Real Estate Beneficial Ownership Regulatory Alert: Florida Restricts Real Estate Ownership by Individuals and Entities From “Countries of Concern”
SUMMARY
On 17 August, a Florida judged denied a bid by four Chinese citizens and a real estate brokerage firm for summary judgment to block enforcement of Senate Bill 264. Effective 1 July 2023, Senate Bill 264 (codified under Fla. Stat., ch. 692, pt. III – Conveyances to Foreign Entities) (the Statute), prohibits the direct or indirect ownership of specific categories of real estate by “foreign principals” from a foreign “country of concern,” defined as the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro, or the Syrian Arab Republic, or any agency of or any other entity of significant control of such foreign country of concern. The Statute prohibits the acquisition of (1) any interest in agricultural land by a foreign principal, (2) any interest in real property located near a military installation or critical infrastructure by a foreign principal, and (3) any real estate interest by a foreign principal of the People’s Republic of China, subject to very limited exceptions. The law is currently in effect; however, the case is still ongoing.
WHAT SHOULD CLIENTS DO NOW AND NEXT?
Failure to comply with the requirements of the Statute may well expose individuals and entities to civil penalties, as well as potential forfeiture of their property. If you are an entity that may potentially have any beneficial owners from a country of concern, you should review ownership structures to determine if any reporting requirements or restrictions will apply to you. Notably, the Statute applies to acquisitions of any interest in land, and it is unclear whether it also could apply to certain leasehold estates. Sellers, buyers, landlords, tenants, and real estate professionals should remain aware of Florida’s requirements for disclosures of foreign principals at the inception of contract negotiations and at closing of real estate purchase and leasing transactions. Florida mortgage lenders and landlords likely will adopt further documentation requirements for verifying the status of borrowers and tenants under “know your client/tenant” inquiries and disclosures.
WHAT REAL ESTATE TRANSACTIONS DOES THE STATUTE APPLY TO?
The Statute applies in three scenarios: (1) agricultural land held by a foreign principal; (2) property near military installations or critical infrastructure held by a foreign principal, and (3) real estate held by a foreign principal from the People’s Republic of China.1
Under these rules, a “foreign principal” is broadly defined and includes an entity or individual that has ties to a “country of concern,” including a person who is domiciled in a country of concern and not a US citizen or lawful US permanent resident, an entity organized or having its principal place of business in a country of concern or a subsidiary of such entity, or any person, entity, or collection of persons or entities described above having a controlling interest in an entity or subsidiary formed for the purpose of owning real property in Florida.2
There is an exemption for an indirect de minimus ownership interest in the underlying land. A foreign principal may acquire and hold an ownership interest if such interest is held as equities in a publicly traded company owning the land and the ownership interest is (a) less than 5% of any class of registered equities or less than 5% in the aggregate in multiple classes of the registered equities or (b) a noncontrolling interest in an entity controlled by a company that is both registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended, and is not a foreign entity.3
Prohibition Related to Agricultural Land
Foreign principals are barred from, directly or indirectly, acquiring an interest in agricultural land.4 For these purposes, “agricultural land” means land classified as agricultural by the property appraiser as required under section 193.461 of the Florida Statutes.5 In general, this is land that must adhere to specific use requirements in order to obtain and maintain the tax advantages of the agricultural classification.
Prohibition Related to Property Near Military Installations or Critical Infrastructure
Foreign principals are also prohibited from acquiring property interests if the underlying property lies within 10 miles of a military installation or critical infrastructure facility.6 The definition of “critical infrastructure facility” is comprised of ten (10) types of facilities that employ security measures that are designed to exclude unauthorized persons, such as electrical power plants, water treatment facilities, seaports, and airports.7 There is a limited residential property exception that allows foreign principals to acquire residential real property of no more than two acres in size if (a) the residential real property is not located within five miles of a military installation, (b) the foreign principal holds a US visa, and (c) the purchase is in the name of the US visa holder.8
Prohibition on the Acquisition of Property by Chinese Concerns
Finally, foreign principals of the People’s Republic of China are prohibited from acquiring any real property located within the state of Florida.9 The limited residential property exception, described above, is available to a natural person who would otherwise be prohibited from acquiring such property.10
Exceptions
Foreign principals who owned an interest in property as describe above prior to 1 July 2023, may continue to hold such interest.11 However, foreign principals will be required to register such ownership with the Florida Department of Agriculture and Consumer Services (FDACS), in the case of agricultural land, and the Florida Department of Commerce (formerly, the Department of Economic Opportunity) (FDC), in all other cases, before 1 January 2024.12
In addition, a foreign principal may acquire prohibited property on or after 1 July 2023, by devise or descent, through the enforcement of security interests, or through the collection of debts, provided that the person or entity registers such ownership and sells, transfers, or otherwise divests itself of such real property within three years after acquiring the real property.13
Compliance and Penalties
Purchase and sale contracts involving assets that include Florida real property must be accompanied by a notice to be acknowledged by the buyer, either as a separate disclosure document or as an element of the contract. Furthermore, at closing of any acquisition or other transfer of Florida real estate, the buyer must provide an affidavit certifying under penalties of perjury that it is not a foreign principal as defined in section 692.201(4) and it is otherwise in compliance with the new Statute.14 Notably, completion of both the notice and the affidavit will require careful review and understanding of the Statute.
The failure to obtain an affidavit will not create a title defect or affect insurability, and absent actual knowledge that the buyer is a foreign principal, the closing agent will not have civil or criminal liability for noncompliance.15 However, interests in land acquired in violation of the ban may result in forfeiture of the property to the state.16 Enforcement is delegated to the FDACS, in the case of agricultural land, and the FDC, in the case of other property, which are empowered to file a lis pendens and petition the circuit court of applicable jurisdiction to enter an order of forfeiture.17 In the case of forfeiture, the state acquires the property subject to the rights of any lienholders.18
In advance of the Florida Real Estate Commission (FREC) promulgation of official forms for Notices to Purchasers and Affidavits for Purchasers with Foreign Interests, the Florida Land Title Association (FLTA) is recommending use of a set of forms that can be obtained at https://www.flta.org/ForeignInterests, which include forms of affidavits for individuals or entities with foreign interests, and a form of notice that contains a summary of the legal prohibitions and compliance requirements.
EFFECTIVE DATES AND REPORTING
The prohibitions on the acquisition of agricultural land by foreign principals, property near military installations or critical infrastructure by foreign principals, and real estate by foreign principal from the People’s Republic of China, as well as the affidavit requirement, became effective on 1 July 2023.19 The Statute does not provide a stated exemption for properties that went under contract before 1 July 2023 but closed (or are scheduled) after that date. Contracts and leases presently under negotiation and future transactions should address the prohibitions and compliance requirements and buyer disclosures. All buyers and tenants, regardless of foreign principal status, will be required to comply with these requirements after 1 July 2023.
As noted above, for property held before 1 July 2023, or acquired after such date by devise or descent, through the enforcement of security interests, or through the collection of debts, foreign principals will have the obligation to report and register their ownership to the FDACS, in the case of agricultural land, or the FDC, in all other cases, before 1 January 2024 or within 30 days of such acquisition.20 Registration will be deemed filed late and subject to fines if filed 30 days after 31 January 2024 or 30 days after such acquisition.21 Failure to register may result in a civil penalty of US$1,000 per day of noncompliance.22
RECENT DEVELOPMENTS
On 22 May 2023, a lawsuit was filed in the U.S. District Court for the Northern District of Florida claiming that the Statute violates the Equal Protection Clause, Due Process Clause, and Supremacy Clause of the U.S. Constitution and the Fair Housing Act and is seeking an injunction against implementation of this Statute.23 The Department of Justice issued a Statement of Interest arguing that the Statute is unconstitutional.24 However, on 17 August 2023, a Florida federal judge denied the plaintiffs motion for preliminary injunction, finding that the plaintiffs did not demonstrate a substantial likelihood of success on the merits of their claims.25 An emergency motion for an injunction pending appeal was quickly filed by the plaintiffs on 21 August 2023, and denied on 23 August 2023.26 On 26 August 2023, the plaintiffs filed for an injunction and expedited appeal with the US Court of Appeals for the Eleventh Circuit. The case is still ongoing.
