Burn Grooming Policy, Burn? Third Circuit Reignites Bearded Firefighter’s Religious Accommodation and Free Exercise Claims
If you have a grooming policy based on safety factors (like no beards for firefighters), does that trump an employee’s request for a religious accommodation? Maybe not. A recent Third Circuit decision, Smith v. City of Atlantic City, et al., addressed this issue and partially reversed a district court’s grant of summary judgment in favor of Atlantic City. The court revived a firefighter’s claims under the Free Exercise Clause and Title VII. The decision offers important guidance on how courts evaluate workplace grooming policies and employers’ obligations to accommodate religious beliefs.
Burning Through the Facts
Alexander Smith, a long-serving firefighter, served as the city’s only assigned air mask technician — a role that required him to maintain SCBA (self-contained breathing apparatus) units but not to enter hazardous environments. As a Christian, Smith requested that the city allow him to grow a beard as an accommodation to his sincerely held beliefs.
The city’s grooming policy mandates that firefighters be clean shaven while on duty, citing safety concerns related to SCBA seal integrity. However, the policy contains exceptions: (1) captains may allow deviations at their discretion, assuming responsibility for any unfavorable outcome, and (2) administrative personnel, like Smith, were not required to undergo annual SCBA fit testing — despite being subject to the same policy.
Although Smith did not insist his demand was an all-or-nothing accommodation, the city denied his request without discussing whether certain alternatives might satisfy his religious beliefs. Subsequently, he was informed he would be suspended if he refused to shave.
Smith filed a lawsuit claiming that the city’s denial of his requested accommodation was religious discrimination in violation of Title VII, as well as a violation of his right to freely exercise his religion guaranteed by the First Amendment. The district court granted the city’s motion for summary judgment, and Smith appealed.
The Third Circuit Turns Up the Heat
The Third Circuit vacated summary judgment on Smith’s Free Exercise Clause and Title VII accommodation claims, finding that:
The city’s grooming policy was not generally applicable because it allowed formal and informal exceptions that undermined the city’s stated safety interest. This triggered strict scrutiny under the Free Exercise Clause. (The strict scrutiny standard required the city to prove that it had a compelling state interest and that its actions were narrowly tailored or the least restrictive means to achieve that interest.)
The city’s actions were not narrowly tailored to achieve its compelling interest. While safety is a compelling interest, the city did not explore less restrictive alternatives such as fit testing Smith with a beard or continuing to exclude him from suppression duties, as it had done for years.
The city did not demonstrate that granting the accommodation would pose an undue hardship under Title VII. Applying the Supreme Court’s standard from Groff v. DeJoy, the appeals court held that speculative risks do not qualify. The record showed no evidence that Smith’s beard posed an actual operational risk, especially given his role and the infrequency of emergency calls that might require him to wear an SCBA.
Lessons from the Ashes: Takeaways for Employers
Considering this decision, employers should understand:
Religious accommodations must be taken seriously. A blanket policy — even one rooted in safety — may not be sufficient if it allows discretion or contains exemptions.
Interactive process matters. Employers should engage with employees to assess alternative accommodations before denying requests.
The Groff standard is here to stay. “Undue hardship” under Title VII requires a showing of substantial, excessive, or unjustifiable burden — not mere inconvenience or administrative hassle.
If your workplace grooming policies contain any exceptions — or if you receive an accommodation request related to those policies — consult your employment counsel early. Proactive legal guidance is critical to ensure compliance and mitigate risk.
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When AI Acts Independently: Legal Considerations for Agentic AI Systems
The emergence of agentic artificial intelligence (AI) systems capable of autonomous planning, execution, and interaction creates unprecedented regulatory challenges. Unlike traditional AI applications that respond to specific prompts, agentic AI systems operate independently: making decisions, achieving goals, and executing complex tasks without the need for constant human guidance or intervention. For organizations leveraging or developing these advanced AI systems, understanding the evolving legal and regulatory landscape is critical for mitigating significant operational, financial, and reputational risks.
Key Technological Developments
Agentic AI systems possess critical capabilities that are distinct from conventional AI applications, including:
Autonomous Planning: Ability to define actions needed to achieve specified goals.
Tool Integration: Direct interaction with external systems, tools and application programming interfaces.
Independent Execution: Multi-step task completion without continuous human intervention.
These capabilities represent a qualitative (not merely quantitative) shift in AI functionality. Real-world applications include autonomous financial trading systems that can adjust strategies based on market conditions, supply chain management platforms that independently negotiate with vendors and optimize logistics, and sophisticated customer service agents that can resolve complex issues across multiple systems without human intervention. Each of these applications creates distinct liability profiles that existing legal frameworks can struggle to address.
Enhanced Opacity Challenges
While “traditional AI explainability” (i.e., the “black box” problem) already presents difficulties, agentic systems can significantly increase these concerns. The NIST AI Risk Management Framework distinguishes between explainability (understanding how an AI system works) and interpretability (understanding what an AI system’s output means in context), both tools for oversight of AI, and it explains how their absence can directly contribute to negative risk perceptions.
