IBM United Kingdom Limited v LzLabs GmbH & Ors: A Landmark Case in Software Licensing and Unlawful Means Conspiracy
Introduction
In a recent judgment, the High Court found Swiss software development company LzLabs and Co-Defendants, including tech billionaire John Jay Moores, liable for breach of contract and unlawful means conspiracy.[1] The case involves allegations of software reverse engineering and breaches of licensing agreements. The court’s judgment not only highlights the complexities of software licensing, but also brings into focus the legal boundaries of interoperability and intellectual property rights.
Background
IBM developed its first mainframe computers in 1950s. These room-sized machines initially ran on vacuum tubes and were some of the very earliest commercially available computers. Today, IBM continues to market mainframe hardware and software descended from these pioneering models, which are relied on by 67% of the Fortune 100 companies. Mainframe systems are designed to reliably and securely process large volumes of information for institutions, running commercial databases, transaction services and customer applications.
On 15 August 2013, IBM entered into a licensing agreement with Winsopia Limited, a subsidiary of LzLabs, under the IBM Customer Agreement (ICA). The agreement allowed Winsopia to use IBM mainframe software, but imposed restrictions on reverse engineering and external distribution. These restrictions were intended to safeguard IBM’s proprietary technology and prevent unauthorised use of its intellectual property.
LzLabs subsequently developed a product known as the Software Defined Mainframe (SDM), the intended purpose of which was to allow IBM mainframe customers to run their existing customer applications (which are written for a mainframe) but without any mainframe hardware or software, thereby achieving significant cost savings and rendering the need to use IBM’s mainframe hardware and software redundant.
IBM claimed that the development of SDM involved unlawful reverse engineering of its software, in breach of the ICA. The case also involved key individuals, including Mark Cresswell, Thilo Rockmann, and John Jay Moores, who were alleged to have played pivotal roles in procuring the breaches and facilitating the unauthorised use of IBM’s software.
IBM alleged that, in developing SDM, the Defendants had accessed and analysed IBM’s software in a way that violated the licensing terms, thereby obtaining critical insights into IBM’s proprietary technology. These actions, according to IBM, resulted in the unlawful replication of its mainframe capabilities in SDM, effectively undermining IBM’s competitive position in the market.
The Claimant’s Allegations
IBM alleged multiple claims including:
Reverse engineering in breach of the ICA: that Winsopia used IBM’s mainframe software to reverse engineer various components for SDM, violating contractual terms prohibiting such activities. IBM presented evidence suggesting that Winsopia systematically analysed IBM software using debugging tools and decompilation techniques.
Unlawful transfer of “unscrubbed” and/or partially “scrubbed” IBM materials containing mainframe software in breach of the ICA: IBM contended that Winsopia transferred IBM proprietary software to LzLabs and third parties without authorisation. This included the transfer of confidential technical documentation, code fragments and proprietary runtime components – which due to having not been scrubbed correctly, caused the unauthorised dissemination of IBM’s proprietary code.
Procurement of breach: The individual Defendants were accused of knowingly assisting Winsopia in breaching the ICA. Internal communications revealed discussions about circumventing IBM’s restrictions and strategies to expedite SDM’s development.
Unlawful means conspiracy: IBM alleged that the Defendants colluded to circumvent IBM’s licensing restrictions, causing harm to IBM’s commercial interests. The Court was presented with evidence of coordinated efforts to reverse engineer IBM software and integrate it into SDM.
IBM sought declaratory relief, an injunction to prevent further breaches, and an account for profits and/or damages for losses incurred due to the Defendants’ conduct. The damages sought reflected the significant financial impact of the alleged misconduct, including lost revenue and market share.
The Defendants’ Defence
The Defendants denied IBM’s allegations, arguing that:
Clean room development: LzLabs implemented stringent procedures to prevent unauthorized access to IBM software, ensuring SDM was developed independently. They maintained that SDM was built from scratch without reliance on IBM’s proprietary materials.
Interoperability rights: Winsopia’s activities were protected under the Software Directive and the Copyright, Designs and Patents Act 1988 (CDPA), which allows lawful observation, study, and testing of software for interoperability purposes. The Defendants contended that their actions fell within these legal boundaries.
No use of IBM proprietary code: The Defendants alleged that the SDM was developed without incorporating IBM’s proprietary material, other than in compliance with the terms of the ICA and as permitted by the Software Directive. They argued that any similarities between SDM and IBM software resulted from standard industry practices rather than unauthorised access.
Legitimate business model: LzLabs maintained that it operated lawfully within the bounds of the industry’s standard software migration practices. The company positioned itself as an innovator offering an alternative to traditional mainframe solutions.
The Defendants in turn counterclaimed injunctive/declaratory relief that Winsopia was not in breach of the ICA, and damages for breach of the ICA.
Key Findings from the Judgment
Breach of the ICA
Mrs Justice O’Farrell found that Winsopia was in breach of multiple provisions of the ICA, concluding that:
Reverse engineering had taken place, including the use of IBM compiler listings and debugging tools to analyse IBM software. The evidence demonstrated that Winsopia systematically examined IBM software to understand its internal workings.
IBM proprietary materials had been transferred to LzLabs, including parts of the code that should have been scrubbed. The court determined that Winsopia’s scrubbing process was inadequate.
LzLabs and the individual Defendants knowingly facilitated the breaches, contrary to their claim of strict clean room protocols. The evidence included internal emails discussing strategies to expedite SDM’s development by leveraging IBM software.
Procuring the breaches
The Court found that LzLabs (although not LzLabs UK) and the individual Defendants had actively encouraged Winsopia’s breach of contract. Notably, internal communications revealed pressure to relax clean room procedures to speed up development, undermining the claim that SDM was developed independently. The Court held that the defendants had acted with full knowledge of the breaches and had directly benefitted from the unauthorised use of IBM software.
While the Court found that two of the director Defendants, Mr Rockmann and Mr Cresswell, caused Winsopia to act in breach of contract, they were not found to be liable for the procurement of breach of contract. This is because they were entitled to rely on the defence in Said v Butt [1920] 3 KB 497 – namely, that a director of a company who causes a company to act in breach of contract cannot be found to have committed the tort of inducing a breach of a contract, provided that the director acted bona fide in the course of their duties.
However, Mr Moores – the indirect beneficial owner of LzLabs and Winsopia – was not entitled to rely on the Said v Butt defence, as he was not an officer or employee in either of those companies. IBM alleged that Mr Moores was ultimately in control of all the corporate Defendants who followed his instructions in relation to the development of the SDM. The Court agreed, finding that Mr Moores had intentionally “used his power and control over LzLabs and Winsopia to direct and/or assist in the breaches of the ICA that have been established, primarily by dismantling the protective barriers put in place by the clean room processes”.
