LNG by Rail: The D.C. Circuit Vacates a DOT Rulemaking and Outlines a Path for Challenges Yet to Come
In Sierra Club v. United States Dep’t of Transportation[1], a panel of the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) vacated and remanded a final rule[2] issued by the Department of Transportation (“DOT”) permitting the transportation of liquefied natural gas (“LNG”) in approved rail cars. The final rule was subsequently stayed and never took effect.
DOT Rulemaking & the Sierra Club Decision
The rulemaking proceeding began with an executive order published on April 10, 2019. Then President Trump directed the Secretary of Transportation to propose a rule to permit LNG to be transported in approved rail cars within 100 days from the date of the executive order and to finalize the rule within thirteen months.[3] DOT subsequently issued a proposed rule that would permit the transportation of LNG by rail in DOT-113 rail cars. The proposed rule proposed no limit on the number of cars to be used to transport LNG on a single train and imposed no mandatory speed limit. The proposed rule also included a preliminary environmental assessment finding that the proposed rule would have no significant environmental impact.[4]
The proposed rule was challenged by environmental organizations, states, and the National Transportation Safety Board, all citing potentially grave risks related to potential explosions or fires related to transportation of LNG by rail and separately arguing that the proposed rule failed to mitigate those risks.[5]
In July 2020, the DOT modified the final rule in several respects. The Court summarizes the changes as follows:
The final Rule authorizes transportation of LNG by rail, but it differs from the Proposed Rule in several respects. First, the final LNG Rule imposes new requirements for the outer tank of approved railcars: The outer tank must be both thicker and made of stronger steel than that used in existing 120W cars. Specifically, the tanks must be 9/16″ thick, rather than the current minimum of 7/16″. The outer tank also must be made of TC-128 Grade B normalized steel, which is less likely to crack or puncture than the steel typically used in DOT-113 cars. Second, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) boosted the maximum filling density from 32.5% to 37.3%. Finally, the LNG Rule includes additional operating controls to promote safety: (1) Tank cars carrying LNG must be equipped with remote monitoring devices for detecting and reporting each car’s internal pressure and location; (2) Any train with at least 20 LNG tank cars in a continuous block or with 35 such cars throughout the train must be equipped with advanced braking capabilities; and (3) PHMSA adopted the routing requirements of 49 C.F.R. § 172.820, which require railroads to consider safety risk factors, such as population density, when analyzing potential routes for transporting LNG.[6]
The final rule reiterated the finding that the rule would have no significant environmental impact. As a result, no environmental impact statement was prepared. The petitions for review that are the subject of the Sierra Club case followed.
The Court determined that the case was ripe for review even though the rule had never been finalized and was at the time of the decision stayed.[7]
The Court affirmed that each class of petitioners had requisite standing to pursue its appeal.[8]
On the merits, the Court found that the final rule authorizing transportation of LNG by rail was arbitrary and capricious:
[Petitioners] claim that PHMSA failed to take a hard look at how the LNG Rule would affect public safety and therefore violated [National Environmental Policy Act (“NEPA”)]. In support of their argument, they note that PHMSA disregarded the checkered safety record of the 120W tank car and ignored the risks of including numerous cars of LNG within a single train without any required speed limit. We agree and vacate the LNG Rule.[9]
The Court’s decision in this respect was very narrow. The error was not preparing an Environmental Impact Study (“EIS”). The Court explained:
In this case, PHMSA determined that an EIS was not required because authorizing LNG transport by rail under the LNG Rule would have no significant impact on the environment. But the record reflects that transporting LNG by rail poses a low-probability but high-consequence risk of a derailment that could seriously harm the environment: A breach of one or more rail cars containing LNG could cause an explosion, an inferno, or the spread of a freezing, flammable, suffocating vapor cloud. The real possibility of such catastrophes significantly affects the quality of the human environment. For that reason, NEPA required PHMSA to prepare an EIS.[10]
The Court reminded observers that the scope of NEPA review is itself narrow:
NEPA is “primarily information-forcing,” so it “directs agencies only to look hard at the environmental effects of their decisions, and not to take one type of action or another.” Sierra Club v. FERC, 867 F.3d 1357, 1367 (D.C. Cir. 2017) (cleaned up). After preparing an EIS, the agency will be best positioned to determine whether the environmental risk is worth taking. Any future legal challenges to the substance of that decision would then be brought under some other statute, not NEPA. Because we vacate the instant LNG Rule due to PHMSA’s failure to prepare an EIS, such questions are left for another day.[11]
Takeaways for Future Regulatory Reforms
The challenges the Court elected not to address are also significant. These include variations on the argument that the DOT’s modification to the standards applied to the cars to be used to transport LNG by rail after the notice of proposed rulemaking was issued violated the notice and comment provisions of the Administrative Procedure Act and the public participation requirement of NEPA, as well as arguments related to the failure to take into account environmental justice concerns and the impact of LNG transport by rail on greenhouse gas emissions. At least some of these challenges (perhaps variations of all) could be deployed against future regulatory reform efforts. For example, in Liquid Energy Pipeline Ass’n v. FERC[12], a panel of the D.C. Circuit vacated a Federal Energy Regulatory Commission (“FERC”) oil pipeline index rule that was modified on rehearing by FERC without being subjected to another round of notice and comment rulemaking.
For those industry stakeholders who support, wholly or in part, regulatory reform initiatives, this decision highlights the need to anticipate and to address alleged administrative process flaws at an early stage in policy development to ensure that any such concerns are fully addressed and resolved on the administrative record. The failure to do so can delay or undermine entirely proposed changes, regardless of their public policy bona fides. It will likely not be enough to wait and hope that affected departments and agencies who are managing multiple initiatives and challenges will have the time and resources to develop a full and adequate administrative record that can withstand judicial review. All affected stakeholders need to take affirmative steps to ensure that procedural missteps do not take on outsized consequences.
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[1] No. 20-1317, 2025 WL 223869 (D.C. Cir. Jan. 17, 2025).
[2] Hazardous Materials: Liquefied Natural Gas by Rail, 85 Fed. Reg. 44,994 (July 24, 2020).
[3] Sierra Club at *2 (citing Executive Order 13,868, 84 Fed Reg. 15,495, 1497 (April 10, 2019)).
[4] Id. at **2-3.
[5] Id.
[6] Id. at *3
[7] The Court also found that the stay did not moot the case. “Voluntary cessation does not moot a case unless it is absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.” Id. at 5 ( citing West Virginia v. EPA, 142 S.Ct. 2587, 2602 (2022)).
[8] Id. at **6-7.
[9] Id. at *7.
[10] Id. at *8.
[11] Id. *10, n. 6.
[12] 109 F.4th 543 (D.C. Cir. 2024).
Is This CARB Climate Corporate Data Accountability Act Enforcement Notice Legal?
Recently, UCLA Professor Stephen Bainbridge posted this critique of California’s climate disclosure laws – SB 253 and SB 261. Readers of this blog will recall that SB 253 requires “reporting entities” to disclose Scope 1, 2 & 3 greenhouse gas emissions. Reporting entities will also be required to obtain an independent third-party assurance of these disclosures. See California Legislation Will Make It More Costly For Those Doing Business With Those Doing Business In California. SB 261 imposes climate related financial risk reporting requirements. See California Enacts Law Mandating Climate-Related Financial Risk Reporting.
Last September, Governor Gavin Newsom signed SB 219 which, among other things, extends the date for the California Air Resources Board to adopt the regulations specified in SB 253 from January 1, 2025, to July 1, 2025. The first reports by reporting entities will still be due in 2026 on a date to be established by CARB in its rulemaking. Those first reports will cover scope 1 and scope 2 emissions during the reporting entity’s prior fiscal year.
