Massachusetts Expands FCA Liability To Owners and Private Equity Investors
Under a new 2025 law, Massachusetts is one of the first in the nation to broaden its state False Claims Act (FCA) to require disclosures by investors and owners of health care entities. On January 8, 2025, Governor Maura Healey signed into law H.5159, An Act enhancing the market review process (the Act), significantly changing Massachusetts’s regulatory and enforcement landscape. As discussed in further detail here, the law imposes FCA liability against investors and focuses on private equity and corporate ownership in health care. While this Act appears to be the first direct codification of FCA liability, it is consistent with the Department of Justice (DOJ) and Office of the Inspector General, U.S. Department of Health and Human Services’ (HHS-OIG) recent focus on private equity and the impact on health care.[1] While the DOJ has focused on private equity firms that allegedly knew of misconduct at portfolio companies and failed to stop it through their involvement in the operations of those companies, the MA FCA goes further by imposing liability on health care investors for merely being aware of misconduct and failing to report it to the state. H. 5159 expands the scope of the MA FCA enforced by the Commonwealth’s Attorney General[2] to apply to any person who has an “ownership or investment interest” and any person who violates the false claim statute that “knowingly” or “knows” about the violation[3] and fails to disclose the violation to the government within 60 days of identifying the violation. This is a significant expansion of the traditional protections afforded by the corporate veil and appears to be designed to hold private equity and other owners liable if they become aware of any MA FCA violations and fail to take action.
As part of the expansion, the Act defines “ownership or investment interest” as any: (1) direct or indirect possession of equity in the capital, stock, or profits totaling more than ten percent of an entity; (2) interest held by an investor or group of investors who engages in the raising or returning of capital and who invests, develops, or disposes of specified assets; or (3) interest held by a pool of funds by investors, including a pool of funds managed or controlled by private limited partnerships, if those investors or the management of that pool or private limited partnership employ investment strategies of any kind to earn a return on that pool of funds. This amendment clearly expands MA FCA liability to private equity investors and appears to codify the Massachusetts Attorney General’s approach in an October 2021 settlement with a private equity firm and former executives of South Bay Mental Health Center, Inc. for allegedly causing the submission of false claims submitted to MA’s Medicaid program.[1]
Additional enforcement mechanisms codified in the Act include expanding the Attorney General’s authority to obtain information as part of a civil investigative demand from significant equity investors, health care real estate investment trusts, or management services organizations.[2]
We will continue to monitor this activity and any resulting litigation and its possible impact on organizations transacting business in Massachusetts.
[1] https://www.mass.gov/news/private-equity-firm-and-former-mental-health-center-executives-pay-25-million-over-alleged-false-claims-submitted-for-unlicensed-and-unsupervised-patient-care.
[2] To be codified at MGL 12, s. 11N.
[1] For example, see Justice Department, Federal Trade Commission and Department of Health and Human Services Issue Request for Public Input as Part of Inquiry into Impacts of Corporate Ownership Trend in Health Care, available at https://www.justice.gov/opa/pr/justice-department-federal-trade-commission-and-department-health-and-human-services-issue; see also, https://www.hhs.gov/about/news/2025/01/15/hhs-releases-report-consolidation-private-equity-health-care-markets.html
[2] To be codified at MGL 12, §§ 5A and 5B.
[3] The Act clarifies that “knowing,” “knowingly,” or “knows” all mean “possessing actual knowledge of relevant information, acting with deliberate ignorance of the truth or falsity of the information or acting in reckless disregard of the truth or falsity of the information; provided, however, that no proof of specific intent to defraud shall be required.”
Chancery Rejects Claims Against Controller in Sale of Company
A recent Court of Chancery decision determined that the sale of a company initiated by the controller, a private equity fund that was also the largest equity holder in the company, did not run afoul of the business judgment rule. The decision in Manti Holdings, LLC v. The Carlyle Group Inc., C.A. No. 2020-0657-SG (Del. Ch. Jan. 7, 2025) is noteworthy for several reasons. This article will provide key bullet points with references to page numbers and footnotes of the 68-page post-trial decision.
First, it describes in detail the factual and legal reasons why the controller that initiated the sale of the company was only subject to the business judgment rule review, as opposed to the entire fairness standard. The opinion is also notable for its description of the typical timetable for exiting from investments that are common among private equity firms.
