Franchisee Must Comply with Reasonable Post-Termination Obligations in Franchise Agreements
A recent federal court decision underscores courts’ willingness to enforce clear language in franchise agreements imposing reasonable post-termination obligations on franchisees held to be in breach.
Case Background
BrightStar Franchising, LLC, a franchisor of in-home care agencies, had four franchise agreements with Foreside Management Company and its principals, Mark and Claire Woodsum. The agreements contained numerous post-termination obligations such as restraints on competition and solicitation, prohibitions on using BrightStar’s confidential information, and requirements to return property and customer data and to transfer telephone numbers. Critically, the franchise agreements also called for the application of Illinois law in the event of litigation. Furthermore, two collateral lease assignments for Foreside’s Newport Beach and Mission Viejo, California, office locations supposedly granted BrightStar possession rights upon termination of the franchise agreements.
When the agreements expired, Foreside declined renewal and started operating its in-home care services outside of the BrightStar franchise system. BrightStar filed suit in the U.S. District Court for the Northern District of Illinois and sought a motion for preliminary injunction against Foreside and the Woodsums, individually, seeking:
Foreside’s surrender of both Newport Beach and Mission Viejo offices under the collateral lease assignments; and
Enforcement of post-termination obligations under the franchise agreements.
Post-Termination Covenants in a Commercial Relationship are Judged for Reasonableness and not Per Se Invalid
Although the franchise agreements included an Illinois choice-of-law provision, Foreside and the Woodsums argued that California law should apply because a California statute, Business Code §16600, invalidated the non-compete obligations. The Court found that even under California law post-termination covenants in a commercial relationship are judged for reasonableness and not invalid per se. On this basis, the Court analyzed whether to apply California or Illinois law to the question of the enforceability of the post-termination obligations. The Court held Illinois law applied because the defendants failed to prove there was a conflict between the laws of the two states that would lead to a different outcome on the merits.
The Holding
The Court Did Not Enjoin the Assignment of the Leases
The Court found the Newport Beach lease assignment valid but moot as the defendants had surrendered the office anyway, and Brightside was able to take control of the property. The Mission Viejo lease was also void because Foreside owned the property outright and could not lease to itself. So, there was no lease for Brightstar to assume.
The Post-Termination Restrictions Were Reasonable
Applying Illinois law, the Court found BrightStar’s covenants which included an 18-month duration, 25-mile geographic restriction, and protection of legitimate business interests such as goodwill, proprietary systems, and customer relationships reasonable.
The Court found that the defendants likely breached nearly every post-termination provision through continued use of confidential information and customer data, operating a competing business in prohibited territory, soliciting former clients, holding themselves out as a BrightStar franchisee, retaining customers’ phone numbers, using elements of BrightStar’s proprietary program, and displaying BrightStar signage.
Irreparable Harm and Public Interest Weighed in BrightStar’s Favor
The Court characterized violations of restrictive covenants as a “canonical” example of irreparable harm explaining loss of goodwill, confidential data, and brand control are intangible and difficult to measure. In weighing the balance of potential harms, the Court found the harm to BrightStar outweighed any harm the defendants would suffer if the injunction was issued. The Court found that the defendants had intentionally declined renewal of the agreements and breached the post-termination covenants. Public interest favored enforcing valid franchise agreements, which would have minimal disruption to client care due to nearby BrightStar agencies.
The Court granted BrightStar’s request for a preliminary injunction, in part, enforcing post-termination obligations under the franchise agreements but, as mentioned above, denied the request to enjoin the assignment of the leases.
Why The Decision Matters
This decision emphasizes the enforceability of choice-of-law clauses in franchise agreements and clarifies California Business Code §16600 does not automatically void post-termination restrictive covenants in commercial contexts.
For franchisors, the ruling underlines the importance of reasonable scope and duration in covenants and demonstrates strong judicial protection for reasonable post-termination obligations.
For franchisees, the decision cautions that terminating a franchise without complying with post-termination obligations risks swift injunctive relief and potential operational shutdown.
Federal Court Dismisses “Trap and Trace” Lawsuit for Plaintiff’s Lack of Injury
Over the past year, there has been an explosion of lawsuits targeting website analytics and tracking tools. One recent decision brought businesses another victory in challenging lawsuits alleging violations of the California Invasion of Privacy Act’s (CIPA)’s prohibition against use of “pen registers” and “trap and trace devices.” Cal. Penal Code § 638.51. In a recent ruling, a federal judge in the Central District of California dismissed one such lawsuit, holding that the claim could not be asserted in federal court.
Case Background
Converse has been previously targeted by – and has defeated – other CIPA claims. This includes one decision from earlier in the year where the Ninth Circuit Court of Appeals affirmed dismissal of a complaint filed against Converse alleging violation of CIPA. There, a website visitor claimed that Converse’s use of a website chat vendor amounted to wiretapping. This was because, according to the Plaintiff, the third-party tech vendor intercepted and potentially read her chat correspondence (which, in turn, supported a CIPA aiding and abetting claims against Converse). The Ninth Circuit disagreed, siding with the district court which had held even if the vendor involved could hypothetically access the messages involved, there was no proof it actually attempted to or effectuated such access.
This recent case filed against Converse differed in its focus. Plaintiff asserted that Converse violated CIPA by sharing data with a social media company’s pixel through a software development kit (SDK). Plaintiff’s complaint alleged that this SDK collected data which in effect could be used as an electronic fingerprint to facilitate the social medial company engaging in profiling of the user based on their activity on Converse’s website. Plaintiff claimed this software qualified as a “trap and trace device” under California law and subjected Converse to damages under CIPA.
