House Bill 3809 Adds Obligations to Battery Energy Storage Lessees in Texas
On May 29, 2025, House Bill No. 3809 was signed into law by Texas Governor Greg Abbott. Born out of a crop of bills regulating renewable energy, including S.B. 388, S.B. 715, and S.B. 819, H.B. 3809 is the only one to be signed into law this session. It takes effect September 1, 2025 and places additional requirements on certain battery energy storage operators entering into a lease on or after that date. [H.B. 3809, Sections 2 and 3]. Specifically, the bill mandates decommissioning requirements in battery energy storage (BESS) facilities, other than those owned by an electric utility [New Sections 303.001(1)(B) and (5) of the Texas Utilities Code], requires financial assurance to comply with these decommissioning obligations, and sets forth non-waivable provisions in facility leases containing those requirements. As such, H.B. 3809 effectively aligns decommissioning and financial assurance obligations for BESS projects with those already established for wind and solar energy projects.
Key Provisions of H.B. 3809
The two most notable changes H.B. 3809 makes are mandating decommissioning and financial assurance provisions in BESS leases not entered into by an electric utility. These changes, which are designed to protect landowners and the environment, add more obligations to BESS storage lessees by mandating the removal of their facilities.
1. Mandatory Decommissioning Provisions in Lease Agreements
H.B. 3809 introduces a series of amendments to the Texas Utilities Code that mandate facility-removal provisions in battery energy storage leases. The lease must provide that the lessee is responsible for safely removing the facility and storage resources, like transformers and substations. [New Section 303.004(a)(1) of the Texas Utilities Code]. In addition to the facility and storage resources, the lessee must safely remove foundations, buried cables, and overhead lines. [Id. at subsections (a)(3) and (4)]. The lease must also include provisions that make the lessee responsible for disposing of and recycling components. [Id, at Section (b)]. Further, the amendments mandate landowner-requested obligations in leases, including maintaining and removing roads, filling holes, removing rocks with a 12-inch or larger diameter, returning the land to a tillable state, and restoring the surface. [Id. at subsection (d)].
2. Financial Assurance Requirements
H.B. 3809 mandates that BESS lessees that are not an electric utility provide financial assurance to ensure they perform the newly-created facility decommissioning obligations. [New Section 303.005 of the Texas Utilities Code]. Lessees must deliver financial assurance to the landowner before the earlier of the facility lease’s termination date or the facility’s 15th-anniversary date. [Id. at subsection (e)]. Acceptable forms of financial assurance include a parent company guaranty with a minimum investment grade credit rating for the parent company issued by a major domestic credit rating agency, a letter of credit, a bond, or another form of financial assurance reasonably acceptable to the landowner. [Id. at subsection (a)]. The amount of financial assurance must be sufficient to cover the facility removal, component recycling, and surface restoration costs minus the facility salvage value less the value of any portion of the facility already pledged as collateral for existing debt. [Id. at subsection (b)]. An independent third-party Texas-licensed engineer will determine the costs and salvage value. [Id. at subsection (c)(1)]. The lessee shall provide an initial estimated cost of removal and recycling or disposal on or before the 10th anniversary of the facility’s battery operation date, and must update the estimate at least once every five years for the life of the lease. [Id. at subsections (c)(2) and (3)].
Enforcement Provisions
H.B. 3809 introduces a series of legal and procedural safeguards to enforce its new decommissioning and financial assurance requirements. The bill includes a non-waiver clause that forbids contractual waiver of its provisions. [New Section 303.002(a) of the Texas Utilities Code]. It also entitles the landowner to injunctive relief, among other remedies available to the landowner, if their lessee violates the provisions of H.B. 3809. [Id. at subsections (b) and (c)].
Chance Fraser contributed to this article
Does a Bank Need to Produce Social Security Records in Response to a N.Y. Information Subpoena?
As a general rule, a bank or other financial institution is not required to produce full Social Security numbers in response to a N.Y. Information Subpoena. A bank/ financial institution should not do so unless directed by Court Order. Rather, when responding to an N.Y. Information subpoena, a subpoenaed financial institution should only provide the last four digits of a customer’s Social Security number (absent a Court Order specifically requiring the production of a customer’s complete Social Security number). We counsel our financial institution clients to follow this practice.
As a general rule, the dissemination of Social Security numbers is regulated and restricted. See, for example , New York Labor Law§ 203-d, which provides that social security numbers constitute “personal identifying information,” which should not be publicly displayed, printed on identification badges or cards, or communicated “to the general public.”
In Meyerson v. Prime Realty Servs., LLC, 7 Misc. 3d 911, 917, 796 N.Y.S.2d 848, 854 (Sup. Ct. 2005), the Court conducted a “broad review of the treatment of social security numbers” and determined that “it is clear that the weight of authority favors treating a social security number as private and confidential information. In casting for a proper legal characterization, the law appears to support a conclusion that a social security number is protected by something akin to a privilege against disclosure.” Accordingly, with respect to subpoenas, Courts will typically direct that social security numbers be redacted. See, for instance, Beaudette v. Infantino, 73 Misc. 3d 864, 873, 157 N.Y.S.3d 243, 251 (N.Y. Sup. Ct. 2021), where the Court held as follows:
the court directs the redaction of any personal identifying information of any natural person that appears within any record to be disclosed, including but not limited to such person’s name, address, telephone number, date of birth, social security number, and any information that would reveal such person’s medical or mental health condition.
