Texas Supreme Court Rejects Repackaging of Professional Claims
Artful Pleading Suffers Smackdown from Texas Supreme Court
On February 21, 2025, in Pitts v Rivas, the Texas Supreme Court finally accepted and applied the “anti-fracturing rule” to professional liability claims. The rule “limits the ability of plaintiffs to recharacterize a professional negligence claim as some other claim – such as fraud or breach of fiduciary duty – in order to obtain a litigation benefit like a longer statute of limitations.”1 This rule shall apply to any professional liability claim. Long recognized by Texas Courts of Appeals – primarily in legal malpractice cases – the Court applied the anti-fracturing rule in an accountant’s malpractice case.
BackgroundIn Pitts, a former client alleged multiple causes of action including fraud, breach of fiduciary duty, and breach of contract, as well as negligence, gross negligence, and professional malpractice against a group of accountants. On summary judgment, the accountant defendants argued the negligence claims were barred by Texas’s two-year limitations statute, and the fraud, contract, and fiduciary duty claims were barred by the anti-fracturing rule. The accountant defendants also claimed the breach of contract action was barred by Texas’s four-year limitations. The trial court granted summary judgment and dismissed the suit. The Court of Appeals disagreed regarding dismissal of the fraud and fiduciary duty claims and allowed them to proceed. The Texas Supreme Court reversed and held that under the undisputed facts, there was no viable claim for breach of fiduciary duty, and the fraud claim was barred by the anti-fracturing rule.
The Texas Supreme Court explained that the anti-fracturing rule limits plaintiffs’ attempts “to artfully recast a professional negligence allegation as something more – such as fraud or breach of fiduciary duty – to avoid a litigation hurdle such as the statute of limitations.”2 The Court cautioned that it is the “gravamen of the facts alleged” that must be examined closely rather than the “labels chosen by the plaintiff.”3
If the essence, “crux or gravamen of the plaintiff’s claim is a complaint about the quality of professional services provided by a defendant, then the claim will be treated as one for professional negligence even if the petition also attempts to repackage the allegations under the banner of additional claims.”4 To survive application of the rule, a plaintiff needs to plead facts that extend beyond the scope of what has traditionally been considered a professional negligence claim.5
In Pitts, the gravamen of the claims was that the accountants made accounting errors that eventually were fatal to the Rivas’s business, resulting in its bankruptcy. Although certain the accountants’ alleged errors occurred outside of the confines of their engagement agreement, the Court noted those errors still fell within the work that an accountant might generally perform for a small business. “The rule extends to any allegation that traditionally sounds in professional negligence[.]”6 The thrust of the claim based upon the facts was that the accountants were allegedly merely negligent in providing competent accounting services, which did not fall within a breach of fiduciary duty or fraud.7
AnalysisIn dissecting the difference between fraud and negligence, the Court noted that “[o]verstating one’s professional competence is a classic example of malpractice.”8 While the accountants realized their mistakes, failed to confess hoping “nothing would come of it,” and “finally suggested ways to hide them,” the Court noted that there was no evidence that the accountants were “engaged in a fraudulent scheme” against the business and its owners or intended in any way to harm them.9 Indeed, the actual harm to the business was due to the accounting errors made by the defendants and not from any misrepresentations associated with those errors.10
With respect to the claim for breach of fiduciary duty, the Court held that whether the anti-fracturing rule was applicable, no fiduciary duty existed as a matter of law.11
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1 Pitts v Rivas, 2025 Tex. LEXIS 131 *1 (Tex. 2025).2 Id. at *6-7.3 Id. at *7.4 Id.5 Id. at *8.6 Id. at *12.7 Id. at *13-14.8 Id.at *14.9 Id. at *14-15. 10 Id. at *15.11 Id. at *17.
Final Rule Implementing U.S. Outbound Investments Restrictions Goes into Effect
On October 28, 2024, the U.S. Department of Treasury (Treasury Department) published a final rule (Final Rule) setting forth the regulations implementing Executive Order 14150 of August 9, 2023 (Outbound Investment Order), creating a scheme regulating U.S. persons’ investments in a country of concern involving semiconductors and microelectronics, quantum information technologies and artificial intelligence sectors[1]. According to the Annex to the Outbound Investment Order, China (including Hong Kong and Macau) is currently the only identified “Country of Concern”. The Final Rule went effective on January 2, 2025.
Who are the in-scope persons?
The Final Rule regulates the direct and indirect involvement of “U.S Persons”, which is broadly defined to include (i) any U.S. citizen, (ii) any lawful permanent resident, (iii) any entity organized under the laws of the United States or any jurisdiction within the United States, including any foreign branches of any such entity, and (iv) any person in the U.S.
The Final Rule requires a U.S. Person to take all reasonable steps to prohibit a “Controlled Foreign Entity”, a non-U.S. incorporated/organized entity, from making outbound investments that would be prohibited if undertaken by a U.S. Person. As such, the Final Rule extends its influence over any Controlled Foreign Entity of such U.S. Person.
The Final Rule also prohibits a U.S. Person from knowingly directing a transaction that would be prohibited by the Final Rule if engaged by a U.S. Person.
Which outbound investments are in-scope?
The “Covered Transactions” include investment, loan and debt financing conferring certain investor rights characteristic of equity investments, greenfield or brownfield investments and investment in a joint venture (“JV”) or fund, relating to a “Covered Foreign Person” (as discussed below), as described below:
Equity investment: (i) acquisition of equity interest or contingent equity interest in a Covered Foreign Person; (ii) conversion of contingent equity interest (acquired after the effectiveness of the Final Rule) into equity interest in a Covered Foreign Person;
Loan or debt financing: provision of loan or debt financing to a Covered Foreign Person, where the U.S. Person is afforded an interest in profits, the right to appoint a director (or equivalent) or other comparable financial or governance rights characteristic of an equity investment but not typical of a loan;
Greenfield/brownfield investment: acquisition, leasing, development of operations, land, property, or other asset in China (including Hong Kong and Macau) that the U.S. Person knows will result in the establishment or engagement of a Covered Foreign Person; and
JV/ fund investment: (i) entry into a JV with a Covered Foreign Person that the U.S. Person knows will or plan to engage in covered activities; (ii) acquisition of limited partner or equivalent interest in a non-U.S. Person venture capital fund, private equity fund, fund of funds, or other pooled investment fund that will engage in a transaction that would be a Covered Transaction if untaken by a U.S. Person.
What are in-scope transactions and carve-out transactions?
The Final Rule identifies three categories of Covered Transactions involving covered foreign persons – Notifiable Transactions, Prohibited Transactions, and Excepted Transactions.