Court Rejects Plaintiff’s Trap and Trace Theory for Lack of Injury
But the court did not rule on the merits of that allegation. Instead, the judge dismissed the case after holding that Plaintiff did not establish standing – the legal doctrine that generally requires plaintiffs in federal court to prove a concrete and particularized injury – under Article III of the U.S. Constitution. Under Supreme Court and Ninth Circuit precedent, an alleged statutory violation is insufficient to satisfy Article III’s standing requirement without a showing of actual harm similar to historically recognized injuries. For privacy claims, courts plaintiffs have typically pointed to intrusion upon seclusion or public disclosure of private facts as historically recognized injuries.
In layman’s terms, the Plaintiff needed to show a real-world harm personal to her, not merely a purported statutory violation. The Court rejected Plaintiff’s comparisons to the common law privacy torts of intrusion upon seclusion and public disclosure of private facts as adequate to establish such harm because plaintiff’s allegations of “fingerprinting” did not allege “highly offensive” disclosures or interferences.
Some recent CIPA decisions, including this one, reflect judicial concern that the plaintiff’s bar has significantly overreached in bringing a prolific number of claims under California law in a distortion of legislative intent. That being said, wiretap claims in litigation and arbitration are anticipated to comprise a majority of all privacy claims brought in 2026 – and Privacy World will be there to keep you in the loop. Stay tuned.
Disclaimer: While every effort has been made to ensure that the information contained in this article is accurate, neither its authors nor Squire Patton Boggs accepts responsibility for any errors or omissions. The content of this article is for general information only, and is not intended to constitute or be relied upon as legal advice.
Texas Senate Bill 17: Implications for Real Property and Commercial Leasing Transactions
OverviewTexas Senate Bill 17 (SB 17), signed by Governor Greg Abbott on June 20, 2025, and effective September 1, 2025, establishes sweeping restrictions on the acquisition of real property interests by individuals and entities connected to certain “designated countries,” currently China, Russia, Iran, and North Korea. The law is codified in Subchapter H of Chapter 5 of the Texas Property Code and reflects the state’s stated national security concerns about foreign influence and ownership of land within its borders.
SB 17 applies prospectively only. The statute expressly provides that transactions occurring before September 1, 2025, are governed by prior law. However, acquisitions on or after the effective date (including new commercial leases of one year or more) fall squarely within the new restrictions.
Scope of the LawSB 17 prohibits the purchase or acquisition of any “interest in real property,” a phrase defined broadly to include fee simple title, leasehold interests of one year or more, easements, mineral and water rights, groundwater, standing timber, mines, quarries, agricultural land and improvements, commercial property, industrial property, and residential property. This expansive definition is identical to the statutory language and was emphasized in multiple industry commentaries.For commercial real estate practitioners, the most significant impact is the treatment of long-term leases as acquisitions of an interest in real property. Under SB 17, a commercial lease with a term of one year or longer is treated the same as a purchase for compliance purposes.
Who Is Prohibited?SB 17 prohibits the following persons and entities from acquiring interests in Texas real estate:
Governments of designated countries.
Entities headquartered in a designated country, directly or indirectly held or controlled by a designated-country government, designated by the governor as national security threats, or majority-owned by prohibited individuals.
Entities majority-owned by other prohibited entities.
Individuals who are:a. domiciled in a designated country (with a narrow homestead exception),b. citizens of a designated country residing abroad without naturalization in their country of residence,c. unlawfully present in the United States,d. acting as agents of a designated country, ore. members of the ruling political party of a designated country.
SB 17 also allows the governor, after consulting the Department of Public Safety (DPS) and the Homeland Security Council, to designate additional countries, transnational criminal organizations, or other entities as prohibited.
ExemptionsThe following are exempt from the law:
U.S. citizens and lawful permanent residents.
Entities owned or controlled exclusively by U.S. citizens or lawful permanent residents, provided no prohibited individual holds an interest or control.
Leasehold interests shorter than one year.
Individuals from designated countries who are lawfully present and residing in the U.S. acquiring a residential homestead.
The exemptions function as safe harbors, but they do not resolve certain ambiguities—particularly involving minority ownership or passive investment by foreign individuals in multilayered entity structures.
Enforcement and PenaltiesThe Texas Attorney General (AG) is responsible for implementing, investigating, and enforcing SB 17. The AG must establish procedures for reviewing real estate transactions, conducting investigations, and determining whether enforcement actions are appropriate.
If a violation is suspected or found:
The AG may bring an in rem action against the property in the district court of the county where it is located.
The AG must record notice of the action in the county property records.
If a court determines a violation occurred, it must order divestiture and appoint a receiver to manage and sell or dispose of the property interest.
Penalties include:
Civil penalties for companies and entities of the greater of $250,000 or 50% of the market value of the property interest.
State jail felony charges for individuals who intentionally or knowingly violate the law.
Forced divestiture, with proceeds (after liens and state enforcement costs) returned to the violator.
Importantly, a purchase or acquisition that violates SB 17 is not automatically void. However, a leasehold interest of one year or more acquired in violation of the Act is void and unenforceable. This distinction creates elevated risk for commercial landlords and tenants.
Impact on Commercial Leasing TransactionsBecause commercial leases with terms of at least one year constitute an “interest in real property,” SB 17 has significant implications for Texas landlords, tenants, lenders, and property managers.
Key effects include:
Leases acquired by prohibited parties on or after September 1, 2025, are void and unenforceable.
While sellers and lessors bear no statutory duty to investigate a counterparty’s compliance, entering into a void lease can cause material disruption.
Renewals or extensions of leases may constitute new “acquisitions,” though the statute does not expressly address this. Lessors should assume that renewals require fresh compliance review.
Indirect ownership raises unresolved questions; for example, whether a minority investment by a prohibited individual in an upper-tier entity affects eligibility. Current statutory language suggests the prohibition applies only to entities majority-owned or majority-controlled by prohibited individuals, but this remains an area where AG rulemaking may provide further clarity.
