Court of Appeals Ruling in Nellenback Provides CVA Clarity
Court of Appeals Ruling in Nellenback Provides CVA Clarity
In 2019, New York enacted the Child Victims Act (CVA). The legislature ultimately opened a two-year window for survivors of childhood sexual abuse to file claims that were otherwise time-barred and allowed future claims to be brought until a plaintiff turned 55. Since the enactment of the CVA thousands of lawsuits have been filed across New York, alleging that employers were negligent in their hiring, retention, and supervision of alleged abusers. A recent ruling from the New York Court of Appeals in Nellenback v. Madison County offers significant guidance for defendants in CVA cases, particularly in terms of the standard for summary judgment and the requirements for proving negligent supervision claims.
Nellenback Facts
In Nellenback, the plaintiff alleged that he had been sexually abused by his caseworker, Karl Hoch, at every visit while he was in the custody of Madison County’s Department of Social Services (DSS), between 1993 and 1996. The abuse occurred in a County-owned vehicle and at various locations off County-owned premises. Plaintiff further alleged that Hoch threatened him and because of the threats, he did not tell anyone about the abuse. The plaintiff filed suit against the county in 2019, accusing it of negligent hiring, training, supervision, and direction of the caseworker. The county moved for summary judgment, arguing that the plaintiff had failed to present any proof that the county had actual or constructive notice of the caseworker’s propensity for abuse.
During depositions, the county’s DSS supervisor and commissioner testified that prior to 1996 there was no evidence to suggest that the caseworker had any abusive tendencies, and no complaints had been made regarding the caseworker’s behavior. In fact, the caseworker had been recognized with the “Madison County Employer of the Year” award in 1990. However, the plaintiff argued that deficiencies in the caseworker’s oversight and training raised issues of fact that warranted a trial. To support his argument, the plaintiff pointed to:
the supervisor’s admission that she did not review caseworker notes as regularly as she should have
expert testimony that suggested lax recruitment and hiring practices led to the caseworker having “unfettered access” to children
the department had no handbook for how caseworkers should perform their duties
Trial and Appellate Decisions
The trial court granted summary judgment to the county, finding that it had made a prima facie case that it lacked both actual knowledge and constructive notice of the caseworker’s abuse, and that no further investigation or supervision would have led to the discovery of the abuse. The Appellate Division affirmed, with two justices dissenting, concluding that the failure to more regularly review caseworker notes did not create a triable issue of fact regarding the county’s knowledge of the abuse. The plaintiff then appealed to the Court of Appeals.
Court of Appeals Decision
In a 6-1 decision, the Court of Appeals ruled in favor of the county, holding that the plaintiff failed to raise a triable issue of fact regarding constructive notice. The Court acknowledged that there was no dispute that the county had no actual knowledge of the abuse. It then focused on whether the county had constructive notice—i.e., whether it should have known about the alleged abuse. The Court concluded that the plaintiff’s argument that increased review of caseworker notes would have revealed the abuse was speculative. There was no evidence suggesting that the county had any reason to be aware of the caseworker’s misconduct or propensity to abuse. Without “evidence showing any prior conduct, warnings or signs of risks” related to an alleged abuser’s propensities for sexual abuse, Nellenback found proof of notice was not satisfied.As the majority stated:
“[The Court of Appeals has] never held that a party can prove negligent supervision by stating the employer ‘should have known’ an employee was likely to engage in dangerous conduct without evidence showing any prior conduct, warnings, or signs of risk to that effect.”
Key Takeaways Post-Nellenback
Constructive Notice in CVA Cases
The Court affirmed that the standard for proving constructive notice in CVA cases is the same as in any other cause of action. While the passage of time in many CVA cases creates evidentiary challenges unique to this context, those challenges do not lower the burden of proof. Constructive notice cannot be established without “evidence showing any prior conduct, warnings, or signs of risks” related to the alleged abuser’s propensity for sexual abuse. Courts will not infer notice simply because records may have been lost or destroyed over time.
Speculative Assertions Are Insufficient to Establish Notice
The Court emphasized that broad, speculative allegations are not enough to establish constructive notice. In Nellenback, the plaintiff claimed that a more thorough review of the alleged abuser’s case notes would have alerted the Defendant to the risk of abuse. The Court rejected this argument, holding that such assertions must be supported by specific facts. A plaintiff cannot rely on bare speculation; there must be concrete evidence in the record indicating an employee’s propensity to commit sexual abuse.
The Standard of Care Relates to the Time that the Abuse was Considered
The Court of Appeals found that it must evaluate the reasonableness of the defendant’s supervision and training by the then-prevailing standards, not today’s standard.
Post-Nellenback Open Questions
In Nellenback, the Court held that without evidence in the record establishing a defendant’s opportunity or reason to know of the abuse, it is speculative for a plaintiff to argue that heightened or extraordinary vigilance by the employer would have resulted in notice. This holding raises an important unresolved question: Does a plaintiff’s assertion about the nature and frequency of alleged abuse, on its own, still constitute a factual basis for a triable issue of fact related to constructive notice?
Spcifically, in light of Nellenback’s requirement that genuine evidence of notice must exist in the record, can plaintiffs continue to rely solely on their own uncorroborated allegations regarding the frequency of abuse to survive summary judgement and create a triable issue of fact? If, as the Court concluded in Nellenback, allegations of lax supervision and infrequent review of caseworker notes do not suffice to establish notice, it remains uncertain whether courts will find that frequency of abuse alone can meet the threshold for constructive notice.
Conclusion
Nellenback is a key decision for entities defending CVA claims. By reiterating the high standard for proving constructive notice and making clear that speculative claims of negligence are not sufficient to defeat summary judgment, the Court has confirmed that plaintiffs should not survive summary judgment in these cases without more concrete evidence of prior misconduct or warning signs. That being said, the Court of Appeals did not address the line of Appellate Division Second Department cases holding that movants for summary judgment must eliminate all triable issues pertaining to notice for defendants to meet their initial burden on a motion for summary judgment. Watch this site for an update on this issue and a motion to renew we have currently pending in the Second Department based in large part upon Nellenback
SEC Enforcement Leadership Discusses New Priorities and Expectations
Yesterday, as part of the annual “SEC Speaks” program, the leadership of the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement publicly discussed the enforcement priorities under new Chairman Paul S. Atkins. A panel of SEC enforcement personnel, including Acting Director of Enforcement Samuel Waldon and others, shed light on the current focus of enforcement activity under the SEC’s new leadership and what the Division of Enforcement expects from companies and individuals involved in SEC investigations.
Focus on Traditional Enforcement Areas and Investor Harm
A theme among the panelists was that, despite some media reports to the contrary, the Division of Enforcement will continue its work under new leadership to enforce the federal securities laws and protect investors. Specifically, the panel explained that the SEC will continue to focus on traditional areas of enforcement, including (1) insider trading, (2) accounting and disclosure fraud, (3) fraudulent securities offerings, and (4) breaches of fiduciary duty by investment advisers.
Additionally, within those broad categories, the panel noted that enforcement staff will focus their resources on matters involving harm to investors, especially retail investors. The panel also emphasized the importance of holding individuals – not just companies – accountable for violations.