A “Covered Foreign Person” includes the following persons engaging in “Covered Activities” (i.e. Notifiable or Prohibited Activities identified in the Final Rule) relating to a Country of Concern:
A person of China, Hong Kong or Macau, including an individual who is a citizen or permanent resident of China (including Hong Kong and Macau and are not a U.S. citizen or permanent resident of the United States); an entity organized under the laws of China (including Hong Kong and Macau), or headquartered in, incorporated in, or with a principal place of business in China (including Hong Kong and Macau; the government of China (including Hong Kong and Macau); or an entity that is directly or indirectly owned 50% or more by any persons in any of the aforementioned categories.
A person directly or indirectly holds a board, voting rights, equity interests, or contractual power to direct or cause the management or policies of any person that derives 50% or more of its revenue or net income or incur 50% or more its capital expenditure or its operating expenses (individually or as aggregated) from China (including Hong Kong and Macau) (subject to a $50,000 in minimum); and
A person from China (including Hong Kong or Maca) who enters a JV that engages, plans to or will engage in a Covered Activity.
Notifiable and Prohibited Transactions
The Final Rule:
Requires U.S. Persons to notify the Treasury Department regarding transactions involving covered foreign persons that fall within the scope of Notifiable Transactions, and
Prohibits U.S. Persons from engaging in transactions involving Covered Foreign Persons that fall within the scope of Prohibited Transactions.
The underlying consideration for the delineation between a Notifiable Transactions and Prohibited Transactions hinges on how impactful it is as a threat to the national security of the United States — a Notifiable Transaction contributes to national security threats, while a Prohibited Transaction poses a particularly acute national security threat because of its potential to significantly advance the military intelligence, surveillance, or cyber-enabled capabilities of a Country of Concern.
Specifically, a Notifiable Transaction necessarily involves the following Notifiable Activities, while a Prohibited Transaction necessarily involves the following Prohibited Activities:
Prohibited Activities
Notifiable Activities
Semiconductors &Microelectronics
– Develops or produces any electronic design automation software for the design of integrated circuits (ICs) or advanced packaging;
– Develops or produces (i) equipment for (a) performing volume fabrication of integrated circuit, or (b) performing volume advanced packaging, or (ii) commodity, material, software, or technology designed exclusively for extreme ultraviolet lithography fabrication equipment;
– Designs any integrated circuits that meet or exceed certain specified performance parameters[2] or is designed exclusively for operations at or below 4.5 Kelvin;
– Fabricates integrated circuits with special characteristics;[3]
– Packages any IC using advanced packaging techniques.
Designs, fabricates, or packages any ICs that are not prohibited activities.
QuantumInformationTechnology
– Develops, installs, sells, or produces any supercomputer enabled by advanced ICs that can provide a theoretical compute capacity beyond a certain threshold;[4]
– Develops a quantum computer or produces any critical components;[5]
– Develops or produces any quantum sensing platform for any military, government intelligence, or mass-surveillance end use;
– Develops or produces any quantum network or quantum communication system designed or used for certain specific purposes.[6]
None
Artificial Intelligence (AI)
– Develops any AI system that is designed or used for any military end use, government intelligence, or mass-surveillance end use;
– Develops any AI system that is trained using a quantity of computing power greater than (a) 10^25 computational operations; and (b) 10^24 computational operations using primarily biological sequence data.
Design of an AI system that is not a prohibited activity and that is:
(a) Designed for any military, government intelligence or mass-surveillance end use;
(b) Intended to be used for:
Cybersecurity applications;
(digital forensic tools;
penetration testing tools;
control of robotic system;
or
(c) Trained using a quantity of computing power greater than 10^23 computational operations.
Excepted Transactions
The Final Rule sets forth the categories of Excepted Transactions, which are determined by the Treasury Department to present a lower likelihood of transfering tangible benefits to a Covered Foreign Person or otherwise unlikely to present national security concerns. These include:
Investment in publicly traded securities: an investment in a publicly traded security (as defined under the Securities Act of 1934) denominated in any currency and traded on any securities exchange or OTC in any jurisdiction;[7]
Investment in a security issued by a registered investment company: an investment by a U.S. Person in the security issued by an investment company or by a business development company (as defined under the Investment Company Act of 1940), such as an index fund, mutual fund, or ETF;
Derivative investment: derivative investments that do not confer the right to acquire equity, right, or assets of a Covered Foreign Person;
Small-size limited partnership investment: limited partnership or its equivalent investment (at or below two million USD) in a venture capital fund, private equity fund, fund of funds, or other pooled investment fund where the U.S. Person has secured a contractual assurance that the fund will not be used to engage in a Covered Transaction;
Full Buyout: acquisition by a U.S. Person of all equity or other interests held by a China-linked person, in an entity that ceases to be a Covered Foreign Person post-acquisition;
Intracompany transaction: a transaction between a U.S. Person and a Controlled Foreign Entity (subsidiary) to support ongoing operations or other activities are not Covered Activities;
Pre-existing binding commitment: a transaction for binding, uncalled capital commitment entered into before January 2, 2025;
Syndicated loan default: acquisition of a voting interest in a Covered Foreign Person by a U.S. Person upon default of a syndicated loan made by the lending syndicate and with passive U.S. Person participation; and
Equity-based compensation: receipt of employment compensation by a U.S. Person in the form of equity or option incentives and the exercising of such incentives.
What is the knowledge standard?
The Final Rule provides that certain provisions will only apply if a U.S. Person has Knowledge of the relevant facts or circumstances at the time of a transaction. “Knowledge” under the Final Rule includes (a) actual knowledge of the existence or the substantial certainty of occurrence of a fact or circumstance, (b) awareness of high probability of the existence of a fact, circumstance or future occurrence, or (c) reason to know of the existence of a fact or circumstance.
The determination of Knowledge will be made based on information a U.S. Person had or could have had through a reasonable and diligent inquiry, which should be based on the totality of relevant facts and circumstances, including without limitation, (a) whether a proper inquiry has been made, (b) whether contractual representations or warranties have been obtained, (c) whether efforts have been made to obtain and assess non-public and public information; (d) whether there is any warning sign; and (e) whether there is purposeful avoidance of efforts to learn and seek information.
Key points relating to the notification filing procedures
A U.S. person’s obligation to notify the Treasury Department is triggered when they know relevant facts or circumstances related to a Notifiable Transaction entered into by itself or its Controlled Foreign Entity. U.S. Person shall follow the electronic filing instructions to submit the electronic filing at https://home.treasury.gov/policy-issues/international/outbound-investment-program.