Practical Guidance for Commercial Landlords and Counsel
Screen Tenants Early: Conduct due diligence on ownership, control, and beneficial owners before negotiating or executing any lease.
Add SB 17 Compliance Clauses: Include representations, warranties, covenants, and indemnification provisions tailored to SB 17.
No Duty to Investigate, but Risk Remains: Although lessors are not required to verify compliance, prudent parties should adopt procedures to avoid entanglement with void leases or AG enforcement actions.
Track Rulemaking: The AG is required to adopt rules; guidance is expected in late 2025.
Coordinate with Lenders: Lenders may require compliance certifications as conditions precedent in financing transactions.
Monitor Renewals: Treat renewals and extensions as potential new acquisitions requiring updated compliance review.
Litigation and Constitutional Challenges
On July 3, 2025, the Chinese American Legal Defense Alliance (CALDA) filed a federal lawsuit challenging SB 17 on multiple grounds, including:
Equal Protection and Due Process violations,
federal preemption under FIRRMA and CFIUS authority,
Fair Housing Act violations, and
vagueness regarding key statutory terms such as “domicile.”
The outcome of this litigation could significantly affect enforcement, particularly in the context of commercial leasing and entity ownership.
ConclusionSB 17 represents a major shift in Texas property law and applies far beyond traditional land purchases. Commercial leases of one year or more, easements, and other partial interests are now regulated acquisitions. While the law aims to address national security risks, it introduces new compliance obligations and substantial uncertainty into Texas real estate markets, particularly for commercial landlords and tenants.
Until further rulemaking and judicial interpretation occur, prudent parties should adopt enhanced due diligence and robust contractual protections when engaging in commercial leasing transactions involving any foreign individuals or entities.
California Court of Appeal Affirms Strict Jurisdictional Deadline for Appeals of Labor Commissioner Decisions
On November 19, 2025, the California Court of Appeal, First Appellate District, issued a published decision in Dobarro v. Kim, affirming the trial court’s dismissal for untimeliness of an employer’s appeal from a Labor Commissioner award. The decision underscores the mandatory and jurisdictional nature of the statutory deadline for seeking judicial review of Labor Commissioner decisions and rejects arguments for equitable tolling in this context.
Quick Hits
The California Court of Appeal affirmed that the statutory deadline for appealing a Labor Commissioner decision is mandatory and jurisdictional, with no exceptions for late filings due to mistake, inadvertence, or excusable neglect, except in cases of fraud.
The court rejected the application of equitable tolling for filing deadlines in Labor Commissioner appeals, even in cases of electronic filing errors, emphasizing that strict adherence to time limits ensures prompt wage payment and discourages frivolous appeals.
Employers must comply with both the notice of appeal and undertaking requirements within the statutory deadline to preserve their right to judicial review, as a failure to do so deprives the court of jurisdiction to hear the appeal.
Background
The case arose from a wage claim filed by a former employee, resulting in a Labor Commissioner’s award of $74,419.82 against the employer for unpaid overtime and other violations. The Labor Commissioner’s decision was served by mail, triggering a fifteen-day deadline for the employer to file an appeal to the superior court under Labor Code section 98.2. The employer attempted to file the notice of appeal and a motion for waiver of the undertaking requirement on the last day of the deadline, but the electronic filing was rejected by the court clerk. The documents were subsequently filed in person the following day, rendering the appeal one day late.
The trial court found the appeal untimely and denied the employer’s motion for waiver of the undertaking requirement, concluding that it lacked jurisdiction to consider the appeal.
Key Holdings
Jurisdictional deadline for appeals. The Court of Appeal affirmed that the statutory deadline for appealing a Labor Commissioner decision is both mandatory and jurisdictional. The court cited long-standing precedent holding that late filings may not be excused on grounds of mistake, inadvertence, or excusable neglect, with the sole exception being fraud, which was not alleged in this case.
No equitable tolling. The employer argued that the deadline should be subject to equitable tolling, due to a third-party filing error, and cited California Code of Civil Procedure section 1010.6, which provides for tolling in certain instances of electronic filing rejections. The court rejected this argument, finding that the statute applies only to complaints and cross-complaints, not to notices of appeal from Labor Commissioner decisions or motions to waive undertaking requirements. The court further noted that the statutory scheme and controlling case law require strict adherence to the time limits to promote prompt payment of wages and discourage frivolous appeals.
Undertaking requirement. The decision reiterates that when an employer pursues an appeal, “it must first post an undertaking in the amount of the challenged award” or seek a waiver within the same statutory deadline as the appeal. Failure to comply with either requirement within the prescribed period deprives the court of jurisdiction to hear the appeal.
Attorney conduct and publication. The court declined to impose sanctions for a frivolous appeal but published the decision to clarify the law and remind attorneys of their obligation to candidly address the controlling legal authority and properly develop their arguments.
Key Takeaways
This decision serves as a reminder to employers and counsel of the importance of meeting statutory deadlines in Labor Commissioner appeals, as well as the limited grounds for excusing untimely filings.
There are several instructive points to appreciate from this case:
The deadline for appealing a Labor Commissioner decision to the superior court is strictly enforced and jurisdictional; late filings will not be excused except in cases of fraud.
Equitable tolling does not apply to the statutory deadline for filing appeals or motions to waive undertaking requirements in Labor Commissioner proceedings, even where electronic filing errors might have occurred.
Employers must ensure timely compliance with both the notice of appeal and undertaking requirements to preserve their right to judicial review.
The decision reinforces the importance of prompt wage payment and the legislative intent of discouraging delay and frivolous appeals in wage claim proceedings.