(emphasis added).
For your information, it has long been our practice of redacting all but the last four digits of Social Security numbers. Specifically, New York’s electronic filing rules deem Social Security numbers to be “Confidential Personal Information” or “CPI” which should only be filed with the Court in redacted format:
“Here is the list of the CPI to redact and how to redact it:
Taxpayer ID numbers, social security numbers, and employer ID numbers are redacted by leaving out everything but the last four numbers. For example: xxx-xx-1234.”
https://www.nycourts.gov/Courthelp/goingtocourt/redaction.shtml
Accordingly, a customer’s full Social Security number should not be produced in response to a New York Information Subpoena. We would strongly suggest that when responding to a New York Information Subpoena, a bank or financial institution should provide only the last four digits of a customer’s Social Security number, unless a court Order is received requiring the production of the complete Social Security number.
Crack the Code: A Guide to the UK Stewardship Code 2026
On 3 June 2025, the Financial Reporting Council (“FRC”) published its new UK Stewardship Code 2026 (the “Code”). The voluntary Code applies to asset managers, asset owners and services providers with the aim of providing greater transparency on reporting in respect of the stewardship roles undertaken on behalf of clients and beneficiaries.
Although the UK Stewardship Code is voluntary, certain UK-regulated firms are required to disclose their adherence to it under the Financial Conduct Authority’s Handbook (specifically under Environmental, Social and Governance sourcebook and Conduct of Business sourcebook). The Code is widely embraced across not only the UK asset management sector, but also by international firms and non-UK managers, with a current status of 297 signatories managing £52.3 trillion in assets under management, making it highly relevant to a broad range of firms.
The Main Features of the new 2026 Code include:
1. Streamlined Reporting Requirements
The number of principles has reduced and reporting prompts have been shortened with the aim to avoid a “box-ticking” approach.
Signatories can now choose between submitting:
A combined report (to be made annually during one of the two application windows); or
Separate Policy and Context Disclosures (to be made every 4 years) and Activities and Outcomes Reports (to be made annually).
2. Refined Definition of Stewardship
The definition has been revised to clarify that stewardship is about the responsible allocation, management, and oversight of capital to create long-term sustainable value for clients and beneficiaries. The previous definition from the 2020 code was considered by some to imply by some that stewardship encompassed a duty to deliver on societal or environmental benefits in addition to the economic aspect.
3. Tailored Principles for Different Signatories
New specific principles have been introduced for proxy advisors, investment consultants and engagement service providers.
4. Optional Guidance for Non-Equity Asset Classes
The FRC has published draft guidance which can be found here to help organisations report on stewardship across asset classes beyond listed equity, such as fixed income or real estate.
What does this mean for Asset Managers, Asset Owners, and Service Providers?
In essence, the new Code will allow for more focused reporting as either a single combined report can be submitted or, alternatively, split into a separate policy and Context Disclosure and Activities and Outcomes Report – this will hopefully reduce the administrative burden and allow more flexibility with the stewardship role.
The Code will also likely trigger more substantive engagement as managers must show how stewardship activities (such as engagement or voting) have influenced investment decisions or outcomes.
The optional guidance will also provide asset managers the chance to report on stewardship with respect to non-equity assets which will be beneficial for diversified portfolios or multi-asset strategies.
Lastly, the Code now distinguishes between different types of signatories, so asset managers for example, are assessed based on their specific role and influence in the investment chain, and this more tailored approach may enhance the relevance of the principles to certain signatories.
Key Dates for applying
The Code will have two application windows for signatories or hopefully signatories to submit reports:
Spring 2026: applications from asset managers and service providers will be due by 30 April 2026. Applications from asset owners will be due by 31 May 2026.
Autumn 2026: all applications will be due by 31 October 2026.
Transition period
To support the move towards the UK Stewardship Code, 2026 will be treated as a transition year. All existing signatories submitting a renewal application will remain on the signatory list throughout this period. The reasoning behind the transition period is to recognise that organisations will have already met the requirements under the 2020 code and will seek to encourage them to embrace the updated Code without the need for reassessment by the FRC.
Current signatories to the Stewardship Code who are scheduled to report in the autumn cycle are still expected to provide their reports by 31 October 2025.
For new signatories that are not party to the current 2020 code, they will be subject to the full assessment process.
How can firms get ready for the new Code?
1. Review and Understand the 2026 Code
Check the refined definitions of stewardship and how it aligns with your firm’s investment philosophy or values. Familiarise your team with the revised principles paying attention to the new structure and reporting options.
2. Assess Current Practices
Consider conducting a gap analysis comparing your current stewardship policies and reporting against the new Code.
3. Choose a Reporting Path
Decide whether to submit a combined report or to split the reporting disclosures based on internal resources and complexity of your investment strategies.
4. Engage with Service Providers
If you use proxy advisors, consultants, or engagement services, ensure they are aware of the new Code and have measures in place to support your compliance. A review of contracts and expectations would also be beneficial to align with the Code’s tailored principles for these providers.
There is also the option to submit feedback on the draft guidance (especially for non-equity asset classes) before the 31 August 2025 deadline (Comments can be sent to [email protected]).
A Day of Near-Unanimity on Six Important Cases – SCOTUS Today
As this term draws to a close, the U.S. Supreme Court is getting busy in reducing its inventory of pending cases. Yesterday, six of them were resolved.
