The Clear and Unmistakable Standard for Applying Prosecution Disclaimer
The US Court of Appeals for the Federal Circuit found that a district court misconstrued claim terms based on a misapplication of the clear and unequivocal disavowal standard and vacated its noninfringement decision. Maquet Cardiovascular LLC v. Abiomed Inc., Abiomed R&D, Inc., Abiomed Europe GMBH, Case No. 23-2045 (Fed. Cir. Mar. 21, 2025) (Reyna, Taranto, Cunningham, JJ.)
Maquet owns a patent related to a system that provides greater precision in deploying a blood pump to a patient’s circulatory system. The district court construed three patent terms. The district court construed the term “guide mechanism comprising a lumen” to include a negative limitation that the guidewire lumen “is not distal to the cannula.” The court justified this limitation by citing to the prosecution history of a related patent where Maquet disclaimed the broader claim by merely accepting the examiner’s proposed revisions. The district court also construed both guide wire terms in two other claims to include another negative limitation: “the guide wire does not extend through the free space in between the rotor blades.” The district court similarly justified this negative limitation by citing to the parent patent’s prosecution history, finding that Maquet had given up a broader version of the claim. The district court’s construction effectively limited the scope of Maquet’s claims to exclude the accused products, and the parties stipulated to the entry of a final appealable judgment of noninfringement. Maquet appealed.
Maquet argued that the district court erred in its construction of the three terms by misapplying the law of prosecution disclaimer. The Federal Circuit agreed, finding that the district court incorrectly relied on Maquet’s prosecution history to reach its conclusions on claim construction. The district court cited to an amendment made in a different (but related) patent prosecution and a different claim. The Federal Circuit explained that although the prosecution history of a related patent may be relevant, the claim limitations in the two applications must be similar in order for the prosecution disclaimer doctrine to apply. Here, the Court found that the amendment in the related patent was not sufficiently similar to the limitation at issue to constitute a disclaimer for the claim at issue. The related case claim did not claim a guide mechanism, nor did it require the lumen be in a specific position. The Federal Circuit found that the district court erred in its construction by improperly applying prosecution disclaimer.
The Federal Circuit also determined that the district court erred in its construction of the guide wire claim terms by applying prosecution disclaimer and interpreting a restriction on their scope. The Court found that while the prosecution history of the parent patent’s claims was sufficiently similar and thus relevant, Maquet did not disavow either claim’s scope during the relevant prosecution. The Court noted that mere silence in response to a notice of allowance typically does not rise to clear and unmistakable claim disavowal. The Court also observed that statements made during an inter partes review (IPR) proceeding may be used to support a finding of prosecution disclaimer, but they also must meet the clear and unmistakable standard. Here the Court concluded that Maquet’s statements made in the IPR proceeding and throughout prosecution history did not rise to the stringent level required and thus did not limit the scope of the guide wire in the claims.
Hatch-Waxman Litigation Expenses Are Deductible Under Internal Revenue Code § 162(a)
The US Court of Appeals for the Federal Circuit upheld a US Court of Federal Claims ruling that Hatch-Waxman Act litigation expenses are ordinary and necessary business expenses under § 162(a) of the Internal Revenue Code, entitling an abbreviated new drug application (ANDA) filer to deduct litigation expenses incurred defending against a patent infringement lawsuit. Actavis Labs. FL, Inc. v. United States, Case No. 23-1320 (Fed. Cir. Mar. 21, 2025) (Chen, Cunningham, Stark, JJ.)
Actavis filed ANDAs with the US Food and Drug Administration (FDA) seeking approval to market and sell a generic version of a drug already offered for sale in the United States. Per the Hatch-Waxman Act, filing an ANDA is an act of patent infringement where the ANDA holder seeks FDA approval prior to the expiration of the new drug application (NDA) holder’s patent. Following Actavis’s filing, the NDA holder brought a patent infringement lawsuit against Actavis.
Actavis subsequently treated litigation expenses incurred in defending the patent infringement lawsuit as ordinary and necessary expenses. Actavis deducted those litigation expenses on its tax returns for that year. However, the Internal Revenue Service (IRS) considered these expenses to be nondeductible capital expenditures since they were incurred “in pursuit of an intangible capital asset: namely, FDA approval to lawfully market a generic drug product in this country.”
Actavis eventually paid its tax liability but then sued the IRS in the Court of Federal Claims to recover what Actavis considered an overpayment of its taxes. The claims court agreed with Actavis, holding that Hatch-Waxman litigation expenses were deductible as ordinary and necessary business expenses. The IRS appealed.
The Federal Circuit affirmed. When determining whether Hatch-Waxman litigation expenses are deductible under Code § 162(a), the Federal Circuit uses two tests to settle the issue: the “origin of the claim” test and the “most significant benefit” test. However, as the Court emphasized, regardless of which test applied, Actavis prevailed.
The Federal Circuit first explained that Actavis prevailed under either test because patent infringement (not the FDA approval process) is what triggers incurring litigation expenses. Further evidence that the “origin of the claim rests in the patentholder’s decision to sue, and not in the ANDA filer’s decision to seek drug approval from the FDA, is the fact that infringement litigation cannot provide the ANDA filer what it wants – only the FDA can,” the Court stated.
Relying on the Third Circuit’s 2023 decision in Mylan v. Comm’r of Internal Revenue, the Federal Circuit delved into the fairness aspect of allowing Hatch-Waxman litigation expenses to be deductible. Citing Mylan, the Court explained that generic manufacturers defending against patent infringement suits “obtain no rights from a successful outcome. They acquire neither the intangible asset of a patent nor an FDA approval.” The Court also noted that brand-name drug companies in Hatch-Waxman lawsuits may deduct litigation expenses incurred while enforcing their patent rights. “[I]mposing very different tax treatment on the warring sides in an ANDA dispute, as the Commissioner advocates, is at odds with the careful statutory balance [embodied in the Hatch-Waxman Act] of improving access to lower-cost generic drugs while respecting intellectual property rights,” the Court stated.
Lastly, the Federal Circuit discussed the practical issues involved in treating Hatch-Waxman litigation expenses as nondeductible capital expenditures. The Court stated that obviously “[t]he ANDA filer would prefer not to be sued and then to obtain final FDA approval that becomes effective upon the FDA’s completion of its regulatory review, without a 30-month stay and risk of losing the litigation and needing to wait until the expiration of all pertinent patents.” Hence, defending a lawsuit should not be considered a “facilitating step in the FDA regulatory approval process,” which necessarily means that Hatch-Waxman litigation expenses did not “‘facilitate’ Actavis’ pursuit of the intangible asset of effective FDA approval of its ANDA,” the Court explained. As a result, the Court concluded that Hatch-Waxman litigation expenses should not be treated as nondeductible capital expenditures.
