Joint Effort: Why a New Crop of House Members, a New Speaker, and Continued Bipartisan Support Could Finally Light the Way for Medical Marijuana in N.C.
In November 2023, we pondered whether 2024 might be “the year” for medical marijuana legalization in North Carolina. Well, it wasn’t.
Why, you ask? How can a state whose population has expressed overwhelming bipartisan support for medical marijuana legalization still have nothing to show for it? How can a state whose Senate has shown overwhelming bipartisan support (see Senate Bill 3 and Senate Bill 711) for medical marijuana legalization still have nothing to show for it?
Under former House Speaker Tim Moore (R), whose tenure ended earlier this year when he transitioned to serving as a United States congressman, North Carolina Republicans adhered to an informal yet influential guideline: A bill would not reach the House floor unless a majority of Republican House members supported it. Because the 2023-2024 session contained 72 Republicans (out of 120 total seats), 37 Republican supporters were needed for any bill to secure a House vote. In the current session (2025-2026), one less Republican was elected to the House, meaning there are now 71 Republicans, with 36 Republicans creating a “majority of the majority.” This unwritten rule has been the key obstacle to medical marijuana legislation in North Carolina despite its clear bipartisan support.
For example, in 2023, a bipartisan group of senators passed the North Carolina Compassionate Care Act (SB 3) by a margin of 36-10. The act ultimately stalled, however, because it didn’t have support from the requisite 37 House Republicans. Before that, a previous version of the bill (SB 711) passed the Senate by a similar margin and died in the House for the same reason. After that, HB 563, originally a hemp regulation bill, was amended to include medical marijuana provisions from the North Carolina Compassionate Care Act. The bill shared the same fate.
Could It Be Destin[y]?
Earlier this year, Destin Hall (R) replaced Moore as speaker of the House. Despite Hall’s public opposition to medical marijuana reform, there are two reasons to be optimistic about what his tenure might mean for the future of medical marijuana in North Carolina.
First, Hall may choose to abandon Moore’s “majority of the majority” rule, removing the roadblock that killed the North Carolina Compassionate Care Act in 2022, 2023, and 2024. Without strict enforcement of the vote threshold, medical marijuana legislation would likely pass. To date, we’re not aware of any indication Hall has given with respect to whether he intends to continue the rule’s enforcement.
Second, Hall, in reference to medical marijuana, recently indicated that “House Republicans could be more open to what the Senate sends over to them.” In other words, even if the “majority of the majority” rule remains in place, it’s still possible for medical marijuana legislation to pass. It’s unclear how many House Republicans supported SB 711, SB 3, and HB 563. However, if the margin in the Senate is any indication, the number of Republican supporters could already be approaching the threshold.
With President Trump publicly showing support for marijuana legislation, Republican support for legalizing marijuana increasing significantly over the last decade – especially among the younger members of the party – 12 new younger Republican House members, a new speaker of the House, and the “majority of the majority” threshold itself decreasing by one, there is reason for (very) cautious optimism regarding the potential passage of medical marijuana legislation in North Carolina this session.
Clearing the Haze: A Refresher on the N.C. Compassionate Care Act for Those Who Might Have… Uh, Forgotten
It’s unclear what a new (and improved?) version of the North Carolina Compassionate Care Act might look like, or if the next piece of medical marijuana legislation to reach the House will be a version of that act at all. That said, as a reminder to our readers, here’s what it would have done if it had passed.
On the consumer side, it would have allowed individuals in North Carolina to obtain a prescription to purchase marijuana in connection with a limited list consisting only of severe medical conditions, including:
Cancer
Epilepsy
HIV
ALS
Crohn’s disease
Sickle cell anemia
Parkinson’s disease
PTSD
Multiple sclerosis
Cachexia (wasting syndrome)
“Severe or persistent nausea” related to terminal illness or hospice care
On the business side, up to 10 companies would have been granted licenses to control the supply and sale of marijuana, with each supplier permitted to operate up to eight dispensaries.
On the regulatory side, it would have created the Medical Cannabis Production Commission, tasked with overseeing licensing and supervising the state’s marijuana supply and the program’s revenue generation.
The Higher Perspective: A Broader Update on N.C.’s Cannabis Policies
North Carolina is in a bit of a cannabis pickle. No, not a cannabis-infused pickle. Although – apparently, that’s a real thing. We mean, at the risk of sounding a bit Harry Potter-ish, that its policies are a bit of a cannabis contradiction.
While, as we have discussed, North Carolina has been a bit of a straggler when it comes to marijuana legalization, hemp is minimally regulated.
As we have reported, under North Carolina law, “hemp” means the plant Cannabis sativa and any part or derivatives of that plant, with a delta-9 THC concentration of no more than three-tenths of 1% (0.3%) on a dry weight basis. Marijuana is derived from the same plant and is a label applied to concentrations over that amount.
Recently, the Senate introduced the Protecting Our Communities Act (SB 265), which purports to establish a comprehensive regulatory framework surrounding hemp products. The bill would introduce certain licensing, packaging, manufacturing, distribution, laboratory testing, and advertising regulations, including a myriad of civil and criminal penalties that would result from non-compliance.
Perhaps most notably, SB 265 would establish an age requirement for hemp products, prohibiting and penalizing anyone under the age of 21 from possessing or purchasing these products.
We’ve been here before—but this time, the climate might actually be right. Stay tuned to find out whether North Carolina turns over a new leaf this session.
Supreme Court of New Jersey Clarifies Fault Allocation for Non-Parties Outside of the Court’s Jurisdiction
Highlights
Following a recent decision by the Supreme Court of New Jersey, an individual who is not subject to personal jurisdiction in New Jersey is not considered a “party” under the Comparative Negligence Act (CNA)
Non-parties who are outside the jurisdiction of New Jersey courts cannot have liability assigned to them by a jury under the CNA. As a result, they must be excluded from the jury’s fault allocation on the verdict sheet due to lack of jurisdiction
In New Jersey, a defendant may seek contribution under the Joint Tortfeasors Contribution Law or corresponding state statue in a court that has jurisdiction over the non-party
The Supreme Court of New Jersey rendered its decision in the case of Estate of Crystal Walcott Spill v. Markovitz on March 11, 2025. The decision affirms the Appellate Division’s decision to exclude a New York-based doctor from the verdict sheet due to lack of jurisdiction.
In reaching its decision, the court analyzed the Comparative Negligence Act (CNA) and Joint Tortfeasors Contribution Law (JTCL), which generally cover contribution and allocation of fault. The court explained that “the CNA allows allocation of fault during a trial only to a ‘party’ or ‘parties,’ N.J.S.A. 2A:15-5.2(a), whereas the JTCL allows ‘joint tortfeasors’ to seek contribution after a trial from other ‘persons’ alleged to be ‘liable in tort for the same injury,’ N.J.S.A. 2A:53A -1, -3.”
The court held that “a non-party alleged tortfeasor who is outside the jurisdictional arm of our courts, is not a ‘party’ subject to allocation by the jury pursuant to the CNA.” In other words, the jury cannot determine how much fault, if any, should be attributed to those non-party alleged tortfeasors. As such, the non-party may not be included on a jury verdict sheet.
The court explained that if a judgment is entered against the available defendants, those defendants may then pursue any contribution claim available in a jurisdiction that has personal jurisdiction over the non-party. The court took “no position on the merits of any such potential litigation.”
The Supreme Court disagreed with the Appellate Division’s conclusion that the model civil jury instruction on causation “abates any unfairness that the lack of application of the CNA may impose on defendants. Rather, the court explained that the substantial factor test does not remove the “the need for allocation of fault to reduce a plaintiff’s recovery to the percentage of damages directly attributable to their own negligence, to the extent that the CNA permits such allocation.”