The filing of the notification is time-sensitive. The filing deadline is no later than 30 days following the completion of a Notifiable Transaction or otherwise no later than 30 days after acquiring such knowledge if a U.S. Person becomes aware of the transaction after its completion. If a filing is made prior to the completion of a transaction and there are material changes to the information in the original filing, the notifying U.S. Person shall update the notification no later than 30 days following the completion of the transaction.
In addition to the detailed information requested under the Final Rule, a certification by the CEO or other designees of the U.S. Person is required to certify the accuracy and completeness in material respects of the information submitted.
What are the consequences of non-compliance?
The Treasury Department may impose civil and administrative penalties for any Final Rule violations, including engaging in Prohibited Transactions, failure to report Notifiable Transactions, making false representation or omissions, or engaging in evasive actions or conspiracies to violate the Final Rule. The Treasury Department may impose fines, require divestments, or refer for criminal prosecutions to the U.S. Department of Justice for violations of the Final Rule.
U.S. Persons may submit a voluntary self-disclosure if they believe their conduct may have violated any part of the Final Rule. Such self-disclosure will be taken into consideration during the Treasury Department’s determination of the appropriate response to the self-disclosed activity.
California Bill Seeks to Expand Scope of OHCA’s Review to Private Equity, Management Service Organizations and Others
California is considering an expansion of the types of entities that would comprise “health care entities” as defined by and subject to the review of the Office of Health Care Affordability (OHCA). AB 1415 would require private equity groups, hedge funds and their respective affiliates (including newly created entities) entering into material change transactions with health care entities to provide notice of the transactions to OHCA. Current law only requires the health care entities themselves to provide such notice. The bill would also add certain management services organizations, health systems and entities that “own, operate or control” providers (as defined by OHCA) to the list of health care entities that are subject to OHCA’s review. Further, the bill would change the definition of “provider” to “a private or public health care provider” with an expanded list of entity types. The proposed revisions are detailed below:
1. Private Equity Groups, Hedge Funds and Entities Newly Formed to Contract with Health Care Entities Would Be Subject to OHCA’s Notice Requirements
AB 1415 would require private equity groups, hedge funds and newly created business entities created for the purpose of entering into agreements or transactions with a health care entity to provide notice to OHCA of transactions or agreements that would transfer ownership or control over a material amount of the assets or operations of the health care entity. While health care entities party to material change transactions are already subject to OHCA’s notice requirements, the bill would expand the required disclosures to the private equity groups and hedge funds themselves. The definitions of “private equity group” and “hedge fund” generally include the investment entities managed by fund managers for their investors but exclude the individual investors themselves if they do not participate in the management of the funds. The definition of “hedge fund” specifically excludes entities that solely provide or manage debt financing secured in whole or in part by the assets of a health care facility, including, but not limited to, banks and credit unions, commercial real estate lenders, bond underwriters and trustees. AB 1415’s definitions of “private equity group” and “hedge fund” largely mirror the definitions included in last year’s AB 3129, which would have required prior notice to and approval of the California Attorney General for certain health care investments by private equity groups and hedge funds. 1
The proposed expansion of OHCA’s jurisdiction to private equity groups and hedge funds is likely a response to Governor Newson’s veto of AB 3129 last year, in which the Governor reasoned that it was OHCA’s role to review certain health care transactions and that additional, separate processes like those in AB 3129 appeared to be unnecessary and duplicative. Instead of attempting another run at a separate review process aimed at private equity and hedge funds (among others), this time the approach is to expand OHCA itself. Unlike the Attorney General under AB 3129, OHCA does not and still would not have the authority to block transactions, but transactions subject to OHCA’s review are not permitted to close until the completion of OHCA’s review process, which can be burdensome and lengthy.
2. “Provider” Would Be Defined as a “Private or Public Health Care Provider” and Include a Potentially Non-Exclusive List of Entity Types
OHCA’s governing statute defines “provider,” one of the sub-categories of “health care entity,” with an exhaustive list of entity types. AB 1415 would change the definition to “a private or public health care provider” and states that the definition includes the list of entity types from the original definition (with some additions, described below).
If passed as drafted, the language may create ambiguity over whether certain entities are captured under the definition of “provider.” First, the definition does not define the difference between a “private” or “public” provider. Second, it is unclear whether the list of entities is exhaustive. If the list is non-exhaustive, members of the health care industry would have little guidance on whether they constitute a health are entity. This definition would benefit from clarifications in revisions to the bill or OHCA’s implementing regulations.
3. Management Services Organizations Would Become Health Care Entities Subject to OHCA’s Review
AB 1415 would add management services organizations (MSOs) to the definition of health care entity. MSOs would include any entity that provides administrative services or support for a provider (as defined by statute), not including the direct provision of health care services. Administrative services or support would include, but not be limited to, utilization management, billing and collections, customer service, provider rate negotiation and network development.
This addition could include many types of management arrangements that were previously excluded from OHCA’s statute and governing arrangement. The legislature may be targeting “friendly PC” arrangements where MSOs operate all non-clinical business operations of a health care practice, but the addition could also capture arrangements that manage smaller portions of practice operations. For example, the addition may capture arrangements that outsource billing and collections or customer service functions to vendors that otherwise have no influence over the health care operations of their clients.
4. Entities that Own, Operate or Control Entities Listed Under the Definition of “Provider” Would Be Health Care Entities Subject to OHCA’s Review
Under AB 1415, entities that own, operate or control the entities listed under the definition of “provider” would become health care entities subject to OHCA’s notice and review “regardless of whether it is currently operating, providing health care services, or has a pending or suspended license.” This addition would expand the notice requirements to a broad range of owners and operators over health care entities that have not otherwise been captured by the current law.
Like the changes to the definition of “provider,” this language creates ambiguities that will benefit from further revision to the bill or OHCA’s regulations. For example, holding companies that own provider entities would become health care entities subject to notice even if they held other assets unrelated to the provision of health care services in California and or included other assets and services lines that do are not health care entity services. The legislature may have intended to capture transactions that occur at a holding company level that do not include the health care entities themselves. If that is the case, arguably some these types of transactions are already captured by OHCA’s regulations, which apply to health care entities that are a “subject of” a material change transaction.
5. Health Systems Would Be Included as Health Care Entities Subject to OHCA’s Review
AB 1415 would add health systems to the enumerated list of providers. “Health system” would mean (1) a hospital system, as defined in subdivision (e) of Section 127371; (2) a combination of one or more hospitals and one or more physician organizations; or (3) a combination of one or more hospitals, one or more physician organizations, or one or more health care service plans or health insurers.
