CTA Enforcement Halted Again: Treasury Department Suspends CTA Requirements for Domestic Reporting Companies
In yet another update to the ongoing saga of the Corporate Transparency Act (CTA), the Financial Crimes Enforcement Network (FinCEN), the agency of the U.S. Department of the Treasury (“Treasury Department”) that enforces the CTA, announced on February 27, 2025, that it would not issue any fines or penalties or take any other enforcement actions against companies for a failure to provide beneficial ownership information (BOI) until a new interim final rule on the CTA is released.
On March 2, 2025, the Treasury Department provided further guidance on the CTA, announcing that it would halt enforcement of the CTA with respect to U.S. citizens and domestic reporting companies.
In its press release announcing this update, the Treasury Department stated that it will not enforce any penalties or fines associated with the BOI reporting requirements under the existing CTA rules; however, it will also issue a new proposed rule (to be released no later than March 21, 2025, according to FinCEN’s February 27, 2025, announcement) that will narrow the scope of the reporting requirements under the CTA to “foreign reporting companies only.”
Under the CTA, a “foreign reporting company” is any entity that is formed under the law of a foreign country and has registered to do business in the United States by the filing of a document with a secretary of state or any similar office, while a “domestic reporting company” is any entity that is formed in the United States by the filing of a document with a secretary of state or any similar office. We note, however, that the Treasury Department could seek to modify these definitions as part of its new proposed rule.
The immediate takeaway, based on this guidance from the Treasury Department, is that all domestic reporting companies are no longer required to file BOI and will not be subject to liability for not filing.
We will continue to monitor additional developments regarding the CTA, including the expected further guidance from the Treasury Department, to determine what the CTA filing requirements and deadlines will be for foreign reporting companies.
Supreme People’s Court Presiding Judge Chen Wenquan Elaborates on 640 Million RMB Trade Secret Case
On March 7, 2025, Judge CHEN Wenquan, the Supreme People’s Court judge that presided over the case that yielded the largest intellectual property damages in China’s history, elaborated on the case. In decision （2023）最高法知民终1590号 released June 14, 2024, the SPC applied 2X punitive damages on appeal in a dispute between two well-known (and unnamed) domestic automotive companies regarding new energy vehicle chassis technical trade secrets that were misappropriated in a personnel poaching scheme. The plaintiff is believed to be Geely Holding Group and the defendant is WM Motor. Note that WM Motor is reportedly insolvent so collection is unlikely. Below, Judge Chen only mentioned the non-monetary obligations were fulfilled.
Judge Chen stated:
To build a strong country in science and technology, it is necessary to encourage and protect fair competition. In recent years, disputes over technical secrets caused by employee “job hopping” have occurred frequently, especially some newly established enterprises have illegally seized other people’s technology, personnel and resources in order to gain competitive advantages quickly, seriously disrupting the market order. The right holder in this case is one of the largest private automobile companies in my country. As early as 2014, it used its traditional models to develop, trial-produce, and produce hybrid and pure electric vehicles, made huge R&D investments, and has achieved initial R&D results. In order to gain competitive advantages quickly, competitors have poached senior management and technical R&D personnel related to the right holder on a large scale, and used the technical secrets mastered by the right holder’s former employees to apply for patents, manufacture and sell related models.
The outstanding feature of this case is that it is a case of infringement of technical secrets caused by the organized and planned large-scale poaching of new energy vehicle technical personnel and technical resources by improper means. On the basis of the overall judgment of the infringement of technical secrets, the People’s Court applied double punitive damages in accordance with the law and awarded more than 640 million RMB, setting a new record for the amount of compensation awarded in domestic intellectual property infringement lawsuit. More importantly, the trial of this case has always been based on the judicial concept of protecting innovation in an innovative way, and has made pioneering explorations in the specific way, content, scope of civil liability for stopping infringement, and the calculation standard of delayed performance of non-monetary payment obligations. After the judgment was made, the infringer took the initiative to perform the non-monetary obligations determined by the judgment on time. As a typical case of the People’s Court protecting scientific and technological innovation in accordance with the law, this case not only effectively cracked down on malicious infringement of intellectual property rights, actively regulated and guided enterprises to operate in good faith and in accordance with the law, but also helped to stimulate the innovation and creation of enterprises, help develop new quality productivity, promote high-quality development of new industries and new fields, and promote the creation of a business environment that respects originality, legal operation, and fair competition.
The original text is available here (Chinese only).
CFPB Continues Lawsuit Over Alleged Military Lending Act Violations
On March 1, and despite recent policy shifts under the new administration, the CFPB sent a letter to the judge overseeing its lawsuit against a fintech lender in the United States District Court for the Southern District of New York, stating that it would proceed with its filed action. The lawsuit, originally filed in September 2022, alleges violations of the Military Lending Act’s (MLA) restrictions on extensions of credit to covered servicemembers. The complaint further alleges violations of the Consumer Financial Protection Act’s (CFPA) prohibitions on unfair, deceptive, or abusive acts or practices (UDAAPs).
The CFPB’s letter follows the court’s denial of the lender’s request to stay the case. In its letter, the lender argued that the new administration needed time to reassess whether the enforcement action aligned with its regulatory priorities. Citing the CFPB’s broader enforcement pause under new leadership (previously discussed here), the lender contended that the lawsuit should be temporarily halted. However, the court rejected this argument and required the CFPB to clarify its position.
Specifically, the complaint alleges that the lender:
Exceeded the MLA’s 36% Rate Cap. The lender allegedly required military borrowers to pay membership fees as a condition of receiving credit, which resulted in an effective loan cost that exceeded the 36% cap imposed by the MLA.
Required Covered Borrowers to Submit to Arbitration. The lender allegedly included mandatory arbitration clauses in its loan agreements, in violation of the MLA’s prohibition of such clauses.
Failed to Make Mandatory Loan Disclosures. The lender allegedly did not provide covered borrowers with disclosures required under the MLA, including the Military Annual Percentage Rate (MAPR) and other key terms of the credit.
