FDA Warning Letter Takes Issue with Designation of Substance as Dietary Ingredient
In a Warning Letter posted yesterday (but issued in April), FDA warned Gluten Free Remedies LLC that one of their dietary supplement products was adulterated because it declared sulbutiamine as a dietary ingredient.
Section 201(ff) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 USC 321 (ff)) defines a dietary supplement in part as a product (other than tobacco) intended to supplement the diet that bears of contains one or more of the following dietary ingredients: A) a vitamin; B) a mineral; C) an herb or other botanical; D) an amino acid; E) a dietary substance for use by man to supplement the diet by increasing the total dietary intake; or F) a concentrate, metabolite, constituent, extract, or combination of any ingredient described in A – E.
Sulbutiamine is a synthetic derivative of thiamine (vitamin B1) and so does not fit in the A – D dietary ingredient categories. In its New Dietary Ingredient Notifications and Related Issues draft guidance, FDA addresses the circumstances under which it would consider a synthetically produced substance to be a dietary ingredient, including in the context of substances in dietary ingredient category E (see pp. 37-38). FDA takes the position that a substance fitting the category E dietary ingredient criteria must be part of the human diet, and in the context of synthetic substances, requires the synthetic copy to have been lawfully marketed in the conventional food supply. Vanillin and cinnamic acid are offered as examples of such synthetic dietary ingredients.
FDA has previously objected to the use of other substances that it has concluded do not meet the dietary ingredient definition. For example, it has taken the position that methylsynephrine, a synthetic stimulant, does not meet the dietary ingredient definition. See e.g., Methylsynephrine in Dietary Supplements | FDA.
The terms in dietary ingredient category E are not defined in the FD&C Act (FDA’s interpretation in the draft guidance draws from dictionary definitions) and may be more susceptible to challenge since the Supreme Court overturned Chevron deference to agency decisions in Loper Bright Enterprises v. Raimondo.
Court of Appeals Ruling in Nellenback Provides CVA Clarity
Court of Appeals Ruling in Nellenback Provides CVA Clarity
In 2019, New York enacted the Child Victims Act (CVA). The legislature ultimately opened a two-year window for survivors of childhood sexual abuse to file claims that were otherwise time-barred and allowed future claims to be brought until a plaintiff turned 55. Since the enactment of the CVA thousands of lawsuits have been filed across New York, alleging that employers were negligent in their hiring, retention, and supervision of alleged abusers. A recent ruling from the New York Court of Appeals in Nellenback v. Madison County offers significant guidance for defendants in CVA cases, particularly in terms of the standard for summary judgment and the requirements for proving negligent supervision claims.
Nellenback Facts
In Nellenback, the plaintiff alleged that he had been sexually abused by his caseworker, Karl Hoch, at every visit while he was in the custody of Madison County’s Department of Social Services (DSS), between 1993 and 1996. The abuse occurred in a County-owned vehicle and at various locations off County-owned premises. Plaintiff further alleged that Hoch threatened him and because of the threats, he did not tell anyone about the abuse. The plaintiff filed suit against the county in 2019, accusing it of negligent hiring, training, supervision, and direction of the caseworker. The county moved for summary judgment, arguing that the plaintiff had failed to present any proof that the county had actual or constructive notice of the caseworker’s propensity for abuse.
During depositions, the county’s DSS supervisor and commissioner testified that prior to 1996 there was no evidence to suggest that the caseworker had any abusive tendencies, and no complaints had been made regarding the caseworker’s behavior. In fact, the caseworker had been recognized with the “Madison County Employer of the Year” award in 1990. However, the plaintiff argued that deficiencies in the caseworker’s oversight and training raised issues of fact that warranted a trial. To support his argument, the plaintiff pointed to:
the supervisor’s admission that she did not review caseworker notes as regularly as she should have
expert testimony that suggested lax recruitment and hiring practices led to the caseworker having “unfettered access” to children
the department had no handbook for how caseworkers should perform their duties
Trial and Appellate Decisions
The trial court granted summary judgment to the county, finding that it had made a prima facie case that it lacked both actual knowledge and constructive notice of the caseworker’s abuse, and that no further investigation or supervision would have led to the discovery of the abuse. The Appellate Division affirmed, with two justices dissenting, concluding that the failure to more regularly review caseworker notes did not create a triable issue of fact regarding the county’s knowledge of the abuse. The plaintiff then appealed to the Court of Appeals.
Court of Appeals Decision
In a 6-1 decision, the Court of Appeals ruled in favor of the county, holding that the plaintiff failed to raise a triable issue of fact regarding constructive notice. The Court acknowledged that there was no dispute that the county had no actual knowledge of the abuse. It then focused on whether the county had constructive notice—i.e., whether it should have known about the alleged abuse. The Court concluded that the plaintiff’s argument that increased review of caseworker notes would have revealed the abuse was speculative. There was no evidence suggesting that the county had any reason to be aware of the caseworker’s misconduct or propensity to abuse. Without “evidence showing any prior conduct, warnings or signs of risks” related to an alleged abuser’s propensities for sexual abuse, Nellenback found proof of notice was not satisfied.As the majority stated:
“[The Court of Appeals has] never held that a party can prove negligent supervision by stating the employer ‘should have known’ an employee was likely to engage in dangerous conduct without evidence showing any prior conduct, warnings, or signs of risk to that effect.”
Key Takeaways Post-Nellenback
Constructive Notice in CVA Cases
The Court affirmed that the standard for proving constructive notice in CVA cases is the same as in any other cause of action. While the passage of time in many CVA cases creates evidentiary challenges unique to this context, those challenges do not lower the burden of proof. Constructive notice cannot be established without “evidence showing any prior conduct, warnings, or signs of risks” related to the alleged abuser’s propensity for sexual abuse. Courts will not infer notice simply because records may have been lost or destroyed over time.
Speculative Assertions Are Insufficient to Establish Notice
The Court emphasized that broad, speculative allegations are not enough to establish constructive notice. In Nellenback, the plaintiff claimed that a more thorough review of the alleged abuser’s case notes would have alerted the Defendant to the risk of abuse. The Court rejected this argument, holding that such assertions must be supported by specific facts. A plaintiff cannot rely on bare speculation; there must be concrete evidence in the record indicating an employee’s propensity to commit sexual abuse.
The Standard of Care Relates to the Time that the Abuse was Considered
The Court of Appeals found that it must evaluate the reasonableness of the defendant’s supervision and training by the then-prevailing standards, not today’s standard.
Post-Nellenback Open Questions
In Nellenback, the Court held that without evidence in the record establishing a defendant’s opportunity or reason to know of the abuse, it is speculative for a plaintiff to argue that heightened or extraordinary vigilance by the employer would have resulted in notice. This holding raises an important unresolved question: Does a plaintiff’s assertion about the nature and frequency of alleged abuse, on its own, still constitute a factual basis for a triable issue of fact related to constructive notice?
Spcifically, in light of Nellenback’s requirement that genuine evidence of notice must exist in the record, can plaintiffs continue to rely solely on their own uncorroborated allegations regarding the frequency of abuse to survive summary judgement and create a triable issue of fact? If, as the Court concluded in Nellenback, allegations of lax supervision and infrequent review of caseworker notes do not suffice to establish notice, it remains uncertain whether courts will find that frequency of abuse alone can meet the threshold for constructive notice.