Health systems were likely already captured by current law, which includes health facilities like acute care hospitals. However, the addition of “health system” as a type of health care entity could create further ambiguity. For example, the bill does not define the word “combination” as used in the definition of “health system” and does not appear to apply to a specific legal entity. It may be uncertain whether the definition of health care entity would capture an entity that is a subsidiary of a health system that would not otherwise be considered a health care entity but for its affiliation with the health system. The addition could also expand OHCA’s jurisdiction by potentially pulling in holding companies up the corporate chain from health care entities that do not directly own or operate any health care entity services solely by virtue of its inclusion in the overall “health system.”
Takeaways
AB 1415 demonstrates that California’s interest in reviewing private equity and hedge fund investments as well as MSOs in health care did not end with AB 3129.2 It also shows a continued appetite to expand OHCA’s jurisdiction less than a year after its review process has begun. It remains to be seen how the bill may be amended in the legislature to further expand its scope or clarify ambiguities in the current language. If passed, AB 1415 would also require OHCA to revise its implementing regulations. Members of the California health care industry should monitor the developments of AB 1415 to determine if their current operations and anticipated transactions may be subject to OHCA’s expanded jurisdiction and strategize early.
[1] Our prior discussions of AB 3129 can be found here:
https://natlawreview.com/article/californias-ab-3129-continues-national-trend-scrutinizing-private-equity
https://natlawreview.com/article/california-considers-revisions-legislation-health-care-investments-and-regulations
https://natlawreview.com/article/california-legislators-pass-ab-3129-require-notice-and-consent-private-equity-and
https://natlawreview.com/article/governor-newsom-vetoes-ab-3129-addressing-private-equity-california-health-care
[2] The California Senate is currently considering SB 351, which would revive some of AB 3129’s corporate practice of medicine-related restrictions on private equity affiliates providing management services to physicians and dentists. Our analysis of SB 351 can be found here: https://natlawreview.com/article/california-reintroduces-legislation-restrict-private-equity-management-health-care
The EU Suspends Certain Sanctions on Syria to Support Economic Stabilisation, Political Transition and Reconstruction
To help the Syrian people achieve a peaceful and inclusive political transition, to aid the swift economic recovery and reconstruction of the country and to facilitate its eventual reincorporation into the global financial system, the EU has suspended with immediate effect a number of sanctions and restrictive measures that had targeted key sectors of the Syrian economy, including its banking, energy and transport sectors.
The five specific actions that EU foreign ministers took following a meeting yesterday in Brussels are as follows:
Suspending sectoral measures in the energy (oil, gas and electricity) and transport sectors
Removing five entities (Agricultural Cooperative Bank, Industrial Bank, Popular Credit Bank, Saving Bank and Syrian Arab Airlines) from the list of those subject to asset freezes, and allowing financial resources to be made available to the Syrian Central Bank
Introducing exemptions to the prohibition on banking relations between Syrian banks and financial institutions in EU member states to permit transactions related to the energy and transport sectors, as well as those necessary for reconstruction purposes
Extending the existing exemption for transactions for humanitarian purpose indefinitely
Introducing an exemption to the prohibition on the export of luxury goods to Syria for personal usage
The European Council announced that it will continuously monitor the situation in Syria to assess whether the suspensions remain appropriate, and/or whether further sanctions could be suspended.
While many commentators will champion the deferral of sweeping sectoral sanctions because of the unintended negative consequences that they can have, such as impeding economic stability and denying the ordinary person access to essential services such as electricity, water, healthcare and education, the EU has seen fit to maintain other important sanctions and restrictive measures that were imposed during the previous regime, including those related to:
Arms trafficking
Chemical weapons
Dual-use goods
Equipment misused for internal repression
Narcotics smuggling
Software misused for interception and surveillance
Trade of Syrian cultural heritage items.
The EU’s stated goal when it enacted these sanctions was to protect the civilian population from the previous regime. Under new leadership, Syria now has the opportunity to earn a wind-down of all remaining sanctions and restrictive measures, and for its war-torn economy to benefit from resurgent EU-Syria economic relations and trade flows.
Corporate Transparency Act Update: Reporting Requirements Now Back in Effect
Beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are now back in effect. As a result, all entities subject to the CTA are once again obligated to file BOI reports with FinCEN.
Following the most recent order from the U.S. District Court for the Eastern District of Texas in Smith v. U.S. Department of Treasury, FinCEN’s regulations are no longer stayed. With that being said, FinCEN has extended the reporting deadline to March 21, 2025 (30 calendar days from February 19, 2025). In its recent notice extending the deadline, FinCEN also announced that during this 30-day period, reporting deadline modifications will be further assessed in order to reduce regulatory burdens on businesses.
While additional updates from FinCEN are expected prior to the March 21 deadline, reporting companies that were previously required to file before March 21 are currently obligated to file BOI reports by the extended deadline. Companies should continue to closely monitor for updates over the course of the next 30 days.
For information on filing, see our prior alert here.
For more information on the recent update, see the recent FinCEN Notice here.
SEC Approves Nasdaq Proposed Rules Modifying Minimum Bid Price Compliance Periods and Delisting Process
On January 17, the US Securities and Exchange Commission (SEC) approved Nasdaq’s proposed rule changes addressing companies that fail to meet the minimum bid price requirements of $1 per share and the subsequent delisting process.
The Previous Framework
The rule changes revise Nasdaq Rules 5810 and 5815, which require that a company with equity listed on Nasdaq maintain a minimum bid price of at least $1 per share. Pursuant to Nasdaq Rule 5810(c)(3)(A), a company that fails to meet the minimum bid price requirement is granted an automatic compliance period of 180 calendar days from the date Nasdaq notifies the company of the deficiency to achieve compliance. Certain circumstances may grant a company a second 180-day compliance period. If a company is not eligible for the second compliance period, or the company fails to cure the bid price deficiency during the second compliance period, the company is issued a Delisting Determination which suspends a company’s ability to trade on Nasdaq. This determination may be appealed to a Nasdaq Listing Qualifications Hearings Panel. Under the previous framework, a request for a hearing ordinarily would have stayed the Delisting Determination, pending the issuance of a written Hearings Panel decision. Additionally, the Panel may grant a company an additional 180 days from the date of the Delisting Determination to regain compliance. This effectively allowed a company to continue trading on Nasdaq for over 360 days (but not more than 540) while remaining noncompliant with the minimum bid price requirement.
Nasdaq proposed, and the SEC approved, the following amendments to Rules 5810 and 5815.