Meanwhile, the Statute authorizes the FDC, FDACS, and FREC to begin rulemaking concerning compliance and implementation of this Statute. The FLTA forms are precursors to such future rulemaking, and thus eventually will be superseded by such FREC rules and related forms when adopted under the Florida Administrative Code. On 7 August 2023, the FDC and FREC announced plans to propose regulations related to Senate Bill 264.
Florida is not alone in its interest in tracking or prohibiting foreign ownership of certain real estate assets. In addition to the federal reporting regime under the Agricultural Foreign Investment Disclosure Act of 1978, as amended, many states, including Alabama, Arkansas, Idaho, Louisiana, Montana, Ohio, Tennessee, Utah, and Virginia, which have each enacted laws in in 2023, have implemented various restrictions and reporting requirements related to foreign beneficial ownership of real estate. Moreover, the United States is not unique in its interest in the identity of foreign owners of real estate within its borders.
Footnotes
1 Fla. Stat. § 692.201-205 (2023).
2 Fla. Stat. § 692.201(4) (2023).
3 Fla. Stat. §§ 692.202(1), 692.203(1), 692.204(1)(b) (2023).
4 Fla. Stat. § 692.202(1) (2023).
5 Fla. Stat. § 692.201(1) (2023).
6 Fla. Stat. § 692.203(1) (2023).
7 Fla. Stat. § 692.201(2) (2023).
8 Fla. Stat. § 692.203(4) (2023).
9 Fla. Stat. § 692.204(1) (2023).
10 Fla. Stat. § 692.204(2) (2023).
11 Fla. Stat. §§ 692.202(2), 3(a), 692.203(2), (3)(a), 692.204(3), 4(a) (2023).
12 Id.
13 Fla. Stat. §§ 692.202(4), 692.203(4), 692.204(5) (2023).
14 Fla. Stat. §§ 692.202(6), 692.203(6), 692.204(6) (2023).
15 Id.
16 Fla. Stat. §§ 692.202(7), 692.203(7)(a), 692.204(7)(a) (2023).
17 Fla. Stat. §§ 692.202(9), 692.203(7), 692.204(7)(b) (2023).
18 Fla. Stat. §§ 692.202(6)(e), 692.203(6)(e), 692.204(7)(e) (2023).
19 S. 264, 2023 Leg., Reg. Sess. § 12 (2023) (enacted).
20 Fla. Stat. §§ 692.202(2), 3(a), 692.203(2), (3)(a), 692.204(3), 4(a) (2023).
21 Id.
22 Id.
23 Complaint, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. May 22, 2023).
24 Amicus Curiae Brief by United States, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. June 27, 2023).
25 Preliminary Injunction Decision, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. August 17, 2023).
26 Notice of Appeal, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. August 21, 2023); Order Denying Motion for Injunction Pending Appeal, Shen v. Wilton, Case No. 4:23-cv-208-AW-MAF (N.D. Fla. August 23, 2023).
Even Passive Trusts?!? Maryland Extends Mortgage Lender Licensure Requirements to Holders of Residential Mortgage Loans
The Maryland Office of Financial Regulation (OFR) issued new guidance and emergency regulations extending mortgage lender licensure requirements to include acquirers and assignees of residential mortgage loans on Maryland properties. This guidance stems from the Maryland Appellate Court’s decision in Estate of Brown v. Ward (April 2024), extending the licensing obligations—previously understood to apply to brokers, originating lenders and servicers—to all parties who acquire or are assigned Maryland mortgage loans. The OFR explicitly states those parties include “mortgage trusts, including passive trusts,” unless expressly exempted.
The new guidance took effect immediately when released on January 10, 2025, but the OFR has indicated that enforcement actions will be suspended until April 10, 2025, allowing time for acquirers and assignees (and, yes, even passive trusts) to apply for the necessary licenses “without undue burden.”
Formal Guidance and Emergency Regulations
While the OFR had not previously interpreted Maryland’s Mortgage Lender Law to apply to assignees of mortgage loans, this new guidance, and the emergency regulations introduced to implement this guidance, “clarify” that licensing requirements now extend to assignees and mortgage trusts (yes, that’s right, even passive trusts). As background, the OFR indicates this clarification recognizes the reasoning in Estate of Brown, where the Court determined that an assignee of a HELOC subject to the open-end credit grantor (OPEC) provisions required a mortgage lender license based on (1) the inclusion of assignees in the definition of credit grantor under the OPEC scheme and (2) the common law principle “that an assignee inherits the rights and obligations of the original lender, including the duty to be licensed under Maryland law.”
The OFR’s guidance, however, goes further than the Estate of Brown decision. The OFR extends the Estate of Brown rationale to require a license under either the Maryland Mortgage Lender Law or the Installment Loan Law for any entity acquiring or assigned any mortgage loan.
Additionally, the emergency regulations make minor adjustments to accommodate the licensing of passive trusts:
Principal Officer Requirements: The regulations clarify that for passive trusts, the principal officer (who must have at least three years of experience in the mortgage business) can be the trustee, or if the trustee is an entity, an individual deemed a principal officer of the trustee under the criteria of the existing regulation.
Net Worth Requirements for Passive Trusts: Passive trusts can meet the net worth requirement by providing evidence that they hold or will hold sufficient assets to satisfy the requirement within 90 days of licensure, if the trust’s only assets are mortgage loans that it has not yet acquired.
Estate of Brown v. Ward
In Estate of Brown, the Court ruled that a consumer could use a defense against foreclosure because the assignee of the related HELOC was not licensed under the Maryland Credit Grantor provisions. The Court determined that the assignee—despite not originating the loan—was still required to be licensed to take advantage of the streamlined foreclosure process available to licensed entities.
The Court’s reasoning relied heavily on the statutory definition of “credit grantor” under Maryland law, which was amended to make a “correction” in 1990 to, among other things, include assignees in this definition. The court interpreted this to mean that the licensure requirement – which applies to a credit grantor that “makes” a loan – applies to assignees, in line with the principle that an assignee generally takes on the same rights and obligations as the assignor. This interpretation relied on the Court’s decision in Nationstar Mortgage LLC v. Kemp (2021), which concluded that assignees were subject to statutory usury and fee provisions applicable to “licensees” because assignees inherit the same responsibilities under the law as the original lender. The Estate of Brown decision extended this rationale to hold that because assignees succeed to the same rights and obligations as the assignor there was no indication that the legislature intended to exclude assignees from the licensure provisions.
Next Steps for Acquirers or Assignees of Maryland Mortgage Loans
For those involved in transactions involving Maryland mortgage loans (we’re looking at you sponsors securitizing Maryland mortgage loans), your immediate first step should be to carefully review your activities to determine whether licensure is required and if any exemptions apply. The importance of this first step was emphasized through the OFR’s January 31 bulletin which confirmed that “neither the [Estate of Brown] decision, nor OFR Guidance, overrides the[] statutory exemptions and exclusions” included in the licensure schemes (one of which exists for GSEs and trusts created by GSEs).
Key steps to consider include:
Identify the acquirer or assignee of the loan: Is it a statutory trust, limited liability company or corporation that is a separate legal entity or a common law trust that is not?
Check for applicable exemptions: While no express exemption for trusts is provided, ask if any other exemptions could apply to the trust in your structure.
