DOJ Moves to Challenge Illinois Nonprofit Board Disclosure Law
The U.S. Department of Justice (DOJ) has been granted judicial leave to intervene in the American Alliance for Equal Rights’ (AAER) suit against the State of Illinois challenging the state’s diversity, equity, and inclusion (DEI) law requiring nonprofit organizations to make certain demographic data public on their websites. The intervention comes as President Donald Trump’s anti-DEI agenda takes shape.
Quick Hits
An activist group has asked a federal district court to strike down an Illinois law requiring the disclosure of nonprofit organizations’ board demographics.
The DOJ has intervened in the case, claiming that the law violates the Fourteenth Amendment.
The intervention is part of the DOJ’s effort to eliminate DEI practices nationwide.
On March 11, 2025, the U.S. District for the Northern District of Illinois granted the DOJ’s motion to intervene in American Alliance for Equal Rights v. Bennett. The plaintiff, American Alliance for Equal Rights (AAER), is a nonprofit group that has opposed a number of diversity programs nationwide.
Here, the AAER is challenging an Illinois law that requires qualifying nonprofits to disclose the demographic makeup of their directors and officers on their websites. The demographic categories include race, ethnicity, gender, disability status, veteran status, sexual orientation, and gender identity. AAER alleges that the statute violates the Fourteenth Amendment of the U.S. Constitution by encouraging organizations to discriminate based on race and the First Amendment of the U.S. Constitution by compelling organizations to speak about demographic issues that they otherwise would not discuss.
On March 4, 2025, the DOJ moved to intervene in the case. The government cited Students for Fair Admissions, Inc. v. Harvard College (SFFA), arguing that the Illinois law violates the Equal Protection clause on account of race. SFFA is the 2023 Supreme Court of the United States decision eliminating affirmative action in higher education. In a press release, the DOJ called the intervention “an early step toward eradicating illegal race and sex preferences across the government.” U.S. Attorney General Pamela Bondi emphasized the department’s intention to intervene in cases where a state “encourages DEI instead of merit.” Although certain portions of President Trump’s anti-DEI executive orders have been preliminarily enjoined, the move shows the DOJ continues to execute the administration’s policy goals in other ways.
Next Steps
Although the case is narrow in scope, the outcome may shed light on the Trump administration’s views on the legality of demographic reporting in other contexts and how the SFFA decision may be applied outside of higher education.
Federal Circuit Refuses to Extend IPR Estoppel to Unadjudicated Patent Claims
In Kroy IP Holdings, LLC v. Groupon, Inc., 127 F.4th 1376 (Fed. Cir. 2025), the Federal Circuit held that patentees in district court are not collaterally estopped from asserting claims that were not immaterially different from other claims of the same patent that the US Patent Trial and Appeal Board (PTAB) already held to be unpatentable.
The Federal Circuit’s ruling significantly impacts practitioners involved on both sides of parallel patent litigation, offering patentees a strategic advantage in district courts while requiring petitioners to reevaluate their approach to challenging claims at the PTAB.
Background
Kroy IP Holdings, LLC filed suit against Groupon, Inc., alleging infringement of 13 exemplary claims of US Patent No. 6,061,660. Groupon timely filed two inter partes reviews (IPRs), successfully invalidating 21 claims of the ’660 Patent. After Groupon’s deadline to file additional IPRs had passed, Kroy amended its complaint to allege infringement of newly asserted claims of the ’660 Patent that were not at issue in the prior IPR proceedings. Groupon moved to dismiss this complaint on grounds that Kroy was collaterally estopped from asserting these newly asserted claims based on the PTAB’s unpatentability rulings. The district court granted Groupon’s motion, dismissing Kroy’s case with prejudice after determining that the new claims were “immaterially different” from the invalidated claims. Kroy appealed.
The issue before the Federal Circuit was whether a prior decision by the PTAB declaring certain claims unpatentable can prevent a patentee from asserting other immaterially different claims from the same patent in district court.
As recently as September 2024, the Federal Circuit revisited the doctrine of collateral estoppel and considered the effect that prior final written decisions at the PTAB may have on subsequent district court litigation. The court concluded that a finding of unpatentability of apparatus claims in an IPR does not bar a patentee from contesting the validity of separate but related method claims of the same patent in district court. The Federal Circuit reasoned that collateral estoppel does not apply when different legal standards, such as burdens of proof, are involved across the two actions. Indeed, a petitioner in an IPR proceeding need only prove invalidity under the preponderance of the evidence standard, whereas in district courts, a defendant must meet the higher and more exacting clear and convincing evidence standard. Otherwise, the application of collateral estoppel in separate actions involving differing burdens of proof “would deprive patent owners of their property right.” Kroy IP Holdings, LLC, 127 F.4th at 1380-81.
Relying on this rationale, the Federal Circuit in Kroy IP Holdings, LLC v. Groupon, Inc. found that the patent owner was not barred from asserting previously unadjudicated claims that were immaterially different from claims that the PTAB had declared were unpatentable. Indeed, the PTAB’s unpatentable rulings under the preponderance of the evidence standard cannot estop a patentee from asserting other new but immaterially different claims in district court, which require the higher clear and convincing evidence standard. In holding that collateral estoppel did not apply, the Federal Circuit reversed the district court’s dismissal.
Practical Considerations
The Federal Circuit’s ruling in Kroy has significant implications for practitioners involved in parallel patent litigation at the PTAB and district courts.