Conclusion
Nellenback is a key decision for entities defending CVA claims. By reiterating the high standard for proving constructive notice and making clear that speculative claims of negligence are not sufficient to defeat summary judgment, the Court has confirmed that plaintiffs should not survive summary judgment in these cases without more concrete evidence of prior misconduct or warning signs. That being said, the Court of Appeals did not address the line of Appellate Division Second Department cases holding that movants for summary judgment must eliminate all triable issues pertaining to notice for defendants to meet their initial burden on a motion for summary judgment. Watch this site for an update on this issue and a motion to renew we have currently pending in the Second Department based in large part upon Nellenback
Federal Circuit Addresses District Court Oversight of Expert Testimony on Infringement
In Steuben Foods Inc. v. Shibuya Hoppmann Corporation, the Federal Circuit addressed the boundaries a district court may impose on experts by deeming their testimony wrong as a matter of law.
Background
Steuben Foods Inc. (“Steuben”) owns U.S. Patent Nos. 6,209,591 (the “’591 Patent”), 6,536,188 (the “’188 Patent”), and 6,702,985 (the “’985 Patent”), collectively (the “Asserted Patents”)). All of the Asserted Patents related to systems for the aseptic packaging of food products.
Starting in 2010, Steuben filed suit against Shibuya Hoppmann Corp., Shibuya Kogyo Co. Ltd., and HP Hood LLC (collectively, “Shibuya”) for allegedly infringing the Asserted Patents. In 2019, the actions were consolidated and transferred to the District of Delaware.
The district court issued its claim construction order in 2020 and denied cross-motions for summary judgment of noninfringement, infringement, and invalidity in 2021. Prior to trial, the district court denied Shibuya’s motion for JMOL of noninfringement under FRCP 50(a) as to each of the Asserted Patents. Then, after a five-day jury trial the jury returned a verdict in favor of Steuben, finding that Shibuya infringed the Asserted Patents and that the Asserted Patents were not invalid. The jury awarded Steuben over $38 million in damages.
Following trial, Shibuya renewed its motions for JMOL of noninfringement under FRCP 50(b) and moved for JMOL with respect to invalidity and damages. Shibuya also moved for a new trial on noninfringement, invalidity, and damages.
With respect to Steuben’s infringement case, the district court determined that Steuben’s expert, Dr. Sharon, was wrong as a matter of law for each of the Asserted Patents. For the ’591 Patent, the district court found that Dr. Sharon’s testimony was inconsistent with the specification of the ’591 Patent. For the ’188 Patent, the district court found Dr. Sharon’s testimony could not have convinced a reasonable juror that accused devices were substantially similar to the claimed invention. For the ’985 Patent, the district court found Dr. Sharon’s testimony to be contrary to one of the parties’ stipulated constructions. Ultimately, and notwithstanding the jury’s verdict to the contrary, the district court granted Shibuya’s motion for JMOL of noninfringement for all Asserted Patents.
The district court also preemptively granted a new trial under FRCP 50(c)(1) in the event that its JMOLs with respect to noninfringement, invalidity, or damages were reversed or vacated. The district court entered an FRCP 54(b) judgment in favor of Shibuya, and Steuben appealed.
Issues
Did the district court err in discrediting Steuben’s expert testimony, and in consequentially granting Shibuya’s motion for JMOL of noninfringement of the ’591 and ’118 Patents?
Did the district court err in discrediting Steuben’s expert testimony, and in consequentially granting Shibuya’s motion for JMOL of noninfringement of the ’118 Patent?
Reasoning and Outcome
1. The Federal Circuit held that the district court erred in discrediting Steuben’s expert testimony, and in consequentially granting Shibuya’s motion for JMOL of noninfringement of the ’591 and ’118 Patents.
The specification of the ’591 patent described a valve wherein a secondary sterile region (purple in Fig. 1 below) is supplied with a sterilizing media (item 424 in Fig. 1 below), such that a portion of the valve stem (red in Fig. 1 below) is sterilized when the valve stem leaves the primary sterile region (blue in Fig. 1 below):
Figure 1: An illustration of the invention described in Steuben’s ’591 Patent
The relevant limitation of the claim at issue read “a second sterile region positioned proximate said first sterile region.” Notably, the supplied sterilizing media was described in the specification of the ’591 Patent, but was not recited in the claim at issue.
Steuben’s theory of infringement was that Shibuya’s accused product (illustrated in Fig. 2 below) contained a first sterile region in the form of a sterile fill pipe (tan in Fig. 2 below) which was proximately positioned from a surrounding second sterile region (blue in Fig. 2 below):
Figure 2: An illustration of the invention described in Shibuya’s accused product
The district court structured its analysis with respect to infringement of the ’591 Patent based on the RDOE. The Federal Circuit recited the relevant case law on RDOE:
An alleged infringer may avoid a judgment of infringement by showing the accused “product has been so far changed in principle [from the asserted claims] that it performs the same or similar function in a substantially different way.” SRI Int’l v. Matsushita Elec. Corp. of Am., 775 F.2d 1107, 1124 (Fed. Cir. 1985). A patentee alleging infringement bears the initial burden of proving infringement. Id. at 1123. If the patentee establishes literal infringement, then an accused infringer claiming noninfringement under RDOE bears the burden of establishing a prima facie case of noninfringement under RDOE. Id. at 1123–24. If the accused infringer meets this burden, then the burden shifts back to the patentee to rebut the prima facie case. Id. at 1124.
Shibuya’s expert, Dr. Glancey, testified that the principle of operation of the invention of the ’591 Patent was the supply of a sterilizing media to actively maintain the second sterile region. Because Shibuya’s accused product had no such supplied sterilizing media, the district court determined that Dr. Glancey’s testimony satisfied Shibuya’s burden to raise a prima facie RDOE defense.
In rebuttal, Steuben’s expert, Dr. Sharon, testified that the principle of operation of the invention was “…having these two sterile regions that the valve is sort of constrained to so that as it opens and closes, it only stays within those two regions and it does not go into any non-sterile region [….]” Although the jury apparently accepted Dr. Sharon’s version with regard to the principle of operation, the district court found Dr. Sharon’s testimony contrary to the specification of the ’591 Patent and entitled to no weight. As a consequence, the district court granted JMOL because Steuben had failed to rebut Shibuya’s prima facie RDOE defense in the eyes of a reasonable juror.
In reversing the district court, the Federal Circuit found that Dr. Sharon’s testimony regarding the principle of operation of the ’591 Patent’s invention constituted substantial evidence for the jury’s rejection of Shibuya’s RDOE defense. Thus, the district court erred by discrediting Dr. Sharon’s rebuttal testimony regarding Shibuya’s RDOE defense, and in granting JMOL of noninfringement of the ’591 Patent.
With respect to the ’118 Patent, Dr. Sharon again testified, this time regarding the substantial equivalents of elements defined via mean-plus-function language. Dr. Sharon testified that Shibuya’s accused neck grippers and rotary wheels operate in substantially the same way as the conveyors and conveyor plates defined in the ’118 Patent’s specification. Shibuya’s expert, Dr. Glancey, testified that there were several differences between the accused rotary systems and the claimed conveyor systems.
The district court granted JMOL of noninfringement, finding that Dr. Sharon’s testimony was wrong as a matter of law and entitled to no weight. Like with Dr. Sharon’s testimony on Shibuya’s RDOE defense, the district court believed no reasonable juror could credit Dr. Sharon’s testimony that neck grippers and rotary wheels operate in substantially the same way as conveyors and conveyor plates.