Agentic systems present particular opacity challenges:
Complex, multi-step reasoning processes can obscure decision pathways.
External system interactions introduce variables that can go beyond original design parameters.
Autonomous planning capabilities can produce outcomes deviating from those initial parameters.
Liability Framework Implications
In July 2024, the US District Court for the Northern District of California held that Workday, a provider of AI-driven applicant screening tools, could be considered an “agent” of its clients (the ultimate employers of successful applicants). The decision underscores the evolving legal landscape surrounding AI and the responsibilities of AI service providers whose tools directly influence hiring decisions. It also directly relates to agentic AI in several ways: (1) employers delegated traditional hiring functions to Workday’s AI tools; (2) the AI tools played an active role in hiring decisions rather than merely implementing employer-defined criteria; and (3) by deeming Workday an “agent,” the court created the potential for direct liability for AI vendors.
The Workday decision, while specific to employment screening, serves as a crucial precedent highlighting how existing legal principles like agency can be applied to AI systems. It underscores the additional liability concerns associated with AI systems, starting with the potential for direct liability for AI vendors. When considering the even broader capabilities of agentic AI, the liability considerations become more complex and multi-faceted, presenting challenges in areas such as product liability, vicarious liability and proximate causation.
Cross-jurisdictional deployment of agentic AI systems further complicates liability determination. When an autonomous system operating from servers in one jurisdiction makes decisions affecting parties in multiple other jurisdictions, questions of which legal framework applies become particularly relevant. This is especially problematic for agentic financial trading systems or global supply chain management platforms that operate across multiple regulatory regimes simultaneously.
Current Regulatory Environment
While the United States lacks comprehensive federal legislation specifically addressing AI (not to mention agentic AI), several frameworks are relevant:
State-Level Initiatives: Colorado’s AI Act, enacted in May 2024, applies to developers and deployers of “high-risk AI systems,” focusing on automated decision-making in employment, housing, healthcare, and other critical areas. The current political environment, however, creates additional regulatory uncertainty. The House has passed a 10-year moratorium on state-level AI regulations, which could eliminate state-level innovation in AI governance during the most critical period of agentic AI development. This regulatory uncertainty underscores the urgency for organizations to implement proactive governance frameworks rather than waiting for clear regulatory guidance.
International Frameworks: The EU AI Act does not specifically address AI agents, but system architecture and task breadth may increase risk profiles. Key provisions, including prohibitions on certain AI practices deemed unacceptable (due to their potential for harm and infringement of fundamental rights) and AI literacy requirements, became applicable in February 2025.
Federal Guidance: NIST released its “Generative AI Profile” in July 2024 and has identified explainability and interpretability guidance as priorities for connecting AI transparency to risk management.
Human Oversight Considerations
The requirement for human oversight may be inherently incompatible with agentic AI systems, which by definition are designed to act on their own to achieve specific goals. For agentic systems, meaningful human control might require pre-defined boundaries and kill switches rather than real-time oversight, but this approach may fundamentally limit the autonomous capabilities that make these systems valuable. This creates tension between regulatory requirements for meaningful human control and autonomous system operational value.
Strategic Implementation Recommendations
Organizations considering agentic AI deployment should address several key areas:
Contractual Risk Management: Implement clear provisions addressing AI vendor indemnification for autonomous decisions, particularly those causing harm or violating laws and regulations.
Insurance Considerations: Explore specialized cyber and technology insurance products given the nascent state of insurance markets for agentic AI risks. Coverage gaps are likely to persist, however, until the market matures (e.g., traditional cyber policies may not cover autonomous decisions that cause financial harm to third parties).
Governance Infrastructure: Establish oversight mechanisms balancing system autonomy with accountability, including real-time monitoring, defined intervention points, and documented decision authorities.
Compliance Preparation: Consider California’s proposed Automated Decision-Making Technology (ADMT) regulations requiring cybersecurity audits and risk assessments, which suggest similar requirements may emerge for agentic systems.
Cross-Border Risk Assessment: Develop frameworks for managing liability and compliance when agentic systems operate across multiple jurisdictions, including clear protocols for determining applicable law and regulatory authority.
Looking Ahead
The intersection of autonomous decision-making and system opacity represents uncharted regulatory territory. Organizations that proactively implement robust governance frameworks, appropriate risk allocation, and careful system design will be better positioned as regulatory frameworks evolve.
The unique challenges posed by agentic AI systems represent a fundamental shift that will likely expose critical limitations in existing governance frameworks. Unlike previous AI developments that could be managed through incremental regulatory adjustments, agentic AI’s autonomous capabilities may require entirely new legal and regulatory paradigms. Organizations should engage legal counsel early in agentic AI planning to navigate these emerging risks effectively while maintaining compliance with evolving regulatory requirements.