Unfortunately for me, as well as other lawyers who frequently deal with class actions, the case I was most eagerly awaiting, Laboratory Corporation of America Holdings v. Davis, was resolved summarily with a one-liner indicating a “DIG,” that is, “cert. dismissed as improvidently granted.”
Usefully for us interested lawyers, though, Justice Kavanaugh dissented from this per curiam decision, and his dissenting opinion gives us a good idea of what the other eight Justices were thinking and how the issue in the case might come up again in future terms.
The question presented was whether a federal court may certify a damages class pursuant to Federal Rule of Civil Procedure 23 (“Rule 23”) when the class includes both injured and uninjured members. The underlying case was simple: various blind and visually impaired individuals alleged that Labcorp had violated the Americans with Disabilities Act and a state analog with respect to the accessibility of touchscreen kiosks by which patients can check in for their medical appointments. The class that these individuals sought to represent contained persons who, though legally blind, either would not use the kiosks at all or were indeed unable to use them. Nevertheless, the U.S. Court of Appeals for the Ninth Circuit ultimately approved the class, notwithstanding that it “potentially includes more than a de minimis number of uninjured class members.”
Justice Kavanaugh believes that the Court “digged” the case because it was unwilling to wade into the threshold issue of mootness. He would have done so and held that a Rule 23 damages class cannot include uninjured members. To be fair, the majority very well might have been motivated by the doctrine of avoidance, but for those of us involved in securities and employment litigation and, more recently, cybersecurity and data privacy cases, this issue of inclusion in classes of uninjured persons is very much live. This is a bad news / good news issue, however: Bad in the sense that a lively issue will not be decided, at least at present, good in the sense that it is likely to recur. At that point, we know at minimum how Justice Kavanaugh will vote.
Now, let’s turn to the cases that actually were decided on the merits.
On behalf of a unanimous Court in Ames v. Ohio Dept. of Youth Services, Justice Jackson wrote that the Sixth Circuit’s “background circumstances” rule—which requires members of a majority group to satisfy a heightened evidentiary standard to prevail on a claim under Title VII, 42 U. S. C. §2000e– 2(a)(1)—“cannot be squared with the text of Title VII or the Court’s precedents.” Most of this blog’s readers understand that Title VII’s disparate-treatment provision bars employers from intentionally discriminating against their employees on the basis of race, color, religion, sex, or national origin. It is usually “not onerous” for a plaintiff to state a prima facie case of discrimination, but the “background circumstances” rule requires plaintiffs who are members of a majority group to bear an additional burden at the outset of a disparate impact, reverse discrimination case. “The question in this case is whether, to satisfy [its] prima facie burden, a plaintiff who is a member of a majority group must also show ‘background circumstances to support the suspicion that the defendant is that unusual employer who discriminates against the majority.’”
The Court answers that question in the negative, holding that the “background circumstances” requirement “is not consistent with Title VII’s text or our case law construing the statute.” In doing so, the Court recognized that Title VII’s pleading requirements are the same whether the plaintiffs are members of minority or majority groups. The statute bars discrimination against “any individual,” not groups, because of protected characteristics. “Congress left no room for courts to impose special requirements on majority-group plaintiffs alone.” The Court thus reversed the case and remanded it for further proceedings under a uniform pleading standard.
Interestingly, Justice Thomas, joined by Justice Gorsuch, wrote a separate concurring opinion decrying “the problems that arise when judges create atextual legal rules and frameworks.” Pending cases in other areas of the law, especially where a spate of recent executive orders is at issue, will likely confront certain Justices with the adage about “what is sauce for the goose is sauce to the gander.” One would not be surprised if, say, Justice Kagan were to remind her concurring colleagues of that observation in future cases where textual literalness might be questioned. For the present, employment law practitioners should take note of the Ames case in a litigation environment increasingly rich in reverse discrimination cases spawned by executive orders banning diversity, equity, and inclusion or similar programs.
Smith & Wesson Brands, Inc. v. Estados Unidos Mexicanos is another case decided by a unanimous Court. The decision was written by Justice Kagan, with the odd couple of Justices Thomas and Jackson also separately concurring. The case arose with a lawsuit filed by the government of Mexico against seven American gun manufacturers, claiming that the companies aided and abetted unlawful sales of guns that were routed to Mexican drug cartels. The suit was premised on the theory that the manufacturers failed to exercise “reasonable care.” The Protection of Lawful Commerce in Arms Act (PLCAA) provides that a “qualified civil liability action . . . may not be brought in any Federal or State court,” against a firearms manufacturer or seller stemming from “the criminal or unlawful misuse” of a firearm by “a third party,” §7903(5)(A).
But there is a “predicate exception” to this protective language, applying in cases where a defendant manufacturer or seller “knowingly violated a State or Federal statute applicable to the sale or marketing” of firearms, and the “violation was a proximate cause of the harm for which relief is sought.” §7903(5)(A)(iii). “The predicate violation PLCAA demands may come from aiding and abetting someone else’s firearms offense. PLCAA itself lists as examples two ways in which aiding and abetting qualifies—when a gun manufacturer (or seller) aids and abets another person in making a false statement about a gun sale’s legality or in making specified criminal sales.” This exception derives from the federal law that whoever “aids [and] abets” a federal crime “is punishable as a principal.” See 18 U. S. C. §2(a).