Short Overview
This case involved The Carlyle Group, the largest equity holder in a company called Authentix, and related entities. Carlyle’s private equity fund partnership agreement provided for a fund life of 10 years—although that did not impose a contractual obligation for Carlyle in this case to exit any particular investment at that time.
The minority stockholders claimed that Carlyle’s business model required it to sell Authentix regardless of price and that it caused the board to force a sales process that was unfair to stockholders. After a 7-day trial, the court determined that the interest of Carlyle was the same as that of the minority stockholders—which was to maximize the value of its investment.
The court reasoned that: (i) there was no pressure for a quick exit, nor did Carlyle conduct a fire sale; (ii) Carlyle did not extract a non-ratable benefit; (iii) the sale was arms-length; and (iv) moreover, the court determined that the business judgment rule applied to the sale–and not the entire fairness standard.
For more factual background details, the 2 prior Chancery decisions in this case should be consulted; the citations for those 2 prior Chancery decisions are found at footnotes 50 and 208.
Highlights
The court provides an extensive factual description of the important details found after a 7-day trial regarding, for example, the various investors in the company and the sales process. See Slip op. at 3 to 32.
As a practice tip, writers of pleadings and the like who file in Chancery should observe how the court structures its opinions in terms of: using Roman numerals (I, II, III) for initial sections, and denoting the next sub-sections with capital letters (A, B, C), and then using Arabic numbers (1, 2, 3) for the next sub-sections. Careful writers should also observe the court’s abbreviations for trial exhibits and trial transcripts, as well as how the court refers to the parties’ briefs and other factual sources. See Slip op. at 3.
Two key basics of corporate law are always useful to repeat as a refresher: (1) Even as a controller, Carlyle as a stockholder was “free to sell its stock for its own reasons and on its own timing,” and as a stockholder, it was “owed fiduciary duties by the directors.” Slip op. at 34 (emphasis in original); (2) The court emphasized, however, that: “when acting as a controller, Carlyle itself could owe fiduciary duties to the Company and its stockholders.” Id.
Although the court observed that Carlyle could be liable if it used its corporate control to compete with the majority for consideration, the facts did not support the view that they did so.
The court also rejected the argument that Carlyle extracted for itself a form of consideration that was uniquely valuable, and also rejected the argument that the entire fairness standard applied. Slip op. at 35.
A useful definition of a “controller” for the toolbox of corporate litigators is the following: when a stockholder: “(1) owns more than 50% of the voting power of a corporation, or (2) owns less than 50% of the voting power of the corporation but ‘exercises control over the business affairs of the corporation.’” Slip op. at 37 and footnote 223.
The court also instructed that “a group of stockholders may be deemed a ‘control group’ and considered a controlling stockholder such that ‘its members owe fiduciary duties to their fellow shareholders.’” Id. and footnote 224.
The thorough reasoning of the court applied the extensive facts to the law in order to support its conclusion that the entire fairness standard did not apply and Carlyle did not receive a non-ratable benefit, as well as explaining why the Company conducted a fair sales process—and was not contractually bound to sell by a certain deadline. See Slip op. 39 to 67.
Court Finds Failure To Obtain Finance Lenders’ License Does Not Render Commercial Loan Unenforceable, Illegal Contracts
The California Financing Law provides that “[n]o person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner.” Cal. Fin. Code § 22100(a). The CFL further provides that if any provision of the CFL is “willfully violated in the making or collection of a loan, whether by a licensee or by an unlicensed person subject to this division [i.e., the CFL], the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction”. That is is a very draconian result. However, it is important to note that the legislature placed this statute in Article 2, Chapter 4 of the CFL which concerns consumer loan penalties. Commercial loans, as defined in Section 22502, are not subject to Article 2, Chapter 4. Cal. Fin. Code § 22001(c).
Nonetheless, commercial borrowers will from time to time attempt to claim that their loans are illegal contracts based on the unlicensed status of their lenders. See Court Of Appeal Finds No Private Right Of Action Against Unlicensed Lender. In a recent ruling, U.S. District Court Judge William H. Orrick has also rejected the argument that a commercial loan from an unlicensed lender is an unenforceable, illegal contract:
The context in which the defendants’ argument is offered is of no consequence; its defect is that the defendants have not shown that the California Financial Code provides for the voiding of unlicensed commercial loans in the manner that the defendants describe. That Side failed to register as a licensed lender in California does not render the Restated Agreements illegal.