Supreme Court Rejects Heightened Standard for Discrimination Claims from Majority Groups
On June 5, 2025, the Supreme Court of the United States ruled that employees who are part of a majority group do not have a higher evidentiary standard to prove workplace discrimination. The ruling revived a heterosexual woman’s lawsuit alleging she was discriminated against in favor of employees who identify as gay, and potentially opens the door for more discrimination lawsuits from people in majority groups.
Quick Hits
In Justice Ketanji Brown Jackson’s unanimous opinion, the Supreme Court held that plaintiffs who are part of a majority group cannot be held to a higher standard of proof in employment discrimination cases.
In this case, called Ames v. Ohio Department of Youth Services, a heterosexual woman alleged sex and sexual orientation discrimination.
The court’s decision potentially opens the door to more lawsuits from plaintiffs who belong to majority groups.
The Supreme Court unanimously rejected the Sixth Circuit’s “background circumstances” rule, which had required majority-group employees to provide extra evidence of employer discrimination to succeed in Title VII discrimination claims. The ruling means that, going forward, majority-group discrimination claims (or so-called “reverse discrimination” claims) will be analyzed using the same framework as minority-group discrimination claims, where a plaintiff can rely on their own circumstances to prove a prima facie case.
The background circumstances rule “cannot be squared with the text of Title VII or the Court’s precedents,” the Supreme Court stated.
This decision comes against the backdrop of President Donald Trump’s recent executive orders to stop “illegal” workplace diversity, equity, and inclusion (DEI) programs and reshape how federal policy defines sex discrimination and gender.
Background
The plaintiff in this case is a heterosexual woman who was employed by Ohio Department of Youth Services. She applied for and interviewed for a promotion, but the department instead offered her another job that amounted to a demotion with less pay, which she took. The department later hired a gay man to serve in her prior role, and promoted a lesbian woman to the position she had sought. The plaintiff alleged employment discrimination based on sex and sexual orientation under Title VII.
The district court granted summary judgment for the department, finding that the plaintiff failed to establish “background circumstances,” which could include statistical evidence or evidence that gay managers made the employment decisions at issue. The plaintiff appealed, and the U.S. Court of Appeals for the Sixth Circuit affirmed the lower court’s ruling under the background circumstances test. The Supreme Court overturned the Sixth Circuit’s ruling.
No Background Circumstances Required Under Title VII
The Supreme Court held that Title VII does not require majority group members to show additional background circumstances. Writing for the court, Justice Jackson noted that, “Title VII’s disparate-treatment provision draws no distinctions between majority-group plaintiffs and minority-group plaintiffs.”
As such, Title VII applies whenever an individual was treated differently because of their race, color, religion, sex, or national origin. Justice Jackson stated that, by establishing “the same protections for every ‘individual’—without regard to that individual’s membership in a minority or majority group—Congress left no room for courts to impose special requirements on majority-group plaintiffs alone.”
Justice Jackson further rejected the Sixth Circuit’s application of the background circumstances rule, as it was contrary to Title VII’s statutory text and the court’s precedent. Such an application “misses the mark by a mile,” Justice Jackson wrote.
In addition, Justice Clarence Thomas wrote a separate concurring opinion in which he criticized judges for creating “atextual legal rules and frameworks.” He argued that “judge-made doctrines,” such as the background circumstances rule, “can distort the underlying statutory text.” Justice Thomas further questioned whether the McDonnell-Douglas burden shifting test for Title VII claims remains a useful tool, potentially inviting future reconsideration.
Next Steps
The Supreme Court’s decision in this case is consistent with guidance from the U.S. Equal Employment Opportunity Commission (EEOC), which released two technical assistance documents to explain what constitutes illegal diversity, equity, and inclusion (DEI) programs in the workplace. In those documents, the EEOC rejected the background circumstances rule. It takes the position that majority-group plaintiffs bear the same evidentiary standard as minority-group plaintiffs.
Going forward, this casemay invite additional discrimination claims by members of majority groups. Therefore, employers may wish to review their policies and practices to ensure protection of all employees against discrimination, regardless of whether the employee falls within the minority or majority group.
New York Choice-of-Law Clause Does Not Bar Chapter 93A Claims in Reinsurance Dispute
In Clear Blue Specialty Ins. Co. v. R-SVP II, L.L.C., the Massachusetts Superior Court applied Chapter 93A to the parties’ dispute despite the existence of a New York choice-of-law provision in the parties’ contract. The case centers around a multi-tiered reinsurance arrangement where the insureds had purchased collateral protection insurance to protect against loan defaults. After borrowers defaulted, resulting in over $125 million in losses, the insurer refused to pay, citing a “pay-as-paid” clause and brought a declaratory judgment action against the insureds. The insureds responded with counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and Chapter 93A violations.