For patent owners, the Federal Circuit’s ruling offers a strategic advantage by limiting the scope of collateral estoppel to only those claims that were actually challenged and adjudicated in IPR proceedings. Further, this allows patentees to pursue claims in district court that were not at issue in the IPRs, even if they are similar to the already invalidated claims. Patentees should consider strategically selecting which claims to include or exclude in enforcement actions based on the strength of their validity arguments and the likelihood of success at both the PTAB and in district courts.
For petitioners, the Kroy ruling necessitates a reevaluation of challenging claims at the PTAB, as reliance on successful IPR outcomes may not be sufficient to invalidate patent claims in district court. Petitioners should be prepared to meet the higher burden of proof required in district courts and plan for the possibility of patentees asserting unadjudicated claims in later-amended complaints or in future infringement actions.
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Federal District Court Reverses Firing of NLRB Member Wilcox – NLRB Returns to Statutory Quorum
On March 6, 2025, U.S. District Court Judge Beryl Howell held that Gwynne Wilcox, a former member of the National Labor Relations Board (“NLRB” or the “Board”) was “illegally” fired from her job.[1] The court ordered the Board’s current chair to restore her access to the Board and let her serve out the remainder of her five-year term. The Trump administration promptly appealed the decision and is seeking an immediate stay from a federal appeals court.[2] However, in the meantime, Wilcox’s return will give the Board three active members. Thus, for now, it appears that the Board again has a statutory quorum under the National Labor Relations Act (“NLRA” or the “Act”) and can resume operating as normal.
What Is in Dispute?
Under the NLRA, members of the Board serve fixed five-year terms after being duly nominated and Senate approved. Under the NLRA, they can be removed before their term’s end only for “malfeasance” or “neglect of duty.” They also must be given “notice and a hearing.” None of those terms are defined in the NLRA. However, they have generally been understood to require a president to show “cause” before firing a member. “For cause” protection has become increasingly controversial and some scholars have argued that removal protections interfere with the president’s ability to manage the executive branch and that the president should be able to fire officers at will.
On January 28, 2025, President Trump sent an email to Member Wilcox, who began her term in September 2023, stating that he had lost confidence in Wilcox’s ability to lead the Board and that there were no valid constitutional limits on the President’s ability to remove a Board member with or without cause.[3] After Ms. Wilcox was fired, only two active members remained on the Board. Because the Board lacked the three-member quorum, it was effectively frozen and not operating during Ms. Wilcox’s absence.[4]
Days after her firing, Ms. Wilcox filed her federal lawsuit against President Trump and Marvin Kaplan, in his capacity as the recently appointed Chairman of the Board, a position previously held by Ms. Wilcox since December 2024.[5] Ms. Wilcox’s complaint sought a ruling that her termination was unlawful and void, and injunctive relief against the Board Chairman, Mr. Kaplan, so that she may resume her role as a Board member.
The Court rendered a prompt decision because there were no disputed facts and only a pure legal question that needed to be answered.[6] The facts all parties agreed were true were that after taking office, President Trump designated Mr. Kaplan as Chairman of the Board, replacing Ms. Wilcox. Shortly thereafter, the Deputy Director of the White House Presidential Personnel Office sent Ms. Wilcox an email at 11:00 p.m. terminating her from her Board position, without “notice and hearing” and without citation to any statutory basis for removal (e.g., “neglect of duty” or “malfeasance”).[7] The email also stated the statutory limitations on removal power were “unconstitutional” because they are “inconsistent with the vesting of the executive Power in the President. The current Board Chair, Mr. Kaplan, instructed his direct report to begin Ms. Wilcox’s termination, cut-off her access to her accounts, and told her to clean out her office. The President’s decision to terminate Ms. Wilcox means the Board is unable to function because only 2 members remain and 3 members are required to form a quorum and exercise the Board’s powers.
The Constitution comes into play because President Trump conceded that the email termination violated the statutory requirements for removing a Board Member and instead contends that the President’s “removal power is fundamentally ‘unrestricted.’”[8] The Constitution enunciates both the structure and vested powers for each branch of government: Article I vests all legislative powers in Congress (the Senate and House of Representative); Article II vests the executive power in the President; and Article III vests the judicial power in one Supreme Court and other inferior Courts established by Congress. President Trump’s refusal to obey a congressional statute pits the executive branch (Article II) against the legislative branch (Article I). The role of the courts (Article III) is to interpret the Constitution, past practice, and judicial precedent to resolve the conflict. The President’s role, as wielder of the executive power, is “to be a conscientious custodian of the law, albeit an energetic one, to take care of effectuating his enumerated duties, including the laws enacted by the Congress and as interpreted by the Judiciary.”[9]
What Did the District Court Hold?