Takeaways
Under this interpretation, parties that are dismissed from a case for lack of personal jurisdiction cannot have liability assigned to them by a jury under the CNA. They could, however, be subject to subsequent actions seeking contribution by the defendants.
Delaware Provides Further Guidance for Navigating Interrelated Claims
A Delaware trial court recently applied the newly minted “meaningful linkage” standard to conclude that multiple lawsuits concerning the merger of CBS and Viacom are not “related” in the context of directors and officers (D&O) liability insurance. The decision in National Amusements, Inc. v. Endurance American Specialty Insurance Co., Case No. N22C-06-018-SKR CCLD (Del. Super. Ct. Feb. 17, 2025), illustrates the fact-intensive nature of the “relatedness” inquiry and how litigants can expect courts to examine the issues under the Delaware standard.
Background
The dispute in National Amusements centered around whether separate litigations—cases initiated in 2016 regarding the control of CBS and another in 2019 concerning the merger of CBS and Viacom (which is now Paramount Global)—were related claims.
In 2016, shareholders of Viacom alleged that Shari Redstone manipulated an allegedly incapacitated Sumner Redstone to make decisions that harmed the company’s value. That lawsuit, among others, was eventually settled or dismissed.
In 2019, litigation arose concerning the merger of CBS and Viacom, both of which were controlled by National Amusements. This time, shareholders alleged that actions by the directors and officers of Viacom, Shari Redstone and National Amusements violated their fiduciary duties and led to an unfair deal for Viacom shareholders. The shareholders allegedly received inadequate consideration from the merger. That litigation also eventually settled.
National Amusements maintained four D&O policies for the 2017 to 2018 policy period. Those policies renewed for 2018 to 2019. Endurance issued the primary policy, with Ironshore, Starr and National Union each issuing excess follow-form policies.
A coverage dispute emerged over whether the 2019 litigation was “related” to the 2016 litigations. Following discovery, the insured moved for summary judgment, which the court granted.
The Court’s Analysis: Interrelated Claims and “Meaningful Linkage”
The central issue before the court was whether the 2016 and 2019 lawsuits were interrelated claims. The D&O policies addressed related claims as follows: “All Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts of the Insureds shall be deemed to be one Claim, and such Claim shall be deemed to be first made on the date the earliest of such Claims is first made.” In assessing whether the claims as presented here met the policies’ relatedness definition, the court was guided by the “meaningful linkage” standard articulated by the Delaware Supreme Court in Alexion Pharmaceuticals, Inc. Insurance Appeals, discussed in this prior post. Application of that standard required consideration of multiple factors.
The primary factor, commonality of conduct, looks to whether the claims involve the same alleged wrongful acts. While the 2016 and 2019 actions all involved Shari Redstone and her alleged overexerting influence, the court found the conduct at issue in the more-recent 2019 litigation to be distinct. The 2016 cases concerned Shari Redstone’s influence over Sumner Redstone’s decision-making. In contrast, the 2019 litigation concerned alleged conduct that occurred during the CBS/Viacom merger.
The second factor looked to the parties involved. Here, there was substantial overlap in the parties in all the actions, but Sumner Redstone, a critical defendant in the 2016 action, was not a defendant in the 2019 action.
The third factor looked to the relevant time periods. Whereas the 2019 action challenged the merger in 2019, the 2016 actions focused on decisions made in or around 2016. Even though the 2019 complaint referenced conduct dating back to 2016, the court found this factor slightly favored finding the claims as not meaningfully linked.
The fourth factor looked to the relevant facts. Here again, despite some overlap, the court found the factual evidence in each case was mostly distinct. The primary 2016 case focused on Sumner Redstone’s capacity and Shari Redstone’s allegedly improper influence on the companies’ boards, while the 2019 action relied on merger-related evidence, including valuation of CBS and Viacom and the merger negotiations.
The fifth and final factor, the claimed damages, also distinguished the two sets of claims. The 2016 actions primarily requested declaratory and injunctive relief to rectify the corporate governance decisions whereas the 2019 action sought monetary damages to compensate for the inadequate consideration received by the Viacom shareholders.
Based on the weight of these factors, the court ruled that the claims were not meaningfully linked, and thus were not “related claims” for purposes of D&O insurance coverage.
Key Takeaways
The National Amusements decision provides important lessons on the “related claims” issue:
The Burden on Insurers to Undermine Relatedness: The court acknowledged Delaware Supreme Court precedent that “meaningful linkage” should be applied in a coverage context “broadly, where possible, to find coverage” and that any ambiguity favors coverage. In circumstances where the policyholder contends that claims are not related, that puts an insurer in the tough position of carrying the burden to show claims are related. That hill becomes even more difficult to climb considering relatedness is already a fact-intensive inquiry where evidence oftentimes can go either way.
Relatedness Is Neither Pro-Insurer Nor Pro-Policyholder: In this case, the company argued against and the insurers in favor of relatedness. But that is not always the case. Policyholders may see themselves on different sides of the related claims argument for various reasons, including the number of claims, applicable retentions and coverage limits. In either case, this decision provides a roadmap for future Delaware relatedness disputes.
Understanding the Scope of “Related Claims”: The decision reinforces that D&O policies will not automatically treat separate claims as related simply because they involve the same individuals or entities. A careful analysis of the underlying wrongful acts and legal theories alleged in the purported related claims is crucial. As it stands, the “related claims” determination remains a fact-intensive inquiry.
The Impact of Extrinsic Evidence: The insurer defendants in this case tried to introduce allegedly “inconsistent” extrinsic evidence that National Amusements and Shari Redstone represented that the 2016 and 2019 actions were related when they sought indemnification from Viacom before filing this suit. However, under Delaware Supreme Court precedent, the court can rely on policyholder statements about the separate actions when insurance coverage was not at issue only if there is any remaining doubt about relatedness. Since no doubt remained after weighing the different factors, the court concluded it could not consider the extrinsic evidence.
Conclusion
Related claims issues under D&O policies continue to be the subject of insurance coverage disputes in Delaware courts. By understanding the court’s reasoning and the factors it considered in this case, policyholders can better navigate future disputes with insurers and take steps to protect their interests in coverage litigation.
CJEU Ruling on Asymmetric Forum Selection Clauses
The Court of Justice of the European Union (CJEU) has recently ruled on the validity of asymmetric forum selection clauses, which grant one party the right to bring proceedings before multiple alternative jurisdictions while restricting the other party to a single forum
On 27 February 2025 (Case C-537/23), the CJEU clarified that, under the principle of contractual autonomy set out under Article 25 of Regulation (EU) 1215/2012 (known as Brussels I-bis), the imbalance characterizing any such clauses does not automatically invalidate them, provided that the parties have freely negotiated and consented to them.
The Case
The dispute arose from a supply contract for cladding panels between two individuals (the “Clients”) on one side, and the French company Agora SARL (Agora) and the Italian company Società Italiana Lastre (SIL) on the other. The contract included a forum selection clause stating that “[for] any dispute arising from or related to this contract,” the “Court of Brescia [Italy]” would have jurisdiction, except that SIL retained the right “to bring proceedings against the purchaser before another competent court, in Italy or elsewhere” (the “Clause”).