In December, CARB issued a so-called “Enforcement Notice” with respect to SB 253 stating:
Accordingly, CARB will exercise its enforcement discretion such that, for the first report due in 2026, reporting entities may submit scope 1 and scope 2 emissions from “the reporting entity’s prior fiscal year” that can be determined from information the reporting entity already possesses or is already collecting at the time this Notice was issued [December 5, 2024]. CARB will exercise enforcement discretion for the first reporting cycle, on the condition that entities demonstrate good faith efforts to comply with the requirements of the law. This enforcement discretion is aimed at supporting entities actively working toward full compliance. Thus, for the first reporting cycle, CARB will not take enforcement action for incomplete reporting against entities, as long as the companies make a good faith effort to retain all data relevant to emissions reporting for the entity’s prior fiscal year. CARB will provide details on reporting for subsequent year reporting cycles as part of CARB’s rulemaking process.
I question whether this notice constitutes an “underground regulation” under California’s Administrative Procedure Act. That act generally imposes standards on state agency regulations and public notice and comment requirements. The APA defines a “regulation” to mean “every rule, regulation, order, or standard of general application or the amendment, supplement, or revision of any rule, regulation, order, or standard adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it, or to govern its procedure”. Cal. Gov’t Code § 11342.600. It cannot be gainsaid that the CARB’s Enforcement Notice applies generally and not to a specific person or circumstance. Furthermore, the Enforcement Notice implements SB 253. Thus, it is difficult to escape the conclusion that the Enforcement Notice is a “regulation” within the meaning of the APA. The APA prohibits state agencies from issuing, utilizing, enforcing, or attempt to enforcing any guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule, which is a regulation as defined in § 11342.600, unless the guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule has been adopted as a regulation and filed with the Secretary of State pursuant to this chapter. Cal. Gov’t Code § 11340.5.
I reached out to the CARB for comment and received the following response, which does not answer the question of the legality of the Enforcement Notice:
The enforcement notice provides a notification to the public for how CARB would exercise enforcement discretion regarding a part of Senate Bill 253.
Changes Ahead for NEPA Implementation Under President Trump’s Energy Dominance Executive Order
On President Trump’s first day in office he issued the Unleashing American Energy Executive Order (“Energy Dominance EO” or “EO”) with far-reaching consequences for implementation of the National Environmental Policy Act (“NEPA”). President Trump also signed a number of other executive orders, including the Declaring a National Energy Emergency Executive Order (“Energy Emergency EO”), that will impact environmental reviews and authorizations for projects. One critical outcome of the Energy Dominance EO is that it sets in motion the rescission of the Council on Environmental Quality (“CEQ”) NEPA regulations and a shift to reliance on agency-level regulations for NEPA implementation. Further, an interagency working group will be formed to ensure consistency within agency-specific NEPA implementing regulations and procedures.
The need for NEPA reform has long-been recognized across the political aisle and the role of CEQ’s NEPA regulations has already been placed into question. However, the immediate change in a 40+ year-old regulatory framework creates the potential for confusion that could inadvertently delay the very projects the EO is meant to benefit. The development of new guidance for this new regulatory paradigm as well as action by the interagency working group that ensures consistent application of NEPA reviews across federal agencies will be critically important.
Rescission of CEQ Regulations and Reliance Upon Agency-Level Implementing Regulations
The EO requires CEQ to propose rescinding its NEPA regulations by February 19, 2025 (30 days after EO issuance). The rescission is applicable to all CEQ NEPA regulations (40 CFR 1500 et seq.), not just those amended by the Biden Administration CEQ NEPA rulemakings. The CEQ implementing regulations had been relatively unchanged for over 40 years until a series of amendments under the first Trump Administration and then the Biden Administration. This proposed rescission further unsettles ongoing and new NEPA reviews.
By February 19, CEQ also is required to issue NEPA implementing guidance. The EO does not prescribe a specific scope or individual elements of this new guidance.
After the proposal to rescind the regulations and guidance issuance, CEQ is to “convene a working group to coordinate the revision of agency-level implementing regulations for consistency.” The EO does not dictate a particular outcome for the working group to ensure consistency across agency-level NEPA regulations.
In the time between the rescission of the CEQ NEPA regulations and any revised or new agency-level implementing regulations, agencies must rely on the NEPA statute and their own, existing NEPA implementing regulations and policies. Agencies, of course, continue to have an obligation to comply with NEPA as amended by the Fiscal Responsibility Act of 2023. Those statutory changes included presumptive deadlines and page limits for environmental impact statements and environmental assessments and the authorization for agencies to adopt a categorical exclusion established by another agency.
Additional EO Impacts on NEPA Implementation
Other provisions of the Energy Dominance EO also may impact NEPA implementation. These include:
Directing heads of relevant agencies to undertake “all available efforts to eliminate all delays within their respective permitting processes,” which could include maximizing the use of NEPA categorical exclusions and taking further steps to streamline the preparation of environmental assessments and environmental impact statements;
Requiring the submission of recommendations for legislative changes supporting “greater certainty” in federal permitting and “streamlining” judicial review of NEPA challenges; and
Terminating current Interagency Working Group Social Cost of Carbon related guidance and directing EPA to issue new guidance on changes to the social cost of carbon for federal permitting and regulatory decisions.
Impacts on Pending Litigation
The EO directs agencies to notify the Attorney General of any pending litigation where a stay or other action may be appropriate due to the policy changes and agency actions required by the EO. This notification requirement may trigger requests for a stay or other action in the pending lawsuit challenging the most recent Biden Administration amendments to CEQ’s NEPA regulations in Iowa v. CEQ, Case 1:24-cv- 0089 (D.N.D.). Further, the EO-directed change in CEQ’s NEPA responsibilities as well as the directed rescission of its NEPA implementing regulations could result in termination, due to mootness, of the currently pending request for en banc review in Marin Audubon Society v. FAA, 121 F.4th 902 (D.C. Cir. 2024). That pending request for review challenges a December 2024 circuit court panel decision holding that CEQ did not have the requisite rulemaking authority to implement and enforce its NEPA regulations. On January 23, 2025, the Department of Justice filed a notice with the D.C. Court of Appeals that the Administration is reviewing the effect of the EO directive to rescind CEQ’s NEPA implementing rules on the Administration’s position in the pending en banc review.
Additional Executive Order Provisions Impacting Projects
The Energy Dominance EO is one of several executive orders that will affect projects with a federal nexus through regulation, funding, or permitting. Further, these executive orders can intersect. For example, both the Energy Dominance EO and the Energy Emergency EO address use of permitting authorities and advancement of energy projects. In addition, these executive orders set aggressive deadlines, which may not be met in all cases.
EPA and OSHA Renew Cooperation With Memorandum of Understanding on Toxic Substances Control Act
The Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) have long cooperated with each other and have renewed their commitment to cooperation in a December 2024 memorandum of understanding (MOU) focused on the Toxic Substances Control Act (TSCA).
The EPA routinely recommends new chemicals be subject to TSCA review to determine whether a chemical or significant new use presents unreasonable risk of injury to health or the environment, without consideration of cost or other non-risk factors. The MOU was one of the last acts of the Biden administration’s assistant secretary of labor for workplace safety and health, Douglas Parker.
Quick Hits
A December 2024 memorandum of understanding (MOU) between OSHA and the EPA emphasizes sharing information on inspections, complaints, and potential violations related to Section 6 of the Toxic Substances Control Act (TSCA)
OSHA will encourage states with OSHA-approved state plans to participate in information-sharing activities under the MOU.
In decades’ old agreements, EPA and OSHA have outlined various alliances and agreements to work with each other in their respective inspection and enforcement activities. When personnel associated with the EPA observe workplace health and safety concerns, they are authorized under those agreements to make referrals to OSHA. When OSHA personnel identify potential environmental issues, they are authorized to make referrals to the EPA. OSHA’s process safety management (PSM) rules are the workplace health and safety corollary to EPA’s risk management program rules, both of which relate to processes involving “highly hazardous substances.”