According to Federal Circuit precedent on means-plus-function language, “the individual components, if any, of an overall structure that corresponds to the claimed function are not claim limitations. Rather, the claim limitation is the overall structure corresponding to the claimed function.” Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259,1268. In the eyes of the Federal Circuit, the district court focused too much on the individual components and failed to consider infringement in the context of the claimed function, for which Dr. Sharon’s testimony constituted substantial evidence.
The Federal Circuit reversed the district court’s grant of JMOL of noninfringement and reinstated the jury’s verdict of infringement with respect to both the ’118 and ’591 Patents.
2. The Federal Circuit held that the district court did not err in discrediting Steuben’s expert testimony, and in consequentially granting Shibuya’s motion for JMOL of noninfringement of the ’985 Patent.
The ’985 Patent included a limitation wherein “atomized sterilant is intermittently added to said conduit[.]” Steuben and Shibuya had stipulated to a construction of “intermittently added” as “[a]dded in a non-continuous matter.” It was also undisputed that Shibuya’s accused machines added sterilant in a continuous matter.
Steuben’s expert, Dr. Sharon, testified that the accused product’s continuous sterilization was substantially equivalent to the “intermittently added” limitation under the Doctrine of Equivalents (the “DOE”) because “…in the end, the point is to get the right amount of sterilant into the bottle.” The district court determined that the “intermittently added” limitation could not be met under the DOE by a continuous addition of sterilant because “intermittently” and “continuously” are antonyms of each other. Consequently, the district court deemed Dr. Sharon’s testimony wrong as a matter of law and granted JMOL of noninfringement of the ’985 Patent.
According to Federal Circuit precedent, DOE may not apply where “the accused device contain[s] the antithesis of the claimed structure,” such that the claim limitation would be vitiated. Deere & Co. v. Bush Hog, LLC, 703 F.3d 1349, 1356 (Fed. Cir. 2012). The Federal Circuit found no error with the district court’s reasoning because finding infringement under DOE where the parties had stipulated to a construction antithetical to the operation of the accused device would vitiate the claim limitation.
The Federal Circuit affirmed the district court’s grant of JMOL of noninfringement with respect to the ’985 Patent.
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Changes in Migratory Bird Treaty Act Protections – Impacts on Project Development
Two recent developments signal important changes to the current administration’s position on incidental take under the Migratory Bird Treaty Act (“MBTA”):
On April 11, the U.S. Department of Interior announced its revival of the legal position that incidental take is not prohibited under the MBTA.
On April 21, the U.S. Fish and Wildlife Service withdrew an advance notice of proposed rulemaking signaling a stop to its efforts to develop a permitting program for the incidental take of migratory birds under the MBTA.
Both actions are linked to President Trump’s directive in Executive Order 14154, Unleashing American Energy, for agencies to suspend, revise, or rescind any agency actions identified as unduly burdensome to domestic energy resources.
In the short-term, the practical effects are very likely to include renewed litigation over DOI’s legal position and at least a pause in prosecution for incidental take under the MBTA for most of the United States. Long term effects may depend on how any litigation plays out, which may ultimately reach the U.S. Supreme Court. In the meantime, projects that grapple with MBTA impacts like transmission lines, wind generation, and oil and gas wastewater disposal pits may hedge their bets depending on project timelines.
Changes in Legal Interpretations
Enacted in 1918, the MBTA has made it unlawful to, among other things, pursue, hunt, capture, kill, or “take” a protected migratory bird species for over a century. However, the Act has never defined what it means by “take,” and agency regulations implementing the Act, like those of the U.S. Fish and Wildlife Service, merely echo this list. The open question around this definition is whether the MBTA’s prohibition applies to activities that do not have the primary purpose of taking protected migratory birds, in other words, where the taking would be incidental to the activity. Think wind turbines.
Different administrations have sought to answer this question. DOI’s April 11 memorandum revives a 2017 legal opinion that the MBTA does not apply to incidental take. That 2017 legal opinion had been codified into rule by the USFWS during the first Trump administration. Subsequently, the Biden administration attempted to permanently withdraw the 2017 legal opinion and revoked the USFWS rule. However, USFWS never promulgated a new rule but only issued an advance notice of proposed rulemaking without promulgating a replacement rule. On April 21, the USFWS announced its withdrawal of the advanced notice, consistent with the April 11 memorandum.
Federal courts have also sought to answer this question and have in fact reached different conclusions on whether the MBTA prohibits incidental take when confronted with prosecution for such activities. Given this landscape, an ultimate resolution may indeed need to come from the U.S. Supreme Court if the regulatory landscape continues to lack clarity and consistency.
It’s important to note that the 2017 legal opinion was also litigated and vacated by the federal District Court for the Southern District of New York, which found that the opinion was contrary to the unambiguous language in the MBTA. See NRDC v. U.S. Dep’t of the Interior, 478 F.3d 3d 469 (S.D.N.Y. 2020). That decision was appealed to the U.S. Court of Appeals for the Second Circuit, but the appeal was withdrawn during the Biden administration. DOI’s April 11 memorandum therefore states that the 2017 legal opinion does not apply within the jurisdiction of the District Court for the Southern District of New York.
Where this Latest Change Leaves Us – Practical Takeaways
The federal administration has made its legal position clear, and it is likely to be litigated. The ultimate resolution will be up to the courts and will take time.
In the meantime, with no incidental take permitting program in place, projects have no definitive way to ensure activities that may result in incidental take of protected migratory birds will be shielded from prosecution under a future administration.
Project developers should be aware of obligations unaffected by these changes, including evaluation of impacts to migratory birds under the National Environmental Policy Act and restrictions under separate statutes such as the Bald and Golden Eagle Protection Act.
AT IT AGAIN: Repeat TCPA Litigator Joseph Friel Sues ETN America and CEO Shlomi Cohen Individually in TCPA Class Action
Another day, another TCPA class action naming a company’s CEO individually along with the company filed by a repeat TCPA litigator.
Today’s case involves a suit against ETN America–operator of contractors99.com–along with CEO Shlomi Cohen.
The suit is brought in federal court out in Pennsylvania– although it looks like Cohen lives in California.
Regardless the suit claims ETN sent messages posing as “Install America” to promote window repairs. Apparently Friel claims he received both text messages and prerecorded calls without his consent.
He sue not only ETN but also CEO Cohen claiming:
Mr. Cohen personally participated in the actions complained of by: (a) selecting the script that was going to be used on the calling; (b) personally approving in the call center operations and (d) personally authorizing any other telemarketing conduct of ETN America.
Hmmm. I wonder what “(c)” was.
Sloppy sloppy.
Regardless as Cohen is alleged to be the “primary operator” of the home improvements and windows company Friel is looking to hold him personally liable for the conduct at issue.
The complaint seeks to certify the following classes:
Robocall Class: All persons in the United States who, (1) within four years prior to the commencement of this litigation until the class is certified (2) received one or more calls on their cellular telephone or any other protected telephone service (3) from or on behalf of Defendants, (4) sent using the same, or substantially similar, pre-recorded message used to contact the Plaintiff.
National Do Not Call Registry Class: All persons within the United States: (1) whose residential telephone numbers were on the National Do Not Call Registry for at least 31 days; (2) but who received more than one telephone solicitation call from Defendants or a third party acting on Defendants’ behalf; (3) within a 12- month period; (4) within the four years prior to the filing of the Complaint.
These class definitions are plainly overly broad since they do not exclude individuals that consented to receive calls, but we will see what the court has to say about that.