Although Mexico’s complaint was rife with details concerning the companies’ lack of downstream controls over the distribution of the firearms that they produce, including selling guns to distributors whom they know deal with Mexican drug traffickers, it did not pinpoint any particular criminal transactions in which the defendants allegedly assisted and otherwise spoke in general terms more to what the defendants might have known than what they actually did or didn’t do. Thus, the Court, per Justice Kagan, held that the complaint was implausible, a conclusion that “aligns with PLCAA’s core purpose. Congress enacted PLCAA to halt lawsuits attempting to make gun manufacturers pay for harms resulting from the criminal or unlawful misuse of firearms. Mexico’s suit closely resembles those lawsuits. And while the predicate exception allows some such suits to proceed, accepting Mexico’s theory would swallow most of the rule. The Court doubts Congress intended to draft such a capacious way out of PLCAA, and in fact it did not.” The judgment below, therefore, was reversed and the case remanded.
Catholic Charities Bureau, Inc. v. Wisconsin Labor and Industry Review Commission is yet another case in which the Court was unanimous. And again, Justice Thomas and Justice Jackson filed concurring opinions. The issue before the Court derived from a Wisconsin law that exempts certain nonprofit religious organizations from paying unemployment compensation taxes. The exempted organizations must be “operated primarily for religious purposes” and be “operated, supervised, controlled, or principally supported by a church or convention or association of churches.” Catholic Charities and four of its subsidiaries controlled by the Roman Catholic Diocese of Superior, Wisconsin, sought and were denied the exemption on the ground they were not “operated primarily for religious purposes” because they neither engaged in proselytization nor limited their charitable services to Catholics.” The Supreme Court, per Justice Sotomayor, held that the Wisconsin Supreme Court’s interpretation violated the First Amendment, which “mandates government neutrality between religions and subjects any state-sponsored denominational preference to strict scrutiny.” Justice Sotomayor writes that the Wisconsin Supreme Court imposes an improper denominational preference by differentiating between religions based on theological lines. The petitioners’ eligibility for the exemption comes from inherently religious choices such as whether to proselytize or serve only fellow Catholics, “not ‘“secular criteria”’ that ‘happen to have a “disparate impact” upon different religious organizations.’” Because that regime explicitly differentiates between religions based on theological practices, strict scrutiny applies, and Wisconsin failed it.
The Court’s unanimity, with Justices Thomas and Jackson expanding upon what the Court as a whole was willing to endorse, is not surprising. But it does open the door to future cases that deal with controversial secular issues, such as reproductive rights, gender, etc., in which church-sponsored entities are involved. This Wisconsin case, significant in itself, might be no more than a piece in a large construction still under development.
Yesterday’s “kumbaya” moment continued with a unanimous decision in CC/Devas (Mauritius LD.) v. Antrix Corp. The matter originated in a breach of contract suit between an entity owned by the government of India and a satellite leasing company that terminated a contract when India demanded increases in capacity that the company rejected, defending its position based on force majeure. Under the Foreign Sovereign Immunities Act of 1976 (FSIA), personal jurisdiction exists when an immunity exception applies and service is proper.
However, reversing the Ninth Circuit (no surprise there), the Supreme Court held that FSIA does not require proof of “minimum contacts” over and above the contacts already required by the FSIA’s enumerated exceptions to foreign sovereign immunity. The law determines when the district court has subject-matter jurisdiction, which the FSIA grants whenever an enumerated immunity exception applies, and service must have been made under FSIA’s rules. “When both criteria are satisfied,” the Court writes, “personal jurisdiction ‘shall exist.’ Accordingly, the most natural reading of the operative text is that personal jurisdiction over a foreign sovereign is automatic whenever an immunity exception applies and service of process has been accomplished. Notably absent from the provision is any reference to ‘minimum contacts.’ And the Court declines to add what Congress left out, as the FSIA was supposed to ‘clarify the governing standards,’ not hide the ball.”
This was another day when, as Justice Kagan has in the past suggested of her colleagues and herself, as regards textualism, “we are all colleagues now.”
The Court was also essentially unified in its decision in Blom Bank Sal v. Honickman. Analysis of this case sends us back to federal procedure class in law school, covering the application of Fed. R. Civ. P. 60(b)(6) concerning vacating a final judgment and whether its extraordinary circumstances standard must be tempered by Rule 15(a)’s liberal amendment policy. Here, the plaintiffs were the victims and victims’ families of Hamas attacks in the early 2000s. They claimed that Blom Bank aided and abetted violations of the Anti-Terrorism Act by providing financial services to customers affiliated with Hamas.
The district court dismissed the case with prejudice, finding that the plaintiffs had failed to allege that the bank had sufficient awareness to support aiding and abetting liability. The plaintiffs had stated repeatedly that they would not seek to amend their complaint if it were dismissed. Nevertheless, they decided to so move following dismissal, but the district court denied leave to amend because the plaintiffs, having declined several previous opportunities to amend their complaint, also failed to identify additional facts that could be alleged if leave were granted. That ruling was affirmed by the Second Circuit, but the plaintiffs did not quit. They went back to the district court with a Rule 60(b)(6) motion seeking to vacate the judgment and then amend the complaint to conform with the standards described by the Second Circuit.
While that stratagem failed in the district court, it succeeded in the Court of Appeals, which held that the consideration of 60(b)(6) relief should have been tempered by balancing its severity with the lenience of the relaxed standards of Rule 15. None of the Supreme Court Justices bought that. Instead, the Court held that the extraordinary circumstances required for vacating a judgment under Rule 60(b)(6) do not become less demanding when a party invokes Rule 15(a)’s lenient standard for amendment. Again, looking to text, the Court concluded that, while Rule 15 might be applied liberally in pretrial proceedings, it’s a different story following judgment. Then, a party must demonstrate extraordinary circumstances regarding what they claim they would do if the case were reopened. The balancing test that the plaintiffs sought is incompatible with the text and with a long line of Second Circuit decisions.