In an MOU from 2021, the EPA and OSHA entered into an agreement related to TSCA, that resulted in:
establishing designated staff and management points of contact from each agency to discuss and resolve workplace exposure issues related to EPA’s review of new chemicals;
providing OSHA with regular updates on EPA’s new chemical determinations, including any necessary worker protection identified during EPA’s review; and
documenting EPA’s role in identifying and notifying OSHA of the need for formal consultation on EPA’s review of new chemicals.
It bears noting that the term “new chemicals” does not mean newly developed chemicals, but instead chemicals that are not on the TSCA inventory. In 2024, EPA issued draft and final risk assessments related to formaldehyde, 1,1 dichloroethane, and 1,3 butadiene. Five commonly used chemicals, acetaldehyde, acrylonitrile, benzenamine, vinyl chloride, and 4,4’-methylene bis(2-chloroaniline) (MBOCA), were designated as high-priority substances, which prioritizes the risk assessment of those chemicals. A change to the TSCA rules also resulted in all new per and polyfluoroalkyl substances (PFAS) being subject to a full safety review process under TSCA.
The 2024 MOU built on the 2021 MOU, but focused on the sharing of information and data concerning each agency’s focus areas for inspections, complaints, potential violations, and EPA’s planned enforcement pertaining to TSCA’s section 6 rulemaking and enforcement. While the MOU portends potential changes in substances that might fall under OSHA’s control, such as the list of highly hazardous chemicals related to PSM, it is not clear that OSHA will act to make any changes related to TSCA determinations.
The two agencies agreed to share information on complaints, inspections, potential violations, and EPA’s planned enforcement, as appropriate, related to TSCA section 6 activities in workplaces where areas of mutual interest exist. Each organization will exercise its independent jurisdiction to enforce applicable regulations and laws. EPA and OSHA agreed to mutually refer potential violations under TSCA section 6 and OSHA standards in workplaces within their respective jurisdictions, and, for cases of joint interest, take other cooperative steps to share information on such potential violations.
Regarding coordination with states with OSHA-approved state plans:
OSHA intends to share this MOU with state plans and encourage state plans to refer applicable potential violations to EPA.
OSHA intends to encourage states with OSHA-approved state plans to participate in all information-sharing activities established under this MOU.
Incoming Environmental Protection Agency (EPA) Personnel and Impact on Enforcement
To nobody’s surprise, it is already evident that President Trump’s second term will mark a significant shift in environmental regulation and policy from the Biden Administration. This article marks the first in a where we will highlight and analyze some of the Trump Administration’s early initiatives regarding environmental law and regulation as well as what can be expected going forward for and from the EPA, environmental law, and the regulated community.
Our review will be informed by the second Trump Administration’s early actions, a review of Trump’s first term, his campaign statements, the personnel he has nominated for key posts, and independent policy documents from influential Think Tanks.
During his first term the Trump Administration rolled back or retooled in a manner that effectively weakened over 100 environmental rules and regulations. While environmental policy was not a focal point of Trump’s 2024 election campaign, candidate Trump frequently stated that boosting fossil fuel production and reducing or streamlining environmental regulations in support of its stated goals of increasing economic efficiency would be key initiatives for his second administration. These goals also feature prominently in the positions of influential conservative policy papers such as Project 2025, a policy initiative first published in April 2023 by the conservative Think Tank The Heritage Foundation; and President Trump has already tapped Aaron Szabo, who helped to write the EPA chapter of Project 2025, to lead the EPA’s Office of Air and Radiation.
The initial round of executive orders issued by the second Trump Administration show a dramatic but expected change in approach to environmental regulation: the Trump Administration again withdrew the United States from the Paris Climate Agreement and rescinded many of President Biden’s executive orders on energy and climate change. Another executive order declared an “energy emergency” and prioritized the approval and generation of domestic energy resources, excluding wind and solar, and described using emergency powers to expedite environmental review and permitting processes.
Forthcoming early action items are likely to fit with the broader Trump Administration goals for the EPA to reduce the EPA’s costs and staffing, increase reliance on states for environmental enforcement and regulation by taking a more supportive role, and continuing to support fossil fuel development over renewable energy development. We can also expect actions by the EPA to identify existing rules to be stayed as well as reviewing employees and staffing objectives while looking for opportunities to downsize to further these aims.
It is also likely that from the outset Trump’s EPA will look to reassess many of the EPA’s and DOJ’s current environmental enforcement cases. A report by the Environmental Integrity Project tracking the EPA’s enforcement actions since 2001 predicts that the expected drop in funding and staffing at the EPA, coupled with the new administration’s stated policy goals, will lead to a significant reduction in the EPA’s enforcement. This is consistent with the trajectory from Trump’s first term, where the EPA continued a trend of reducing the EPA’s enforcement actions. It is likely that Trump’s EPA will seek to prioritize cooperation with the regulated community and focus on compliance rather than enforcement, which was the strategy adopted during President Trump’s first term and outlined to be taken up again in Project 2025. Taken together, there are strong indicators that the incoming Trump Administration will look to stay ongoing enforcement cases, delay others, and limit future federal enforcement efforts.
AB 238 Mortgage Deferment Act for California Wildfire: Mortgage Forbearance Relief
AB 238, also referred to as the Mortgage Deferment Act, to add Title 19.1§ 3273.20 et seq. (the “Mortgage Deferment Act” or the “Act”), was introduced in the California legislature on January 13, 2025 to provide essential financial relief to the victims of the Los Angeles County wildfires (including the Palisades and Eaton fires) that continue to burn in multiple locations throughout Southern California. The Mortgage Deferment Act may be heard in committee on February 13, 2025. If implemented, the Act is intended to provide financial relief to those who have lost their homes or livelihood to wildfires by allowing borrowers to request mortgage payment forbearance for up to 360 days, in two increments of 180 days each.
The Mortgage Deferment Act is modeled after the CARES Act, which provided similar forbearance relief to those experiencing financial hardship during the COVID-19 pandemic. To effectuate a request under the Act as currently drafted, the borrower[1] must submit a request for forbearance to the borrower’s mortgage loan servicer and affirm that the borrower is experiencing a financial hardship due to the wildfire disaster. Id. at § 3273.22(a). No additional documentation is required for a request for forbearance, other than the borrower’s attestation to a financial hardship caused by the wildfire disaster. Id. at § 3273.23(a).
Upon receipt of such a request, the mortgage servicer must provide the borrower a forbearance for up to 180 days, which may be extended for an additional period of up to 180 days at the request of the borrower. Id. at § 3273.22(b). Additionally, the mortgage servicer must communicate with the borrower to whom a forbearance has been granted to ensure that the borrower understands that the missed mortgage payments must be repaid, although they may be paid back over time. Id. at § 3273.23(a)-(b).
The proposed legislation prohibits the assessment of additional fees, penalties, or interest beyond scheduled amounts. It also requires an immediate stay of foreclosure efforts, and extends to all aspects of the foreclosure process, including foreclosure-related eviction. Moreover, during the forbearance period, the Mortgage Deferment Act prohibits a mortgage servicer from initiating any judicial or nonjudicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or foreclosure sale. Id. at § 3273.24.
If the Mortgage Deferment Act is implemented, it will be of the utmost importance for mortgage servicers to work closely with borrowers who may have been impacted by the wildfire disaster in California. Servicers should also ensure that borrowers requesting forbearance are properly informed that any missed mortgage payments pursuant to the borrower’s forbearance request ultimately will be required to be repaid to the mortgage servicer. Further, upon implementation, any failure to properly adhere to the Mortgage Deferment Act by mortgage servicers could have significant negative consequences, which could include litigation and/or compliance issues. Servicers should monitor the status of the Act, to ensure that they are prepared to fully comply with its terms, should the Act become law.