Side, Inc. v. Off. Partners New York, LLC, 2025 WL 81576 (N.D. Cal. Jan. 13, 2025). In support of this ruling, Judge Orrick cites two earlier federal court decisions: Cent. Valley Ranch, LLC v. World Wide Invs., LLC II, 2012 WL 217685, report and recommendation adopted, 2012 WL 487046 (E.D. Cal. Feb. 14, 2012) and WF Capital, Inc. v. Barkett, 2010 WL 3064413 (W.D. Wash. Aug. 2, 2010).
Tax Proposals Potentially Being Considered by the U.S. House Budget Committee in Reconciliation
On January 17, 2025, multiple news outlets and other sources reported the existence of a memorandum circulated by the U.S. House of Representatives Budget Committee to the House Republican Caucus (the “Memorandum”) containing an extensive list of budget proposals that may be considered in connection with the new Congress’s widely expected budget reconciliation legislation. The Memorandum, which is publicly available via link from a number of news outlets,[1] contains approximately fifty pages of proposals covering a wide range of policy areas and enumerating scores of potential specific legislative proposals (along with estimated budget effects in most cases), some of which are seemingly mutually exclusive. Included in the memo are a number of tax-related proposals, including tariff proposals, which are briefly set forth below.
It is not possible to know whether any or all of these proposals will ultimately be included in the budget reconciliation bill (or any other proposed legislation). It is also very possible that any number of other proposals may be considered in what is expected to be a lengthy legislative process. Additionally, the expiration of a sizable number of the tax provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”) may further affect the development of several of these proposals. However, potentially affected taxpayers should be aware of these tax-related proposals and closely monitor all developments involving the budget reconciliation legislation.
Although the Memorandum presents the proposals in no particular order, for ease of reference this blog post organizes the proposals as:
Tax Proposals Involving Tariffs and Trade;
Tax Proposals Affecting Businesses;
Tax Proposals Affecting Employees and Unions;
Tax Proposals for Business Tax Credits;
Tax Proposals Relating to Municipal and other Tax-Exempt Bonds;
Tax Proposals Relating to the Deductibility of State and Local Taxes (“SALT”);
Other Tax Proposals Affecting Individual Taxpayers and Households;
Tax Proposals Affecting Exempt Organizations; and
Tax Proposals Affecting the Internal Revenue Service.
Notably, the Memorandum includes no current proposals relating to the taxation of partnerships and very limited proposals related to international taxation other than as related to trade. Although the proposals in the Memorandum generally do not reference particular sections of the U.S. Internal Revenue Code (“IRC”), where the relevant Section cross-reference is sufficiently clear it is included here to aid the reader.
Tax Proposals Involving Tariffs and Trade
A “Border Adjustment Tax” that would “create a new tax on goods where they are consumed, not purchased” resulting in a “shift from an origin-based tax to a destination-based tax.”
Codify and increase “Section 301 Tariffs” on products from China.
Require “de minimis” value shipments to pay existing “Section 301 Tariffs.”
Create a 10% across the board tariff on all imports.
Tax Proposals Affecting Businesses
Lower the corporate income tax rate to 15%. (IRC Section 11)
Lower the corporate income tax rate to 20%. (IRC Section 11)
Repeal the 15% corporate alternative minimum tax. (IRC Section 55)
Return to immediate expensing of research and development (“R&D”) costs, which under the TCJA are required to be amortized. (IRC Section 174)
Implement “Neutral Cost Recovery for Structures,” to allow businesses to index the value of deductions to inflation and a real rate of return (to address the time value of money).
Subject credit unions (exempt from income tax under current law) to the federal income tax. (IRC Section 501(c)(1))
Tax Proposals Affecting Employees and Unions
Subject employees to tax on employer-provided transportation benefits (such as transit passes and parking) that are excluded from income under current law. (IRC Section 132)
Subject employees to tax on all employer-provided meals and lodging, other than for the military that are excluded from income under current law. (IRC Section 132)
Subject employees to tax on the value of on-site gym facilities intended for employee and family use that are excluded from income under current law. (IRC Section 132)
Impose a federal excise tax on “non-representation spending” by federal unions.