Suspension After Second Compliance Period (360 Days)
The SEC approved an amendment to Rule 5815 to provide that a request for a hearing will no longer stay a delisting action where a company that was afforded the second 180-day compliance period failed to comply with the minimum bid requirement during that period. Instead, companies will be suspended from trading on Nasdaq and its securities will trade on the over-the-counter market while awaiting a determination from the Hearings Panel. Rule 5815 still permits the Hearings Panel discretion, where it deems appropriate, to provide an exception to the suspension for up to 180 days from the Delisting Determination date for the company to regain compliance with the bid price requirement. The new rules clarify that a company achieves compliance with the bid price requirement by meeting the applicable standard for a minimum of 10 consecutive business days.
Delisting Determination If Failure to Meet Bid Price Requirement Occurs Within One Year After Reverse Stock Split
The SEC also approved an amendment of Nasdaq Rule 5810, which provides that if a company’s security fails to meet the bid price requirement and the company has effected a reverse stock split within the prior one-year period, or one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one, the company is not eligible for any compliance period and will be immediately issued a delisting determination. The change applies to a company even if the company complied with the bid price requirement at the time of its prior reverse stock split. The rule change was motivated by Nasdaq’s observation of companies, particularly those in financial distress, engaging in a pattern of repeated reverse stock splits to regain compliance with the bid price requirement. To protect investors, Nasdaq decided that such companies should face immediate delisting. It should be noted that a company in such circumstance would still be permitted to appeal the delisting determination to the Nasdaq hearings panel, where it could potentially receive up to 180 days to regain compliance.
Commission Findings
In connection with approving the new rules, the SEC determined that the proposed changes align with the Exchange Act’s requirements, which aim to prevent fraudulent and manipulative acts and protect investors and the public interest. The SEC expressed concerns that low-priced securities might lack sufficient public float, investor base, and trading interest, making them vulnerable to manipulation.
Takeaways
These approved rule changes are now effective and underscore the SEC’s focus on maintaining robust market standards and protecting investors from potential risks associated with low-priced securities. Companies listed on Nasdaq should carefully assess their compliance with the new requirements to avoid expedited delisting proceedings, including reviewing their current strategies.
Catrina Livermore contributed to this article
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Court Ruling Reinstates Corporate Transparency Act Enforcement; Filing Deadlines Now Set
On February 18, 2025, the nationwide injunction against enforcing the Corporate Transparency Act (CTA) was “stayed” by Eastern District Court Judge Jeremy Kernodle (citing the Supreme Court’s ruling in Texas Top Cop Shop), and FinCEN has stated (in a February 18, 2025 notice) that the deadline for most reporting companies to make required filings is now March 25, 2025. Although FinCEN did not explicitly so state, it appears the March 25, 2025 deadline applies to reporting companies formed or registered between January 1, 2024 and February 17, 2025. Reporting companies formed or registered on or after February 18, 2025, must file within 30 days from the date of creation or registration.
In its notice, FinCEN stated that, during the next 30 days, it “will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.”
The government is not expected to appeal Judge Kernodle’s ruling. The next ruling that could alter the status quo (absent legislation, executive order, or new FinCEN rule) is likely to be following the oral arguments scheduled to occur on March 25, 2025 in the Texas Cop Shop case.
Federal Court Finds Consumer Wire Transfers Are Subject to the Electronic Funds Transfer Act
In an apparent departure from decades of jurisprudence acknowledging the exemption of wire transfers from the ambit of the Electronic Funds Transfer Act (EFTA or the Act), one federal district court recently found that a bank may be liable under EFTA for unauthorized consumer wires initiated using a bank’s electronic banking platforms. See New York v. Citibank, N.A., Case No. 24-CV-659, 2025 WL 251302 (S.D.N.Y. Jan. 21, 2025). While this ruling is not binding authority in any federal circuit and might not sway other courts to adopt its logic, it does signal a need for financial institutions to prepare for legal challenges to their policies and practices regarding wire transfers.
The Obligations of Financial Institutions Under EFTA
EFTA — along with its implementing Regulation E — imposes various obligations on financial institutions related to electronic fund transfers. The Act specifically requires financial institutions to provide lengthy written disclosures to certain customers, investigate and resolve allegedly unauthorized electronic fund transfers, and, in many instances, assume liability for the bulk of consumer losses stemming from such unauthorized transactions. As applied, EFTA limits a consumer’s liability in connection with an unauthorized electronic fund transfer if the customer properly notifies their financial institution of the transaction within 60 days. A financial institution is generally required to investigate and resolve disputed fund transfers within 10 business days of the impacted consumer’s notice. If the investigation determines that an electronic fund transfer was indeed unauthorized, the financial institution is liable to cover all but $50 to $500 of the loss, depending on when the consumer gave notice.
EFTA violations can subject financial institutions to both civil penalties and regulatory enforcement problems. The Act expressly permits private rights of action with statutory penalties, whether such cases are filed as class actions or on an individualized, consumer-by-consumer basis. The Act separately allocates regulatory enforcement authority among multiple administrative agencies, including the federal banking agencies, the administrator of the National Credit Union Administration, the Secretary of Transportation, the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and the Federal Trade Commission (FTC).
Prior Jurisprudence Exempting Wire Transfers From the Scope of EFTA
Until this past month, courts generally held that bank wires are not “electronic fund transfers” subject to EFTA. These courts often applied the statute’s plain language in reaching that conclusion.
EFTA notably defines an “electronic fund transfer” as “any transfer of funds . . . initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape,” excluding “any transfer of funds . . . made by a financial institution on behalf of a consumer by means of a service that transfers funds held at either Federal Reserve banks or other depository institutions and which is not designed primarily to transfer funds on behalf of a consumer.” 15 U.S.C. § 1693a (7)(b). Unlike many traditional electronic fund transfers involving the transfer of money to or from a customer’s account, wire transfers involve a financial institution sending funds to another financial institution on a wire network like Fedwire or the Clearing House Interbank Payments System (CHIPS).
Regulation E explicitly excludes “wire or other similar transfers” from the Act’s definition of “electronic fund transfer.” See 12 C.F.R. § 1005.3(c)(3); 12 C.F.R. § 205.3(c)(3). Many courts have likewise cited Regulation E’s definition of “electronic fund transfer” to support their findings that the EFTA does not regulate wire transfers. See Nazimuddin v. Wells Fargo Bank, N.A., Case No. 24-20343, 2025 WL 33471 (5th Cir. Jan. 6, 2025) (“Because Regulation E excludes ‘wire or other similar transfers’ from the definition of ‘electronic fund transfer,’ the EFTA does not apply to the wire transfers of which Plaintiff complains in this case.”); Stepakoff v. IberiaBank Corp., 637 F. Supp. 3d 1309 (S.D. Fla. Oct. 31, 2022) (“Count I fails to state a claim for relief because [Regulation E] exempts the requested wire transfer at issue from EFTA coverage.”); Fischer & Mandell LLP v. Citibank, N.A., Case No. 09 Civ. 1160, 2009 WL 1767621 (S.D.N.Y. June 22, 2009) (“Regulation E explicitly excludes from the coverage of the EFTA transfers of funds made through checks and wire transfers.”).