[1] The Mortgage Deferment Act, as currently drafted, includes various proposed definitions. “Borrower” is defined as a natural person who is a mortgagor or trustor or a confirmed successor in interest, or a person who holds a power of attorney for a mortgagor or trustor or a confirmed successor in interest. Mortgage Deferment Act § 3273.21(a). “Mortgage loan” is defined as a loan that is secured by a mortgage and is made for financing, including refinancing of existing mortgage obligations, to create or preserve the long-term affordability of a residential structure in the state, or a buy-down mortgage loan secured by a mortgage, of an owner-occupied unit in this state. Id. at § 3273.21(b). “Mortgage servicer” means a person or entity who directly services a loan or who is responsible for interacting with the borrower, managing the loan account on a daily basis, including collecting and crediting periodic loan payments, managing any escrow account, or enforcing the note and security instrument, either as the current owner of the promissory note or as the current owner’s authorized agent. Id. at § 3273.21(c). “Wildfire disaster” means the conditions described in the proclamation of a state of emergency issued by California Governor Gavin Newsom on January 7, 2025. Id. at § 3273.21(d).
Latest Changes to ISS and Glass Lewis Proxy Voting Guidelines
Institutional Shareholder Services (ISS) and Glass Lewis, two leading proxy advisory firms, recently announced updates to their U.S. proxy voting policies in advance of the 2025 proxy and annual meeting season. Public companies need to consider how these updates could impact voting recommendations and any governance changes that could be implemented to improve the likelihood of favorable recommendations.
Background on Proxy Advisory Firms
ISS and Glass Lewis have risen to prominence for making proxy voting recommendations to their investor clients ahead of shareholder meetings for public companies.
ISS and Glass Lewis publish their respective proxy voting guidelines and policies that describe the factors that it will take into consideration in making voting recommendations. While these policies remain largely consistent year over year, the annual updates often address new and emerging issues, such as artificial intelligence, or revise or clarify existing stances on evolving matters of corporate governance, such as executive compensation, director independence, and environmental, social, and governance (ESG) policies and disclosures. These changes can be based on a number of factors, such as changing shareholder attitudes, new legislation or exchange rules, or general industry trends.
These proxy voting guidelines can be used by institutional investors as either determinative or informative of their voting decisions, and the recommendations by ISS and Glass Lewis can significantly sway the outcome of shareholder voting proposals.
2025 ISS Proxy Voting Guideline Changes
Executive Compensation
In addition to revisions to its proxy voting guidelines, ISS also updated its FAQs on executive compensation policies:
Computation of Realizable Pay – The realizable pay chart will not be displayed for companies that have experienced multiple (two or more) CEO changes within the three-year measurement period.
Pay-for-Performance Qualitative Review – ISS will place greater focus on performance‑vesting equity disclosures and plan designs, especially for companies with a quantitative pay-for-performance misalignment. Existing qualitative considerations around performance equity programs will be subject to greater scrutiny in the context of a quantitative pay‑for‑performance misalignment. ISS provided a non-exhaustive list of typical considerations for such analysis, including:
Non-disclosure of forward-looking goals (note: retrospective disclosure of goals at the end of the performance period will carry less mitigating weight than it has in prior years);
Poor disclosure of closing-cycle vesting results;
Poor disclosure of the rationale for metric changes, metric adjustments or program design;
Unusually large pay opportunities, including maximum vesting opportunities;
Non-rigorous goals that do not appear to strongly incentivize for outperformance; and/or
Overly complex performance equity structures.
Evaluation of Incentive Program Metrics – ISS reaffirmed its stance that it does not favor total shareholder return (TSR) or any specific metric in executive incentive plans, holding that the board and its compensation committee are best suited to choose metrics that lead to long-term shareholder value. However, ISS acknowledged that shareholders prefer an emphasis on objective metrics that lead to increased transparency in compensation decisions. In evaluating the metrics of an incentive program, ISS may consider several factors, including:
Whether the program emphasizes objective metrics linked to quantifiable goals, as opposed to highly subjective or discretionary metrics;
The rationale for selecting metrics, including the linkage to company strategy and shareholder value;
The rationale for atypical metrics or significant metric changes from the prior year; and/or
The clarity of disclosure around adjustments for non-GAAP metrics, including the impact on payouts.
Changes to In-Progress Incentive Programs – ISS reiterated its position against midstream changes to ongoing incentive programs, such as metrics, performance targets, and/or measurement periods). Similar to other kinds of unusual pay program interventions, ISS states that companies should disclose a compelling rationale for such actions and how they do not circumvent pay-for-performance outcomes.
Robust Clawback Policies – This year, ISS added a new FAQ concerning the requirements for a clawback policy to be considered “robust” under the “Executive Compensation Analysis” section of the ISS research report. In order to qualify, a clawback policy must:
Extend beyond minimum Dodd-Frank requirements; and
Explicitly cover all time-vesting equity awards.
Poison Pills
ISS made significant revisions to its voting policies concerning shareholder rights plans, more commonly referred to as “poison pills,” which are used by boards of directors to prevent hostile takeovers. Currently, when considering whether or not to vote for director nominees who have adopted a short-term poison pill (one year or less) without shareholder approval, ISS evaluates director nominees on a case-by-case basis. This year, ISS revised its guidelines to increase transparency surrounding the factors considered in this evaluation.
The revised list of factors now includes (changes as marked):
The trigger threshold and other terms of the pill;
The disclosed rationale for the adoption;
The context in which the pill was adopted (e.g., factors such as the company’s size and stage of development, sudden changes in its market capitalization, and extraordinary industry-wide or macroeconomic events);
A commitment to put any renewal to a shareholder vote;
The company’s overall track record on corporate governance and responsiveness to shareholders; and
Other factors as relevant.
Natural Capital
Next, ISS renamed references to “General Environmental Proposals” with “Natural Capital‑Related and/or Community Impact Assessment Proposals.” ISS also revised the list of factors considered when voting requests for reports on policies and/or the potential (community) social and/or environmental impact of company operations.
The revised list of factors now includes (changes as marked):
Alignment of current disclosure of applicable company policies, metrics, risk assessment report(s) and risk management procedures with any relevant, broadly accepted reported frameworks;
The impact of regulatory non-compliance, litigation, remediation, or reputational loss that may be associated with failure to manage the company’s operations in question, including the management of relevant community and stakeholder relations;
The nature, purpose, and scope of the company’s operations in the specific region(s);
The degree to which company policies and procedures are consistent with industry norms; and
The scope of the resolution.
SPAC Extensions
ISS also revised its policies with respect to SPAC termination dates and extension requests. Now, ISS will generally recommend that shareholders vote in favor of requests to extend the termination date of a SPAC by up to one year from the SPAC’s original termination date, inclusive of any built-in extension options, and accounting for prior extension requests.
ISS may also consider the following factors:
Any added incentives;
Business combination status;
Other amendment terms; and
If applicable, use of money in the trust fund to pay excise taxes on redeemed shares.
2025 Glass Lewis Proxy Voting Guideline Changes
Approach to Executive Pay Program
Glass Lewis provided clarification on its pay-for-performance policy to emphasize Glass Lewis’ holistic approach to analyzing executive compensation programs. Glass Lewis’ analysis reviews pay programs on a case-by-case basis, and there are few program features that, standing alone, will lead to an unfavorable recommendation from Glass Lewis on a say-on-pay proposal.
Glass Lewis does not utilize a pre-determined scorecard approach when considering individual features such as the allocation of the long-term incentive between performance-based awards and time-based awards. Unfavorable factors in executive compensation programs are reviewed in the context of rationale, overall structure, overall disclosure quality, the program’s ability to align executive pay with performance and the shareholder experience, and the trajectory of the pay program resulting from changes introduced by the board’s compensation committee, all as reflected in the compensation disclosures in the company’s proxy statement.
Additionally, while regulatory disclosure rules may allow for the omission of key executive compensation information, such as for smaller reporting companies, Glass Lewis believes that companies should use proxy statements to provide sufficient information to enable shareholders to vote in an informed manner.