Matthew J. Blaney also contributed to this article.
Supreme Court Rules Lost Wages May Be Recoverable Under RICO For False Advertising After Drug Test Dismissal
On April 2, 2025, the Supreme Court of the United States ruled that a truck driver who lost his job after testing positive for marijuana may pursue claims for lost wages under the Racketeer Influenced and Corrupt Organizations Act (RICO) against the sellers of an allegedly fraudulently marketed pain relief product.
Quick Hits
The Supreme Court allowed a truck driver to pursue civil RICO claims for lost wages after he failed an employer drug test after ingesting an allegedly falsely marketed pain relief product.
The Court ruled that a plaintiff may pursue treble damages under RICO for lost business or property that followed a personal injury.
The decision raises questions about the scope of RICO, particularly whether lost wages and economic harms related to personal injuries can be considered recoverable.
The 5–4 ruling in Medical Marijuana, Inc. v. Horn held that a plaintiff may seek treble damages under RICO, a law initially designed to combat organized crime, for lost business or property, even if the damages resulted from an antecedent personal injury.
The ruling allowed a truck driver to pursue civil RICO claims seeking recovery for lost wages against the sellers of a pain relief product after he was discharged for failing a random drug test when he tested positive result for tetrahydrocannabinol (THC), the psychoactive component of marijuana or cannabis. He alleged the sellers falsely marketed their pain relief product as not containing THC, only the non-psychoactive chemical cannabidiol, more commonly known as CBD.
The product sellers argued that the damages resulted from a personal injury and that RICO’s “business or property” injury limitation precludes recovery for economic harms stemming from personal injuries. Specifically, RICO allows an individual to bring civil claims for damages to “business or property by reason of” racketeering and other activities prohibited by the act and recover treble damages.
“The phrase ‘injured in his business or property’ does not preclude recovery for all economic harms that result from personal injuries,” Justice Amy Coney Barrett wrote in the Court’s opinion, which was joined by four other justices. “We therefore affirm the Second Circuit’s judgment and remand the case for further proceedings consistent with this opinion.”
Notably, the Supreme Court expressly did not address whether the truck driver had suffered a personal injury when he consumed THC or whether the term “business” encompasses all aspects of “employment.” The Court also did not provide further explanation on what types of injuries to “property” are covered by RICO.
The Second Circuit had found that the truck driver was “‘injured in his business’” when he lost his job and that there is no bar to recovery under RICO if the economic harm is preceded by or a result of a personal injury.
The CBD product sellers argued that the Second Circuit’s approach would effectively destroy RICO’s “business or property” limitation and transform traditional personal injury suits into federal suits under RICO, which allows for recovery of treble damages.
However, the Supreme Court majority rejected the sellers’ arguments. In the Court’s opinion by Justice Barrett, the Court clarified the plain interpretation of the RICO text, stating that “‘injured’ means ‘harmed’ − with no plausible alternative in hand.” (Justice Ketanji Brown Jackson wrote a short concurring opinion to note that Congress has instructed that RICO be “liberally construed.”)
The Court further explained that while “civil RICO has undeniably evolved,” RICO claims are still limited in that they require a direct relationship between the injury and the alleged injurious conduct, and a “plaintiff must first establish a pattern of racketeering activity.” The Court also noted that the terms “business” and “property” in RICO still limit the types of claims that are recoverable.
“As we noted at the outset, ‘business’ may not encompass every aspect of employment, and ‘property’ may not include every penny in the plaintiff ’s pocketbook,” the Court said. “Accordingly, not every monetary harm—be it lost wages, medical expenses, or otherwise—necessarily implicates RICO.”
“If the breadth of the statute ‘leads to the undue proliferation of RICO suits, the ‘correction must lie with Congress,’” the Court added.
In a dissenting opinion joined by Chief Justice John Roberts and Justice Samuel Alito, Justice Brett Kavanaugh argued that RICO categorically excludes personal injury claims, stating that “the fundamental question here is whether business or property losses from a personal injury transform a traditional personal-injury suit into a business-injury or property-injury suit that can be brought in federal court for treble damages under RICO.”
Justice Kavanaugh further argued that the majority’s opinion “leaves substantial confusion in its wake” because it did not explain “whether lost wages and medical expenses are recoverable losses of business or property in those RICO suits.”
Justice Clarence Thomas dissented, arguing that the case was “improvidently granted” because the parties dispute whether the truck driver even “suffered a personal injury in the first place” and that there has been inadequate briefing on the meaning of the “business or property” injury requirement in RICO.
Next Steps
The Supreme Court’s ruling expands the reach of RICO’s civil component by finding that personal injury claims that have damages to “business or property” are not necessarily excluded. The CBD sellers in the case and business groups have argued that such an approach could increase federal RICO liability for businesses for product liability claims. However, the Court noted that it is up to Congress to limit the claims, if necessary.
Further, while the ruling comes in the context of an employee suing for lost wages after losing his job, the ruling leaves open questions over the extent to which lost wages or other adverse employment actions that lead to lost wages or economic losses for employees may implicate RICO. The Second Circuit had interpreted injury in “business” under RICO as encompassing “employment.” Still, the Supreme Court expressly did not decide that issue, noting the Second Circuit’s “interpretation may or may not be right.”
Whether the truck driver’s RICO suit will ultimately be successful after remand level is highly questionable. However, the concerns raised in the dissent remain—the inclusion of economic harms that stem from personal injuries as recoverable under RICO is likely to lead some crafty attorneys to attempt to further expand the applicability of the civil RICO statute.
Tempus Fugit Ad Nevada
Three days after Delaware’s governor, Matt Meyer, signed into law controversial amendments to Delaware’s General Corporation Law, another publicly traded company filed preliminary proxy materials with the Securities and Exchange Commission seeking stockholder approval of a reincorporation in Nevada.