Tax Consulting Firm Permitted to Challenge Final Micro-Captive Reporting Regulation
Ryan, LLC v. Internal Revenue Service[1] is the latest example of success in overcoming procedural hurdles to challenge the validity of a US Department of the Treasury (Treasury) regulation. In a recent opinion, the US District Court for the Northern District of Texas held that:
Ryan has standing to challenge the validity of the Treasury’s final regulations[2] that require disclosure of certain transactions engaged in by businesses and their “micro-captive insurance companies” (MCICs).
Ryan sufficiently pleaded its claim that the final regulations under challenge were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” and must be set aside under the Administrative Procedure Act (APA).[3]
The court’s opinion confirms that nontaxpayer actors may have standing to challenge Treasury regulations. The case is also another example of a plaintiff reaching the merits stage of a challenge to a Treasury regulation in the aftermath of Loper Bright v. Raimondo.[4]
Background
Ryan is an advisor to businesses seeking to establish and maintain MCICs. “Captive” insurance companies are specialized insurance companies that exist to insure the entities that own them. When the owning entities make premium payments to the captive, the premiums do not need to include commissions or other fees associated with traditional insurers, making captives an attractive option especially when coverage is unavailable or costly through traditional insurers. Certain small captive insurance companies, commonly called MCICs, qualify for favorable tax treatment. Under section 831(b), MCICs are not taxed on the first $2.2 million in premiums paid by their owner-insured. The Internal Revenue Service (IRS) has increased its scrutiny of the captive insurance industry because of concerns that these arrangements may be exploited for fraud and abuse.
The Treasury’s new regulations
Section 6707A requires the disclosure of certain “reportable transactions,” defined as transactions that, in the IRS’s determination, have a “potential for tax avoidance or evasion.” A “listed transaction” is a type of reportable transaction in which the taxpayer is presumed to have engaged in the transaction for the purpose of tax avoidance or evasion.[5] A “transaction of interest” is a reportable transaction designated by the IRS as having a potential for abuse but is not presumed abusive.[6] These designations create heavy reporting requirements by taxpayers and their advisors (e.g., Ryan).
Under the Treasury’s new regulations, a micro-captive insurance transaction is defined based on a loss ratio factor and a financing factor. The loss ratio factor is the ratio of the captive insurance company’s cumulative insured losses to the cumulative premiums earned over a specified period, typically the most recent 10 taxable years (or all years if less than 10). The financing factor refers to whether the captive insurance company participated in certain related-party financing arrangements within the most recent five taxable years, such as making loans or other transfers of funds to insureds, owners, or related parties. A transaction is classified as a “listed transaction” if the MCIC’s loss ratio is below 30% for the previous 10 taxable years and it provided related-party financing during the previous five taxable years. A transaction is classified as a “transaction of interest” if the MCIC’s loss ratio is below 60% for the previous 10 taxable years or it provided related-party financing during the previous five taxable years.
A review of the Ryan, LLC v. IRS timeline
Ryan filed its complaint in January 2025, seeking to have the final regulations set aside on the grounds that they are substantively and procedurally invalid. On April 28, 2025, the government filed a motion to dismiss the complaint, contending that Ryan lacked standing to challenge the regulations’ validity and had otherwise failed to state a claim upon which relief could be granted.
On November 5, 2025, the district court denied in part the government’s motion to dismiss and issued an opinion. Therein, the court ruled that Ryan did have standing to challenge the regulations. The court rejected the government’s contention that Ryan lacked the “zone of interests” required to state a claim under the APA, in part because it found that the final regulations would discourage potential clients from engaging Ryan, thus hampering its profitability.
Following its ruling on standing, the court rejected the government’s contention that Ryan had failed to state a claim under section 706 of the APA. The crux of Ryan’s allegation was that the final regulations are arbitrary and capricious because the Treasury issued the rules without justifying to the interested public how the relevant facts and data supported its view that MCICs pose a heightened risk of tax avoidance or evasion. In Ryan’s view, the Treasury also neglected to explain why the criteria used for making its determinations that particular transactions should be “listed transactions” or “transactions of interest” (i.e., loss ratios and related-party financing) are effective in distinguishing abusive transactions from legitimate ones. Ryan will now have the opportunity to litigate its contention on the merits in the next phase of the litigation.
Practice point: In 2024, the Supreme Court of the United States overruled the doctrine of regulatory deference set forth in Chevron. Ryan is now the latest case since Loper Bright in which a federal court has permitted a regulatory challenge to proceed on its merits. The Northern District of Texas, like several other courts before it, has recognized the responsibility federal courts have under Loper Bright to exercise their independent judgment when deciding statutory meaning. Ryan also underscores how taxpayers and their allies who are negatively affected by a regulation should carefully consider whether the Treasury engaged in due reasoning and consideration, as such regulations may be susceptible to invalidation on the ground that they were issued without adherence to the procedural safeguards provided under the APA.
Suzanne Golshanara, a law clerk in the Washington, DC, office, also contributed to this post.
_________________________________________________________________________________
[1] No. 3:25-CV-0078-B, 2025 BL 396822 (N.D. Tex. Nov. 5, 2025).
[2] Treas. Reg. §§ 1.6011-10 and -11.
[3] 5 U.S.C. § 706(2)(A).
[4] 603 U.S. 369 (2024).
[5] See Treas. Reg. §§ 1.6011-4(b)(2).
[6] See Treas. Reg. §§ 1.6011-4(b)(6).
Court Hands Policyholder Win in Prior Notice Exclusion Case
The Northern District of California recently rejected an insurer’s attempt at avoiding its duty to defend the insured based on erroneous application of a prior knowledge exclusion. The case highlights the breadth of an insurer’s duty to defend and reiterates that to avoid this duty, “it is the insurer’s burden to demonstrate there is no possible theory that would bring a single issue within coverage.”