A big day ended with a series of unrelated cases having been decided, but with many of them offering very useful guidance in the prosecution and defense of litigation. Summer is coming, and the decisions ending the term are flowing. Six in a day is plenty.
SEC Continues to Scrutinize Investment Adviser Fee Disclosures
Although certain enforcement priorities of the U.S. Securities and Exchange Commission (SEC) have shifted under new Chairman Paul S. Atkins, the SEC continues to scrutinize investment advisers’ disclosures regarding the fees charged to their clients. A recent case filed on June 2, 2025, SEC v. Nagler, illustrates that the SEC’s Division of Enforcement continues to police this area to ensure that fees and potential conflicts of interest are disclosed accurately.
Overview
The SEC sued David Nagler and his advisory firm, New Line Capital, LLC, under the antifraud provisions of the Investment Advisers Act of 1940. As alleged in the complaint, New Line was an investment adviser with assets under management (AUM) of nearly $30 million. Nagler was the founder, owner, and chief compliance officer of New Line.
As investment advisers, Nagler and New Line owed fiduciary duties to New Line’s clients. Those duties, according to the complaint, required Nagler and New Line to act in their clients’ best interest, to employ reasonable care to avoid misleading their clients, and to disclose all material facts to their clients.
The SEC alleged that defendants breached their fiduciary duties by making insufficient – and thus misleading – disclosures regarding two types of fees: annual advisory fees and hourly fees for services.
The Annual Fee Disclosures
Regarding the annual fees, each New Line client entered into an advisory agreement, providing that New Line was entitled to an annual management fee. The agreement disclosed that the annual fee ranged from 1.0% to 1.5%, depending on the client’s amount of AUM. The advisory agreement also disclosed that each account was “subject to a minimum annual fee of $10,000.” Additionally, and critically from the SEC’s perspective, the advisory agreement provided that, “[r]egarding our minimum fee, we take care to assure that our standard advisory fee does not compute to be greater than 2% per annum.” (Emphasis in original.)
In the SEC’s view, a “reasonable advisory client” would understand the italicized language above to mean that, regardless of the $10,000 minimum annual fee disclosed in the advisory agreement, the advisory fees New Line charged each year “would be no more than 2% of the value of the client’s [AUM].” Thus, according to the SEC, “if the value of the client’s [AUM] by New Line was $100,000, so that charging the $10,000 minimum annual fee would be 10% per year, Defendants would charge no more than 2% of the client’s [AUM], which would be no more than $2,000.”
The SEC alleged that New Line’s annual fee disclosures were misleading and that clients were charged approximately $125,000 in excess fees.
The Hourly Fee Disclosures
As to hourly fees, New Line disclosed to its clients that “[s]ervices may be offered in connection with advising you on matters not involving your managed assets or securities…. The charge for this consultation is $250 per hour …. Any consulting service fees are in addition to” advisory management fees.
As alleged by the SEC, a “reasonable advisory client” would understand these disclosures to mean that “clients would not be charged Hourly Fees unless the clients accepted an offer from Defendants to provide a specific service in exchange for Hourly Fees.” Further, according to the complaint, multiple clients were charged hourly fees without their specific consent to those fees or their knowledge that those fees were charged to their accounts.
Further, the complaint alleged that defendants breached their fiduciary duties to clients by failing to disclose all material facts regarding the conflicts of interest resulting from the hourly fees. Specifically, by charging hourly fees on a discretionary basis “without specific notice to affected clients,” there was a material conflict of interest between defendants (who allegedly had an interest in charging hourly fees) and clients (who allegedly had an interest in not being charged hourly fees and being informed of each hourly fee charged).
The SEC claimed that, during the relevant period, approximately $325,000 in improper hourly fees were deducted from New Line client accounts.
Takeaways
It remains to be seen how the SEC’s claims will unfold in litigation, but the SEC’s complaint highlights several points for investment advisers:
First, while the SEC policing investment advisers’ fee disclosures is not new, this remains an area of focus for SEC enforcement under new Chairman Atkins. So, it is critical for investment advisers to ensure that their fees and conflicts of interest are properly disclosed, as potentially inaccurate disclosures may come to the SEC’s attention through various sources, including routine examinations, client complaints, or whistleblowers.
Second, simply disclosing a fee may not be sufficient if the wording is not accurate. In the Nagler case, both the minimum annual fee of $10,000 and the $250 per hour consultation fee were disclosed, but, in the SEC’s view, those disclosures conflicted with other language provided to clients in a manner that was misleading.
Third, mid-size and smaller investment advisers should not assume the SEC is more concerned with monitoring larger firms. Indeed, New Line was a relatively small investment adviser – with less than $30 million AUM – yet the SEC saw fit to expend enforcement resources on this matter.
Finally, this case illustrates the old adage that “an ounce of prevention is worth a pound of cure.” While carefully assessing disclosures before a problem arises may seem unnecessary, that view may be shortsighted. The cost of proactive compliance measures likely pales in comparison to the cost of defending against an SEC investigation and litigation.