Determine how the loan is being assigned: In the case of a trust, is the acquisition or assignment structured to transfer title to loan to the trust itself or to a trustee on behalf of a trust?
Assess how title is being recorded: In the case of a trust, is title being recorded in the name of the trust or in the name of the trustee (which is the more typical approach)?
Working through these steps will help determine if the acquirer or assignee is within the scope of the OFR’s guidance and emergency regulations and/or whether an exemption may apply.
With less than 50 business days between now and when the OFR may pursue enforcement actions on April 10, 2025, those who currently hold or may in the future acquire or be assigned Maryland mortgage loans and those who sponsor mortgage trusts or other entities to do so should strongly consider preparing for licensure. That may mean the following:
Register for the Nationwide Multistate Licensing System (NMLS): Maryland license applications must be submitted through the Nationwide Multistate Licensing System (NMLS), and an NMLS account is required.
Determine the “principal officer” to be identified on the license application: A principal officer with at least three years of mortgage lending experience must be designated.
Engage in discussions with your trustees if you have a mortgage trust and determine the “principal officer” may be the trustee or a principal officer of the trustee: Coordination with the trustees of mortgage trust (yes, including passive trusts) will be critical to navigating the licensure requirements and related application, especially if you determine that the principal officer will be an employee of the trustee.
Ensure compliance with net worth requirements: Passive trusts must be able to satisfy the statutory net worth requirement by providing evident of the assets that will be held within 90 days of licensure.
While we are actively participating in the preparation of a legislative proposal intended to further clarify Maryland’s mortgage lender licensure laws in a way that does not unduly impair the secondary trading and the securitization of Maryland mortgage loans, the legislative process can be unpredictable. Start now, rather than passively waiting for April 10, 2025 to arrive. As always, Hunton stands ready to help you navigate these and other regulatory challenges.
Netflix Content Becomes Federal Evidence: EDNY’s OneTaste Prosecution Faces Scrutiny Amid DOJ Transition
Recent developments in the Eastern District of New York’s prosecution of wellness company OneTaste in U.S. v. Cherwitz have raised novel questions about the intersection of streaming content and criminal evidence.1 Defense motions filed in December of 2024 and January 2025 challenge the government’s use of journal entries originally created for a Netflix documentary as key evidence in its forced labor conspiracy case. This occurs during a sea change in DOJ priorities entering a new presidential administration.
After a five-year investigation, EDNY prosecutors in April of 2023 filed a single-count charge of forced labor conspiracy against OneTaste founder Nicole Daedone and former sales leader Rachel Cherwitz. The government alleges the conspiracy unfolded over a fourteen-year span, but in a prosecutorial first did not charge a substantive crime. Over the course of the prosecution, the defendants filed repeated motions with the court asking it to order the government to specify the nature of the offense. Most recently, Celia Cohen, newly appointed defense counsel for Rachel Cherwitz, highlighted in a January 18 motion the case’s unusual nature: “The government has charged one count of a forced labor conspiracy…without providing any critical details about the force that occurred and how it specifically induced any labor.”
In recent defense filings, the prosecution has faced mounting scrutiny over the authenticity of journal entries attributed to key government witness Ayries Blanck. Prosecutors had previously moved in October of 2024 for the court to admit the journal entries as evidence at trial for their case in chief. In a December 30 motion, Jennifer Bonjean, defense counsel for Nicole Daedone revealed that civil discovery exposes that the journal entries presented by the government as contemporaneous accounts from 2015 were actually created and extensively edited for Netflix’s 2022 documentary “Orgasm Inc” on OneTaste.
“Through metadata and edit histories, we can watch entertainment become evidence,” Bonjean argued in her motion. Technical analysis from a court-ordered expert showed the entries underwent hundreds of revisions by multiple authors, including Netflix production staff, before being finalized in March 2023 – just days before a sealed indictment was filed against defendants Cherwitz and Daedone. The defense has argued that this Netflix content was presented to the grand jury to secure an indictment.
The government’s handling of these journal entries took a dramatic turn during a January 23 meet-and-confer session. After defense counsel challenged the authenticity of handwritten journals matching the Netflix content, prosecutors abruptly withdrew them from their case-in-chief. While maintaining the journals’ legitimacy, this retreat from evidence previously characterized as central to their case prompted new defense challenges.
“This prosecution is a house of cards,” argued defense counsel Celia Cohen and Michael Roboti of Ballard Spahr in a January 24 motion to dismiss. Cohen and Roboti, who joined Rachel Cherwitz’s defense team earlier this month, highlighted how the government’s withdrawal of the handwritten journals “exemplifies the serious problems with this prosecution.” Their motion notes that defense witnesses in a parallel civil case have exposed government witnesses as “perjurers” who “have received significant benefits from the government and from telling their ‘stories’ in the media.”
The matter came to head during a January 24 hearing before Judge Diane Gujarati, who had previously denied prosecutors’ request to grant anonymity to ten potential witnesses. When Cohen attempted to address unresolved issues regarding the journals, she was sharply rebuked by the court, which had indicated it would not address the new filing during the scheduled hearing. Gujarati stated that she did not intend to schedule any further conferences before trial. The trial date is scheduled for May 5, 2025.
The case’s challenges coincide with significant changes at DOJ and EDNY under the new Trump administration. EDNY Long Island Division Criminal Chief John J. Durham was sworn in as Interim U.S. Attorney for EDNY on January 21, following former U.S. Attorney Breon Peace’s January 10 resignation. Peace spearheaded the OneTaste prosecution. Durham will serve until the Senate confirms President Trump’s nominee, Nassau County District Court Judge Joseph Nocella Jr.
The timing is particularly significant given President Trump’s January 20 executive order “Ending The Weaponization of The Federal Government.” The order specifically cites the EDNY prosecution of Douglass Mackey as an example of “third-world weaponization of prosecutorial power.” This reference carries special weight as EDNY deployed similar strategies in both the Mackey and Cherwitz cases – single conspiracy charges without substantive crimes, supported by media narratives rather than traditional evidence.
As Durham takes the helm at EDNY, this case presents an early test of how the office will handle prosecutions that blend entertainment with evidence, and whether novel theories of conspiracy without specified crimes will survive increased scrutiny under new leadership. The transformation of Netflix content into federal evidence may face particular challenges as the Attorney General reviews law enforcement activities of the prior four years under the new executive order’s mandate.
The government’s position faces further scrutiny as mainstream media begins to question its narrative. A January 24 Wall Street Journal profile by veteran legal reporter Corinne Ramey presents Daedone as a complex figure whose supporters call her a “visionary,” while examining the unusual nature of prosecuting wellness education as forced labor. The piece’s headline – “She Made Orgasmic Meditation Her Life. Not Even Prison Will Stop Her” – captures both the prosecution’s gravity and Daedone’s unwavering commitment to her work despite federal charges.
1 U.S. v. Cherwitz, et al., No. 23-cr-146 (DG).
The EEOC Retires Guidance Protecting LGBTQ Workers and Others From Discrimination, Continuing the Rapid Remake of Federal Policy Through Presidential Action
As we have noted in recent days[1], upon returning to the Oval Office, the Trump Administration swiftly:
Sent the message that it will pursue an agenda of aggressive enforcement related to immigration and preventing undocumented workers from working in the U.S.;
Ordered federal employees to return to working physically from offices and froze all hiring for civilian employees, suggesting planned stripping of resources for federal agencies and other federal bodies (including those tasked with enforcing Equal Employment Opportunity-related rights (EEO));
Overturned a host of “harmful” executive orders passed during the Biden Administration, including executive orders seeking to protect workers against sexual orientation and gender identity or expression discrimination and to promote greater workplace safety requirements;
Overturned Executive Order 11246 and related amendments, ending a variety of federal policies and related requirements for federal government contractors that had been in place since the Lyndon Johnson Administration and now affirmatively prohibiting them from considering protected characteristics as part of employment decisions; and
Struck executive orders and presidential memoranda relating to equal employment opportunity, diversity, and inclusion efforts applicable to the federal government as an employer.