The Superior Court denied the insurer’s motion to dismiss the Chapter 93A counterclaim for the following reasons:
1. New York Choice-of-Law Clause Does Not Bar 93A Claims
The insured argued that because New York law governed the contract, Massachusetts law—and by extension, Chapter 93A—could not apply. Rejecting that argument, the Superior Court explained that, while contract interpretation is subject to New York law, the clause did not bar application of Chapter 93A to the parties’ conduct. Also, the Superior Court noted that, although a Chapter 93A claim based solely on breach of contract generally is barred when the contract includes a foreign choice-of-law provision, the claim here was not based merely on the insured’s alleged failure to pay—it was based on broader allegations of unfair conduct, including systemic mishandling of claims and reliance on alleged fraudulent financial instruments. These claims sounded in tort, not contract. Therefore, the claims fell outside the scope of mere contractual interpretation.
2. Alleged Misconduct Falls Under ‘Trade or Commerce’
The Superior Court reiterated that insurance claims handling—including reinsurance claims—falls squarely within “trade or commerce” under Chapter 93A, §1(b). Allegations that the insurer engaged in unfair and bad faith settlement practices, such as unjustified denial of claims and failure to investigate or pay, are sufficient to support a Chapter 93A claim at the pleading stage.
3. Jurisdictional Reach of Chapter 93A
The insurer also argued that its conduct lacked sufficient connection to Massachusetts; however, the Superior Court concluded that whether the alleged unfair acts occurred “primarily and substantially” in Massachusetts (as required in a Section 11 business-to-business claim) is a factual one that could not be resolved on a motion to dismiss. The insureds, headquartered in Massachusetts, alleged that the insurer specifically directed its conduct at them in Massachusetts and the insured’s loss occurred in Massachusetts, which made the application of Chapter 93A plausible.
Clear Blue Specialty Ins. Co. v. R-SVP II L.L.C., L.L.C. Takeaways
This decision provides clarity on the reach and resilience of Massachusetts’ Chapter 93A in complex commercial insurance disputes.
Reinsurance is not immune from Chapter 93A scrutiny, especially when claims handling affects Massachusetts-based insureds.
Choice-of-law provisions do not automatically shield out-of-state insurers from Chapter 93A liability when their actions target Massachusetts businesses.
Courts may closely scrutinize insurers’ conduct, especially where systemic mismanagement or bad faith is alleged.
Bottom Line for Policyholders and Insurers
For insured parties in Massachusetts, this ruling affirms the protections Chapter 93A affords—even in sophisticated, cross-border reinsurance arrangements. For insurers and reinsurers, the message is clear: unfair claims practices may carry serious consequences under Massachusetts law, regardless of what the contract says about governing law.
Riding on Empty: ‘Stang’ With No Anthropomorphic Characteristics Isn’t Copyrightable Character
The US Court of Appeals for the Ninth Circuit affirmed a district court’s denial of copyright protection for a car that had a name but no anthropomorphic or protectable characteristics. Carroll Shelby Licensing, Inc. v. Denice Shakarian Halicki et al., Case No. 23-3731 (9th Cir. May 27, 2025) (Nguyen, Mendoza, JJ.; Kernodle Dist. J., sitting by designation).
In 2009, Denice Shakarian Halicki and Carroll Shelby Licensing entered into a settlement agreement resolving a lawsuit concerning Shelby’s alleged infringement of Halicki’s asserted copyright interest in a Ford Mustang known as “Eleanor,” which appeared in a series of films dating back to the 1970s. Under the agreement, Shelby, a custom car shop, was prohibited from producing GT-500E Ford Mustangs incorporating Eleanor’s distinctive hood or headlight design. Shortly thereafter, Shelby licensed Classic Recreations to manufacture “GT-500CR” Mustangs, a move Halicki viewed as a breach of the settlement agreement. Halicki contacted Classic Recreations and demanded it cease and desist in the production of the GT-500CRs.
Shelby filed a lawsuit alleging breach of the settlement agreement and seeking declaratory relief. Halicki counterclaimed for copyright infringement and breach of the agreement. Following a bench trial, the district court ruled in Shelby’s favor on both the breach and infringement claims but declined to grant declaratory relief. Shelby appealed.
The Ninth Circuit began by addressing whether “Eleanor” qualified for copyright protection as a character under the Copyright Act. Although the act does not explicitly list characters among the types of works it protects, the Ninth Circuit has recognized that certain characters may be entitled to such protection. The applicable standard, articulated in 2015 by the Ninth Circuit in DC Comics v. Towle, sets forth a three-pronged test, under which the character must:
Have “physical as well as conceptual qualities”
Be “sufficiently delineated to be recognizable as the same character whenever it appears” with “consistent, identifiable character traits and attributes”
Be “especially distinctive” and have “some unique elements of expression.”
The Ninth Circuit concluded that Eleanor failed to satisfy any of the three prongs of the Towle test. As to the first prong, the Court found that Eleanor functioned merely as a prop and lacked the anthropomorphized qualities or independent agency associated with protectable characters. Regarding the second prong, the Court noted that Eleanor’s appearance varied significantly across the films in terms of model, colors, and condition. Under the third prong, the Court found that Eleanor lacked the distinctiveness necessary to elevate it beyond the level of a generic sports car commonly featured in similar films. Thus, the Court concluded that Eleanor did not qualify as a character, let alone a copyrightable one.