Plaintiff’s lawyer is the Wolf– Anthony Paronich. So we will see where this goes.
Defendants have not made an appearance and I don’t know who their counsel will be.
Will keep an eye on this one to see if any of these allegations are true.
Full complaint here: Complaint Friel
A few take aways:
PERSONAL LIABILITY is a big risk in TCPAWorld folks. The corporate form will not protect you from being sued!
Seeing an uptick in TCPA suits in home improvement–be careful! If you’re in this vertical be sure to head out LCOC III to stay up to date on all tips and tricks to stay out of trouble!
I’m going to guess this case arose out of third-party lead generation. Cannot emphasize enough how important it is to work with quality lead gen partners folks. With the recent explosion in marketing robocalls it is clear the bad guys are on the loose again– don’t feed the wolf!
The Importance of Preserving Issues for Appeal
This Federal Circuit opinion analyzes claim construction arguments and requests for remittitur in the context of preserving issues for appeal.
Background
Belanger is a manufacturer of car wash systems. Belanger owns the ‘041 patent, which generally discloses a spray type car wash system with lighted spray arms that uses visual cues to help center vehicles within the wash apparatus while entering the bay.
Belanger accused Wash World’s “Razor EDGE” car wash system of infringing the ’041 patent. Wash World responded by seeking a declaratory judgment of noninfringement, and Belanger counterclaimed for infringement and damages. The jury found the “Razor EDGE” system infringed the ’041 patent, and awarded Belanger $10,060,000. The district court subsequently denied Wash World’s motion for judgment as a matter of law of non-infringement and, alternatively, for a new trial or remittitur of the damages award.
Wash World appealed to the Federal Circuit on two issues. Wash World first contended to overturn the infringement judgment due to alleged claim construction errors. Specifically, the disputed claim terms, which relate to how the claimed car wash operates, were (i) “outer cushioning sleeve”, (ii) “predefined wash area”, and (iii) “dependingly mounted”.
In addition, Wash World also contended to reduce the damages award through remittitur by approximately $2.6 million in lost profits from auxiliary products that allegedly lacked any functional relationship to Belanger’s patent claim, i.e., Wash World contended Belanger’s lost profits included improper convoyed sales. The alleged auxiliary products at issue here were unpatented dryers sold with the patented car wash system.
Belanger asserted both of these issues were forfeited.
Issues
Did Wash World forfeit its claim term construction proposals, and if not, did they fail on the merits?
Did Wash World forfeit its request for remittitur, and if not, did the district court abuse its discretion in awarding lost profits from auxiliary products?
Holdings
Mixed. Wash World forfeited its arguments on the (i) “outer cushioning sleeve” and (ii) “predefined wash area” terms. The (iii) “dependingly mounted” argument was not forfeited, but it failed on the merits.
Mixed. Wash World did not forfeit its request for remittitur. The district court did abuse its discretion in awarding lost profits from auxiliary products.
Reasoning
Claim construction. The Federal Circuit first held Wash World forfeited its claim construction arguments regarding the (i) “outer cushioning sleeve” and (ii) “predefined wash area” terms. However, the Federal Circuit held Wash World did not forfeit its claim construction argument regarding (iii) the “dependingly mounted” term. For the first and second terms, the Federal Circuit reasoned Wash World failed to preserve its claim construction arguments because Wash World proposed materially different constructions on appeal than those presented at the district court. Nor were there any exceptional circumstances here: Wash World chose what constructions to propose, was fully heard, and has never indicated to the trial court the new constructions it proposed on appeal. For the (iii) “dependingly mounted” term, the Federal Circuit reasoned although neither party identified such term as requiring construction during the claim construction stage, a dispute over the scope of this term became apparent during briefing on Wash World’s summary judgment motion in the district court. Thus, the proposed construction was not forfeited. Regardless, the Federal Circuit did not find the district court’s claim construction as legally erroneous having a prejudicial effect. The Federal Circuit rejected Wash World’s argument that “dependingly mounted” is limited to a direct connection, as nothing in the claim language suggests so and it is not dispositive that the ’041 patent’s specification only depicts embodiments that have a direct connection.
Remittitur. The Federal Circuit first held Wash World did not forfeit its request for remittitur because although Wash World could have been clearer in its opening brief regarding a remittitur of approximately $2.6 million, the review of the record showed the district court and Belanger understood this was a component of Wash World’s request. Even if such request was forfeited, the Federal Circuit found there were three exceptional circumstances here to reach the merits nonetheless. The first exceptional circumstance was the court can discern here the precise amount of damages awarded based on convoyed sales, as seen through Belanger’s own arguments to the district court which confirmed Belanger understood such precise amount. The second exceptional circumstance was one of estoppel: it would be inequitable to allow Belanger to prevail on appeal by arguing the court cannot determine the amount of damages based on convoyed sales as it would directly contradict Belanger’s previous arguments that the court could identify the amount of damages based on convoyed sales. The third exceptional circumstance was the requirements for obtaining lost profits for convoyed sales were plainly not satisfied. Moving onto the merits, the Federal Circuit likewise held the requirements for obtaining lost profits for such sales were plainly not satisfied here: there was no evidence of a functional relationship between Belanger’s car wash and the listed additional components (unpatented dryers) it sells. Belanger selling such products together as a package is simply only a “matter of convenience or business advantage.”
Conclusion
The Federal Circuit (i) affirmed the district court’s infringement judgment and (ii) vacated and remanded the damages judgment to remit approximately $2.6 million. This opinion highlights the importance of clearly and timely preserving arguments for appeal as exceptional circumstances may not always be present, and the requirements for remittitur in relation to lost profits.
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CAFC Ruling Questions How and When Tools Built Using Machine Learning are Patentable
CAFC affirms that applying generic machine learning to industry-specific problems is not enough for patent eligibility under §101, reinforcing the importance of how innovations are framed in patent applications — especially in emerging tech like AI.
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In a decision with major implications for AI-related patent strategy, the U.S. Court of Appeals for the Federal Circuit (CAFC) held on April 18, 2025 that four patents related to machine learning in live-event scheduling and broadcasting were ineligible under 35 U.S.C. §101. The court affirmed a decision from the U.S. District Court for the District of Delaware, concluding that the innovation merely applied generic machine learning techniques in the data environment for the entertainment industry, without demonstrating any specific technological improvement or inventive concept.
This ruling has significant implications for innovators, businesses, and legal practitioners in the technology and intellectual property fields, particularly those working with machine learning and AI, because it further defines the boundaries of patent eligibility under judicially created exceptions to patent subject matter eligibility.
Background
These exceptions — categories of subject matter that include laws of nature, natural phenomena, and abstract ideas — are not eligible for patent protection. Notably, the “abstract idea” category, which encompasses mathematical formulas and business methods, is often applied against software-implemented inventions. The judiciary and the United States Patent and Trademark Office (USPTO) have ruled that such categories are considered the basic tools of scientific and technological work — which, if patentable, would stifle innovation and restrict access to knowledge.
In considering whether claims are eligible for patent protection, the USPTO or a federal court looks to whether the claims recite more than the subject matter deemed to be within the judicial exception. Under this framework, a claim that recites a judicial exception but also includes additional elements that transform the nature of the claim into a patentable application is typically considered eligible.