Impose “new limits” on the deductibility of “DEI training” by federal unions.
Tax Proposals for Business Tax Credits
Proposed repeal of tax credits for carbon oxide sequestration, zero-emission nuclear power production and clean fuel production (IRC Sections 45Q, 45U and 45Z), as well as the electric vehicle (“EV”) tax credit. (IRC Section 30D)
Changing the EV credit to be available only to EV buyers, not lessors. (IRC Section 30D)
Repeal of “Green Energy” tax credits “created and expanded” under the Inflation Reduction Act (“IRA”). The discussion of this proposal identifies these credits as including those “related to clean vehicles, clean energy, efficient building and home energy, carbon sequestration, sustainable aviation fuels, environmental justice, biofuel and more.”
Ending the Employee Retention Tax Credit (“ERTC”), by extending the moratorium on claims processing and eliminating the ERTC for claims submitted after January 31, 2024, along with stricter penalties for fraud. (Section 2301 of the CARES Act)
Tax Proposals Relating to Municipal and other Tax-Exempt Bonds
Eliminate the exclusion of interest on municipal bonds. (IRC Section 103)
Eliminate the exclusion of interest on private activity bonds, Build America bonds and other non-municipal bonds. (IRC Sections 103, 141-150)
Tax Proposals Relating to the Deductibility of State and Local Taxes (“SALT”) (IRC Section 164)
Under the TCJA, the SALT deduction is limited to $10,000 per taxpayer, and married persons filing jointly are subject to the same $10,000 limitation as a single filer. This statutory limitation is scheduled to expire in 2025. The memorandum lists five alternative approaches to SALT, four applicable to individual SALT deductions and two to SALT deductions for business:
Make the TCJA $10,000 limitation permanent but double the limitation (to $20,000) for “married couples”.
Make the general provisions of the TCJA provision permanent, but increase the thresholds to $15,000 for individuals and $30,000 for married couples.
Eliminate the deductibility of state and local income or sales taxes, but preserve the deductibility of property taxes. In this proposal, the TCJA $10,000 limitation would be allowed to expire in 2025.
Eliminate the SALT deduction for businesses (presumably including eliminating the pass-through entity tax (“PTET”) workaround), and the individual SALT deduction would be “unchanged from current law.”
Repeal the SALT deduction, in its entirety, for both individuals and businesses (presumably including eliminating the PTET workaround).
Other Tax Proposals affecting Individual Taxpayers and Households
Entirely eliminate the federal estate tax. (IRC Sections 2001-2210)
“Fully repeal” the home mortgage interest tax deduction. (IRC Section 163)
Lower the home mortgage interest deduction cap from the TCJA level of $750,000 to $500,000. (IRC Section 163)
Eliminate the deduction for contributions to qualifying health organizations (patient advocacy groups, professional medical associations and “other U.S.-based charitable organizations with [IRC Section] 501(c)(3) tax status.” (See also Tax Proposals Affecting Hospitals and Health Organizations). (IRC Section 170)
Either raise or eliminate the foreign earned income exclusion on Americans residing overseas. (IRC Section 911)
Replace Health Savings Accounts with a $9,100 “Roth-style” Universal Savings Account indexed to inflation.
Make certain changes to HSAs to increase their availability and flexibility. (IRC Section 223)
Permit a deduction for auto loan interest payments.
Eliminate the deductibility of interest on student loans. (IRC Section 163)
Eliminate the income tax on tips, which are currently subject to income and payroll taxes.
Create a “blanket exemption” on the taxation of “overtime earnings.”
Eliminate the “head of household” filing status. (IRC Section 1)
Eliminate the exclusion of scholarship and fellowship income used for tuition and related expenses. (IRC Section 117)
Eliminate the American Opportunity Credit for qualified educational expenses. (IRC Section 25A)
Eliminate the Lifetime Learning Credit for a portion of certain qualified tuition and related expenses. (IRC Section 25A)
Eliminate the maximum $2,100 credit for child and dependent care. (IRC Section 21)
Requiring both children and parents have a social security number to claim the Child Tax Credit. (IRC Section 24)
Restructure the Earned Income Tax Credit in certain ways. (IRC Section 32)
Tax Proposals Affecting Exempt Organizations
Eliminating nonprofit status for hospitals, and taxing hospitals as “ordinary for-profit businesses.” (See also Tax Proposals Affecting Individuals). (IRC Section 501(c)(3))
Expanding the excise tax on the net investment income of certain university endowments by increasing the rate tenfold, from 1.4% to 14%. (IRC Section 4968)
Expanding the criteria to impose the university endowment excise tax to effectively require certain universities to either “enroll more American students or spend more of their endowment funds on those students,” or become subject to the endowment tax. (IRC Section 4968)
Tax Proposals Affecting the Internal Revenue Service
Repeal remaining increased IRS funding from the Inflation Reduction Act.