Specialized Enforcement Units
The panel discussed the current structure of the Division of Enforcement’s specialized units, which conduct investigations in particular subject matter areas. Currently, those units include (1) the Asset Management Unit, which focuses on investment advisers and investment companies; (2) the Cyber and Emerging Technologies Unit, which focuses on violations around cyber issues and new technologies, including artificial intelligence; (3) the Complex Financial Instruments Unit, which investigates matters involving complex financial products and sophisticated market participants; (4) the Market Abuse Unit, which focuses on insider trading and market manipulation; (5) the Public Finance Abuse Unit, which investigates potential fraud around municipal securities; and (6) the Office of the Whistleblower, which processes whistleblower complaints and claims for award after the SEC recovers money from matters assisted by whistleblowers.
The panel indicated that those units will continue with investigations and enforcement actions in their areas of expertise. Notably, consistent with the U.S. Department of Justice’s recent deemphasis on the Foreign Corrupt Practices Act (FCPA), the panel did not mention the FCPA Unit, whose leader recently retired.
Importance of Self-Reporting, Cooperation and Remediation
The panel also emphasized the importance of (1) self-reporting violations of the federal securities laws to the SEC, (2) cooperation with SEC staff during inquiries and investigations, and (3) remediation by companies and individuals. The panel explained that, while taking these actions would not guarantee a declination, they may lead to more favorable resolutions of enforcement actions or, in some cases, no enforcement action at all.
Increased Receptiveness to Wells Meetings with the Director
Toward the end of an investigation, SEC enforcement staff often issue a “Wells Notice,” which is a formal notice that the staff intends to recommend an enforcement action to the Commissioners of the SEC. Upon receiving a Wells Notice, counsel for the recipient often will make a “Wells Submission” to the staff, explaining why counsel believes an enforcement action is not warranted. Additionally, counsel often request a “Wells Meeting” with leadership of the Division of Enforcement.
In recent years, requests for Wells Meetings were sometimes granted and sometimes not; and, when granted, the meetings might involve the Director of Enforcement or, alternatively, a supervisor below the Director. The panel, however, indicated that the staff typically would, if requested, grant a Wells Meeting with the Director of Enforcement, and that the Director and staff would be open to a constructive dialogue regarding the merits of each matter.
Takeaways
The panel provided several timely reminders for issuers, SEC registrants, and others who conduct business in the securities space:
First, the SEC’s Division of Enforcement remains active and committed to its traditional enforcement areas. In particular, the SEC will continue to police, among other things, material misrepresentations by issuers and breaches of duty by registered investment advisers (RIAs). As to the latter, the panel specifically noted that many enforcement referrals involving RIAs originate with mandatory, periodic examinations by SEC staff. So, RIAs should ensure that their compliance functions are effective before an examination occurs.
Second, self-reporting, cooperation, and remediation are of critical importance. When a company becomes aware of a possible violation – whether from a hotline call, a whistleblower complaint, or otherwise – the company should investigate the matter, assess the facts, and determine whether self-reporting or other remedial action is appropriate. Proactively addressing matters may lead to more favorable resolutions with the SEC or persuade the staff that no enforcement action is needed because the company already addressed and remediated the issue.
Third, if a company or individual becomes involved in an SEC investigation, current leadership of the Division of Enforcement seems open to a constructive, good faith dialogue before an enforcement action is filed. That dialogue should benefit all parties. Additionally, for a putative defendant, it is important to retain counsel knowledgeable about how the SEC staff assesses cases at the Wells stage before making a final charging recommendation.
Department of Energy Announces Initiative to Review the Agency’s Federal Awards
On May 15, 2025, the Secretary of the Department of Energy (DOE), Chris Wright, issued a memo entitled “Secretarial Policy on Ensuring Responsibility for Financial Assistance” in which Secretary Wright announced DOE’s intent to “conduct focused reviews of awards and other forms of financial assistance” in furtherance of its duty to identify and avoid “fraud, waste and abuse.”
DOE states that it will utilize its audit rights to review selected awards to evaluate whether “the individual projects are, among other things, financially sound and economically viable, aligned with national and economic security interests, and consistent with Federal law and this Administration’s policies and priorities and program goals and priorities (Standards).” DOE further indicated that “in its discretion” it may take action if it concludes that an individual project does not meet Standards. DOE has indicated that it has already started evaluating 179 awards that total over $15 billion in financial assistance, and there could certainly be more awards identified for evaluation in the future.
While it remains to be seen how this announced initiative plays out in practice, the initiative has the potential to open several new litigation fronts. There is limited case law addressing the government’s right to terminate a federal grant under 2 C.F.R. § 200.340, and recent cases suggest that its rights are narrower than the government’s rights to terminate contracts for the convenience of the government, and even more limited judicial precedent addressing potential monetary remedies for wrongful termination of federal awards. Additionally, the scope of the government’s audit rights and what constitutes timely cooperation is not completely settled. Finally, the current administration has stated its intent to use the False Claims Act to enforce a number of policies and DOE’s assertion that it is seeking to identify fraud, waste and abuse suggests it could aggressively pursue civil enforcement actions.
Given that federal awardees could face increased audit scrutiny, current DOE recipients and subrecipients should consider taking action now to prepare, including:
ensuring that their internal controls required under 2 C.F.R. § 200.303 are in place and functioning correctly;
instituting procedures for responding to requests for information, including procedures for reviewing requests and responses; and
ensuring that they are following the record retention requirements called for in 2 C.F.R. § 300.334.
To navigate this evolving landscape, DOE awardees and subrecipients should proactively assess their compliance posture.
With New White Collar Enforcement Priorities Memo, DOJ Seeks to Provide More Pathways to Declinations and Non-Prosecution Agreements: Part Two
In Part One of this series, we discussed the May 12, 2025, U.S. Department of Justice Criminal Division’s new guidance memo on white-collar enforcement priorities in the Trump 2.0 Administration entitled “Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime.”
In this new DOJ memo, and in an accompanying speech by Matthew R. Galeotti, the Trump Administration’s appointed Head of the Criminal Division, the DOJ announced its priorities and areas of focus for white collar enforcement.
In Part Two of this series, we address the DOJ’s changes made the same day to its Corporate Enforcement and Voluntary Disclosure Policy (“the CEP”), contained within the Justice Manual. The revised CEP provides additional benefits to companies that self-disclose and cooperate. In his May 12th speech, Galeotti asserted that prior versions of the CEP were “unwieldy and hard to navigate” and noted that the DOJ seeks to be “as transparent as [it] can to companies and their counsel about what to expect under [DOJ’s] policies.” As part of this effort to increase transparency, the revised CEP includes a flowchart of potential outcomes should a company decide to make a voluntary self-disclosure as well as definitions of key terms such as “Voluntary Self-Disclosure,” “Full Cooperation,” “Timely and Appropriate Remediation” and “Providing Cooperation Credit.”
1. Increased Opportunities for Companies to Receive Declinations of Prosecution
The revised CEP provides that, in the absence of aggravating circumstances, a company will receive a declination if they voluntarily self-disclose misconduct to the DOJ, fully cooperate with the DOJ’s investigation, and timely and appropriately remediate. This is a change from the prior version of the CEP which provided only a presumption of a declination where a company takes these steps. And now, even if there are aggravating circumstances related to the nature and seriousness of the offense, prosecutors retain discretion to recommend a declination by weighing the severity of those circumstances and the company’s cooperation and remediation. Note that companies receiving declinations will be required to pay all disgorgement/forfeiture as well as restitution/victim compensation payments resulting from the misconduct at issue. The method for calculating such payments is not set forth in the CEP. Additionally, all declinations under the CEP will be made public.
