FTC Finalizes Orders Against Data Brokers Over Sensitive Location Data
On January 14, 2025, the Federal Trade Commission (“FTC”) announced that it had issued final orders against data brokers Gravy Analytics, Inc. (“Gravy Analytics”) and Mobilewalla, Inc. (“Mobilewalla”). The FTC’s announcement follows a series of recent FTC actions concerning data brokers’ collection and sale of consumer precise geolocation data. Our blog posts covering these prior actions can be viewed here and here.
Gravy Analytics
According to the FTC’s complaint, Gravy Analytics is a data broker that does not have a direct relationship with consumers. Instead, it purchases consumer data (including precise geolocation data) from its data suppliers and sells such consumer data to its customers, which include both commercial and government entities. The FTC alleged that Gravy Analytics and its subsidiary violated Section 5 of the FTC Act by (1) failing to verify that its data suppliers obtained consent from consumers to collect, use and share their precise geolocation data for the purposes used by Gravy Analytics; (2) selling consumers’ precise geolocation data that revealed consumers’ visits to sensitive locations; and (3) creating and selling inferences derived from location data drawn about consumers based on sensitive characteristics, such as medical conditions, political activities and religious beliefs According to the complaint, the precise geolocation data obtained by Gravy Analytics, associated with other unique consumer identifiers licensed, used and sold by the data broker, could be used to track consumers to sensitive locations, including places of religious worship, domestic abuse shelters, homeless shelters, medical facilities, political rallies, and places that could be used to infer an LGBTQ+ status. Gravy Analytics used this data to create audience segments that categorized consumers into groups based on health or medical decisions made by consumers (e.g., “pharmacy visitor during COVID quarantine”), family status (e.g., “having children,” “getting married”), religion (e.g., based on a consumer’s visit to a particular church) and political activity (e.g., identifying a consumer as a member of a particular party based on attendance at political events). Additionally, the complaint alleged that Gravy Analytics used geofencing to create a virtual geographic boundary to identify consumers who visited certain sensitive locations and subsequently categorized these consumers into audience segments based on inferred sensitive characteristics from their visits, such as medical conditions, sexual orientation, political activities and religious beliefs. Its customers could then use these segments to serve targeted ads to consumers in these groups.
The final order requires Gravy Analytics and its subsidiary to stop selling, disclosing or using sensitive location data within 90 days of the order’s effective date, unless the companies: (1) have a direct relationship with the consumer related to the sensitive location data; (2) have obtained affirmative opt-in consent from the consumer and (3) are using sensitive location data solely to provide a service directly requested by the consumer.
Key provisions from the final order also include requirements to:
maintain a sensitive location data program to identify a list of sensitive locations, and prevent the disclosure of consumers’ visits to those locations;
establish and maintain policies and procedures to prevent the companies from (1) associating consumer precise geolocation data with locations predominantly providing services to LGBTQ+ individuals or locations of political or social demonstrations, marches, and protests and (2)using consumer precise geolocation data to determine the identity or location of an individual’s home;
submit a report to the FTC within 30 days of making a determination that a third party shared consumers’ precise geolocation data in violation of a contractual requirement, including a description of the incident and the number of consumers affected by the disclosure;
delete all historic precise geolocation data and any data products developed using this data;
maintain a supplier assessment program to ensure consumers have provided consent for the collection and use of their precise geolocation data; and
not misrepresent the extent to which the companies (1) review data suppliers’ compliance and consent frameworks, consumer disclosures, sample notices, and opt-in controls; (2) collect, use, maintain, disclose, or delete any information by the final order; or (3) de-identify the data they collect, use, maintain, or disclose.
Relatedly, days before the FTC finalized its order against Gravy Analytics, the company was reported to have experienced a data breach. The company currently faces a proposed class action lawsuit in the US District Court for the District of New Jersey, alleging that it failed to adequately secure sensitive consumer location data.
Mobilewalla
In its complaint against Mobilewalla, the FTC alleged that the company collected consumer information, without consent, from real-time bidding exchanges (“RTB ad exchanges”), which data included consumers’ mobile advertising identifiers (“MAID”) and precise geolocation data. The FTC alleged that Mobilewalla then shared this information with third parties. This FTC action is the first to focus on the collection and use of consumer data through RTB ad exchanges.
During RTB ad exchanges, online publishers (i.e., websites and apps) auction off their empty ad space so that advertisers can submit bids for an ad placement. To conduct the exchange, an app or website uses a software development kit (SDK) or cookie to collect consumers’ personal information from their devices and passes it along to participating advertisers, so that they can bid to place advertisements based on the consumer information contained in the bid request. As a result, advertisers can obtain consumer information from the bid request process, even if they do not win the bid for an ad placement. In its complaint, the FTC alleged that when Mobilewalla bid to place an advertisement through an RTB ad exchange, it collected and retained the consumer information contained in the bid request, even when it did not have a winning bid. The FTC also alleged that Mobilewalla collected information from other data brokers without verifying whether consumers consented to Mobilewalla’s collection and use of their information.
Key provisions in the FTC’s final order against Mobilewalla include requirements to:
stop collecting, purchasing or acquiring personal information covered in the order during online advertising auctions for any other purpose other than participating in such auctions;
stop selling, sharing, or disclosing sensitive location data;
maintain a sensitive location data program to identify a list of sensitive locations and prevent the disclosure of sensitive location data; and
maintain a supplier assessment program to ensure consumers have provided consent for the collection and use of location data.
Delaware Supreme Court Holds That While Timing May Not Be Everything, It Is Really Important When Looking For The Exit
Nearly one year ago, Vice Chancellor J. Travis Laster decided to apply Delaware’s most onerous standard of review, entire fairness, to the decisions of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc. to reincorporate in Nevada. Palkon v. Maffei, 311 A.3d 255 (Del. Ch. 2024). See Vice Chancellor Laster Rules That It Is “Reasonably Conceivable” That Nevada Provides Greater Protection Against Fiduciary Liability Than Delaware. Nor surprisingly, that ruling was appealed to the Delaware Supreme Court, which today issued its opinion reversing the Vice Chancellor’s ruling.