A dispute arose with respect to contract performance and the Clients brought an action before the Tribunal de Grande Instance of Rennes (France) against Agora and SIL. Agora brought an action on a guarantee against SIL. Invoking the forum selection clause, SIL opposed that action on a guarantee and challenged the French court’s jurisdiction in favor of the Italian court, “on grounds of a lack of international jurisdiction.” The Tribunal rejected the objection, declaring the Clause unlawful under French law due to its unbalanced and imprecise (i.e., purely discretionary) nature, which was contrary to the principle of foreseeability.
The decision was upheld by the Cour d’Appel de Rennes (France), leading SIL to seek review before the French Cour de Cassation, arguing that the Cour d’Appel had misinterpreted Article 25(1) of the Brussels I-bis Regulation, according to which the validity of an agreement conferring jurisdiction should be assessed in light of the law of the Member State whose courts are designated pursuant to that agreement. Hence, SIL argued that the validity of the Clause should be assessed under Italian law – the law of the designated jurisdiction – rather than French law.
The Cour de Cassation sought clarification from the CJEU on the proper legal framework for assessing the validity of an asymmetric forum selection clause. The Court requested a preliminary ruling on three key questions: (i) whether the substantive validity of an asymmetric clause should be assessed autonomously according to EU law criteria or according to the lex fori electi (i.e., the national law of the Member State where the Court designated in the clause sits), and whether the substantial validity of such a clause under Article 25(1) of the Brussels I-bis Regulation strictly refers only to grounds such as fraud, error, violence, and incapacity, (ii) if the assessment is based on EU law, whether asymmetric forum selection clauses remain valid in light of the principle of foreseeability and legal certainty set forth by Article 25(1) of the Brussels I-bis Regulation, and (iii) alternatively, if the lex fori electi applies, which Member State’s law should govern the assessment of the validity of an asymmetric forum selection clause when multiple courts are designated or the party (having the right to choose) has not yet exercised this choice at the time the case is brough before the court.
The Decision
On the first issue, the CJEU clarified that, in light of the Brussels I-bis Regulation’s objective to “unify the rules on conflicts of jurisdiction in civil and commercial matters,” issues concerning the alleged imprecision or imbalance of the asymmetrical forum selection clause must be assessed according to “autonomous criteria” derived from Article 25 of the Brussels I-bis Regulation (i.e., the principles of foreseeability and legal certainty), rather than substantive invalidity criteria defined by Member States’ laws (which typically address issues like fraud, capacity, or error.)
Regarding the second issue, the CJEU clarified that asymmetric forum clauses are not inherently invalid, provided they meet the Brussels I-bis Regulation’s requirements of certainty and foreseeability. Specifically, asymmetric clauses are valid to the extent that:
(i) they are the result of the parties’ free determination (rather than unilateral imposition) and they designate courts in EU Member States or countries parties to the Lugano II Convention;
(ii) they do not undermine the Brussels I-bis Regulation’s objectives of transparency and predictability, ensuring that the court having jurisdiction is identifiable with sufficient certainty based on clear, objective criteria; and
(iii) they comply with the limitations and requirements expressly imposed by the provisions of the Brussels I-bis Regulation concerning insurance, consumer, and employment contracts, and they do not conflict with the rules on exclusive jurisdictions under Article 24 of the Brussels I-bis Regulation.
Conclusion
With this ruling, the CJEU reinforced the central role of contractual autonomy, while clarifying the criteria for assessing the validity of asymmetric forum selection causes. The CJEU confirmed that the evaluation should be based on both the formal criteria set out in Article 25 of the Brussels I-bis Regulation – such as clarity and precision, the designation of courts within EU Member States or Lugano II Convention countries, and compliance with exclusive jurisdiction rules–as well as the substantive criteria, including contractual freedom of the parties, foreseeability and predictability.
Hence, businesses entering international contracts should ensure such clauses are clearly drafted, mutually agreed upon, and aligned with Brussels I-bis Regulation’s principles to avoid enforceability challenges in cross-border disputes.
Navigating Divorce: Key Evidence Strategies for Family Law Cases
Getting Your Story to a Judge
Divorce and family law proceedings can be emotionally charged and legally complex, particularly when disputes arise over issues such as property division, child custody, spousal support, or allegations of misconduct. Litigants have been living their story for years, but a judge knows nothing about the situation and will be hearing two sides for the first time.
Evidence plays a crucial role in influencing the court’s decisions, and understanding the potential challenges surrounding evidence is key to effectively navigating these cases. Below are some of the primary evidence-related issues that arise in divorce cases, along with strategies to address them so that your judge can hear the important facts of your story.
Admissibility of Evidence
Courts typically have strict rules about what evidence is admissible. For instance, hearsay—statements made outside of court by people who are not parties to the divorce—is generally inadmissible unless it falls under an exception. In other words, you cannot say, “my best friend saw my spouse gambling large sums of money at the casino.” The friend who actually observed the spouse must testify as to what was seen. Documents must be authenticated so that a judge is satisfied that the information it contains is genuine.
Similarly, evidence must be relevant to the issues at hand. For example, information about a spouse’s personal habits may not be admissible unless it directly impacts child custody or marital finances. So, if the spouse has been engaged in an extramarital affair, this may not be relevant to the issue of whether the parent is capable of caring for a child.
Tips for Avoiding Admissibility Issues:
Ensure all evidence is directly related to the claims or defenses in your case. For every statement, position, and information you want to provide to support your position, make sure that your evidence is accurate and can be verified. Provide your attorney with the information as soon as possible so that there is time to get what may be needed.
For instance, if a spouse has taken large sums of money from an account, the attorney will need time to get certified copies of bank statements by way of subpoena. This can take time, particularly if the bank is out of state.
Work with your attorney to verify that the evidence complies with local rules of Evidence.
Digital Evidence
In today’s digital age, emails, text messages, social media posts, and even GPS data are commonly presented as evidence. However, authenticity and privacy concerns can complicate their use. Courts may require proof that digital evidence has not been tampered with or taken out of context.
There is something called “The Completeness Doctrine” which means that a single text may not suffice, and the entire thread is necessary. Moreover, a screen shot may not be enough, and an attorney can evaluate if there are other steps that should be taken to get the evidence to the judge. This often includes video evidence such as videos taken with a smart phone, or police body camera footage.
Tips for Avoiding Digital Evidence Issues that can Prevent Your Proofs from Being Admitted
Preserve original digital files with metadata intact.
Avoid accessing or presenting information obtained through illegal means, such as hacking into a spouse’s email account.
Be cautious about your own online activity during divorce proceedings.
Spoliation of Evidence
Spoliation refers to the destruction or alteration of evidence that is relevant to a legal case. In divorce cases, this might involve deleting incriminating text messages or destroying financial records. Courts take spoliation seriously and may impose sanctions, including drawing adverse inferences or awarding legal fees to the other party.
Tips for Avoiding Spoilation of Evidence Issues:
Avoid deleting, altering, or destroying any potential evidence, even if you believe it may harm your case. Give the evidence to your attorney and let them help you determine the best way to address the issue. The other side likely has the same information, and if relevant, will ask that it be considered.
If you suspect your spouse is engaging in spoliation, notify your attorney immediately and consider seeking a court order to preserve evidence.
Financial Evidence
Financial disputes are a central issue in many divorces, and accurate financial evidence is critical. Hidden assets, underreported income, or discrepancies in financial disclosures can lead to significant legal challenges. Common forms of financial evidence include tax returns, bank statements, credit card records, and property appraisals.
Tips for Avoiding Issues with Financial Evidence
Be thorough and honest in disclosing your financial situation.
When possible, obtain statements and records directly from financial institutions. They will most likely be accompanied by a certification of the accuracy and authenticity of the records, which is often admissible.