Case Background
After purchasing BetterHelp in 2015, BetterHelp’s owner purchased an insurance policy from CNA in 2016 that included coverage for any “Enterprise Liability” claim brought against an insured, including Network Security Liability, Privacy Injury Liability, Privacy Regulation Proceedings, and Privacy Regulation Fines. This coverage was continuously renewed, providing coverage through August 1, 2022.
On June 8, 2022, the FTC sent BetterHelp a draft administrative complaint which alleged that BetterHelp violated the FTC Act by disclosing consumer health information to third-parties without consent. BetterHelp promptly provided notice of the complaint to CNA. BetterHelp and the FTC then entered into a consent agreement in March 2023 in which BetterHelp agreed to pay a fine. Five days after the FTC settlement, BetterHelp was sued in a putative class action lawsuit (“Class Action”) alleging violations under state and federal law, including alleged violations of the Electronic Consumer Privacy Act between January 2017 and September 2021 based on the disclosure of confidential user information to third parties.
BetterHelp tendered the Class Action to CNA for a defense, but CNA denied coverage for both the Class Action and the FTC complaint based on two coverage defenses. First, CNA argued that Section D of the policy precluded coverage because the insured had “executive knowledge of wrongful acts prior to the policy period” based on a civil investigative demand from the FTC in 2020. Section D conditions coverage on “prior to the inception date of [the] Policy or the first such policy issued and continuously renewed by the Insurer, of which this Policy is a renewal, whichever is earlier: no Executive Officer knew or should have known that any such Wrongful Act, or Related Wrongful Acts, might result in such Claim.” Second, CNA argued that the Class Action alleged wrongful acts occurring before the policy period so that the Prior Wrongful Acts exclusion applied.
BetterHelp and its corporate parent, Telacom, brought suit against CNA, seeking coverage for the Class Action. The policyholders moved for judgment on the pleadings.
The Court’s Decision
The court rejected CNA’s arguments and ruled that CNA had a duty to defend. The court first reiterated California law on the duty to defend. Like in all other states, in California, the duty to defend is broader than the duty to indemnify. It is triggered whenever the underlying complaint raises the possibility that there may be coverage. The burden then shifts to the insurer to show that an exclusion applies and that there is “no conceivable theory” that can bring the lawsuit within coverage.
Turning to the exclusions that CNA raised, the court rejected CNA’s contention that Section D applied to bar coverage. The court found that CNA had not conclusively proven that BetterHelp executives had knowledge of the alleged wrongful acts at issue in the Class Action prior to the inception of the policy in August 2021. While CNA pointed to a publicly available report stating that the FTC had served a civil investigative demand (CID) on BetterHelp in July 2020, the court pointed out that the public notice did not state the subject matter of the investigation so CNA could not conclusively show that the CID was, in fact, connected to the Class Action or that executives had knowledge of the wrongful acts alleged in the Class Action at that time.
Second, the court turned to prior knowledge exclusion and rejected CNA’s arguments there as well. This exclusion applies if the claim arises out of wrongful acts that occurred before the named insured purchased BetterHelp on January 23, 2015. The court stated that the exclusion does not apply because the Class Action “does not completely arise out of pre-2015 acts given the ECPA claims, which arise in 2017.” The court explained that the draft FTC complaint and the Class Action distinguished between two ways that BetterHelp improperly disclosed user health information, one of which began before 2015 and the other of which began in 2017. Because there was no link between the pre-2015 events and the entire action did not arise out of the pre-2015 conduct, the court held that the exclusion does not apply.
Takeaways for Insureds
The court’s decision underscores the in-depth factual analysis required for application of a prior knowledge or prior notice exclusion to avoid coverage. Policyholders should push back on insurer attempts to broadly apply prior knowledge or prior notice exclusions to distinct claims and distinct wrongful acts. Further, policyholders and insurers alike should be cognizant of the in-depth factual analysis required for a court to rule on application of these exclusions. Finally, the decision highlights a procedural practice pointer for the insurance coverage bar, noting that “[a]lthough a 12(c) motion mirrors a 12(b)(6) motion and inferences should be drawn in favor of the nonmoving party, the duty to defend still places the burden on the insurers … to establish that policy exclusions apply and that there is no possibility that a claim can fall within policy coverage.”
Claim Construction: Indefinite or Clerical Error?
This Federal Circuit opinion analyzes the “very demanding standard” of judicial correction of erroneous wording of a patent claim.
Background
Canatex Completion Solutions owns U.S. Patent No. 10,794,122. This patent covers a releasable connection device for a downhole tool string used during downhole operations in oil and gas wells. The device has two parts locked together. In circumstances where the further downhole (first) part of the device has gotten stuck, the operator can disconnect the two parts of the device, leaving the further downhole (first) part in the well while pulling the upper (second) part to the surface.
Canatex accused Wellmatics, LLC, GR Energy Services, LLC, GR Energy Services Management, LP, GR Energy Services Operating GP, LLC, and GR Wireline, L.P. (collectively, “Defendants”) of infringing the ’122 patent in the District Court for the Southern District of Texas. In response, Defendants challenged the ’122 patent’s validity. The claimed phrase at issue was “the connection profile of the second part.” Defendants argued the claims that included this phrase were indefinite for lack of an antecedent basis, while Canatex argued the phrase contains an evident error and that the intended meaning was “the connection profile of the first part.”
The district court agreed with Defendants that the claims were indefinite, ruling that “the error” identified by Canatex “is not evident from the face of the patent and the correction to the claim is not as simple as [Canatex] makes it seem.” In fact, the court ruled this “error” “was an intentional drafting choice and not an error at all.” The court further concluded that Canatex’s failure to seek correction from the USPTO pursuant to 35 U.S.C. § 255, which expressly permits the USPTO to correct certain clerical, typographical, and minor errors, suggested that the error is neither minor nor evident on the face of the patent.
Canatex appealed to the Federal Circuit, challenging as legally erroneous the district court’s determinations that (i) no error in the claim phrase at issue was evident on its face of the patent and (ii) there was no unique evident correction.