Vice Chancellor Laster applied the entire fairness standard because the proposed reincorporation would involve a controlling stockholder and the receipt of a non-ratable benefit in the form of the enhanced liability protections under Nevada law. The Delaware Supreme Court disagreed with the Vice Chancellor on the role of timing in determining whether an alleged benefit was no-ratable. The Supreme Court believes that temporality is a key factor in determining materiality. The Court concluded that the plaintiffs’ allegations did not satisfy the requirement of pleading a material benefit because they failed to allege “anything more than speculation about what potential liabilities Defendants may face in the future”. Accordingly, the business judgment rule is the applicable standard of review.
This decision may be beneficial to both Delaware and Nevada in the long run. If the Delaware Supreme Court had decided the other way, businesses might avoid incorporating in Delaware due to a fear that Delaware has become a Hotel California. See TripAdvisor Suit Invites Delaware To Become The Hotel California.
4 Lease Auction Tips for Landlords
During a retail bankruptcy, commercial landlords often face challenges when their tenants try to maximize the value of the bankrupt estate by holding lease auctions. Despite lease provisions that may restrict or prohibit a lease sale, courts have generally allowed retail debtors to conduct such sales. This is because lease clauses that attempt to limit or prohibit a lease sale are often disregarded as “ipso facto” clauses, which are unenforceable in bankruptcy.
Smart landlords have shifted their focus from trying to prohibit lease sales to influencing how these sales are conducted and what information the landlord may request for “adequate assurance” of future performance by the potential new tenant.
Here are four tips for the next time your lease is part of a lease auction.
Know What to Request as Adequate Assurance
Adequate assurance refers to a guarantee or proof provided to a landlord in a potential new lease demonstrating the ability to continue fulfilling future contractual obligations of the lease. Basically, it helps convince the landlord that this new tenant will meet the lease commitments.
At a minimum, landlords should request information from the exact proposed assignee of the lease, including:
The exact name of the entity which is going to be designated as the proposed assignee;
The proposed assignee’s and any guarantor’s tax returns and audited financial statements (or un-audited, if audited financials are not available) and any supplemental schedules for the last calendar or fiscal years;
If there was a guarantor on the original lease, then identify a guarantor on this lease;
The number of other retail stores the proposed assignee operates and all trade names that the proposed assignee uses;
A statement setting forth the proposed assignee’s intended use of the premises;
The proposed assignee’s business plans, including sales and cash flow projections; and
Any financial projections, calculations, and/or financial pro-formas prepared in contemplation of purchasing the
Demand Payment of Cure Costs
As a function of any assignment, a landlord should demand that they be brought current with all liabilities, payments, and other covenants. Sometimes an assignee may request a waiver of cure costs. This is a business decision for the landlord. However, the landlord should not feel like it can’t say no. Sometimes, a request to waive these costs is just another attempt to sweeten a deal. Meaning the potential tenant may still assume the lease even if you say no.
Consider Bidding on Your Own Lease
Sometimes, a landlord may want to control the space for its own financial reasons. For instance, potential new tenant, whom the landlord really wants in the center, may approach the landlord to lease the space. Or, the landlord may be looking to sell the center. In both instances, having control of the space is essential. However, the Bankruptcy Code provides a debtor the right to continue the lease unless it is rejected or sold. The debtor has up to 210 days to assume or reject the lease. So waiting the debtor out may not be a viable option. As such, it may be advantageous for a landlord to buy back its own lease to ensure certainty.
If this is the case, it’s important to assert your rights to credit bid, when the Debtor files the initial motion to sell leases. Your credit bid may allow you to assert all prepetition claims, as well as avoid placing a deposit, as is common with new bidders. Further, you may want to attend the auction but not bid. Generally, if a landlord asserts this right during the bidding procedures motion process, the debtor will allow them to attend. But again, it needs to be asserted before the order is entered. Also, if the lease is not listed to be sold in the initial motion, nothing stops a landlord from reaching out to the debtor to make an offer to buy back the lease.
Review Your Lease for Restrictions
Lease assignments during bankruptcy can be contentious. Landlords may object to the assignment of leases to new tenants, but these objections are often overruled unless the landlord can demonstrate that the new tenant would disrupt the tenant mix and balance of the shopping center. For instance, is there a lease restriction that would violate another lease? If so, you want to argue that point now.
Commercial landlords may have to navigate the complexities of bankruptcy law, which often favors the debtor’s ability to assign leases. However, landlords can still seek to impose reasonable restrictions on the conduct of auctions and assert their lease rights.
If you are a landlord or trade creditor in a retail bankruptcy, it is vital to know your rights now. Stark & Stark’s Shopping Center and Retail Development Group can help. Our bankruptcy attorneys regularly represent landlords throughout the country, including the Eastern District of Missouri, District of New Jersey, Southern District of New York, District of Delaware, District of Minnesota and the Western and Eastern Districts of Pennsylvania regarding a variety of issues. Most recently, our Group has represented landlords and trade creditors in the Party City, Big Lots, Tijuana Flats, Rite Aid, Blink Fitness, Express, JOANN’s and Sports Authority chapter 11 bankruptcy cases.
Après Musk, Le Déluge
I began writing about Nevada corporate law more than three decades ago with an article for the California Business Law Reporter entitled “The Nevada Corporation: Is it a Good Bet?” Over the years, I have written several other articles on Nevada corporate law and authored the first treatise on Nevada’s corporate law. During this period, Nevada became one of top states for incorporation of publicly traded corporations, but Delaware continued to command a commanding preeminence.
Then came Chancellor Kathaleen S. McCormick’s decision abrogating Elon Musk’s nearly $56 billion compensation arrangement with Tesla, Inc. Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024). Mr. Musk reacted with the following post on X:
Never incorporate your company in the state of Delaware
That post received nearly 55 million views. Suddenly, it became acceptable for large companies such as Tesla to leave Delaware. In the past year several SEC reporting companies have moved or proposed moving to Nevada. See Another Delaware Corporation Announces Stockholder Approval Of Nevada Reincorporation and Several More Companies Propose Move From Delaware To Nevada
Now, the exodus from Delaware appears to be gaining speed with the filing last week by Dropbox of its plan to move to Nevada. See Dropbox Discloses Plan To Move To Nevada. Delaware took another hit over the weekend, when it was reported that Bill Ackman intended to reincorporate his management company in Nevada. Suddenly, the Silver State is looking positively golden.