“Fugit inreparabile tempus”*
Tempus AI, Inc. describes itself as “a healthcare technology company focused on bringing artificial intelligence and machine learning to healthcare in order to improve the care of patients across multiple diseases”. Although its principal executive offices are in Chicago, Illinois, it was incorporated in Delaware. Tempus’ proxy materials emphasize Nevada’s “statute focused” approach and its board’s belief “that Nevada can offer more predictability and certainty in decision-making because of its statute-focused legal environment”. The company also faults the litigation environment in Delaware:
The Board also considered the increasingly litigious environment in Delaware, which has engendered less meritorious and costly litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team and potential delay in the Company’s response to the evolving business environment. The Board believes that a more stable and predictable legal environment will better permit the Company to respond to emerging business trends and conditions as needed.
I expect that Tempus’ board was aware of the Delaware legislation, but the changes were not enough to convince it to remain in the Blue Hen state.
* Time flies irretrievably. Publius Vergilius Maro, Georgics, Liber III.
GLP-1 Receptor Agonists: Drug Litigation Overview and Trends
The recent uptick and rise in popularity of GLP-1 drugs for addressing weight loss and obesity has led to an increase in U.S. litigation involving this class of drugs. Over the past few years, litigation has focused on a wide range of issues including patent and other IP disputes, product liability, regulatory challenges, importation concerns, and legal issues concerning the availability of compounded versions of GLP-1 drugs in view of the U.S. Food & Drug Administration (FDA)-declared drug shortages.
Compounded Drugs and FDA-Declared Drug Shortages
Due to the increased popularity of GLP-1 drugs for treatment of diabetes and for weight management, many of the FDA-approved drugs have experienced drug shortages over the past few years. In contrast to the FDA-approved GLP-1 drugs, compounded drugs are typically created by licensed pharmacists for individual patient needs and are not subject to the same rigorous FDA review process for safety and efficacy. Entities may only sell compounded drugs that are identical to an FDA-approved drug when that drug is on the FDA drug shortage list. Although compounded drugs may be legally sold during a declared drug shortage, the compounded drugs must still comply with certain other legal and regulatory requirements directed to quality and safety issues.
Finding an inability of brand name GLP-1 manufacturers to keep up with patient demand for approved GLP-1 drugs, the FDA temporarily placed many of the approved GLP-1 drugs on the FDA shortage list, leading to an increase in the availability and sale of compounded drugs containing the active ingredient. This in turn led to significant litigation between brand name GLP-1 manufacturers and groups representing entities selling compounded drugs.
For example, brand name GLP-1 manufacturers have filed numerous lawsuits against entities manufacturing and selling compounded versions of their drugs, alleging a wide range of claims including failure to comply with regulatory requirements, trademark infringement, violation of consumer protection laws, and various allegations directed to mispresenting and deceiving patients as to the regulatory status of the compounded versions.
As brand name manufacturing capacity has increased to meet patient demand, the FDA has removed some of the GLP-1 drugs from the drug shortage list, leading to lawsuits filed by the compounding pharmacies against FDA. For example, FDA removed tirzepatide from the drug shortage list in October 2024. In response, Outsourcing Facilities Association filed a lawsuit against FDA in the Northern District of Texas on behalf of its members, challenging FDA’s decision to remove the drug from the drug shortage list as arbitrary and capricious. The matter was remanded back to FDA for reconsideration, and FDA issued a decision in December 2024 confirming the drug shortage was resolved. Most recently, in March 2025, the district court denied the plaintiff’s motion for a preliminary injunction, finding FDA’s decision to remove tirzepatide from the drug shortage list was proper. That case is now on appeal.
A similar round of lawsuits was filed in 2025 following FDA’s decision to remove semaglutide products from the drug shortage list.
Given the ongoing popularity and high demand for GLP-1 drugs in the U.S., we expect both sides to continue litigating over these issues.
Patent Litigation
To date, patent infringement lawsuits have largely followed the framework under the Hatch-Waxman Act applicable to generic drug manufacturers who seek FDA approval to market generic versions of approved drugs (“reference listed drugs”) by filing Abbreviated New Drug Applications (ANDAs). The ability to even file an ANDA is subject to applicable FDA exclusivity periods. One of the relevant exclusivity periods applies to New Drug Applications (NDA) for approved products containing new chemical entities (NCEs), whereby an ANDA with a paragraph IV certification may not be submitted until four years after the NDA was approved (i.e., the NCE-1 date). Another relevant exclusivity period applies when a previously approved drug is approved for a new patient population based on new clinical studies–any ANDAs directed to that new patient population (NPP) may not be approved for a period of three years.
Because the filing and/or approval of ANDAs is tied to the FDA exclusivity periods granted to the reference listed GLP-1 drugs, the timing of related patent infringement lawsuits brought under the Hatch-Waxman Act varies as well.
For example, liraglutide was first approved in 2010 as Victoza® for treatment of diabetes and later approved in 2014 as Saxenda® for weight loss. All relevant FDA exclusivity periods for liraglutide have expired, with patent litigation against potential generic competitors starting in 2017. FDA approved the first generic drug containing liraglutide in December 2024.
As another example, semaglutide was first approved in 2017 as Ozempic® for treatment of diabetes and later approved in 2021 as Wegovy® for weight management and weight loss. The NCE period for semaglutide has expired permitting the filing of ANDAs, although the three-year NPP exclusivity is still active for Wegovy® through December 2025. Patent litigation has been initiated against at least nine generic competitors, with settlements reported in connection with the first wave of lawsuits filed in 2022. New lawsuits were filed in 2024 against additional generic competitors, which remain ongoing. FDA has not yet approved any generic versions of semaglutide, and it is unclear when any such approved generic drugs may be permitted to enter the U.S. market.
The newest GLP-1 drug, tirzepatide, was first approved in 2022 as Mounjaro® for treatment of diabetes and later approved in 2024 as Zepbound® for obesity. The NCE period for tirzepatide runs through May 13, 2027, which means generic companies may not file an ANDA seeking approval for a generic version of Mounjaro® or Zepbound® until May 13, 2026, with patent infringement lawsuits expected to occur in the following months.
Two additional areas that may be ripe for future patent-related litigation challenges involving GLP-1 drugs include patent infringement claims brought against compounding pharmacies and claims challenging whether patents are properly listed in the Orange Book for certain GLP-1 drugs.
To date, name brand manufacturers of FDA-approved GLP-1 drugs have not appeared to target compounding pharmacies with patent infringement lawsuits, choosing instead to litigate other claims against these entities, as discussed in more detail above. As those litigations wrap up, it is possible that we could see additional patent infringement claims brought against entities making and selling compounded versions of the drugs.