Issues
Whether it is evident on the face of the ’122 patent that the claim language at issue contains an error.
Whether Canatex’s correction of “second” to “first” is the unique correction that captures the claim scope a reasonable relevant reader would understand was meant based on the claim language and specification.
Holdings
Yes. It is evident on the face of the ’122 patent that the claim language at issue contains an error.
Yes. The correction of “second” to “first” is the unique correction that captures the claim scope a reasonable relevant reader would understand was meant based on the claim language and specification.
Reasoning
Error evident on the face of the ’122 patent. The Federal Circuit reasoned that a relevant artisan would immediately see that, as written, there is an error in the claim. The phrase at issue plainly requires an antecedent (“the connection profile of the second part”), but no “connection profile of the second part” is previously recited in the claim. In addition, the Federal Circuit reasoned that the reference to a nowhere-identified “connection profile of the second part” “makes no sense” given the claim language. Further, the Federal Circuit reasoned this error was evident in view of the patent specification. Regarding Canatex’s failure to seek correction from the USPTO, the Federal Circuit distinguished between a correction made by the PTO under § 255, which is only made as prospective (i.e., going forwards), and a judicial correction, which determines the meaning the claim has always had.
The unique correction. The Federal Circuit reasoned that the only reasonable correction was to change “second” to “first” in the claim language. This was what the claim language as a whole required. Further, the specification showed that the patentee plainly meant the connection profile of the first part. Nothing in the prosecution history suggested otherwise. The Federal Circuit rejected Defendants’ arguments that there are other reasonable corrections, reasoning that Defendants’ alternative corrections were either unavailing or inconsistent with the claim’s meaning.
Conclusion
The Federal Circuit reversed and remanded. The Federal Circuit concluded that it is evident the claim contains an error and that a relevant artisan would recognize that there is only one correction that is reasonable given the intrinsic evidence. Although the Federal Circuit recognized a judicial correction to claim language in this case, this opinion nevertheless highlights “the very demanding standards for judicial correction of a claim term” and that such corrections are only “proper in narrow circumstances.”
Federal Court Holds That Button-Click Data from Public Website Can Disclose Patient Status in Violation of the ECPA
In early October, a federal court in the Northern District of Illinois refused to dismiss a privacy litigation brought against a healthcare website operator for claims under the Electronic Communications Privacy Act (ECPA). The court held that the plaintiff plausibly alleged that Defendant violated the Health Insurance Portability and Accountability Act (HIPAA) by revealing to a third party that she clicked on the login button to the healthcare provider’s patient portal, and, as a result, disclosed her individually identifiable healthcare information—even though no third-party data collection tools were installed on the patient portal itself. Hartley v. Univ. of Chi. Med. Ctr., Case No. 22-cv-5891, 2025 WL 2802317 (N.D. Ill. Oct. 1, 2025). However, at the same time, the court dismissed certain claims arising out of Plaintiff’s use of a “find-a-physician feature,” rejecting the full scope of Plaintiff’s theories. On the balance, this decision unfortunately broadens the scope of potential liability under the ECPA and will likely result in ECPA suits being brought against website operators in the healthcare sector.
ECPA and HIPAA Background
The ECPA imposes criminal and civil liability on persons who “intentionally intercept[] . . . any wire, oral, or electronic communication.” 18 U.S.C. § 2511(1)(a), (4); § 2520. A party is not liable under the ECPA unless they intercept the communication “for the purpose of committing any criminal or tortious act in violation of the Constitution or laws of the United States or of any State,” such as disclosing individually identifiable health information in violation of HIPAA. § 2511(2)(d). HIPAA criminalizes “knowingly . . . disclos[ing] individually identifiable health information to another person.” 42 U.S.C. § 1320d-6(a)(3). Individually identifiable health information includes “any information” that “is created or received by a health care provider” and “relates to the past, present, or future physical or mental health or condition of an individual, [or] the provision of healthcare to an individual” and “identifies the individual” or “with respect to which there is a reasonable basis to believe that the information can be used to identify the individual.” § 1320d(6).
Plaintiff’s Allegations
Plaintiff alleges that the University of Chicago Medical Center (UCMC) disclosed her individually identifiable health information and therefore violated HIPAA, subjecting UCMC to liability under the ECPA. UCMC operates a non-profit hospital network and maintains a public website to communicate with patients. Patients can log in to UCMC’s MyChart patient portal from its public website.
In her Complaint, Plaintiff claims that UCMC deploys third-party computer code from Meta Platforms on its public website. Every time a patient clicks on a page within UCMC’s public website, the collection tools link the patient’s identity to the communication and transmit the data to Meta for commercial use. The tools capture and transmit a website visitor’s IP address, Facebook ID, cookie identifiers, device identifiers, and account numbers, among other things.
Clicks on the login button for the MyChart patient portal from the public website are captured in this button-clicking data transmitted to Meta as well. Plaintiff claims that UCMC disclosed her individually identifiable health information when it transmitted that she used UCMC’s website to log in to the MyChart patient portal, revealing her status as a patient at UCMC. Plaintiff also alleges that UCMC disclosed her individually identifiable health information by disclosing her visit to UCMC’s “find-a-physician” page and by disclosing general information about the webpages she viewed related to her medical providers, conditions, and treatments.
Court Denies UCMC’s Motion to Dismiss, finding that UCMC Disclosed Individually Identifiable Health Information
The court denied Defendant’s Motion to Dismiss, holding that the plaintiff plausibly alleged that UCMC intentionally intercepted her communications with UCMC’s public website. The court held that Plaintiff’s act of clicking the login button on the public website for the MyChart patient portal sufficiently identified her as a patient. The act of clicking “login” on the public website, when combined with individual identifiers such as an IP address or a Facebook ID, can reveal patient status, qualifying as individually identifiable health information and falling within the ambit of HIPAA. Although UCMC argued that Meta’s data collection tools were not installed on the MyChart portal itself, the court found the presence of data collection tools on the public website alone were enough to identify Plaintiff as a patient.