Restricted Consumers’ Ability to Cancel Memberships. The complaint alleges the lender violated the CFPA’s prohibition on deceptive acts or practices by making representations that consumers could cancel their memberships at any time while restricting cancellations for users with unpaid balances, effectively forcing them to continue accruing membership fees. In other cases, the lender refused to allow cancellation for users with unpaid membership fees, even after users had fully repaid their loans.
Putting It Into Practice: The CFPB’s decision to continue litigating this case signals that, despite leadership changes and the withdrawal of multiple lawsuits initiated by the previous administration (previously discussed here), certain Bureau enforcement priorities persist. Lenders should continue to monitor how the CFPB’s enforcement posture evolves under the new administration and adjust compliance strategies accordingly.
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Federal Circuit Rules US International Trade Commission’s Interpretation of Section 337’s Domestic Industry Requirement is Overly Narrow
On March 5, 2025, the Federal Circuit published its decision in Lashify, Inc. v. Int’l Trade Comm’n, finding that the U.S. International Trade Commission (ITC) has been incorrectly interpreting its enabling statute when analyzing Section 337’s so-called domestic industry requirement. The court found the ITC’s practice of limiting a complainant from relying on expenses for certain activities, including sales and marketing, warehousing, distribution, or quality control, runs contrary to the plain language of Section 337 (19 U.S.C. § 1337). The ruling represents a major shift from long-standing ITC practice of excluding certain investments such as sales and marketing expenses without evidence of other qualifying expenses. As a result, the decision expands the scope of activities and related investments that may be relied upon by companies seeking relief at the ITC and may result in increased filings with the ITC.
Section 337’s Domestic Industry Requirement
Section 337 investigations at the ITC focus on unfair practices in the importation of products into the United States. Most often, these investigations involve claims regarding intellectual property rights, such as patent or trademark infringement. To succeed in a patent-based Section 337 proceeding at the ITC, a party who files a complaint must show the existence of a “domestic industry.” Specifically, a complainant must show that it has made domestic investments with respect to its products that are protected by an asserted patent. Section 337 provides that these investments may fall within one or more of the following three categories: (a) significant investment in plant and equipment; (b) significant employment of labor or capital; or (c) substantial investment in exploitation of the patent through activities such as engineering, research and development, or licensing. 19 U.S.C. § 1337(a)(3)(A)-(C). The ITC has long maintained that investments in sales and marketing activities alone are not sufficient to meet the domestic industry requirement without evidence of other sorts of ongoing activities.
The ITC’s Underlying Section 337 Investigation and Determination
In October 2020, the ITC instituted an investigation based on a complaint filed by Lashify Inc., which alleged a violation of Section 337 based on patent infringement by various entities. Lashify is headquartered in the United States, where it develops, distributes, markets, and sells eyelash extensions and accessories that are manufactured overseas. Lashify claimed the existence of a domestic industry based in part on its employment of labor or capital in the United States, relying on expenses related to activities such as sales, marketing, warehousing, quality control, and distribution. The Administrative Law Judge (ALJ) presiding over the proceedings before the ITC determined that Lashify had not satisfied the domestic industry requirement based on its labor and capital expenditures. This decision was based in part on the ALJ’s exclusion of sales and marketing and similar types of expenses in accordance with past ITC precedent holding that such activities are the types that a mere importer would perform.
In reviewing that determination, the ITC affirmed that Lashify had failed to satisfy the domestic industry requirement.1 The ITC explained that, with respect to the category of labor and capital expenditures, sales and marketing expenses could not be credited toward the existence of a domestic industry without other qualifying investments. The Commission applied the same principle to warehousing, distribution, and quality control expenses. Lashify appealed the ITC’s determination to the Federal Circuit.
The Federal Circuit’s Decision
On appeal, the Federal Circuit vacated the ITC’s determination, finding that its interpretation of what activities and expenses may be included within the scope of “employment of labor or capital” is contradicted by Section 337’s plain language. In doing so, it proclaimed its exercise of “independent judgment” in interpreting Section 337 based on the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024). The Federal Circuit explained the provision at issue contains “no carveout of employment of labor or capital for sales, marketing, warehousing, quality control, or distribution. Nor is there a suggestion that such uses, to count, must be accompanied by significant employment for other functions, such as manufacturing.” The Federal Circuit elaborated that, on the contrary, “[t]here is no exclusion from labor when the human activity employed is for sales, marketing, warehousing, quality control, or distribution, which are common aspects of providing goods or services.”
In reaching this conclusion, the Federal Circuit rejected various arguments the ITC advanced to support its interpretation. First, the Federal Circuit rejected the ITC’s claim that certain statements in the legislative history from the 1988 amendments to Section 337 suggested that sales and marketing alone were insufficient to establish a domestic industry, finding the ITC’s inference on this point unwarranted and inconsistent with the statutory language. Second, the court dismissed the ITC’s argument that a 1983 decision by the Federal Circuit supported its view, finding the reasoning of that decision to be outdated in light of the 1988 amendments.
Assessing the Impact of the Lashify Decision
The Lashify decision represents a major development in interpreting the scope of Section 337’s domestic industry requirement. A decade ago, in Lelo Inc. v. Int’l Trade Comm’n, 786 F.3d 879 (Fed. Cir. 2015), the Federal Circuit vacated the ITC’s domestic industry findings because they focused on qualitative factors, clarifying that a Section 337 domestic industry assessment must begin with a quantitative analysis. That remains true today. However, in Lashify, by emphasizing that certain provisions of Section 337 fail to enumerate any specific types of activities that should be excluded, the Federal Circuit has established a more expansive domestic industry standard. What this means is that companies primarily engaged in activities such as sales and marketing, warehousing, quality control, or distribution, as opposed to research and development, engineering, or manufacturing, may no longer find the doors of the ITC closed to them.
1 It is worth noting that the ITC’s Commissioners were split 3-2 on whether Lashify had shown the existence of a domestic industry, although the two dissenting members agreed that a domestic industry cannot be predicated on sales and marketing alone.