As the Delaware courts have issued lengthy, finely nuanced, and fact specific rulings, Delaware corporate law has become both less accessible and less predictable. Delaware is choking on its own decisional excesses, but has managed to hang on due to inertia and its reputation. Mr. Musk has simply made it okay for businesses to look elsewhere.
A BIG LOTS Chapter 11 Lesson: Caution Needed When Doing Business with Chapter 11 Debtors
Vendors, landlords, and other creditors often feel a sense of security when doing business with Chapter 11 debtors. The Bankruptcy Code, and even court orders entered at the outset of a bankruptcy case, seemingly provide a myriad of protections to those engaging in business with a company reorganizing under Chapter 11.
Indeed, Chapter 11 debtors often induce continued business by suggesting that they are “required” to pay all post-bankruptcy obligations in full. Nevertheless, these protections and assurances often prove to be optical illusions, leaving creditors holding the bag with significant unpaid post-petition obligations at the end of a bankruptcy case.
The recent Big Lots Chapter 11 bankruptcy filing is a massive warning signal that exposes the significant risks of doing business with Chapter 11 debtors.
Landlord Protections
The Bankruptcy Code provides heightened protections to landlords when dealing with Chapter 11 debtors. Pursuant to section 365(d)(3) of the Bankruptcy Code, a tenant debtor is required to “timely perform all the obligations of the debtor… arising from and after the petition date” under any unexpired lease. This means they must continue to fulfill lease obligations that come due after the bankruptcy filing until the lease is either assumed or rejected by the debtor.
Essentially, a landlord is entitled to receive post-petition rent payments as a high-priority administrative expense claim if the tenant does not pay in a timely manner.
Pursuant to the Bankruptcy Code, shopping center landlords are entitled to additional protections when a lease is assumed and assigned. In such circumstances, a Chapter 11 debtor must cure any defaults and provide “adequate assurance” of future performance under the lease.
If the lease qualifies as “a lease for real property in a shopping center,” a landlord is entitled to “adequate assurance” for certain specific obligations. “Adequate assurance” is intended to protect a landlord from a decline in the value of the subject premises if a lease is assumed. The assurances include requirements that:
the financial condition and operating performance of any assignee be similar;
percentage rent does not decline substantially;
all other provisions of the lease apply, such as exclusive use clauses; and
the tenant mix or balance at the shopping center not be disrupted.
“Adequate assurance” that a landlord will be compensated for any pecuniary loss is a condition to the assumption of a lease of real property in a shopping center. With such protections, landlords may feel a false sense of confidence when dealing with Chapter 11 debtors.
Trade Creditor Post-Bankruptcy Protections
The Bankruptcy Code also provides various protections to vendors that provide goods and services to Debtors after a bankruptcy is filed. Claims for such services are generally entitled to administrative expense priority status over other unsecured creditors. Further, vendors who deliver goods to debtors within twenty days before the bankruptcy filing are also entitled to administrative expense status under Section 503(b)(9) of the Bankruptcy Code.
Additionally, in many cases, Debtors seek orders allowing certain vendors to be treated as critical vendors. Based upon the doctrine of necessity, Debtors not only commit to paying critical vendors for post-petition goods, but must pay critical vendors for pre-bankruptcy claims.
Finally, to confirm a Chapter 11 bankruptcy plan, a debtor must show that it can pay all its administrative claims in full. Similar to landlords, trade creditors may also feel a false sense of post-petition security, given all of these purported protections.
Big Lots Chapter 11 Bankruptcy Leaves Administrative Creditors Massively Exposed
The recently filed Big Lots Chapter 11 bankruptcy case provides a stark illustration of the risks of doing business with a debtor post-bankruptcy. Big Lots’ proposed creditor protections proved to be mirages leaving post-petition claims substantially exposed to non-payment.
Immediately upon filing for bankruptcy protection, Big Lots provided certain assurances to its landlord and vendor community. To secure its Debtor in Possession financing, Big Lots’ Chapter 11 plan committed to a budget that included payment of landlord stub rent claims. Big Lots also commenced a critical vendor program, offering payment of pre-bankruptcy claims in return for continued open credit terms.
Big Lots also commenced a sale process that proposed to sell its business as a going concern, including over 800 stores, to Nexus Capital Partners (“Nexus”). With representations that a continued going concern business was in process, creditors were induced into continued business with Big Lots.
How the Big Lots Chapter 11 Plan Failed
As part of the sale to Nexus, Big Lots was required to deliver certain inventory value. To achieve the necessary asset value, Big Lots used its post-petition trade credit and incurred over $215 million in debt to build up its post-petition inventory. This was in addition to $38 million in 503(b)(9) twenty-day vendor claims, as well as additional post-bankruptcy landlord claims. Simply put, Big Lots exposed its trade credit and landlord constituents to well over $250 million of post-petition credit to close the deal with Nexus.
Due to Big Lots’ inability to deliver its asset value obligations under the Asset Purchase Agreement (APA) – despite pumping up over $200 million in trade credit – Nexus would not close the sale. This left Big Lots exposed to a complete fire-sale liquidation and a massive administratively insolvent estate, with little, if any, of the post-petition obligations to be paid.
GBRP Saves the Day, Sort Of
“Luckily,” total catastrophe was averted by a last-minute sale transaction with Gordon Brothers Retail Properties (“GBRP”) where between 200 and 400 stores will be saved. However, the GBRP transaction only provides minimal hope for recovery to post-bankruptcy vendors and landlords.
As part of its APA, GBRP will pay select post-petition creditors, leaving most vendors and landlords in the cold. GBRP’s APA protects professionals, certain landlords, and go-forward trade creditors without covering the post-petition obligations accrued to date. The proposed APA terms created categories of preferred administrative claimants, with the balance remaining prejudiced by the sale.