The Ninth Circuit next turned to the parties’ settlement agreement. While California law permits the use of extrinsic evidence to aid in contract interpretation, the Court found the language sufficiently unambiguous to render such evidence unnecessary. Notably, the parties did not include “Eleanor” as a defined term in the agreement, and the term was used in varying contexts throughout the document, conveying different meanings depending on the provision. Ultimately, the Court found a clause that specifically restricted Shelby only from producing vehicles incorporating two design elements associated with Eleanor – its hood and headlight design – to be dispositive. Halicki’s broader interpretation, the Court found, would require an unreasonable reading that pieced together unrelated provisions in a manner unsupported by the agreement’s text.
Finally, the Ninth Circuit addressed the denial of Shelby’s request for declaratory relief. The Court found that the district court erred by conflating Shelby’s breach of contract claim with its separate request for a declaration regarding Halicki’s potential claims. Because Shelby sought clarity as to whether its production of a newer, similar vehicle would infringe Halicki’s asserted rights, the Court held that declaratory relief was warranted. Thus, it remanded the case with instructions for the district court to issue a declaration confirming that Shelby’s conduct did not infringe Halicki’s rights.
FLIP OUT: New Complaint Against Humans, Inc. Demonstrates the Risk to App Publishers that Push SMS To Contact Lists
We are always on the lookout for the latest trends in TCPA litigation here at TCPAWorld.com.
Obviously the biggest trend right now is a massive increase in TCPA class actions– up over 100% year over year.
Also seeing a BIG increase in revocation suits.
But one type of case that has ALWAYS been with us, albeit without much fanfare, are suits arising out of app publishers that push SMS messages to contacts in consumer phones.
To highlight just how not new this phenomenon is, it was a central issue in the FCC’s omnibus ruling way back in 2015.
There the Commission held companies like GroupMe (who?) that automatically synch to a users contact list at the push of a button and send messages inviting them to join the app were potentially liable for TCPA violations caused by their users. In those cases GroupMe was viewed as the “initiator” of the message as they were so intertwined with the message’s sending that they could be fairly said to have made it themselves.
On the other hand, companies like YouMail that merely invited users to find contacts of their own to send messages to were deemed to not be the initiator of the texts– even though the texts promoted the YouMail product–because the consumer had selected the contacts to send messages to.
Fast forward to today and we see Humans, Inc. has developed a new app called Flip.
I know nothing about Flip, or Humans, or apps generally, or humans generally– but I DO know TCPA. And it looks to me like Flip may have been violating the TCPA– at least as alleged in a new complaint.
A person named YAHNI PEDIGREE (not sure if that’s a boy’s name or a girl’s name) sued Humans alleging receipt of unwanted messages.
The first message readL
93 people in your community joined Flip today. Refer friends nowwhile invite rewards are up 48%. https://flip.shop/invite-couponsStop2Quit
Uh oh.
See that “refer friends” note suggests Humans is inviting trouble.
Now perhaps this app is set up like YouMail where the user has to select who to invite to join the little Flip community. Ok fine. But wait, there’s more.
Plaintiff allegedly responded “stop” to end the messages but another message came hot on its heels:
Flip: Want $35?Share Flip with friends to claim! Tap to invitehttps://l.flip.shop/a/J6xYi
Not good.
Couple of things could be going on here.
Plaintiff could just be lying (always an option);
Flip could just be really bad at honoring stop notifications; or
(And I think this is the one) Flip has multiple users hitting consumers with invite at the same time.
Now if it is 3. that is a serious problem. It is akin to a real estate brokerage allowing individual agents to message consumers and then not honoring stops by preventing all agents from sending messages to that consumer.
Because Flip is identified as the sender here, it has the responsibility to assure that all “friends” doing the referring are prevented from messaging the same consumer after they say stop. How that is done is not my problem– but it is their problem, and they need to solve it because if these allegations are true it is bad news bears town.
Anyhoo, very interesting one here.
Plaintiff has plead this ONLY as an internal DNC class case– which is very weak– as apparently he/she did not have a number on the national DNC list. Given the weakness of the claim Humans might skirt this issue in this one– but it should definitely wise up to revocation needs (again, if the claims are true.)
Climate Lawsuit Against German Energy Company Dismissed by Court
Last week, a long-running lawsuit brought against a major German energy company by a Peruvian farmer for alleged damages stemming from climate change was dismissed by an appellate court in Germany. The court’s reasoning focused on the inability of the plaintiff to prove damages, highlighting the difficulty of this aspect of the various climate tort litigations for plaintiffs–and, indeed, this legal point has featured prominently in a number of defenses to these lawsuits (especially in the United States).