Notwithstanding the policies and potential future actions they portend, other than with respect to immigration enforcement, none of the foregoing changes summarized above apply to private employers that do not contract with the federal government — and with good reason. A presidential administration cannot on its own rewrite the equal employment opportunity statutory scheme woven through the federal fabric by laws like Title VII, the Americans with Disabilities Act, and the like. Changes to the basic scope of those laws can only come through legislative action (subject to presidential veto) and subsequent court interpretation.
But this certainly is not to say that the new administration is powerless to pursue the same policy bend portended by the changes mentioned above against private employers through its political and extra-statutory powers. And it would appear such indirect efforts to change the federal legal framework for EEO protections is underway.
In late January, the Equal Employment Opportunity Commission (EEOC) made several key removals of content from its online guidance resources — the website location where the EEOC publishes its views on what federal law should be interpreted to mean describing the federal government’s enforcement priorities under the framework of laws administered by the agency. The majority of these first guidance withdrawals pertain to LGTBQ worker protections, including the removal of several pages of resources relating to the United States Supreme Court’s 2020 decision in Bostock v. Clayton County, where the court recognized that Title VII protects employees from discrimination on the basis of sexual orientation and gender identity. While removal of this guidance does not change Bostock’s definitive statement that Title VII covers sexual orientation and gender identity, its withdrawal surely indicates that enforcing Bostock’s mandate will no longer be a priority for the EEOC and for the individuals who control how the agency uses its limited resources.
The new Administration has so far made no official announcement on these changes. Instead, while guidance and other pages on Bostock and protections for LGTBQ workers were still on the EEOC’s website at the end of the Trump Administration’s first week in office, they have subsequently been taken down from the website in an apparent silent retirement.
On the other hand, the administration has not been silent on its recent personnel changes; last week the President removed two Democratic Party-appointed members of the EEOC before the expiration of their five-year terms, along with terminating the services of the Commission’s General Counsel. The move came just hours after the President also fired National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo and removed a Democratic National Labor Relations Board member. Both the EEOC and the NLRB are now presently without a quorum of members, handcuffing the agencies’ ability to undertake certain high-level enforcement functions.
In another development similar to the silent removal of EEOC guidance regarding LGBTQ protections, previously available content on the EEOC website raising concerns about how Artificial Intelligence (AI) tools can result in unlawful employment discrimination have now been removed. This would seem to track with two other executive order actions taken by the Administration shortly after the inauguration (one striking a 2023 order seeking to create federal oversight of AI, another indicating the administration’s plan to take a hands-off approach to use of AI). Two weeks into this new administration have already brought in a sea change in the world of labor employment. It seems a certainty that more is to come — along with state law reaction, legal challenges, and the political and social backlashes that have become the norm in recent years. Foley and our team of counselors will continue monitoring and reporting on these developments while doing our utmost to help navigate these troubled and shifting waters with practical, business-focused advice.
[1] Foley’s robust, cross-disciplinary team has created a “100 Days and Beyond: A Presidential Transition Hub” which will be regularly and swiftly updated to keep you apprised of changes covering not just labor and employment, but also legal areas like Artificial Intelligence, Antitrust & Competition, Environmental, Government Enforcement, Finance, and Technology regulation.
Federal Grant Funding: A Thaw in the Freeze?
Last week was a roller coaster ride for health care providers and other recipients of federal grant funding. Here’s a quick recap of everything that’s happened since our last e-alert:
OMB Memo Rescinded – On January 29, the OMB issued a rescission of the memorandum (M-25-13) that contained the agency directive to review federal grant programs and the corresponding funding pause (the “OMB Memo”). Providers and other outside observers could be forgiven for making the assumption that this would be the end of the story for the time being.
The Story Continues – Shortly after the OMB rescinded the OMB Memo, communication from the White House, including posts on X from the Press Secretary, indicated that the rescission applied to the OMB Memo only and that the White House still intended to freeze federal funds and enforce the Executive Orders.
Normalcy? Returns– Thursday evening into Friday morning, Medicaid agencies reported irregularities in accessing funding portals and drawing down federal funds. We have heard from providers that access to their 330 PHS grant funds has been restored. At the same time, we have reports that some agencies (such as the National Science Foundation) are still reviewing grant programs for compliance with the Trump Administration’s Executive Orders. For now, however, the status quo for grant funding seems largely to have been preserved.
The Legal Battle Continues – A coalition of Democratic Attorneys General filed a lawsuit in Rhode Island earlier this week to oppose the OMB Memo and associated funding freeze.1 The judge in that case held a hearing to determine whether the legal challenge was moot, given the rescission of the OMB Memo. Citing communication from the press secretary, Judge McConnell indicated a willingness to still enter some kind of protective order related to the actions underlying the OMB Memo, even if the OMB Memo itself had been rescinded. Late afternoon on January 31, Judge McConnell issued a temporary restraining order in this case, which will last through a hearing and decision on the states’ motion for a preliminary injunction.2 On the morning of February 3, the DOJ responded with a notice of compliance outlining the Administration’s response to the TRO.
What Now? – Whatever the final legal outcome from the Rhode Island case, it seems clear that the Executive Branch is intent on reviewing federal grant programs for compliance with its policy directives. We know, based on OMB’s rescinded Memo, the initial list of programs on the Administration’s radar. Subject to any final disposition in the AG suit, we expect additional action in the coming weeks and months with respect to these programs, and providers should be aware of the potential impact on their organizations up to and including the inability to access funds previously appropriated and awarded.
Attached to this e-alert is an Excel tool that identifies the grant programs identified in OMB’s rescinded Memo. Providers and other grant recipients should use this tool to inventory their current grant funding streams, assess organizational risk moving forward and make plans in the event of future disruption.
[1] A copy of the states’ request for a temporary restraining order is available here: https://ag.ny.gov/sites/default/files/court-filings/new-york-et-al-v-trump-et-al-complaint-2025.pdf.
[2] A copy of the preliminary injunction is available here: https://storage.courtlistener.com/recap/gov.uscourts.rid.58912/gov.uscourts.rid.58912.50.0_2.pdf.
Grant Review Tool
DOJ Compliance Notice
5th Circuit Rules Intent to Arbitrate Trumps Defunct Forum
The Fifth Circuit ruled that Baker Hughes Saudi Arabia and Dynamic Industries, Inc., could be compelled to arbitration in a forum that no longer exists. In doing so, the court ruled that the parties’ “dominant purpose was to arbitrate generally,” which mandated that the court compel arbitration, if at all possible.
The underlying dispute between Baker Hughes and Dynamic revolves around a subcontract in which Baker Hughes agreed to supply materials, products and services for an oil and gas project performed by Dynamic in Saudi Arabia. Baker Hughes says it has performed all its obligations, but Dynamic failed to pay the more than $1.3 million it owes to Baker for those services.
The subcontract contemplated arbitration in two ways: First was the way Dynamic had the unilateral right to elect for arbitration of any unresolved dispute in Saudi Arabia, and second was if the alternative course of arbitration allowed any claim to be arbitrated according to the Arbitration Rules of the Dubai International Financial Centre-London Court International Arbitration (DIFC-LCIA). In 2021, the administrating institution of the DIFC-LCIA rules, the DIFC Arbitration Institute (DAI), was abolished. The Dubai International Arbitration Centre (DIAC) was created as a replacement for the DAI.