For example, Big Lots’ Chapter 11 wind-down budget increased a prior fee reserve for professionals by $13,438,000 for two months of continued service. In addition, certain landlords will be paid $17 million in satisfaction of unpaid administrative rent and Debtors will purportedly remain current on their rent going forward. This, while the $250 million in other post-bankruptcy claims remains largely unpaid.
Big Lots and GBRP carved out approximately $19 million in assets (tax refunds, litigation proceeds, and a percentage of real estate sales), which will remain behind to pay a paltry dividend to administrative claimants.
The creditor community raised concern that the GBRP sale violated the priority scheme of the Bankruptcy Code, by allowing Big Lots to pick and choose among its creditors. The court overruled the creditor community’s cries that proceeds of the GBRP sale be escrowed with distributions and priority to be decided post-closing. The Bankruptcy Court allowed the transaction to proceed per the terms mandated by GBRP.
Avoiding the Big Lots Chapter 11 Outcome
In sum, while numerous trade vendors and landlords engaged with Big Lots after the bankruptcy was filed, feeling secure that their post-petition claims would be paid, they are now left with over $200 million in post-petition debt, with only nominal distributions on the horizon.
Big Lots’ Chapter 11 provides a harsh lesson that no matter what protections or assurances are assumed, creditors must be vigilant in enforcing their post-petition rights and be wary when extending post-petition credit, or otherwise engaging in business with a Chapter 11 debtor.
REBO Quarterly: 2024 in Retrospect
STATE-LEVEL REAL ESTATE BENEFICIAL RESTRICTIONS ON OWNERSHIP
2024 was a busy year for legislatures throughout the United States on the topic of limitations and restrictions on ownership of real property assets. Last year, state legislators introduced over 75 bills in 29 states throughout the country that affect the beneficial ownership of real property. Legislative proposals affecting beneficial ownership generally fell into three categories: restricting ownership of agricultural land by foreign persons or entities; restricting ownership of any real property near critical infrastructure by foreign persons or entities; and restricting ownership of agricultural land by corporate entities.
The most common ownership bills specifically targeted individuals, entities, and governments from certain countries designated as “foreign countries of concern.” These “foreign countries of concern” most often included the People’s Republic of China, Iran, Russia, North Korea, and Venezuela.
While the majority of bills introduced pertain to foreign ownership, certain states have also explored restricting domestic corporate ownership of real property. Growing interest in enacting corporate farming laws has the potential to trigger unintended consequences that the commercial real estate industry must be aware of when acquiring tracts of land, particularly when acquired for development in rural or semi-rural areas. In addition, corporate ownership provisions may be intertwined within larger foreign ownership legislative proposals, necessitating a careful analysis of all bills affecting beneficial ownership of land.
Successfully Enacted State Beneficial Ownership Bills
Of the successful bills prohibiting certain parties from owning land, the definition of those subject to restriction varies by state. The majority of bills passed in 2024 prohibit “foreign adversary” citizens, governments, and business entities as defined in 15 C.F.R. § 7.4, a list generated by the secretary of the Department of Commerce, which currently lists the People’s Republic of China, Cuba, Iran, North Korea, Russia, and Venezuela. Others prohibit adversaries designated by the secretary of state as a Country of Particular Concern,1 or countries subject to international traffic in arms regulations under 22 C.F.R. § 126.1.2 Some seek to define adversaries as those parties on sanctions lists maintained by the Office of Foreign Assets Control,3 while others directly name a list of countries.4
States also diverge in the exemption provisions they include in law. Louisiana and Indiana exempt legal permanent residents from their foreign ownership laws. Louisiana’s HB 238 also contains a provision not found in other bills passed this year that exempts religious, educational, charitable, or scientific corporations. Oklahoma, Tennessee, Nebraska, and Kansas bills exempt from their ownership laws business entities that have a national security agreement with the Committee on Foreign Investment in the United States (CFIUS). Georgia, Mississippi, and South Dakota bills stipulate that foreign ownership prohibitions do not apply to business entities leasing land for agricultural research and development purposes. Indiana specifies that its prohibition law does not apply to agricultural land that has not been used for farming within the last five years, unless it is recognized by the US Farm Service Agency as farmland.
Proposed foreign ownership bills around the country differ in their treatment of existing real property owned by prohibited foreign parties. The most common treatment of the bills that were successful in 2024 was to direct any prohibited parties to divest of their ownership interest within a certain timeframe of the bill’s effective date, typically one or two years.5 Some bills specify that their provisions only apply after the bill’s effective date or a future date.6 In rare circumstances, a bill will apply retroactively; Idaho’s HB 496 was signed into law in March 2024 but applied retroactively to April 2023.
The following 15 bills impacting beneficial ownership of land were approved by state legislatures in 2024:
Georgia SB 420
Introduced on 29 January and signed into law on 30 April, the bill adds a new section to the code that provides that no nonresident alien shall acquire directly or indirectly any possessory interest in agricultural land or land within 10 miles of any military installation. In this case, “nonresident alien” is defined narrowly to mean a noncitizen of the United States who also is an agent of a foreign government designated as a foreign adversary and has been absent from the United States for six out of the preceding 12 months. The prohibition also applies to business entities domiciled in a foreign adversary or domiciled in the United States but with 25% ownership by a foreign adversary.
Idaho HB 496
HB 496 was introduced on 7 February and signed by the governor on 12 March. It amends existing foreign ownership restrictions to exempt federally recognized Indian tribes from the definition of “foreign government.” It also adds forest lands to the kinds of property that foreign governments and state-controlled enterprises are prohibited from acquiring.
Indiana HB 1183
Introduced on 9 January and signed into law on 15 March, the bill, in addition to prohibiting citizens or business entities controlled by a foreign adversary (which includes the People’s Republic of China, Cuba, Iran, North Korea, Russia, and Venezuela) from acquiring agricultural land in the state, also specifically prohibits the acquisition of mineral rights, water rights, or riparian rights on agricultural land.
Iowa SF 2204
Introduced on 1 February and signed into law on 9 April, the bill tightens existing Iowa statutes restricting foreign persons and business entities from acquiring agricultural land suitable for use in farming. The act amends Iowa code by eliminating a provision in law that suspends certain registration requirements, thereby restoring its requirements. SF 2204 also expands the information required to be completed in a registration form to include the identity of the foreign person or authorized representative; the identity of any parent corporation, subsidiary, or person acting as an intermediary; the purpose for holding the agricultural land; and a listing of any other interest in agricultural land held by the registrant that exceeds 250 acres.