Because the Constitution does not contain any removal provisions for multi-member boards or commissions, the District Court’s analysis was distilled down to one 1935 U.S. Supreme Court case, Humphrey’s Executor v. U.S., 295 U.S. 602. Humphrey’s Executor addressed removal of commissioners of the Federal Trade Commission (the “FTC”) and in doing so discussed and upheld past practice since 1887 that Congress could establish independent, multimember commissions whose members are appointed by the President but can be removed only for cause.[10] Two months after the Humphrey’s Executor decision, Congress enacted the National Labor Relations Act and created a two part leadership structure for the agency similar to the FTC: a five member Board was designed to adjudicate cases impartially by staggering the members’ five-year terms and a General Counsel who determines which cases to prosecute, provides guidance on legal interpretation, and has a four-year term.[11]
To avoid the application of Humphrey’s Executor as binding precedent, President Trump contends: the FTC in 1935 did not exercise “executive power” and asserts that the Board does; the NLRB removal grounds are stricter because unlike the FTC they include efficiency; and Humphrey’s Executor was wrongly decided or repudiated (relying on preceding cases and interpretation of later opinions in different removal contexts).[12]
However, the district court agreed with Board Member Wilcox. The district court held that Humphrey’s Executor is still good law and applies to the NLRB. It still allows Congress to insulate the heads of multi-member expert agencies. The district court applied that description to the Board and held that, like the FTC in Humphrey’s Executor, the Board performs quasi-legislative and quasi-judicial functions. It investigates unfair labor practices and adjudicates them through an administrative process. That process ends with a decision by a three-member panel, which acts like a quasi-court. This structure, the court reasoned, was indistinguishable from the FTC’s structure. Thus, the district court concluded, Humphrey’s Executor still controlled, and Ms. Wilcox had been validly insulated from removal, meaning her termination was “illegal.”
On the other hand, the district court did not order the President to “reinstate” her. Instead, the court ordered the Board’s current chair, Kaplan, not to prevent her from doing her job – i.e., Kaplan cannot deny her access to the building, block her from accessing the Board’s systems, or otherwise interfere with her ability to serve as a Board member. Sidestepping a debate around whether any court has authority over presidential appointments, the court did not order Ms. Wilcox’s appointment to the Board; the district court’s order merely ensures that Board Member Wilcox serve out her original term.
In response to the district court’s order, on March 6, 2025, President Trump immediately filed a notice of appeal and sought to stay the district court’s order until the appeal is resolved. The district court rejected the stay request.
President Trump’s stay request is now in the hands of the U.S. Court of Appeals for the District of Columbia. A motions panel of this same court recently granted the government’s stay request, to prevent terminated Special Counsel Hampton Dellinger from resuming his role in the Office of Special Counsel (an independent agency under the Whistleblower Protection Act) while the appeal proceeds. After the stay request was granted, Mr. Dellinger dropped his appeal.
What Is Next?
For now, the Board appears to have a quorum since Ms. Wilcox has resumed her Board duties, and the Board has begun to issue decisions again.
However, that situation may not last. The appeal and the request for a stay will go to a federal appeals court in Washington and then likely to the U.S. Supreme Court. Either of those courts could reverse the district court’s decision and drop the Board back to two members.
We will continue to monitor future developments, and cover noteworthy updates on our blog. Employers with questions about how the decision affects them should consult experienced labor counsel.
FOOTNOTES
[1] Wilcox v. Trump, Case 1:25-cv-00334-BAH (Mar. 6, 2025) (dkt #34).
[2] See Emergency Motion for Stay Pending Appeal, Wilcox v. Trump, No. 25-5057 (D.C. Cir. filed Mar. 10, 2025).
[3] Opinion, p. 8.
[4] See New Process Steel, L.P. v. NLRB, 560 U.S. 674 (2010).
[5] Opinion, pp. 8-9.
[6] Opinion, p. 9.
[7] Opinion, p. 8.
[8] Opinion, pp. 5, 8, 15; 29 U.S.C. § 153(a).
[9] Opinion, p. 4 (“U.S. Const. art. II, § 3 (“[H]e shall take Care that the Laws be faithfully executed . . . .”)).
[10] Opinion, pp. 10-12.
[11] Opinion, pp. 7-8, 13-14; see also 29 U.S.C. §§ 151-169.
[12] Opinion, pp. 15-28.
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Thinking of Selling Your Med Spa? Here Are Six Things to Do to Prepare
Numerous legal, regulatory and operational issues will arise when selling a med spa. Proper preparation by ensuring the business is regulatory compliant, assembling the right group of professionals and documents will save time and costs and ensure that the transaction is as smooth as possible.
Ensure your business is properly organized and licensed
You should ensure that the business complies with applicable law from a structural and regulatory standpoint. Illinois follows the legal doctrine known as the “corporate practice of medicine,” which requires that a facility that provides medical services be owned solely by a physician or a physician-owned entity. It is important to analyze the scope of services being provided by your med spa to determine if you are compliant with Illinois law.
If a med spa is not organized in a compliant manner, it could cause issues for the med spa from a legal and regulatory standpoint and raise flags for the purchaser. In such a case, it would be prudent to restructure the entity to comply with applicable law. Such restructuring may include creating a management service organization (MSO) structure, in which a new non-medical MSO is created to perform all non-clinical services with respect to the med spa entity. These non-clinical services may include human resource matters, marketing, payroll, billing, accounting, real estate issues, etc. It is important that any MSO arrangements, including compensation structures, be carefully structured to comply with applicable law. The MSO structure is critical for any med spa with a non-physician owner that intends to render services that may constitute the practice of medicine.
Review the business’s governing documents
It is crucial that the med spa’s governing documents are complete and accurate. A sophisticated purchaser will review the business’s articles of organization or incorporation, operating agreement or bylaws and timely filed annual reports. A purchaser will raise issues and have concerns if a med spa cannot provide complete and accurate corporate records.
The owner of a med spa with multiple shareholders or members selling the business via an asset sale should review the bylaws or operating agreement to confirm the percentage of owners that must agree to the sale in order for it to occur. The sale of all or almost all of the business assets is a standard situation that requires majority consent.