If you do not have tax returns, the IRS can provide a transcript of the entries on the returns, which can be helpful.
Use forensic accountants or financial experts to uncover hidden assets or evaluate complex financial arrangements when necessary.
Expert Testimony
In cases involving contested child custody, property valuation, or allegations of abuse, expert testimony can be crucial. Psychologists, appraisers, and other professionals can provide opinions that carry significant weight in court. However, opposing parties may challenge the qualifications or conclusions of your experts.
Tips for Avoiding Issues with Expert Testimony
Choose experts with strong credentials and experience in family law cases.
Ensure your expert’s testimony is backed by solid evidence and methodology.
Privileged Communications
Certain communications are protected by legal privilege and cannot be used as evidence. Examples include conversations with your attorney or therapist. However, privilege can be waived if confidentiality is breached, such as by discussing the communication in public or sharing it with a third party.
Tips for Avoiding Issues with Privileged Communications
Keep privileged communications confidential. It is tempting to speak to your closest confidants about your case, but this is dangerous if it is something that you do not want disclosed.
Avoid discussing legal strategies or sensitive topics in public or online forums. This is an excellent way to anger a judge.
Bias and Credibility Issues
The credibility of witnesses and evidence can significantly impact a case. A history of dishonesty or bias may lead the court to question the reliability of a person’s testimony or evidence.
Tips for Avoiding Bias and Credibility Issues
Present your case with honesty and transparency – the good, the bad, and the ugly. It will likely come out anyway, so make sure it is with your narrative.
Avoid exaggerating claims or presenting questionable evidence, as this can undermine your credibility.
Make sure that no witness who is testifying on your behalf has skeletons in their closet that could have a negative impact on your case.
Open and honest communication with your lawyer is key to being able to give the judge your story in the way you want it told.
BEHIND THE FILTERS: CapCut And TikTok Are Making The Cut And Maybe Your Personal Data Too
Greetings CIPAWorld!
Let’s get techy with it. Ever edited a TikTok or Instagram Reel using CapCut? It turns out that you might have handed over more than just your creativity. The Northern District of Illinois has delivered a mixed but consequential ruling in Rodriguez v. ByteDance, Inc., about how video editing apps collect and utilize our personal data. See Rodriguez v. ByteDance, Inc., No. 23 CV 4953, 2025 U.S. Dist. LEXIS 37355 (N.D. Ill. Mar. 3, 2025). You guessed it. TikTok is at issue here. If you’ve ever used CapCut to perfect a TikTok video or Instagram reel, this decision deserves your attention!
Yikes. Imagine editing a quick vacation video only to discover the app might be scanning every photo in your gallery and capturing your facial features! That’s precisely the kind of privacy implications at the center of this case. Make sure to always check your app permissions!
The Opinion in ByteDance, Inc. offers a nuanced examination of modern privacy law. It allows several significant claims to proceed while dismissing others. So, let’s get into a brief background first.
CapCut, developed and operated by Chinese technology giant ByteDance (which also owns TikTok), has exploded in popularity since its 2020 U.S. launch. Now, it’s one of the most downloaded apps globally, with over 200 million monthly active users! CapCut allows users to create, edit, and customize videos using templates, filters, and visual effects. Everyone wants to look good, right? While predominantly free, users can access premium features through subscription models. It’s remarkable how quickly CapCut became essential for content creators. When in actuality, this case forces us to confront the reality that the most user-friendly tools might also be invasive.
However, according to the Plaintiffs, this seemingly innocent video editor allegedly harbors a more problematic function—collecting vast amounts of user data without proper authorization. The Complaint alleges that CapCut collects everything from registration information and social network contacts to location data, photos, videos, and even biometric identifiers like face geometry scans and voiceprints. Yes you read that right… Biometric identifiers.
First, the Court’s reasoning behind allowing the California constitutional and common law privacy claims to proceed reveals evolving judicial thinking about digital privacy. Judge Alexakis emphasized that privacy violations don’t depend solely on the sensitivity of the content collected but also on the manner of collection. See Davis v. Facebook, Inc. (In re Facebook Inc. Internet Tracking Litig.), 956 F.3d 589, 603 (9th Cir. 2020).
Many of us miss this critical distinction in our everyday tech interactions. We often focus on what data apps collect rather than how they collect it. The Court’s analysis suggests that even innocuous data could trigger privacy concerns if gathered through deceptive or overly invasive methods—a crucial lesson for developers and users alike.
Here, the Judge found the allegations that CapCut accesses and collects all the videos and photos stored on their devices, not just those they voluntarily uploaded to the CapCut app, particularly troubling. If proven true, this broad data collection practice would violate reasonable user expectations. Ringing any bells here? Drawing parallels to Riley v. California, 573 U.S. 373, 397-99 (2014), which recognized that individuals have a reasonable expectation of privacy in the contents of their cell phones, Judge Alexakis noted that a reasonable CapCut user would not expect the app to access and collect all the photos and videos on their devices, regardless of whether they use those photos and videos to create content within the app. Makes perfect sense, right?
Let that sink in for a minute. An app potentially scans your entire photo library when you only intend to edit a single clip! This broad access would be like handing a stranger your family photo album when they only ask to see one vacation picture. The Court rightly recognized how this violates our intuitive sense of privacy.
For the California constitutional and common-law privacy claims regarding user identifiers and registration information, the Court specifically relied on United States v. Soybel, 13 F.4th 584, 590-91 (7th Cir. 2021) for the principle that a person “has no legitimate expectation of privacy in information he voluntarily turns over to third parties,” which was central to dismissing claims based on this type of information.
Next, the California Invasion of Privacy Act (“CIPA”) claims represented a significant but ultimately unsuccessful component of Plaintiffs’ case. As we know, under CIPA, individuals are protected against unauthorized electronic interception of communications. Section 631(a) prohibits any person from using electronic means to “learn the contents or meaning” of any “communication” without consent or in an “unauthorized manner.” Critically, neither CIPA nor the federal Electronic Communications Privacy Act (“ECPA”) impose liability on a party to the communication, as Judge Alexakis noted in Warden v. Kahn, 99 Cal. App. 3d 805, 811, 160 Cal. Rptr. 471 (1979) held that section 631… has been held to apply only to eavesdropping by a third party and not to recording by a participant to a conversation.
Here’s where Plaintiffs ran into a fascinating legal hurdle. When you voluntarily use an app, the law often treats that app as a communication “participant” rather than an eavesdropper. Think about how different this is from our intuitive understanding… Few of us would consider a video editor an equal “participant” in our creative process, yet that’s essentially the legal fiction applied here.
Plaintiffs’ attempted to circumvent this limitation by asserting that Defendants effectively intercepted their data by “redirecting” communications to unauthorized third parties, including the Chinese Communist Party. They relied on legal authorities like Davis, 956 F.3d at 596, 607-08, where Facebook used plugins to track browsing histories even after users logged out.
Conversely, Judge Alexakis found two factual flaws in this theory. First, Plaintiffs failed to plausibly allege that any communications were intercepted during transmission rather than merely shared after collection. Though the Court acknowledged that the Seventh Circuit hadn’t definitively ruled whether interception must be contemporaneous with transmission, it noted that every court of appeals to consider the issue had reached this conclusion. See Peters v. Mundelein Consol. High Sch. Dist. No. 120, No. 21 C 0336, 2022 WL 393572, at *11 (N.D. Ill. Feb. 9, 2022). Second, Paintiffs’ allegations fell short of the specific software-tracking mechanisms proven sufficient in cases like Facebook Tracking. They identified no particular mechanism by which ByteDance contemporaneously redirected communications to third parties.