Nonetheless, the environmental groups backing the lawsuit claimed victory–at least to a degree–as the case could be interpreted as establishing the principle that emitters of greenhouse gases could ultimately be held liable for damages attributable to climate change, even if this particular action failed to satisfy the applicable legal standard. While it is true that this general legal principle could be invoked in other litigation in the future, environmental lawsuits will still need to be able to prove specific damages that were caused by climate change, which–as this case demonstrates–is a stringent standard to satisfy. Any future plaintiff would have to be selected delicately and deliberately, with this standard in mind–and it is not at all clear that such a suitable candidate for a legal action would be found. Simply stated, the fact that the court found that the plaintiff in this action–a homeowner whose building could be washed away if a dam formed by a glacier collapses due to warming temperatures–had insufficient proof to prosecute this claim will likely discourage (to some degree) similar lawsuits in the future.
RWE AG, one of Europe’s top carbon polluters, won dismissal of a case brought by a Peruvian farmer who tried to hold the German energy giant liable for its impact on climate change. An appeals court in Hamm on Wednesday said that while national law allows a single company to be targeted for its share of climate-related damage, not all the necessary requirements were met in this suit against RWE.
www.bloomberglaw.com/…
Project Opponents of Empire Wind Strike Back
As recently reported, on May 19, 2025, the U.S. Department of the Interior reversed the stop work order it issued on April 16, 2025, thereby allowing the $5 billion, 2 GW, Empire Wind project to proceed. On June 3, 2025, a coalition of Empire Wind opponents sued the Trump administration in federal court in New Jersey, claiming the reversal of the stop work order was unjustified. The plaintiffs assert that the bases for the original stop work order were clearly articulated in the administration’s January 20, 2025, executive order, which halted all offshore wind development pending an investigation and review of all related federal permits by the Secretary of the Interior. The plaintiffs claim that the May 19 reinstatement order, allowing Empire Wind to proceed, was issued without explanation or factual basis, in contravention of the Administrative Procedures Act (APA). Specifically, they allege that the reinstatement order makes no reference to the results of the “investigation” required by the original stop work order.
In light of the administration’s sudden reversal of a stated policy position, it comes as no surprise that proponents of the original policy are aggrieved. When the reversal comes with no justification or reasoned basis, as plaintiffs allege, the court will need to decide whether it runs afoul of procedures mandated by the APA.
No Fair Use Defense Results in Default Judgment
The US Court of Appeals for the Second Circuit reversed a district court’s dismissal of a copyright infringement claim alleging copying of a photograph, finding that the defendant’s use of the photograph did not constitute fair use and that the district court erred in its substantive fair use analysis. Jana Romanova v. Amilus Inc., Case No. 23-828 (2d Cir. May 23, 2025) (Jacobs, Leval, Sullivan, JJ.) (Sullivan, J., concurring).
Jana Romanova, a professional photographer, sued Amilus for willful copyright infringement, alleging that the company unlawfully published her photograph, originally licensed to National Geographic, without authorization on its subscription-based website. Amilus failed to appear or respond in the district court proceedings, and Romanova sought entry of default judgment.
Instead of granting the motion, the district court sua sponte raised the affirmative defense of fair use. After considering Romanova’s show cause order response, the district court dismissed the complaint with prejudice, finding that the fair use defense was “clearly established on the face of the complaint.” Romanova appealed on substantive and procedural grounds.
Romanova argued that the district court erred in finding a basis for the fair use defense within the four corners of the complaint and erred by sua sponte raising a substantive, non-jurisdictional affirmative defense on behalf of a defendant that failed to appear or respond.
Citing the Supreme Court decisions in Campbell v. Acuff-Rose Music (1994) and Warhol v. Goldsmith (2023), the Second Circuit reversed. The Court explained that “the district court’s analysis depended on a misunderstanding of the fair use doctrine and of how the facts of the case relate to the doctrine. We see no basis in the facts alleged in the complaint for a finding of fair use.”
The Second Circuit explained that the district court misapplied the first fair use factor (“the purpose and character of the use”). The Court noted that a transformative use must do more than merely assert a different message; it must communicate a new meaning or purpose through the act of copying itself. Here, Amilus’ use of Romanova’s photograph did not alter or comment on the original work but merely republished it in a commercial context.
The Second Circuit also found no basis for the district court’s finding of justification for the copying, a factor that typically depends on the nature of the message communicated through the copying, such as parody or satire, and was mandated by the Supreme Court in Warhol. The Court rejected the notion that Amilus’ editorial framing – claiming to highlight a trend in pet photography – could justify the unauthorized use.
On the procedural issue, the majority noted that an “overly rigid refusal to consider an affirmative defense sua sponte can make a lawsuit an instrument of abuse. A defendant’s default does not necessarily mean that the defendant has insouciantly snubbed the legal process.” In this case, the Second Circuit explained that it “cannot fault the district court for considering a defense which it believed (albeit mistakenly) was valid and important. While district courts should indeed be cautious before sua sponte invoking affirmative defenses on behalf of defaulting defendants, they should also be cautious about not considering such defenses.”