Iowa SF 574
SF 574 was introduced on 24 April 2023, and carried over into 2024, where it was signed by the governor on 1 May. The bill created the “Major Economic Growth Attraction Program.” As part of multiple provisions relating to economic development, the law authorizes the Iowa Economic Development Authority board to give an exemption to the existing restrictions in law on agricultural land holdings for a foreign business if it meets certain requirements. These requirements include a business locating the project on a site larger than 250 acres and a business making a qualifying investment in the proposed project of over US$1 billion.
Kansas SB 172
SB 172 was introduced on 7 February and passed by the Kansas Legislature on 30 April. However, Kansas Governor Laura Kelly (D) vetoed the bill. The bill would have prohibited foreign principals from acquiring any interest in nonresidential real property within 100 miles of any military installation. Given the wide restriction range and the position of McConnell Air Force Base in Wichita near the center of the state, the bill would have applied to most areas of the state. Democrats largely opposed the legislation, and critics of the bill voiced concern that language in the bill allowing seizure of private property without guaranteed compensation would be unconstitutional. In her veto message, Governor Kelly wrote:
“While I agree that it is important for our state to implement stronger protections against foreign adversaries, this legislation contains multiple provisions that are likely unconstitutional and cause unintended consequences…the retroactive nature of this legislation raises further serious constitutional concerns.”
The bill ultimately was not reconsidered by legislators and did not become law.
Louisiana HB 238
HB 238 was introduced on 27 February and was signed into law on 3 June. The bill restricts foreign adversaries or corporations in which a foreign adversary has a controlling interest from owning, acquiring, leasing, or otherwise obtaining any interest in agricultural land. The law defines “foreign adversary” as the People’s Republic of China (and Hong Kong), Iran, Cuba, North Korea, Russia, and Venezuela.
Mississippi SB 2519
Introduced on 16 February and signed by the governor on 15 April, the bill prohibits ownership of majority part or a majority interest in forest or agricultural land by a nonresident alien. “Majority part” or “majority interest” means an interest of 50% or more in the aggregate held by nonresident aliens. “Nonresident alien” is defined as an individual or business entity domiciled in the People’s Republic of China, Cuba, Iran, North Korea, Russia, or Venezuela, or an entity domiciled in the United States but majority owned by a foreign adversary entity. In addition, the bill specifies that land classified as industrial or residential but is otherwise used as forest or agricultural land shall be subject to the act.
Nebraska LB 1301
Introduced on 16 January at the request of the governor, LB 1301 was signed on 16 April. The bill amends existing law to prohibit nonresident aliens, foreign corporations, and foreign governments from purchasing, acquiring title to, or taking any leasehold interest extending for a period for more than five years (or any other greater interest less than a fee interest) in any real estate in the state by descent, devise, purchase, or otherwise. The law also prohibits restricted entities from purchasing, acquiring, holding title to, or being a lessor or lessee of real estate for the purpose of erecting manufacturing or industrial establishments, with certain exemptions.
Nebraska LB 1120
Separately, LB 1120, which was introduced on 10 January and also signed into law on 16 April, requires that upon a conveyance of real property located in whole or in part within a restricted area (i.e., within a certain radius of critical infrastructure or a military installation), the purchaser must complete and sign an affidavit stating it is not affiliated with any foreign government or nongovernment person determined to be a foreign adversary pursuant to 15 C.F.R. § 7.4. Specifically, the bill targets those individuals and entities from the People’s Republic of China, Cuba, Iran, North Korea, Russia, and Venezuela.
Oklahoma SB 1705
Introduced on 5 February and approved by the governor on 31 May, the bill amends the exiting foreign ownership law to prohibit foreign government adversaries and foreign government enterprises from acquiring land in the state. The law defines a “foreign government enterprise” to mean a business entity or state-backed investment fund in which a foreign government adversary holds a controlling interest.
South Dakota HB 1231
HB 1231 was introduced on 31 January and signed by the governor on 3 March. Prior to passage, South Dakota prohibited aliens and foreign governments from acquiring agricultural lands exceeding 160 acres. HB 1231 prohibits foreign entities from owning, leasing, or holding an easement on agricultural land in the state unless the lease is exclusively for agricultural research purposes and encumbers no more than 320 acres, or the lease is exclusively for contract feeding of livestock.
Tennessee HB 2553
HB 2553 was introduced on 31 January and was signed into law on 21 May. The bill replaces the prior definitions of individuals and entities restricted in their real property ownership and expands upon land ownership restrictions through the creation of two separate prohibitions: one that restricts a prohibited foreign-party-controlled business from acquiring an interest in public or private land and another that restricts a prohibited foreign party from acquiring an interest in agricultural land (regardless of whether the party intends to use it for nonfarming purposes). Additionally, HB 2553 creates the Office of Agricultural Intelligence within the Tennessee Department of Agriculture to enforce the new law.
Utah HB 516
Introduced on 8 February and signed into law on 21 March, the bill modifies the definition of a “restricted foreign entity” to prevent entities owned or majority controlled by the following governments from obtaining any interest in real property in the state: the People’s Republic of China, Iran, North Korea, or Russia.
Wyoming SF 77
SF 77 was introduced on 6 February and signed by the governor on 14 March. The bill allows the governor and the Wyoming Office of Homeland Security to designate critical infrastructure zones and requires county clerks to report each transaction involving property within a five-mile radius of the designated zones. The law also authorizes the attorney general to take any action necessary to determine the identity of any party reported by the county clerks.
Corporate Ownership Spotlight
While the majority of bills introduced in the states regarding beneficial ownership of land focused on limiting foreign actors, at least five bills proposed changes that would reduce the ability of business entities to acquire real property. Nebraska’s LB 1301 and Iowa’s SF 2204, detailed above, both made changes to existing statutes that restrict corporate entities from engaging in farming in those states. In addition, two bills in California and one in Virginia took aim at investment funds acquiring land or water rights.