Let’s dig a little deeper so this makes sense. There’s a (legal) difference between an app intercepting your data in transit (like wiretapping a phone call) versus collecting it at the endpoint and sharing it later. Most individuals would see little practical difference in the outcome. Your private data ends up in unexpected hands either way, yet courts maintain this technical distinction that significantly impacts your legal protections.
Next, the Court rejected claims under Section 632 of CIPA, which imposes liability on parties who use an electronic amplifying or recording device to eavesdrop upon or record confidential communication. Beyond the conclusory assertions that ByteDance intercepted and recorded videos without consent, Plaintiffs failed to allege that Defendants used any electronic amplifying or recording device to eavesdrop on conversations.
Let’s switch it up now. We are going to talk about something a little different. Perhaps the most meaningful survival in the decision concerns claims under Illinois’ Biometric Information Privacy Act (“BIPA”). The Court rejected ByteDance’s argument that BIPA only applies when companies use biometric data to identify individuals. Looking at the statute’s plain language, which defines “biometric identifier” to include “voiceprint[s]” and “scan[s] of… face geometry,” the Court found no requirement that the data be used for identification purposes.
This is genuinely interesting to me. Illinois lawmakers created one of the strongest biometric protection laws in the country, and the Court’s ruling reinforces just how far those protections extend. The practical effect here is enormous. Companies can’t just escape liability by claiming they collected your facial geometry or voiceprints for purposes other than identification. The mere collection without proper consent is enough to trigger liability. This reasoning aligns with an emerging consensus in the Northern District of Illinois. In Konow v. Brink’s, Inc., 721 F. Supp. 3d 752, 755 (N.D. Ill. 2024), the Court held that a defendant may violate BIPA without using technology to identify an individual; instead, BIPA bars the collection of biometric data that could be used to identify a plaintiff.
The Court also found persuasive Plaintiffs’ detailed allegations that ByteDance employs engineers specializing in “computer vision, convolutional neural network, and machine learning, all of which are used to generate the face geometry scans that Defendants derive from the videos of CapCut users.” These technical specifications helped elevate the claims beyond mere conclusory allegations.
What’s particularly impressive here is how Plaintiffs connected the dots between ByteDance’s engineering talent, their patent applications for voiceprint technology, and the actual functions of CapCut. This level of technical detail is increasingly necessary in privacy litigation. In turn, vague claims of data collection often fail without demonstrating the underlying mechanisms involved.
For BIPA’s Section 15(c) claim, the Court relied on the statutory interpretation principle of ejusdem generis in interpreting “otherwise profit.” In Circuit City Stores v. Adams, 532 U.S. 105, 114-15, 121 S. Ct. 1302, 149 L. Ed. 2d 234 (2001), the Court noted that when general words follow specific words, they “embrace only objects similar in nature to those objects enumerated by the preceding specific words.” This interpretive principle was key to the Court’s narrower reading of the statute, limiting “otherwise profit” to commercial transactions similar to selling, leasing, or trading data. Sequentially, the Court rejected ByteDance’s argument that internal use of biometric data—such as improving CapCut’s editing features—constitutes “otherwise profiting” under BIPA. It is fascinating how this determination narrows the scope of liability under Section 15(c), signaling that plaintiffs must show an actual external transaction involving biometric data to succeed on these claims.
Next, the Court analyzed various consumer protection claims that failed because Plaintiffs couldn’t demonstrate economic injury. For their claims under California’s Unfair Competition Law (“UCL”) and False Advertising Law (“FAL”), Judge Alexakis emphasized that, unlike the broader Article III standing requirements, these statutes demand a showing that plaintiffs lost money or property. This highlights one of the most frustrating aspects of privacy litigation for consumers: proving financial harm from privacy violations is extraordinarily difficult. We intuitively understand that our personal data has value (why else would companies collect it so aggressively?). Yet, courts often struggle to quantify it or recognize its loss as economic injury. It’s like recognizing theft only when something tangible is taken.
The Court was particularly unpersuaded by theories based on the diminished value of personal data, noting Plaintiffs hadn’t alleged they attempted to sell their data or received less than market value. Davis, 956 F.3d at 599, rejected a similar argument that a loss of control over personal data constituted economic harm. The Court also referenced Cahen v. Toyota Motor Corp., 717 F. App’x 720, 723 (9th Cir. 2017), which held that speculative claims about diminished data value, without concrete evidence of lost economic opportunity, are insufficient to establish standing under consumer protection statutes.
Moreover, like in Griffith v. TikTok, Inc., No. 5:23-cv-00964-SB-E, 2023 U.S. Dist. LEXIS 223098, at *6 (C.D. Cal. Dec. 13, 2023), the Court observed that Plaintiffs failed to show they attempted or intended to participate in the market for their data. Additionally, the Court noted that Plaintiffs failed to allege any direct financial loss tied to CapCut’s data practices, distinguishing their claims from cases where courts recognized economic harm due to specific monetary expenditures, such as fraudulent charges or paid services rendered worthless by deceptive conduct.
Next, the Court turned to the core issue underlying many of Plaintiffs’ claims—what ByteDance actually did with the data it collected and whether users had truly consented to these practices. One of the most fascinating aspects of the Opinion is the battle over consent. ByteDance mounted an aggressive defense centered on its Terms of Service and Privacy Policies, arguing that users effectively waived their rights by agreeing to these documents. The company submitted three distinct versions of its Privacy Policy from 2020, 2022, and 2023, each making various disclosures about data collection practices.
Let’s be honest…When was the last time any of us actually read a privacy policy before clicking “agree”? Side note: you should. ByteDance, like many tech companies, is backing their legal protection on documents they know full well most users never read. What’s remarkable is that courts are increasingly skeptical of this fiction, recognizing the reality of how users actually interact with digital products.
Judge Alexakis’s detailed analysis here offers insights for both app developers and users alike. She recognized that while the policies could potentially be incorporated by reference since Plaintiffs mentioned them in their Complaint, she refused to dismiss the case based on consent at this early stage. The Court emphasized that dismissing claims based on affirmative defenses like waiver is only appropriate if “the allegations of the complaint itself set forth everything necessary to satisfy the affirmative defense.” See United States v. Lewis, 411 F.3d 838, 842 (7th Cir. 2005).
Here, there are several critical factual questions that prevented the Court from accepting ByteDance’s consent defense. Most notably, there was no conclusive evidence about exactly when and how the plaintiffs agreed to the terms. While ByteDance simply asserted that “[u]sers expressly or impliedly consent to the policy upon downloading and using the app,” Plaintiffs countered that they “were able to access the CapCut platform without having to scroll through and read such policies before they were allowed to sign up for the services.”
The Court was particularly skeptical of ByteDance’s reliance on what appeared to be a browsewrap agreement—where terms of service are presented passively and users are presumed to agree simply by using the service. Judge Alexakis emphasized that browsewrap agreements are only enforceable if users have actual or constructive notice of the terms. See Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 30-31 (2d Cir. 2002). This means that merely linking to a privacy policy at the bottom of a webpage or app interface is insufficient to establish consent. As such, actual consent requires more than theoretical access to terms.
Additionally, the Court noted that the placement and formatting of ByteDance’s consent prompts were unclear, raising doubts about whether the plaintiffs were ever explicitly informed of the policy’s existence before using CapCut. This aligns with precedent from Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1177 (9th Cir. 2014), where courts declined to enforce arbitration clauses hidden in inconspicuous terms of service.