Unlawful Means Conspiracy
In their case for unlawful means conspiracy, IBM claimed that all the Defendants had combined to achieve the common end of developing the SDM using unlawful means – those being breaches of the ICA by Winsopia, and procurement of such breaches by the other Defendants. With reference to relevant common law,[2] the court outlined that for such a claim to succeed, IBM needed to prove:
a combination or agreement between the Defendants;
the use of unlawful means;
an intent to harm IBM’s business; and
knowledge by the defendants that the means used were unlawful.
In considering these grounds, the Court found that:
The Defendants collaborated with a shared objective of developing SDM in a way that breached IBM’s contractual rights. Evidence showed coordinated efforts to circumvent IBM’s restrictions.
Unlawful means were used, including reverse engineering, unauthorised use of IBM software, and the transfer of proprietary materials. The Court rejected the Defendants’ argument that their actions were protected under interoperability laws.
The Defendants intended to cause harm to IBM, as demonstrated by internal discussions about targeting IBM’s customer base and the dismissal of legal concerns. It was, in turn, found that the Defendants had deliberately sought to undermine IBM’s business.
The Defendants knew that the means employed were unlawful, as evidenced by internal communications that acknowledged the risks of legal consequences and sought to downplay them. The Court emphasized that knowledge of the unlawfulness was a key factor in establishing liability under the conspiracy claim.
Accordingly, the Court concluded that IBM had established unlawful means conspiracy and held the Defendants jointly liable for damages arising from their coordinated actions. This finding significantly strengthened IBM’s position in protecting its intellectual property and enforcing its licensing agreements.
Conclusion
The judgment underscores the legal risks associated with software reverse engineering and the importance of strict compliance with software licensing agreements. Furthermore, it clarifies the application of unlawful means conspiracy in the context of technology disputes – setting a significant precedent for the software industry, as to the need for companies to ensure that interoperability efforts do not infringe on copyright and contractual restrictions.
Furthermore, the case highlights the growing legal scrutiny on software migration and interoperability solutions. Companies developing alternative solutions to proprietary systems must exercise caution to avoid breaching intellectual property laws. The ruling serves as a cautionary tale for businesses that engage in reverse engineering, emphasizing the need for transparent and legally compliant development practices.
[1] IBM United Kingdom Limited v LzLabs GmbH & Ors [2025] EWHC 532 (TCC)
[2] Kuwait Oil Tanker v Al Bader [2000] 2 All ER (Comm) 271 (CA), paras. 108 & 132; JSC BTA Bank v Khrapunov [2018] UKSC 19, para. 8; and The Racing Partnership Ltd v Sports Information Services [2020] EWCA Civ 1300, para. 104.
Litigation Minute: Emerging Contaminants: Defending Litigation
What You Need to Know in a Minute or Less
Effectively defending emerging contaminant litigation requires counsel capable of navigating extremely complex scientific issues related to causation, while also not losing sight of more common legal defenses like statutes of limitations or standing.
In a minute or less, the final edition in this three-part series highlights the importance of expert and procedural defense issues.
The Importance of Expert Relationships
A plaintiff’s alleged exposure, injury, causation, and damages are often issues at the forefront of emerging contaminant litigation, and each of those issues may require expert testimony to prepare an effective defense.
For example, for a plaintiff to establish causation under tort theories commonly asserted in cases alleging exposure to emerging contaminants, a plaintiff usually must establish both general and specific causation. For general causation, the plaintiff generally must show that the dose of the alleged chemical exposure is capable of causing the alleged injury. And for specific causation, the plaintiff generally must show that the alleged exposure is what actually caused the alleged injury, as opposed to some other cause (like hereditary risk or alternative exposures). These inquiries often rely on epidemiology and toxicology studies that examine the dose-response relationship of the chemical at issue or, more frequently in the context of emerging contaminants, the lack of such scientific studies.
Additionally, many emerging contaminant cases in the environmental context involve an alleged exposure pathway that requires expert testimony on the fate and transport of the chemical at issue—in other words, an explanation of how the chemical allegedly made its way from the defendant’s operations or products to the plaintiff. This can involve detailed engineering analyses, particularly in cases alleging an airborne or water exposure pathway. Similarly, the proper identification of chemicals of concern and potential pathways for exposure are regular issues in claims related to consumer products.
The takeaway: Companies facing emerging contaminant litigation should consider the importance of expert testimony to their overall defense strategy at an early stage, including when to draw on internal or external expertise. A defendant’s experts are often tasked with educating the judge and jury on the relevant science and therefore serve as a key part of delivering the defense narrative. It is, therefore, essential that a defendant’s counsel has the experience and understanding of the relevant scientific issues necessary to prepare experts to effectively deliver their opinions.
Don’t Forget Procedural Defenses
At the same time, companies defending litigation involving emerging contaminants should not overlook common procedural defenses despite the understandable focus on substantive scientific defenses. In particular, we have seen an increase in the success of defenses involving standing and statutes of limitations in emerging contaminant litigation.
Standing generally requires the plaintiff allege an injury that is real (as opposed to hypothetical), traceable to the defendant, and able to be redressed by the relief sought. Particularly in emerging contaminant litigation seeking medical monitoring—where a plaintiff seeks regular testing for the risk that an injury may manifest in the future (but has not yet manifested)—standing’s requirement that the plaintiff’s alleged injury be real can be a powerful tool. And for cases in which a plaintiff makes allegations against “defendants” as a group (as opposed to against each defendant specifically), defendants have recently seen success arguing that group pleadings do not meet standing’s causation requirements. Standing issues are also at the forefront of consumer product class actions where the alleged injury is remote or untenable. While best known for utility in federal courts, similar standing requirements have been adopted by many state courts.
As for statutes of limitations, the longer perceived concerns related to an emerging contaminant have been publicized, the more difficult it will be for a plaintiff alleging a stale injury to persuasively argue that a reasonable person in plaintiff’s shoes would have only recently learned of her cause of action. With emerging contaminant litigation being filed in waves at the first reports of potential risk, defendants added to litigation at later stages may have stronger statute of limitations arguments.
The takeaway: At the earliest possible stages, companies facing emerging contaminant litigation should consider the procedural defenses available to them, in addition to the substantive defenses that counter the elements of plaintiff’s claims as part of developing a comprehensive, wholistic defense strategy.
We appreciate your readership throughout this three-part series. For more insight, visit our Emerging Contaminants webpage.
NIH Funding Pressure: Impacts of Indirect Cost Caps and Grant Freezes
Institutions of higher education (IHEs) and affiliated medical centers and research centers are aware of the significant policy shifts affecting National Institutes of Health (NIH) funding since January 2025. This client alert examines the legal, operational, and strategic impacts of the 15% indirect cost reimbursement cap and the freeze on grant and contract processing at the NIH. Specific examples of enforcement, institutional responses, and pending legal challenges illustrate how these changes are unfolding in practice and the risks institutions face.