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Texas Legislature Passes Business Court Amendments on Last Day of Session
On June 1, 2025, which was the last day of the 2025 Regular Session of the Texas Legislature, the Legislature passed House Bill 40 (“HB 40”), which would amend Texas Government Code Chapter 25A, the statute that established the Texas Business Court, and would make various other clarifying and technical amendments to Texas statutes in relation to the Business Court. HB 40 has been sent to the desk of Governor Abbott for his signature. Unless vetoed by the Governor, these amendments will go into effect on September 1, 2025. HB 40 was the subject of much backroom negotiation over the course of the legislative session, and many of the amendments that were in the original draft of HB 40 were removed as a result of opposition or requests from various legislators.
A summary of the most significant amendments contained in HB 40 that may affect our clients are set forth below. As passed, HB40:
Lowers the threshold for the amount in controversy from $10 million to $5 million for suits arising under a “qualified transaction” and for certain actions arising out of a violation of the Finance Code or the Business & Commerce Code, among other claims.
Expands definition of “qualified transaction” to include a series of related transactions.
Provides that the amount in controversy for the Business Court’s jurisdictional purposes is “the total amount of all joined parties’ claims.”
Clarifies that, assuming the amount in controversary threshold is met, the Business Court has jurisdiction over any action “arising out of a business, commercial or investment contract or transaction,” as opposed to any action “that arises out of a contract or commercial transaction,” in which the parties to the contract or transaction agreed in the contract or a subsequent agreement that the Business Court has jurisdiction of the action.
Adds to the Business Court’s jurisdiction (1) actions arising under the Texas Uniform Trade Secrets Act, Chapter 134A, Civil Practice and Remedies Code and (2) actions arising out of or relating to the ownership, use, licensing, lease, installation or performance of intellectual property, including computer software, software applications, information technology and systems, data and data security, pharmaceuticals, biotechnology products, bioscience technologies and trade secrets.
Confirms that the Business Court has jurisdiction concurrent with district courts over actions to enforce an arbitration agreement, appoint an arbitrator, review an arbitral award and take other judicial actions relating to or in support of arbitration proceedings, so long as a claim included in the arbitration is within the Business Court’s jurisdiction and satisfies the required amount in controversy.
Moves Montgomery County (The Woodlands, Conroe) from the not yet operational Second Business Court Division, to the currently operating Eleventh Business Court Division (Houston).
Removes language in Chapter 25A that would have abolished the remaining six non-operational geographic divisions of the Business Court on September 1, 2026. These amendments preserve the potential for these six divisions to commence operations if and when the Legislature appropriates funding for their operations.
Aligns the language regarding the Business Court’s supplemental jurisdiction with its federal analog. The statute now gives the Business Court supplemental jurisdiction “over any other claim so related to the action that the claim forms part of the same case or controversy.” The statute retains the requirement that a supplemental claim may only proceed in Business Court if all parties to the claim and the Business Court judge agree to the exercise of supplemental jurisdiction.
Excludes from the Business Court’s jurisdiction any claim related to a consumer transaction to which a consumer in Texas is a party that arises out of a violation of federal or state law.
Directs the Texas Supreme Court to “establish procedures for the prompt, efficient, and final determination of business court jurisdiction on the filing of an action in the business court,” with a focus on “efficiently addressing complex business litigation in a manner comparable to or more effective than the business and commercial courts operating in other states.” The new provision authorizes the Supreme Court to, among other things, (1) provide for jurisdictional determinations based on pleadings or summary proceedings, (2) establish limited periods during which issues or rights must be asserted, and (3) provide for interlocutory or accelerated appeals.
Allows entities to establish venue in a county located in an operating division of the Business Court by provisions in the entities’ governing documents with respect to actions regarding (1) governance, governing documents or internal affairs; (2) acts or omissions of an owner, controlling person or managerial official; (3) breach of duty by an owner, controlling person or managerial official; or (4) the Business Organizations Code.
Authorizes transfers of cases from district and county courts that are within the jurisdiction of the Business Court that were commenced prior to September 1, 2024, upon an agreed motion of a party and permission of the Business Court, under rules to be adopted by the Supreme Court for that purpose. When adopting such rules, the Supreme Court is directed “to (1) prioritize complex civil actions of longer duration that have proven difficult for a district court to resolve because of other demands on the court’s caseload, (ii) consider the capacity of the business court to accept the transfer of such actions without impairing the business court’s efficiency and effectiveness in resolving actions commenced on or after September 1, 2024, and (iii) ensure the facilitation of the fair and efficient administration of justice.”
President’s FY 2026 Budget: HHS Highlights
Every year, the administration releases the president’s budget, which requests funding from Congress for the upcoming fiscal year (FY). The president’s budget is a nonbinding document and funding levels reflected in appropriations bills do not always align with funding levels in the president’s budget request. However, the president’s budget has traditionally been an opportunity for the administration to lay out its priorities and state publicly what programs and activities it wants to invest in, and which it wants to cut. Thus, it can be viewed as a guide map to how the administration wants departments, like the US Department of Health and Human Services (HHS), to be structured and funded.
On May 30, 2025, HHS released additional information related to the FY 2026 president’s budget: the FY 2026 Budget in Brief and select agency/division congressional justifications. These additional documents, which follow the “skinny budget” that was released in the beginning of May, provide more details about HHS’s funding requests and how the Trump administration plans to restructure the department. Read on to learn more about these proposed budget levels and structural changes.