The district court ruled that it was powerless to compel arbitration because the forum to which it would compel did not exist. The Fifth Circuit disagreed and reversed and remanded to the district court to consider “whether the DIFC-LCIA rules can be applied by any other forum that may be available — including the LCIA, DIAC, or a forum in Saudi Arabia — consistent with the parties’ objective intent.”
The court covered considerable ground in its opinion. First it considered whether the subcontract language allowing DIFC-LCIA arbitration was a forum-selection clause and determined it was not. Rather it was an election to arbitrate according to the DIFC-LCIA rules, not necessarily, in the forum of the now-non-existent DAI.
In doing so, the court departed from many of its sister circuits by declining to find that the invocation of the DIFC-LCIA rules constituted a manifest desire to arbitrate in the DAI forum. The court stated that it still had “lingering doubts” regarding that approach.
Next, the court considered whether a forum was really unavailable for purposes of arbitrating under the DIFC-LCIA rules. Stating it differently, the court framed this novel question as “whether a designated forum remains available where a functionally identical successor forum exists.” The court found that arguably the parties’ designated forum still exists because the new forum adopted nearly all the same rules as its predecessor.
However, the court declined to rule on this question and turned to its central ruling: Even if the arbitration provision is a forum-selection clause it is not integral to the parties’ agreement. The court found that ultimately the parties’ agreement evinced that “the parties’ primary intent was to arbitrate generally.” As such, the district court should have compelled arbitration in a different forum or appointed a substitute arbitrator consistent with that intent. While the court’s ruling lives in the unique circumstances presented by the restructuring of the DIFC-LCIA arbitration rules and fora, the court rested its decision on familiar ground. Namely that where the “parties’ dominant purpose” is to arbitrate, a court should do what is in its power to effectuate that purpose, even if that means compelling arbitration to a forum not expressly stated by the parties’ agreement.
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LOW INTEGRITY?: Integrity Marketing Stuck in TCPA Class Action After Declaration Fails to Move the Court
Always fascinating the arguments TCPA defendants make.
Consider Integrity Marketing’s effort in Newman v. Integrity, 2025 WL 358933 (N.D. Ill Jan. 31, 2025).
There Integrity argued it could not be liable for calls violating the TCPA made by its network of lead generators because it was just a middle man who was not actually licensed to sell insurance itself.
Huh?
Apparently Integrity believed that if it wasn’t selling anything itself it couldn’t be liable for telephone solicitations it was brokering. (This is similar to the argument Quote Wizard made and, yeah, it didn’t work out so well for them.)
Integrity also argued that it couldn’t be sued directly for calls made by third-parties unless the Plaintiff pierced the corporate veil.
Double huh?
That’s not even close to accurate. Vicarious liability principles apply when dealing with fault for third-party conduct, not corporate formality law. That argument doesn’t even make logical sense.
Regardless, the Court had little trouble determining Integrity was potentially liable for the calls.
On the corporate veil argument the Court quickly rejected the (totally wrong) alter ego approach and properly applied agency law. The Court determined the Complaint’s allegations Integrity hired a mob of of affiliates, insurance agents, and (sub)vendors to telemarket insurance and other products to consumers was sufficient to state a claim since Integrity allegedly “controlled” these entities. In the Court’s eye the ability to “dictate which telemarketing or lead-generating vendors may be used” was particularly damning.
On the “we don’t actually sell insurance” argument the Court rejected the Defendant’s declaration– you can’t submit evidence on a 12(b)(6) motion folks– but found that even if the evidence were accepted Integrity would still lose:
However, even if the Court were to take the declaration into account, it does not refute the inferences drawn that Defendant has a network of agents encouraging the purchase of insurance, that Defendant controls or facilitates the telemarketing calls Plaintiff received which encouraged Plaintiff to purchase insurance, or that the telemarketing calls were done on behalf of Defendant. In other words, even if it is not selling insurance directly, the complaint plausibly alleges Defendant is using its network of subsidiaries and agents to engage in telemarketing and to facilitate and control the purchase of insurance using impermissible means.
So, yeah.
Motion to dismiss denied. Integrity stuck in the case.
Loper Bright Strikes Again: Eleventh Circuit Hangs Up on FCC’s One-to-One Consent Rule, Calling the Validity of Other TCPA Rules Into Question
The Eleventh Circuit Court of Appeals recently vacated the Federal Communications Commission’s 2023 “one-to-one consent rule” under the Telephone Consumer Protection Act (TCPA). In Insurance Marketing Coalition, Ltd. v. Federal Communications Commission,1 the Court struck down the order that (1) would have limited businesses’ ability to obtain prior express consent from consumers to a single entity at a time, and (2) would have restricted the scope of such calls to subjects logically and topically related to “interaction that prompted the consent.”2 In particular, the Court held that the FCC exceeded its authority under the plain language of the statute.3 In the wake of the IMC decision, other TCPA regulations may well face the chopping block.
The FCC’s order sought to curtail the practice of “lead generation,” which offers consumers a “one-stop means of comparing [for example] options for health insurance, auto loans, home repairs, and other services.”4 In its ruling, the Court looked to the authority Congress had extended to the FCC through the TCPA. In general, the TCPA prohibits calls made “using any automatic telephone dialing system or an artificial or prerecorded voice” without “the prior express consent of the called party.”5 The statute does not define “prior express consent.”6 Congress gave the FCC authority to “prescribe regulations to implement” the TCPA, and to exempt certain calls from the TCPA’s prohibitions.7 In its 2023 order, the FCC sought to restrict telemarketing calls by imposing the one-to-one consent restriction and the logically-and-topically related restriction.8
Applying the Supreme Court’s decision in Loper Bright Enters. v. Raimondo,9 the Eleventh Circuit ruled that in promulgating the 2023 order, the FCC exceeded its statutory authority. The Court found that the plain meaning of the term “prior express consent” nowhere suggests that a consumer can only give consent to one entity at a time and only for calls that are “logically and topically related” to the consent. Rather, the Court ruled, in the absence of a statutory definition, the common law provides that the elements of “prior express consent” are “permission that is clearly and unmistakably granted by actions or words, oral or written,” given before the challenged call occurs.10 Nothing under the common law restricts businesses from obtaining consent from consumers to receive calls from a variety of entities regarding a variety of subjects in which they are interested.
In the wake of the IMC decision, other TCPA regulations may be ripe for challenge, including the FCC’s 2012 determination that calls introducing telemarketing or solicitations require prior express written consent. For example, in IMC, the Court held that the FCC cannot create requirements for obtaining prior express consent beyond what the plain language of that term will support. And the Court delineated the common law elements of prior express consent, which the Court found can be “granted by actions or words, oral or written.”11 Under this reasoning, the Court held that “the TCPA requires only ‘prior express consent’—not ‘prior express consent’ plus.”12 This reasoning may well support a challenge to the prior express written consent rules. After all, nothing in the plain meaning of the term “prior express consent” requires a writing versus oral consent, and the common law does not appear to support such a distinction. Rather, the requirement of written consent clearly adds to the statutory requirement and for that reason, appears to exceed the FCC’s authority.
Notwithstanding the fact that the FCC imposed the prior express written consent rule more than 10 years ago, another recent decision from the Supreme Court suggests that new entrants to the lead-generation industry have standing to file a challenge. In Corner Post, Inc. v. Board of Governors of Federal Reserve System,13 the Supreme Court ruled that new market entrants impacted by federal rules have standing to challenge those rules within the statutory period that runs from the date of market entry. The firm will continue to follow challenges to the FCC’s rulemaking authority, including any challenges to the prior express written consent rule.
Footnotes
1 No. 24-10277, — F. 4th —, 2025 WL 289152 (11th Cir. Jan. 24, 2025) (IMC decision).
2 See Second Report and Order, In the Matter of Targeting and Eliminating Unlawful Text Messages, Rules and Regs. Implementing the Tel. Consumer Prot. Act of 1991, Advanced Methods to Target and Eliminate Unlawful Robocalls, 38 FCC Rcd. 12247 (2023).