NIH’s Indirect Cost Cap
On February 7, 2025, the NIH issued Supplemental Guidance NOT-OD-25-068, which imposes a cap of 15% on indirect cost rates for all grant awards. This measure replaces institution-specific negotiated rates that, in many cases, exceeded 50%. The proposed 15% indirect cost cap has not only caught many institutions off guard but also immediately strained their finances. Institutions rely on these reimbursements to support research infrastructure and administration and may need to reallocate institutional funds or seek private funding to fill the gap.
Legal challenges have followed swiftly. A coalition of 22 states filed suit against the federal government in Commonwealth of Massachusetts v. National Institutes of Health , No. 1:25-cv-10338 (D. Mass. filed Feb. 10, 2025), arguing that the NIH’s abrupt imposition of a uniform cap constitutes a substantive rule change requiring formal rulemaking under 5 U.S.C. § 553, and that the policy change is arbitrary and capricious under 5 U.S.C. § 706(2)(A), lacking a rational basis or sufficient explanation. Two related lawsuits are Association of American Universities v. National Institutes of Health (D. Mass.) and Association of American Medical Colleges v. National Institutes of Health (D. Mass.). In response, the federal district court in Massachusetts issued a nationwide preliminary injunction on March 10, 2025, halting enforcement of the cap. The court’s ruling emphasized the potential for irreparable harm to research institutions.
However, final adjudication of these cases may either reinstate or permanently vacate the indirect cost cap. Given this uncertainty, colleges and universities have reacted by restricting incoming Ph.D. admissions, implementing hiring freezes, and larger capital projects centered on their research enterprises.
Grant Funding Freezes at the NIH
On January 27, 2025, the Office of Management & Budget (OMB) issued a memorandum directing federal agencies, including the NIH, to pause funding. As a result of two federal court cases, National Council of Nonprofits et al. v. Office of Management & Budget et al. (D.D.C.) and State of New York et al. v. Donald J. Trump et al. (D.R.I.), the funding freeze was enjoined.
Yet, issues have persisted at the NIH where scheduled NIH study sections for grants were paused and NIH advisory councils have not convened, leading delays in the timely review and processing of new grant applications and renewals.
Funding freezes and delays have created significant uncertainty in vital research areas, including oncology, neurodegenerative diseases, and public health initiatives. These disruptions not only affect current research but also threaten the pipeline of future scientific innovation and talent development, as incoming Ph.D. admissions may be restricted, faculty members may see funding for research dry up, and principal investigators may lack the funds to hire research assistants in their labs.
Restricting Funding as an Enforcement Mechanism
Certain institutions have expressed concern that the administration is using funding cuts to circumvent processes under Title VI or Title IX, citing concerns related to alleged race/ethnicity or gender-based discrimination.
We anticipate that institutions may challenge such enforcement efforts as exceeding statutory authority under the enabling legislation for federal agencies, such as the NIH, as well as exceeding statutory authority under the civil rights laws. Constitutional claims may also arise under the Spending Clause, arguing that the federal government cannot impose new conditions on previously awarded funds.
Strategic Considerations for Higher Education
In light of these developments, IHEs should proactively manage the risks associated with NIH funding changes, including:
Reviewing current NIH grant and contracts and internal compliance policies to identify vulnerabilities.
Planning for potential budget shortfalls within the research enterprise, identifying alternative funding sources, and reallocating institutional resources as needed.
Closely following ongoing litigation concerning the indirect cost cap and funding freezes to inform compliance and financial planning.
Collaborating with peer institutions, higher education associations, and legal counsel to support coordinated advocacy and collaborative solutions.
Evaluating internal decision-making processes to ensure preparedness for potential federal inquiries, enforcement actions, or policy shifts.
Conclusion
Colleges and universities and their affiliated medical centers and research centers face an evolving NIH funding environment. While court orders have temporarily halted some measures, the broader shift in federal research funding has significant implications for research continuity, institutional budgets, and academic autonomy.
District Court Improperly Remanded Action That Was Removed Under CAFA
Perez v. Rose Hills Co., 2025 WL 811096 (9th Cir. 2025)
Elizabeth Perez sued her former employer (Rose Hills) in this putative class action involving alleged violations of various California wage and hour laws. Rose Hills removed the action to federal court under the Class Action Fairness Act (CAFA), but the district court remanded the action on the ground that Rose Hills had failed to satisfy CAFA’s $5 million amount‑in‑controversy requirement. The Ninth Circuit vacated the remand order and remanded the case to the district court for further consideration, holding that the removing defendant was permitted to rely on a chain of reasoning that includes reasonable assumptions to calculate the amount in controversy, including a computation based on the wage rate at which the employer is alleged to have committed various violations (citing Arias v. Residence Inn by Marriott, 936 F.3d 920 (9th Cir. 2010)).
EDNY OneTaste Prosecution Faces Extraordinary Challenge: Defense Goes Over Judge’s Head to Second Circuit
In a dramatic development in the contentious prosecution of OneTaste co-founder Nicole Daedone and former sales leader Rachel Cherwitz in a novel one-count indictment of forced labor conspiracy, defense attorneys have taken the rare step of petitioning the Second Circuit Court of Appeals to intervene directly in the ongoing case before Judge Diane Gujarati in the Eastern District of New York. U.S. v. Cherwitz, et al., No. 23-cr-146 (DG) (E.D.N.Y.).
The extraordinary mandamus petition, filed March 7, 2025, effectively asks the appellate court to overrule Judge Gujarati’s decisions regarding allegedly stolen privileged documents belonging to OneTaste—a move that legal experts describe as both a high-risk strategy and a decisive escalation after repeated unfavorable rulings from the district court.
Mandamus: The “Nuclear Option” of Legal Remedies
A writ of mandamus—Latin for “we command”—represents one of the most drastic remedies in federal court. Reserved for situations where a judge has clearly exceeded authority or failed to perform required duties, successful mandamus petitions are exceedingly rare in criminal proceedings. Legal experts describe mandamus as the procedural equivalent of a judicial emergency brake—pulled only when a lower court has gone so far off the rails that waiting for a normal appeal would be inadequate.
The petition asks the Second Circuit to reverse Judge Gujarati’s September 2024 and February 2025 orders regarding privileged documents, and either dismiss the indictment outright or order an evidentiary hearing on the government’s use of allegedly stolen privileged materials.
Alleged FBI Misconduct Takes Center Stage
The mandamus filing comes on the heels of a heated February 26 court conference, after which defense attorneys Jennifer Bonjean and Celia Cohen held an impromptu press conference on the courthouse steps, directing pointed accusations at FBI Special Agent Elliot McGinnis who has been the subject of over two dozen defense motions. When asked by a reporter about a confrontation in the courtroom, Bonjean stated:
“I would not accuse the prosecutor, or even the law enforcement (agent) of misconduct unless I had the goods. And as for McGinnis, we have the goods, there is a record, and yes, absolutely, it should be investigated for criminal misconduct.”