Notably, although the CAFC stated that “[m]achine learning is a burgeoning and increasingly important field and may lead to patent-eligible improvements in technology,” patents that “do no more than claim the application of generic machine learning to new data environments, without disclosing improvements to the machine learning models to be applied,” are nevertheless “patent ineligible under § 101.”
Still, it is worth noting that patent owner repeatedly conceded that it was not claiming machine learning itself. Thus, the ruling highlights that application of known machine learning techniques to new contexts will not constitute a patent-eligible invention unless the claims disclose specific improvements to the machine learning technique itself. Such an approach is a further extension of the Supreme Court rulings of Alice Corp. v. CLS Bank International and Mayo v. Prometheus Labs, in that it effectively limits the eligibility analysis to a determination of how machine learning itself is improved rather than the use of machine learning to build systems and methodologies to address technological problems in particular industrial applications.
Implications and Takeaways
The USPTO’s most recent patent eligibility guidance examples are fairly aligned with the CAFC’s recent decision. However, it remains to be seen whether such an approach effectively serves the underlying goal of enabling free use of known “basic tools” such as machine learning technology.
As a result, patent applicants should understand and anticipate that patent eligibility will hinge on both how an innovation is framed in the application text as well as the underlying technology used to generate that innovation.
The Nuts and Bolts of a Federal Equity Receivership: Understanding the Order Appointing the Receiver
When a business or individual faces financial turmoil or regulatory scrutiny, a court may appoint a receiver to take control of assets and oversee the operations of the entity. This process is governed by the order appointing a receiver, a document issued by the court that outlines the receiver’s powers, duties, and responsibilities.
Federal Equity Receivership or State Court Receivership?
This article focuses on federal equity receiverships, which have more in common than differences from state receiverships.
The primary differences are in the legal authority under which the receivership is created, the scope of the court’s jurisdiction, and the typical use cases.
A federal equity receivership is established by a federal court under its equitable powers, usually in the context of an enforcement action brought by a federal agency — think SEC, FTC, or CFTC. These receiverships often arise from allegations of fraud or misconduct involving interstate commerce or securities violations. The federal court appoints a receiver to take control of the defendant’s assets, with broad authority to preserve, manage, and, if necessary, liquidate them to protect victims and creditors. Federal receiverships are also more likely to involve multiple jurisdictions, so the federal system’s nationwide reach gives the receiver broader power to marshal assets across state lines.
A state court receivership, by contrast, is governed by that particular state’s statutes and procedures, which vary widely. State court receiverships are more commonly used in matters like dissolutions of partnerships, foreclosures, family business disputes, or distressed real estate situations. While still powerful, a state court-appointed receiver typically has authority confined within the borders of that state, unless additional proceedings are initiated elsewhere to extend the receiver’s power. In short, a state receivership is more likely to involve traditional business disputes, while federal receiverships often involve regulatory oversight or white-collar enforcement.
To put it in cinematic terms: if state court receiverships are Matlock episodes — localized, a bit more predictable — then federal equity receiverships are like an episode of Billions—feds swooping in, asset freezes, and a lot of drama.
Understanding the terms, provisions, and implications of a receivership order is crucial for anyone involved in these cases.
This article dives into the key provisions of a receivership order (again, focusing on federal equity receivership orders), providing insights into the practical application of receivership law and offering guidance on managing these complex cases.
What Is a Receivership Order?
A receivership order is a legal document issued by a court in cases of insolvency, fraud, or regulatory enforcement. It grants a receiver the authority to take control of the defendant’s business or assets in order to manage them, prevent asset dissipation, and ultimately distribute the proceeds to creditors.
Receiverships can arise from regulatory actions, such as those initiated by the US Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), or from private actions brought by individuals or organizations seeking to recover assets from fraudulent or financially distressed parties. The order itself acts as the governing document for the case, outlining the receiver’s powers and defining their role in managing the estate.
Key Provisions of the Receivership Order
1. Asset Freeze
One of the most important provisions in a receivership order is the asset freeze. This provision prevents the defendant from transferring, dissipating, or hiding any assets once the receivership order is entered. An asset freeze is typically one of the first actions taken, often implemented on what is called ‘takedown day.’
An asset freeze is a crucial step in protecting creditors’ interests, as it ensures that the defendant’s assets are preserved during the receivership process. This provision is particularly vital in cases where there is a risk that the defendant may attempt to hide or liquidate assets in anticipation of the receiver’s appointment.
The injunctive relief provided by an asset freeze ensures that the receiver has the sole authority to control and dispose of assets, preventing any unauthorized actions by the defendant or others with access to the assets.
In some cases, an asset freeze may extend to include the assets of relief defendants, individuals or entities that have received assets from the primary defendant but have not provided reasonably equivalent value in return. This ensures that assets in the possession of third parties, which may have been improperly transferred, are also safeguarded.
2. General Powers and Duties of the Receiver
The general powers and duties of a receiver are outlined in the order and grant the receiver significant authority. The receiver is tasked with managing the assets and overseeing the business’s operations, if applicable. This can involve taking control of business operations, making decisions about the continuation or cessation of business activities, and determining the value and disposition of assets.
As Kelly Crawford, of Scheef and Stone, explains, the powers granted to a receiver are extensive, but not unlimited. The receiver is bound by the terms of the order and must operate within the scope of authority granted by the court. If the receiver needs to take actions outside of the specified powers, they must seek court approval.
Receivers have the authority to hire professionals such as accountants, attorneys, and consultants to assist in managing the estate. They may also be granted the power to make decisions on behalf of the business or individual, effectively stepping into the shoes of the defendant’s management team.
One key responsibility of a receiver is to prioritize the best interests of creditors. The receiver must maximize the value of the assets for distribution to creditors, whether through the continued operation of a business or the liquidation of assets.
3. Access to Books, Records, and Property
Receivership orders typically grant the receiver immediate access to the books and records of the defendant. This access is crucial for the receiver to assess the financial condition of the business or entity, trace any fraudulent transfers, and understand the full scope of the assets and liabilities involved.
In today’s digital age, electronic records play a central role in receivership cases. Melanie Damian of Damian Valori Culmo highlights that the order should allow the receiver to access not only physical records but also digital records, including email accounts, cloud storage, and other electronic data sources. This provision ensures that the receiver can fully assess the entity’s financial status and trace the flow of funds.
Additionally, the receiver is typically granted access to the defendant’s real and personal property, which includes everything from physical assets like real estate and equipment to intangible assets like intellectual property or digital currency. If necessary, the receiver may have the authority to change locks, seize property, or take other actions to secure the estate.
4. Stay of Litigation
Another important provision often included in a receivership order is a stay of litigation. This provision halts all ongoing litigation and prevents new lawsuits from being filed without the receiver’s approval. The stay ensures that no creditor or other party can take independent action that could undermine the receivership process.
This stay is similar to the automatic stay found in bankruptcy proceedings, which stops creditors from pursuing collection actions against a debtor once a bankruptcy petition is filed. The stay of litigation in a receivership is intended to preserve the assets and prevent any actions that could disrupt the receiver’s control over the estate.
In some cases, the receiver may have the exclusive right to file for bankruptcy on behalf of the estate. This provision is particularly important when there is a risk that the defendant may attempt to initiate bankruptcy proceedings in order to avoid the receivership.
Practical Steps for Receivers
Providing Notice and Communication
Once the order is in place, one of the receiver’s first tasks is to provide notice to relevant parties. This includes notifying creditors, landlords, banks, employees, and any other stakeholders who have a vested interest in the receivership’s outcome.