Southern District of New York Court Finds That EFTA Extends to Consumer Wire Transfers
A federal district court in the Southern District of New York recently took a different view regarding EFTA’s non-applicability to wire transfers. In a decision issued just this past month, the district court found that EFTA does indeed extend to consumer wires initiated using a bank’s electronic banking platform. The court reasoned that EFTA’s language covers “consumer portions of transactions while forgoing regulation of purely interbank transfers,” such that the component of an electronic wire transfer that does not involve a purely interbank transfer of funds is within the ambit of the Act.
The district court postured that a single wire transfer is, in reality, a series of three consecutive but independent transfers of funds. The first transaction occurs when a consumer initiates a wire transfer by sending a payment order to its financial institution, instructing it to transfer funds from its account to a recipient’s account at another financial institution. The second transaction occurs when the consumer’s financial institution, through a wire network like Fedwire or CHIPS, transfers the funds to the recipient’s financial institution. And the third transaction occurs when the recipient’s financial institution transfers the funds to the recipient’s account. Within this framework, the district court reasoned that since the first transaction comprising a wire transfer does not involve an interbank transfer, if a consumer sends a payment order to its financial institution electronically, such as via a bank’s online banking portal, then EFTA applies to that first step of the wire transfer process. Therefore, the court held that a bank may be liable under EFTA for failing to investigate and resolve allegedly unauthorized wire transfers initiated using the bank’s electronic banking platforms. The court noted that its piecemeal analysis of a wire transfer, differentiating the initial transaction as “ancillary to an interbank wire,” comports with Congressional intent to protect consumer interests in enacting the EFTA.
Potential Implications for Financial Institutions Moving Forward
The Southern District of New York’s recent decision raises important questions for banks as to whether they need to address EFTA-compliance issues regarding their wire transfer practices. Even if other courts continue to exempt all wire transfers from EFTA, class action plaintiffs’ attorneys may be emboldened by the recent case law to justify new legal actions against financial institutions, especially in New York federal court, notwithstanding that many banks’ customer account agreements include provisions mandating arbitration. The risk alone should be enough to cause banks to take caution moving forward.
Yet, financial institutions seeking to comply with the new case law will unfortunately be faced with a somewhat burdensome task. Long-standing consumer contracts and standard form customer account and disclosure statements would need to be updated and amended in mass with all applicable customers of the bank. New wire dispute resolution processes would need to be developed, audited and communicated during training sessions for bank staff. Finally, because the EFTA shifts significant liability to banks for unauthorized transactions, many banks may also begin to impose additional security measures to protect against unauthorized wires, which would increase the administrative expense for these types of transactions and could impede the ordinary speed of wire transfers moving forward.
Australia – Compensation Scheme of Last Resort (CSLR)
Underfunded From Inception
The operator of CSLR has released the latest actuarial report commissioned on the scheme and the initial estimates of projected levies for 2025 / 26 (3rd levy period), triggering widespread concern across the financial services industry and immediately prompting the Treasury to announce a comprehensive review of the scheme.
The proposed financial advice sub-sector levy for 2025 / 26 of AU$70 million will significantly exceed (by nearly four times) the legislated AU$20 million sub-sector cap in only its second full year of operation with the main drivers of the increase being:
The recent failures of a second advice firm, United Global Capital, which in addition to Dixon Advisory are responsible for 92% of the claims estimated to be paid by the scheme for 2025 / 26; and
The failure by Government to ensure that the scheme was adequately funded at commencement bearing in mind the then known failure of Dixon Advisory.
Prior to this latest announcement from CSLR the Senate had already launched an inquiry into the collapse of Dixon Advisory and the implications for the establishment of the CSLR.
K&L Gates has assisted in the making of submissions to the Senate inquiry late last year and identified a number of significant flaws in the design and implementation of the CSLR. The release of the projected levies for the 3rd levy period bears out many of the concerns which were raised in those submissions including the following:
There was an insufficient understanding of the potential claims emerging from the known circumstances of Dixon Advisory at the time of commencement of CSLR.
This led to insufficient initial contributions from both the Federal Government and Australia’s 10 largest financial institutions to fund the commencement of the CSLR being set too low.
The role of AFCA in assessing claims results in claimants more often than not being eligible to receive compensation payments near the maximum amount available from CSLR.
The inclusion in CSLR funding estimates of projected liabilities of the fees and costs incurred by AFCA, CSLR, and ASIC have added significantly to the total liabilities which needs to be funded by the advice sub-sector.
There is no evidence that claimants are required to demonstrate that they have exhausted all other compensation avenues such as against product issuers in the case of Dixon Advisory.
The existence of compensation available through CSLR reduces the incentive for parent companies’ administrators and other stakeholders to contribute to the administration of insolvent firms.
These factors undermine the CSLR’s objectives of enhancing trust and confidence in the Australian financial system and promoting sound and ethical business practices.
The release of the actuarial report confirms that without significant and prompt remedial action, the CSLR will be a material and growing liability for the advice sub-sector for years to come.
MIDDLE EAST: New Saudi Netting Regulation Creating a Buzz
There was a buzz during the joint association conference in Riyadh, Saudi Arabia on the 19 February. A collaboration by ISDA, ISLA and ICMA, the industry associations representing parties that enter into transactions such as derivatives, securities lending and repurchase transactions, is indeed unusual.
However, it was the introduction two days prior, on the 17 February, by the Saudi Central Bank (SAMA) of the Close-out Netting and Related Financial Collateral Regulation that caused the excitement. It is effective from that date. The regulation establishes the enforceability of netting agreements and related financial collateral arrangements with SAMA supervised entities, particularly in the event of a failure by one of the parties to such transactions. The primary objective is to ensure that the contractual provisions of netting agreements are enforceable both inside and outside bankruptcy proceedings, reducing credit risk exposure and enhancing financial stability.
The impact of this regulation on cross-border transactions and business in Saudi Arabia is significant. By streamlining the process of settling obligations between defaulting and non-defaulting parties, the regulation reduces the risk and uncertainty associated with financial transactions. Firms can now engage in transactions with greater confidence, knowing that their netting agreements will be upheld even in the event of a default.