Bonjean went on to call for direct intervention from the Department of Justice:
“We think the case should be thrown out. We think that if the Department of Justice looks at this case closely–and we hope they are–that this is exactly the type of case where you have extraordinary FBI misconduct. I don’t say that lightly, but THIS is the case they should be looking at…We hope they will and we hope that it will result in a great result, which is dismissal.”
Privileged Documents: The Smoking Gun?
At the heart of the mandamus petition lies a bombshell allegation: FBI agent Elliot McGinnis knowingly used stolen privileged corporate documents to investigate OneTaste and build a case against Daedone and Cherwitz.
According to the mandamus and previous defense filings, a former IT contractor named Mitch Aidelbaum illegally accessed OneTaste servers and stole a large volume of material including privileged OneTaste documents in 2017 after his employment ended. Per defense motions, Agent McGinnis obtained a privileged company legal risk assessment in January 2021 and recognized the privileged nature but failed to pass it to a “taint team” or notify OneTaste that its corporate documents had been stolen. Instead, McGinnis reportedly used the privileged document as a roadmap for the investigation, interviewing 20 witnesses specifically identified in the stolen material.
The government did not disclose these documents until late 2024, prompting defense motions to dismiss the indictment. Judge Gujarati denied these motions, finding the documents non-privileged, ruling that defendants lacked standing to assert privilege, and deeming the motions untimely despite their recent discovery.
Judge Gujarati Under Scrutiny
The mandamus petition places Judge Gujarati, who joined the federal bench in 2020 and has presided over only one criminal trial, in a precarious position. Her consistent pattern of rulings favoring government positions despite mounting evidence of misconduct now faces appellate scrutiny.
Throughout pretrial proceedings, Judge Gujarati has repeatedly denied defense requests to conduct hearings over alleged government misconduct, often citing procedural grounds, like timeliness, rather than addressing substantive concerns. During the February 26 conference, she sharply rebuked defense counsel for suggesting prosecutorial impropriety, despite growing evidence of investigative irregularities.
Legal observers note that judges facing mandamus petitions must choose between defending their rulings to the appellate court or reconsidering them in light of the petition—a particularly uncomfortable position for a relatively new jurist with limited trial experience. Notably, a majority of Gujarati’s rulings have been “from the bench” in oral rather than written arguments. This may increase the odds of review as the appellate court does not have a written argument upon which to evaluate the district court’s decisions.
The Netflix Connection Deepens
New evidence has also emerged regarding the controversial “journals” created for Netflix’s documentary on OneTaste. In a motion for reconsideration filed March 4, defense attorneys revealed that Autymn Blanck—sister of key government witness Ayries Blanck—testified in a civil deposition that she accessed her sister’s hard drive, extracted photos, and sold them to Netflix for $25,000 in 2022.
This testimony directly contradicts the government’s representation that Ayries gave the hard drive to Autymn merely for “safekeeping,” a claim Judge Gujarati relied upon in denying defense access to the drive’s contents. Moreover, it strengthens the defense narrative that evidence, in this case, originated in commercial media production rather than legitimate investigation and that the made-for-Netflix material was used to secure an indictment. In oral argument at the February 26 conference, Jennifer Bonjean referred to the government’s use of an unnecessary search warrant to selectively access the hard drive as an “elaborate construct” to evade Brady and Giglio obligations. In a show of defiance, Bonjean filed a March 4 motion with the court urging Judge Gujarati to reconsider her denial of defense access to the full hard drive.
The government had already withdrawn Ayries Blanck’s journal entries from their case-in-chief after defense challenges to their authenticity, despite previously characterizing them as central evidence. In the February 26 conference, Judge Gujarati repeatedly pressed lead prosecutor Gillian Kassner to declare whether the government believed the journals to be authentic. Unsatisfied with the response, Gujarati ordered the government to put in writing its position on their authenticity. In a bombshell filing on March 12 that left observers aghast, the government admitted the journal entries it had relied upon were fakes. It withdrew Ayries Blanck as a witness along with all previous statements regarding the journals made by the prosecution. Celia Cohen and Michael Roboti acting for Rachel Cherwitz immediately called upon the government to dismiss the case and prosecute Ayries Blanck for falsifying evidence and lying to Federal agents. Reaction elsewhere was swift. The Daily Mail declared the government’s case to be teetering “on the brink of collapse.” In the California civil matter of OneTaste Inc v. Ayries Blanck, the high-profile law firm of Reed Smith filed noticed that it was dropping Blanck as a pro bono client in the wake of the EDNY news.
DOJ Reform on Collision Course with EDNY
The timing of these developments is particularly significant given the Department of Justice’s shifting priorities under the Trump administration. Attorney General Pam Bondi’s February 5 directive instructed prosecutors to focus on “the most serious, readily provable offenses,” including actual human trafficking operations.
President Trump’s January 20 executive order “Ending The Weaponization of The Federal Government” specifically cited another EDNY prosecution—United States v. Douglass Mackey—as an example of prosecutorial overreach. Both Mackey and the OneTaste prosecution involve novel applications of conspiracy charges without substantive crimes, supported heavily by media narratives.
With the upheaval in the Southern District of New York resulting in the reassignment of Mayor Eric Adams’ case to DOJ headquarters and the termination of numerous SDNY prosecutors, EDNY’s traditionally independent approach may face similar scrutiny.
Trial in Doubt as Clock Ticks
While jury selection remains scheduled for May 5, 2025, the mandamus petition casts considerable doubt on whether the trial will proceed as planned. A stay request filed on March 3 asks the district court to pause proceedings pending resolution of the mandamus petition. Should the Second Circuit grant the petition, it could fundamentally reshape the evidence available at trial or potentially end the prosecution entirely.
The case presents novel legal questions with implications far beyond OneTaste executives: Can the government use stolen privileged corporate material to prosecute executives without company consent? Does such conduct constitute the kind of outrageous government behavior that warrants dismissal of an indictment? And how will the new DOJ administration’s focus on reform affect long-running prosecutions initiated under previous leadership? This case is rapidly becoming a litmus test for whether the DOJ’s new emphasis on reform extends to cases already in the pipeline. The extraordinary step of seeking mandamus relief signals the defense’s belief that normal remedies have failed—and may force a reckoning that extends well beyond this single prosecution.