FOOTNOTES
[1] See, e.g.,House Budget Committee Circulates New Detailed List of Budget Reconciliation Options Including Draconian Medicaid Cuts Within House Republican Caucus , last visited January 27, 2025. This article contains an embedded link to both the original Politico article reporting the Memorandum (subscription required) and the Memorandum itself.
Corporate Transparency Act Reporting Remains Voluntary
This Corporate Advisory provides a brief update on recent litigation regarding the Corporate Transparency Act (CTA) and its reporting requirements. It is not intended to, and does not, provide legal, compliance or other advice to any individual or entity. For a general summary of the CTA, please refer to our prior CTA Corporate Advisories from November 8, 2023, and September 17, 2024. Please reach out to your Katten attorney for assistance regarding the application of the CTA to your specific situation.
As of January 24, 2025, the Corporate Transparency Act’s (CTA) reporting requirements remain voluntary. On January 23, 2025, the Supreme Court of the United States (SCOTUS) issued an order that granted the US government’s motion to stay the nationwide injunction issued by the US District Court of the Eastern District of Texas in the case of Texas Top Cop Shop, Inc. v. McHenry (formerly Texas Top Cop Shop, Inc. v. Garland). This headline appeared to have the effect of reinstating the CTA’s reporting requirements and deadlines. However, such SCOTUS order does not appear to impact a separate stay issued against the enforcement of the CTA’s reporting rules issued by the US District Court of the Eastern District of Texas in Smith v U.S. Department of the Treasury. The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has interpreted the SCOTUS ruling similarly. Specifically, FinCEN noted: “On January 23, 2025, the Supreme Court granted the government’s motion to stay a nationwide injunction issued by a federal judge in Texas (Texas Top Cop Shop, Inc. v. McHenry—formerly, Texas Top Cop Shop v. Garland). As a separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place, reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop.” Accordingly, the CTA’s reporting requirements remain on hold, and reporting companies are not currently required to file Beneficial Ownership Information Reports with FinCEN, and FinCEN has stated that reporting companies are not subject to liability if they fail to file Beneficial Ownership Information Reports with FinCEN while the Smith order remains in force.
Note that this SCOTUS order relates solely on the nationwide injunction and was not a ruling on the constitutionality of the CTA.
The Supreme Court order is available here.
The FinCEN alert is available here.
Our updated CTA Corporate Advisory providing background on the Texas Top Cop Shop case is available here.
The Inside Basis: Potential Pitfalls of F-Reorganizations [Podcast]
On this episode of The Inside Basis, host Randy Clark discusses some common issues in F-reorganizations involving S-corporations, a popular structural approach used in private equity transactions.
FinCEN Confirms that CTA Filings Remain Optional Despite Supreme Court Ruling
On January 23, 2025, in McHenry v. Texas Top Cop Shop, Inc (formerly captioned Garland v. Texas Top Cop Shop, Inc.), No. 24A653, 2025 WL 272062 (U.S. Jan. 23, 2025), the United States Supreme Court issued an opinion once again staying the injunction from the United States District Court for the Eastern District of Texas of the Corporate Transparency Act (“CTA”). The injunction had previously halted enforcement of the CTA’s reporting requirement that all “reporting companies” disclose information about their beneficial owners to the U.S. Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”). For background information about the CTA and its reporting requirements, please refer to our previous blog post, dated November 5, 2024. For more information about the history of this litigation, please refer to our blog post, dated January 3, 2025.
In granting the federal government’s request for a stay of the district court’s injunction, the Supreme Court sent the matter back down to the United States Court of Appeals for the Fifth Circuit, where it will rule on the merits of the case. The Fifth Circuit is currently scheduled to hear oral argument on March 25, 2025.