Starting in fall of 2023, the Federal Trade Commission (FTC) announced a new policy expressing concerns over the potential anticompetitive effect of patents that may have been improperly listed in the Orange Book. The FTC followed this announcement with several rounds of letters to name brand manufacturers (including GLP-1 manufacturers), notifying them of FTC’s claim that certain patents were improperly or inaccurately listed. Similar challenges have been raised in U.S. courts (although directed to other drug classes), with the Federal Circuit reaching a decision in Teva Branded Pharm. Prods. R&D, Inc. v. Amneal Pharms. LLC in December 2025. In that case, Amneal filed a counterclaim seeking an order to delist certain device patents from the Orange Book. The Federal Circuit affirmed the district court’s delisting order, finding the device patents were not properly listable because they did not claim a specific active ingredient and instead were only directed to components of the device. Although there are a range of different patents listed in the Orange Book for GLP-1 drugs, it is worth monitoring ongoing FTC investigations and enforcement trends to the extent these may impact future Orange Book listing challenges raised by competitors.
International Trade Commission
Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) grants the U.S. International Trade Commission (ITC) authority to resolve complaints filed by companies alleging unfair acts in the importation of products into the U.S. Although Section 337 cases typically involve allegations of infringement of various IP rights, including patents, trade secrets and trademarks, the ITC is also empowered to address other violations, including claims based on importation of non-approved drugs and Lanham Act claims based on false advertising and false designation of origin.
In addition to moving more quickly relative to most U.S. district court litigations, ITC cases involve several unique aspects, including a domestic industry requirement whereby the complainant asserting the violation must prove that it has established (or is in the process of establishing) a domestic industry that practices the IP right through a significant investment in various activities, including plant, equipment, labor, capital and/or a substantial investment in research and development or licensing. The remedies that may be awarded for a violation are extremely effective and can include either a limited or general exclusion order, enforced by U.S. Customs and Border Protection, which effectively bar the importation of products in violation of Section 337 from entering the U.S. Limited exclusion orders are limited to only the subject articles imported by named respondents, whereas general exclusion orders are more difficult to obtain and apply generally to all subject articles, regardless of who is responsible for importation. If proven, a general exclusion order can be extremely valuable to companies who are facing competition through importation of infringing or counterfeit articles from multiple entities where the responsible party is difficult to identify or routinely changes names/addresses.
At least one approved GLP-1 manufacturer (Eli Lilly) has filed a complaint with the ITC against various online pharmacies selling compounded drugs containing tirzepatide. Eli Lilly’s claims against the online pharmacies allege importation of unapproved drug products containing tirzepatide along with misuse of the Mounjaro® trademark and false and misleading statements regarding FDA approval and equivalency to the approval Mounjaro® product. In December 2024, the Administrative Law Judge (ALJ) at the ITC issued an Initial Determination partially granting summary determination against several of the accused pharmacies on the trademark, false designation and false advertising claims. In that decision, the ALJ also recommended the ITC issue a general exclusion order banning the importation of all products containing tirzepatide. In January 2025, the ITC issued a notice stating it was not going to review the summary determination order but sought further comments on public interest and remedy. A final decision on remedy is expected in April 2025.
Future Litigation Trends
Just as the U.S. market has adapted to the increase in sales of approved GLP-1 drugs, leading to FDA-declared drug shortages and the availability of compounded versions, the litigation landscape has adjusted as well with recent decisions focusing on FDA’s decision to remove these drugs from the shortage list. Likewise, patent litigation involving GLP-1 drugs is expected to evolve as FDA exclusivity periods expire in the near future, leading to additional challenges raised by potential generic drug competitors. Given the popularity of these drugs, relevant players in the market have adapted their litigation strategies to raise new legal claims, including in additional forums with significant remedies for violation of various IP rights.
Trump Administration Efforts to Eliminate Cartels Pose Heightened Risk for Financial Institutions
As discussed in Bracewell’s February 11 and February 26 updates, the executive branch is prioritizing the “total elimination” of cartels and transnational criminal organizations, both through edicts from the Oval Office and through agency initiatives. Each action is significant on its own, but taken together, this concerted effort increases the potential criminal and civil liability of any company — but particularly financial institutions — that conducts business in Mexico and certain parts of Central and South America. Below we break down three significant pieces of this effort and provide guidance on how companies should navigate this new risk landscape.
Designation of Cartels as FTOs and SGDTs Expands Scope of Criminal and Civil Liability
Pursuant to Executive Order 14157, the US State Department designated eight international cartels and transnational organizations[1] as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SGDTs). The list includes six Mexican cartels, TdA (a cartel active in parts South America) and MS-13 (a cartel active in parts of Central America). These new designations increase the risk of criminal and civil liability for both US and foreign companies that may interact with these cartels knowingly or unknowingly, directly, through third-party vendors, or when paying certain “fees” and to conduct business in areas controlled by the cartels.
Criminal Liability. Providing any of the cartels now designated as FTOs with money, financial services, lodging, personnel or transportation may constitute the criminal offense of providing “material support” to a terrorist organization in violation of 18 U.S.C. § 2339B. Because the reach of 18 U.S.C. § 2339B is not confined to US entities or activities on US soil, these charges have been brought against foreign companies for transactions in foreign countries, including against Lafarge, a French building materials manufacturer for sharing revenue with FTOs (ISIS and ANF) in Syria, and Chiquita Banana for making payments to an FTO (the AUC) in Colombia. By increasing the number of FTOs, the new designations increase the risk of similar prosecutions directed at any company providing material support to these newly designated FTOs operating in Mexico and in parts of Central and South America. While some of these entities may previously have been subject to US sanctions, criminal liability creates an even greater threat.
Civil Liability. The Anti-Terrorism Act, 18 U.S.C. § 2333, allows US nationals injured by an act of terrorism to bring claims against companies that engage in or aid and abet an act of international terrorism by providing material support or knowingly providing substantial assistance to the FTO who perpetrated, planned or authorized the attack. The potential liability is considerable, because the statute allows the victims to “recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.” In Linde v. Arab Bank, PLC,[2] for example, a jury found Arab Bank Plc liable for knowingly supporting militant attacks in Israel linked to Hamas — an FTO — based on the bank’s providing financial services to charities that plaintiffs allege were agents of Hamas set up to solicit and launder money to support the FTO’s operations. Before the verdict was overturned on appeal, the bank was facing at least $100 million in damages. Ultimately, Arab Bank Plc reached a settlement with the plaintiffs for an undisclosed amount.