Employees Who Recovered $140,000 Were Entitled To $200,000 In Fees/Costs
Villalva v. Bombardier Mass Transit Corp., 108 Cal. App. 5th 211 (2025)
Mark Villalva and Bobby Jason Yelverton are train dispatchers who sued their employer (Bombardier) for allegedly unpaid wages. Rather than filing their claims in court, the employees first sought relief from the California Labor Commissioner, using the so-called “Berman” hearing process pursuant to Cal. Lab. Code § 98, et seq. After the labor commissioner denied their claims, the employees filed a request for de novo hearing in the superior court where they prevailed in a bench trial and received an award of $140,000 in back wages and penalties. The trial court also granted the employees’ motion for attorneys’ fees and costs in the amount of $200,000. On appeal, Bombardier asserted that the employees were not entitled to recover their fees and costs because Labor Code § 98.2(c) only authorizes an award of fees and costs against an unsuccessful appellant in a de novo superior court trial. The Court of Appeal disagreed and held that “nothing in section 98.2 suggests that the Legislature intended to make this remedy unavailable to employees who first attempt to obtain relief from the labor commissioner through the expedited Berman hearing.” Compare In re Kirsten v. California Pizza Kitchen Inc., 129 F.4th 667 (9th Cir. 2025) (court approves $950,000 class action settlement but remands case for district court to determine the settlement’s actual value to class members before approving an award of $800,000 in attorney’s fees).
Full D.C. Circuit Court Reinstates Wilcox to the NLRB
On April 7, 2025, the U.S. Court of Appeals for the District of Columbia held that President Trump’s termination of National Labor Relations Board (“NLRB” or the “Board”) Member Gwynne Wilcox was unlawful. The decision marks the latest round in litigation tug-of-war, reversing a decision reached by a three-judge panel for the D.C. Circuit, and returning to a decision reached by U.S. District Judge Beryl A. Howell on March 6, 2025. For an in-depth summary of the facts and the constitutional issues at stake, please refer to our initial reports on the district court’s ruling here, and subsequent reversal by the three-judge panel here.
The matter arises from President Trump’s decision to terminate Wilcox without notice or cause, violating the requirements set in the National Labor Relations Act (“NLRA” or the “Act”). In doing so, President Trump claimed that his executive power exceeded the limits enacted by Congress in the NLRA, and challenged 90-year-old Supreme Court precedent Humphrey’s Executor v. U.S., 295 U.S. 602 (1935). Humphrey’s Executor stands for the principle that Congress may enact limits on the President’s authority to remove officers of certain types of independent agencies. The district court’s decision cited Humphrey’s Executor and found that Wilcox was illegally fired. Trump appealed this decision, and on March 28, 2025, two Republican-appointed judges on the three-judge panel paused the district court’s ruling and found that restrictions on the President’s power to remove officers of the executive branch are likely unconstitutional.
D.C. Circuit Issues Ruling Reinstating Wilcox
As a result of the three-judge panel’s decision, Wilcox filed a petition for rehearing en banc seeking review with the full D.C. Circuit. In a 7-4 vote, the full D.C. Circuit returned a favorable decision for Wilcox, finding that her termination was unlawful. The majority’s opinion criticized the previous decision by the three-judge panel to effectively overturn Humphrey’s Executor without a decision already reached by the Supreme Court on the issue: “The Supreme Court has repeatedly told the courts of appeals to follow extant Supreme Court precedent unless and until that Court itself changes it or overturns it.” Judge Justin Walker, who authored the March 28, 2025 concurring opinion upholding President Trump’s termination of Wilcox as part of the three-judge panel, dissented and objected to the majority’s characterization of the opinion: “Each of us recognizes that a lower court cannot overrule Humphrey’s Executor. We simply disagree about how broadly to read it.”
Looking Ahead
For now, Board Member Wilcox finds herself reinstated to the NLRB, effectively placing the Board with a statutory quorum of three members to operate under the NLRA. However, this issue seems ripe for Supreme Court review, as indicated by Judge Karen Henderson in her opinion stating “Only the Supreme Court can decide the dispute and, in my opinion, the sooner, the better.”
We will continue to monitor future developments on our blog. Employers with questions about how the decision affects them should consult experienced labor counsel.
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From New York to Washington, Courts Shift the Landscape on Legality of State and Local Gas Bans
Following the election wins we reported on in November 2024, state and local bans on the use of natural gas remain a highly litigated issue across the country. In this alert, we cover two recent cases dealing with local and state natural gas bans. First, we discuss a March 2025 federal district court decision upholding a New York City natural gas ban against arguments that it is preempted by the federal Energy Policy and Conservation Act (EPCA). In contrast, we reported previously on a 2023 Ninth Circuit decision striking down a City of Berkeley law prohibiting gas piping in new buildings. The recent New York decision has the potential to lead to a circuit split and potentially to the United States Supreme Court. Second, we provide an update on a March 2025 Washington state court decision that struck down a voter initiative addressing the use of gas and gas bans in the state.
The US District Court for Southern District of New York Upholds New York’s Gas Ban
In Association of Contracting Plumbers of New York, Inc. v. City of New York, the US District Court for the Southern District of New York upheld New York City’s Local Law 154, which generally prohibits the use of fossil fuel, such as natural gas, for heating in newly constructed residential buildings.1 Plaintiffs, which included six trade associations and a union whose members work in the construction, delivery, and servicing of fuel gas systems and appliances, argued that Local Law 154 is expressly preempted by EPCA.2 The city moved to dismiss the complaint, arguing that EPCA does not preempt Local Law 154.3 The court found that Law 154 does not “concern” “energy use” of covered products, as defined by EPCA, because Law 154 regulates the type of fuel used rather than the energy efficiency or use of the products themselves, which is what EPCA covers.4
In reaching this conclusion, the court took a markedly different approach to EPCA preemption than the US Court of Appeals for the Ninth Circuit in California Restaurant Association v. City of Berkeley. In Berkeley, the Ninth Circuit found that a city-level ordinance that prohibited natural gas piping in new buildings was preempted by EPCA.5 We covered that decision here and provided an update regarding the case in February 2024. The S.D.N.Y. decision marks a victory for natural gas ban proponents. If the court’s finding is appealed and upheld by the US Court of Appeals for the Second Circuit, the circuit split could result in an appeal to the US Supreme Court for final resolution on whether EPCA preempts state and local gas bans.