A Divided SCOTUS Invalidates Common Provisions of Clean Water Act Permits
In the US Supreme Court’s first post-Chevron decision involving the US Environmental Protection Agency (EPA) the Supreme Court found against EPA, invalidating ‘end result’ NPDES permit requirements.
The decision, issued on March 4, in City and County of San Francisco v. EPA makes it clear that National Pollutant Discharge Elimination System (NPDES) permit provisions which state a goal must also advise the permittee how to achieve it.
Background
The City and County of San Francisco asserted that EPA exceeded its statutory authority under the Clean Water Act (CWA) when it issued an NPDES renewal permit, which included two “end-result” requirements, i.e., permit terms that don’t spell out what a permittee must do or not do but instead make a permittee responsible to achieve an outcome. The specific ‘end-result’ permit terms at issue respectively prohibited discharges that “contribute to a violation of any applicable water quality standard” or “create pollution, contamination, or nuisance as defined by California Water Code section 13050.” Similar end-result provisions are common within NPDES permits across the nation.
Eight Justices Reject San Francisco’s Primary Argument
Justice Samuel Alito’s majority opinion begins by addressing plaintiff’s principal claim; the two end-result provisions were not “effluent limitations” and were hence not authorized because CWA Section 1311(b)(1)(C)[1] only authorizes the permitting authority to issue “effluent limitations” in NPDES permits. In assessing that argument and finding against the City, the Court primarily relied on the presumption that Congress acts intentionally in the disparate inclusion or exclusion of a term. Specifically, the Court noted that the plain language of 1311(b)(1)(C) refers to “limitation,” while the immediately preceding Sections, 1311(b)(1)(A) and (B), refer to “effluent limitations.” In other words, the fact that Congress used “effluent limitation” at other points within Section 1311 demonstrates that Congress meant for “limitation” in Section 1311(b)(1)(C) to mean something different. A total of eight justices (everyone but Justice Neil Gorsuch) agreed with this conclusion.
Five Justices Determine That End-Result Provisions Are Improper
Having determined that 1311(b)(1)(C) is not confined to effluent limitations, the majority then turned (without affording deference to EPA’s interpretation as it might have prior to Loper-Bright) to a dictionary meaning to conclude that “limitation” refers to a “restriction or restraint imposed from without.” Using that definition, the Court reasoned as follows that the end-result restrictions fail as being from within.
A provision that tells a permittee that it must do certain specific things plainly qualifies as a limitation. Such a provision imposes a restriction “from without.” But when a provision simply tells a permittee that a particular end result must be achieved and that it is up to the permittee to figure out what it should do, the direct source of restriction or restraint is the plan that the permittee imposes on itself for the purpose of avoiding future liability. In other words, the direct source of the restriction comes from within, not “from without.”
The majority also assessed dictionary meanings of two additional terms of 1311(b)(1)(C), “implement” and “meet.” Respectively, these terms were found (using different dictionaries) to mean “to give practical effect to and ensure of actual fulfillment by concrete measures” and “to comply with; fulfill; satisfy.” The decision explains that the end-result requirements are neither concrete (because they state a desired result without implementing them) nor do they set out actions for the permittee to fulfill. The majority went on to explain that its decision is supported by the CWA’s history, the broader statutory scheme, and application of the CWA’s permit shield.
Justice Barrett Leads the Dissent
The dissent, authored by Justice Amy Coney Barrett, suggests that the legal theory of five-vote majority decision was largely of the Court’s own making and contends that its narrow interpretation of “limitation” is unsubstantiated and “wrong as a matter of ordinary English.” It offers the following examples to rebut the majority’s conclusion.
A company could impose spending “limitations” by requiring each branch to spend no more than its allotted budget, while still leaving branch managers flexibility to determine how to allocate those funds.
A doctor could impose a “limitation” on a patient’s diet by telling the patient that she must lose pounds over the next six months, even if the doctor does not prescribe a specific diet and exercise regimen.
An airline could impose a “limitation” on the weight of checked bags, even though it does not tell passengers what items to pack.
Implications
While it seems clear that NPDES permit provisions that state only an end result are no longer valid (unless authorized by state law), the decision doesn’t speak to the extent of direction/specificity an NPDES provision must give in order to avoid becoming an improper end-result provision. Must an NPDES requirement state detailed directions to achieve each end result or might general guidance be sufficient? The answer to that question seems likely to determine whether the decision’s impact on future NPDES permits is modest or more dramatic. Consider, for example, whether the below-stated provision of EPA’s current stormwater general permit avoids being an improper end-result requirement simply by providing examples of ways the permittee could chose to accomplish the provision’s goal.
2.4.3 The discharge must not cause the formation of a visible sheen on the water surface, or visible oily deposits on the bottom or shoreline of the receiving water. Use an oil-water separator or suitable filtration device (such as a cartridge filter) designed to remove oil, grease, or other products if dewatering water is found to or expected to contain these materials.
For existing NPDES permits, the decision means that permitting authorities will not be unable to enforce existing end result provisions based on the Clean Water Act. But, given that allegations regarding violations of end result provisions are often add-ons (rather than the primary basis of) to enforcement cases, the enforcement impact of the decision may not be significant in many instances.
[1] In relevant part, Section 1311(b)(1)(C) gives the NPDES permitting authority the ability to establish “any more stringent limitation, including those necessary to meet water quality standards, treatment standards, or schedules of compliance, established pursuant to any state law or regulations [] or any other federal law or regulation, or required to implement any applicable water quality standard established pursuant to this chapter.”
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A Costly Oversight: Federal Court Emphasizes Strict Adherence to Mechanic’s Lien
A federal judge in New York served up a good reminder last week about the importance of dotting your i’s and crossing your t’s when it comes to perfecting a mechanic’s lien. The case involves a payment dispute between a subcontractor and general contractor on a police station renovation project in the Bronx.