However, despite the Supreme Court’s ruling on the injunction in Texas Top Cop Shop, FinCEN, in a statement dated January 24, 2024, announced that the CTA’s reporting rule will remain voluntary for now. This is because the CTA and its reporting rule were preliminarily enjoined by a federal court, again in Texas, on January 3, 2025, in Smith v. U.S. Department of the Treasury, No. 6:24-cv-336-JDK, 2025 WL 41924 (E.D. Tex. Jan. 3, 2025). In its statement, FinCEN explicitly stated that reporting companies would not be subject to liability if they fail to file beneficial ownership information while the Smith order remains in force. The U.S. Department of the Treasury has not yet filed a notice of appeal in the Smith case. If it does appeal, the Fifth Circuit will once again have a chance to weigh in.
FTC and DOJ Jointly Issue ‘Antitrust Guidelines for Business Activities Affecting Workers’ on Eve of Trump Administration
Less than a week before the inauguration of President Donald Trump, the Federal Trade Commission (FTC) and U.S. Department of Justice’s (DOJ) Antitrust Division jointly published guidelines on assessing whether business practices affecting workers violate antitrust laws.
Quick Hits
On January 16, 2025, the FTC and DOJ issued their “Antitrust Guidelines for Business Activities Affecting Workers.”
The guidelines identify five nonexhaustive types of agreements and policies that may constitute violations of antitrust laws by hindering commercial competition and restricting the free movement of employees.
The dissenting statement issued by two FTC commissioners indicates the guidelines may be short-lived. Following the recent change in presidential administrations, employers are likely to see new guidance from the FTC and/or DOJ in the coming months.
The Trump administration has signaled it is interested in antitrust enforcement. Notably, the October 2016 FTC Antitrust Guidance for Human Resource Professionals remained in effect during President Trump’s first administration, and the first Trump DOJ pursued (unsuccessful) criminal cases in this area. Any new guidelines may be closer to the 2016 guidelines.
The guidelines were adopted in a 3–2 vote along partisan lines, with the dissenting Republican-appointed FTC commissioners questioning the timing of these efforts and stating that the guidelines were not necessary. While this internal FTC criticism plus a new presidential administration seems to place enforcement of the guidelines in a state of limbo, employers may still want to exercise caution about noncompliance. The guidelines are the rule until they are changed or there is an announcement that they will not be enforced as revised.
The Guidelines and the Dissent
The recently adopted guidelines emphasize that “antitrust laws protect competition for labor, just as they protect competition for goods and services that companies provide.” To that end, “[b]usiness practices may violate the antitrust laws when they harm the competitive process[.]” The guidelines were issued to “promote clarity and transparency” by identifying ways that business practices affecting workers might run afoul of antitrust laws.
In their dissenting statement, the two Republican-appointed FTC commissioners criticized the “lame-duck Biden-Harris FTC” for issuing the guidelines at the eleventh hour, calling it a “senseless waste of Commission resources.” These statements indicate the guidelines will likely be short-lived, at least in their current form.
The guidelines identify five broad categories of agreements and employment policies that may violate antitrust laws:
“No-Poach” and “Wage-Fixing” Agreements Between Companies. Employers may be engaged in an antitrust crime if they enter into agreements “not to recruit, solicit, or hire workers or to fix wages or terms of employment.” Even if not styled as a “no-poach” or “wage-fixing” agreement, companies may violate antitrust laws if they “agree to align, stabilize, or otherwise coordinate” to set wages, including through the use of pay ranges, ceilings, or benchmarks. These types of formal and informal agreements are illegal and may be subject to criminal penalties, even if no actual harm results. On this issue, the guidelines largely reiterate prior guidance issued by the DOJ and FTC in their October 2016 guidelines for human resources professionals.
“No-Poach” Agreements in Franchise Agreements. The guidelines extend the prohibition on “no-poach” agreements beyond business competitors by applying it to franchise agreements. Because franchisors (and even other franchisees) often compete with franchisees for workers, they sometimes agree not to hire one another’s workers. The guidelines conclude that such agreements “can be per se illegal under the antitrust laws.”