This dispute highlights a pervasive problem I’m recognizing in digital consent. There is a gap between technical legal compliance and actual user understanding. Despite ByteDance presenting screenshots showing a prompt requiring users to click “Agree and continue,” Judge Alexakis noted this evidence couldn’t establish whether these particular plaintiffs had seen and agreed to these specific terms, especially because they explicitly alleged they never read any privacy policy or terms of use.
The Court also highlighted another crucial factual gap. Plaintiffs asserted that the attached policies were only three of the ten (or more) versions of the policy that existed over time. In Patterson v. Respondus, Inc., 593 F. Supp. 3d 783, 805 (N.D. Ill. 2022), the Court declined to dismiss claims based on policies because the case “may involve factual questions about what [defendant’s] policies looked like at different moments in time.”
The Court’s skepticism should serve as a wake-up call. Concealing invasive data practices within complicated legal documents and merely asserting user consent may be coming to an end. Companies that are truly dedicated to privacy must go beyond minimal compliance and strive for actual transparency and meaningful choices for users.
For the Computer Fraud and Abuse Act (“CFAA”) claim (Count I), the Court undertook a analysis of the access without authorization element. The CFAA, that was originally enacted to combat hacking, imposes liability on anyone who intentionally accesses a computer without authorization or exceeds authorized access to obtain information. While finding that Plaintiffs’ allegations were insufficient, Judge Alexakis specifically distinguished this matter from Brodsky v. Apple Inc., No. 19-CV-00712-LHK, 2019 WL 4141936 (N.D. Cal. Aug. 30, 2019), where the plaintiffs had “concede[d] that [they] voluntarily installed the software update,” which unambiguously established authorization. Here, the Court emphasized that essential questions of fact exist about the scope of the authorization and the design of Plaintiffs’ operating systems, making dismissal based on implied authorization inappropriate at this stage. The Court noted that factual disputes, such as the scope of Defendants’ access, are not appropriately resolved on a motion to dismiss.
Particularly, the Court declined to follow cases like hiQ Lab’ys, Inc. v. LinkedIn Corp., 31 F.4th 1180, 1197 (9th Cir. 2022), which held that scraping publicly available data does not constitute unauthorized access under CFAA. Unlike hiQ Labs, where access restrictions were clear, Plaintiffs alleged that CapCut accessed files beyond what they knowingly permitted. However, the Court found that Plaintiffs failed to sufficiently allege that ByteDance exceeded authorized access under Carr v. Saul, 593 U.S. 83, 141 (2021), which clarified that merely misusing information one is entitled to access does not violate the CFAA.
In dismissing the Stored Communications Act (“SCA”) claims (Count IV), Judge Alexakis found particularly significant the timing mismatch in Plaintiffs’ allegations about data sharing with the Chinese Communist Party (“CCP”). The Court notably observed that even if ByteDance shared user communications with the CCP in 2018 (as alleged by a former employee cited in Plaintiffs’ Complaint), it is too much to presume based on the engineer’s statement that these activities were ongoing several years later when CapCut became available to users in the United States. This temporal gap and the lack of specificity about what data was shared rendered the allegations too speculative to survive dismissal.
The Court also found that Plaintiffs failed to allege that ByteDance qualified as a remote computing service (“RCS”) or electronic communications service (“ECS”) under the SCA. Under the SCA, ECS is any service that provides users with the ability to send or receive wire or electronic communications. At the same time, RCS is a service that provides computer storage or processing services to the public utilizing an electronic communications system. In Garcia v. City of Laredo, 702 F.3d 788, 792 (5th Cir. 2012), the Court noted that for a company to be liable under the SCA, it must provide services that facilitate the transmission, storage, or processing of electronic communications on behalf of users—not merely collect and store user data for its purposes. Because Plaintiffs did not establish that CapCut functioned as an ECS or RCS, their SCA claims failed as a matter of law.
Lastly, Judge Alexakis granted Plaintiffs until April 2, 2025, to file an amended complaint addressing deficiencies in their dismissed claims. So whether you’re a legal professional, casual content creator, or simply concerned about data privacy, as you should be, the ongoing developments in Rodriguez v. ByteDance merit your continued attention.
So, all in all, I’m particularly encouraged by how the Court emphasized consumer expectations throughout its analysis. This suggests a shift from formalistic legal reasoning toward how privacy functions in people’s lives. Most users have never heard of BIPA or CIPA, but they instinctively recognize when an app crosses a line and invades their privacy.
For everyday app users (myself included), this case is a reminder that seemingly innocuous tools like video editors may be far more invasive than they appear. The allegations that CapCut collects all photos and videos on a device—not just those edited—should give pause to anyone who casually grants broad permissions during app installation..
So be careful out there, folks. Next time you download that trending app, consider this before blindly agreeing to permission requests. That innocent-looking video editor allegedly might be analyzing your face, recording your voice, or scanning through years of personal photos—all while you’re just trying to add a filter to your weekend outing with family and friends. Scary stuff.
And yet, whether you have any real recourse if an app oversteps its bounds depends entirely on which law—if any—happens to apply. The fact that some claims survived in this matter while others failed underscores the fragmented and inconsistent nature of privacy law in the U.S. Right now, a company’s liability for invasive data collection often hinges on whether a lawsuit is filed under a state biometric law, a consumer protection statute, or federal wiretap regulations—each with different requirements and loopholes. This patchwork approach leaves consumers vulnerable and businesses uncertain about compliance.
Imagine if physical property rights varied so drastically between states—where some protected against trespassing while others only recognized theft if an item was taken. That’s essentially our current digital privacy landscape, and without unified standards, the gaps in protection will only widen.
As always,
Keep it legal, keep it smart, and stay ahead of the game.
Talk soon!
Fundamentals of Personnel Files for Employers in California
Current and former employees have the right to inspect their personnel files upon request within a timeframe set by statute. When an employment-related claim arises, these individuals typically request a copy of their personnel file. However, if the employer has not properly maintained these files, it is impossible to recreate them retroactively.
Here’s an overview of personnel files for California employers.
Requirement to Maintain Employee Personnel Files
To comply with California law, employers must retain former employees’ personnel files for a minimum of three years following the individual’s separation from the company.
Documents Employee is Entitled to Review
According to the California Labor Code, employers are required to provide employees with copies of any documents that they signed as part of obtaining or maintaining employment. Typical contents of personnel files include:
Recruiting and screening documents (such as applications, resumes, and educational transcripts)
Job descriptions
Handbook and policy acknowledgments
Employment agreements (if applicable)
Additional records used to determine qualifications for promotion, extra compensation, or disciplinary action should also be included. These could encompass:
Notices of commendation, warnings, or discipline
Notices of layoff, leaves of absence, and vacation
Education and training notices and records
Performance reviews
Attendance records
Payroll authorization forms
Termination notices and documentation
Medical information should never be stored within the personnel file. Under California regulations, such information must be kept separately to protect the employee’s confidentiality. Medical details may include records associated with workers’ compensation claims or documentation provided during the interactive process for medical leave or accommodation requests.
Documents an Employee Cannot Review
Under California law, employees do not have the right to review certain records, including:
Records related to the investigation of a possible criminal offense
Letters of reference
Ratings, reports, or records obtained from the employee’s previous employer, prepared by identifiable examination committee members, or obtained in connection with a promotional examination.
Exceptions
If an employee or former employee files a lawsuit that relates to a personnel matter against his or her employer or former employer, the right of the employee, former employee, or his or her representative to inspect or copy personnel records under this section ceases during the pendency of the lawsuit in the court with original jurisdiction. A lawsuit “relates to a personnel matter” if a current or former employee’s personnel records are relevant to the lawsuit.