The Ninth Circuit’s and S.D.N.Y.’s Different Approaches to EPCA Preemption
EPCA establishes “national energy conservation standards for major residential appliances”6 and aims to “avoid the burdens of a patchwork of conflicting and unpredictable State regulations.”7 EPCA preempts state regulations “concerning the . . . energy use” of covered products.8 Faced with a lawsuit challenging a gas ban under EPCA, a court therefore must determine both the meaning of “energy use” and whether the local law at issue “concerns” “energy use” within the meaning of EPCA.9
Meaning of “Energy Use” Under EPCA
The court in Berkeley interpreted “energy use” broadly, including “not only from where the product rolls off the factory floor, but also from where consumers use the products.”10 The Berkeley court explained that EPCA preempts regulations, including building codes, that “relate to” the quantity of natural gas directly consumed by certain consumer appliances at the place where those products are used.11 Because EPCA is concerned with the end-user’s ability to use installed covered products at their intended final destinations, the court concluded that the plain language of EPCA preempts Berkeley’s regulation that prohibits the installation of necessary natural gas infrastructure on premises where covered appliances are used.12
The federal district court in New York took a different approach, interpreting “energy use” narrowly to mean a fixed value, determined using administratively prescribed testing procedures, that represents the amount of energy a product consumes under typical conditions.13 The district court declined to adopt the Ninth Circuit’s view, explaining that it rests on a flawed reading of the term “point of use.”14 In Berkeley, the Ninth Circuit defined “point of use” broadly to mean the “place where something is used,” which led it to conclude that “EPCA is concerned with the end-user’s ability to use installed covered products at their intended final destinations.”15 In contrast, the New York court determined that “point of use” is a technical term that must be interpreted in accordance with its specialized meaning.16
The New York court explained that “point of use” specifically means only that a covered product’s “energy use,” when determined in accordance with prescribed test procedures, should be measured without adjustment for any energy loss in the generation, transmission, and distribution of energy.17 Such a definition neither expands EPCA’s scope to reach the actual use of covered products nor grants consumers an absolute right to use such products.18 Rather, the definition fits within the statutory definition of “energy use,” which refers to a covered product’s characteristics as manufactured.19 Ultimately, the New York court concluded that “energy use” refers to a “predetermined fixed value that measures the characteristics of a covered product as manufactured.”20
Whether the Law “Concerns” “Energy Use”
Once a federal energy conservation standard takes effect for a covered product, state regulations concerning the product’s energy efficiency or “energy use” are preempted.21
In Berkeley, the Ninth Circuit determined that local bans on natural gas infrastructure on premises where covered products are used indirectly affect the use of those products and thus are preempted by EPCA.22
The court explained that the language “concerns” has “a broadening effect, ensuring that the scope of a provision covers not only its subject but also matters relating to that subject.”23 The court took an expansive view of the term, concluding that “a building code that bans the installation of piping that transports natural gas from a utility’s meter on the premises to products that operate on such gas ‘concerns’ the energy use of those products as much as a direct ban on the products themselves.”24 While this ruling appears to close the door on local gas bans, the Ninth Circuit stated that EPCA’s preemption may apply narrowly to building codes that target the on-site use of natural gas and signaled that state and local governments may have broader authority to regulate utility distribution of natural gas.25
In contrast, New York held that EPCA does not preempt regulations that do not directly impose energy conservation standards on products.26 The court explained that Local Law 154 does not have a connection with EPCA’s subject matter because it does not “focus on” the performance standards applicable to covered products.27 Local Law 154 indirectly regulates the type of fuel that a covered product may consume in certain settings, irrespective of that product’s energy efficiency or use. The court reasoned that it would be an absurd result if indirect regulation of this sort was preempted by EPCA.28
The court said that state laws like Local Law 154 do not risk creating a patchwork of conflicting standards because they neither require anything of manufacturers nor constrain their activities.29 It concluded that prohibiting certain fuel types in certain settings does not impose performance standards by proxy, and therefore, Local Law 154 does not “reference” the subject matter of EPCA.30 Local Law 154 is not preempted because it does not “relate to” and thus does not “concern,” “energy use” within the meaning of EPCA.31 Given that EPCA’s preemption clause does not apply, the court found that Plaintiffs failed to state a claim upon which relief can be granted and accordingly granted the motion to dismiss.32
Implications of the Ninth Circuit’s and S.D.N.Y.’s Distinct Approaches to EPCA
The divergent applications of EPCA in these cases illustrate the current unpredictable nature of how courts will assess natural gas bans under EPCA. The Berkeley decision limits local authority to enact gas bans by reading EPCA’s preemptive scope broadly to include even indirect regulations on “energy use.” The New York decision preserves local regulatory power by focusing only on direct regulations of product standards. It remains to be seen how other courts in other parts of the country will apply EPCA to natural gas bans.
Another battle over natural gas’ future is also playing out in Washington state. On 21 March 2025, a King County Superior Court judge ruled that Washington state Initiative 2066 violates the state constitution’s single subject rule, which provides that voter initiatives can only address a single subject. Our November 2024 alert covered natural gas’ election wins and losses, including the passage of Initiative 2066, which was designed to protect natural gas access in the state and to bar local governments from banning its use. While the superior court’s decision did not directly address EPCA preemption, federal court decisions on EPCA are undoubtedly shaping these issues across the country. We are continuing to monitor this case for an appeal and are keeping a close eye on other efforts to protect or ban natural gas from New York to California and Washington. Check back on our page for updates.
FOOTNOTES
1 Association of Contracting Plumbers of the City of New York, et al. v. City of New York, No. 23-CV-11292 (RA), 2025 WL 843619, at *6-7 (S.D.N.Y. Mar. 18, 2025) (New York).
2Id. at *2.
3Id. at *2.
4Id. at *6-7.
5 Cal. Rest. Ass’n v. City of Berkeley, 65 F.4th 1045 (Apr. 17, 2023); See also David L. Wochner, Benjamin A. Mayer, John Longstreth, Nathan C. Howe, Timothy J. Furdyna, and David Wang, U.S. Court of Appeals for the Ninth Circuit Cans Berkeley Gas Ban Under Federal Law, 23-7 PRATT’S ENERGY LAW REPORT 243 (LexisNexis A.S. Pratt). In that case, the appeals court found that EPCA’s preemption clause extends to regulations that (i) directly address the covered products, or (ii) affect the on-site infrastructure related to the use of those products. The Ninth Circuit concluded that EPCA preempted Berkeley’s ban because it prohibited the onsite installation of natural gas infrastructure necessary to support covered natural gas appliances.
6 S. Rep. 100-6, at 2 (1987).
7 Id. at 12.
8 42 U.S.C. § 6297(c).
9 See New York, 2025 WL 843619, at *4.
10 See Berkeley, 89 F.4th at 1103. EPCA defines “energy use” as “the quantity of energy directly consumed by a consumer product at point of use, determined in accordance with test procedures under section 6293 of this title.” 42 U.S.C. § 6291(4). Section 6293 requires those procedures to be “reasonably designed to produce test results which measure [the] . . . energy use . . . of a covered product during a representative average use cycle or period of use.” 42 U.S.C. § 6293(b)(3).
11 Id. at 1102 (9th Cir. 2024).
12 Id.
13 New York, 2025 WL 843619, at *4-5.
14 Id. at *5.
15 Berkeley, 89 F.4th at 1102.
16 See New York, 2025 WL 843619, at *5.
17 Id. (citing to Energy Intensity Indicators: Terminology and Definitions, U.S. Dep’t of Energy, https://www.energy.gov/eere/analysis/energy-intensity-indicators-terminology-and-definitions).