A business owner intending to sell via a stock or membership interest sale should review all governing documents to confirm whether there are drag-along or tag-along rights. A drag-along right allows the majority shareholder of a business to force the remaining minority shareholders to accept an offer from a third party to purchase the entire business. There have been situations where a minority shareholder objects to the sale and prevents it altogether. A tag-along right is also known as “co-sale rights.” When a majority shareholder sells their shares, a tag-along right will allow the minority shareholder to participate in the sale at the same time for the same price for the shares. The minority shareholder then “tags along” with the majority shareholder’s sale. Any drag-along or tag-along rights provided in the business’s governing documents should be addressed as soon as possible to ensure such rights are provided and to deal with any disputes.
Retain an attorney at the onset of the transaction
After a med spa is offered for sale, a purchaser may prepare and submit a letter of intent (LOI) for the med spa’s review and approval. A LOI is a legal document that sets forth the form of the transaction (whether it’s an asset or stock sale), purchase price, manner of payment, deposit terms, transaction conditions, due diligence terms and timeline, choice of law and other relevant terms of the sale. Business owners often make the mistake of not engaging an attorney until after the LOI has been signed. By failing to retain an attorney to negotiate the LOI, a business owner may be stuck with unfavorable terms or may have missed the opportunity to ask for something valuable at the onset, including taking into account tax implications of the proposed deal structure.
Engaging an attorney can save significant costs and time because imperative business issues can be discussed and agreed upon in the early stages and if the parties cannot come to an agreement, they can go their separate ways as opposed to wasting time, costs and the efforts involved with both negotiating a purchase agreement (PA) and conducting due diligence. Using an attorney will also ensure that the LOI contains a timeline or expiration so that if the sale is not completed by a certain time, the med spa can move onto another interested party without issue. The LOI will continue to be a material part of the entire transaction even as the PA is negotiated. If something is agreed upon in the LOI and one party tries to differ from the LOI terms during the PA negotiation, the other party will point to the LOI for support — often successfully.
Gather information on financials and assets
One of the most important and lengthy parts of any business sale is due diligence. Due diligence is the process in which the purchaser requests to review various documents, data and other information in order to familiarize itself with the business’s operations, background and to identify potential liabilities or issues related to the business or transaction’s closing. The results of the due diligence process can cause the purchaser to react in a variety of ways, from requesting more documents, a reduction of the purchase price or terminating the transaction altogether. Some of the critical documents a purchaser will request access to include the med spa’s tax returns, income statements, balance statements, a list of accounts receivable, accounts payable, a list of inventory and a list of personal property and equipment. A med spa owner can do itself a huge favor by gathering such documents and saving them electronically in an organized fashion. This way they can be easily sent to the purchaser or uploaded to a data site. The med spa and/or med spa owners will also have to make representations and warranties based upon the accuracy and completeness of such documents so it is in the med spa’s best interest to have organized and complete files.
Gather existing contracts
Another standard due diligence request from a purchaser is to review all of the med spa’s existing contracts, purchase orders, vendor and supplier agreements. The purchaser will want to determine, among other things, what work is ongoing and what liabilities and expenses it can expect. A med spa owner considering a sale should gather and save all of such agreements electronically and in an organized manner so they can be easily uploaded for the purchaser’s review.
Consider third party consents
The business’s existing agreements will need to be reviewed to see if they are assignable or able to be terminated as the purchaser will likely want to assume some and terminate others. Therefore, it is imperative that a med spa identify and understand the assignment, change of control and termination provisions of all existing contracts so that they can plan ahead and be prepared to take action at the appropriate time. A med spa owner should review existing agreements, including leases for such provisions, to identify whether an agreement can be assigned or terminated and, if so, what is required for each assignment or termination.
Typically, an agreement requires a certain number of days’ notice to the third party or the third party’s written consent to assign the contract from the med spa to the purchaser. For stock sales, the med spa should identify whether the existing agreements have change of control provisions. If consent of the third party is required then it may be prudent for the med spa to contact the third party as soon as possible to determine whether the other party is willing to consent, subject to coordination with the purchaser and appropriate confidentiality protections. For contracts that a purchaser may not want to assume, a med spa should review the termination provisions and identify if there are any fees or penalties for termination. Closings can be delayed over a med spa’s failure to receive an important third party consent. This issue arises often with landlords that do not wish to consent to the assignment of the lease from the med spa to the purchaser.
It’s a Wrap—The Latest from the Ninth Circuit on “Sign-In Wrap” Agreements
On February 27, 2025, in Chabolla v. ClassPass Inc., the U.S. Court of Appeals for the Ninth Circuit, in a split 2-1 decision, held that website users were not bound by the terms of a “sign-in wrap” agreement.
ClassPass sells subscription packages that grant subscribers access to an assortment of gyms, studios and fitness and wellness classes. The website requires visitors to navigate through several webpages to complete the purchase of a subscription. After the landing page, the first screen (“Screen 1”) states: “By clicking ‘Sign up with Facebook’ or ‘Continue,’ I agree to the Terms of Use and Privacy Policy.” The next screen (“Screen 2”) states: “By signing up you agree to our Terms of Use and Privacy Policy.” The final checkout page (“Screen 3”) states: “I agree to the Terms of Use and Privacy Policy.” On each screen, the words “Terms of Use” and “Privacy Policy” appeared as blue hyperlinks that took the user to those documents.
The court described four types of Internet contracts based on distinct “assent” mechanisms:
Browsewrap – users accept a website’s terms merely by browsing the site, although those terms are not always immediately apparent on the screen (courts consistently decline to enforce).