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Kayla Holgash, Marie Knoll, and Erica Stocker contributed to this article
California’s “Auto Renewal Law” Takes Effect on July 1
Amendments to California’s Automatic Renewal Law (ARL) will take effect on July 1, 2025. Enacted in September 2024 through Assembly Bill No. 2863, the amendments expand disclosure, consent, and cancellation obligations for businesses offering subscription or continuous service plans to California consumers.
The amendments impose several new requirements related to consumer consent, cancellation, and disclosures, including:
Affirmative consent. Businesses must obtain a consumer’s express affirmative consent to the renewal terms and retain proof of consent for at least three years or one year after termination, whichever is longer. The law also prohibits contract terms that undermine a consumer’s ability to provide meaningful consent.
Clear and conspicuous disclosures before enrollment. Businesses must disclose key terms—such as renewal conditions, billing frequency, cancellation policies, and pricing changes—clearly, conspicuously, and in proximity to the enrollment request.
Channel-specific cancellation. Businesses must allow cancellation through the same method the consumer used to sign up or typically uses to communicate, such as phone, email, mail, or online.
Click-to-cancel requirement. For online subscriptions, businesses must offer a “click to cancel” option. Businesses may present retention offers only if cancellation remains immediate and unobstructed.
Prohibition on material misrepresentations. The law prohibits misleading statements or omissions about any material aspect of the transaction, including the renewal terms.
Putting It Into Practice: The amended ARL closely tracks the FTC’s Negative Option Rule, particularly in its expanded requirements for disclosure, consent, and cancellation—setting a new compliance benchmark for businesses operating in California. While the CFPB has pulled back in this area, the FTC and state lawmakers continue to advance rulemaking related to unfair or deceptive subscription practices (previously discussed here).
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CFPB and Pawn Store Operator to Settle MLA Suit
On May 30, the CFPB and a national pawn store operator filed a joint status report in the U.S. District Court for the Northern District of Texas announcing that they have reached an agreement to resolve a 2021 Bureau lawsuit alleging violations of the Military Lending Act (MLA) and a 2013 CFPB consent order. The suit alleged that the pawn store operator and its subsidiary issued thousands of high-interest loans to active-duty servicemembers and their families in violation of federal law.
In its complaint, the CFPB alleges that the company:
Charged servicemembers unlawful interest rates. The company allegedly made over 3,600 pawn loans to covered borrowers with MAPRs exceeding the MLA’s 36% cap, in some cases reaching over 200%.
Imposed prohibited arbitration clauses. Loan agreements allegedly included mandatory arbitration clauses, in violation of the MLA’s express restrictions.
Failed to provide required loan disclosures. The company allegedly failed to deliver required MLA disclosures, including MAPR statements, at the time of the transaction.
Violated a 2013 CFPB consent order. The company, as a successor to a previously sanctioned entity, allegedly continued making illegal loans in violation of the 2013 consent order. The order required more than $14 million in consumer refunds and a $5 million civil penalty, and mandated that the company cease alleged misconduct targeting military families and improve MLA compliance.
While the exact terms of the new settlement have not yet been disclosed, the CFPB had previously sought injunctive relief, rescission of void contracts, consumer redress, civil money penalties, and corrections to consumer credit reports.
Putting It Into Practice: Although the Bureau has scaled back certain enforcement actions in recent months, enforcement of MLA violations continues to be a priority for the current administration (previously discussed here and here). Lenders offering consumer credit to servicemembers should continue to review and strengthen their MLA compliance protocols to ensure compliance.
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California Assembly Advances Bill to Permit Crypto Payments under DFAL
On June 2, the California State Assembly unanimously passed Assembly Bill 1180, which now moves to the California Senate for consideration. The bill would require the Department of Financial Protection and Innovation (DFPI) to adopt regulations permitting payments required under the California Digital Financial Assets Law (DFAL) to be made using digital assets. If enacted, the law would take effect on July 1, 2026.
The DFAL currently prohibits companies from engaging in digital financial asset business activity with California residents without a license from the DFPI. In addition to directing the DFPI to implement crypto payment acceptance, the bill would require the DFPI to submit a report to the Legislature by January 1, 2028. The report must include the number and value of cryptocurrency transactions processed, technical and regulatory challenges encountered, and recommendations for allowing digital asset payments under other laws and to other state agencies.
Putting It Into Practice: California’s AB 1180 reflects a growing legislative interest in incorporating digital assets into regulatory and operational frameworks (previously discussed here and here). While limited to obligations under the DFAL, the bill could serve as a blueprint for other jurisdictions considering crypto adoption in public-sector payments. We will continue monitoring this space for updates.
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FDIC and Maryland End Joint Consent Orders Against Regional Bank
On April 7, the FDIC and the Maryland Office of Financial Regulation terminated two consent orders against a regional bank headquartered in Maryland. The termination concludes joint federal and state enforcement actions that required the bank to remediate deficiencies in its anti-money laundering (AML) program, interest rate risk management, and consumer protection practices.
The now-terminated 2022 and 2024 orders stemmed from examinations that identified significant deficiencies in the bank’s AML program, oversight of interest rate risk, corporate governance, and consumer credit disclosures. The bank allegedly provided misleading disclosures in connection with a consumer credit product involving a third-party lender, raising UDAAP concerns. The orders imposed broad corrective obligations, including:
Remediation of AML compliance failures. The bank was required to implement a revised risk-based AML/CFT program, enhance suspicious activity monitoring, strengthen customer due diligence procedures, review prior transactions, and validate its transaction monitoring system. The order also mandated board-level compliance oversight and the establishment of a dedicated OFAC compliance program.