Justice Department Expedites Cartel-Related Prosecutions
Historically, certain types of prosecutions required approvals by various stakeholders within the Department of Justice. To facilitate the “aggressive prosecution” of cartels and transnational criminal organizations (TCOs), Attorney General Pam Bondi has suspended certain approval requirements, to which she referred as “bureaucratic impediments,” that might slow down or impede prosecutors from bringing charges against cartels, TCOs or their affiliates for some terrorism charges,[3] violations of the International Emergency Economic Powers Act (IEEPA), racketeering, violations of the Foreign Corrupt Practices Act and money laundering and asset forfeiture. See Bondi Memorandum regarding Total Elimination of Cartels and Transnational Criminal Organizations (Bondi Memo).
Before this suspension, a prosecutor would need approval from either the Criminal Division or the National Security Division (NSD) before issuing warrants and filing the charges listed above. Now, prosecutors are able to proceed more easily, without the same level of oversight. The Bondi Memo does, however, encourage consultation with the NSD and requires that prosecutors provide 24 hours’ advance notice of the intention to seek charges or apply for warrants. Nevertheless, the requirement to provide NSD with 24 hours’ notice, as compared to the requirement to meet NSD’s approval requirements, will allow for more charges to be brought more quickly.[4]
In addition to increasing the number of charges brought against cartels and their members directly, these changes will likely lead to an increase in the number of charges brought against companies for various crimes, including providing “material support” to a terrorist organization in violation 18 U.S.C. § 2339B, as described above; facilitating payments related to the human smuggling or illegal drugs, which has been declared a national emergency under IEEPA; and laundering money used for activities of the cartels.
Financial institutions are particularly at risk of tripping these wires. Banks that may provide financial services, or money transfer businesses (MTBs) that facilitate payments to cartels, for example, could be the subject of the criminal prosecutions described above. Given that cartels are woven into the fabric of many industries in Mexico, Central and South America, banks may be providing these services unwittingly. To address this threat, banks must reevaluate their Customer Due Diligence and KYC policies and reassess their current customers.
OFAC Highlights Risk for Financial Institutions Related to Cartel Designations
Reinforcing the increased risk of liability to financial institutions described above, the Office of Foreign Asset Control (OFAC) issued an alert on March 18, 2025 (OFAC Alert), warning of exposure to sanctions and civil or criminal penalties, especially for providing material support to foreign terrorist organizations in violation of 18 U.S.C. 2339B. The OFAC Alert is specifically directed at US and foreign financial institutions, noting that “foreign financial institutions that knowingly facilitate a significant transaction or provide significant financial services for any of the designated organizations could be subject to US correspondent or payable-through account sanctions.” This could suggest that the administration is not only aware that its new approach may ensnare financial institutions, but that doing so is one of its aims, likely calculating that such a focus will decrease cartel access to finances.
There is a precedent for such prosecutions of financial institutions for failing to maintain effective anti-money laundering programs and to conduct appropriate due diligence to avoid transacting with customers located in countries subject to sanctions enforced by OFAC. These prosecutions can result in fines and penalties greater than $1 billion. Now, the OFAC Alert serves as a warning that financial institutions may be prosecuted if they provide financial services to any of the cartels now designated as FTOs.
[1] The first round of designations include: Tren de Aragua (TdA); La Mara Salvatrucha (MS-13); Cártel de Sinaloa; Cártel de Jalisco Nueva Generación (CJNG); Cártel del Noreste (CDN); La Nueva Familia Michoacana (LNFM); Cártel del Golfo (CDG); and Cártel Unidos (CU).
[2] Case No. 04-cv-2799 in the United States District Court for the Eastern District of New York.
[3] The terrorism charges for which NSD approval has been suspended include: 18 U.S.C. §§ 2332a, 2332b, 2339, 2339A, 2339B, 2339C, 2339D, 21 U.S.C. § 960A, and 50 U.S.C. § 1705. This policy does not exempt from NSD’s approval and concurrence requirements cases involving 18 U.S.C. §§ 175, 175b, 219, 793, 794, 831, 951, and 1030(a)(l).
[4] Although it is not entirely clear in the Bondi Memo, these changes appear to apply only to “investigations targeting members or associates of cartels or TCOs.” The suspension of approval requirements could be interpreted, or may be amended, to include all charges under the enumerated statutes.
When Is Conduct ‘Primarily and Substantially’ in Massachusetts Under Chapter 93A?
The District of Massachusetts continues to refine the contours of conduct occurring “primarily and substantially” within the Commonwealth that could give rise to a Chapter 93A Section 11 claim, as illustrated by Pro Sports Servs. FI OY v. Grossman. Courts continue to look at the “center of gravity” of the specific circumstances giving rise to the claim to determine if the conduct occurred “primarily and substantially” in the Commonwealth. In this case, the conduct giving rise to the claim did not occur in Massachusetts, and the claim was dismissed.
Plaintiff brought an action alleging, among other things, a violation of Chapter 93A arising from defendant’s refusal to satisfy an arbitration award. Plaintiff originally contracted with an agency in New York owned by defendant to represent Finnish ice hockey players. After two arbitrations related to the agency’s failure to make certain payments under the contract, plaintiff learned defendant incorporated a new entity in Massachusetts and transferred funds to that entity allegedly to obfuscate and avoid the judgment against it.
Defendant moved to dismiss on the basis that the facts giving rise to the claim occurred outside the Commonwealth. The allegations in the amended complaint connecting the claim to the Commonwealth included (1) a business entity incorporated under the laws of the Commonwealth; (2) the defendant residing in the Commonwealth; (3) the New York entity having the same address as the Commonwealth entity; and (4) the defendant’s allegedly fraudulent transfer of assets from New York to Massachusetts. The court found these facts insufficient. While they provided a connection to Massachusetts, the judgment against the New York entity was obtained in New York. Thus, the substantial conduct giving rise to the Chapter 93A claim occurred outside the Commonwealth and the claim was dismissed.
Supreme Court Declines Review of “Relational Analysis” for Determining Administrative Exemption
On March 10, 2025, the U.S. Supreme Court denied a request by F.W. Webb (“Webb”), a nationwide wholesale plumbing and HVAC supply company, to review a First Circuit decision upholding a ruling that Webb’s Inside Sales Representatives (“ISRs”) were not exempt “administrative” employees under the Fair Labor Standards Act (“FLSA”), and thus were entitled to overtime compensation.