2. “Near Miss” Voluntary Self-Disclosures or Aggravating Factors Could Also Warrant a Non-Prosecution Agreement (NPA)
In the most significant policy change, the revised CEP includes a new “near miss” category providing for a Non-Prosecution Agreement (“NPA”) where a company fully cooperates and timely and appropriately remediates but is ineligible for a declination because the company did not timely disclose, the company had a preexisting obligation to disclose or the DOJ already knew about the conduct when the company disclosed. A company can also qualify for a NPA if it was ineligible for a declination on account of aggravating factors, but there were not particularly egregious or multiple aggravating factors. In these circumstances, the DOJ will agree to a NPA, allow a term length of fewer than three years, not require an independent compliance monitor, and provide a 75 percent reduction off the low end of the U.S. Sentencing Guidelines.
3. Additional Opportunities for Discretion Remain in Determining An Appropriate Resolution
Even if companies are not eligible for a declination or a NPA, prosecutors still retain discretion to determine an appropriate resolution related to form, term length, compliance obligations, and monetary penalties, with a company’s recidivism factoring into the appropriate resolution.
Takeaways
The revised CEP, as written, is more business-friendly and seeks to provide more predictable outcomes to federal criminal corporate investigations. The changes move the needle away from requiring a guilty plea as part of a resolution and provide easier pathways to a corporate declination or a NPA.
These changes to the CEP intend to provide more certainty for companies if they self-disclose misconduct to the DOJ, fully cooperate with an investigation, and remediate the misconduct. Although these changes appear to offer more certainty to companies considering a voluntary disclosure, it remains to be seen how this new CEP will be applied going forward. Although terms such as “Full Cooperation” and “Timely and Appropriate Remediation” are defined, there will still be potential for disagreement as to whether a company has met those definitions, including providing all non-privileged facts relevant to the conduct at issue and timely and voluntarily preserving, collecting and disclosing relevant documents and information.
Finally, and notably, the CEP does not modify the controversial and short timelines set forth in the Department-wide Merger & Acquisition Policy (M&A) Policy outlined in Justice Manual 9-28.600 and 9-28.900, which applies to misconduct uncovered in the context of M&A pre- or post-acquisition due diligence.
We will be monitoring additional developments in this area as the Administration continues to implement policy changes.
What Every Multinational Company Should Know About … Customs Enforcement and False Claims Act Risks (Part III)
Our previous article on What Every Multinational Company Should Know About … Customs Enforcement and False Claims Act Risks (Part I) outlined how import-related risks have substantially increased given the combination of the new high-tariff environment, the heightened ability of Customs (and the general public) to data mine import-related data, and the Department of Justice’s (DOJ) stated focus on using the False Claims Act (FCA). In Part II, we laid out how to prepare for the most common False Claims Act (FCA) risks arising from submitting false Form 7501 entry summary information. We now complete the series on “Customs Enforcement and False Claims Act Risks” with Part III, which focuses on preparing for the most common FCA risks arising from improper management of import operations.
Risks Arising from Knowing Failures to Correct Errors
If importers discover a systematic error, the position of Customs is clear: The importer is under an obligation not only to correct the error for future entries but also to use measures like post-summary corrections to update prior entries. This is demonstrated by a DOJ settlement in which an importer paid over $22 million to settle allegations that it “made no effort to right its wrongs even after acknowledging internally that it had underpaid millions of dollars of duties owed.” This type of knowing error is exactly the type of conduct that can expose importers to reverse FCA liability.
Customs Compliance Response
Apply Current Knowledge to Unliquidated Entries. Because liquidation takes (approximately) 314 days after entry, Customs grants a 300-day post-summary corrections period to correct most entry-related information. If you discover an error, Customs requires not only that the error be corrected going forward but also that any non-liquidated entries be corrected as well.
Consider Making a Voluntary Prior Disclosure. If an importer initiates a voluntary disclosure before Customs begins its own investigation, then Customs may not pursue penalties, assuming the voluntary disclosure is full and accurate, and the importer pays back any tariffs and interest due. This is an especially important advantage for the new Trump tariffs, since many of them direct that Customs should impose maximum penalties for failure to pay all of the new tariffs, without taking into account traditional Customs mitigating factors. Filing a voluntary self-disclosure before Customs initiates an administrative investigation avoids any Customs administrative penalties (provided the importer follows through with a thorough and accurate disclosure). While a self-disclosure is not a free pass to avoid FCA liability, it can reduce the multiplier and penalties assessed in settlement negotiations.
Risks from Failing to Follow Form 28 and 29 Corrections for Prior Entries
Customs commonly issues Form 28 Requests for Information and Form 29 Notices of Action that target a handful of entries (or even a single entry) where it has questions about the accuracy of submitted entry information. If this results in Customs issuing a correction, then the importer is required to correct not only the entry but also any other entries covered by the reasoning. Failure to do so was one of the key elements of the $22.8 million settlement noted above, where DOJ emphasized that although the importer had received Form 29 Notices of Action, it took two years to correct its ongoing entries (and never corrected prior entries).
Customs Compliance Response
Set Up ACE Notifications. Importers should set themselves up with ACE access so that they directly are receiving copies of Form 28 Requests for Information, Form 29 Notices of Action, and other communications from Customs rather than relying on customs brokers to provide such information. This will ensure that the importer is aware of all potential corrections to its Form 7501 Entry Summary information and can timely respond to any Customs inquiries.
Follow Through on Implementing Conforming Changes. When Customs issues a correction to a single entry or set of entries, the importer is required to identify all analogous entries and correct them for any unliquidated entries, because they are not final. Customs also has the authority to open an inquiry into liquidated entries under Section 1592 if the importer does not file a voluntary disclosure.
Risks Arising from Failure to Notice Red Flags from Suppliers
Under Customs regulations, the importer of record has the sole responsibility to pay all tariffs due. There is, however, no such restriction under the FCA, which means that multinationals that receive imported goods from suppliers can still be liable for FCA claims. For example, an importer of garments from China paid $1 million to settle allegations that it “repeatedly ignored warning signs that its business partner, which imported garments from China, was engaged in a scheme to underpay customs duties owed on the imported garments it sold to” the importer. Thus, even though the customer was not the importer of record, it settled on the basis it had accepted “responsibility for its failure to take action in response to multiple warning signs that [the importers of record] were undervaluing their imported goods and therefore paying less in import duties than they should have been paying.”
Moreover, in 2016, both the importer and manufacturer of clothing goods agreed to pay $13.375 million to settle claims that they conspired to underpay customs duties using invoices that misrepresented the value of the goods at issue. That same year, a U.S. defense contractor agreed to pay $6 million to settle allegations that it used Chinese-imported ultrafine magnesium in flares manufactured and sold to the U.S. Army, in violation of its contract with the military. Though it was the importer who allegedly misrepresented the country of origin, DOJ alleged that the contractor conspired with the importer to sell the nonconforming goods to the government.
Customs Compliance Response
Monitor Business Partners for Red Flags. In a high-tariff environment, there are more incentives than ever for importers to take steps to try to minimize their tariff liabilities. Educate personnel in Procurement, Accounting, and other relevant areas of the company to be alert to potential underpayments by suppliers, which also is useful for situations where business partners might provide incorrect information where your company acts as the importer of record. Simply put, know your business partners well.
Risks Arising From Avoiding Customs Penalties
In general, any situation in which an importer takes steps to avoid Customs penalties can lead to a potential FCA penalty. Examples include failing to mark the country of origin (10% Customs penalty), providing false or misleading information on entry documents (as we covered in Part II), failing to maintain required records, or noncompliance with forced labor regulations. By way of example, the Third Circuit found that failure to notify Customs of marking violations can support an FCA allegation. 839 F.3d 242 (3rd Cir. 2016), cert. denied, 138 S.Ct. 107 (2017). Illustrating this risk, an importer paid $765,000 to settle allegations that it had failed to mark imported pharmaceutical products with the appropriate COO and thus violated the FCA by “knowingly avoiding the marking duties owed to the United States for those imports.”