Melanie Damian emphasizes the importance of prompt communication. The receiver must notify parties such as landlords and financial institutions to ensure that they comply with the order, freeze relevant accounts, and redirect payments as necessary. For instance, if the business is involved in renting real property, the receiver must notify tenants to direct payments to the receiver’s control.
In addition to notifying third parties, the receiver should establish a receivership website to provide information to creditors and interested parties. This site can serve as a communication hub, ensuring that everyone has access to updates and relevant documents. Insurance is another critical consideration, and the receiver must immediately verify whether the business or entity holds adequate insurance for its assets.
Managing Non-Cooperative Defendants
In many cases, defendants may resist cooperating with the receiver. Kelly Crawford notes that the receiver must act within the authority granted by the court. If the defendant is uncooperative, the receiver has the power to seek court enforcement through motions for contempt.
The receiver may also face resistance in accessing records or physical property. To mitigate this, Greg Hays of Hays Financial Consulting suggests that the receiver should include language in the order that explicitly grants the receiver the authority to seize property, change locks, and prevent the destruction of records. Law enforcement assistance is often necessary to carry out these actions effectively, especially in high-stakes cases.
Managing the Assets: Liquidation and Recovery
Once the receiver has taken control of the assets, the next step is to assess their value and decide how to manage them. This may involve liquidation — selling off assets to convert them into cash. Receivers are typically granted the authority to sell real property, personal property, and intangible assets, often with court approval.
As Kelly Crawford explains, the receiver should establish procedures for selling assets that maximize their value. This may involve public auctions, private sales, or even online platforms such as eBay for smaller items. The receiver must also comply with statutory requirements for selling real property, which may include obtaining multiple appraisals and publishing notices of the sale.
In some cases, the receiver may uncover fraudulent transfers, where the defendant has moved assets to third parties in an attempt to shield them from creditors. In such cases, the receiver may pursue legal action to recover assets through actions like fraudulent conveyance claims or by seeking the imposition of a constructive trust on assets transferred improperly.
The Role of the Receiver
The receiver plays a pivotal role in managing a distressed estate, preserving assets, and ensuring that creditors receive fair treatment. The receivership order is the legal framework that governs the receiver’s actions, and understanding the provisions of this order is essential for legal and financial professionals involved in such cases.
By understanding the key provisions of a receivership order — such as the asset freeze, the general powers and duties, and the provisions for access to records and property — professionals can better navigate the complexities of receiverships and help their clients protect their interests.
To learn more about this topic view Orders Appointing Receivers: Following the Script and Playing the Part. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles on federal equity receiverships.
This article was originally published on here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
What Every Multinational Company Should Know About … Customs Enforcement and False Claims Act Risks (Part III)
Our previous article on What Every Multinational Company Should Know About … Customs Enforcement and False Claims Act Risks (Part I) outlined how import-related risks have substantially increased given the combination of the new high-tariff environment, the heightened ability of Customs (and the general public) to data mine import-related data, and the Department of Justice’s (DOJ) stated focus on using the False Claims Act (FCA). In Part II, we laid out how to prepare for the most common False Claims Act (FCA) risks arising from submitting false Form 7501 entry summary information. We now complete the series on “Customs Enforcement and False Claims Act Risks” with Part III, which focuses on preparing for the most common FCA risks arising from improper management of import operations.
Risks Arising from Knowing Failures to Correct Errors
If importers discover a systematic error, the position of Customs is clear: The importer is under an obligation not only to correct the error for future entries but also to use measures like post-summary corrections to update prior entries. This is demonstrated by a DOJ settlement in which an importer paid over $22 million to settle allegations that it “made no effort to right its wrongs even after acknowledging internally that it had underpaid millions of dollars of duties owed.” This type of knowing error is exactly the type of conduct that can expose importers to reverse FCA liability.
Customs Compliance Response
Apply Current Knowledge to Unliquidated Entries. Because liquidation takes (approximately) 314 days after entry, Customs grants a 300-day post-summary corrections period to correct most entry-related information. If you discover an error, Customs requires not only that the error be corrected going forward but also that any non-liquidated entries be corrected as well.
Consider Making a Voluntary Prior Disclosure. If an importer initiates a voluntary disclosure before Customs begins its own investigation, then Customs may not pursue penalties, assuming the voluntary disclosure is full and accurate, and the importer pays back any tariffs and interest due. This is an especially important advantage for the new Trump tariffs, since many of them direct that Customs should impose maximum penalties for failure to pay all of the new tariffs, without taking into account traditional Customs mitigating factors. Filing a voluntary self-disclosure before Customs initiates an administrative investigation avoids any Customs administrative penalties (provided the importer follows through with a thorough and accurate disclosure). While a self-disclosure is not a free pass to avoid FCA liability, it can reduce the multiplier and penalties assessed in settlement negotiations.
Risks from Failing to Follow Form 28 and 29 Corrections for Prior Entries
Customs commonly issues Form 28 Requests for Information and Form 29 Notices of Action that target a handful of entries (or even a single entry) where it has questions about the accuracy of submitted entry information. If this results in Customs issuing a correction, then the importer is required to correct not only the entry but also any other entries covered by the reasoning. Failure to do so was one of the key elements of the $22.8 million settlement noted above, where DOJ emphasized that although the importer had received Form 29 Notices of Action, it took two years to correct its ongoing entries (and never corrected prior entries).
Customs Compliance Response
Set Up ACE Notifications. Importers should set themselves up with ACE access so that they directly are receiving copies of Form 28 Requests for Information, Form 29 Notices of Action, and other communications from Customs rather than relying on customs brokers to provide such information. This will ensure that the importer is aware of all potential corrections to its Form 7501 Entry Summary information and can timely respond to any Customs inquiries.
Follow Through on Implementing Conforming Changes. When Customs issues a correction to a single entry or set of entries, the importer is required to identify all analogous entries and correct them for any unliquidated entries, because they are not final. Customs also has the authority to open an inquiry into liquidated entries under Section 1592 if the importer does not file a voluntary disclosure.
Risks Arising from Failure to Notice Red Flags from Suppliers
Under Customs regulations, the importer of record has the sole responsibility to pay all tariffs due. There is, however, no such restriction under the FCA, which means that multinationals that receive imported goods from suppliers can still be liable for FCA claims. For example, an importer of garments from China paid $1 million to settle allegations that it “repeatedly ignored warning signs that its business partner, which imported garments from China, was engaged in a scheme to underpay customs duties owed on the imported garments it sold to” the importer. Thus, even though the customer was not the importer of record, it settled on the basis it had accepted “responsibility for its failure to take action in response to multiple warning signs that [the importers of record] were undervaluing their imported goods and therefore paying less in import duties than they should have been paying.”
Moreover, in 2016, both the importer and manufacturer of clothing goods agreed to pay $13.375 million to settle claims that they conspired to underpay customs duties using invoices that misrepresented the value of the goods at issue. That same year, a U.S. defense contractor agreed to pay $6 million to settle allegations that it used Chinese-imported ultrafine magnesium in flares manufactured and sold to the U.S. Army, in violation of its contract with the military. Though it was the importer who allegedly misrepresented the country of origin, DOJ alleged that the contractor conspired with the importer to sell the nonconforming goods to the government.
Customs Compliance Response
Monitor Business Partners for Red Flags. In a high-tariff environment, there are more incentives than ever for importers to take steps to try to minimize their tariff liabilities. Educate personnel in Procurement, Accounting, and other relevant areas of the company to be alert to potential underpayments by suppliers, which also is useful for situations where business partners might provide incorrect information where your company acts as the importer of record. Simply put, know your business partners well.