Under the administrative exemption, employees are exempt from FLSA overtime requirements if: (1) they are compensated on a salary basis; (2) their primary duty is “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and (3) their primary duty includes “the exercise of discretion and independent judgment with respect to matters of significance.” Only the second element—whether the ISRs’ primary duty was “directly related to the management or general business operations” of Webb—was at issue in the case of the ISRs.
In its decision, the First Circuit affirmed the lower court’s reliance on a “relational analysis,” which the First Circuit first adopted in 2023 and which focuses on an employer’s business purpose, rather than the nature of the employees’ jobs, to determine if the employees are exempt. Put differently, as stated in Webb’s petition, the relational analysis “examines whether an employee’s primary duties are focused on carrying out the business’s principal production activity or on other ancillary matters related to the business’s overall operations and management.” If it is the former, then the employee is less likely to be exempt.
Relying solely upon the relational analysis, the First Circuit determined that Webb’s ISRs’ primary duty is “to help sell Webb’s products” and that this duty is “directly related to Webb’s business purpose of making wholesale sales of its products.” Consequently, the First Circuit held that the ISRs were not exempt under the FLSA’s administrative exemption.
Webb challenged the First Circuit’s decision on grounds that it improperly made “the business purpose of the employer . . . dispositive to the second element of the FLSA’s administrative exemption.” In other words, according to Webb, the First Circuit erred in using the relational analysis to make its determination because the relational analysis focused only on Webb’s business purpose (i.e., to sell products) and excluded consideration of the ISRs’ other job duties, which extend beyond making sales.
According to Webb’s petition for review, ISRs, in addition to making routine sales, provide consultation to customers regarding which plumbing and HVAC systems would best enable Webb’s customers to meet their own customer needs. ISRs also advise Webb’s managers and sales teams “on technical questions” and help “keep tabs on” and “develop strategies to beat” Webb’s competitors. Additionally, ISRs provide “concierge” services to help Webb’s customers after the sale “by tracking inventory, monitoring shipping, interacting with third-party manufacturers, and addressing customer concerns and complaints.”
Webb also argued that the First Circuit’s reliance on the relational analysis ran afoul of the FLSA and its regulations because, according to Webb, no statutory or regulatory basis exists for relying solely on an examination of the employer’s business purpose, rather than the inherent nature of the employee’s duties, to determine whether an employee satisfies the administrative exemption.
In its Petition, Webb noted that the First Circuit’s use of the relational analysis as determinative of the second element of the administrative exemption conflicted with decisions from the Ninth and Fourth Circuits. Webb also noted that the Second and Seventh Circuits take a similar approach to the First Circuit’s approach, thus creating a significant split among the federal Courts of Appeals.
The Supreme Court declined to hear the case, but it did not explain why.
The First Circuit’s decision in Webb, and the Supreme Court’s denial of review, mean that employers who operate in the First Circuit (and potentially the Second and Seventh Circuits, which use the same approach) should be mindful of employees they currently classify as exempt administrative employees. In these Circuits, if the employees’ primary duty “directly relates to the business purpose of the employer,” such as making sales for a wholesaler, courts may not look beyond this to other duties the employee may have that relate to the running or servicing of the business to determine whether the employee is exempt. Employers thus may want to review their administrative exempt employees’ job duties to determine whether those duties relate to the employer’s business purpose, as opposed to managing or servicing the business. Such a review is necessarily fact-intensive and employers should consult outside counsel to determine the potential applicability of any exemption under the FLSA.
Kentucky Legislature Ends Judicial Deference To State Agencies
In a realignment of judicial review standards, the Kentucky General Assembly overrode Governor Andy Beshear’s (D-KY) veto of Senate Bill (SB) 84, effectively abolishing judicial deference to all agency interpretations of statutes and regulations. This development marks a shift in administrative law in the Commonwealth.
A RESPONSE TO CHEVRON AND TO KENTUCKY COURTS
SB 84 invokes the Supreme Court of the United States’ 2024 decision in Loper Bright Enterprises v. Raimondo, which overturned the Chevron doctrine and ended judicial deference to federal agency interpretations of statutes. The bill’s preamble provides:
In Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), the United States Supreme Court ruled that the federal judiciary’s deference to the interpretation of statutes by federal agencies as articulated in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and its progeny was unlawful.
However, SB 84 does more than align Kentucky with the new federal standard. It also repudiates the approach taken by Kentucky’s own courts. The bill notes that decisions such as Metzinger v. Kentucky Retirement Systems, 299 S.W.3d 541 (Ky. 2009), and Kentucky Occupational Safety and Health Review Commission v. Estill County Fiscal Court, 503 S.W.3d 924 (Ky. 2016), which embraced Chevron-like deference at the state level, is a practice that the legislature now declares inconsistent with the separation of powers under the Kentucky Constitution.
KEY PROVISIONS: DE NOVO REVIEW MANDATED
The operative language of SB 84 creates two new sections of the Kentucky Revised Statutes (KRS) and amends an existing provision by establishing a de novo standard of review for agency, including the Kentucky Department of Revenue, interpretations:
An administrative body shall not interpret a statute or administrative regulation with the expectation that the interpretation of the administrative body is entitled to deference from a reviewing court. (New Section of KRS Chapter 13A.)
The interpretation of a statute or administrative regulation by an administrative body shall not be entitled to deference from a reviewing court. (New Section of KRS Chapter 13A.)
A court reviewing an administrative body’s action… shall apply de novo review to the administrative body’s interpretation of statutes, administrative regulations, and other questions of law. (New Section of KRS Chapter 446.)
The court shall apply de novo review of the agency’s final order on questions of law. An agency’s interpretation of a statute or administrative regulation shall not be entitled to deference from a reviewing court. (Amended KRS 13B.150.)
This means Kentucky courts must now independently review all legal interpretations made by agencies, including in tax cases before the Kentucky Board of Tax Appeals, without any presumption of correctness.
A CONSTITUTIONAL FLASHPOINT
Governor Beshear vetoed the bill, arguing in his veto message that it violates the separation of powers by dictating to the judiciary how it should interpret laws. Governor Beshear’s message provides that:
Senate Bill 84 is unconstitutional by telling the judiciary what standard of review it must apply to legal cases…It prohibits courts from deferring to a state agency’s interpretation of any statute, administrative regulation, or order. It also requires courts to resolve ambiguous questions against a finding of increased agency authority. The judicial branch is the only branch with the power and duty to decide these questions.