3 FCC orders have perennially exceeded the agency’s authority under the TCPA. For instance, beginning in 2003, the FCC took the position that a predictive dialer––a common tool used by business customer service centers––was an “automatic telephone dialing system,” even if the technology in question did not have the characteristics described in the statutory definition, namely the “the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” 47 U.S.C. § 227(a)(1). The United States Supreme Court threw out the FCC’s flawed rulings in Facebook, Inc. v. Duguid, 592 U.S. 395 (2021).
4 IMC, 2025 WL 289152, at *2.
5 47 U.S.C. § 227(b)(1)(A), (B).
6 See id.
7 47 U.S.C. § 227(b)(2)(B) and (C).
8 The Court observed that since 2012, the FCC has distinguished non-telemarketing calls for which the FCC has required prior express consent from calls that introduce telemarketing or solicitations for which the FCC has required prior express written consent. 47 C.F.R. § 64.1200(a)(2), (3); see also In re Rules and Regs. Implementing the Tel. Consumer Prot. Act of 1991, 27 FCC Rcd. 1830, 1838 (2012). The regulations define “prior express written consent” as an agreement, in writing, bearing the signature of the person called that clearly authorizes the seller to deliver or cause to be delivered to the person called advertisements or telemarketing messages using an automatic telephone dialing system or an artificial or prerecorded voice, and the telephone number to which the signatory authorizes such advertisements or telemarketing messages to be delivered. 47 C.F.R. § 64.1200(f)(9). The written agreement must “include a clear and conspicuous disclosure informing” the signing party that he consents to telemarketing or advertising robocalls and robotexts. 47 C.F.R. § 64.1200(f)(9)(i)(A).
9 603 U.S. 369, 391–92 n.4, 413 (2024).
10 IMC, 2025 WL 289152, at *6.
11 Id.
12 Id.
13 603 U.S. 799 (2024).
Federal Court Applies Antitrust Standard of Per Se Illegality to “Algorithmic Pricing” Case
A federal district court in Seattle recently issued an important antitrust decision on “algorithmic pricing.” Algorithmic pricing refers to the practice in which companies use software to help set prices for their products or services. Sometimes this software will incorporate pricing information shared by companies that may compete in some way. In recent years, both private plaintiffs and the government have filed lawsuits against multifamily property owners, hotel operators, and others, claiming their use of such software to set prices for rentals and rooms is an illegal conspiracy under the antitrust laws. The plaintiffs argue that, even without directly communicating with each other, these companies are essentially engaging in price-fixing by sharing pricing information with the algorithm and knowing that others are doing the same, which allegedly has led to higher prices for consumers. So far, these cases have had mixed outcomes, with at least two being dismissed by courts.
Duffy v. Yardi Systems, Inc.
Previously, courts handling these cases have applied, at the pleadings stage, the “rule-of-reason” standard for reviewing the competitive effects of algorithmic pricing. Under the rule-of-reason standard, a court will examine the algorithm’s actual effects before determining whether the use of the algorithm unreasonably restrains competition. In December, however, the U.S. District Court for the Western District of Washington in Duffy v. Yardi Systems, Inc., No. 2:23-cv-01391-RSL (W.D. Wash.) held that antitrust claims premised on algorithmic pricing should be reviewed under the standard of per seillegality, meaning the practice is assumed to harm competition as a matter of law. Under the per sestandard, an antitrust plaintiff need only prove an unlawful agreement and the court will presume that the arrangement harmed competition. This ruling is significant because it departs from prior cases and could ease the burden on plaintiffs in future disputes.
In Yardi, the plaintiffs sued several large, multifamily property owners and their management company, Yardi Systems, Inc., claiming these defendants conspired to share sensitive pricing information and adopt the higher rental prices suggested by Yardi’s software. The court refused to dismiss the case, finding the plaintiffs had plausibly shown an agreement based on the defendants’ alleged “acceptance” of Yardi’s “invitation” to trade sensitive information for the ability to charge increased rents. See Yardi, No. 2:23-cv-01391-RSL, 2024 WL 4980771, at *4 (W.D. Wash. Dec. 4, 2024). The court also found the defendants’ parallel conduct in contracting with Yardi, together with certain “plus factors,” were enough to allege a conspiracy. The key “plus factor” was defendants’ alleged exchange of nonpublic information. The court noted the defendants’ behavior — sharing sensitive data with Yardi — was unusual and suggested they were acting together for mutual benefit.
The court decided the stricter per serule should apply to algorithmic pricing cases, rather than the rule-of-reason. The court emphasized that “[w]hen a conspiracy consists of a horizontal price-fixing agreement, no further testing or study is needed.” Id. at *8. This decision diverged from an earlier case against a different rental-software company, where the court thought more analysis was needed because the use of algorithms is a “novel” business practice and thus not one that could be condemned as per seillegal without more judicial experience about the practice’s competitive effect. The Yardi case also stands apart from others that have been dismissed, like a prior case involving hotel operators, where there was no claim that the companies pooled their confidential information in the dataset the algorithm used to suggest prices. The court in that case decided that simply using pricing software, without sharing confidential data, did not necessarily mean there was illegal collusion. Future cases may thus depend in part on whether the software uses competitors’ confidential data to set or suggest prices.
It is unclear if other courts will adopt the same strict approach as the Yardi case when dealing with claims involving algorithmic pricing. It is clear, however, that more cases are on the horizon, likely spanning a variety of industries using pricing software.
Regulatory Efforts
Beyond private lawsuits, government agencies and lawmakers also are paying close attention to algorithmic pricing. Last year, for example, the U.S. Department of Justice (DOJ) and a number of state attorneys general sued a different rental-software company. The DOJ also has weighed in on several ongoing cases. Meanwhile Congress, along with various states and cities, has introduced laws to regulate algorithmic pricing, with San Francisco and Philadelphia banning the use of algorithms in setting rents. And just last month, the DOJ and Federal Trade Commission raised concerns about algorithmic pricing in a different context — exchanges of information about employee compensation — in the agencies’ new Antitrust Guidelines for Business Activities Affecting Workers. The new guidelines note that “[i]nformation exchanges facilitated by or through a third party (including through an algorithm or other software) that are used to generate wage or other benefit recommendations can be unlawful even if the exchange does not require businesses to strictly adhere to those recommendations.” Expect more legal and legislative action on this front in 2025 and beyond.
(UK) Revolution Bars: When is a Meeting Really a Meeting?
In his judgment to sanction the restructuring plan (“RP”) of Revolution Bars[1], Justice Richards proceeded on the basis that the Class B1 Landlords and the General Property and Business Rate Creditors were dissenting classes, notwithstanding that they approved the Plan by the statutory majority. This is because they did not approve the Plan at “meetings”, since only one person was physically present at each “meeting” even though the chair held proxies from other creditors.
Pursuant to Part 26A of the Companies Act 2006, to agree a RP, at least 75% in value of a class of creditors, present and voting either in person or by proxy at the meeting, must vote in favour (section 901F). This is repeated when considering the cross-class cram down (“CCCD”), which can be applied “if the compromise or arrangement is not agreed by a number representing at least 75% in value of a class of creditors… present and voting either in person or by proxy at the meeting” (section 901G).
Applying various case law on the subject, we now have the following guidance in relation to a “meeting” for the purposes of RPs:
The ordinary legal meaning of a meeting requires there to be two or more persons assembling or coming together[2];
If there is only one shareholder, creditor or member of a relevant class, that would constitute a “meeting” by necessity, but a meeting in this instance would be considered an exception to the ordinary legal meaning[3];
An inquorate and invalid “meeting” does not preclude the court from exercising its discretion to apply a CCCD to those “dissenting” classes[4].