Exchanging “Competitively Sensitive Information” About Workers. The guidelines declare that sharing competitively sensitive information about the terms and conditions of employment (such as compensation, benefits, and other key terms) may violate antitrust laws. This may occur “when the exchange has, or is likely to have, an anticompetitive effect, whether or not that effect was intended.” The guidelines emphasize that sharing this information through a third party (such as through an algorithm or other software) may constitute an antitrust violation, and that is true “even if the exchange does not require businesses to strictly adhere to those recommendations.”
Noncompete Agreements. Consistent with the FTC’s approach to noncompete agreements under the Biden administration, the guidelines state that “[n]on-compete clauses that restrict workers from switching jobs or starting a competing business can violate the antitrust laws.” The guidelines acknowledge the FTC final rule banning most noncompete agreements has been enjoined by courts and is currently on appeal, but emphasizes that “the FTC retains legal authority to address non-competes through case-by-case enforcement actions under the FTC Act, as it has done in the past.” The guidelines also note the FTC’s view that other federal laws may be implicated by noncompete clauses, including the National Labor Relations Act and the Packers and Stockyards Act.
Other Restrictive Employment Conditions. The guidelines identify several other employment practices and conditions that may be “restrictive, exclusionary, or predatory,” and thus violative of antitrust law:
Overbroad nondisclosure agreements that function to prevent workers from seeking or accepting other work or starting a competitive business.
Training repayment agreement provisions that function to prevent workers from working for another company.
Overbroad nonsolicitation agreements that prohibit workers from soliciting former clients or customers may restrict workers from seeking or accepting another position.
Exit fee and liquidated damages provisions that require workers to pay a financial penalty for leaving their employer.
In addition to these five categories, the guidelines also note that antitrust laws may be implicated where companies “make false or misleading claims about potential earnings that workers (including both employees and independent contractors) may realize” in their positions. According to the guidelines, these “false earnings promises” can make it more difficult for “honest businesses” to fairly compete in the marketplace.
Conclusion
With the recent change in presidential administrations, the FTC and DOJ composition and policy initiatives are very likely set to change. Notably, however, the dissent readily acknowledges that “antitrust laws protect employees from unlawful restraints of the labor markets, and guidance reflecting the Commission’s enforcement position on these issues promotes important transparency and predictability to market participants.” The FTC and DOJ may issue new guidelines on these topics under the new administrative regime.
Regardless of whether the guidelines survive, employers considering the types of agreements and employment practices identified in the guidelines should carefully review them and confer with counsel to minimize risk to their business.
UPDATE: CTA Filings Remain Voluntary After Supreme Court Ruling (For the Moment)
On January 23, 2025, the Supreme Court of the United States acted to lift one of the effective nationwide injunctions on enforcement of the Corporate Transparency Act (CTA) in the Texas Top Cop Shop v. McHenry [originally Garland]case. That case was put into place by a federal district court in the Eastern District of Texas on December 3, 2024 and was subsequently appealed to the Fifth Circuit Court of Appeals, and then an application was made to the Supreme Court to stay the injunction.
A second court, Smith v. Treasury (also in the Eastern District of Texas), issued an order on January 7, 2025, after the Texas Top Cop Shop v. McHenry case was before the Supreme Court. The judge in Smith v. Treasury issued his own nationwide injunction of the CTA, on substantially similar facts and arguments as those found in Texas Top Cop Shop v. McHenry. This injunction remains in place for the moment.
FinCEN, in response to the Supreme Court ruling, issued a press release on January 24, 2025, indicating that its position is that reporting companies are not currently required to file beneficial ownership information reports with FinCEN and are not subject to liability if they fail to file this information, “while the Smith order remains in force.”
In accordance with FinCEN’s latest guidance, reporting companies may continue to voluntarily submit BOIR filings with FinCEN. Parties should remain prepared to file when and if the CTA filing obligations are reinstated in full. We will continue to follow developments and provide updates (please subscribe here).
Client Alert Update: Supreme Court Action and Treasury Department Guidance on CTA Injunction
In our previous alert, we reported that the United States Court of Appeals for the Fifth Circuit upheld a lower court’s suspension of the Corporate Transparency Act (CTA), pausing filing requirements affecting businesses ranging from startups to established companies. Yesterday, the United States Supreme Court overturned the Fifth Circuit’s decision, allowing the CTA and its filing requirements to be enforced.