The subcontractor liened the job and brought suit to foreclose its lien (among other claims). The New York lien law at issue for public improvement works provides that a lien “shall not continue for a longer period than one year from the time of filing the notice of such lien, unless an action is commenced to foreclose such lien within that time, and a notice of the pendency of such action is filed with the comptroller of the state or the financial officer of the public corporation with whom the notice of such lien was filed.” N.Y. Lien Law Section 18 (emphasis added). The subcontractor had filed its lien and a lawsuit to enforce it within one year but had failed to file the notice of pendency. The subcontractor’s lien had therefore automatically expired after one year. The subcontractor argued that the notice of pendency was unnecessary because the contractor had bonded off the lien. The court rejected that argument and dismissed the subcontractor’s lien claim. The case is J&A Concrete Corp. v. Dobco Inc., 2025 WL 605252 (S.D.N.Y. Feb. 24, 2025). A copy of the court’s opinion is located here.
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Federal Appeals Court Upholds Arbitration Institution’s Authority to Consolidate Mass Arbitrations
Defending against numerous individual arbitrations that share common factual and legal issues can cost companies significant time and money. The U.S. Court of Appeals for the Ninth Circuit recently held that such arbitrations can be consolidated when permitted by the applicable arbitration agreement and arbitration rules and affirmed the denial of a petition to compel individual arbitration. But the Ninth Circuit’s decision underscores that companies must pay careful attention to the language of their arbitration agreements and their selected arbitration rules in order to ensure that consolidation is an option.
Case Background
In Kiana Jones v. Starz Entertainment, LLC, the plaintiff, Kiana Jones, created a Starz account and agreed to Starz’s Terms of Use. The Terms included a mandatory arbitration clause incorporating the rules of Judicial Arbitration and Mediation Services (JAMS), one of the major arbitration institutions in the U.S. The Terms prohibited class or representative proceedings but did not explicitly bar consolidation of individual arbitrations into a single proceeding.
Jones and thousands of other claimants (all represented by the same counsel) later filed individual arbitration claims against Starz, alleging privacy violations. JAMS, applying its own rules, consolidated 7,300 of these claims into a single proceeding. Among other things, this had the effect of significantly reducing Starz’s potential arbitration fees, which otherwise would have exceeded $12 million. Claimants’ counsel opposed consolidation and objected to every arbitrator suggested, preventing arbitration from moving forward. Jones then petitioned a federal district court to compel individual arbitration, arguing that JAMS’s consolidation amounted to Starz refusing to arbitrate under Section 4 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4. The district court denied the petition, holding that Starz had not refused to arbitrate and that consolidation was a procedural issue for the arbitrator, not the courts, to decide.
The Ninth Circuit’s Decision
The Ninth Circuit affirmed the district court’s ruling, emphasizing that Starz had not refused to arbitrate but had actively participated in the arbitration process. The court held that:
Under Section 4 of the FAA, a party seeking to compel arbitration must show that the opposing party has failed, neglected, or refused to arbitrate. Starz had done none of these things, and so Jones could not make the required showing.
The consolidation of claims by JAMS did not present a “gateway” arbitrability issue requiring judicial intervention. “Gateway” arbitrability issues typically concern the validity and scope of the agreement to arbitrate and are for a court to decide unless the parties have clearly and unmistakable indicated otherwise. But in this case, the arbitration institution’s application of its own rules on consolidation fell within its authority.
Jones’ argument that JAMS’s consolidation converted the arbitration into a prohibited “class or representative proceeding” in violation of the Terms was unfounded. The Terms did not explicitly require individual arbitration or prohibit consolidation. Moreover, consolidation is not the same as class or representative arbitration, because “[i]n a class or representative arbitration, an individual brings claims on behalf of others, whereas a claimant in a consolidated arbitration brings the claim in her individual capacity.”
Jones’ attempt to invoke unconscionability as a means to force individual arbitration was improper. The FAA does not allow a party to modify an arbitration agreement on unconscionability grounds while simultaneously seeking to enforce it.
The court distinguished this case from Heckman v. Live Nation Ent., Inc., 120 F.4th 670 (9th Cir. 2024), where the applicable arbitration rules provided for “mass arbitration” in which bellwether cases served as precedents for all other cases in a given “batch,” without giving the claimants in those other cases notice of the bellwether cases, the opportunity to participate in the bellwether cases or to otherwise be heard, or the right to opt out of the “batch.” The Ninth Circuit had therefore found the “mass arbitration” rules in Heckman unconscionable and thus unenforceable under California law. By contrast, under the JAMS consolidation rule in this case, Jones (and the other individual claimants) could still challenge consolidation within the arbitration proceeding itself and were not bound by decisions in bellwether cases where they had no opportunity to be heard. As the Ninth Circuit put it, under the JAMS consolidation rule at issue in this case, “no claimant is at the mercy of another claimant’s representation of her.”
Implications
This decision reinforces that arbitration institutions have discretion to apply their own rules, including consolidation procedures, when those rules are incorporated into arbitration agreements. It also underscores that procedural objections to an arbitration institution’s management of a case do not justify judicial intervention under the FAA.
For businesses, this ruling highlights the importance of carefully drafting arbitration agreements, particularly with respect to mass arbitration risks. While this case did not involve a specific mass arbitration clause, it demonstrates how consolidation can mitigate excessive costs in large-scale arbitration claims.
Leveraging Artificial Intelligence to Reach Favorable Settlement Outcomes
“We’ve been sued” — words few want to hear. Being served with an unexpected lawsuit can throw your entire organization into disarray. Even expected litigation can leave you scrambling to figure out the next steps. Yet, these days litigation seems to be a cost of doing business. And, as with any expense, you strive to minimize those costs — whether financial or operational.
The goal? Resolve a dispute swiftly and in the most favorable, cost-effective way possible. The game plan? Analyze relevant law and facts to assess the merits of the claims and form an appropriate strategy, which often includes determining whether an early settlement is feasible. Artificial intelligence (AI) can help.
Knowledge: The Key to Successful Settlement
It’s no secret the vast majority of lawsuits eventually settle. But that often means settling on the eve of trial, only after the parties have engaged in prolonged — and expensive — discovery (as our colleagues recently discussed in greater detail). All things equal, most parties would prefer to resolve their disputes sooner, limiting the costs they incur. That doesn’t mean you should roll over and agree to the other side’s demands. Instead, to place yourself in the best position to negotiate, you need to understand your case — both its strengths, and, perhaps more importantly, its weaknesses. Otherwise, you risk coming to the bargaining table unprepared.