Failure to Comply with Request to Inspect Personnel Records
Once an employer receives a written request from a current or former employee or a representative, the employer must provide a copy of the personnel records within 30 calendar days from the date the employer received the request, unless the current or former employee, or his or her representative, and the employer agree in writing to a date beyond 30 calendar days to produce a copy of the records, as long as the agreed-upon date does not exceed 35 calendar days from the employer’s receipt of the written request. Failure to comply within the time prescribed may allow the employee or the Labor Commissioner to recover a penalty of $750.00 from the employer. A current or former employee may also bring an action for injunctive relief to obtain compliance.
While maintaining organized personnel files will not protect an employer from all legal claims, ensuring the appropriate documents are retained for the correct amount of time per California law will facilitate litigation processes for both the employer and their attorney.
Requests for personnel files are often a precursor to a demand letter or lawsuit. Therefore, reviewing a proposed production with an attorney may facilitate early evaluation and strategic considerations.
DEI Executive Orders Are Back in Force with Court of Appeals Ruling
On Friday, March 14, 2025, ruling on a Government motion for a stay pending appeal, the United States Court of Appeals for the Fourth Circuit issued an Order staying a preliminary injunction that was issued in National Association of Diversity Officers in Higher Education (NADOHE) et al. v. Trump three weeks prior.
The unanimous ruling by a three-judge panel allows for full enforcement of two Executive Orders (EOs) regarding “Diversity, Equity, and Inclusion” (DEI), lifting the nationwide injunction against specific provisions that we explained here.
The Fourth Circuit panel issued its decision shortly after a District Court hearing on an emergency motion filed by the plaintiffs, who requested a status conference to review the U.S. Department of Justice’s alleged refusal to comply with the preliminary injunction. Four days earlier, on March 10, 2025, the District Court had issued a Clarified Preliminary Injunction along with a Memorandum Opinion, explaining that the February 21st ruling did not apply to the President, but applied to all federal executive branch agencies, departments, and commissions, and their heads, officers, agents, and subdivisions.
The Fourth Circuit panel unanimously agreed to stay the District of Maryland’s preliminary injunction based on the factors under Nken v. Holder, a 2009 Supreme Court decision that sets forth the standard for a U.S. Court of Appeals to apply in considering whether to grant a stay of a district court’s order while it assesses the order’s legality. The Order is remarkable, however, in that it was accompanied by concurring opinions written by all three panel judges.
Chief Judge Albert Diaz prefaced his commentary to state that he felt compelled to address “what seems to be (at least to some) a monster in America’s closet—[DEI].” Discussing the two EOs at issue in the lawsuit, Judge Diaz noted that “neither Order ever defines DEI or its component terms.” Judge Diaz further used the concurrence to voice support for DEI, writing that “despite the vitriol now being heaped on DEI, people of good faith who work to promote diversity, equity, and inclusion deserve praise, not opprobrium.”
In a second concurring opinion, Judge Pamela Harris wrote that a stay was warranted because the government was persuasive in explaining that the EOs are of “distinctly limited scope.” However, Judge Harris signaled that a more thorough review of this “difficult case” will be forthcoming, and that the present “vote to grant the stay comes with a caveat”: Any agency enforcement actions that go beyond the EOs’ narrow scope “may well raise serious First Amendment and Due Process concerns, for the reasons cogently explained by the district court.” She also concurred with Judge Diaz’s positive comments regarding diversity, equity and inclusion.
Judge Allison Jones Rushing used her concurrence as an opportunity to raise potential defense arguments such as ripeness and standing, in addition to criticizing the scope of the preliminary injunction, stating that its breadth “should raise red flags: the district court purported to enjoin nondefendants from taking action against nonplaintiffs.” Judge Rushing also responded to the comments by Judge Diaz in support of DEI, writing about “the boundaries of our constitutional role and the imperative of judicial impartiality… A judge’s opinion that DEI programs ‘deserve praise, not opprobrium’ should play absolutely no part in deciding this case.”
On March 17, the Fourth Circuit Court of Appeals requested the parties to respond by March 24 to a proposed briefing schedule that would extend written filings into late May, if adopted. We will continue to monitor this case.
Staff Attorney Elizabeth A. Ledkovsky contributed to the preparation of this article.
Speaking of Litigation-Eyes on the Evidence: Powerful Legal Presentations [Video] [Podcast]
In this episode, Epstein Becker Green attorneys Lauren Brophy Cooper and James S. Tam are joined by guest Brandie Knox, Founder and Creative Director of Knox Design Strategy, to discuss the legal industry’s shift toward visual storytelling.
The group explores how visuals are transforming the way lawyers present arguments, from infographics and timelines to courtroom animations. The discussion highlights strategies for tailoring visuals to audiences, the importance of timing and delivery, and how attorneys are even using visual storytelling outside the courtroom.
Discover practical tips for making legal presentations more impactful and engaging in any setting, from courtrooms to boardrooms.
Why Midsized Companies Should Consider International Arbitration to Enforce Their Cross-Border Contracts
For midsized companies engaged in cross-border trade—whether selling overseas or purchasing from foreign suppliers—the ability to enforce contracts is critical. After all, if a contract cannot be enforced, it’s not worth the paper it’s written on. But the unfortunate truth is that relying on courts to enforce cross-border contracts can cost significant time and money. Large companies often can sustain those costs and are accustomed to dealing with foreign courts. That frequently is not the case for midsized companies, however. And under current global economic circumstances—including a weakening dollar—cross-border contract (and other commercial) disputes may increase as trade flows and foreign investment patterns shift. It is therefore all the more important for midsize companies to reduce the risks associated with their cross-border transactions where possible. One potential tool for doing so is international arbitration.
An international arbitration clause can provide a midsized company with a practical and enforceable mechanism to resolve disputes, thereby reducing legal uncertainty and minimizing risk. The benefits of an internation arbitration are discussed below.
Avoiding the Risks of Foreign Litigation
One of the biggest risks in cross-border trade is being forced to defend a dispute in a foreign court. Litigating in a foreign jurisdiction can mean navigating an unfamiliar legal system, dealing with different laws and procedures, facing potential prejudice as an outsider, defending yourself at a distance from home, and overcoming language barriers—all of which increase uncertainty, cost, and risk. By choosing international arbitration, companies can ensure that disputes are resolved in a neutral and more predictable forum, avoiding the pitfalls of foreign litigation.
Expert Decision-Making
Unlike litigation, where a case is often decided by a judge or jury with no expertise in the subject matter, arbitration allows parties to select arbitrators with specialized knowledge in the relevant industry or legal field. This leads to well-informed decisions that take commercial realities into account, improving the quality and fairness of dispute resolution.
Confidentiality
Unlike court proceedings, which are typically public, arbitration is private. This helps to keep sensitive business information, trade secrets, and contractual disputes confidential, reducing reputational risks and protecting competitive advantages.
Flexibility and Control
Arbitration allows parties to shape the dispute resolution process to meet their needs. Companies can select arbitrators with the right expertise, agree on procedural rules, and choose the seat of arbitration—all of which provide greater control over how disputes are handled compared to litigation.
Use Your Own Lawyer Regardless of Arbitration Location
A significant advantage of arbitration is that, if your lawyer has international arbitration expertise, they can represent you no matter where the arbitration is seated. Unlike litigation, where local court rules often require hiring local counsel, arbitration allows you to retain the legal team you trust, ensuring consistency in legal strategy and cost efficiency.