Glass Lewis also revised how it identifies peer groups for its pay-for-performance model, including with reference to the peers of a company’s self-disclosed peers.
Board Oversight of Artificial Intelligence
Glass Lewis has adopted new guidelines dedicated to board oversight of AI, similar to the oversight of cybersecurity that was added in 2023. Glass Lewis believes that boards should take steps to mitigate exposure to material risks that could arise from their use or development of AI.
In the absence of material incidents related to a company’s use or management of AI-related issues, Glass Lewis’ policy will generally not make voting recommendations on the basis of AI‑related issues. However, when there is evidence that there is insufficient oversight and/or management of AI technologies that has resulted in material harm to shareholders, Glass Lewis will review a company’s overall governance practices and identify which directors or board-level committees have been charged with oversight of AI-related risks. Glass Lewis will also closely evaluate the board’s management of this issue, as well as any associated disclosures, and Glass Lewis may recommend against directors it deems appropriate should it find the board’s oversight, response, or disclosure concerning AI-related issues to be insufficient. Glass Lewis recommends that all companies that develop or use AI in their operations disclose the board’s role in AI oversight and how they are ensuring their directors are fully educated on this topic.
Change-in-Control Procedures
Glass Lewis also has updated the policies surrounding the change-of-control provision to clarify that companies that allow for committee discretion over the treatment of unvested awards should commit to providing clear rationale for how such awards are treated in the event that a change in control occurs. This change underscores the importance of clear disclosure surrounding equity awards.
Board Responsiveness to Shareholder Proposals
Glass Lewis revised its policy for shareholder proposals to clarify that when shareholder proposals receive “significant” shareholder support (generally more than 30%, but less than a majority of votes cast), boards should engage with shareholders on the issue and provide future disclosure addressing shareholder concerns and outreach initiatives.
Reincorporation
Glass Lewis also revised its policy on reincorporation to reflect that Glass Lewis reviews all proposals to reincorporate to a different state or country on a case-by-case basis. Glass Lewis considers a number of factors, including the changes in corporate governance provisions, especially those relating to shareholder rights, material differences in corporate statuses and legal precedents, and relevant financial benefits, among other factors, resulting from the change in domicile.
Key Takeaways
You can find copies of the 2025 polices of ISS and Glass Lewis on their respective websites, as well as summaries of their 2025 policy updates. These policy updates will be important as public companies prepare for their 2025 proxy statements and annual shareholders’ meetings. Companies should review these voting guidelines to proactively make disclosures necessary to secure favorable voting recommendations from ISS and Glass Lewis. Companies may also want to consider changes in governance and compensation practices to decrease the likelihood of an adverse voting recommendation from ISS or Glass Lewis, although any such change should also be weighed against the overall governance needs and strategy of the company.
In addition to ISS and Glass Lewis and other third-party proxy advisory firms, companies should review the voting policies of any large institutional investors who have significant shareholdings in the company. These institutional investors often have their own voting policies that can change over time, like ISS and Glass Lewis.
Congressional Review Act : Resolution of Disapproval of EPA’s TCE Rule Introduced in the House of Representatives
Representatives Diana Harshbarger (R-TN) and Mariannette Miller-Meeks (R-IA) introduced H.J. Res. 27, a resolution expressing congressional disapproval of the U.S. Environmental Protection Agency’s (EPA) rule on trichloroethylene (TCE). This joint resolution is an attempt to use the Congressional Review Act (CRA) to overturn EPA’s recent TCE rule issued under the Toxic Substances Control Act (TSCA).
Introduction of a resolution of disapproval is the first step in the process of overturning a final rule. Once introduced, the resolution is referred to committee for consideration. A committee may vote to report a CRA disapproval resolution but may not amend it. To be enacted, both the House of Representatives and Senate must pass the resolution, and the President must sign it.
H.J. Res. 27, the TCE resolution of disapproval, was referred to the House Committee on Energy and Commerce where it awaits committee action.
When a CRA joint resolution of disapproval is enacted, the rule that was the subject of the resolution is not only no longer in effect, but will also be treated as though the rule had never taken effect. In addition, a rule subject to an enacted joint resolution of disapproval “may not be reissued in substantially the same form, and a new rule that is substantially the same … may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution.”
The Congressional Research Service (CRS) has an excellent summary of the Congressional Review Act and is a source of detailed CRA information.
It is not clear what trajectory this measure will take in Congress. While the TCE rule is unpopular in industry circles, its congressional reception remains to be seen. We will keep you posted.
TSCA in the Spotlight: TSCA Is Focus of First Energy & Commerce Hearing of 119th Congress; GAO Issues Report on New Chemicals Program
In a development no one could have predicted several weeks ago, the first hearing of the 119th Congress in the House Committee on Energy and Commerce (E&C) focused on the Toxic Substances Control Act (TSCA) and amendments to TSCA that were enacted more than eight years ago.
The E&C Subcommittee on Environment (the Subcommittee) hearing on January 22, 2025, “A Decade Later: Assessing the Legacy and Impact of the Frank R. Lautenberg Chemical Safety for the 21st Century Act,” featured four witnesses and robust and enthusiastic attendance by the Subcommittee members. (Attendance exceeded the Subcommittee roster because Representative Diana Harshbarger (R-TN), waived onto the Subcommittee to participate in the hearing, where she made news by announcing her intent to introduce a Congressional Review Act resolution.)
Richard E. Engler, Ph.D., Director of Chemistry for The Acta Group (Acta®) and Bergeson & Campbell, P.C. (B&C®), testified alongside Mr. Chris Jahn, CEO of the American Chemistry Council (ACC); Mr. Geoff Moody, Senior Vice President, Government Relations and Policy, at the American Fuel and Petrochemical Manufacturers (AF&PM); and Maria J. Doa, Ph.D., Senior Director, Chemicals Policy, at the Environmental Defense Fund (EDF). Witness testimony, the staff hearing memo, and a link to a recording of the hearing can be found here.
Dr. Engler testified about the TSCA New Chemicals Program, how EPA’s practice has led to a bias against new chemicals, and how EPA’s approach has stifled innovation and led to newer, sustainable chemistry being commercialized outside of the United States.
An interesting development from the hearing was that both ACC and AF&PM testified that improvements to TSCA are necessary, but that they were not advocating for a comprehensive “opening up” of TSCA. Instead, they seemed to support more narrowly targeted changes to the statute.
The January 22 hearing was the first of what we expect to be a series of hearings on TSCA in the House of Representatives and Senate this year. Congress must pass legislation during the current 119th Congress to reauthorize TSCA fees that are set to expire September 30, 2026, the end of fiscal year 2026. A majority of members of the House of Representatives, and nearly half of the members of the Subcommittee, were not yet in Congress when the Frank R. Lautenberg Chemical Safety for the 21st Century Act (Pub. Law 114-182) was enacted in 2016.
Minutes before the E&C hearing, the U.S. General Accountability Office (GAO) released the report “New Chemicals Program: EPA Needs a Systematic Process to Better Manage and Assess Performance.” The report echoes a 2023 report by the EPA Office of Inspector General, “The EPA Lacks Complete Guidance for the New Chemicals Program to Ensure Consistency and Transparency in Decisions” (23-P-0026). GAO found that EPA’s New Chemicals Division (NCD) “does not follow most key practices for managing and assessing the results of the New Chemicals Program.”
GAO interviewed representatives from 19 manufacturers for the report. According to the report, “most (16 of 19) representatives told GAO they experienced review delays and described effects of these delays on their businesses. Effects manufacturers cited included harming customer relations, creating a competitive advantage for existing chemical alternatives at the expense of new chemicals, and hindering market participation.” Our January 23, 2025, blog item on the GAO report is available here.