To ensure a proper “meeting”, there must be two or more creditors physically present (where two or more creditors exist in a class). The physical presence of only one person voting in two capacities – as creditor and as proxy for another – will not suffice, nor will it suffice if the chair holds proxies and there is only one creditor in attendance. Only in cases where there is one creditor in a class, will a meeting of one be valid. If there is no valid meeting, the creditors of that class will be treated as dissenting, and potentially subject to CCCD (assuming the RP has also met the relevant voting threshold and CCCD is engaged).
It does beg the question – if the circumstance were to arise where there were no valid meetings, then what? It seems likely that the RP would fall at the first hurdle.
In this case, the judge sanctioned the CCCD of all “dissenting” classes, and the RP.
Notably, in Re Dobbies Garden Centre Limited[5] the Scottish court took a different approach. Here, only one creditor attended the meeting of the only “in the money” class which approved the plan. If the court had adopted the approach in Revolution Bars, that meeting would be considered invalid, the class categorised as dissenting and the plan would not have been sanctioned.
Focusing on the words “either in proxy or by person” as a qualifier to being “present and voting”, the Scottish court found that a meeting may be quorate where two or more creditors were in attendance or represented in person, or by proxy, or by a combination, and one person can act in two capacities; therefore the meeting was valid.
[1] [2024] EWHC 2949 (Ch)
[2] Sharp v Dawes (1876) 2 Q.B.D. 26
[3] East v Bennett Bros Ltd [1911] 1 Ch. 163; Re Altitude Scaffolding [2006] BCC 904
[4] Revolution Bars
[5] [2024] CSOH 11
Legal Precedents Offer Novel Ways for Federal Employee Whistleblowers to Fight Retaliation
The system of anti-retaliation protections for federal employees who blow the whistle or speak out about their agency’s conduct is infamously weak. Under the Whistleblower Protection Act (WPA) and other laws, federal employees seeking relief for an adverse action taken against them for whistleblowing must rely on the Merit Systems Protection Board (MSPB). This quasi-judicial entity is plagued by delays and threatened by politicization.
However, there are several potentially effective but under-utilized legal precedents that can permit federal employees facing retaliation to obtain relief in federal court and not solely rely on the WPA for relief. These precedents have been established by the U.S. Courts of Appeal for the District of Columbia and Fourth Circuits, and offer novel ways to have cases heard in federal court or otherwise bolster retaliation complaints. By utilizing these methods, federal employees can feel more confident and in control, knowing they have better chances of gaining meaningful relief if they face retaliation for whistleblowing, oppose discrimination, prevent the violation of their privacy, and enforce their rights to engage in outside First Amendment protected speech.
First Amendment Rights for Federal Employees
The landmark 1995 case Sanjour v. EPA upheld the First Amendment rights of federal employees to criticize the government in activities outside their employment. This created a legal precedent that provides a strong shield for federal employees to make First Amendment challenges to agency regulations stifling whistleblowing when made outside of work. The case permits federal employees at the GS-15 level or below (higher level federal workers were not discussed in the decision, as the applicant for relief was at the GS-15 level) to seek pre-enforcement injunctive relief if a rule or regulation (which would include an Executive Order) has an improper chilling effect on First Amendment protected speech of an employee’s outside speaking or writing.
William Sanjour was the branch chief of the Hazardous Waste Management Division within the EPA who challenged rules written by the Federal Office of Government Ethics that restricted EPA workers’ rights to speak to environmental community groups.
Because the EPA had warned Sanjour that his acceptance of a cost reimbursement for travelling to North Carolina to give a speech critical of EPA policies concerning waste incineration was in violation of a regulation and could result in adverse action, Sanjour could challenge the “chilling effect” on speech of the government’s rule. The D.C. Circuit upheld the constitutional challenge to a regulation that had a chilling effect on First Amendment protected speech.
If he had waited until he was subjected to retaliation he would have been required to use the WPA to remedy the adverse action. But because Sanjour was challenging an unconstitutional chilling effect of a government regulation, he could obtain injunctive relief directly in federal court and avoid the long delays and other problems when pursuing a case before the presidentially appointed MSPB.
The key precedent established in Sanjour v. EPA, by the U.S. Court of Appeals for the District of Columbia Circuit, was that the Court could issue a nationwide injunction preventing the implementation of the regulation because of its chilling effect on the First Amendment right of employees to criticize the federal government. The court recognized that federal employee speech to the public on matters of “public concern” was protected under the First Amendment, and served a critical role in alerting the public to vital issues:
“The regulations challenged here throttle a great deal of speech in the name of curbing government employees’ improper enrichment from their public office. Upon careful review, however, we do not think that the government has carried its burden to demonstrate that the regulations advance that interest in a manner justifying the significant burden imposed on First Amendment rights.”
The precedent in Sanjour v. EPA means that federal employees who plan on making public statements (outside speaking or writing on matters of public concern) can seek a federal court injunction preventing future retaliation based on their First Amendment rights, if they have a reasonable basis to believe that their government employer would take adverse action against them if they made the public disclosures or violated the regulation. Significantly, First Amendment protected speech should cover criticisms of government policy. Policy disagreements alone may not even be covered under the WPA.
The Sanjour case covers outside speaking and writing, not workplace activities. It affirms a federal employee’s right to engage in conduct such as TV interviews, writing op-eds, and speaking before public interest groups, even if the speech engaged in is highly critical of the government or their government-employer. However, employees would have to give a disclaimer making sure that the public understood they were speaking in their private capacity, and the employee could not release confidential information.
Mixed Cases Combining Title VII Discrimination with Whistleblower Retaliation
Precedent established by two landmark federal employee whistleblower retaliation cases holds that federal employees may have their WPA retaliation case heard in federal court in instances where it is a “mixed case” that also involves discrimination or retaliation under Title VII of the Civil Rights Act. The scope of retaliation covered under Title VII is broader than the coverage under the WPA, and by combining both claims a federal employee can significantly increase both their procedural and substantive rights.
Specifically, when an employee is a member of a protected class (Title VII covers race, religion, sex, national origin, among other classes) it is often hard to distinguish whether retaliation originates from their membership in a protected class, their filing complaints of retaliation under Title VII, or their filing complaints of retaliation covered by the WPA. There is often significant overlap in these types of cases.
While federal employees’ retaliation cases under the WPA are forced to remain with the MSPB, under the Civil Service Reform Act, discrimination cases (and cases of retaliation based on protected activities or whistleblowing covered under Title VII) may be removed to federal court if the MSPB does not issue a final ruling within 120 days.
Dr. Duane Bonds was a top researcher at the National Institutes of Health on sickle cell disease who blew the whistle on the unauthorized cloning of participants’ cells. Dr. Bonds faced retaliation for blowing the whistle, including sex discrimination, harassment in the workplace, and eventual termination.
In 2011, the United States Court of Appeals for the Fourth Circuit ruled in Bonds v. Leavitt that Dr. Bonds’ retaliation and discrimination complaint must be considered a “mixed case” and heard together. Under the Civil Service Reform Act, the court allowed Dr. Bonds to pursue her mixed discrimination and retaliation case before a federal court, and she was not required to continue to pursue her WPA case before the MSPB.
In its ruling in Bonds v. Leavitt, the Fourth Circuit cited an earlier D.C. Circuit ruling in Ikossi v. Department of Navy, which similarly allowed a female whistleblower to pursue a “mixed case” alleging both retaliation and discrimination in federal court. Kiki Ikossi was retaliated against after filing complaints to the Navy Research Lab HR Office for workplace gender discrimination in the early 2000s.