California Assembly Bill 1205
As originally introduced, the bill required the State Water Resources Control Board to conduct a study and report to the legislature on the existence of speculation or profiteering by an investment fund in the sale, transfer, or lease of an interest in any surface water right or groundwater right previously put to beneficial use on agricultural lands. The measure was amended in August 2024 to remove all study provisions and instead renames and makes changes to the unrelated California Promise Program.
California SB 1153
SB 1153 would have prohibited a hedge fund from purchasing, acquiring, leasing, or holding a controlling interest in agricultural land within the state. The bill would have required the California Department of Food and Agriculture to compile an annual report containing, among other information, the total amount of agricultural land that is under hedge fund ownership, how that land is being put to use, and any legislative, regulatory, or administrative policy recommendations in light of the information from the annual report. The bill did not receive a hearing before the end of the legislative session.
Virginia SB 693
SB 693 was introduced on 19 January but did not receive a hearing before the legislative session concluded. The bill would have restricted any partnership, corporation, or real estate investment trust that manages funds pooled from investors, is a fiduciary to such investors, and has US$50 million or more in net value or assets under management on any day during a taxable year from acquiring any interest in residential land in the state.
Ongoing Rulemaking and Court Challenges
In addition to the aforementioned bills that were signed into law in 2024, certain other bills that were passed in 2023 continue to be active in 2024 and 2025. Specifically, in Florida, bills related to the foreign ownership of real property in the state continue to make headlines. Florida Statute § 692.202–.205, which were signed into law in 2023, create a three-pronged approach to restricting foreign ownership of real property assets in the state.7 The first prong prohibits the foreign ownership of agricultural land in the state with few exceptions. The second prong prohibits foreign ownership of any real property within a certain radius of critical infrastructure or military installations within the state. Lastly, the third prong prohibits Chinese ownership (at the individual, entity, or government level) of any real property within the state. The statute also creates a registration regime for all real property assets held by foreign principals prior to 1 July 2023. Administrative rules and regulations regarding the first prong of the statute were finalized as of 4 April 2024. Final rules surrounding the third prong of the laws were published in late January by the Florida Department of Commerce and will become effective 6 February 2025. In addition to the rule promulgation, the third prong of the statute is also currently being challenged in the Eleventh Circuit Court of Appeals. We continue to actively monitor these developments.
In Arkansas, SB 383 was enacted in 2023. The proposal prohibited foreign investments through two separate restrictions: a restriction on foreign-party-controlled businesses from acquiring interest in land, and a restriction on prohibited foreign parties from acquiring any interest in agricultural land. In November 2024, Jones Eagle—a digital asset mining company owned by a Chinese-born naturalized US citizen—filed a lawsuit requesting a preliminary injunction against the law. On 9 December, the presiding federal judge granted the injunction, which prevents enforcement of the law against the company until further orders from the court. The plaintiff argues that the federal government retains exclusive authority over foreign affairs, and that the Arkansas law violates this foreign affairs preemption. The court found that Jones Eagle was likely to prevail on the question, noting that the Arkansas law “go[es] so far as to target specific foreign countries for economic restrictions and conflict with the express foreign policy of the federal government as represented by the FIRRMA and ITAR regimes.”8 The case is pending in the Eighth Circuit Court of Appeals. We will continue to actively monitor these developments and their effect on recent and upcoming legislation regarding foreign ownership of real property.
FEDERAL-LEVEL RESTRICTIONS ON BENEFICIAL OWNERSHIP OF REAL ESTATE
Like state legislatures, there was a strong focus on foreign investment in agricultural land in Congress in 2024. Unlike state legislatures, Congress has not yet implemented restrictive or prohibitive measures addressing foreign or corporate ownership of real property.
Though largely a Republican effort, a few bills were bipartisan: H.R. 7678, the Protecting Against Foreign Adversary Investments Act sponsored by then-Representative Elissa Slotkin (D-MI-7), would have required CFIUS’s approval of certain real estate sales to foreign entities of concern and required a report to Congress assessing the feasibility of divestiture of real estate owned by foreign entities of concern.
Members of Congress also introduced several bills building on the Agricultural Foreign Investment Disclosure Act (AFIDA) and CFIUS authorities by (i) expanding AFIDA reporting mandates or increasing penalties for nondisclosure or both, and (ii) extending CFIUS jurisdiction over broader categories of land. There were also bills that would create new stand-alone prohibitions on purchases of US land by certain foreign persons.
A provision of proposed bill H.R. 7476 to counter Chinese influence would have required the United States Department of Agriculture (USDA) to prohibit the purchase of agricultural land by companies owned in full or in part by the People’s Republic of China. S. 3666 would have required data sharing between the USDA and CFIUS, while S. 4443 would have directed the director of national intelligence to complete a study on the threat posed to the United States by foreign investment in agricultural land. Most recently, Senator Mike Braun (R-IN) and Representative Dan Newhouse (R-WA-4) introduced companion bills requiring the USDA to notify CFIUS of each covered transaction it has reason to believe may pose a risk to national security.
In addition to stand-alone legislation, elements of some of the above bills were included in annual budget appropriations omnibus packages. On 4 March 2024, the federal Fiscal Year 2024 Agriculture Appropriations bill was signed into law by President Joe Biden as part of the Consolidated Appropriations Act, 2024. The package included a section addressing foreign ownership of agricultural land: it required the secretary of agriculture to be included as a member of CFIUS on a case-by-case basis with respect to covered transactions involving agricultural land, biotechnology, or the agricultural industry. The bill also directed the USDA to notify CFIUS of any agricultural land transaction that it has reason to believe may pose a risk to national security, particularly on transactions by the governments of the People’s Republic of China, North Korea, Russia, and Iran.
2025 FORECAST
Federal Level
The Farm Bill is a five-year package of bills that governs a broad range of agricultural programs covering commodities, conservation, nutrition, rural development, forestry, energy, and more. The last time a Farm Bill was passed into law was the Agriculture Improvement Act of 2018, which was passed on 20 December 2018 and expired on 30 September 2023. Facing a stalemate on negotiations of a new Farm Bill in late 2023 and early 2024, members of Congress agreed to pass a one-year extension of the 2018 Farm Bill to continue authorizations until the end of the fiscal year (September 2024) and the end of the crop year (December 2024).