Republican lawmakers countered that SB 84 strengthens the judiciary’s independence. Senate leadership said in a statement that:
SB 84 aligns Kentucky with a national legal shift that reaffirms the judiciary’s role in interpreting statutes. The bill does not weaken governance—it strengthens separation of powers by removing undue deference to regulatory agencies and restoring courts’ neutrality in legal interpretation.
The governor’s constitutional objections should not apply to cases before the state’s Office of Claims and Appeals (which includes the Board of Tax Appeals), which the legislature itself created.
CONSIDERATIONS FOR TAX PRACTITIONERS
For tax practitioners, SB 84 could reshape tax litigation strategy in Kentucky. Courts reviewing Department of Revenue guidance or interpretations – whether in audits, refund claims, or administrative appeals – are no longer bound by any deference. The Department of Revenue’s legal position is now just that – a position, not a presumption. Whether Kentucky courts fully embrace this legislative mandate or chart their own course remains to be seen.
Either way, this is a welcome development for taxpayers and practitioners who have long argued that state agencies should not have the last word on the meaning of tax statutes. By mandating de novo review, Kentucky reinforces a neutral playing field, one where legal questions are resolved by courts without institutional bias in favor of the agency.
Other states should take note and follow suit. Just last year, Idaho, Indiana, and Nebraska passed similar amendments restoring judicial independence from executive branch interpretations of state laws. SB 84 offers a legislative blueprint for restoring judicial independence and curbing agency overreach in the tax context. As more states grapple with the implications of Loper Bright, Kentucky’s approach provides a model for how legislatures can proactively realign administrative law with core separation of powers principles.
ANOTHER BIG VICARIOUS LIABILITY WIN FOR TCPA DEFENDANT: Nevada Court Holds Providing Scripts and Training Alone Insufficient for TCPA Agency Liability
Hi TCPAWorld! Another huge vicarious liability win for a TCPA defendant!
The United States District Court for the District of Nevada has dismissed with prejudice all claims alleged by Plaintiff Kelly Usanovic (“Usanovic”) against Americana LLC (DBA Berkshire Hathaway HomeServices Nevada Properties or “BHHS”). Kelly Usanovic v. Americana, L.L.C., No. 2:23-cv-01289-RFB-EJY, 2025 WL 961657 (D. Nev. Mar. 31, 2025). The court concluded that Usanovic failed to plausibly allege that BHHS could be held liable for unsolicited calls made by its affiliated real estate agents under federal agency law principles.
Kelly Usanovic filed a class action lawsuit in August 2023 against BHHS alleging violations of the TCPA. Specifically, Usanovic claimed BHHS agents repeatedly called her cell phone despite it being listed on the National DNC Registry.
Usanovic alleged that BHHS should be vicariously liable under the TCPA, arguing that the company had provided training materials encouraging agents to cold-call consumers using third-party vendors like RedX, Landvoice, Vulcan7, and Mojo—vendors who purportedly supplied phone numbers on the National DNC Registry. Usanovic alleged these materials showed BHHS’s control and authorization of agents’ unlawful calls, seeking to hold BHHS responsible via agency theories of actual authority, apparent authority, and ratification.
Well, Judge Richard F. Boulware II disagreed and granted BHHS’s motion to dismiss WITH PREJUDICE reasoning that vicarious liability under the TCPA requires establishing a true agency relationship under federal common-law agency principles.
The court found that although BHHS was alleged to have provided general scripts, training, and recommendations on dialers and vendors, these actions alone were insufficient to establish an agency relationship. Critically, the Court underscored that Usanovic failed to allege essential elements of agency, such as BHHS’s direct control over the agents’ day-to-day call activities, the agents’ working hours, or their choice of leads. Simply offering resources and optional training sessions does not establish the requisite control necessary for vicarious liability under the TCPA.
On actual authority, the Court concluded that merely providing guidance to agents does not demonstrate authorization or instruction to call numbers listed on the Do Not Call Registry.
Regarding apparent authority, the Court stated that Usanovic did not plead any statements from BHHS that could reasonably lead her to believe the agents were authorized to violate the TCPA. The mere identification of agents as affiliated with BHHS was deemed insufficient.
Finally, for ratification, the Court found no allegations that BHHS knowingly accepted benefits from agents’ unauthorized calls or acted with willful ignorance.
Thus, because Usanovic’s complaint lacked plausible facts to support any of these common law agency theories, the court dismissed the TCPA claims with prejudice—denying further amendment due to prior opportunities to correct these deficiencies.
There you have it! Another court ruling that knowledge of illegality is required for vicarious liability to attach!
It’s the End of Diversity, Equity and Inclusion (DEI) Programs as We Know It?
As promised in his campaign for the presidency of the United States, on January 21, 2025, President Trump issued Executive Order 14172 “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” (Emphasis added).
The President’s Executive Order states that illegal diversity, equity and inclusion (“DEI”) policies violate the text and spirit of federal civil-rights laws.
Accordingly, the President ordered all federal agencies to enforce civil rights laws and to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” The President further ordered the Attorney General to submit a report with recommendations for enforcing federal civil rights laws and “taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.”
Additionally, the President revoked Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity). Executive Order 11246 prohibited discrimination and required affirmative action be taken by federal contractors.
There have been several federal court challenges to these Executive Orders. On February 5, 2025, an employer group filed a constitutional challenge to portions of Executive Order 14172. Most recently, on March 6, 2025, the American Civil Liberties Union (ACLU) of Rhode Island filed a lawsuit on behalf of an employer seeking a preliminary injunction regarding the government contractor portions of these Executive Orders. For now, however, these Executive Orders are in place, with challenges pending.
Enforcement of the President’s Executive OrderOn February 5, 2025, Attorney General Pam Bondi issued a memorandum to all Department of Justice employees with the subject heading: “Ending Illegal DEI and DEIA Discrimination and Preferences.”
In the memorandum, the Attorney General wrote “[a]s the United States Supreme Court recently stated, “[e]liminating racial discrimination means eliminating all of it.” Students for Fair Admissions, Inc. v. President & Fellows of Harvard Coll., 600 U.S. 181, 206 (2023). The Attorney General also stated,
“[t]o fulfill the Nation’s promise of equality for all Americans, the Department of Justice’s Civil Rights Division will investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.”
Notably, the Attorney General’s memorandum includes a footnote that states that it “does not prohibit educational, cultural, or historical observances—such as Black History Month, International Holocaust Remembrance Day, or similar events—that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination.”
