Federal Judge Denies Bid to Stay Preliminary Injunction Blocking President Trump’s DEI-Related Executive Orders
On March 3, 2025, a federal judge in Maryland refused to halt a preliminary injunction blocking key parts of two of President Donald Trump’s executive orders (EO) seeking to eliminate “illegal” diversity, equity, and inclusion (DEI) programs and initiatives in the federal government and in federal contracting.
Quick Hits
A federal judge maintained a preliminary injunction blocking key provisions of President Trump’s executive orders aimed at DEI initiatives, finding that the government had failed to show a reason to halt the injunction pending appeal.
The judge rejected the Trump administration’s argument that the preliminary injunction prevents the executive branch from implementing its policies, noting that such policies must still comply with the United States Constitution, particularly in this case, free speech and due process rights.
The Trump administration is appealing the preliminary injunction ruling, indicating that the constitutionality of the EOs will continue to be litigated, potentially reaching the Supreme Court of the United States.
U.S. District Judge Adam B. Abelson denied the Trump administration’s motion to stay the preliminary injunction issued on February 21, 2025, in the case brought by a coalition of DEI advocates. The judge found the Trump administration had failed to show a stay was warranted, given the plaintiffs’ likelihood of successfully establishing on the merits that the enjoined parts of the EOs violate free speech and are unconstitutionally vague.
In seeking a stay of the preliminary injunction, the Trump administration argued that it had demonstrated a likelihood of success on the merits and that the plaintiffs had only alleged speculative harms; that the injunction harmed “intra-executive policy implementation by enjoining the President’s policy directives to federal agencies”; and that the preliminary injunction improperly prevented federal agencies from enforcing antidiscrimination laws.
However, Judge Abelson said that he had already considered and rejected the government’s argument regarding its likelihood of success on the merits and that the policy goals of the executive branch must still comply with the Constitution.
“As the Court explained in its memorandum opinion granting the preliminary injunction, the executive branch is obviously entitled to have policy goals and to pursue them,” Judge Abelson said in the decision denying the stay. “But in pursuing those goals it must comply with the Constitution, including, as relevant here, the Free Speech Clause of the First Amendment, and the Due Process Clause of the Fifth Amendment.”
Judge Abelson stated that the blocked provisions of the EOs seek to “punish, or threaten to punish, individuals and institutions based on the content of their speech,” thereby discriminating against viewpoints disfavored by the administration, likely in violation of the First Amendment. Judge Abelson observed that the provisions appear to target “purely private persons” and leverage funding to regulate the speech of “individuals and institutions that happen to contract with (or receive grants from) the federal government.
In addition, Judge Abelson noted, the provisions likely violate the due process clause of the Fifth Amendment because they are so vague that they do not sufficiently explain what is and is not prohibited.
Specifically, the preliminary injunction blocked three provisions of the EOs: (1) a provision that required federal agencies to terminate “equity-related grants or contracts,” (2) a provision that required federal contractors and subcontractors to certify for purposes of False Claims Act (FCA) liability that they do not operate unlawful DEI programs, and (3) a provision directing the attorney general to enforce civil rights laws against DEI programs in the private sector.
The National Association of Diversity Officers in Higher Education, the American Association of University Professors, Restaurant Opportunities Centers United, and the Mayor and City Council of Baltimore—filed the lawsuit on February 3, 2025, challenging EO 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing,” issued on January 20, 2025, President Trump’s first day in office, and EO 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” issued on January 21, 2025.
Since that lawsuit was filed, at least three more federal court challenges have been filed targeting the EOs and President Trump’s January 20, 2025, EO 14168, “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government,” which outlined the federal government’s new policy to only “recognize two sexes, male and female.” The suits raise similar constitutional claims, contending that the EOs are vague, violate free speech and due process, exceed the executive branch’s authority, and usurp legislative functions.
Next Steps
Judge Abelson’s denial of the Trump administration’s stay motion keeps in place the preliminary injunction blocking parts of the EO 14151 and EO 14173, meaning that entities affected by the orders will continue to have a reprieve, at least in the short term. However, the Trump administration is appealing the preliminary injunction decision, and the case and other challenges to the EOs are likely to be decided in the federal courts of appeal, and, potentially, by the Supreme Court of the United States.
U.S. Courts Can Recognize a Foreign Judgment Even Without Personal Jurisdiction
A recent federal court decision underscores a critical point for parties seeking to enforce foreign judgments in the U.S.: recognition of a foreign judgment does not require personal jurisdiction over the defendant. In Cargill Financial Services International, Inc. v. Taras Barshchovskiy, the U.S. District Court for the Southern District of New York recognized a $123.94 million English judgment against a Ukrainian businessman, despite his lack of ties to New York. This ruling reaffirms that judgment creditors can gain access to U.S. discovery tools—among the most expansive in the world—before establishing jurisdiction over a debtor or its assets. With similar judgment recognition laws in many other U.S. states, this decision may influence courts nationwide and shape future cross-border enforcement strategies.