In his concurrence, Judge Sullivan disagreed on the procedural issue. He took the position that the district court’s sua sponte invocation of an unasserted affirmative defense was itself reversible error. Since fair use is an affirmative defense, Judge Sullivan noted that the party asserting the defense bears the burden of proof. He warned that judicial overreach via sua sponte assertions could undermine the adversarial process, particularly in default settings.
Practice Note: The ruling underscores the Second Circuit’s continued alignment with the Supreme Court’s narrowing of the fair use doctrine in Andy Warhol Foundation v. Goldsmith, particularly with respect to commercial uses that do not involve commentary, criticism, or other transformative purposes. The Court’s opinion includes a comprehensive survey of fair use jurisprudence, making it a valuable reference for copyright practitioners.
X-Ray Vision: Court Sees Through Implicit Claim Construction
The US Court of Appeals for the Federal Circuit reversed the Patent Trial & Appeal Board’s final determination that challenged patent claims were not unpatentable, finding that the Board’s decision relied on an erroneous implicit claim construction. Sigray, Inc. v. Carl Zeiss X-Ray Microscopy, Inc., Case No. 23-2211 (Fed. Cir. May 23, 2025) (Dyk, Prost, JJ.; Goldberg, Chief Distr. J., sitting by designation).
Zeiss owns a patent related to X-ray imaging systems that incorporate projection magnification. Sigray filed a petition requesting inter partes review (IPR) of all claims in the patent. After institution, the Board issued its final written decision, which declined to hold any of the challenged claims unpatentable. Sigray appealed.
On appeal, Sigray argued that the claims were unpatentable based on a single prior art reference, Jorgensen. The Jorgensen reference “describes a system that uses an X-ray source to generate an X-ray beam, which then passes through a sample before being received by a detector.” Sigray argued that Jorgensen anticipated or rendered the challenged claims obvious. The parties agreed that Jorgensen explicitly disclosed all the limitations of the independent claim except for one reading “a magnification of the projection X ray stage . . . between 1 and 10 times.”
The parties’ arguments centered on whether the magnification limitation was inherently disclosed in Jorgensen. The Board concluded that “viewing the record as a whole, . . . [Sigray] has not shown persuasively that Jorgensen inherently discloses projection magnification within the claimed range. Sigray argued, and the Federal Circuit agreed, that the Board’s findings incorrectly relied on a flawed understanding of the claimed range. In Sigray’s view, “the Board implicitly and incorrectly construed the limitation ‘between 1 and 10’ to exclude unspecified, small divergence resulting in projection magnifications only slightly greater than 1.” This was illustrated by the Board’s determination that Sigray “failed to show that the . . . X-ray beam in Jorgensen diverges enough to result in projection magnification between 1 and 10 times.”
The Federal Circuit found that the Board’s use of the term “enough” indicated that the evidence it relied on supported a finding of some divergence in the X-ray beams. Because the beams were not completely parallel, the Court reasoned that some magnification necessarily resulted, and that even a miniscule amount (as disclosed in the prior art) fell within the claimed magnification range of 1 to 10. Since the Board made only one evidence-supported finding relevant to anticipation, the Court reversed on the independent claim and two dependent claims without remand. However, the Court remanded the case to the Board to determine whether the three remaining challenged claims, which recited further material limitations, would have been obvious.
Will the California Supreme Court Put the Heads Back on Headless PAGA Suits?
Since our last coverage of “headless PAGA lawsuits”—i.e., lawsuits in which a plaintiff disavows his individual PAGA claim and opts to pursue the claim only on behalf of others—significant developments have further complicated the Private Attorneys General Act (“PAGA”) landscape. In Leeper v. Shipt, Inc., 107 Cal.App.5th 1001 (2024), the California Court of Appeal (Second District) rejected the so-called “headless” PAGA theory and held that every PAGA action must include both an individual and a non-individual claim even if the plaintiff disavows their own claim, thereby preventing plaintiffs from using this strategy to avoid arbitration. A conflicting decision was issued by another appellate court (the Fourth District) in Rodriguez v. Packers Sanitation Servs. LTD., LLC, 109 Cal.App.5th 69 (2025), reh’g denied (Mar. 19, 2025). This disagreement between the two appellate decisions has led to considerable uncertainty for litigants facing pre-June 2024 PAGA lawsuits, with the California Supreme Court now stepping in to provide much needed guidance.
The Heart of the Dispute: PAGA “Individual” vs. “Non-Individual” Claims
The fundamental issue that the California Supreme Court will address in Leeper is whether a court can compel arbitration of individual PAGA claims (based on the pre-June 2024 version of the PAGA statute) when a plaintiff claims to assert only “non-individual” (i.e., representative-only) claims. Central to this question is whether Leeper or Rodriquez is controlling.
In Leeper v. Shipt, Inc., the appellate court held that every PAGA action necessarily includes both individual and non-individual components, with the individual component being arbitrable. The court in Leeper premised its decision on a plain reading of the PAGA statute, which expressly requires a plaintiff to bring their PAGA action “on behalf of himself or herself and other current or former employees.”[1] Once the individual claim is compelled to arbitration, per Leeper,the representative component is stayed pending the outcome of arbitration.