Marshaling and identifying key facts is therefore crucial, and you want to do it quickly. This, of course, requires ingesting and analyzing potentially large amounts of information. Fortunately, technology continues to make this easier than ever. Long gone are the days of unloading trucks of documents for teams of associates to scour page-by-page. For years, discovery has instead been characterized by varying forms of electronically stored information (ESI), like e-mails, Word documents, text messages, and business-related messaging applications. As ESI proliferated, so did the availability of technology-assisted review (TAR) software. While some variation of TAR can be adapted to virtually every case, significant training by attorneys is still required, and these systems ultimately do little to expedite the identification of “key” documents. Enter artificial intelligence.
Artificial Intelligence: The Document Super-Reviewer
AI tools now can transform what typically would be a few weeks of document review into, literally, just a few days. By feeding an AI program a “prompt” outlining the case’s key legal and factual issues, AI can process and analyze tens of thousands of documents overnight. Although it’s not quite as simple as flipping a switch, the time and cost advantages are enormous and provide a leg up in developing your litigation strategy and assessing potential settlement. The benefits of an AI program are amplified when implemented by experienced counsel who know how to write effective prompts and then manage and validate the results.
Foley has been on the forefront of implementing AI into high-stakes commercial litigation and can attest to its benefits firsthand. Just last year, for example, we were among the first firms to integrate Relativity’s new generative AI software, Relativity aiR, into our review platforms and deploy it in active litigation. There, our client found itself facing an expedited discovery schedule and the prospect of a truly business-altering injunction. Working in tandem with our highly skilled litigation support and discovery experts, we were able to quickly, and effectively, implement aiR into our case workflow. This expedited our document review processes and rapidly identified key documents, which we ultimately used to undermine the plaintiff’s case and negotiate a quick, favorable settlement.
And while it’s true we can use AI to help secure favorable settlements early in litigation, we are equipped to also wield it as a powerful tool throughout all phases of your case, even if a settlement doesn’t materialize or isn’t advisable. The benefits of AI include:
Identification of Key Documents: AI tools can predict and identify documents crucial to the merits of your case. This includes helpful and harmful documents.
Increased Efficiency: Instead of assembling a team of dozens of attorneys to review thousands of documents over the span of weeks or months, AI can be trained to rapidly analyze the same number of documents, potentially overnight.
Increased Security: Rather than distributing and outsourcing large document reviews to third-party vendors, the review process is kept securely within the confines of your trusted outside counsel. Fewer eyes on documents means fewer confidentiality concerns.
Lower Litigation Costs: Fewer attorneys reviewing documents leads to a lower bill. These savings can be reallocated to other aspects of case strategy or reinvested across other parts of your organization.
Standardized Accuracy and Effectiveness: AI minimizes potential inconsistencies that are more common with large attorney review teams. For example, what constitutes a “key” document to one reviewer may be overlooked by another. Human error, as much as we try to avoid it, still happens. AI operates more objectively, treating similar documents consistently.
Generation of Plain Language Document Summaries: Day-to-day business documents and correspondence can sometimes be challenging to follow, especially if they are full of unfamiliar technical jargon. AI can be used to generate high-level summaries of key documents or important issues in your case. These summaries are written in plain, readily accessible language, which facilitates seamless analysis and counseling.
Reallocation of Attorney Resources: The less time (and money) spent on document review, the better (for attorneys and clients alike). This allows attorneys to spend more time reviewing and analyzing highly relevant information and developing successful case strategies.
Enhanced Legal Research: Online legal research services, like the Westlaw and LexisNexis services used by Foley, also have embraced the power of AI. Attorneys can now input their research questions in everyday language, and the AI programs respond quickly with concise, well-reasoned answers with citations to supporting authorities.
Settling on Your Terms
Every litigator knows, notwithstanding that hundreds of thousands of documents may be produced in discovery, there often are only a handful of “key” or “hot” documents that actually drive a case’s outcome. With a properly implemented AI platform, parties can identify these documents quicker than ever before. Armed with this information, parties can take control over their lawsuit and implement successful litigation strategies, including effective settlement positions where appropriate.
For example, imagine you’ve been sued by a former employee for wrongful termination, but you found (through your AI platform) a series of documents that irrefutably show that the employee, in fact, willingly resigned to pursue other opportunities. You can now use those documents as the centerpiece of your settlement discussions and obtain a quick, satisfactory resolution without breaking the bank. Alternatively, imagine that you found “bad” documents that corroborated the plaintiff’s allegations. Rather than engage in prolonged discovery in a case that you are unlikely to win, you’re now able to pursue and secure a fair settlement that avoids unnecessary time and litigation expense.
Ultimately, the role of AI will continue to grow in all aspects of life and business. The legal industry is no exception, and litigants should embrace it. We have. By leveraging emerging AI technology, we can help your organization take control over its legal battles.
This article is one in a series dedicated to legal topics at the intersection of counseling and the courtroom. To read our last article, click here.
San Francisco v. EPA: Supreme Court Strikes Down EPA’s “End-Result” Permit Requirements
On March 4, 2025, the U.S. Supreme Court issued a 5-4 decision in City and County of San Francisco v. Environmental Protection Agency, narrowing the Environmental Protection Agency’s (EPA) authority under the Clean Water Act (CWA) to impose outcome-based permit conditions—termed “end-result” requirements by the Court—on entities discharging pollutants into U.S. waters. The majority held that the CWA does not authorize the EPA or states to enforce permit provisions that make permittees responsible for the quality of receiving waters absent specific, quantifiable effluent limitations. This decision has immediate implications for the National Pollutant Discharge Elimination System (NPDES) permitting framework, particularly regarding the enforceability of narrative water quality standards.