The next step is for the associations to publish legal opinions that support the enforceability of close out netting provisions, in their published agreements, on a cross-border basis. These annual opinions are published globally. Parties rely on these opinions to reduce credit risk exposure and, where applicable, reduce their regulatory capital requirements. Publication will provide the ‘green light’ for financial institutions to commence trading of such transactions on a greater scale. This development can certainly be regarded as another step in Saudi’s Vision 2030 to become a global investment powerhouse. Hence the buzz.
Risk Bearing Entity Requirements: New Jersey and New York
This blog reviews the regulatory requirements that apply to risk bearing entities (RBE) in New Jersey and New York. New Jersey and New York demonstrate distinct approaches to the registration and regulation of RBEs and provider network activities. This blog is part of Foley & Lardner’s RBE Series (see our Introduction posted November 18, 2024).
A variety of RBE reimbursement models that incorporate financial risk can trigger a requirement for Organized Delivery System (ODS) licensure in New Jersey and/or Independent Practice Association approval requirements in New York. Specifically, as generally noted in our Introduction, these models could include traditional or global capitation structures (e.g., financial responsibility for health care services delivered), bundles and episodic structures or other alternative payment models (e.g., financial responsibility for health care services for health conditions or treatments), shared savings, gain sharing, and other upside or downside risk structures (e.g., financial responsibility for total cost of care or achievement of medical loss ratios).
New Jersey
New Jersey classifies an organization that contracts with a carrier to provide, or arrange to provide, health care services or benefits under the carrier’s benefits plans as an ODS.[1] A “carrier” includes insurers, hospital service corporations, medical service corporations, health service corporations, and health maintenance organizations. An ODS often convenes licensed health care providers into a provider network to support its contracts with carriers. An ODS is either certified or licensed depending on whether it assumes financial risk from a carrier. An ODS that assumes financial risk must be licensed. Otherwise, an ODS that will not be compensated on the assumption of financial risk (such as a provider network of licensed health care providers utilizing fee-for-service reimbursement), or is determined to assume de minimus risk, must be certified.[2]
An ODS may include preferred provider organizations, physician hospital organizations, or independent practice associations.[3] However, organizations that only contract to provide pharmaceutical services, case management services, or employee assistance plan services may not require a license or certification. In addition, ODSs are defined to exclude licensed health care facilities and providers.[4]
To apply for ODS licensure or certification, an organization must submit an application to the New Jersey Department of Banking and Insurance on prescribed forms together with copies of organizational documents, standard contract forms, and with respect to licensure applications only, financial information.[5] Unlike a certified ODS, a licensed ODS must comply with risk-based capital, liquidity, minimum net worth, and minimum statutory deposit requirements; and meet other financial standards and ongoing reporting and disclosure obligations commonly applicable to state-licensed insurance companies.[6]
Whether certified or licensed, an ODS must meet minimum standards to perform functions under contracts with carriers.[7] The standards are similar to those carriers would have to comply with if performing such function themselves.
New York
New York classifies an organization that convenes licensed health care providers into a provider network for the provision of health care services through contracts with “managed care organizations” (MCO) and/or workers compensation preferred provider organizations or their participants as an Independent Practice Association (IPA).[8] MCOs include a health maintenance organization or other person or entity arranging, providing, or offering comprehensive health service plans to individuals or groups.
Prior to corporate formation or operation, IPAs must receive approval from the New York State Department of Health (Department of Health). The Department of Health requires the submission of certain information, such as contact, organizational, and operational information of the proposed IPA. A checklist of the IPA formation requirements is found here.[9] Notably, the certificate of incorporation or articles of organizations of the IPA must include “Independent Practice Association” or “IPA” in its name, contain express powers and purposes permitting provider network activities, and include prescribed authorizing language and prohibited activities, and related sign-offs from the New York State Departments of Education and Financial Services.[10] Further, some IPA requirements that are specific to MCO engagements are shouldered by MCOs.[11]
An IPA that intends to engage in risk-sharing in New York must demonstrate to the Department of Health and the Department of Financial Services (which houses the Superintendent of Insurance) that the IPA is financially responsible and capable to assume risk. The review of whether the IPA is financially responsible and capable includes an evaluation of proposed risk sharing and insurance, stoploss, reserves, or other arrangements to satisfy obligations to MCOs, participating provider, and enrollees.[12] Risk-sharing means “the contractual assumption of liability by the health care provider or IPA by means of a capitation arrangement or other mechanism whereby the provider or IPA assumes financial risk from the MCO for the delivery of specified health care services to enrollees of the MCO”.
Conclusion
New Jersey ODS licensure or certification and New York IPA approval requirements have become increasingly important as RBEs have moved beyond their early beginnings as a means for independent physician practices to band together to negotiate access to payor contracts. They have now become major players in network development and supporting delegated payor functions.
The regulatory frameworks for RBE operations differ from state to state, and their applicability can vary based on specific offerings, services, and relationships of RBEs. We recommend careful review of RBE operations and relationships against applicable requirements of operating states.
Awareness of these requirements is crucial for RBEs, as well as downstream and upstream contracting entities that may be indirectly subject to regulations. For example, the terms of provider agreements of an ODS must meet specific requirements in New Jersey,[13] and MCOs in New York are not permitted to contract with an IPA that has not been approved by the New York State Departments of Health, Education, and Financial Services.[14]
[1] N.J. Stat. § 17:48H-1.
[2] N.J. Stat. § 17:48H-1; N.J. Admin. Code § 11:22-4.3(c).
[3] See N.J. Stat. § 17:48H-1.
[4] See N.J. Admin. Code § 11:22-4.2.
[5] N.J. Stat. §§ 17:48H-2, 17:48H-3, 17:48H-11, 17:48H-12; N.J. Admin. Code §§ 11:22-4.4, 11:22-4.5.
[6] See, e.g.,N.J. Admin. Code §§ 11:22-4.8, 11:22-4.9.
[7] N.J. § 17:48H-33 (certified and licensed ODS are subject to carrier standards in N.J. Stat. § 26:2S-1 et seq.)
[8] 10 NYCRR § 98-1.2.
[9] https://www.health.ny.gov/health_care/managed_care/hmoipa/ipa_formation_requirements.htm (last accessed Jan. 12, 2025).
[10] 10 NYCRR § 98-1.5(b)(6)(vii).
[11] See, e.g., 10 NYCRR § 98-1.18.
[12] 10 NYCRR ss. 98.1-2, 98.1-4.
[13] See N.J. Admin. Code §§ 11:24B-5.1-11:24B-5.7.
[14] See 10 NYCRR § 98-1.5(b)(6)(vii).