EPA’s PFAS Regulations: What Real Estate Professionals Need To Know
In 2024, the U.S. Environmental Protection Agency (“EPA”) took significant steps to regulate per- and polyfluoroalkyl substances (PFAS), commonly known as “forever chemicals.” These persistent compounds, once widely used in manufacturing, firefighting, and food packaging, were designated as hazardous under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and became subject to maximum contaminant levels (MCLs) under the Safe Drinking Water Act (SDWA).
With increased regulatory scrutiny surrounding PFAS, understanding the evolving risks and liabilities tied to these chemicals is crucial for those involved in commercial real estate. Properties with industrial, commercial, or agricultural histories are especially vulnerable to PFAS contamination, which could affect property transactions, financial exposure, and risk management. This post outlines key EPA regulations, discusses ongoing legal challenges to those regulations, and highlights important considerations for real estate professionals navigating PFAS issues.
Key EPA Actions on PFAS in 2024
CERCLA Rule (May 2024): The EPA finalized a rule designating PFOA and PFOS, two common PFAS compounds, as hazardous substances under CERCLA. This gives the EPA authority to require investigation and cleanup at contaminated sites, potentially holding property owners liable for cleanup costs—even if they weren’t responsible for the contamination. Although the rule is currently under legal challenge, it could set a de facto standard for groundwater cleanup at federal and state Superfund sites.
SDWA Rule (April 2024): The EPA also set enforceable MCLs for six PFAS compounds, including PFOA and PFOS, at extremely low thresholds. Public water systems must comply within five years. While this rule primarily affects water systems, it could also affect properties relying on water contaminated with PFAS, potentially influencing groundwater cleanup requirements under CERCLA or equivalent state laws.
Ongoing Legal Challenges and the Trump Administration’s PFAS Policy
The EPA’s PFAS regulations are facing significant pushback. In American Water Works Association v. U.S. EPA, industry groups are challenging the EPA’s MCLs, arguing that they are technologically and economically unfeasible. Meanwhile, in Chamber of Commerce v. U.S. EPA, industry groups are challenging the designation of PFAS as hazardous under CERCLA, claiming that the EPA’s methodology was “fatally flawed” and that EPA failed to adequately consider the “enormous” costs associated with making the designations.
During his recent confirmation hearings, Lee Zeldin, President Trump’s nominee to lead EPA, was asked how he plans to address PFAS using the agency’s existing authorities. Zeldin mentioned that during his time in Congress, he served on a task force concerning PFAS regulation and voted in support of legislation that would have required EPA to actions under CERCLA and the SDWA similar to those implemented by the Biden Administration. This indicates that a complete reversal of the current rules is unlikely.
Implications for Real Estate Professionals
As PFAS contamination becomes a central environmental concern, CRE professionals need to incorporate PFAS risks into due diligence and risk management processes. PFAS contamination can result in substantial cleanup costs, even for property owners not directly responsible for the contamination. CRE professionals should consider the following when evaluating PFAS risk:
Phase I Environmental Site Assessments (ESAs): PFAS contamination is increasingly flagged during Phase I ESAs. Properties with industrial or commercial histories, particularly those in high-risk areas, are more likely to identify PFAS as a recognized environmental condition (REC).
Phase II Investigations: If Phase I ESAs flag PFAS concerns, Phase II investigations may be needed. These investigations are more invasive and often more expensive due to the specialized testing required.
Reopening Closed Sites: In some cases, regulators could revisit sites previously closed after remediation if PFAS is discovered. Property owners could be held liable for further cleanup costs, even if the contamination was missed initially.
Addressing PFAS-Impacted Sites
Remediating PFAS contamination is both challenging and costly. Traditional methods like “dig and haul” and “pump and treat” are time-consuming and expensive. However, new technologies, such as thermal treatment and supercritical water oxidation, offer promising solutions that could be more cost-effective. The costs associated with remediation will vary depending on the chosen strategy and the evolving regulatory landscape.
While the EPA is currently focusing on only a few PFAS compounds, thousands of other PFAS chemicals could be subject to future regulation. At the state level, regulations are expected to become more stringent, further complicating the legal environment for real estate professionals. These regulatory changes could impact property values, development timelines, and investment strategies.
Given the complexities surrounding PFAS, it’s essential to work with environmental consultants, attorneys, and insurance brokers specializing in PFAS. These experts can help navigate regulatory changes, assess risks, and develop strategies to manage potential liabilities effectively.
Conclusion
As the EPA reshapes its regulatory framework for PFAS, staying informed and proactive is critical for anyone involved in commercial real estate. Understanding the legal, environmental, and financial implications of PFAS contamination is key to minimizing risk and succeeding in an increasingly complex real estate market. Whether conducting due diligence, managing existing properties, or addressing contamination concerns, navigating these new rules effectively is key to protecting assets and opening new opportunities.
Apple’s PFAS Consumer Fraud Lawsuit the Latest in Growing Trend
Directly on the heels of our article this week regarding the latest PFAS consumer fraud lawsuit (this time, against Samsung for its smart watches), Apple finds itself in a similar lawsuit over its smartwatches. The number of product types targeted for these lawsuits are growing and diverse in terms of the industries targeted. While there has been at least one significant settlement in these lawsuits to date, recently a few of the lawsuits that we previously reported on related to PFAS consumer fraud allegations were dismissed by separate courts.
However, this has not deterred plaintiffs from filing these types of cases, and in fact there are other lawsuits that successfully defeated Motions to Dismiss. The latest PFAS consumer fraud lawsuit targets Apple and shows that the number of consumer fraud lawsuits is likely to continue, and consumer goods industries, insurers, and investment companies interested in the consumer goods vertical must pay careful attention to these lawsuits.
PFAS Consumer Fraud Lawsuit – Overview
The consumer fraud PFAS lawsuits filed to date follow a very similar pattern: various plaintiffs bringing suit on behalf of a proposed class allege that companies market consumer goods as safe, healthy, environmentally friendly, etc., or that the companies themselves market their corporate practices as such, yet it is allegedly discovered that certain products marketed with these buzzwords contain PFAS. The lawsuits allege that since certain PFAS may be harmful to human health and PFAS are biopersistent (and therefore environmentally unfriendly), the companies making the good engaged in fraud against consumers to entice them to purchase the products in question.
In the Complaints, plaintiffs typically allege the following counts:
Violation of state consumer protection laws and the federal Magnuson-Moss Warranty Act
Violations of various state consumer protection laws
Breach of warranty
Fraud
Constructive fraud
Unjust enrichment
The plaintiffs seek certification of nationwide class action lawsuits, with a subclass defined as consumers in the state in which the lawsuits are filed. In addition, the lawsuits seeks damages, fees, costs, and a jury trial. Representative industries and cases that have recently been filed include:
Cosmetics industry:
Brown v. Cover Girl, New York (April 1, 2022)
Anderson v. Almay, New York (April 1, 2022)
Rebecca Vega v. L’Oreal, New Jersey (April 8, 2022)
Spindel v. Burt’s Bees, California (March 25, 2022)
Hicks and Vargas v. L’Oreal, New York (March 9, 2022)
Davenport v. L’Oreal, California (February 22, 2022)
Food packaging industry:
Richburg v. Conagra Brands, Illinois (May 6, 2022)
Ruiz v. Conagra Brands, Illinois (May 6, 2022)
Hamman v. Cava Group, California (April 27, 2022)
Azman Hussain v. Burger King, California (April 11, 2022)
Little v. NatureStar, California (April 8, 2022)
Larry Clark v. McDonald’s, Illinois (March 28, 2022)
Food and drink products:
Bedson v. Biosteel, New York (January 27, 2023)
Lorenz v. Coca-Cola, New York (December 28, 2022)
Toribio v. Kraft Heinz, Illinois (November 29, 2022)
Apparel products:
Krakauer v. REI, Washington (October 28, 2022)
Hygiene products:
Esquibel v. Colgate-Palmolive Co., New York (January 27, 2023)
Dalewitz v. Proctor & Gamble, New York (August 26, 2022)
Feminine hygiene products:
Gemma Rivera v. Knix Wear Inc., California (April 4, 2022)
Blenis v. Thinx, Inc., Massachusetts (June 18, 2021)
Destini Canan v. Thinx Inc., California (November 12, 2020)
Latest PFAS Consumer Fraud Lawsuit
In Dominique Cavalier and Kiley Krzyzek v. Apple Inc., the plaintiffs alleges that they purchased various Apple smart watches designed to encourage and support personal fitness goals of consumers. The products, plaintiffs argue, were marketed as promoting human health, environmentally sustainable, and suitable for everyday use and wear. Upon testing, the watches were found to have various types of PFAS. Plaintiffs allege that they were therefore deceived by Apple, and never would have purchased the product if they knew that they contained PFAS. Plaintiffs seeks a class certification of all purchasers of the products in question for the time period in question, with a subclass of all purchasers of the products from California.