Risk management and governance reforms. The order directed improvements to board supervision, succession planning, and internal audit responsiveness. The bank was required to establish a risk management framework with metrics for capital, liquidity, asset growth, and concentration risk.
Liquidity and capital planning enhancements. The bank had to submit revised capital and liquidity plans, including scenario-based testing, contingency funding strategies, and funding diversification.
Putting It Into Practice: The termination of these consent orders reflects a continued federal pullback from enforcement actions initiated under the prior administration (previously discussed here and here). While federal regulators may be retreating, state agencies and the FTC have demonstrated ongoing interest in policing the financial services industry (previously discussed here and here).
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Cutting Deep: How Design Professionals Can Combat Widespread Federal Budget Cuts
Recent federal budget cuts enacted to optimize the federal workforce have had a widespread impact on design professionals and construction firms. These reductions have resulted in the elimination of many government programs, mass layoffs, and the cancellation of large-scale government contracts. Faced with dwindling opportunities for revenue and lagging confidence in the economic market, design professionals are searching for new solutions.
Scope of the Federal Budget Cuts
One of the most significant government programs to be cancelled is the Building Resilient Infrastructure and Communities (BRIC) program. Originally created by the Federal Emergency Management Agency (FEMA), this program was established to support local response to emergencies such as flooding or wildfires. With this cut, all applications from 2020 to 2023 have been cancelled, and unused grant funds are being reclaimed. BRIC had allocated approximately $1 billion, with $133 million already distributed to approximately 450 applicants. These projects represented a critical source of funding for many construction and design firms charged with addressing flood mitigation and water intrusion, creating a fire-resistant infrastructure, and responding to property damage and housing needs following natural disasters. Billions of dollars in federal grants instantly disappeared, leaving construction and design firms that relied on these funds without their primary source of income and forcing them to quickly pivot to maintain financial viability.
The construction industry sustained another deep cut when the Department of Defense recently eliminated more than $580 million in defense contracts and programs. As a result, design professionals and contractors involved in erecting military housing, base installations, and infrastructural improvements are in limbo, either placed on hold or without funding amid ongoing projects. At the state and local level, many communities also have been forced to pause infrastructure improvements and other public works projects due to lack of funding, causing delays and increasing risk exposure to design and construction teams charged with completing those projects on time and under budget.
Repercussions in the Private Sector
The private sector is likely to experience the effects of deep cuts as well. With a reduction in federal spending, public-private design projects are being put on hold and firms are seeing a sharp drop in requests for proposals (RFPs). The American Institute of Architects (AIA) reports that design firms are now instituting their own staffing reductions and placing capital investment plans on hold. In addition, the AIA recently reported a decline in the Architecture Billings Index (ABI), indicating decreasing revenue in the field. In February 2025, the ABI fell to 45.5, well below the standard score of 50 that signifies growth within the industry. As a result, the AIA is reporting that design firms are tightening their belts with hiring freezes, staff reductions, and pauses in internal investment projects.
For example, Booz Allen Hamilton, which derives 98 percent of its $11 billion annual revenue from U.S. government contracts, has been forced to address the mandated budget reductions and announced that it has identified more than $1 billion in potential savings and is considering workforce adjustments to align with shifting client needs. Similarly, Deloitte recently announced plans to reduce its U.S. consulting workforce due to increased pressure from the federal government to lower project costs. The firm described the layoffs as “modest personnel actions” necessary to align with changing client demands.
Opportunities in Business Development
The shifting economic landscape may present unique opportunities, however, for construction and design firms if they are able to quickly pivot in the face of adversity. Some firms are reassessing and diversifying their portfolios to avoid relying on limited revenue streams. Shifting focus and staff to industries and projects less reliant on federal funding is one path forward. These areas include commercial real estate, health care, and technology. In particular, design professionals with experience in sustainable design for buildings, digital modeling, and health care architecture may find increased flexibility as the focus shifts toward efficient and cost-effective business development. For those not able to pivot away from federal contracts, flexible contracts may be preferred, such as indefinite delivery/indefinite quantity, or “as needed” contracts.
Potential solutions may include participating in or relying on professional networks, such as state and local AIA chapters, design symposiums, and construction conferences that may provide opportunities for firms to share resources, circulate new funding opportunities, and collaborate on larger-scale proposals. By participating in cooperative networks, firms can form strategic partnerships and cross-market their services to new clients. These organizations also are an effective means of coordinating advocacy efforts to advance the industry’s goals on a policy level in response to government action.
Lastly, construction and design firms are encouraged to audit their internal operations and project lists to avoid unnecessary risk exposure during this period of financial uncertainty and delayed projects. This entails reassessing operational costs, investing in project management initiatives to encourage efficiency, and mobilizing staff to serve multiple roles with the caveat to be mindful of staying within the parameters of the scope of services. In doing so, these entities can improve their margins without sacrificing the integrity of their services.
Summary
While it is clear that the recent federal budget cuts have had a profound impact on design professionals and construction projects nationwide, there is a path forward. Firms now have the opportunity to adapt and diversify to weather the storm and even carve out new business opportunities. While the current climate presents undeniable challenges, design and construction professionals who adopt effective strategies to streamline their operations and expand their reach within the market will position themselves to emerge stronger in a shifting landscape.