An Executive Branch for the People, by the People: What the New Administration’s Executive Orders Mean for an Independent CPSC
While independent regulatory agencies, like the Consumer Product Safety Commission (CPSC or the Commission), have typically considered themselves exempt from executive orders, recent events indicate the CPSC is likely not free from the Trump Administration’s push for an Executive Branch for the people, by the people. Statements from acting Commission leadership seemingly indicate a willingness to work with President Trump, though the CPSC has taken only limited actions to implement the many directives ordered by the President to date. Stakeholders in the consumer products industry should be forewarned that their dealings with the Commission and its anticipated regulatory agenda could soon change, though they should continue to take steps to prepare for the implementation of key new rules until the Commission provides further guidance.
An Executive Branch for the People, by the People
In the Consumer Product Safety Act (CPSA), Congress established the CPSC and directed the Commission to operate with independence “to protect the public against unreasonable risks of injuries and deaths associated with consumer products.” Yet, the Trump Administration’s recent actions first, attempting to dismantle two other independent agencies, the U.S. Agency for International Development (USAID) and Consumer Financial Protection Bureau (CFPB), and subsequently issuing a yet unnumbered executive order, entitled “Ensuring Accountability for All Agencies,” make clear that the new administration will seek to make independent agencies less independent. Indeed, the February 18, 2025 Executive Order criticizes the very existence of independent regulatory agencies and laments the lack of “sufficient accountability to the President, and through him, to the American people.” The Order seeks to give the President broad oversight over independent agencies, requiring submission of major regulations to the White House Office of Management and Budget (OMB) for review. Further, the Order seeks to require independent agencies to hire a White House liaison and bars such agencies from taking legal positions that differ from any taken by the President or Attorney General. Such directives create an inherent risk of conflict with the CPSC’s stated mission and congressionally mandated independence in the CPSA. That said, recent communications from new Commission leadership indicate a potential willingness to cooperate—at least for the time being—either through express agreement or by trying to lay low.
On January 21, 2025, the day after President Trump took office and issued a flurry of new executive orders, as is customary when the political party of the President changes, Alex Hoehn-Saric, a 2021 Biden appointee, stepped down as Chair of the Commission. The Commission then announced Peter Feldman, a 2018 Trump appointee, as the acting chair the following day. Acting Chair Feldman has since issued three statements: The first statement, issued on January 22, 2025, announced promotions and appointments among key senior staff. The second statement, issued on January 24, 2025, announced the termination of all diversity, equity and inclusion (DEI) programs and activities, in line with Executive Order No. 14148, which revoked a series of prior Executive Orders implementing DEI initiatives, and Executive Order No. 14151, “Ending Radical and Wasteful Government DEI Programs and Preferences,” among other executive orders. See President Trump’s “Rescission” Executive Order (Jan. 21, 2025). The third statement, issued on February 4, 2025, “applaud[ed] President Trump’s bold action to revoke the de minimis privilege for all imports from China,”[1] stating the Commission “has long been concerned about the enforcement challenges when Chinese firms, with little or no U.S. presence, distribute consumer products under the de minimis provision,” signaling the CPSC’s support of Executive Order No. 14195 and Executive Order No. 14200, ordered February 1, 2025 and February 5, 2025 respectively.
Notably, despite its prior availability, the CPSC’s Operating Plan for Fiscal Year 2025, which laid out the Commission’s intended direction and priorities, including its DEI programs and regulatory priorities, is no longer available on its website as part of the Commission’s overall website content review pursuant to recent Executive Orders.
Other Potentially Relevant Orders
On January 20, 2025, and in the days since, President Trump signed a flurry of other executive orders, which could be of relevance to a less independent CPSC. Among them are the following three Orders:
On January 20, 2025, President Trump issued an Order that called for a “regulatory freeze” and had three main directives instructing federal agencies: (1) not to propose or issue any new rules “until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule”; (2) immediately withdraw any new rules sent but not yet published in the Federal Register so that they can be reviewed and approved per the first directive; and (3) “consider” a 60 day postponement for the effective date of any rules that have been published in the Federal Register or have not taken effect and further “consider” opening a comment period for any such rules.
Also on January 20, 2025, President Trump signed Executive Order 14192, “Unleashing Prosperity Through Deregulation,” which launches a “massive 10-to-1 deregulation initiative” requiring agencies to “identify at least 10 existing rules, regulations, or guidance documents to be repealed” whenever they issue a new rule, regulation, or guidance.
On February 11, 2015, President Trump issued an Order implementing his “Department of Government Efficiency” (DOGE) workforce optimization initiative. Among other things, the Order directs an approximately 75% reduction in staff (indicating that for every one staffer hired, four must be eliminated). The Order also directs Agency Heads to, within 30 days, submit “a report that identifies any statutes that establish the agency, or subcomponents of the agency, as statutorily required entities . . . and whether the agency or any of its subcomponents should be eliminated or consolidated.” Notably, the Order excludes public safety functions, which would seem to speak directly to the CPSC’s stated mission, although that same argument could be made about the Federal Emergency Management Agency (FEMA), which has drawn President Trump’s recent attention (and criticism).
While the CPSC’s relatively small size and budget should not place it high on the list for the same deregulation initiatives and staff cuts as other agencies, there is no telling what might happen in the coming months.
Next Steps
Though we do not anticipate the CPSC’s regulatory agenda as it relates to new e-filing requirements for certificates of compliance, e-bikes, and certain infant products to change at this time, based on the CPSC’s continued focus on and discussion of these initiatives at this year’s International Consumer Product Health and Safety Organization (ICPHSO) Annual Symposium, it is anticipated that the Commission will reconsider the remainder of its regulatory agenda and priorities.
Stakeholders should continue preparations for the implementation of the new e-filing requirements for certificates of compliance which go into effect July 8, 2026 for products not imported into a Free Trade Zone (FTZ), and July 8, 2027 for products imported into an FTZ until the CPSC provides contrary guidance or otherwise indicates a delay or freeze to this regulation.
The CPSC’s responses to Executive Orders and the Trump Administration’s directives are rapidly evolving. With this continued uncertainty, stakeholders should continue monitoring for updates from the Commission. Stakeholders should also continue their preparations for the implementation of major regulations until the CPSC issues further guidance.
[1] The referenced “de minimis privilege” refers to the current exemption under the Tariff Act (19 U.S.C. § 1321) for certain shipments valued below $800, which permits the importation of such shipments without filing otherwise required paperwork concerning the product and exempts such products from inspection at U.S. points of entry. The de minimis shipment exemption is limited to shipments with an aggregate value less than $800 per day by a single importer, and is generally taken advantage of by international e-commerce retailers.