Risks Arising From Avoiding Customs Penalties
In general, any situation in which an importer takes steps to avoid Customs penalties can lead to a potential FCA penalty. Examples include failing to mark the country of origin (10% Customs penalty), providing false or misleading information on entry documents (as we covered in Part II), failing to maintain required records, or noncompliance with forced labor regulations. By way of example, the Third Circuit found that failure to notify Customs of marking violations can support an FCA allegation. 839 F.3d 242 (3rd Cir. 2016), cert. denied, 138 S.Ct. 107 (2017). Illustrating this risk, an importer paid $765,000 to settle allegations that it had failed to mark imported pharmaceutical products with the appropriate COO and thus violated the FCA by “knowingly avoiding the marking duties owed to the United States for those imports.”
Another example includes a $1.9 million DOJ settlement in which an importer agreed to settle allegations that it falsely labeled tools it imported as “made in Germany” when the tools were, in fact, made in China. According to DOJ, if the products had been described as Chinese products, the importer would have been required to pay a 25% tariff on the goods. Thus, by allegedly falsely describing the tools as “German,” the importer avoided paying these tariffs.
Customs Compliance Response
Confirm Consistent Marking. Ensure the COO for marking decisions is made in accordance with the correct legal regime, by following the rules of free trade agreements like the USMCA (even in situations where special tariffs may require the use of substantial transformation principles for determining the amount of other tariffs due). Ensure marking is made either directly on the product or, where allowed, on a relevant container or other acceptable fashion to ensure it remains intact for the ultimate purchaser.
Maintain Required Records. Customs regulations require that, subject to certain exceptions, records must be kept for five years from the date of the activity which required creation of the record. Importers should ensure that they are complying with Customs recordkeeping requirements and that their employees are familiar with recordkeeping requirements. The FCA also requires that documents supporting claims — and the claims documentation itself — be true and accurate.
Conduct a Supply Chain Integrity Check and Continuous Monitoring. Complying with labor and transparency requirements is integral to tariff management. Importers should know every step in their supply chains and conduct integrity checks or audits of their suppliers. This can help ensure your company stays informed of new developments to comply with laws — especially in the areas of forced labor, human trafficking, environmental regulations, and modern slavery — and thus avoid potential FCA liability pertaining to these types of regulations. Importers also should implement systems to regularly monitor their suppliers’ performance and compliance, and continuously evaluate their supply chain for new potential risks that might arise. For further guidance on how to best monitor your supply chain, check out our white paper on Managing Supply Chain Integrity Risks.
Between the new Trump tariffs, increased Customs attention to tariff underpayments, newly announced DOJ emphasis on tariff payments, and the greater visibility of Customs into importing data, the potential for Customs FCA actions is greater than ever. As demonstrated throughout this three-part series, DOJ has a rich history of using a wide variety of issues to support FCA actions. DOJ’s announced attention to concentrate on Customs compliance and the full payment of tariffs means that future customs-related FCA cases will build on a foundation of existing cases. These previous cases have already given DOJ and whistleblowers the chance to test out a multitude of the factual and legal theories discussed throughout this series, with both DOJ and relators likely to be incentivized by the potential for significantly higher recoveries and the apparent increased enforcement flexibility resulting from the new tariff regime.
Thus, under the Trump administration’s trade agenda, multinationals should expect heightened scrutiny of imports and DOJ’s increased use of the FCA to bring customs-related actions. It is therefore more critical than ever for importers to assess and revamp their Customs compliance programs to address these new risks. Proactively addressing compliance issues, strengthening internal controls, and documenting decision-making processes can reduce exposure and better position multinationals to respond effectively if Customs scrutiny arises. In an environment with increased potential for enforcement and where corresponding penalties are steep, early preparation is both a risk management strategy and a competitive advantage.
Tricky Compliance Issues for Companies When an Executive Terminates Employment: Executive Severance Plans
Executive employment relationships are rarely permanent. When an executive or other senior-level employee terminates employment, companies often must deal with difficult tax, equity, and benefits issues that arise in the course of the employee’s termination.
This article is the first in a series of articles that will be drafted by Foley & Lardner attorneys over the course of the next five months addressing important compliance pointers for structuring post-termination benefits or addressing issues and considerations for companies when an executive terminates employment. Employers can better position themselves for any termination down the road by thinking through some of these considerations at the start of the executive’s employment arrangement.
To kick off the series, this article focuses on executive severance plans and, in particular, a topic that you may have already considered when drafting an executive severance plan: Will ERISA apply to my executive severance plan? If so, what do I need to know?
This article discusses what constitutes an ERISA-governed executive severance plan, what an ERISA-governed severance plan requires from the plan administrator, and why you may want your plan to be governed by ERISA. We also provide a preview of what is to come in later articles in this series.
Does ERISA Apply to my Executive Severance Plan?
Although they are unusual, funded executive severance plans are always subject to ERISA.
Deciding whether ERISA applies to a more typical unfunded executive severance plan is not as straightforward. The U.S. Supreme Court set the standard for determining whether a severance arrangement is an ERISA plan in 1987. In Fort Halifax Packing Co. v. Coyne, the Court held that an unfunded executive severance plan is likely subject to ERISA if the plan requires an ongoing administrative scheme, specifically noting that a plan providing for a one-time payment triggered by a specific event (like a plant closure) would not be subject to ERISA.
Relying on the Fort Halifax Packing Co. v. Coyne decision, courts have found that an administrative scheme may be established through (i) the exercise of employer discretion, e.g., to decide whether termination is with or without cause, (ii) an ongoing process for complying with a state statute, (iii) an ongoing duty to monitor compliance with non-compete, non-solicitation, and medical coverage provisions, and/or a (iv) group or pattern of similar executive severance agreements.
Most severance plans will afford the employer sufficient discretion to be considered an ERISA-governed plan, even if that was not the employer’s intent. There is nothing wrong with a severance plan being subject to ERISA, but it is important for plan sponsors to be aware of this in order to take advantage of certain benefits that come along with complying with ERISA.
ERISA Applies—What Should I Do?
An ERISA-governed severance plan must be in writing, be administered consistent with the written terms, and comply with the applicable ERISA reporting and disclosure requirements, including annually filing a Form 5500 (if required) and distributing a summary plan description to plan participants. Whether a Form 5500 filing is required depends on several factors, including whether the severance plan is a “pension plan” or “welfare plan” under ERISA. A pension plan under ERISA is any plan, fund, or program established or maintained by an employer that either provides retirement income to employees or results in the deferral of income extending beyond termination. An ERISA welfare plan is any plan, fund, or program established or maintained by an employer that provides a wide range of health or welfare benefits or any benefits as described in Section 302(c) of the Labor Management Relationship Act of 1947, which includes severance. Most severance plans subject to ERISA will qualify as welfare plans. The most likely scenario where a severance plan may qualify as a retirement plan is if severance benefits are only available to employees upon reaching a certain age, such as age 65. Structuring a severance benefit in this way, however, is rare.
If a broad-based severance plan qualifies as a welfare plan (which is most likely), a Form 5500 filing is only required if the plan has 100 or more participants. If a broad-based severance plan qualifies as a pension plan, then a Form 5500 filing is required regardless of how many participants are in the plan.