The court limited its holding to the button-click data from the MyChart portal. In finding that Plaintiff did not plausibly allege that UCMC disclosed her individually identifiable health information through the disclosure of the “find-a-physician” click and her general browsing of webpages related to her providers and conditions, the court reasoned that the transmission of this button-click data did not convey individually identifiable health information. The court explained that general information accessed on a publicly accessible website stands in “stark contrast” to patient records, patient status, and medical histories. Plaintiff failed to allege that UCMC disclosed that she accessed information about specific doctors or conditions, breaking the connection between her sensitive medical status and the information actually disclosed. The court emphasized that “what matters is whether the information ‘provides a window into an individual’s medical history.’” Here, mere disclosure of data revealing that Plaintiff clicked and viewed non-specific webpages related to her providers, conditions, and treatments does not amount to individually identifiable health information. The court also denied UCMC’s Motion for Summary Judgment and granted UCMC’s Motion to Strike Plaintiff’s class allegations based on contractual issues.
Ultimately, given the court’s holding regarding the MyChart patient portal button-click data, this decision broadens liability under the ECPA. The disclosure of a single click on a login button on a public website can subject a website operator to ECPA liability because that click can reveal an individual’s patient status. The court also explicitly left the door open for future claims under the ECPA, warning that information collected from a webpage—like clicks related to a patient’s medical providers, conditions, and treatments—could amount to the disclosure of individually identifiable health information if more specifically pled. Although a fact-specific decision, the principles set forth in this opinion will undoubtedly guide consumer privacy litigations going forward.
Consumer Deception and Price Inflation Case: Eighth Circuit Reverses Class Certification Based on Individualized Issues
If, like me, you grew up during (or otherwise lived through) the 1980s, you’ll recall the ever-present jingle “The best part of wakin’ up is Folgers in your cup” (and perhaps some creative modifications thereof by the children and teens of that era). My grandmother preferred Folgers, clipping coupons for it when available, and her kitchen usually smelled of coffee. Sometimes she made a full pot and on other occasions an individual cup. Had she lived to 104, I could have told her about this recent decision of the U.S. Court of Appeals for the Eighth Circuit involving allegations that Folgers misrepresented how many cups of coffee could be made per can. While the allegations here would not have passed my grandmother’s smell test, this case made it all the way to certification of a class that was reversed by the court of appeals.
Allegations and the Certified Class
The plaintiffs in In re Folgers Coffee Marketing, – F.4th –, 2025 WL 3292613 (8th Cir. Nov. 26, 2025), alleged that containers of Folgers coffee misleadingly stated the number of six-ounce cups that could be brewed, asserting that in practice consumers received fewer servings than advertised—allegedly 70% of the cups “promised” when using exclusively the “Single-Serving Method” as opposed to the “Pot Method” and following the instructions on the can precisely (without adjusting for your preferred strength). While that might have been a fourth-grade word problem in the 1980s, today you can probably take a picture of the can, upload it to your favorite AI app, and find the answer in the aisle of the grocery store. The district court certified a class of purchasers in Missouri which alleged violations of the Missouri Merchandising Practices Act (MMPA) and sought damages for unjust enrichment.
The Eighth Circuit’s Reversal: Individual Issues Predominate
The Eighth Circuit reversed the class certification order, holding that the class was improperly certified because individual issues relating to causation and harm would overwhelm common questions. Under Rule 23(b)(3) of the Federal Rules of Civil Procedure, the predominance requirement ensures that common legal or factual issues must “predominate over any questions affecting only individual members.” The court explained that fraud-based and deception-based claims are generally ill-suited for class treatment when individual reliance or causation is in question.
The court drew a critical distinction—even under the MMPA, which does not require traditional reliance (as some unfair trade practices statutes do), plaintiffs must still show a causal connection between the alleged deception and an ascertainable loss. Determining who was actually deceived would require consumer-by-consumer analysis. This was because many class members did not read or care about the cups-per-can statements, and others who read it would understand that “the promised number of cups could be achieved only some of the time under certain conditions,” and, of course, “some consumers prefer relatively weak cups of coffee.” As the Eighth Circuit explained, “[w]hat matters is that many class members weren’t deceived, and figuring out who was and who wasn’t will require consumer-by-consumer inquiries into each class member’s individual tastes, interpretations, and circumstances.” As one class member admitted when asked why she was still buying Folgers, “I like my coffee.”
Rejecting the “Price Inflation” Theory
In cases like this, plaintiffs’ lawyers often try to get around the need for demonstrating individualized reliance or causation by alleging an “overcharge” theory, asserting that all purchasers paid an artificially inflated price due to the representations—regardless of whether they personally relied on. or even noticed, them. The Eighth Circuit rejected this approach, finding it inconsistent with the statutory requirement of an “ascertainable loss” resulting directly from the alleged misconduct. The court warned that accepting this theory would improperly allow consumers who suffered no personal deception or loss to recover—a position contrary to recent appellate precedent and analogous rulings in other states, including New Jersey.
Unjust Enrichment: Individual Circumstances Foreclose Class Treatment
The court also refused to allow class certification for the unjust enrichment claims. Because “[w]hether a particular transaction might be considered inequitable or unjust turns on the specific circumstances of each transaction,” class treatment was inappropriate. This aligned with a general consensus that unjust enrichment claims are “generally inappropriate for class treatment.”