Possibility of Remote Arbitration
Many arbitration institutions now offer the option for hearings to be conducted remotely via video conferencing. This reduces the need for costly international travel and allows businesses to participate fully in dispute resolution with minimal disruption to operations. Remote arbitration can also streamline proceedings, making the process more efficient and cost-effective.
Limited Discovery
Discovery in international arbitration is far more limited, less invasive, and less expensive than in U.S. litigation. Depositions are rarely allowed, and document production is typically restricted to materials that are relevant and material to the outcome of the case. This contrasts sharply with U.S. litigation, where broad and costly discovery – and resolution of the disputes that inevitably arise over such discovery – can significantly extend the length and expense of proceedings.
Faster Resolution
International arbitration is often more time-efficient than litigation, helping businesses avoid prolonged court delays that can disrupt operations. With streamlined procedures and limited appeals, arbitration enables companies to resolve disputes more quickly and move forward with their business.
Cost-Effectiveness
While arbitration involves costs, it is generally more predictable and cost-effective than navigating lengthy court battles across different jurisdictions. The ability to choose efficient procedures, avoid excessive discovery, and limit unnecessary delays makes arbitration a more practical choice for midsized businesses.
Finality of the Award
Unlike court judgments, arbitration awards are final and binding, with very limited grounds for appeal. This means that once an award is issued, the losing party has little ability to delay or overturn the decision, providing businesses with greater certainty and closure.
Enforceability of Awards
International arbitration awards are widely recognized and enforceable in over 170 countries under the New York Convention. This makes arbitration a more reliable mechanism for cross-border contract enforcement than court judgments, which may not be easily recognized or enforced in foreign jurisdictions.
The “Loser Pays” Rule
Unlike litigation in U.S. courts—where each party typically bears its own legal costs—international arbitration often follows the “loser pays” rule. This means that the losing party is generally required to cover the prevailing party’s arbitration costs and legal fees. This discourages frivolous claims and ensures that businesses can recover their costs when they prevail.
Implications for Midsized Companies
For midsized businesses engaged in international trade, arbitration offers a strategic advantage by ensuring contract enforceability, reducing legal uncertainty, and avoiding the complications of foreign litigation. By including arbitration clauses in cross-border contracts, companies can protect their interests and minimize risks while benefiting from a more predictable, cost-effective, and expert-driven dispute resolution process.
DEI Litigation Whiplash: Appellate Court Allows the Government to Move Forward with Challenged DEI-Related Executive Orders
Uncertainty for companies when making business decisions is a new norm. Tariffs aren’t going to be the only thing that is on again and off again. The same is happening with directives governing diversity, equity, and inclusion (“DEI”) initiatives. In the first two days of President Trump’s second term, he signed two DEI-related executive orders (“EOs”), EO 14151 (Ending Radical And Wasteful Government DEI Programs And Preferencing) and EO 14173 (Ending Illegal Discrimination And Restoring Merit-Based Opportunity). While they were in effect, these EOs caused widespread concern throughout the public and private sector as entities scrambled to understand the implications for their businesses. Approximately a month later, a federal judge in Maryland issued a preliminary injunction that stopped the government from implementing key provisions of the two EOs. However, the tide turned on Friday, March 14, 2025, when a three-judge panel from the U.S. Court of Appeals for the Fourth Circuit granted the government’s motion to stay the injunction pending appeal. This ruling empowers the government to resume the implementation of EO 14151 and EO 14173.
While the preliminary injunction was in effect, the government was precluded from (1) terminating “equity-related” contracts and grants pursuant to EO 14151, (2) requiring that government contractors and grantees sign a DEI certification pursuant to EO 14173, and (3) bringing any False Claims Act (“FCA”) or other enforcement action premised on the DEI certification. (As we have previously explained, the certification requirement in EO 14173 is intended to deter contractor and grantee DEI-programs by invoking the specter of FCA liability.)
Now that the injunction is stayed, an emboldened government will likely move swiftly to terminate contracts and grants that it views as being “equity-related” and to require contractors and grantees to execute the DEI certification. We have previously recommended general steps that contractors and grantees can take as they navigate a rapidly changing environment in which the president signs new EOs almost daily. Below, we offer recommendations specific to the government’s renewed ability to implement the previously enjoined provisions of the DEI-related EOs.
Recommendations for Federal Contractors and Grantees
If not already completed, it is critical to undertake a privileged assessment of your company’s DEI program, including any public-facing content and recently revised program elements that have not yet been reviewed with counsel.
Confer with counsel immediately in the event of an actual or threatened termination. Although the stayed preliminary injunction allows the government to terminate “equity-related” contracts as directed by EO 14151, it remains the case that the government may not terminate contracts in bad faith. In this regard, terminating contracts based on contractor or grantee speech outside of the government-funded scope of work could be subject to legal challenge. (It is also important to avoid signing any documents containing waiver or release language that might preclude recovery of costs in the future.)
Develop a plan for responding to the DEI certification. This includes ensuring that no one in your organization signs the certification without the prior knowledge and approval of relevant company leadership. We have previously recommended potential contractor and grantee responses to the DEI certification.
Understand the legal landscape. First, there are several other lawsuits pending that challenge EO 14151 and EO 14173, and these could bring new preliminary injunctions. These cases include Shapiro et al. v. U.S. Department of the Interior et al., E.D. Pa., Case No. 25-cv-763; National Urban League et al. v. Trump et al., D.D.C., Case No. 25-cv-00471; San Francisco AIDS Foundation et al. v. Trump et al., D.D.C., Case No. 25-cv-1824; and Chicago Women in Trades v. Trump et al., N.D. Ill., Case No. 25-cv-02005. Additionally, two of the three appellate judges who ruled that the government may implement the DEI-related EOs said they consider the EOs to be “of limited scope” because the EOs “do not purport to establish the illegality of all efforts to advance diversity, equity, or inclusion, and they should not be so understood.” Notably, these judges also distanced themselves from the president’s apparent view of DEI, stating that “while history may be static, its effects remain” and that “people of good faith who work to promote diversity, equity, and inclusion deserve praise, not opprobrium.” This signals that having a DEI program is not per se illegal.
Continue to comply with applicable contract and grant requirements arising under state and local government contracts, seeking the advice of counsel for any perceived conflicts between these requirements and the DEI-related EOs.
Fourth Circuit Temporarily Allows DEI-Related EOs to Continue
As we previously reported, on March 3, 2025, the Maryland District Court denied Defendants’ motion to stay the preliminary injunction in National Association of Diversity Officers in Higher Education v. Trump, preventing the federal government from enforcing several DEI-related clauses in its recent Executive Orders. The court held that the Government had not shown a likelihood of success on the merits and that both the balance of harms and the public interest weighed against the stay. In addition, the court declined to limit the scope of the injunction to actions involving only Plaintiffs and their members, holding that the severity of the constitutional violations at issue justified the nationwide scope of the injunction.
However, on March 14, 2025, the Court of Appeals for the Fourth Circuit stayed the preliminary injunction pending the outcome of the Government’s appeal, which will allow implementation of the DEI-related Executive Orders to continue until the court makes a final ruling on the injunction. The circuit court found that the Government had shown a strong likelihood of success on the merits under Nken v. Holder, 556 U.S. 418, 426 (2009). In concurring opinions, Judges Diaz and Harris expressed concerns over the lack of definition given to “DEI or its component terms” and the potential for overbroad agency enforcement of the Executive Orders. Judge Rushing, in a separate concurrence, raised “serious questions” about the ripeness of Plaintiffs’ complaint, as the district court relied on evidence of how agencies “are implementing or may implement” the Executive Orders to grant the preliminary injunction.