However, Senate and House negotiations on a new Farm Bill did not sufficiently progress in 2024, so agriculture leaders again passed a one-year extension on 21 December 2024 to continue authorizations until September 2025. While there is strong commitment from Republican Congressional leadership to finalize the bill this year, success will depend on many factors, including on how quickly the House and Senate can address other policy priorities.
Both the Senate Democratic and the House Republican agriculture leaders have released draft Farm Bill proposals for a new five-year authorization. Both parties and chambers seem to agree on the need to address foreign ownership of agricultural land. The Senate Democratic and the House Republican proposals include provisions to the following:
Establish a minimum civil penalty if a person has failed to submit a report or has knowingly submitted a report under AFIDA with incomplete, false, or misleading information.
Direct outreach programs to increase public awareness and provide education regarding AFIDA reporting requirements.
Require the USDA to designate a chief of operations within the department to monitor compliance of AFIDA.
Mandate establishment of an online filing system for AFIDA reports.
In addition, the federal House Agriculture Committee has six incoming Republicans this year—five of them newcomers to Congress—who will want to make their mark on agricultural policy in the new legislative session. Newcomer Mark Messmer (R-IN-8) previously sponsored and passed a bill in 2022 in Indiana to cap the amount of agricultural land any foreign business entity can acquire in the state. In addition, Rep. Newhouse, who has prioritized addressing foreign ownership of agricultural land in the past two years, joins the House Agriculture Committee this year. We expect to see legislation from Rep. Newhouse in this area.
State Level
With respect to the outlook in the states, 46 states meet annually, while four states (Nevada, North Dakota, Texas, and Montana) meet only during odd-numbered years. With the additional four states convening this year, we expect to see a very active year for legislative proposals affecting beneficial ownership of real property.
New Jersey and Virginia are the only states where bills from the 2024 legislative session carry over into the 2025 session, which means that all legislative proposals that were not signed into law in 2024 in the other 48 states are considered to have died and must be re-introduced in 2025.
Already as of 29 January, at least 57 bills affecting beneficial ownership have been pre-filed or introduced in 22 different states. The majority of these bills so far are aimed at preventing foreign entities from acquiring agricultural land.
Footnotes
1 Oklahoma Senate Bill (SB) 1705.
2 Tennessee House Bill (HB) 2553.
3 Nebraska Legislature Bill (LB) 1301.
4 Utah HB 516, South Dakota HB 1231.
5 Tennessee HB 2553; Kansas SB 172; Mississippi SB 2519; Utah HB 516.
6 Louisiana HB 238; Wyoming Senate File (SF) 77.
7 Marisa N. Bocci, Kari L. Larson & Douglas Stanford, Real Estate Beneficial Ownership Regulatory Alert: Florida Restricts Real Estate Ownership by Individuals and Entities From “Countries of Concern”, K&L Gates HUB (Sept. 11, 2023).
8 Jones Eagle LLC v. Ward, 4:24-cv-00990-KGB (E.D. Ark. Dec. 9, 2024).
Dropbox Discloses Plan to Move to Nevada
Home Means Nevada
While it remains to be seen, 2025 may go down in history as the year of Dexit. A few weeks ago, I wrote that several companies that had filed proxy materials proposing to reincorporate from Delaware to Nevada. Last Friday, Dropbox, Inc. filed a preliminary information statement with the Securities and Exchange Commission disclosing stockholder approval by written consent of a reincorporation of the company from Delaware to Nevada. In explaining the move, Dropbox took aim at, among other things, the litigation environment in Delaware:
As described above, the Company is in a transformational period. The evaluation committee and our board of directors determined that it is important for the Company to be able to operate with agility during this period of business transformation and that it would be competitively advantageous for the Company to have a predictable, statute-focused legal environment during a time of rapid business change. The evaluation committee and our board of directors considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability than Delaware’s approach. Among other things, the Nevada statutes codify the fiduciary duties of directors and officers, which decreases reliance on judicial interpretation and promotes stability and certainty for corporate decision-making. The evaluation committee and our board of directors also considered the increasingly litigious environment in Delaware, which has engendered less meritorious and costly litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team and potential delay in the Company’s response to the evolving business environment. The evaluation committee and our board of directors believe that a more predictable legal environment will better permit the Company to respond to emerging business trends and conditions as needed.
In other news, Mike Isaac and Eli Tan at The New York Times wrote:
Meta [Platforms, Inc.], the owner of Facebook, Instagram and WhatsApp, is considering changing where it is incorporated from Delaware to another state, two people with knowledge of the matter said.
Perhaps not coincidentally, Andrew Houston is the Chief Executive Officer and Chairman of Dropbox and a member of the Board of Directors of Meta.
2025 Top-of-Mind Issues for Life Sciences Companies
Gathering topics and reviewing the articles for our annual Top-of-Mind publication is always one of my favorite yearly endeavors, allowing me to talk to clients, colleagues and industry experts about the overall state of the life sciences industry. The timing of this publication usually coincides with the J.P. Morgan Healthcare Conference, providing a key opportunity to vet our articles. The breath and scope of comments, concerns, predictions have been remarkable.
The excitement, fear, anxiousness—depending on the individual—is palpable. Change is coming. At the time of writing this opening, a flurry of new executive orders and rescissions of existing executive orders have impacted everything from diversity in clinical trial design to pricing. Rumors are swirling about everything from banning direct-to-consumer advertising for drugs to reducing the efficacy standard for clinical trials. This is all just in week one.
Uncertainty in the life sciences industry will be a big focus in 2025. As always, we will keep you informed with insights and trends as they unfold throughout the year.
Click here to read more.
My Business Partner Isn’t Stealing – But Their Child Is!
I have written many times over the years about business owners suing because their partner has stolen from them. Whether it is outright embezzlement, overpaying yourself dramatically, or running unwarranted personal expenses through the company – theft is theft. But what if it is not your business partner stealing from you, but your business partner’s son who is stealing from both of you?