Clickwrap – the website presents its terms in a “pop-up screen” and users accept them by clicking or checking a box expressly affirming the same (courts routinely enforce).
Scrollwrap – users must scroll through the terms before the website allows them to click manifesting acceptance (courts usually enforce).
Sign-in wrap – the website provides a link to the terms and states that some action will bind users but does not require users to actually review those terms (courts often enforce depending on certain factors).
The court analyzed ClassPass’ consent mechanism as a sign-in wrap because its website provided a link to the company’s online terms but did not require users to read them before purchasing a subscription. Accordingly, the court held that user assent required a showing that: (1) the website provides reasonably conspicuous notice of the terms to which users will be bound; and (2) users take some action, such as clicking a button or checking a box, that unambiguously manifests their assent to those terms.
The majority found Screen 1 was not reasonably conspicuous because of the notice’s “distance from relevant action items” and its “placement outside of the user’s natural flow,” and because the font is “timid in both size and color,” “deemphasized by the overall design of the webpage,” and not “prominently displayed.”
The majority did not reach a firm conclusion on whether the notice on Screen 2 and Screen 3 is reasonably conspicuous. On one hand, Screen 2 and Screen 3 placed the notice more centrally, the notice interrupted the natural flow of the action items on Screen 2 (i.e., it was not buried on the bottom of the webpage or placed outside the action box but rather was located directly on top of or below each action button), and users had to move past the notice to continue on Screen 3. On the other hand, the notice appeared as the smallest and grayest text on the screens and the transition between screens was somewhat muddled by language regarding gift cards, which may not be relevant to a user’s transaction; thus, a reasonable user could assume the notice pertained to gift cards and hastily skim past it.
Even if the notice on Screen 2 and Screen 3 was reasonably conspicuous, the majority deemed the notice language on both screens ambiguous. Screen 2 explained that “[b]y signing up you agree to our Terms of Use and Privacy Policy,” but there was no “sign up” button—rather, the only button on Screen 2 read “Continue.” Screen 3 read, “I agree to the Terms of Use and Privacy Policy,” and the action button that follows is labeled “Redeem now”; it does not specify the user action that would constitute assent to the terms. In other words, the notice needs to clearly articulate an action by the user that will bind the user to the terms, and there should be no ambiguity that the user has taken such action. For example, clicking a “Place Order” button unambiguously manifests assent if the user is notified that “by making a purchase, you confirm that you agree to our Terms of Use.”
Accordingly, the court held that Screen 1 did not provide reasonably conspicuous notice and, even if Screen 2 and Screen 3 did, progress through those screens did not give rise to an unambiguous manifestation of assent.
The dissent noted that the majority opinion “sows great uncertainty” in the area of internet contracts because “minor differences between websites will yield opposite results.” Similarly, the dissent argued that the majority opinion will “destabilize law and business” because companies cannot predict how courts are going to react from one case to another. Likewise, the dissent expressed concern that the majority opinion will drive websites to the only safe harbors available to them—clickwrap or scrollwrap agreements.
While ClassPass involved user assent to an arbitration provision in the company’s online terms, the issue of user assent runs far deeper, extending to issues like consent to privacy and cookie policies—a formidable defense to claims involving alleged tracking technologies and wiretapping theories. Notwithstanding the majority’s opinion, many businesses’ sign-in wrap agreements will differ from the one at issue in the lawsuit and align more closely with the types of online agreements that courts have enforced. Nonetheless, as the dissent noted, use of a sign-in wrap agreement carries some degree of uncertainty. Scrollwrap and clickwrap agreements continue to afford businesses the most certainty.
New Jersey and New York Lawmakers Propose New Limits on Restrictive Covenants
For years, New York and New Jersey legislators have proposed various measures that would prohibit or restrict employers from using non-compete agreements that may restrict employees’ future employment opportunities. This GT Alert discusses two bills, New York Senate Bill S4641 and New Jersey Senate Bill S1688, which propose changes to the landscape of restrictive covenants in these states.
New York Senate Bill S4641
On Feb. 10, 2025, the New York Senate introduced S4641 in response to Gov. Hochul’s veto of a prior non-compete bill (S3100A) in December 2023. Bill S4641 would add Section 191-d to the New York Labor Law, prohibiting employers from requiring any “covered individual” to enter into a non-compete agreement. The bill defines a “covered individual” as any person other than a “highly compensated individual” who, with or without an employment agreement, performs work or services for another person, “in a position of economic dependence on, and under an obligation to perform duties for, that other person.” “Highly compensated individuals” are those who are paid an average of at least $500,000 per year.
The bill would also prohibit use of post-employment non-compete agreements with regard to “health care professionals, regardless of the individual’s compensation level. Most health care providers who are licensed under New York law may fall under S4641’s definition of “health related professionals.” The law would permit employers to enter into agreements, even with covered individuals or a health care professional, which (1) establish a fixed term of service and/or exclusivity during employment; (2) prohibit disclosure of trade secrets; (3) prohibit disclosure of confidential and proprietary client information; or (4) prohibit solicitation of the employer’s clients.
The bill would also permit non-compete provisions as part of agreements to sell the goodwill of a business or to dispose of a majority ownership interest in a business, by a partner of a partnership, member of a limited liability company, or an individual or entity owning 15% or more interest in the business. Such non-compete agreements would still need to meet the common law test as to reasonableness in time and geographic scope, a necessity for protection of legitimate business interests, and lack of harm to the public.