Another example includes a $1.9 million DOJ settlement in which an importer agreed to settle allegations that it falsely labeled tools it imported as “made in Germany” when the tools were, in fact, made in China. According to DOJ, if the products had been described as Chinese products, the importer would have been required to pay a 25% tariff on the goods. Thus, by allegedly falsely describing the tools as “German,” the importer avoided paying these tariffs.
Customs Compliance Response
Confirm Consistent Marking. Ensure the COO for marking decisions is made in accordance with the correct legal regime, by following the rules of free trade agreements like the USMCA (even in situations where special tariffs may require the use of substantial transformation principles for determining the amount of other tariffs due). Ensure marking is made either directly on the product or, where allowed, on a relevant container or other acceptable fashion to ensure it remains intact for the ultimate purchaser.
Maintain Required Records. Customs regulations require that, subject to certain exceptions, records must be kept for five years from the date of the activity which required creation of the record. Importers should ensure that they are complying with Customs recordkeeping requirements and that their employees are familiar with recordkeeping requirements. The FCA also requires that documents supporting claims — and the claims documentation itself — be true and accurate.
Conduct a Supply Chain Integrity Check and Continuous Monitoring. Complying with labor and transparency requirements is integral to tariff management. Importers should know every step in their supply chains and conduct integrity checks or audits of their suppliers. This can help ensure your company stays informed of new developments to comply with laws — especially in the areas of forced labor, human trafficking, environmental regulations, and modern slavery — and thus avoid potential FCA liability pertaining to these types of regulations. Importers also should implement systems to regularly monitor their suppliers’ performance and compliance, and continuously evaluate their supply chain for new potential risks that might arise. For further guidance on how to best monitor your supply chain, check out our white paper on Managing Supply Chain Integrity Risks.
Between the new Trump tariffs, increased Customs attention to tariff underpayments, newly announced DOJ emphasis on tariff payments, and the greater visibility of Customs into importing data, the potential for Customs FCA actions is greater than ever. As demonstrated throughout this three-part series, DOJ has a rich history of using a wide variety of issues to support FCA actions. DOJ’s announced attention to concentrate on Customs compliance and the full payment of tariffs means that future customs-related FCA cases will build on a foundation of existing cases. These previous cases have already given DOJ and whistleblowers the chance to test out a multitude of the factual and legal theories discussed throughout this series, with both DOJ and relators likely to be incentivized by the potential for significantly higher recoveries and the apparent increased enforcement flexibility resulting from the new tariff regime.
Thus, under the Trump administration’s trade agenda, multinationals should expect heightened scrutiny of imports and DOJ’s increased use of the FCA to bring customs-related actions. It is therefore more critical than ever for importers to assess and revamp their Customs compliance programs to address these new risks. Proactively addressing compliance issues, strengthening internal controls, and documenting decision-making processes can reduce exposure and better position multinationals to respond effectively if Customs scrutiny arises. In an environment with increased potential for enforcement and where corresponding penalties are steep, early preparation is both a risk management strategy and a competitive advantage.
DOJ’s Smallest Largest Priority: Pangolins
Federal wildlife trafficking and animal cruelty enforcement is alive and well even as the Trump administration re-allocates U.S. Department of Justice (DOJ) resources. At first blush, enforcing wildlife trafficking crimes may not seem like a priority for the Administration. However, recent publicity, driven in particular by a new streaming documentary featuring the pangolin, and the potential for wildlife trafficking crimes to intersect with the Administration’s publicly-stated Border enforcement priorities will result in an increased focus on Lacey Act prosecutions.
Legal Framework
The primary statute involved in wildlife crime enforcement is the Lacey Act, though other statutes have relevant criminal provisions. The Lacey Act makes it unlawful to import, export, transport, sell, receive, acquire, certain exotic animals and plants. It applies not just to live plants and animals but also to deceased. Violators can face both civil and criminal penalties.
The Administration’s Current Wildlife Crimes Policies
Multiple agencies within the Trump administration continue to tout their commitment to enforcing wildlife crimes. Immigration and Customs Enforcement (ICE) notes on its website that it “remains steadfast in its commitment to combat wildlife trafficking and the illegal trade of natural resources.” The Federal Bureau of Investigation (FBI) states that it investigates crimes related to a variety of environmental statutes, including Lacey Act Enforcement. So far in 2025, DOJ has brought criminal charges and obtained guilty pleas in crimes including trafficking sperm whale teeth and bones, importing spider monkeys, illegally purchasing snakes, and trafficking bird mounts.
Enforcement Trends and Notable Cases
While wildlife trafficking crimes can be standalone charges, they are often brought as part of more complex cases, including cases more closely aligned with the Trump administration’s publicly stated policy goals involving the Border.
Most notably, wildlife trafficking charges often accompany investigations and cases against transnational criminal smuggling organizations. In 2020, during the first Trump administration, DOJ indicted 12 defendants and two businesses for crimes related to, among other things, conspiracy to circumvent wildlife trafficking laws. The alleged conduct included laundering money gained from illegal wildlife trafficking. This investigation, named Operation Apex, resulted in federal agents seizing more than $3.9 million in cash, $4 million in precious metals and gemstones, multiple firearms, drugs, and tons of animal products, including shark fins and fish bladders. Officials lauded the investigation not just for its effect on protecting wildlife but also for its impact on transnational criminal organizations. In the era where transnational criminal organizations are the target of the current Trump administration, wildlife trafficking investigation and enforcement may be an option for targeting individuals who are members of these organizations.
Other criminal charges like conspiracy, obstruction, perjury, drug, and firearm crimes are routinely brought alongside Lacey Act cases or independently in cases that may appear to look like wildlife trafficking cases. For example, one woman pled guilty to two counts of perjury and one count of obstruction following an investigation into her treatment of a pet chimpanzee. Where there is an investigation into conduct that may implicate the Lacey Act, parties should also be aware of the potential for these other types of criminal statutes to be in play.
Public sentiment may also fuel increased prioritization of enforcing wildlife trafficking and related crimes. Pangolins, the most trafficked mammal in the world, were just the subject of a popular documentary. And this documentary is not alone in shining a light on wildlife trafficking. Cultural phenomena like Tiger King and Chimp Crazy have similarly captured the public’s attention and led to an outcry regarding the treatment of animals.
The Administration also continues to enforce not just wildlife trafficking crimes but related crimes, including animal cruelty and the distribution of videos depicting violent and obscene acts against animals. Statements from top officials like Attorney General Pam Bondi and FBI Director Kash Patel on a recent animal cruelty case may signal the Administration’s focus on animal rights as a priority.
Individuals and companies should be aware of the implications associated with importing, exporting, and transporting materials that could implicate the Lacey Act or other wildlife crime enforcement statutes.
DOJ Civil Rights Fraud Initiative Signals Expansive Enforcement Threat for Employers Receiving Federal Funds
On May 19, 2025, the U.S. Department of Justice (DOJ) launched its Civil Rights Fraud Initiative. This is a coordinated enforcement effort aimed at using the False Claims Act (FCA) to investigate and, where appropriate, litigate civil rights violations committed by recipients of federal funds. This effort, announced through both a press release and a memorandum from the deputy attorney general, reflects a significant escalation in the federal government’s posture toward civil rights compliance and underscores expanding legal exposure for employers, contractors, and institutions operating under federal contracts or grants.