Recent Rulings In Consumer Fraud PFAS Lawsuits
In California, the Yeraldinne Solis v. CoverGirl Cosmetics et al. case made allegations that cosmetics were marketed as safe and sustainable, yet were found to contain PFAS. The defendants in the lawsuit filed a Motion to Dismiss, arguing in relevant part that the plaintiff had no standing to file the lawsuit because she did not sufficiently allege that she suffered any economic harm from purchasing the product. The plaintiff put forth two theories to counter this argument: (1) the “benefit of the bargain” theory, under which the plaintiff alleged that she bargained for a product that was “safe”, but received the opposite. The court dismissed this argument because the product packaging did not market the product as safe, and the ingredient list explicitly named the type of PFAS found in testing; and (2) an overpayment theory, under which plaintiff alleged that if she knew the product contained PFAS, she would not have paid as much for it as she did. The Court dismissed this argument because the product packaging specifically listed the type of PFAS at issue in the case.
In Illinois, the Richburg v. Conagra Brands, Inc. alleged that popcorn packaging was marketed as containing “only real ingredients” and ingredients from “natural sources”, yet the popcorn contained PFAS (likely from the packaging itself), which was allegedly false and misleading to consumers. The defendant moved to dismiss the lawsuit on several grounds and the Court found in defendant’s favor on one important ground. The Court held that the statements on the popcorn packaging would not mislead an ordinary and reasonable consumer because a consumer would understand “ingredients” to mean those items that are required to be disclosed by the FDA and not materials that may have migrated to the food from the product packaging. In fact, the Court ruled that the FDA “exempts substances migrating to food from equipment or packaging;” and those “do not need to be included in the ingredients list.” The defendant argued that reasonable consumers would not consider PFAS to be an “ingredient” under this regime. In other words, whether or not PFAS migrated into the popcorn, the representations that the popcorn contained “only real ingredients” and “100% ingredients from natural sources” were “correct as a matter of law.” The court dismissed plaintiffs claims on this basis.
Conclusion
Several major companies now find themselves embroiled in litigation focused on PFAS false advertising, consumer protection violations, and deceptive statements made in marketing and ESG reports. The lawsuits may well serve as test cases for plaintiffs’ bar to determine whether similar lawsuits will be successful in any (or all) of the fifty states in this country. Companies must consider the possibility of needing to defend lawsuits involving plaintiffs in numerous states for products that contain PFAS. It should be noted that these lawsuits would only touch on the marketing, advertising, ESG reporting, and consumer protection type of issues. Separate products lawsuits could follow that take direct aim at obtaining damages for personal injury for plaintiffs from consumer products. In addition, environmental pollution lawsuits could seek damage for diminution of property value, cleanup costs, and PFAS filtration systems if drinking water cleanup is required.
While the above rulings are encouraging for companies facing consumer fraud PFAS lawsuits, it is far too early to tell if the trend will continue nationally. As the recent California case shows, plaintiffs continue to file PFAS consumer fraud cases despite the recent dismissals. Different courts apply legal standards differently and these cases are very fact specific, which could lead to differing results. This has been the case in several jurisdictions, where PFAS consumer fraud cases have been permitted to proceed to litigation after initial challenges were made.
It is of the utmost importance that businesses along the whole supply chain in the consumer products industry evaluate their PFAS risk. Public health and environmental groups urge legislators to regulate PFAS at an ever-increasing pace. Similarly, state level EPA enforcement action is increasing at a several-fold rate every year. Now, the first wave of lawsuits take direct aim at the consumer products industry. Companies that did not manufacture PFAS, but merely utilized PFAS in their manufacturing processes, are therefore becoming targets of costly enforcement actions at rates that continue to multiply year over year. Lawsuits are also filed monthly by citizens or municipalities against companies that are increasingly not PFAS chemical manufacturers.
US Fair Access and Anti-Debanking Laws: What to Expect During the New Administration
Federal and state “fair access” or “anti-debanking” laws and regulations have been evolving quickly over the last five years, closely tracking the changing U.S. political climate. These laws and regulations are designed to ensure that financial institutions make their services available without discriminating against individuals or businesses engaged in lawful activity that may be viewed as controversial or politically sensitive. The “fair access” requirements generally prohibit financial institutions from denying or cancelling services to customers based on factors such as political opinions, religious beliefs, and environmental, social and governance (ESG) standards. While the intent of such laws and regulations is to promote impartiality, they introduce significant challenges to the financial sector.
Financial institutions should prepare for revived activity on fair access laws at both the federal and state levels under the new administration.
Background on Federal Fair Access Initiatives
During the first Trump Administration, the Office of the Comptroller of the Currency (OCC) released its “fair access” final rule (OCC Final Rule), requiring “covered banks” (i.e., national banks and federal savings associations (FSAs) with at least $100 billion in assets) to:
a.
Make financial services available to all persons in their geographic market on “proportionally equal terms;”
b.
not deny any person a financial service unless the denial is justified by such person’s quantified and documented failure to meet quantitative, impartial, risk-based standards established in advance by the covered bank; and
c.
not deny, in coordination with others, any person a financial service the covered bank offers.
The OCC noted that the OCC Final Rule: (a) codified prior OCC guidance providing that banks should conduct a risk assessment of individual customers, rather than make broad-based decisions affecting whole categories or classes of customers, when providing access to services, capital, and credit; and (b) implemented language in Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, charging the OCC with “assuring the safety and soundness of, and compliance with laws and regulations, fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction.” The OCC Final Rule was set to take effect on April 1, 2021, but on Jan. 28, 2021 (shortly after former President Biden took office and imposed a regulatory freeze), the OCC paused the rule’s publication in the Federal Register. Regarding this pause, the OCC noted that its “long-standing supervisory guidance stating that banks should avoid termination of broad categories of customers without assessing individual customer risk [would] remain…in effect.”
During the Biden administration, a bill titled “Fair Access to Banking Act” was introduced in both the U.S. House and Senate.1 The Fair Access to Banking Act aimed to require banks with assets of more than $10 billion provide fair access to financial services “without impediments caused by a prejudice against or dislike for a person or the business of the customer.”2 Failure to do so could result in restrictions on the bank relating to the use of electronic funds transfer systems and lending programs, termination of depository insurance, and civil penalties.3
State Fair Access Law Initiatives
While federal efforts to enact legislation and rulemaking stalled under the Biden administration, states such as Florida and Tennessee enacted their own “fair access” or “anti-debanking” legislation.
A.
Florida
In May 2023, the state enacted its “fair access” law through 2023 Florida House Bill No. 3 (FL HB 3). FL HB 3 created new “unsafe and unsound practice” standards for certain financial institutions in Florida,4 prohibiting them from denying, canceling, suspending, or terminating services to current or prospective customers, or otherwise discriminating against customers, on the basis of:
a.
the customer’s political opinions, speech, or affiliations;
b.
the customer’s religious beliefs, religious exercise, or religious affiliations;
c.
any factor if it is not a quantitative, impartial, and risk-based standard, including any factor relating to the customer’s business sector; or
d.
any rating, scoring, analysis, tabulation, or action that considers a social credit score based on certain factors.