S4641 would create a private right of action, allowing covered individuals who are subject to a prohibited non-compete agreement to file claims in court. If the employer is found to have violated the new Section 191-d, a court may void the non-compete agreement, prohibit the employer from similar conduct going forward, and order payment of liquidated damages, lost compensation, compensatory damages and/or reasonable attorneys’ fees and costs to the employee. The bill caps liquidated damages at $10,000 per impacted individual but permits a court to award liquidated damages to every claimant.
New Jersey Senate Bill S1688
In New Jersey, the Senate Labor Committee is considering S1688, which was initially introduced in January 2024. This bill, if passed, would amend the New Jersey Law Against Discrimination (NJLAD), N.J.S.A. 10:5-12:7, and 10:5-12:8 to clarify that the prohibition of certain waivers in employment agreements includes non-disclosure and non-disparagement provisions that would limit an employee’s right to raise claims of discrimination, retaliation, or harassment. The bill would also amend N.J.S.A. 10:5-12:7(c) to remove the original carve out for collective bargaining agreements, meaning the prohibition of waivers relating to discrimination, retaliation, or harassment claims would apply in the collective bargaining context as well as individual employment agreements.
Conclusion
These proposed bills demonstrate states’ continued efforts to limit employers’ use of restrictive covenants. Prior efforts to formalize such restrictions have been mostly unsuccessful, but the New Jersey and New York legislatures still seek to narrow the scope of the restrictions.
Nationwide Injunction Shuts Down Enforcement of Trump’s DEI Executive Orders
On February 21, 2025, a federal district court judge issued a nationwide preliminary injunction that blocks enforcement of three major provisions of President Trump’s Executive Orders related to Diversity, Equity and Inclusion (DEI) programs:
Executive Order 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing.”
Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”
(Each an EO and collectively referred to as the EOs.)
The National Association of Diversity Officers in Higher Education filed a lawsuit in the U.S. District of Maryland (Maryland District Court) challenging the constitutionality of these EOs, arguing they are vague under the Fifth Amendment and violate the First Amendment’s Free Speech Clause.
Below is a summary of the enjoined provisions.
Termination Provision: Requires Executive agencies to terminate “equity-related grants or contracts.”
Certification Provision: Requires federal contractors and grantees to certify they will not operate programs promoting DEI that violate Federal anti-discrimination laws.
Enforcement Provision: Directs The U.S. Attorney General to investigate and take actions (e.g., civil compliance investigations) against private sector entities continuing DEI practices.
While the injunction prevents the executive branch from enforcing these EOs, U.S. District Court Judge Adam Abelson allowed the U.S. Attorney General to continue its investigation for a report on ending illegal discrimination and preferences pursuant to EO 14173.
The Trump administration filed a motion with the Fourth Circuit Court to appeal the nationwide injunction. Depending on whether the Fourth Circuit upholds or reverses the injunction, the case may go to trial to determine if the Trump administration’s actions to ban DEI policies and practices are constitutional. Pending the appeal, the Trump administration requested a stay of the preliminary injunction which was denied by Judge Abelson. The Maryland District Court stressed the Trump administration was unable to demonstrate a strong likelihood of success on the merits. Additionally, the Court emphasized, “the chilling of the exercise of fundamental First Amendment rights weighs strongly in favor of the preliminary injunction and against a stay pending appeal.”1
On March 10, 2025, Judge Abelson issued further clarification regarding the scope of the preliminary injunction, stating that it applies to all federal agencies, departments and commissions, not just the named defendants. He explained that limiting the injunction to only the named parties would create an unfair situation where the termination status of a federal grant or the certification requirements for federal contractors would depend on which specific federal agency the grantee or contractor works with for current or future funding. This would result in inequitable treatment in an area that requires uniformity. Consequently, considering President Trump’s directives for all federal agencies, departments and commissions to adhere to the Termination and Certifications Provisions, the preliminary injunction will now encompass all federal agencies to prevent any inconsistent application.
Since the Maryland lawsuit, additional complaints against the anti-DEI EOs have been filed in Illinois, California and Washington D.C., with similar legal arguments to the Maryland case. We will continue to monitor these lawsuits as they progress through the court system.
You can read more about the Maryland lawsuit and the implications of these EOs in our previous alert linked here.
[1] Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, Memorandum Opinion and Order Denying Motion to Stay Injunction Pending Appeal, Case No. 25-cv-00333-ABA (Mar. 3, 2025), 6.
KEEPING UP: Kardashian Brand Sued in TCPA Call Timing Class Action
When Kim Kardashian said, “Get up and work”, the TCPA plaintiff’s bar took that seriously. And another Kardashian sibling may be facing the consequences.
We at TCPAWorld were the first to report on the growing trend of lawsuits filed under the TCPA’s Call Timing provisions, which prohibit the initiation of telephone solicitations to residential telephone subscribers before 8 am and after 9 pm in the subscriber’s time zone. Call it a self-fulfilling prophecy or just intuition honed by decades of combined experience, but these lawsuits show no signs of slowing down.
In Melissa Gillum v. Good American, LLC. (Mar. 11, 2025, C.D. Ca), Plaintiff alleges that Khloe Kardashian’s clothing brand Good American sent the following text messages to her residential telephone number at 07:15 AM and 06:30 AM military time:
Of course, Plaintiff alleges she never authorized Good American to send her telephone solicitations before 8 am or after 9 pm.