Case Details
In January 2021, Cargill initiated arbitration under the London Court of International Arbitration (LCIA) Rules, citing Barshchovskiy’s failure to repay debts under several agreements. The LCIA consolidated these proceedings, resulting in a December 2022 award favoring Cargill for $123,940,459.55. Barshchovskiy contested the award under Section 68 of the English Arbitration Act, but the English Commercial Court dismissed his claims in May 2023. Following this, Cargill sought enforcement of the award, culminating in the English High Court’s judgment in January 2024.
Proceedings in New York
Cargill then filed a case in the New York State Supreme Court seeking to enforce the English judgment in the U.S. Due to difficulties locating Barshchovskiy, the court approved alternative service methods, such as email and Facebook. After service, Barshchovskiy removed the case to federal court and filed for dismissal, citing insufficient service and failure to state a claim for relief. The court denied his motion in September 2024, finding the alternative service appropriate given the impracticality of traditional methods.
Summary Judgment and Recognition
Cargill moved for summary judgment to recognize the English judgment under New York’s Uniform Foreign Country Money Judgments Act (CPLR Article 53). Barshchovskiy opposed, arguing the court lacked personal jurisdiction over him. The court explained that recognizing a foreign judgment does not require personal jurisdiction over the defendant, as it simply converts the foreign judgment into a New York judgment. The court noted that enforcing that New York judgment would, however, require Cargill to establish the court’s jurisdiction over Barshchovskiy or his property.
Implications
This ruling highlights the difference between recognition and enforcement of foreign judgments. Recognition can proceed without personal jurisdiction over the defendant, whereas enforcement actions require such jurisdiction. Recognition is not a mere procedural hurdle to clear on the way to enforcement, however. As the court explained, “one of the primary purposes of judgment recognition [is] to give the judgment creditor the right to use the tools of the court to locate the judgment creditor’s assets.” These tools include the various methods authorized by U.S. courts for the discovery of documents and information. The scope of discovery in U.S. courts is typically far more extensive than in non-U.S. jurisdictions and can thus provide a powerful tool in enforcing foreign judgments.
Although the decision relied on New York law governing the recognition and enforcement of foreign judgments, the specific New York statute is based on the Uniform Foreign Country Money Judgments Act, a version of which 36 other U.S. states have also enacted. Given this fact, as well as New York’s prominence as a leading pro-arbitration jurisdiction, the Cargill decision is likely to be influential in other U.S. jurisdictions.
The decision is Cargill Financial Services International, Inc. v. Taras Barshchovskiy, U.S. District Court for the Southern District of New York Case No. 24-cv-5751 (Feb. 18, 2025).
Exchanging the SEC: Previewing the Next Four Years
The election of President Trump means a changing of the guard at the US Securities and Exchange Commission. President Trump has nominated Paul S. Atkins, a former SEC commissioner, as chairman of the agency, and he is currently working through the Senate confirmation process. Once confirmed, we anticipate a shift in SEC policy on a number of key areas during Chairman Atkins’s term.
A New Majority Takes Control
With the recent resignations of two Democratic commissioners in January, Republicans now hold a 2-1 majority at the SEC. The two Republican commissioners—Mark Uyeda (the current acting SEC chairman) and Hester Peirce—both previously served on then-Commissioner Atkins’s personal staff at the SEC as his counsel and have long-standing relationships with him. Both Acting Chairman Uyeda and Commissioner Peirce often viewed policy and enforcement issues differently than former SEC chair Gary Gensler and frequently dissented from key rulemakings and enforcement cases during Gensler’s term.
Uyeda and Peirce’s many dissenting statements from actions taken under the Gensler SEC likely preview a shift in public policy preferences for the SEC over the next four years, and Acting Chairman Uyeda has already put in place key senior personnel and set in motion a process to unwind several initiatives undertaken during Chair Gensler’s term. President Trump’s many recent executive orders seeking to reorient the executive branch also help to set the tone for the new Republican SEC majority. Mr. Atkins’s own public statements and professional activities over the years further suggest that he will approach many issues differently than his predecessor.
The SEC’s remit is large, and Chairman Atkins will no doubt focus on a range of reforms to the SEC’s processes for rulemaking and enforcement, as well as a potential redesign of the agency’s overall organization. By providing a sampling of various topics, we hope to illustrate the broader approach the SEC is likely to take over the next four years. Below we discuss several representative areas where we expect a change in the reconstituted SEC.
A Survey of Select Priorities
Climate Reporting Rule
In March 2024, the SEC adopted sweeping and controversial climate disclosure rules for public companies. A series of petitioners brought judicial challenges around the country to the SEC’s climate rules, and the cases were consolidated before the federal Eighth Circuit Court of Appeals. The SEC has voluntarily stayed compliance with the rules while the litigation remains pending.
