.
[3] Memorandum Opinion by Judge Karen Marston, February 2025, at 12–14.
[4] 42 Pa. Cons. Stat. § 8316(e)(2)(ii).
[5] Id., see also Judge Marston’s analysis at p. 10.
[6] Abdul-Jabbar v. General Motors Corp., 85 F.3d 407 (9th Cir. 1996).
[7] Judge Marston Opinion, at 16–17.
[8] Brown v. Entertainment Merchants Ass’n, 564 U.S. 786 (2011); ETW Corp. v. Jireh Publ’g, Inc., 332 F.3d 915 (6th Cir. 2003).
[9] Judge Marston Opinion, at 21.
Delaware LLCs – “I See Trouble On the Way”
“I see the bad moon arising, I see trouble on the wayI see earthquakes and lightnin’, I see bad times today”*
Delaware had barely birthed changes to Section 144 of its General Corporation Law when the Plumbers & Fitters Local 295 Pension Fund filed a complaint challenging those changes. The plaintiff seeks a declaration that the amendments to Section 144 are unconstitutional under the Delaware constitution. The named defendants are Dropbox, Inc. and its directors. Dropbox reincorporated from Delaware to Nevada on March 5 of this year, 20 days before Delaware Governor Matt Meyer signed the amendments to Section 144 into law.
According to a recent post by John Jenkins at DealLawyers.com, the plaintiff filed the complaint under seal but the challenge may be premised on the notion that the Delaware General Assembly doesn’t have the authority under Delaware’s constitution to constrain the Chancery Court’s equitable jurisdiction to less than what it was in 1792. If that is the case, then according to John “other significant statutory provision of Delaware law may be at risk”. In particular, he notes “the ability of LLCs to avoid judicial review of provisions in their operating agreements purporting to waive fiduciary duties also may run afoul of Delaware’s constitution”.
_____________________*John Fogerty, Bad Moon Rising.
NLRB Member Wilcox Reinstated Again: Board Regains a Quorum, at Least for Now
The U.S. Court of Appeals for the District of Columbia Circuit, by the full court, has ordered that the stay of National Labor Relations Board (“NLRB” or “Board”) Member Gwynne Wilcox’s reinstatement to her seat on the Board be dissolved and that Wilcox, for the second time, be returned to her seat.
This action by the D.C. Circuit means that the NLRB once again has three members and a “quorum,” as that term is defined in the National Labor Relations Act (NLRA).
Back and Forth and Back Again
As we previously reported, on February 3, President Trump fired Wilcox from her seat on the Board, leaving only two of the Board’s five seats filled and stripping the NLRB of the quorum required by the NLRA for the Board to issue decisions, make rules, and fulfill other statutory duties.
Wilcox filed suit in the U.S. District Court for the District of Columbia, seeking her reinstatement and an order that would allow her to serve the remainder of her term, which runs out in August 2028. On March 6, 2025, the district court issued an order granting Wilcox summary judgment and reinstating her to her seat, finding that the President lacked the authority to fire a Board member without cause.
The Trump administration swiftly filed its appeal of that decision with the D.C. Circuit and sought a stay of the order reinstating Wilcox pending the outcome of that appeal. A motions panel of the D.C. Circuit granted such a stay on March 28. However, on April 7, the full D.C. Circuit declined the motion for a stay and again ordered Wilcox to be reinstated. According to the NLRB’s website, she is now once again back on the Board, and the agency has the three members necessary for a quorum.
What Next?
The Trump administration’s appeal of the district court’s reinstatement of Wilcox is continuing to move forward on an expedited basis, with oral argument scheduled for May 16.
In the meantime, the Board again has a quorum consisting of two Democratic appointees and one Republican, as well as two empty seats for which the President has yet to send nominations to the Senate. Doing so would be the fastest way for the administration to establish a favorable majority on the NLRB.