Quick Hits
The DOJ’s new Civil Rights Fraud Initiative treats violations of civil rights laws by federal fund recipients including contractors and grantees as potential fraud under the False Claims Act, exposing employers to treble damages and whistleblower lawsuits.
Executive Order (EO) 14173 requires contractors and grantees to certify compliance with antidiscrimination laws; the DOJ now warns that diversity, equity, and inclusion (DEI) policies granting benefits or burdens based on race or sex may render such certifications false and legally actionable.
The DOJ is explicitly inviting whistleblowers and third parties to report discriminatory practices and bring qui tam actions under the FCA, significantly expanding the enforcement risk for employers with federal funding.
Pursuing Civil Rights Violations as Fraud
The DOJ’s memorandum makes clear that civil rights noncompliance may now be treated as a form of fraud. Specifically, the initiative is aimed at those who “defraud the United States by taking its money while knowingly violating civil rights laws.” The DOJ identifies the False Claims Act, 31 U.S.C. § 3729 et seq., as its “primary weapon against government fraud, waste, and abuse,” noting that FCA liability includes treble damages and significant penalties.
Federal funding recipients, including contractors and universities, may be liable under the FCA when they certify compliance with laws such as Title IV, Title VI, or Title IX of the Civil Rights Act of 1964, while “knowingly engaging in racist preferences, mandates, policies, programs, and activities—including through diversity, equity, and inclusion (DEI) programs that assign benefits or burdens on race, ethnicity, or national origin.”
The DOJ draws a direct line from civil rights violations to material falsehoods in government certifications. For example, the memo warns that a university could face FCA liability if it “encourages antisemitism, refuses to protect Jewish students, allows men to intrude into women’s bathrooms, or requires women to compete against men in athletic competitions.”
EO 14173 Certification Adds to FCA Exposure
The memorandum explicitly cites EO 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, which President Trump issued on January 21, 2025. The order requires that recipients of federal funds certify that they do not maintain illegal discriminatory practices and affirms that such certifications are material to receiving payment.
The DOJ reiterates the EO’s rationale that “racist policies ‘violate the text and spirit of our long-standing Federal civil-rights laws.’” The memorandum goes further, warning that “many corporations and schools continue to adhere to racist policies and preferences—albeit camouflaged with cosmetic changes that disguise their discriminatory nature.” This language signals potential scrutiny not only of the substance of policies but also of their perceived intent and effect.
The combination of EO 14173’s certification requirement and the DOJ’s enforcement authority under the FCA creates a potent legal framework through which DEI-related practices may be investigated and, if deemed unlawful, penalized as fraud.
Whistleblower Litigation Encouraged
Perhaps most notable for employers is the DOJ’s clear encouragement of private enforcement. The memo cites the U.S. Congress’s delegation of authority to private parties under 31 U.S.C. § 3730 to bring qui tam suits, and the DOJ “strongly encourages these lawsuits.” In addition, the DOJ encourages anyone with knowledge of potential civil rights violations to report the information to federal authorities. This signals that the government views whistleblower litigation as an integral enforcement mechanism under this initiative.
Coordinated Federal Effort
The Civil Rights Fraud Initiative will be co-led by DOJ’s Civil Fraud Section and Civil Rights Division and supported by all 93 U.S. attorney’s offices. The initiative also includes coordination with the Criminal Division and federal agencies such as the U.S. Department of Education, the U.S. Department of Labor, and U.S. Department of Health and Human Services. The memo outlines plans for regular inter-agency meetings and joint enforcement actions, as well as partnerships with state attorneys general and local law enforcement.
Implications for Employers
This initiative creates a new legal landscape for any organization receiving federal funds. What were once internal compliance matters or employment policy debates may now create exposure to allegations of fraud. The DOJ’s expansive framing, including its reference to “camouflaged” DEI programs and undefined “racist preferences,” raises significant uncertainty for employers attempting to maintain legally compliant DEI initiatives. Certifications made under EO 14173 may create risk of civil or criminal FCA actions by the government or a whistleblower.
The Trump Administration Takes Aim at Regulatory Overcriminalization
On May 9, 2025, President Donald Trump issued an Executive Order entitled “Fighting Overcriminalization in Federal Regulations.” The Order takes aim at what the President calls “regulatory crimes,” with the intended purpose of easing the “regulatory burden on everyday Americans” and to “ensure no American is transformed into a criminal for violating a regulation they have no reason to know exists.” The Order marks another step taken by the Trump Administration to deregulate various industries and sectors of the economy.
Over the years, federal agencies have promulgated a vast number of regulations, many of which carry civil monetary penalties or even criminal punishments. While the exact number is unknown, despite concerted efforts to find out, reasonable estimates of the total number of regulations that carry criminal penalties are upwards of 300,000, with the Federal Register now spanning over 175,000 pages. The result is it is impossible for an ordinary person to apprise themselves of all of them.1 To that end, the EO recognizes this problem and seeks to clear the muddy waters of federal regulations as follow:
Prosecution of Criminal Regulatory Offenses are Disfavored.The Executive Order makes it the official policy of the United States that criminal enforcement of “criminal regulatory offenses” in general is “disfavored.” The Order states that if criminal regulatory offenses are to still be prosecuted, it is “most appropriate” for individuals and companies “who know or can be presumed to know what is prohibited or required by the regulation and willingly choose not to comply.”
Prosecution of Strict Liability Regulatory Offenses Specifically are Disfavored.In addition to disfavoring prosecuting criminal regulatory offenses, the Executive Order specifically addressed regulatory offenses that attach strict liability. Strict liability exists when a defendant is liable for committing an action, regardless of intent or mental state when committing the action. Most federal crimes, and in particular white-collar crimes, require the government to prove mental culpability (called mens rea), whether it involves acting willfully, knowingly, purposefully, recklessly, or with negligence. Strict liability offenses require none of the above. As such, even if a person is either unaware of a federal regulation or that they are in violation of it, they can be charged with a crime for violating a regulation they did not know, and had no reason to know, existed. The order calls for prosecutors to resolve strict liability regulatory offenses through civil penalties, not criminal prosecution.
Better Transparency. Within one year of the date of the Executive Order, each executive agency must produce a list of regulatory criminal offenses available to the public on the agencies’ webpages. For each offense on the list, the agency must include any potential criminal penalties for violations and the applicable mens rea standard. Any criminal enforcement of regulatory offenses that are not listed is “strongly discouraged.” Moving forward, any proposed regulations that might carry criminal penalties “should explicitly describe the conduct subject to criminal enforcement, the authorizing statutes, and the mens rea standard applicable to those offenses.”
Default Mens Rea Requirement. The Executive Order directs the head of each executive agency to coordinate with the Attorney General to determine whether there is authority to adopt a “default” mens rea standard for criminal regulatory offenses that do not state a mens rea standard. In addition, the heads of agencies shall examine whether existing mens rea standards are authorized by statute and they shall present a plan for changing the current standards to a generally applicable standard. This marks an effort by the Trump Administration to consolidate varying levels of scienter requirements into a more uniform standard. 2
Clear Guidance for Criminal Referrals to the DOJ. The Executive Order requires each department or agency to publish guidance in the Federal Register on its process for deciding whether to make a criminal referral to the Department of Justice for violations of federal regulations. The guidance should include factors such as: (a) the harm or risk of harm, pecuniary or otherwise, caused by the alleged offense; (b) the potential gain to the putative defendant that could result from the offense; (c) whether the putative defendant held specialized knowledge, expertise, or was licensed in an industry related to the rule or regulation at issue; and (d) evidence, if any is available, of the putative defendant’s general awareness of the unlawfulness of his conduct as well as his knowledge or lack thereof of the regulation at issue.