So, What is “Illegal” DEI? The EEOC Speaks on March 19, 2025Note that all of the above statements include the word “illegal” when referencing the ending of DEI. The fact is that racial- and gender-based preferences in hiring and promotion have been unlawful for decades. However, the EEOC has been tasked with focusing on what they are calling “DEI-related discrimination” and has issued a technical assistance document setting forth explaining how DEI programs can run afoul of Title VII. The guidance states that “unlawful discrimination includes any consideration of race, sex or any other protected characteristic under Title VII.” According to EEOC, “[a]n employment action still is unlawful even if race, sex, or another Title VII protected characteristic was just one factor among other factors contributing to the employer’s decision or action.”
EEOC stated, “Title VII of the Civil Rights Act of 1964 (Title VII) prohibits employment discrimination based on protected characteristics such as race and sex.” Therefore, “under Title VII, DEI initiatives, policies, programs, or practices may be unlawful if they involve an employer or other covered entity taking an employment action motivated—in whole or in part—by an employee’s or applicant’s race, sex, or another protected characteristic.”
Further, “Title VII also prohibits employers from limiting, segregating, or classifying employees or applicants based on race, sex, or other protected characteristics in a way that affects their status or deprives them of employment opportunities. In the context of DEI programs, unlawful segregation can include limiting membership in workplace groups, or other employee affinity groups, to certain protected groups.”
EEOC gave direction to employers by stating employers should instead provide “training and mentoring that provides workers of all backgrounds the opportunity, skill, experience, and information necessary to perform well, and to ascend to upper-level jobs.” Employers also should ensure that “employees of all backgrounds … have equal access to workplace networks.”
Coupled with the prohibition on DEI programs, EEOC also issued guidance on their position involving “reverse” discrimination claims. There is not a requirement of a higher showing of proof in reverse discrimination claims, as there is only discrimination. The EEOC applies the same standard of proof to all race discrimination claims, regardless of the victim’s race.
What Should Employers Do Now?
Recognize that DEI is not in and of itself illegal. With thoughtfulness, employers can still promote an inclusive and supportive workplace with various initiatives and programs without them being labeled by the federal government as problematic. For example, inclusive programs making mentoring available to all employees regardless of protected status can be effective to foster diversity and inclusivity.
Review Programs and Policies. Employers should review their employment practices to determine if there are any initiatives, policies, programs, or practices that could be considered “illegal” DEI pursuant to the EEOC guidance. For example, hiring program elements with preferences or quotas based on protected status should be analyzed to avoid disparate treatment based on protected status. However, key features of most DEI programs have been and continue to be legal. For example, using interview panels to help reduce bias in the interview process; ensuring that hiring criteria is standardized and focuses on skills, and fine-tuning recruitment efforts to attract a larger pool of candidates and varying backgrounds are all acceptable program features. Employee resource groups also continue to be legal, but like before, they cannot exclude membership based on race or gender or other protected class. It is also permissible to focus on ensuring that interview processes accommodate individuals with disabilities.
Act Methodically. Not everything that employers are doing to encourage a diverse, equitable, or inclusive workplace culture will be considered illegal. As the Attorney General noted, there are educational, cultural, or historical observances, or similar events that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination. Because “diversity, equity, and inclusion” have become controversial buzzwords, focusing on programs that promote “access” and “opportunity” may be helpful.
Educate Supervisors. Ensure supervisors understand EEOC’s guidance and reaffirm organizational commitments to legal compliance with anti-discrimination laws.
Monitor Developments. Without a doubt, the federal government is transforming very quickly. Judicial involvement in the executive action affects this transformation. Employers should continue monitoring legal developments and remain flexible and nimble to address this changing environment.
Federal Judge Restrains Liability for Alleged False DEI Certifications
President Trump’s January 21 Executive Order targeting Diversity, Equity, and Inclusion Programs (DEI) (the “January 21 Executive Order”) and, specifically, § 3(b)(iv)) (the Certification Provision) cannot be the basis for liability — at least for one proactive litigant in the Northern District of Illinois. The holding could have broader implications for False Claims Act (FCA) defendants concerned about evolving certification requirements.
On January 20 and 21, 2025, President Trump issued two executive orders targeting Diversity, Equity, and Inclusion programs (titled, “Ending Radical and Wasteful Government DEI Programs and Preferencing” and “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” respectfully). The January 21 Executive Order included a direction to agencies (the “Certification Provision”) to require federal grant recipients to certify they do not “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws” and to “agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of [the FCA].” Immediately, this provision raised concerns that the Trump Administration may use the Certification Provision to bring FCA cases against grant recipients who do not comply. The threat of FCA litigation is paused for now, at least for Chicago Women in Trades (CWIT).
In February 2025, CWIT sued the Trump administration arguing, among other things, the Certification Provision violates its First Amendment Right to free speech because it “effectively regulates CWIT’s conduct outside of the contours of the federal grants.” (See Chicago Women in Trades v. Trump et al., Case No.1:25-cv-02005, N.D. Ill.)In response, the government argued the Certification Provision only implicates “illegal” DEI programs and no one has a constitutional right to violate the law. On March 27, 2025, U.S. District Court Judge Matthew Kennelly granted CWIT’s motion for a Temporary Restraining Order, preventing the Department of Labor from enforcing the Certification Provision and the Government from “initiat[ing] any False Claims Act enforcement against CWIT pursuant to the Certification Provision.”
In its Order, the court held the Certification Provision’s definition of what is an illegal DEI program is “left entirely to the imagination.” In the court’s view, the government has emphasized that conduct violating anti-discrimination laws has changed, and the government also has been “unwilling to in (in its briefs or at argument) define how it has changed.” This uncertainty put CWIT (and other grantees) in a difficult position — they must either decline to make a certification and lose federal grant money or risk making a certification that is later deemed to be false because the meaning of an illegal DEI program is unknown, subjecting “the grantee to liability under the False Claims Act.”[1]
While the Order restricts the Government specifically with respect to CWIT and the Certification Provision, lawsuits like CWIT’s will force federal courts across the country to determine what the Certification Provision means for FCA litigation going forward.
If you have questions about President Trump’s January 21 Executive Order or the False Claims Act, contact the authors or your Foley relationship lawyer.
[1] The court also said even if the government did define an illegal DEI program, the January 21 executive order still reads as an “express reference to First Amendment-protected speech and advocacy.”