The Bonds and Ikossi decisions are controlling precedent in both the District of Columbia and Fourth Circuit judicial circuits. Thus, these precedents would be binding of federal courts in the District of Columbia, Maryland, and Virginia.
The precedents in Bonds v. Leavitt and Ikossi v. Department of Navy mean that federal employees who face discrimination in addition to retaliation may combine their complaints and pursue their case in federal court if the MSPB delays a ruling (which is the norm given its backlog of cases). However, the rules permitting a mixed case are complex, and require employees to identify their invocation of that right when filing an initial complaint. By carefully following the complex timing and filing requirements mandated under both the WPA and Title VII an employee can have his or her whistleblower case can be heard in federal court, and avoid many of the problems associated with cases pending before the MSPB.
Privacy Act Rights for Federal Employees
Linda Tripp is most famous for her role in the impeachment of President Clinton. However, her retaliation case established a strong precedent protecting federal employees under the Privacy Act. Tripp successfully challenged the Department of Defense when it illegally released confidential information from her security clearance file.
The illegally released file was an act of retaliation for her role in presidential impeachment proceedings. However, Tripp did not seek relief under the WPA. Instead, she was able to bring a Privacy Act complaint before a federal court. The Privacy Act covers requests for information concerning yourself, and federal employees are covered under the law with the same rights as other non-government employees. The Privacy Act prevents federal agencies from collecting or maintaining information based on an individual’s First Amendment activities, it prevents the improper disclosure of information to various persons, including any personal information a government employee or manager may provide to individuals outside of the federal government.
The Privacy Act requires the federal government to provide applicants access to all government records related to the applicant that are not restricted from access under very specific exemptions. Once obtaining the documents a the requestor can request correction of any inaccurate information, or inclusion into a file of the requestor’s statement as to why the documents are not accurate. It requires agencies to maintain a record of who they share information with. The law prohibits improper leaks of information. Moreover, of particular interest to whistleblowers, the law prohibits the government from maintaining records related to any person’s First Amendment protected activities.
The law provides all persons, including federal employees, the right to file a lawsuit in federal court to obtain access to their files and seek damages for the actual harm caused by any leaks or violations of the law. A court can also order an agency to correct information in government files that are inaccurate and prevent agencies from maintaining information in violation of law. Persons who filed successful Privacy Act complaints are entitled to attorney fees and costs related to their lawsuit.
Thus, the Privacy Act offers numerous potential avenues for a whistleblower to use those provisions to obtain protection, information, and relief. For example, as in the Tripp case, when the federal government leaked information covered under the Privacy Act to discredit her, Tripp successfully pursued a Privacy Act for damages and fees. She could attack the illegal retaliation caused by the leak of information through the Privacy Act, and avoid the many limitations of the WPA.
Conclusion
For decades, attempts to reform the WPA and give federal employees the right to have whistleblower retaliation cases heard in federal courts have stalled. Over the years, however, legal challenges to retaliation that avoid the limits of the WPA have produced strong precedents allowing specific federal employees to pursue cases in federal courts as long as they strictly follow the correct technical procedures required under each of the specific law or Constitutional provision.
Federal employee whistleblowers are essential to rooting out fraud, abuse, and misconduct throughout the government. Leveraging these strong legal precedents, which can supplement remedies offered under the WPA, can offer critical avenues to protect federal employees from retaliation and ensure they receive the proper relief when it occurs.
Useful Resources
Government Webpages:
Overview Of Federal Sector EEO Complaint Process
U.S. Office of Special Counsel
U.S. Merit Systems Protection Board
Privacy Act of 1974
U.S. Department of Education Confirms That It Will Enforce 2020 Title IX Rule
On January 31, 2025, the U.S. Department of Education’s Office for Civil Rights (OCR) issued a “Dear Colleague Letter” (DCL) announcing that it would enforce Title IX of the Education Amendments of 1972 under the provisions of the 2020 Title IX Rule, rather than the recently invalidated 2024 Title IX Final Rule.
The DCL and Executive Order 14168 (“Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government”) have significant implications for schools, colleges, universities, and other recipients of federal financial assistance that are subject to Title IX. These institutions will likely need to review and revise their policies, procedures, and practices to ensure compliance with the 2020 Title IX Rule and the executive order and to prepare for potential enforcement action by OCR or the U.S. Department of Justice.
Quick Hits
OCR will enforce Title IX protections under the 2020 Title IX Rule, not the 2024 Title IX Final Rule.
The 2020 Title IX Rule provides procedural protections for complainants and respondents and requires supportive measures.
The 2024 Title IX Final Rule, which was criticized for impermissibly expanding the definition of “sex” to include gender identity and other categories, has been invalidated by federal courts.
OCR’s new course for enforcement aligns with Executive Order 14168. The 2020 Title IX Rule, issued by the first Trump administration in May 2020, defines “sexual harassment,” provides procedural protections for complainants and respondents, requires the provision of supportive measures to complainants, and clarifies school-level reporting processes. The 2024 Title IX Final Rule, issued by the Biden administration in April 2024, expanded the definition of “on the basis of sex” to include gender identity, sex stereotypes, sex characteristics, and sexual orientation, and mandated that schools allow students and employees to access facilities, programs, and activities consistent with their self-identified gender.
The DCL follows a series of federal court decisions that vacated or enjoined the 2024 Title IX Final Rule, finding that it violated the plain text and original meaning of Title IX, which prohibits discrimination on the basis of sex in federally funded education programs and activities. The most recent decision, issued by the U.S. District Court for the Eastern District of Kentucky on January 9, 2025, stated that the 2024 Title IX Final Rule “turn[ed] Title IX on its head” by allowing males to identify as and thus become women and vice versa, and by requiring schools to treat such claims as valid. The court also noted that “every court presented with a challenge to the [2024 Title IX] Final Rule has indicated that it is unlawful.” On this note, the DCL states that OCR’s enforcement measures will interpret the word “sex” to mean “the objective, immutable characteristic of being born male or female.”
The DCL also aligns with President Trump’s Executive Order 14168, issued on January 20, 2025, after the president was sworn in for his second term of office. The executive order declares that “[i]t is the policy of the United States to recognize two sexes, male and female” that are “not changeable and are grounded in fundamental and incontrovertible reality.” It directs all executive agencies and departments to “enforce all sex-protective laws to promote this reality,” to use “clear and accurate language and policies that recognize women are biologically female, and men are biologically male,” and to refrain from using federal funds to “promote gender ideology,” a concept that the executive order defines as including a “spectrum of genders that are disconnected from one’s sex.”
The executive order also rescinds several previous executive orders, presidential memoranda, and agency guidance documents issued by the Biden administration that addressed sexual orientation and gender identity issues. The order instructs the attorney general to issue guidance to agencies to “correct” what it describes as the “misapplication of the Supreme Court’s decision in Bostock v. Clayton County, Georgia (2020) to sex-based distinctions in agency activities.” (In Bostock, the Supreme Court of the United States held that Title VII of the Civil Rights Act of 1964’s prohibition against unlawful sex discrimination encompassed discrimination based on sexual orientation or gender identity.)
The executive order authorizes agency action to “ensure that intimate spaces [such as prisons, shelters, and bathrooms] designated for women, girls, or females (or for men, boys, or males) are designated by sex and not identity.” It also prohibits the use of federal funds “for any medical procedure, treatment, or drug for the purpose of conforming an inmate’s appearance to that of the opposite sex.”
Next Steps
In light of OCR’s “Dear Colleague Letter” and President Trump’s Executive Order 14168, schools, colleges, universities, and other recipients of federal financial assistance may want to consider:
reviewing and revising their policies, procedures, and practices to ensure compliance with the 2020 Title IX Rule and executive order; and
providing training and education to staff, faculty, and students on the new requirements and changes related to Title IX enforcement.