Exclusions. The Executive Order explicitly excludes immigration enforcement and national security functions from its provisions. This is consistent with previous Executive Orders by President Trump regarding deregulation.3
Key Takeaways
Watch for Additional Agency-Level Information. As discussed above, within a year, executive agencies will be required to create a list of their regulations that carry criminal penalties. These lists will serve as valuable resources for those seeking to navigate affected industries.
Impact on Highly Regulated Industries. Those who operate in highly regulated industries are often presumed to have knowledge of the statutes and regulations that govern that industry. Because the Executive Order maintains that prosecution of criminal regulatory offenses is most appropriate in cases where the defendants know or are presumed to know the law, it will likely have a more limited impact on those operating in highly regulated industries.
Impact on Existing Doctrines. The executive order may weaken enforcement of regulations under the Park Doctrine (also called the “Responsible Corporate Officer Doctrine”). The Park Doctrine allows for criminal liability to be imposed on “responsible corporate officers” for violations of law and regulations committed by corporations. Because the Doctrine allows for liability even without proof of the specific officer knowing of the violation, these violations are effectively treated as strict liability offenses. The theory is that such executives were in positions to prevent the public from being harmed and therefore their failure to do so is sufficient.
More Opportunities for Settlement/Alternative Resolution. There may now be more opportunities for those facing both civil and criminal liability for regulatory offenses to avoid criminal prosecution through negotiating non-prosecution agreements, deferred prosecution agreements, and/or settling the matter civilly. Agencies might be more likely to seek deferred prosecution of offenses now that criminal prosecution of regulatory crimes is disfavored, which offers more leverage to those in harm’s way.
However, be aware of other ways that some executive agencies may use to punish those who they have targeted. For example, the Office of the Inspector General may exclude practitioners from federal healthcare programs for a litany of reasons, and while exclusion is severe, it is not considered criminal punishment for the purpose of the Order.
1 For an example of how this affects an ordinary person, see Mike Fox, The Vindictive Prosecution of a Champion Runner, Cato Institute (Mar. 17, 2025), https://www.cato.org/commentary/vindictive-prosecution-champion-runner/. See also Jacob Sullum, The Federal Government’s 175,000 Pages of Regulations Turn the Rule of Law into a Cruel Joke, Reason Magazine (May 14, 2025) https://reason.com/2025/05/14/the-proliferation-of-regulatory-crimes-turns-the-rule-of-law-into-a-cruel-joke/.
2 Scienter requirements for criminal offenses have been subject to different interpretations. For example, in Ruan v. United States, 597 U.S. 450 (2022), the Court narrowed the definition of a knowing violation of the Comprehensive Drug Abuse Prevention and Control Act (CSA). Specifically, the CSA prohibits a provider from, “except as authorized[,] … for any person knowingly or intentionally … to manufacture, distribute, or dispense … a controlled substance.” The Court deviated from past interpretations and held that the “knowing” mens rea requirement applied to the “except as authorized” language despite its placement in the statute, meaning that the defendant must know that their behavior is outside of the boundaries of authorization. This is just one example of how unclear statutory and regulatory language regarding scienter requirements can lead to confusion upon application.
3 See Exec. Order No. 14,219, 90 C.F.R. 10583.
4 For more information on the RCO Doctrine, see Michael Clark, The Responsible Corporate Officer Doctrine, J. of Health Care Compliance, Jan.-Feb. 2012.
Noteworthy False Claims Act Settlement Demonstrates DOJ’s Continued Scrutiny of Arrangements Between Hospitals and Physician Practices
On May 14, 2025, Fresno Community Hospital and Medical Center d/b/a Community Health System (CHS) and its technology partner, Physicians Network Advantage, Inc. (PNA), agreed to pay $31.5 million and enter into a Corporate Integrity Agreement to settle allegations of violating the federal anti-kickback statute (AKS) and physician self-referral law (Stark Law) under the False Claims Act (FCA). The alleged conduct at issue revolved around CHS’s plan beginning in 2013 to assist local area physicians in their adoption of the electronic health records (EHR) platform used by CHS and its establishment of PNA to support that goal. For decades, the government has strongly promoted the adoption of interoperable EHR platforms by physician practices (e.g., Meaningful Use payments), given that EHR systems allow for better care coordination, increased efficiency, and improved patient experience. Moreover, as described in more detail below, the Department of Health and Human Services (HHS) adopted an AKS safe harbor and Stark Law exception that allowed certain entities, including hospitals, to donate EHR technology and services to physicians if certain conditions are satisfied. However, CHS’s and PNA’s alleged conduct exceeds what is permissible under the relevant safe harbor and exception.
Background
CHS operates a network of hospitals across Fresno County, California, delivering health care services to beneficiaries of federal health care programs. PNA, founded in 2010 with financial and operational support from CHS, focused on expanding EHR technology in physician offices.
A relator – PNA’s former Controller – sued PNA and CHS along with another health system, health foundation, physician group, and individuals on behalf of the United States for alleged FCA, AKS, and Stark Law violations. The Settlement Agreement described the following conduct provided to induce referrals of business reimbursable by federal health care programs:
PNA’s headquarters included a posh space known as “HQ2,” where health care providers received high-end hospitality—such as fine wine, liquor, cigars, and catered food.
CHS and PNA provided substantial financial subsidies and cost reductions for EHR services to a large physician practice, including deferring upfront costs.
CHS and PNA allegedly supplied grants to a large physician network to pay for EHR-related software and subsidize upfront cost-sharing amounts related to EHR items and services.
CHS purportedly issued grants to certain providers and medical practices before formal EHR contracts were in place.
The relator alleges to have discovered defendants’ kickbacks initially following a fire at PNA headquarters, which revealed a surplus of expensive wine that a defendant told relator was leftover from a holiday party. The relator, while serving as PNA’s Controller, began to dig further into PNA’s business expenses. The relator confronted PNA’s sole shareholder and officer, who allegedly refused to discontinue the illegal conduct, and the relator then resigned from his position as Controller.
EHR Technology
As noted above, HHS recognizes the importance of supporting the adoption of EHR technology as evidenced by the AKS’s EHR safe harbor and the Stark Law’s EHR exception. The EHR safe harbor and exception allow hospitals and health systems to provide interoperable EHR technology to physician practices under specific conditions, including structuring the arrangements to avoid improper inducements for referrals.
While hospitals and health systems may offer EHR subsidies and cost reductions compliantly, CHS’s EHR subsidies and cost reductions purportedly failed to meet the AKS EHR safe harbor or Stark Law EHR exception because:
The subsidies and cost reductions were allegedly provided in return for referrals of patients to CHS for services reimbursed by federal health care programs, violating both the AKS safe harbor and Stark Law exception, which prohibit any link between financial benefits and the volume or value of referrals.
The arrangements allegedly included delayed collection of upfront cost-sharing for the EHR items or services, and the applicable Stark Law exception requires the physician practice to contribute 15% of the cost before receiving the EHR items or services.
The settlement does not indicate that the EHR donations were governed by written agreements that clearly specified the items/services, cost, and recipient contribution—requirements under both the AKS safe harbor and Stark Law exception.