In Rodriguez v. Packers Sanitation Services LTD. LLC, the court conducted a very limited analysis of the issue. Rodriguez held that courts must look to the face of the complaint and if the lawsuit lacks individual PAGA allegations, the court is unable to order arbitration of claims not pled. While the court explicitly declined to answer whether a plaintiff may bring a PAGA action with only “non-individual” PAGA claims, it did note that a pleading lacking individual PAGA claims may be defective and subject to a motion to strike—suggesting, as Leeper held, that in order to bring a lawsuit seeking PAGA penalties, the named plaintiff must pursue both individual and non-individual claims. Rodriguez appears to be suggesting that defendants faced with a headless PAGA suit file simultaneous motions to compel arbitration and to strike defective pleadings.
The Current State: Deep Division and California Supreme Court Review[2]
The conflicting conclusions in Leeper and Rodriguez have deeply divided both the employment bar and the California appellate courts. Reflecting the significance of this division, on April 16, 2025, the California Supreme Court took the unusual step of ordering review of Leeper on its own motion.[3] The California Supreme Court noted that while Leeper remains under review, it may be cited for its persuasive value and to establish the existence of a conflict in authority, thereby allowing trial courts to exercise discretion in choosing between conflicting decisions. Subsequently, on May 14, 2025, the California Supreme Court granted review of Rodriguez, with further action deferred pending consideration and disposition of the related issues in Leeper.[4] As a result, Rodriguez currently has no binding or precedential effect and, like Leeper, may be cited only for its persuasive value and to establish the existence of a conflict in authority.[5]
Several appeals involving the headless PAGA issue raised in Leeper and Rodriguez are pending throughout the state and awaiting final word from the California Supreme Court.
Key Takeaways
For now, neither Leeper nor Rodriguez is binding authority, but both may be used as persuasive precedent or to demonstrate there is a conflict between the appellate courts on this issue. Plaintiffs who filed their notice with the Labor & Workforce Development Agency (“LWDA”) before June 19, 2024, and are attempting to bring a “headless” PAGA action in order to avoid arbitration, may theoretically invite motions to compel arbitration, motions to strike defective pleadings, or both, depending on which authority they cite to—potentially increasing complexity and costs of litigation for employers.
The ultimate resolution will come from the California Supreme Court, which is set to clarify whether all PAGA actions must necessarily include an individual component subject to arbitration. It remains to be seen whether in ruling on Leeper and Rodriquez, the Supreme Court will limit its findings to PAGA lawsuits based on a pre-June 2024 LWDA notice, or issue a broader decision that also addresses the post-June 2024 PAGA reforms (as previously reported in this blog post).
Given the continued uncertainty around PAGA litigation and arbitration agreements, employers should regularly review their employment arbitration agreements as we wait for the California Supreme Court to provide guidance on this issue.
FOOTNOTES
[1] Cal. Lab. Code § 2699(a) (emphasis added).
[2] All actions taken by the California Supreme Court on Leeper (S289305) and Rodriguez (S290182) can be monitored via the California Supreme Court Search Engine.
[3] Leeper v. Shipt, 566 P.3d 234 (Cal., 2025).
[4] Rodriguez v. Packers Sanitation Servs. Ltd., No. S290182, 2025 WL 1404550 (Cal. May 14, 2025).
[5] See Cal. Rules of Court, rules 8.1105, 8.1115, and Comment on rule 8.1115(e)(3).
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This Week in 340B: May 27 – June 2, 2025
Find this week’s updates on 340B litigation to help you stay in the know on how 340B cases are developing across the country. Each week we comb through the dockets of more than 50 340B cases to provide you with a quick summary of relevant updates from the prior week in this industry-shaping body of litigation.
Issues at Stake: Other; Contract Pharmacy; HRSA Audit Process; GPO Prohibition
In a case against the Health Resources and Services Administration’s (HRSA) challenging its certification of a group of entities as 340B-eligible, the government filed a reply in support of its partial motion to dismiss.
In a case by a covered entity challenging the government’s decision to allow a manufacturer’s audit, the government filed a motion to dismiss.
In a case by a covered entity against the government, the court granted the covered entity motion for leave to file a response to the intervenors’ amicus brief.
A drug manufacturer filed a complaint challenging a Hawaii state law governing contract pharmacy arrangements.
In a case challenging HRSA’s policy limiting the circumstances in which covered entities can use their group purchasing arrangements to purchase non-340B drugs, the plaintiff filed a combined reply in support of its motion for summary judgment and opposition to defendant’s cross motion for summary judgment.
In three cases challenging state laws in Tennessee, South Dakota, and Nebraska governing contract pharmacy arrangements:
Tennessee: The defendant filed a response in opposition re motion for preliminary injunction.
South Dakota: The plaintiff filed a memorandum in opposition to defendant’s motion to dismiss.
Nebraska: The defendant filed a reply to plaintiff’s brief in opposition to defendant’s motion to dismiss.