Plaintiff also seeks to represent the following class:
All persons in the United States who from four years prior to the filing of this action through the date of class certification (1) Defendant, or anyone on Defendant’s behalf, (2) placed more than one marketing text message within any 12-month period; (3) where such marketing text messages were initiated before the hour of 8 a.m. or after 9 p.m. (local time at the called party’s location).
The consensus here on TCPAWorld is that calls or text messages made with prior express consent are not “telephone solicitations” and likely not subject to Call Time restrictions. We’ll have to see how these play out but stay tuned for the latest updates!
NO SMOKING UNTIL 8 AM: R.J. Reynolds Burned By TCPA Time-Of-Day Class Action Lawsuit
Hi TCPAWorld! R. J. Reynolds Tobacco Company—the powerhouse behind Camel, Newport, Doral, Eclipse, Kent, and Pall Mall—is back in court. This time, though, it isn’t about the usual allegations against Big Tobacco. Instead, the plaintiff accuses the company of violating the TCPA’s time-of-day restrictions and causing “intrusion into the peace and quiet in a realm that is private and personal to Plaintiff and the Class members.” Vallejo v. R. J. Reynolds Tobacco Company, 8:25CV00466: Vallejo v RJ Reynolds Tobacco Complaint Link
Under the TCPA, telemarketing calls or texts can’t be made before 8 a.m. or after 9 p.m. (local time for the recipient). We’ve been seeing a lot of these time-of-day cases pop up lately:
IN HOT WATER: Louisiana Crawfish Company Sued Over Early-Morning Text Messages – TCPAWorld
IT WAS A MATTER OF TIME: Another Company Allegedly Violated TCPA Time Restrictions. – TCPAWorld
TIME OUT!: NFL Team Tampa Bay Buccaneers Hit With Latest in A Series of Time Restriction TCPA Class Action – TCPAWorld
SOUR MORNING?: For Love and Lemons Faces TCPA Lawsuit Over Timing Violations – TCPAWorld
TOO LATE: 7-Eleven Sued in TCPA Class Action for Allegedly Failing to Comply With Call Time Limitations–And This Is Crazy If its True – TCPAWorld
Here, in Vallejo v. R. J. Reynolds Tobacco Company, however, the plaintiff claims he received early-morning marketing texts around 7:15 a.m. and 7:36 a.m., local time. The complaint further alleges that he “never signed any type of authorization permitting or allowing Defendant to send them telephone solicitations before 8 am or after 9 pm,” though it doesn’t actually say he withheld consent entirely for these messages.
The plaintiff seeks to represent the following class:
All persons in the United States who from four years prior to the filing of this action through the date of class certification (1) Defendant, or anyone on Defendant’s behalf, (2) placed more than one marketing text message within any 12-month period; (3) where such marketing text messages were initiated before the hour of 8 a.m. or after 9 p.m. (local time at the called party’s location).
As I’ve said before, from my reading of the TCPA, these time-of-day restrictions apply specifically to “telephone solicitations,” meaning calls or texts made with the recipient’s prior consent or within an existing business relationship might be exempt. Since the plaintiff doesn’t deny consenting to these texts in the first place, we’ll have to keep an eye on this lawsuit to see if the Central District of California agrees with that interpretation.
Court Applies Internal Affairs Doctrine Even Though Statute Refers Only To Directors
Courts are wont to say that Section 2116 of the California Corporations Code codifies the internal affairs doctrine. See Villari v. Mozilo, 208 Cal. App. 4th 1470, 1478 n.8 (Cal. Ct. App. 2012)(“Corporations Code section 2116 codifies [the internal affairs doctrine] in California.”). I have long held the position that this is only partially true. Section 2116 provides:
The directors of a foreign corporation transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or distribution of assets or false certificates, reports or public notices or other violation of official duty according to any applicable laws of the state or place of incorporation or organization, whether committed or done in this state or elsewhere. Such liability may be enforced in the courts of this state. (emphasis added)
The statute makes no reference to officers. Thus, it would seem reasonable to conclude that it does not apply to officers. Courts, however, seem to miss the obvious omission of officers from the statute, as illustrated in a recent ruling by U.S. District Court Judge Janis L. Sammartino in Lapchak v. Paradigm Biopharmaceuticals (USA), Inc., 2025 WL 437904 (S.D. Cal. Feb. 7, 2025). In that case, Judge Sammartino ruled that Delaware law applied to the individual defendant even though the plaintiff failed to allege that the defendant was a director of the corporation. In fact, neither party even alleged that the corporation was incorporated in Delaware, but the court did some online checking. Finally, it is unclear from the ruling whether the individual defendant was even an officer of the corporation.
As I have previously contended, officers are agents of the corporation whilst directors qua directors are not. In many cases, their duties and responsibilities may be governed by contractual choice of law provisions and local agency and employment laws. In any event, a plain reading of Section 2116 reveals that officers have no place in it.
COMPLAINTS ABOUT COMPLAINTS: Defendant Granted Leniency from Burdensome Discovery Production
Discovery disputes are a big part of TCPA cases and, practically speaking, it can be exceptionally difficult for defendants to produce all documents requested by TCPA plaintiffs… for several reasons. Requests for production and interrogatories tend to be worded as broadly as possible (generally to seek class information). Then, even with discovery requests that are agreed upon by the parties, the practical difficulty of obtaining and producing the requested material can range from difficult to nearly impossible.