Conclusion
This settlement is yet another example of the Department of Justice’s continued focus on enforcing Stark Law and AKS violations by hospitals and health systems. For more context, see our analysis of 2024’s key FCA settlements here.
Think Compliance Got Easier? Think Again—DOJ’s New Era in White-Collar Enforcement (Part 2)
As discussed in our May 15th post, Matthew R. Galeotti, the Head of the Department of Justice’s (“Department”) Criminal Division, issued a memorandum on May 12th that highlights the core tenets of the Department’s enforcement of corporate and white-collar matters under the Trump Administration—focus, fairness, and efficiency. Whereas our first post discussed the focus tenet, this second post in our series delves into the Department’s “fairness” tenet. Under the fairness prong, Galeotti underscores that “justice demands the equal and fair application of criminal laws to individuals and corporations who commit crimes.”
For several years, the Department has expressed an emphasis on individual liability. The Galeotti Memorandum explains that a central component of fairness is to “prosecute individual criminals,” focusing on executives, officers, and employees who are directly responsible for wrongdoing. Galeotti further notes that the majority of American businesses are legitimate, and that enforcement overreach can “punish risk-taking and hinder innovation.”
The Galeotti Memorandum cautions that “not all corporate misconduct warrants federal criminal prosecution.” Instead, civil and administrative remedies are often satisfactory for low-level misconduct. Also, Galeotti instructs prosecutors to ensure their charging decisions take into consideration factors such as whether companies self-report misconduct, cooperate with prosecutors, and engage in remediation.
Transparency is another cornerstone of the fairness directive. The Department is committed to making the terms of corporate resolutions—paths to declination, fine reductions, and relevant factors for resolution—”more easily understandable.” As explained by our colleagues last week, the revised Corporate Enforcement and Voluntary Self-Disclosure Policy contemplates benefits for companies that self-disclose, including potentially shorter oversight terms and early termination of agreements.
In addition, the Department is actively reviewing existing agreements between companies and the Department to determine if early termination is warranted. This determination will be based on factors such as:
the “duration of the post-resolution period,”
a “substantial reduction in the company’s risk profile,”
the company’s remediation efforts, and
the “maturity of” the company’s compliance program.
For companies that have cooperated with the government and remediated the misconduct at issue, the Galeotti Memorandum states that the terms for corporate resolutions will not exceed three years except in rare circumstances. These resolutions will also be regularly reassessed to ensure they remain appropriate.
We will delve into the final prong of the Galeotti Memorandum—efficiency—in our next post.
Harassment in the Workplace: A Major Challenge for Employers in France
During the first quarter of 2025, the French Supreme Court has rendered a number of rulings on harassment in the workplace. Whether moral, institutional, environmental or sexual, harassment is a burning topic and the French labor courts have repeatedly reminded employers of their obligations in this area.1
In addition to the important decision rendered by the Criminal Section of the French Supreme Court on 21 January 20252 establishing the concept of institutional moral harassment, a number of rulings have clarified the scope of the employer’s obligation to ensure a safe place of work (safety obligation).
The Employee Does Not Need to Expressly Describe the Reported Behavior as “Harassment”
In a decision dated 8 January 2025, the French Supreme Court confirmed that the employer’s obligation to prevent harassment is independent of the categorization of the wrongful behavior by the employee victim of the harassment. In other words, there is no need for the victim to describe the alleged facts as harassment in order to benefit from the safety obligation.3
This position, which is in line with the Supreme Court’s decision dated 19 April 20234, now prevents employers from avoiding liability based upon an employee’s failure to describe prohibited acts as “harassment”.
Scope of the Safety Obligation: No Automatic Reinstatement of a Protected Employee Suspected of Sexual Harassment
In another decision rendered on 8 January 20255 by the French Supreme Court, an employee (who was a union representative) was accused of inappropriate behavior towards one of his colleagues, consisting of indecent advances and gestures with sexual connotations, insistent attitudes and physical contact such as kissing close to the lips. In accordance with French law, the employer asked for the labor inspector’s authorization to dismiss this employee, which was denied. Despite this denial, the employer refused to reinstate the employee, who terminated his employment contract and brought an action before the labor court.
In this situation, the employer faced a dilemma: to either reinstate the employee, as provided for by French law under Article L.2411-1 of the Labor Code, or to comply with the safety obligation to prevent and put an end to any harassment situation in accordance with Article L.1153-5 of the Labor Code.
The Court of Appeal found that the employer’s refusal to reinstate the employee despite the labor inspector’s decision constituted a violation of the protected status given to employees holding the position of trade union representative.
The French Supreme Court, on the other hand, considered that the Court of Appeal should have “investigated whether the impossibility of reinstating the employee was not the result of a risk of sexual harassment that the employer was required to prevent”. Reinstatement of the accused employee is therefore not automatic, and the employer must take into account its duty to avoid and prevent any situation of harassment.
Internal Investigations: Recommendation of the French Defender of Rights (Défenseur Des Droits)
On 5 February 20256 the French Defender of Rights published a recommended guide for employers, to help them to deal with reports of harassment or discrimination more effectively. Even though this guide does not have legal force, in practice it provides general guidelines that judges could use as a check list in case of litigation.
These recommendations are designed in particular to help employers with the implementation of their reporting and internal investigation processes.
The French Defender of Rights has set out the following steps which employers should take:
Set up reporting systems and informing employees of the same;
React to the claim and protect the employees’ interests (taking into account each employee’s health situation and protecting the alleged victim’s safety);
Implement internal investigations in compliance with principles of confidentiality and impartiality;
Legally qualify the facts brought to the employer’s attention (e.g. harassment, mismanagement, etc.) and sanction employees accordingly.
The publication of this guidance confirms the importance of topics relating to employees’ health and safety.
These decisions and guidance make it even more imperative that employers make certain that they are well-prepared to prevent and respond to claims of harassment and discrimination when they arise. Action items include making certain that compliant procedures are in place and that they are followed. Responses to claims should be audited to ensure both legal compliance and practical effectiveness. Given the specificities of the legal requirements, employers should not hesitate to seek assistance to do so.
Footnotes
1 Article L.1152-4 of the Labor Code; Article L.1153-5 of the Labor Code; Article L.4121-1 of the Labor Code
2 Court of Cassation, Criminal Division, 21 January 2025, no. 22-87145
3 Court of Cassation, Social Division, 8 January 2025, no. 23-19996
4 Court of Cassation, Social Division, 19 April 2023, no. 21-21053
5 Court of Cassation, Social Division, 8 January 2025, no. 23-12574
6 Framework decision no. 2025-019 of 5 February 2025
Georgia’s Tort Reform Legislation: Key Procedural Changes
Georgia’s tort reform legislation comes at an opportune time, as jury verdicts in recent years have been the stuff of records. Georgia was rated the #1 Judicial Hellhole in 2022 and 2023, and #4 in 2024. The new statutes, signed into law on April 21, 2025, aim to promote fairness in civil litigation procedure in the Georgia state courts, reality in consideration of damages, and commonsense fairness in trials and in liability standards for property owners, managers, and security personnel when crimes occur at their property. Key procedural changes are detailed below.
Motions to Dismiss
If a defendant files a motion to dismiss, then it shall no longer be required to file an answer until 15 days after the court either denies the motion or announces it will postpone deciding the motion until trial. Discovery will be stayed until the court rules on the motion, and the court is required to rule on the motion within 90 days after the conclusion of briefing on the motion. (Amendment to O.C.G.A. § 9-11-12).