18 Id.
19 Id.
20 Id.
21 Id. at *6 (citing to 42 U.S.C. § 6291(6)).
22 Berkeley, 89 F.4th at 1102.
23 Id. at 1103 (citing Lamar, Archer & Cofrin, LLP v. Appling, 584 U.S. 709, 138 S. Ct. 1752, 1759, 201 L. Ed. 2d 102 (2018)).
24 Id. at 1103.
25 Berkeley, 89 F.4th at 1103.
26 See New York, 2025 WL 843619, at *5-7.
27 Id. at *6.
28Id.
29Id. at *7 (citing to Dan’s City Used Cars, Inc. v. Pelkey, 569 U.S. 251, at 263–64 (2013)).
30Id. at *7.
31 Id.
32 Id. at *3, 7.
Court Reversed Order Setting Aside The Probating Of A Will Where The Evidence Was Insufficient To Support The Order
In In re Estate of Johnson, an administrator and a third party appealed the trial court’s judgment setting aside the probate of the decedent’s will, removing the administrator, and voiding the sale of an estate asset to the third party. No. 05-23-00087-CV, 2024 Tex. App. LEXIS 7635 (Tex. App.—Dallas October 28, 2024, no pet. history). The administrator filed an application to admit the will to probate, and her brother signed a “308 Waiver and 401 Agreement to a Court Created Independent Administration,” in which her brother waived “notice of service and objections in this matter” and agreed that his sister should be the independent administrator. At the hearing, the administrator proved up the will, and it was admitted to probate. Later, the brother filed a contest, alleging that the will was forged. After a hearing, the trial court set aside the probate of the will, and the administrator appealed.
The administrator first argued that the trial court could not consider her brother’s testimony based on the doctrine of judicial estoppel. “Judicial estoppel bars a party from successfully maintaining a position in one action and then maintaining an inconsistent position in a subsequent action.” The court of appeals noted, however, that a “will contest and the probate of the will are two parts of the same proceeding, and . . . inconsistent positions within that proceeding cannot be barred by the doctrine of judicial estoppel.” Id. The appellate court held that judicial estoppel was inapplicable.
The administrator also argued that the trial court abused its discretion when it did not exclude her brother’s testimony because his waiver and agreement constituted a quasi admission that was a judicial admission. The appellate court held that “A judicial admission is a formal waiver of proof that dispenses with the production of evidence on an issue. The fact-finder must take it as true and a party may not introduce evidence to contradict it so long as the statement stands unretracted.” Id. The court concluded, “We need not decide whether by his waiver and agreement Johnson judicially admitted that the May 24, 2018 will was valid because he later retracted it when he filed his objections, nullifying any treatment as a judicial admission.” Id.
The trial court found that “No admissible evidence was presented to establish that the May 24, 2018 Will was executed in the presence of Martha Brown and Mary Pierce, the two purported attesting witnesses.” Id. However, the court of appeals held that the trial court erred by shifting the burden from the will contestants to the original will proponents. “A court considering a will contest may not—as the court’s findings indicate it did here—require that will formalities be re-proven as a pre-condition to denying a will contest.” Id.
The court of appeals then reviewed the evidence by the brother, and held that it was not sufficient to support the trial court’s order setting aside the last will:
At the hearing on the will contest, Mr. Johnson testified that he was the decedent’s son, that he had dealt with his mother’s affairs for over 40 years, that he had managed his mother’s affairs for 22 years, that he had his mother’s driver’s license with her signature on it, that he had witnessed his mother sign documents throughout his lifetime, that he was familiar with her signature, and that the signature on the May 24, 2018 will was not his mother’s…
Moreover, Mr. Johnson had filed the “308 Waiver and 401 Agreement” in court October 8, 2020, after all these events occurred and after he possessed all the information he relied on at the contest trial to attempt to retract his waiver. In that waiver, he made affirmative representations that his mother “left a valid written Will (“Will”) dated May 24, 2018,” and that he “acknowledge[d] that [he] ha[d] received a copy of said Will. Such Will was never revoked.” He represented that he was “a named beneficiary in the Will” and that he had “received a copy of the documents previously filed in this matter, including a copy of the Will,” and that “each statement contained therein is true and correct.” This includes the application to admit the May 24, 2018 will to probate and representations made therein.
Mr. Johnson’s current testimony that the handwriting on the May 24, 2018 will was not his mother’s handwriting is troubling, but this record provides for but one conclusion: no evidence in the will contest provides a legally sufficient basis to undo the original probate proceedings. Mr. Johnson admitted knowing all the facts he sought to use to retract his waiver before he signed and filed the waiver in early October 2020. For that reason, the contest evidence does nothing more than raise surmise or suspicion, particularly in light of Ms. Brown’s original testimony that Ms. Johnson signed the will before her and Ms. Pierce.
Id.
Conflicting Rulings and Looming Congressional Inquiries Create New Levels of Complexity for State and Local Government Retirement Systems
Two recent decisions from the United States District Court for the Northern District of Texas have created confusion among private-sector retirement trustees governed by the Employee Retirement Income Security Act (ERISA) as to the factors to be considered in making investment decisions and assets allocations. Although state and local government retirement plans are exempt from ERISA, the fiduciary standards for investment of plan assets are generally the same in state laws as they are in ERISA.
The first decision issued on January 10th in Spence v. American Airlines determined that the trusts of the airline’s retirement plan for pilots failed to abide by the fiduciary duty of loyalty by considering matters other than pure economic return. The managers were criticized for their inclusion of ESG (environmental, social, governance) issues in the proxy voting and shareholder activism of the companies. Although there was no evidence presented that the particular investment offerings performed any less well than investment offerings with no ESG component.
In reaching its conclusion, the Court analyzed the key elements of fiduciary duty – prudence and undivided loyalty. On the first issue, the Court found that the consideration of ESG factors in reaching investment decision-making was ubiquitous in the retirement industry. At the very least, all investment decisions are based on measures of risk and every investment strategy, by necessity, must consider the effect of ESG factors on risk. Having found that the airline’s trustees acted prudently in using BlackRock products, the court turned to the question of undivided loyalty. The Court was critical of BlackRock’s proxy practices which included votes on social issues. The Court found that giving heed to those issues, even in the absence of an economic impact on the retirement products offered nonetheless places other factors ahead of the best interest of the plan participants. Ironically, there was no criticism of the investment results.