Legal Background
Enacted in 1972, the CWA establishes a comprehensive framework for regulating the discharge of pollutants into U.S. waters, primarily through the NPDES permitting program. Under the CWA, EPA and authorized state agencies issue permits that impose “effluent limitations”—specific, quantifiable restrictions on the “quantities, rates, and concentrations” of pollutants discharged by permit holders. These permits also typically include monitoring, recordkeeping, and reporting requirements, as well as best management practices designed to minimize pollution. Notably, the CWA’s “permit shield” provision protects permittees from liability under the Act, provided they comply with their permit terms.
This case addressed the validity of “end-result” requirements, which condition a permittee’s compliance on the quality of the receiving water rather than on adherence to specific effluent limitations. These provisions effectively impose liability for water quality standard exceedances whether or not a permittee’s discharge is the proximate cause of a violation.
Factual and Procedural Background
San Francisco operates two combined sewer systems: the Bayside facility, which discharges into San Francisco Bay, and the Oceanside facility, which empties into the Pacific Ocean. The Oceanside facility occasionally overflows during heavy rainfall, releasing untreated wastewater, including raw sewage, into the ocean. In 2019, the EPA incorporated two end-result requirements into the Oceanside facility’s NPDES permit: (1) a prohibition on discharges that “contribute to a violation of any applicable water quality standard,” and (2) a ban on discharges that “create pollution, contamination, or nuisance” as defined by California law. San Francisco challenged these provisions, arguing that they imposed vague and unattainable obligations, exposing the city to enforcement actions for water quality standard exceedances beyond its control.
San Francisco appealed these provisions to the EPA’s Environmental Appeals Board, which upheld them, and then petitioned for review in the U.S. Court of Appeals for the Ninth Circuit. A divided panel of the Ninth Circuit deferred to the EPA’s interpretation of the CWA, holding that Section 301(b)(1)(C) authorizes the agency to impose “any” limitations necessary to achieve water quality standards. The Supreme Court reversed.
The Court’s Opinion
Writing for the majority, Justice Samuel Alito, joined by Chief Justice Roberts and Justices Thomas, Kavanaugh, and, in part, Neil Gorsuch, held that the CWA does not authorize the EPA to impose end-result requirements. The Court’s analysis rested on the statutory text, legislative history, and the overall regulatory framework. The Court focused on Section 301(b)(1)(C), which authorizes “any more stringent limitation” necessary to meet water quality standards, concluding that this provision requires EPA to include specific, quantifiable effluent limitations in discharge permits rather than open-ended directives tied to ambient water quality. Justice Alito reasoned that end-result requirements undermine the CWA’s objective of providing clear, ex ante compliance obligations by exposing permittees to liability for conditions beyond their control, such as pollution from upstream sources.
The Court also examined the evolution of federal water pollution regulation, noting that Congress deliberately rejected the pre-1972 framework, which held permittees liable for water quality exceedances, in favor of a discharge-based regulatory system. The majority concluded that end-result requirements effectively reintroduced the discarded approach Congress sought to eliminate. Finally, the Court identified two structural features of the CWA that conflict with end-result requirements: (1) the permit shield provision, which would be rendered ineffective if permittees could be held liable for water quality violations despite full compliance with permit terms, and (2) the absence of a statutory mechanism for apportioning liability among multiple dischargers contributing to water quality exceedances.
Justice Amy Coney Barrett, joined by Justices Sotomayor, Kagan, and Jackson, dissented. While acknowledging the importance of regulatory specificity, Barrett defended the EPA’s use of narrative standards as a necessary “backstop” when precise effluent limitations alone fail to protect water quality. She cautioned that the majority’s decision could constrain the EPA’s ability to craft effective permits, particularly in cases where permittees fail to disclose critical discharge data.
Implications
The ruling has significant implications for the EPA, regulated entities, and broader water quality enforcement efforts. Industry groups and municipal authorities hailed the decision as a win for regulatory certainty, as it requires the EPA to establish clear, quantifiable permit conditions rather than ambiguous, outcome-based standards. This shift may mitigate compliance risks and reduce regulatory exposure for businesses and municipalities. Conversely, environmental advocates have expressed concerns that the decision could weaken the CWA’s ability to protect water quality, particularly in complex, multi-discharger scenarios. The ruling could also lead to delays in the permitting process, as EPA will need to compile more detailed discharge data to establish specific effluent limitations.
Looking ahead, the EPA and delegated states must replace vague “don’t violate water quality standards” directives in CWA permits with specific technologies and conditions necessary to meet water quality standards during the five-year permit renewal cycle. Whether the EPA can muster the resources for this demanding task remains unclear. Entities with NPDES permits should examine their permits to identify any problematic “end-result” provisions.
California Appeals Court Decides PAGA Lawsuit Can’t Be Sent to Arbitration Without Individual Claims
A California court of appeal recently upheld a trial court’s ruling that rejected a sanitation company’s effort to compel arbitration of individual claims under California’s Private Attorneys General Act (PAGA), where the plaintiff disclaimed all individual relief.
Quick Hits
A California appellate court recently ruled a company could not compel individual PAGA claims to arbitration because the plaintiff disclaimed all individual relief and bought the action on a representative basis only.
There is a split of authority on this issue at the California appellate court level.
The company could appeal this decision to the California Supreme Court.
On February 26, 2025, the California Court of Appeal, Fourth Appellate District, upheld a lower court decision denying a sanitation company’s motion to compel arbitration of individual PAGA claims.
In February 2022, an employee sued Packers Sanitation Services, which was recently renamed Fortrex, in a representative capacity under PAGA, alleging violations of California’s overtime and meal and rest break requirements. In March 2022, the company moved to compel arbitration based on an arbitration agreement the employee had signed.
The plaintiff argued he did not allege the individual component of a PAGA claim, so there was no individual claim that the trial court could compel to arbitration. Instead, he argued that he was acting only in a representative capacity. The Imperial County Superior Court agreed.
The Fourth District agreed with the trial court and concluded that the plaintiff alleged violations only in a representative capacity, and the trial court was correct in denying the company’s motion to compel arbitration. It noted that a complaint could fail to include an individual PAGA claim, even if it should include an individual PAGA claim.