Since July 1, 2023, these affected financial institutions have been required to attest their compliance with the fair access law on an annual basis under penalty of perjury.
In May 2024, Florida expanded its fair access law through 2024 Florida House Bill No. 989 (FL HB 989). FL HB 989: (a) expanded the applicability of the state’s fair access law to bring into scope federal and non-Florida licensed financial institutions conducting business in the state that do not hold status as Florida “qualified public depositories;” (b) created a customer complaint process with the Florida Office of Financial Regulation (OFR) for customers who suspect that a “financial institution” violated the “unsafe and unsound practice” standard established in the fair access law; and (c) created an investigatory process with the OFR for customer complaints.
B.
Tennessee
Tennessee enacted its fair access law in April 2024, through 2024 Tennessee House Bill No. 2100 (TN HB 2100), imposing fair access requirements on: (a) state and national banks, savings and loan associations, savings banks, credit unions, industrial loan and thrift companies, and mortgage lenders that have more than $100 billion in assets; and (b) insurers.
Like Florida, Tennessee’s fair access law requires these institutions to make determinations about the provision of services based on an analysis of risk factors unique to the current or prospective customer, and prohibits them from denying or cancelling services, or otherwise discriminating against a person in making available such services or in the terms or conditions of such services, on the basis of5
a.
the person’s political opinions, speech, or affiliations;
b.
the person’s religious beliefs, religious exercise, or religious affiliations;
c.
any factor if it is not a quantitative, impartial, and risk-based standard, including any factor relating to the person’s business sector; or
d.
the use of a rating, scoring, analysis, tabulation, or action that considers a social credit score based on certain factors.
While TN HB 2100 does not provide for a customer complaint process, it gives customers a right to request a statement from the financial institution detailing the specific reasons for the refusal, restriction, or termination within 90 days of receiving notice.
In 2024, at least 10 other states introduced fair access legislation, including Arizona, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Nebraska, South Dakota, and West Virginia.
Federal Regulatory Agencies Express Preemption Concerns
In November 2023, the OCC issued a letter expressing concern about state fair access law initiatives and the impact these may have on the national banking system, noting that the OCC is “carefully monitoring the proliferation of competing and potentially inconsistent requirements…[and that it is] concerned about their impact on the ability of national banks and FSAs to provide banking services consistent with safety, soundness, and the fair treatment of customers.” The letter cites to the Supremacy Clause of the U.S. Constitution, highlighting that “federal law preempts state laws that conflict with the exercise by national banks and FSAs of their federally authorized powers” and that the OCC is committed to “preserving the legal framework for preemption established by Congress, including in the Dodd-Frank Wall Street Reform and Consumer Protection Act.”
On July 17, 2024, following the Supreme Court decision in Cantero v. Bank of America,6 Michael Hsu, the Acting Comptroller of the Currency, stated that the OCC will continue to “fortify and vigorously defend core preemption” of federal law over state banking laws. A debate has also evolved as to whether state fair access laws interfere with a financial institution’s ability to comply with federal anti-money laundering laws. On July 8, 2024, a bipartisan group of congressmen issued a letter to the OCC, Department of the Treasury, and Treasury’s Financial Crimes Enforcement Network (FinCEN) to express concerns that state fair access laws “may conflict with federal laws intended to combat money laundering and terrorist financing…[and] pose significant challenges to compliance with critical regulations such as the Bank Secrecy Act (BSA), and the Anti-Money Laundering (AML) Act, potentially threatening national security.” On July 18, Treasury responded, noting it shared the congressmen’s concerns, including concerns that state laws similar to FL HB 989 “may materially undermine compliance with the important AML/CFT and sanctions requirements administered by [FinCEN] and Office of Foreign Assets Control (OFAC).”
Looking Forward
As the second Trump administration takes office, Republicans take control of Congress, and leadership at the federal banking regulatory agencies changes, financial institutions should prepare for a shift in regulatory priorities. On Jan. 20, 2025, when Travis Hill became Acting Chairman of the Federal Deposit Insurance Corporation (FDIC), he immediately issued a statement outlining the matters the FDIC expects to focus on in “the coming weeks and months.” He included among these matters “work[ing] to ensure law-abiding customers have, and do not lose, access to bank accounts and banking services.” The Acting Chairman previously indicated in a speech he gave as Vice Chairman on Jan. 10 that access to a bank account is essential for participation in the modern economy and that regulators should reevaluate their approach to implementing the BSA, noting that “[w]hile we all share the goal of ensuring criminals and terrorists are not using the banking system to fund drug trafficking, terrorism, and other serious crimes, the current BSA regime creates an incentive for banks to close accounts rather than risk massive fines for inadequate BSA compliance.” He further noted that “[t]hese issues, along with others in the BSA realm, warrant attention and scrutiny during the [new] Administration.”
The FDIC appears to be positioning itself to evaluate “debanking” and fair access to banking services, and we anticipate that the other prudential federal banking agencies will follow suit.7 The Comptroller of the Currency has not been nominated to date, but the new nominee may reconsider the OCC Final Rule to determine whether to proceed with its implementation. Additionally, with Republican majorities in both the U.S. House of Representatives and the U.S. Senate, we may see renewed attempts to enact the Fact Access to Banking Act or similar fair access or “debanking” laws in the new Congress.
Financial institutions should be prepared for increased federal regulatory scrutiny and rulemaking efforts regarding fair access.
In addition to federal actions, state-level fair access law initiatives continue shaping the regulatory landscape, further complicating the patchwork of compliance requirements for financial institutions. This dual regulatory framework underscores the importance of financial institutions continuing to monitor developments at both federal and state levels, and for those that have not done so, begin to consider potential changes to current policies, procedures, and controls to prepare for the new regulatory environment.
1 The legislation was introduced in 2021 (H.R. 1729, 117th Cong. (2021); S. 563, 117th Cong. (2021)) and again in 2023 (H.R. 2743, 118th Cong. (2023); S. 293, 118th Cong. (2023)). The most recent Senate bill had 37 Republican cosponsors, while the House bill had 127 Republican cosponsors.
2 H.R. 1729, 117th Cong. § 8 (2021); S. 563, 117th Cong. § 8 (2021); H.R. 2743, 118th Cong. § 8 (2023); S. 293, 118th Cong. § 8 (2023).
3 H.R. 1729, 117th Cong. §§ 4-5 (2021); S. 563, 117th Cong. §§ 4-5 (2021); H.R. 2743, 118th Cong. §§ 4-5 (2023); S. 293, 118th Cong. §§ 4-5 (2023).
4 FL HB 3 imposed these new “unsafe and unsound practice” standards on state-chartered and state-authorized financial institutions such as Florida-chartered banks, trust companies, credit unions, international bank agencies, branches, representative offices, and administrative offices of foreign banks, banks authorized as “qualified public depositories” in the state, consumer finance lenders, and money services businesses.
5 TN HB 2100 excludes loans from the definition of “services.” TN HB 2100 § 1 and Tenn. Code Ann. § 45-1-128(a)(2)(B).
6 Cantero v. Bank of America, N.A., 602 U.S. 205 (2024). In Cantero, the U.S. Supreme Court reviewed the issue of whether the National Bank Act preempted state laws that purported to impose a minimum rate of interest on mortgage escrow accounts. The Court indicated that, to reach preemption decisions, lower courts should make a “practical assessment” of whether the state law “prevents or significantly interferes with” a national bank’s power and instructed lower courts to make this determination by comparing state laws at issue to those the Court had analyzed in previous preemption decisions. The Court noted, but did not address, the OCC’s role in making determinations about whether a state law regulating a national bank is preempted.
7 The U.S. prudential bank regulators generally attempt to align policies and supervisory approaches to ensure, among other things, consistent application of regulatory standards across jurisdictions.
Additional Author: Tiffanie Monplaisir