Only a month after the Spence decision, a different judge in the Northern District of Texas in Utah v. Micone, upheld the Biden-era rules from the Department of Labor (DOL) allowing ESG considerations if the economic or pecuniary measures of an investment were the same with an ESG as those without. In Utah, a number of state attorneys general, trade associations and others sued to invalidate the DOL rule as being contrary to ERISA fiduciary standards. In a 2023 decision, Judge Kacsmaryk upheld the rule as a valid exercise of agency discretion. In 2024, the U.S. Supreme Court vacated a 40-year-old rule of judicial deferral (Chevron deferral) to agency expertise in the case of Loper Bright Enterprises v. Raimondo. The 2023 decision was appealed to the U.S. Court of Appeals for the Fifth Circuit which returned the case to Judge Kacsmaryk to reconsider his earlier decision in light of the Supreme Court decision. Judge Kacsmaryk reaffirmed his decision. The Court found that ERISA defines whose interest a fiduciary must protect and what the fiduciary’s purpose is. He also found that ERISA says nothing about what a fiduciary may consider. The Court further found that a fiduciary cannot advance interests other than the those of the participants. Most significantly, the Court said: “[W]hen a fiduciary comes to two routes that each equally serve the plan’s financial interests, any choice the fiduciary makes is for the ‘exclusive purpose’ of financial benefit. He has acted with the duty ERISA requires. If a fiduciary chooses between financially equal plans using other factors, nothing about the fiduciary’s purpose has changed.”
When read side by side, Spence and Utah reach diametrically opposing results. So, where does that leave a prudent fiduciary? It leaves them uncertain and confused. More significantly, it leaves fiduciaries with the choice of selecting less potentially successful financial decisions that have an element of ESG consideration in favor of those decisions that eschew ESG altogether even though doing so may increase risk or decrease reward.
Contrary to a Greek chorus of naysayers, the American retirement programs, both for private and public sector employers has been generally successful. The tangential consideration of ESG as a measure of determining risk has not derailed or retarded that success. For public plans, which are expressly excluded from ERISA, a significant number of state laws have similarly attempted to restrict fiduciary discretion in investment decisions by mandating boycotts in some cases and outlawing them in others. At least one Congressional committee has expressed an interest in regulating public plan investment decisions even though the federal government has never provided any financial support to state and local pensions.
Fiduciaries should be left to exercise their sound discretion for the best interest of members and beneficiaries. Legislative forays into politicizing investment decisions have actually placed one set of social or political objectives ahead of the financial interests of the pension participants. This is no different than a decision by a wayward fiduciary who attempts to use the pension fund’s assets to achieve a goal other than achieving the highest and best return at a reasonable rate of risk.
This battle is neither new nor settled. Beginning with divestment requirements aimed at the former apartheid government in South Africa in the early 1980s, politically based rules and limits on investments have ebbed and followed. Fiduciaries should focus on “doing well,” meaning making money prudently for the retirement plan. If in doing so, the investment decision also does “good,” that salutary byproduct should not jeopardize the independence of retirement trustees to focus on securing a sound retirement for plan members and beneficiaries.
Mr. Klausner is the principal in the law firm of Klausner, Kaufman, Jensen & Levinson. For 47 years, he has been engaged in the practice of law, specializing in the representation of public employee pension funds.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of The National Law Review.
Court Dismissed An Appeal From A Probate Court Order Due To A Lack Of Jurisdiction
In In re Estate of Carr, the court of appeals dismissed an appeal from a probate court order due to a lack of jurisdiction. No. 04-23-00287-CV, 2024 Tex. App. LEXIS 7827 (Tex. App.—San Antonio November 6, 2024, no pet. history). The order: (1) appoints a temporary dependent administrator pending a will contest and identifies the administrator’s duties; (2) authorizes the appellant to use estate assets to perform an autopsy; and (3) “further orders that the total amount of any expenses incurred and paid by the Estate for the storage of [Eddy Colbert Carr’s body], that have accrued on and after the date of this Order shall be deducted from [Gladys’s] share of the final distribution of any remaining Estate assets, to which she may be entitled as a beneficiary of the Estate.” Id. The appellant only challenged the third element of relief. we are not aware of any statute supporting such an order is final and appealable. The court of appeals noted:
Nor does the order actually dispose of all issues and all parties in a particular phase of the proceeding. The appointment of a temporary administrator by definition is “more like a prelude than a finale” because it does not dispose of a claim, if asserted independently, that would be the proper subject of a lawsuit. In other words, it sets the stage for the resolution of the will contest. And the portion of the order making the payment of certain storage expenses is contingent on the resolution of other issues during other discrete phases—the will contest, a subsequent determination of remaining Estate assets, and a further determination of whether Gladys is entitled to assets as an Estate beneficiary. It therefore cannot be said to dispose of any issue or party in a particular phase of any probate proceeding. Instead, the ruling is appropriately considered as part of the broader phases of the will contest and the determination of remaining Estate assets and beneficiaries, and it sets the stage for the resolution of those proceeding phases.
Id.
Triggers and Risks
Having granted a Writ of Certiorari to review the decision of the United States Circuit Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) in Amalgamated Bank et al v. Facebook, Inc. et al (In re Facebook, Inc. Securities Litigation), 87 F.4th 934 (9th Cir. 2023) (“Facebook”)[i], and having heard oral argument by the parties and amici curiae, on November 22, 2024 the United States Supreme Court issued an unusual decision — surprising to some but perhaps not to others. The Court dismissed the case, stating only that the Writ of Certiorari had been “improvidently granted”. (604 U.S. 4 (2024)
Facebook involved, among other things, the question of whether the discussion of a risk can be misleading if it does not disclose previous occurrences of that risk or of events that increase the probability of that risk. Facebook did not make such disclosure, and the Ninth Circuit held that the plaintiffs had adequately pleaded a cause of action under Section 10(b) of the Securities Exchange Act of 1934 (the “1934 Act”) and Rule 10b-5(b) thereunder on the grounds that the omission of such information rendered its risk discussion misleading. Facebook asked the Supreme Court to review the judgment of the Ninth Circuit on the following somewhat oddly posed question:
Are risk disclosures false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm?
A similar, although not identical, question was involved in the Ninth Circuit’s previous decision in Rhode Island v. Alphabet, Inc. (In re Alphabet, Inc. Securities Litigation), 1 F.4th 687 (9th Cir. 2021) (“Alphabet”). Interestingly, following the decision of the Ninth Circuit, the Supreme Court denied Alphabet’s Petition for a Writ of Certiorari.
The clear-cut answer to the question raised in both Alphabet and Facebook seems to be that, sometimes, depending on the circumstances and the language of the risk factor, some historical information may be necessary to qualify the discussion of a risk, at least somewhere in the disclosure document. Analysis of both Alphabet and Facebook is necessary to attempt an understanding of this issue under the law of the Ninth Circuit and, indeed, after the non-decision of the Supreme Court in Facebook, presumably the law of the land. While these cases raised a multitude of collateral issues, especially in the lower courts, this note will focus on the specific question directed to the Supreme Court.
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[i] In October 2021, Facebook, Inc., the parent company of Facebook, changed its name to Meta Platforms, Inc. However, the defendant is referred to as “Facebook” throughout the litigation.