Notably, the California Court of Appeal, Second Appellate District recently came to the opposite conclusion as the Fourth District. In that decision, the Second District held that a PAGA plaintiff cannot disclaim the individual component of a PAGA action and bring such an action in only a representative capacity.
In 2022, the Supreme Court of the United States held in Viking River Cruises v. Moriana that individual PAGA claims can be compelled to arbitration, and any non-individual claims would be dismissed at that point. However, in 2023, the California Supreme Court ruled that plaintiffs may still be able to pursue representative PAGA claims in court, even after their individual claims are sent to arbitration.
Next Steps
The employer in this case could appeal the Fourth District’s decision to the California Supreme Court, especially in light of the current split in authority in the state.
In the meantime, California employers may wish to review their arbitration agreements when confronting a potential PAGA lawsuit.
New Rulemaking Announced: Treasury Department Suspends Reporting, Enforcement and Fines under the Corporate Transparency Act until Further Notice
How Did We Get Here?
The Corporate Transparency Act (CTA) went into effect on January 1, 2024, and was enacted as part of the Anti-Money Laundering Act of 2020. Administered by the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury (FinCEN), the CTA is designed as another tool in the mission to protect the financial system from money laundering, terrorism financing, and other illicit activity. FinCEN issued the implementing final rules on September 29, 2022. Pursuant to these rules, reporting companies[1] formed before 2024 were to file their initial beneficial ownership reports (BOIRs) with FinCEN by January 1, 2025. Reporting companies formed after January 1, 2024, and before January 1, 2025, were to file their initial BOIR within 90 days following their formation.
In late 2024, multiple lawsuits were filed challenging the constitutionality of the CTA. Plaintiffs in those cases sought, and in many cases obtained, injunctions excusing them from filing their initial BOIRs until the merits of the case were decided. In two of the cases, federal judges issued nationwide injunctions excusing all reporting companies from filing their initial BOIR during the pendency of the case. As we recently reported, the United States Supreme Court on January 3, 2025 overturned the nationwide injunction in one of those cases, narrowing the injunction to just the plaintiffs in that particular case. On February 18, 2025, the district court judge in the other case narrowed his nationwide injunction to just the plaintiffs in that case. All of the cases continue to work their way through the federal court system.
As a result, on February 19, 2025, FinCEN issued a notice declaring a new filing deadline of March 21, 2025, for initial BOIRs. Then on February 27, 2025, FinCEN announced that by March 21, 2025, it would propose an interim final rule that further extends BOIR deadlines. Moreover, FinCEN stated it would not issue fines or penalties or take any enforcement actions until that forthcoming interim final rule became effective and the new relevant due dates in the interim final rule have passed. The Treasury Department also issued a comparable press release on February 27, 2025, but added that it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect. The Treasury Department stated that the interim final rule that it would issue by March 21, 2025, would propose narrowing the scope of the rule to foreign reporting companies only.
Current Status
The recently announced actions by the Department of Treasury effectively mean that:
FinCen won’t enforce penalties or fines against companies or beneficial owners who do not file by the March 21 deadline.
If your reporting company was created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe and all of the beneficial owners of your reporting company are U.S. citizens, the Department of Treasury has stated it intends to amend the rules to eliminate the obligation for your reporting company to ever file a BOIR report and accordingly, FinCEN will never enforce penalties or fines against your reporting company or its U.S. beneficial owners.
If your reporting company was created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe and some of the beneficial owners are NOT U.S. citizens, FinCEN won’t currently enforce any penalties or fines against the company or its foreign beneficial owners until after the new rules go into effect. The Department of Treasury press release suggests that it will eliminate the obligation to file a BOIR for your domestic reporting company with non-U.S. beneficial owners, but we must await the proposed new rule to see if FinCen is proposing to narrow the rule in this manner. The CTA itself defines what is a reporting company without this distinction of ownership by U.S. citizens or non-U.S. citizens. Given that the CTA’s stated objective to combat illicit activity, it would seem useful for FinCEN to have information about the non-U.S. citizenship ownership of a domestic reporting company.
If your reporting company was created by the filing of a document outside of the United States and you have registered your company with a secretary of state or a similar office under the law of a State or Indian Tribe, FinCEN won’t currently enforce any penalties or fines against the company or its foreign beneficial owners until after the new rules go into effect. Foreign companies are currently subject to the BOIR only if they are registered to do business in the United States. Foreign registered companies who are not registered to do business in the United States are not currently subject to the BOIR requirements (even if they are doing business here). Narrowing the BOIR reporting rules in this manner would seem to result in far fewer reporting companies. We await further communication from the Department of Treasury on this position.
State Level Developments
Lastly, we note that with this major development on the federal level, states may adopt CTA-like legislation for entities created or registered under their state law. The State of New York has already done so by enacting the New York Limited Liability Company Transparency Act (the NY LLCTA) which mirrors the CTA in many respects, with key differences. The NY LLCTA applies only to limited liability companies (LLCs) created under New York law or registered to do business in New York. Under the NY LLCTA, these reporting LLCs must disclose their beneficial owners to the New York State Department of State (DOS) beginning on January 1, 2026. LLCs that qualify for one of the CTA’s 23 exemptions will be exempt under NY LLCTA, but must file an “attestation of exemption” with DOS.
It is not clear whether any other states will enact comparable legislation. This includes Delaware, which has always been the preferred state for domestic businesses to incorporate, including 30% of Fortune 500 companies. More recently, however, Texas and Nevada have been courting companies to reincorporate in their states. These other states offer tax breaks and perceived business-friendly regulations. Faced with potentially losing corporate business to other states, it is not known whether Delaware would risk giving companies another reason to consider incorporating elsewhere.
ENDNOTES
[1] A “reporting company” is defined under the CTA as “a corporation, limited liability company, or other similar entity” that is either “created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe” or “formed under the law of a foreign country and registered to do business in the United States.”