In Nock v. PalmCo Administration, LLC, No. 1:24-CV-00662-JMC, 2025 WL 750467 (D. Md. Mar. 10, 2025), the District Court of Maryland showed leniency to the defendant, although it still ordered the defendant to at least attempt to produce nearly every material that the plaintiff had requested.
For some context, the plaintiff alleged that the defendant had violated 47 U.S.C. § 227(c), the Do Not Call (“DNC”) provision of the TCPA, and Md. Com. Law § 14-320, Maryland’s analogous DNC law. Id at *1. An informal discovery dispute was brought before the court based on the defendant’s purportedly incomplete responses to the plaintiff’s discovery requests. Id.
Firstly, the court found that an interrogatory seeking “all complaints ‘regarding [the defendant’s] marketing practices’” unreasonably burdened the defendant—since complaints relating to all marketing practices would clearly turn up material unrelated to the case’s subject matter. Id. at *2. However, the court still ordered production of all complaints related to the case’s subject matter. Id. at *3.
Secondly, the plaintiff sought production of documents that had previously been ordered by the court. Id. However, one of the categories of documents was outside the defendant’s possession—data from one of its vendors. Id. As the defendant demonstrated “reasonable efforts to obtain the requested information,” the court allowed the defendant to send one more email request to furnish missing data from the third-party vendor to fulfill the defendant’s obligations under the previous court order. Id.
Although this specific request did not fall under retention requirements, it is worth a reminder that the statutory Telemarketing Sales Rule recently expanded in what records must be kept for all telemarketing calls.
Thirdly, the plaintiff sought records of all communications between the defendant and a third-party vendor. Id. Similarly, the court was lenient with the defendant, even though the defendant had already missed a court ordered production deadline on those communications. Id. The defendant was still ordered to produce the communications within thirty days, but the court was understanding of the practical difficulties in producing all said communications. Id. at *3-4.
That is all for this order. However, the TCPA keeps seeing new rules and requirements. Most urgently, we are now less than a month away from new revocation rules coming into effect. Be ready for those changes as they are set to be implemented on April 11, 2025!
Federal Judge Clarifies Scope of Preliminary Injunction Enjoining President Trump’s DEI-Related Executive Orders
On March 10, 2025, a federal judge in Maryland clarified the scope of the nationwide preliminary injunction that enjoins key portions of two of President Donald Trump’s diversity, equity, and inclusion (DEI)–related executive orders (EOs), stating that the injunction applies to all federal agencies.
Quick Hits
On February 21, 2025, a federal judge granted a nationwide preliminary injunction that enjoined key provisions of President Trump’s executive orders aimed at “illegal” DEI initiatives.
On March 3, 2025, the judge refused to halt the preliminary injunction, pending the government’s appeal to the Fourth Circuit Court of Appeals.
On March 10, 2025, the judge clarified that the preliminary injunction applies to all federal executive branch agencies, departments, and commissions, not just those that were specifically named in the complaint.
U.S. District Judge Adam B. Abelson clarified that the nationwide preliminary injunction enjoining the termination, certification, and enforcement provisions of EO 14151 and EO 14173 “applies to and binds Defendants other than the President, as well as all other federal executive branch agencies, departments, and commissions, and their heads, officers, agents, and subdivisions directed pursuant to” those executive orders.
The court’s February 21, 2025, preliminary injunction order defined the “Enjoined Parties” as “Defendants other than the President, and other persons who are in active concert or participation with Defendants.” The plaintiffs filed a motion to clarify the scope of the order. The government argued that the court lacked jurisdiction to rule on the motion, and that only the specific departments, agencies, and commissions named as additional defendants in the complaint were bound by the preliminary injunction. The complaint named the following defendants: the Office of Management and Budget, the U.S. Departments of Justice, Health and Human Services, Education, Labor, Interior, Commerce, Agriculture, Energy, and Transportation, along with the heads of those agencies (in their official capacities), the National Science Foundation, and President Trump in his official capacity. The government argued that including other departments, agencies, and commissions as enjoined parties would be inconsistent with Federal Rule of Civil Procedure 65(d), Article III of the U.S. Constitution’s standing requirement, and traditional principles of equity and preliminary injunctive relief.
The court disagreed. First, according to the court, the plaintiffs have shown a likelihood of success on the merits that the termination, certification, and enforcement provisions are unconstitutional, so any agencies acting pursuant to those provisions “would be acting pursuant to an order that Plaintiffs have shown a strong likelihood of success in establishing is unconstitutional on its face.”
Second, the termination and certification provisions were directed to all agencies, the enforcement provision was directed to the U.S. Department of Justice, and the president was named as a defendant in the complaint; thus, the preliminary injunction (in both its original and clarified forms) “is tailored to the executive branch agencies, departments and commissions that were directed, and have acted or may act, pursuant to the President’s directives in the Challenged Provisions of” EO 14151 and EO 14173.
Third, only enjoining those agencies that were specifically named in the complaint, despite the fact that the president was named as a defendant, would provide incomplete relief to the plaintiffs because their speech is at risk of being chilled by non-named agencies as well. In addition, the court held that “[a]rtificially limiting the preliminary injunction in the way Defendants propose also would make the termination status of a federal grant, or the requirement to certify compliance by a federal contractor, turn on which federal executive agency the grantee or contractor relies on for current or future federal funding—even though the agencies would be acting pursuant to the exact same Challenged Provisions,” resulting in “‘inequitable treatment.’” Thus, the court granted the plaintiffs’ motion to clarify that the preliminary injunction applies to every agency in the executive branch.