ERISA also includes claims and appeals procedures that must be followed by the employer and participants in the event of a dispute. This may provide some protection to an employer in the event the employer is sued by a former employee for failing to pay severance benefits. If the employer has followed the claims and appeals procedures, the court will only overturn the employer’s decision if it determines the employer acted in an arbitrary and capricious manner.
Because an executive severance plan is likely limited to a select group of management or highly compensated employees, it may be considered a “top hat” plan. All top hat plans are exempt from certain requirements of ERISA, such as the reporting and disclosure requirements discussed above. This means that a severance plan that qualifies as a top hat welfare plan will not be required to file a Form 5500, regardless of the number of participants in the plan, or distribute a summary plan description. On the rare occasion that a severance plan qualifies as a top hat pension plan, the plan will be exempt from certain other ERISA requirements, provided the plan administrator files a top hat plan statement with the Department of Labor within 120 days of the plan’s effective date. As mentioned before, though, an executive severance plan is not likely to qualify as a pension plan and will only seldomly need to make such a filing with the Department of Labor.
What are the Benefits of an ERISA-Governed Severance Plan?
Being subject to ERISA may confer certain benefits to employers:
Employees can only sue for benefits and legal fees — no punitive or compensatory damage
Uniform administration of benefits
Courts give deference to employer administrative decisions
Unhappy individuals must exhaust internal claims and appeals procedures of plan before filing suit
Generally litigated in federal, not state court (which some attorneys prefer)
Anything Else I Should Consider When Drafting an Executive Severance Plan?
Yes, you should consider Internal Revenue Code Section 409A structuring and administration considerations.
Does “Indemnify” = “Hold Harmless”?
Does this sound familiar? Nearly every construction contract contains an indemnification provision with some variation of these terms. And if you have ever negotiated a construction contract, you know that indemnification provisions often feature in those discussions. But are the words “indemnify” and “hold harmless” an example of lawyers inserting a meaningless list of synonyms to ensure that all bases are covered? Or do “indemnify” and “hold harmless” mean different things? According to the Alabama Supreme Court in Adams v. Atkinson, No. SC-2024-0528, 2025 WL 1416851 (Ala. May 16, 2025), “indemnify” and “hold harmless” may be synonyms depending on the context.
As noted in one of our prior blog posts, “contractual indemnity is the right of one party (the indemnitee) to claim reimbursement for a loss from another party (the indemnitor).” But does “hold harmless” also give one party a right to indemnification when it appears by itself? This past week, the Alabama Supreme Court held that the answer might be “yes.”
In Adams, a beneficiary of a family trust sued other parties for reimbursement of attorneys’ fees under the terms of a prior settlement agreement. The beneficiary faced a demand for payment of attorneys’ fees from a trustee and sought reimbursement from the defendants under a hold harmless provision. The hold harmless provision did not include the word “indemnify” but required the defendants to “hold [the beneficiary] harmless against any demand… by any corporate trustee… for attorneys’ fees.” The defendants argued that “hold harmless” was a defensive term in that they agreed only to waive any claim against the beneficiary for attorneys’ fees. The beneficiary, however, argued that the hold harmless provision necessarily granted an offensive right to reimbursement, i.e., indemnification, for the attorneys’ fees because it contemplated claims against the beneficiary only.
The Alabama Supreme Court held that “hold harmless” and “indemnify” may be synonyms even when they “appear separately and perform the same function.” To be clear, the court emphasized its holding was “narrow.” In the context of the specific hold harmless provision at issue, holding the beneficiary harmless against demands by corporate trustees only made sense if “hold harmless” meant “indemnify.” The court concluded by (1) confirming that “indemnify” and “hold harmless” are synonyms when they appear as a doublet (i.e., beside each other in the same provision) and (2) reasoning that “hold harmless” can mean “indemnify” when it (a) appears separately and (b) performs the “same function” as an indemnification provision.
In ruling in favor of the beneficiary, the court determined the context of the specific agreement in Adams indicated that the parties intended the hold harmless provision to operate as a reimbursement mechanism rather than a mere waiver of rights. The court found the defendants’ argument illogical as they would have no claim for attorneys’ fees to be waived in an action by a trustee against the beneficiary in which none of the defendants were named.
So, what does Adams mean for your construction contracts?
It means that you should be careful when using the words “hold harmless” by itself because a court or arbitrator may conclude that it means something different than you intended. Regardless of whether you want “hold harmless” language to operate as a waiver or a right to indemnification, later interpretations of that provision may be fact-dependent and may vary depending on the specific language used.
Litigation Trend Alert: Breach of Contract and Warranty Claims Based on Privacy Policies
A recent series of articles by the International Association of Privacy Professionals discusses a trend in privacy litigation focused on breach of contract and breach of warranty claims.
Practical Takeaways
Courts are increasingly looking at website privacy policies, terms of use, privacy notices, and other statements from organizations and assessing breach of contract and warranty claims when individuals allege businesses failed to uphold their stated (or unstated) data protection promises (or obligations).
To avoid such claims, businesses should review their data privacy and security policies and public statements to ensure they accurately reflect their data protection practices, invest in robust security measures, and conduct regular audits to maintain compliance.
Privacy policies are no longer just formalities; they can become binding commitments. Courts are scrutinizing these communications to determine whether businesses are upholding their promises regarding data protection. Any discrepancies between stated policies and actual practices can lead to breach of contract claims. In some cases, similar obligations can be implied through behavior or other circumstances and create a contract.
There are several ways these types of claims arise. The following outlines the concepts that plaintiffs are asserting:
Breach of Express Contract: These claims arise when a plaintiff alleges a business failed to adhere to the specific terms outlined in their privacy policies. For example, if a company promises to “never” share user data with third parties but does so.
Breach of Implied Contract: Even in the absence of explicit terms, businesses can face claims based on implied contracts. This occurs when there is an expectation of privacy and/or security based on the nature of the relationship between the business and its customers.
Breach of Express Warranty: Companies that make specific assurances about the security and confidentiality of user data can be held liable if they fail to meet these assurances.
Breach of Implied Warranty: These claims are based on the expectation that a company’s data protection measures will meet certain standards of quality and reliability.
How to avoid being a target:
Ensure Accuracy in Privacy Policies, Notices, Terms: Even if a business takes the steps described below and others to strengthen its data privacy and security safeguards, those efforts still may be insufficient to support strong statements concerning such safeguards made in policies, notices, and terms. Accordingly, businesses should carefully review and scrutinize their privacy policies, notices, terms, and conditions for collecting, processing, and safeguarding personal information. This effort should involve the drafters of those communications working with IT, legal, marketing, and other departments to ensure the communications are clear, accurate, and reflective of their actual data protection practices.
Assess Privacy and Security Expectations and Obligations. As noted above, breach of contract claims may not always arise from express contract terms. Businesses should be aware of circumstances that might suggest an agreement with customers concerning their personal information and then work to address the contours of that promise.
Strengthen Data Privacy and Security Protections. A business may be comfortable with its public privacy policies and notices, feel that it has satisfied implied obligations, but still face breach of contract or warranty claims. In that case, having a mature and documented data privacy and security program can go a long way toward strengthening the business’s defensible position. Such a program includes adopting comprehensive privacy and security practices and regularly updating them to address new threats. At a minimum, the program should comply with applicable regulatory obligations, as well as industry guidelines. The business should regularly review the program, its practices, changes in service, etc., as well as publicly stated policies and notices, as well as customer agreements, to ensure that data protection measures align with stated policies.