Voluntary Dismissals
Plaintiffs are no longer permitted to voluntarily dismiss the complaint at any time before the first witness is sworn at trial. Now, unless all parties stipulate to the voluntary dismissal, a plaintiff must first obtain a court order to dismiss the complaint more than 60 days after the opposing party filed an answer. (Amendment to O.C.G.A. § 9-11-41).
Damages Model
The special damages model in Georgia personal injury cases is amended to remove the collateral source rule. Thus,
Truth in special damages. Special damages shall be limited to the reasonable value of medically necessary care. Juries can now consider amounts paid by health insurance or workers’ compensation. Letters of protection are relevant and discoverable. (New O.C.G.A. § 51-12-1.1).
The general damages (e.g., pain and suffering) available to a plaintiff are subject to these new regulations:
General damages guidelines:
Plaintiffs may not argue or suggest a specific amount of general damages until closing argument.
If the plaintiff elects to open and close the closing arguments, then he/she must make his/her specific amount known during the opening phase of his/her closing argument.
The argument for general damages must be rationally related to the evidence and shall not refer to values having no rational connection to the facts of the case. (Amendment to O.C.G.A. § 9-10-184).
Other Provisions
The playing field at trial is leveled to provide the following:
Seatbelt evidence is admissible.In cases involving motor vehicle accidents, evidence that the plaintiff was not wearing his/her seatbelt is admissible and relevant to the issues of negligence, comparative negligence, proximate causation, assumption of the risk, and apportionment of fault. (Amendment to O.C.G.A. § 40-8-76.1).
Trial bifurcation/trifurcation available upon request.In any personal injury or wrongful death case, any party may elect to have trial bifurcated or trifurcated into separate phases: fault – damages – punitive damages/attorney’s fees.o Exceptions may be made to the right to bifurcation/trifurcation upon motion for cases involving alleged sexual offenses and those involving less than $150,000 in dispute. (New O.C.G.A. § 51-12-15).
Finally,
A new series of statutes provides governance and guidance for negligent security cases.
The new laws provide stricter standards for imposing liability in negligent security cases and clarify the expectations on premises owners in the state.
Now, in order for a premises owner/occupier to be held liable by an injured invitee for negligent security, the plaintiff must prove:
(a) The third person’s wrongful conduct was reasonably foreseeable;
a. “Reasonably foreseeable” may be established by showing that the owner/occupier:
i. Had particularized warning of imminent wrongful conduct by a third person; or
ii. Reasonably should have known that a third person was reasonably likely to engage in such wrongful conduct on the premises based on one of the following:
Substantially similar prior incidents on the premises of which the owner/occupier had actual knowledge;
Substantially similar prior incidents on adjoining premises or otherwise occurring within 500 yards of the premises of which the owner/occupier had actual knowledge; or
Substantially similar prior incidents by the same third person that the owner/occupier had actual knowledge about and the owner/occupier knew or should have known that the third person would be on the premises.
(b) The injury sustained was a reasonably foreseeable consequence of the third person’s wrongful conduct;
(c) The third person’s wrongful conduct was a reasonably foreseeable consequence of the third person exploiting a specific physical condition of the premises known to the owner/occupier, which created a reasonably foreseeable risk of wrongful conduct on the premises that was substantially greater than the general risk of wrongful conduct in the vicinity of the premises;
(d) The owner/occupier failed to exercise ordinary care to remedy or mitigate the specific and known physical conduction and to otherwise keep the premises safe from the third person’s wrongful conduct; and
(e) The owner/occupier’s failure to exercise ordinary care was a proximate cause of the injury sustained.
For a premises owner/occupier to be held liable to an injured licensee (e.g., a tenant’s social guest) for negligent security, the plaintiff must prove:
(a) The third person’s wrongful conduct was reasonably foreseeable because the owner/occupier had particularized warning of imminent wrongful conduct by a third person;
(b) The injury sustained was a reasonably foreseeable consequence of the third person’s wrongful conduct;
(c) The third person’s wrongful conduct was a reasonably foreseeable consequence of the third person exploiting a specific physical condition of the premises known to the owner/occupier, which created a reasonably foreseeable risk of wrongful conduct on the premises that was substantially greater than the general risk of wrongful conduct in the vicinity of the premises;
(d) The owner/occupier willfully and wantonly failed to exercise any care to remedy or mitigate the specific and known physical condition and to otherwise keep the premises safe from the third person’s wrongful conduct; and
(e) The owner/occupier’s failure to exercise any care was a proximate cause of the injury sustained.
Moving forward, in no case will a premises owner/occupier be held liable for negligent security where:
The injured party was a trespasser
The injury was sustained on premises not owned/occupied by the owner/occupier
The wrongful conduct complained of did not occur on the premises and in a place from which the owner/occupier had the authority to exclude the third person
The third-party wrongdoer was either a tenant under eviction or the guest of a tenant under eviction
The injured person came to the premises for the purpose of, or was engaged in committing a felony or theft
The injury occurred at a single-family residence or
The owner/occupier made any reasonable effort to provide information to law enforcement about a particularized warning of imminent wrongful conduct by a third person.
In order to assess whether the owner/occupier breached a duty to exercise ordinary care to keep persons on or around their premises safe from a third party’s wrongful conduct, courts and juries shall consider any relevant circumstances, including but not limited to:
The security measures employed at the premises at the time the injury occurred
The need for any additional or other security measures
The practicality of additional or other security measures
Whether additional or other security measures would have prevented the injuries
The respective responsibilities of owners/occupiers with respect to the premises and government with respect to law enforcement and public safety.
Moreover, juries are now required to apportion fault among all parties, including the criminal wrongdoer. If a jury assigns more fault to the property owner than to the criminal wrongdoer, then the court is required to order a new trial. There shall be a rebuttable presumption that an apportionment of fault is unreasonable if the percentage of fault assigned to the criminal wrongdoer(s) is less than the total percentage of fault assigned to all property owners, occupiers, managers, and security contractors. (New O.C.G.A. §§ 51-3-50 – 51-3-57).
Practical Implications of the Negligent Security Legislation
Given the new guidelines, it is critical that property owners and managers ensure that regular inspections are taking place. If there are fences, the fences should be checked and documented monthly. The same goes for gates, warning/no trespassing signs, locks, cameras, lighting, or other physical conditions or installments on the property.
Property owners and managers should consider current security measures and whether additional or different measures might be appropriate. If multiple reports of similar crimes are received, then property owners and/or managers should consider asking a security consultant to perform a premises security assessment and to make any recommendations for additional or different security measures at the premises.
The process for tenants to communicate with the property manager about any security concerns or reports should be seamless and explained to all current and new tenants. The tenants should be encouraged to provide as much detail as possible, including about the specific location of the property where the crime or other security issue occurred. All such reports should be maintained for at least three years, and a line of communication should be started with local police about tenant security complaints.
Staff should be trained to recognize when a tenant reports concerns about an immediate threat to the tenant by another person and to notify the police immediately by calling 9-1-1. The staff should record such reports to the police and maintain the records for no less than three years.
When Do These Changes Apply?
Thankfully, the majority of changes apply immediately and take effect even in existing cases. There are two exceptions for cases accruing on or after April 21 2025:
New code section O.C.G.A. § 51-12-1.1, limiting recoverable special damages to the reasonable value of medically necessary care, allowing juries to consider the actual costs paid, and making letters of protection relevant and discoverable
The negligent security legislation.
“Accruing” means that the underlying incident giving rise to the claim occurred on or after the effective date.