In one recent case, two 50-50 owners hired the son of one of the owners, who was essentially left in charge. He ran the business, the finances – everything. Apparently, though, he felt it was somehow “unfair” that he was not given shares and made an owner. (The fact that he would inherit his father’s half of the business in the future was not good enough.) Every year when shareholder distributions were made, he did not get one, since he was not an owner. He was paid handsomely and received a substantial year-end bonus. But his father and uncle were “undeserving” (in his view) of dividends that “he created” with all his hard work. So he decided to level the playing field and pay himself while hiding the payments.
The details are not important – it involved a shell company he owned being paid on invoices for non-existent work. The issue was, my client viewed it as theft that needed to be prosecuted. The concept that they would not even ask for the money back unimaginable. But that is exactly what happened – his business partner – the thief’s dad – did not want to do anything about it. Not contact the police. Not sue for the money back. Nothing.
The issue I was dealing with was not between the thieving employee and his father, but between the two owners. One saw over $200,000 being stolen, and a partner who was “covering” for his thieving offspring. The other saw a son who broke his heart, and a heartless business partner who could not understand how he felt.
This issue could have broken the relationship. It almost broke the company. But the partners got advice about how disruptive such litigation would be, and about how bad such publicity would be for business. So they reached an agreement whereby the father of the employee would reimburse his partner for his half of the stolen proceeds when the company was sold in the future. Had they hired attorneys who did not understand the impact that shareholder dispute litigation could have on a business, they might have been led down the path of fighting instead of negotiating peace.
When you are having a serious issue with your business partner, make sure your attorney is able to explain the impact of business dispute litigation, understands how important it is to avoid, and is experienced enough to win.
As Predicted, Silicon Valley Bank Failure Will Test Fiduciary Duties of Officers and Directors Under California Law
Late last year, I wrote that the the Board of Directors of the Federal Deposit Insurance Corporation had voted unanimously to approve the staff’s request for authorization to file a suit against six former officers and 11 former directors of Silicon Valley Bank and its holding company, SVB Financial Group. I wasn’t surprised because over a year ago, I had pondered whether the possibility of litigation against the bank’s directors and officers. At the time, I observed that the litigation would likely involve California corporate law:
Because both First Republic Bank and Silicon Valley Bank are California corporations, California corporate law will likely be applied to suits against directors and officers. However, the situation is more complex in the case of Silicon Valley Bank because it was a subsidiary of a bank holding company incorporated in Delaware – SVB Financial Group. Therefore, the applicable law may depend upon whether the director or officer is sued in his or her capacity as a director or officer of the holding company or the bank.
On January 16, 2025, the FDIC as receiver filed its complaint in the U.S. District Court for the Northern District of California. According to the complaint the defendants held identical titles at the holding company. The complaint consists of three counts:
Gross negligence against both the director and officer defendants;
Negligence against the officer defendants; and
Breach of fiduciary duty against both the director and officer defendants.
With respect to the fiduciary duty count, the FDIC is alleging breaches of both the duty of care and the duty of loyalty. The alleged source of these duties is common law and as to the director defendants, Section 309 of the California Corporations Code.
MGM Inks $45M Class Action Settlement for 2019 and 2023 Data Breaches
MGM Resorts agreed to pay $45 million to settle over a dozen class action lawsuits concerning 2019 and 2023 data breaches. A federal court in Nevada preliminarily approved the settlement, which, according to lawyers, covers over 37 million MGM customers.
The 2019 incident occurred when millions of customers’ names, addresses, telephone numbers, and other personal information were stolen from MGM’s system and published on a cybercrime forum. In 2023, the group Scattered Spider was allegedly behind an attack on MGM and other Las Vegas resorts, where customers’ personal information, including social security numbers, was stolen. MGM reportedly sustained over $100 million in damages following the attack.
ASIC Continues Increased Scrutiny Into AFS Licensees For Hire
ASIC has accepted a court enforceable undertaking (CEU) from Private Wealth Pty Ltd (Sanlam) after it admitted that it failed to discharge its general Australian financial services (AFS) licensing obligations in connection with its authorised representatives.
ASIC’s investigation into Sanlam centred around its failure to adequately supervise the large number of corporate authorised representatives (CARs) and authorised representatives (ARs) operating under Sanlam’s AFS license. At one point, Sanlam had appointed 42 CARs and 71 ARs, including operators of online trading platforms and crypto-based investment products. In addition, some of the CARs managed large pools of investor assets and serviced large retail client bases.
ASIC stated that Sanlam’s internal frameworks were not adequately tailored to the specific risks associated with products offered through its AFS licence and were insufficient to supervise the number of CARs and ARs appointed. ASIC was particularly concerned that Sanlam’s representatives used its AFS licence to offer risky financial products to retail clients.
Under the CEU, Sanlam must appoint an independent compliance expert to review Sanlam’s systems, processes and controls in respect of the general AFS licensee obligations and to implement appropriate remedial action plans.
ASIC Action Against Lanterne
In April 2024, the Federal Court ordered that Lanterne Fund Services Pty Ltd (Lanterne) pay a $1.25 million penalty after failing to comply with the general AFS licensee obligations.
Similarly to Sanlam, Lanterne had appointed over 60 CARs and 205 ARs spanning a wide range of financial services businesses. Given the lack of any formal documented risk management systems and having only one full-time employee, ASIC Commissioner Alan Kirkland remarked that the compliance arrangements “were woefully inadequate for a business of this scale and posed significant risk to investors”.
In addition to the large penalty handed down, the Federal Court also ordered that Lanterne appoint an independent expert to review and report on Lanterne’s systems, processes and controls, and implement the expert’s recommendations.
What Should You Do?
These ASIC actions show that ASIC is focusing on AFS licensees that make available their AFS licence to product issuers by way of CARs. Accordingly, AFS licensees that appoint such authorised representatives should ensure that they review their procedures, risk management systems and resources to ensure they comply with the applicable obligations.
In addition, product issuers that rely on a CAR from an AFS licensee should ensure that their AFS licensee has appropriate procedures and sufficient resources in place as ASIC action against the licensee poses significant risks for the issuer’s business.