Related or Not Related? Delaware Supreme Court Weighs in on What Constitutes a “Related” Claim
Highlights
The Delaware Supreme Court took a broad view of relatedness, holding that an SEC investigation and later class action were “related claims” despite that they involved different claimants, asserted different legal theories, and sought different relief
The decision reaffirmed the “meaningful linkage” test, stating that claims are “related” if they involve “common underlying wrongful acts”
The content and level of detail in the insured’s notice of claim or circumstances can be an important factor in determining whether claims are related
The Delaware Supreme Court recently handed down an insurance coverage decision addressing a question that has significant practical importance for both insurers and policyholders: What makes a wrongful act “related to” a prior wrongful act? The answer to this question can dictate under which policy period a claim is covered—or even whether it is covered at all.
The insured in In Re Alexion Pharmaceuticals, Inc. had two D&O coverage towers with substantially similar insurers: Tower 1, providing $85 million in coverage from June 2014 to June 2015, and Tower 2, providing $105 million in coverage from June 2015 to June 2017.
In March 2015, the Securities and Exchange Commission (SEC) issued a formal investigation order against Alexion regarding several potential violations of federal securities law, including inaccurate annual reports, failure to maintain adequate books and records, failure to maintain an adequate system of internal accounting controls, and bribing foreign officials and political parties. In May 2015, as part of that investigation, the SEC served Alexion with a subpoena and document preservation demand. Alexion tendered notice of the subpoena to its Tower 1 insurers, describing the focus of the document requests and observing that the subpoena could lead to other government investigations or “private litigations.”
Importantly, the primary insurer acknowledged Alexion’s notice as a “notice of circumstances” rather than a “notice of claim” and explicitly stated that no claim had yet been made against Alexion.
That observation lasted until December 2016, when Alexion stockholders filed a class action securities suit alleging that the company’s sales, marketing, and lobbying tactics violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5. Alexion noticed the class action to Tower 2, and the primary insurer initially accepted coverage. But the primary insurer later reassigned the claim to Tower 1 because the class action “arose from the circumstances and anticipated Wrongful Acts reported during the 2014-2015 Policy Period, as well as many of the same Wrongful Acts and Interrelated Wrongful Acts.”
After Alexion settled with the SEC (for $21.5 million) and the class action plaintiffs (for $125 million), it demanded that the Tower 2 insurers cover the class action settlement up to the $105 million total policy limits. When they refused, Alexion sued for breach of contract. The trial court granted partial summary judgment for Alexion, agreeing that the SEC subpoena and the class action were insufficiently connected and that the class action should be covered under Tower 2.
The insurers appealed, arguing that the trial court applied the wrong standard; instead of evaluating the two matters for “meaningful linkage,” it should have asked whether the Securities Class Action arose from “any Wrongful Act, fact, or circumstance” covered in Alexion’s 2015 Notice. The insurers further argued that the 2015 Notice was a “notice of circumstances” rather than a claim, and pointed out that it expressly noted the potential for future civil claims arising out of the same issues.
The Delaware Supreme Court agreed with the insurers and reversed.
It first looked to the policies’ notice provision, which states that if the insureds “first become aware of facts or circumstances which may reasonably give rise to a future Claim covered under this Policy, and if the Insureds give written notice to the Insurer” during the policy period, then any “Claim which arises out of such Wrongful Act shall be deemed to have been first made at the time such written notice was received by the Insurer.” The Court found that this provision was not ambiguous and benefits insureds by allowing them to “lock in existing insurance for later related claims even though the facts and circumstances have yet to occur or might be somewhat different.”
Likewise, the limit of liability provision states that “[a]ll Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts . . . shall be deemed to be one Claim . . . first made on the date the earliest such Claims is first made,” which the Court read to mean that “all Claims arising out of a properly noticed Wrongful Act or Interrelated Wrongful Act are treated as a single Claim made on the earliest date the insurer received the insured’s written notice.”
The policies did not define the “arises/arising out of” phrases in these and other policy provisions, so the Court interpreted them “as requiring some ‘meaningful linkage between the two conditions imposed in the contract.’” In other words, “if the Securities Class Action is meaningfully linked to any Wrongful Act, including any Interrelated Wrongful Act, disclosed by Alexion in the 2015 Notice, the Securities Class Action is covered by Tower 1.”
The Court concluded there was such a “meaningful link”: both the 2015 Notice and the Securities Class Action “involve the same underlying wrongful act – Alexion’s improper sales tactics worldwide, including its grantmaking efforts in Brazil and elsewhere.” The lower court’s first mistake, the Court stated, had been its treatment of the 2015 Notice as a notice of claim, rather than a notice of circumstances. That error had led to another: the trial court narrowly focused on the wrongful acts alleged in the SEC subpoena, rather than considering all of the wrongful acts disclosed in the notice of circumstances.
The 2015 Notice disclosed the SEC’s investigation as well as the subpoena and described the potential consequences of that investigation, including possible “private litigations.” Because both the SEC investigation and the class action arose from Alexion’s grantmaking activity and foreign business practices—the same underlying acts—it did not matter that they involved different claimants, asserted different legal theories, and sought different relief: “It is the common underlying wrongful acts that control.”
Takeaways
Insurers use “arises/arising out of” language in many policies and contexts, so the Alexion decision will likely have implications beyond the D&O space in matters involving other types of claims-made policies such as environmental liability, professional liability, malpractice, and employment practices liability. It will be particularly relevant in industries that tend to attract both governmental enforcement actions and civil litigation—banking and investment, manufacturing, and transportation.
And although the decision may not have been favorable for Alexion itself, it may prove to be helpful to policyholders in the long run in certain instances. In many circumstances, as the Alexion Court observed, a policyholder may choose to give notice of circumstances before an issue has risen to the level of a claim in order to “lock in” favorable coverage. Insureds may find, notably, that the content of that notice could be critical: this might include questions of whether the notice includes enough information to satisfy the notice requirement, without providing so much detail that it invites the insurer to try to escape coverage by carving off the resulting claim off as “unrelated.”
On the flip side, an overly broad notice of circumstances could give the insurer an opening to shoehorn unrelated claims in with the noticed circumstances to take advantage of a lower or exhausted policy limit.