However, because the Supreme Court has not yet ruled on other litigation also suspending the CTA , today the Treasury Department issued official guidance clarifying that reporting companies are still not required to file Beneficial Ownership Information Reports (BOIRs) with FinCEN.
In light of these developments, we reaffirm our prior guidance:
Reporting companies are not currently required to file BOIRs and will not face penalties for failing to do so.
FinCEN continues to accept voluntary submissions for entities that wish to proactively comply with potential future obligations.
Businesses that have already begun preparing beneficial ownership information may wish to complete the process to ensure readiness in the event FinCEN resumes enforcement of the CTA.
No Enforcement of Corporate Transparency Act Despite SCOTUS Ruling
On January 23, 2025, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., the Supreme Court of the United States (SCOTUS) granted the government the ability to lift the injunction which halted enforcement of the Corporate Transparency Agency (CTA) on December 26, 2024. SCOTUS also sent the case back to the Fifth Circuit Court of Appeals to be decided on the merits. Oral arguments are scheduled to take place in March 2025, meaning the future of the CTA remains in question.
However, a separate nationwide injunction, issued on January 7, 2025, in the case of Smith v. U.S. Department of the Treasury, is unaffected by SCOTUS’s order in Texas Top Cop Shop and remains in place.
The Financial Crimes Enforcement Network (FinCEN) issued the below alert on January 24, 2025:
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
Companies wishing to make voluntary filings are reminded that Beneficial Ownership Information (BOI) filings are made at fincen.gov/boi. There is no fee to file.
CTA Still Enjoined: U.S. Supreme Court Grants Stay, But Second Nationwide Injunction Remains in Effect
Highlights
The U.S. Supreme Court granted a stay of an injunction suspending enforcement of the Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) reporting rule
A separate nationwide injunction issued by a different federal judge continues to enjoin enforcement of the CTA
Obligations under the CTA to file BOI reports currently cannot be enforced by FinCEN
Continuing a series of rapid-fire legal developments regarding the Corporate Transparency Act (CTA), on Jan. 23, 2025, the U.S. Supreme Court granted a stay of the amended injunction issued Dec. 5, 2024, by the U.S. District Court for the Eastern District of Texas. However, a separate nationwide injunction – issued by a different federal judge in Texas on Jan. 7, 2025 – continues to enjoin the Financial Crimes Enforcement Network (FinCEN) from enforcing the CTA’s beneficial ownership information (BOI) reporting deadlines.
As a result, reporting obligations under the CTA currently cannot be enforced by FinCEN. It is anticipated that FinCEN will appeal the Jan. 7 injunction.
To recap recent developments:
Dec. 3, 2024 – The U.S. District Court for the Eastern District of Texas issued a nationwide injunction enjoining enforcement of the CTA, suspending all reporting obligations under the act (Texas Top Cop Shop, Inc. v. McHenry – formerly, Texas Top Cop Shop v. Garland). This order was amended Dec. 5, 2024.
Dec. 23, 2024 – The motions panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court injunction. The stay by the Court of Appeals restored initial reporting deadlines for reporting companies. FinCEN responded by issuing an alert extending initial reporting deadlines.
Dec. 26, 2024 – The merits panel of the Fifth Circuit vacated the stay issued by its motions panel, restoring the district court’s injunction and suspending reporting obligations under the CTA pending resolution of the appeal.
Dec. 31, 2024 – The Department of Justice filed an application for stay with the U.S. Supreme Court requesting that the Dec. 5 injunction be stayed or narrowed while the case proceeds through the Fifth Circuit.
Jan. 7, 2025 – The U.S. District Court for the Northern District of Texas issued a second nationwide injunction enjoining enforcement of the CTA, suspending all reporting obligations under the CTA (Smith v. U.S. Department of the Treasury).
Jan. 23, 2025 – The U.S. Supreme Court granted a stay of the Dec. 3rd injunction pending the disposition of the Texas Top Cop Shop appeal before the Fifth Circuit and the disposition of a petition for a writ of certiorari and related final judgment.
FinCEN, in an alert published Jan. 24, 2025, referenced the Jan. 7 injunction, stating that, “reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop.” FinCEN further noted that for so long as the nationwide injunction issued in Smith remains in force, companies will not be subject to liability for failure to file their BOI reports. Reporting companies may continue to voluntarily submit BOI reports.