Takeaways for Defending Similar Cases
Many putative class actions allege misrepresentations in marketing products or services. While the applicable substantive law varies, the In re Folgers decision will be helpful to defendants when applicable law does not require reliance, or when a price-inflation (also called price premium) theory is alleged. It also illustrates how powerful individual testimony of class members can be, even if it just confirms what a court might accept as a matter of common sense.
Are Your Online Terms Enforceable? Lessons from California
The Southern District of California recently reminded companies that it has concerns about steps to take to make online terms binding. The case arose from a putative class action over alleged false pricing practices brought against Maggy London International Ltd. an online clothing retailer.
In an attempt to compel individual arbitration, the company pointed to a mandatory arbitration provision in its website terms. In California, to enforce an online agreement, a website operator must show one of two things. First, that a consumer had either actual knowledge of the terms of the agreement. Or second, that the company gave the consumer reasonably conspicuous notice of the terms and the consumer took action to unambiguously agree to the terms. Here, the company argued that the font, color, placement, and underline of the link to the terms under the “Pay Now” button on the checkout page was reasonably conspicuous. Additionally, the complaining customer by clicking “Pay Now” to buy product had agreed to the website terms.
The court agreed that the notice was conspicuous. However, relying on several Ninth Circuit cases, the court held that the conspicuous hyperlink to website terms was not enough to bind the consumer to the terms. The court’s rationale was that it was not clear to the consumer that by clicking “Pay Now,” they agreed to the website terms. Instead, the court determined the company should have had another step, like having words along the lines of “by clicking pay now, you confirm you have read, understood, and agree to the Terms,” to make it clear to the website user that they were agreeing to legal terms by clicking “Pay Now.”
Putting it into Practice: This case underscores court concerns over on-screen consent flows. The company here had taken steps to make their terms prominent, but nevertheless, having a conspicuous link alone was insufficient. In designing platforms where you are linking to terms, think beyond having prominent links. To address court concerns, look at how you might tie a user’s affirmative action to term acceptance.
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Ninth Circuit Refuses to Apply California’s “Reasonable Particularity” Requirement to Claims Under the Defend Trade Secrets Act
The Ninth Circuit’s recent decision in Quintara Biosciences, Inc. v. Ruifeng Biztech, Inc. underscores an important distinction in trade secret law between California’s Uniform Trade Secrets Act (“CUTSA”) [Cal. Civ. Code, §§ 3426 et seq.] and the federal Defend Trade Secrets Act (“DTSA”) [18 U.S.C.A. §§ 1832 et seq.]. Specifically, the Court’s reasoning clarifies when and how plaintiffs must identify their alleged trade secrets under each regime.
Quintara Biosciences (“Quintara”), a DNA sequencing analysis company, alleged that Ruifeng Biztech (“Ruifeng”) misappropriated nine of Quintara’s trade secrets, ranging from databases and marketing plans to specialized protocols and software code. Quintara brought suit in the United States District Court for the Northern District of California.
At the Rule 26(f) discovery planning conference, Ruifeng sought to compel Quintara to identify its trade secrets with “reasonable particularity” before discovery could proceed as required by Section 2019.210 of the CUTSA. See C.C.P. § 2019.210 (“before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity”). The district court agreed and ordered Quintara to do so before discovery could commence. Quintara later amended its trade secret identification to add even more detail but Ruifeng, still dissatisfied, filed a Rule 12(f) motion to strike.
While the district court acknowledged that “state procedure does not govern here,” it nonetheless applied the CUTSA reasonable particularity standard. Finding that all but two of Quintara’s trade secrets failed to satisfy the CUTSA’s threshold, the district court struck those trade secrets. After losing at trial, Quintara appealed.
On appeal, the Ninth Circuit reversed the order striking Quintara’s trade secrets. The opinion drew key distinctions between the DTSA and the CUTSA. In particular, while the CUTSA requires plaintiffs to identify their trade secrets with “reasonable particularity” before discovery can proceed, the DTSA only requires identification of a trade secret with “sufficient particularity” in order for that claim to survive summary judgment. The Ninth Circuit held that the district court’s reliance “on a California rule that does not control a federal trade-secret claim” to strike Quintara’s trade secrets constituted an abuse of discretion.
Quintara makes clear that the DTSA and the CUTSA impose different procedural hurdles for plaintiffs. In federal court under the DTSA, litigants enjoy greater initial flexibility but must ultimately refine and substantiate their claims with “sufficient particularity” to survive a motion for summary judgment. In contrast, plaintiffs pursuing CUTSA claims in California state court must identify their trade secrets with “reasonable particularity” before discovery can even commence.
B2B TCPA NIGHTMARE- Court Refuses to Credit Deposition Testimony at Motion to Dismiss Phase– Allows DNC Claim to Proceed Despite Apparent Business Use of Phone
B2B callers are constantly facing TCPA DNC risk despite the fact the DNC supposedly only applies to residential lines.
The issue, of course, is that cell phones are often used for both business and personal use–especially after COVID. And courts have been very clear about holding a mix use cell phone can still be residential.
Well in Koeller v. Cyflare, 2025 WL 3280316 (E.D. Mo. Nov. 25, 2025) we have an interesting test case because not only was the phone used for business purposes in addition to residential, the business actually paid a stipend for the phone!
Now that’s interesting.
However the court did not dive into the tricky issues raised by the fact scenario because the use of the phone was not pleaded on the face of the complaint– but only in deposition testimony. And since defendant only moved to dismiss the court could not credit the testimony and had to allow the complaint to live on.
The Court also found allegations of willful harm were sufficient to survive the pleadings stage as well– so even though the defendant tried to call a business number (and may have) it is still facing a TCPA class action and enhanced treble damages.
That’s the TCPAworld for you.
B2B callers need to keep the real-world risk of TCPA class actions in the back of their minds. You can’t just buy a list off of Zoom and fire away. Smart money is on scrubbing out cell phones that are on the DNC list– just too much risk not to.