The ascendant SEC majority does not support the current climate rule. The two sitting Republican commissioners each dissented when the SEC adopted the rules, and they have called for the SEC to return to traditional notions of financial materiality when undertaking future rulemaking. Paul Atkins has in the past also been skeptical of the SEC’s efforts in the climate area.
The case challenging the climate rule is now fully briefed, but the Eighth Circuit has not yet scheduled oral argument. Acting Chairman Uyeda in early February instructed the SEC staff to petition the court to delay scheduling oral argument in light of the change in administrations. The SEC could eventually abandon defense of the rule, but a group of Democratic state attorneys general has intervened in the case and would likely seek to continue to defend the current rule.
Because of the uncertainty surrounding the ultimate outcome of the litigation process, the SEC is instead likely to commence a process to repeal the rule through notice-and-comment rulemaking. Prior judicial precedent makes clear that an agency may repeal a rule in this manner, and lays out the procedure to do so. Ironically, a Fifth Circuit case decided during Chair Gensler’s term concerning a challenge to his efforts to repeal several rules governing proxy advisors provides a roadmap to proceed. Under the caselaw, the SEC may change course with a new administration, but if the new policy is based on facts different from those underlying the prior policy, a more detailed explanation of that rationale is required in the SEC adopting release.
Cryptocurrency and Digital Assets
President Trump campaigned heavily on the promise that he would reform the federal government’s restrictive view on cryptocurrency and digital assets, and he issued an executive order overhauling the federal approach to the digital asset sector. Immediately after President Trump’s inauguration, and even before the President’s executive order, the SEC announced the formation of a new Crypto Task Force. The task force is led by Commissioner Hester Peirce and draws on staff from around the agency. Its mission is to “collaborate with Commission staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law.” It will also coordinate with other state and federal agencies, including the Commodity Futures Trading Commission.
The SEC press release announcing the task force’s creation is somewhat critical of the agency’s prior approach to regulating digital assets, noting that the agency “relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way.” The press release observed, “Clarity regarding who must register, and practical solutions for those seeking to register, have been elusive.” The announcement concludes, “The SEC can do better.” This sort of self-criticism at the SEC, even on a change in administrations, is atypical.
In a wide-ranging public statement entitled “The Journey Begins,” SEC Commissioner Hester Peirce previewed next steps for the SEC’s Crypto Task Force and provided a 10-point, nonexclusive agenda for the SEC Crypto Task Force:
providing greater specificity as to which crypto assets are securities;
identifying areas both within and outside the SEC’s jurisdiction;
considering temporary regulatory relief for prior coin or token offerings;
modifying future paths for registering securities token offerings;
updating policies for special purpose broker-dealers transacting in crypto;
improving crypto custody options for investment advisers;
providing clarity around crypto lending and staking programs;
revisiting SEC policies regarding crypto exchange-traded products;
engaging with clearing agencies and transfer agents transacting in crypto; and
considering a cross-border sandbox for limited experimentation.
The SEC’s efforts continue to pick up pace. The SEC withdrew controversial Staff Accounting Bulletin 121 on custody of crypto assets. The news media has widely reported on reassignment of key personnel in the agency’s specialized enforcement unit focusing on Crypto Assets and Cyber, which has formally been renamed the Cyber and Emerging Technology Unit. Further, the SEC has dismissed or delayed prosecution of its enforcement cases against several prominent cryptocurrency businesses. While these developments will be welcomed by the cryptocurrency industry, they will also expect a major SEC rulemaking push on digital assets under Chairman Atkins.
Cybersecurity Reporting on Form 8-K
Cybersecurity is another area where Chair Gensler was active in SEC rulemaking and enforcement, and where Uyeda and Peirce were sometimes critical. In July 2023, for example, the SEC adopted rules requiring public companies to report material cybersecurity incidents on Form 8-K under new Item 1.05. Since reporting became required in December 2023, 26 separate companies have disclosed material cybersecurity incidents under this requirement. Of course, far more than 26 public companies have had to respond to cybersecurity incidents of one kind or another since December 2023. Very few companies are therefore reaching the conclusion that these events were material for SEC reporting purposes.
Unlike climate and crypto where we anticipate further SEC rulemaking, we assign a low probability to any organized effort to repeal the cybersecurity Form 8-K reporting requirement. Though compliance with the rules is moderately burdensome for companies in the midst of a cybersecurity incident, there are far more burdensome reporting rules (compensation disclosure and analysis, for example), and the SEC will likely prioritize other matters on its rulemaking agenda. It is possible that the new chair will instruct the SEC staff to release additional interpretive guidance on cybersecurity reporting under Form 8-K, but the SEC staff has already made an extensive effort to discourage companies from making immaterial Form 8-K filings under Item 1.05, both through comment letters and other staff interpretive guidance. So, Item 1.05 is an artifact of the Gensler era that is likely to survive.
Other Future Rulemaking
As alluded to above, over the next four years we also expect the SEC to change direction on rulemaking. It is doubtful whether many items on the SEC’s Fall 2024 rule list under the Regulatory Flexibility Act involving priorities of former Chair Gensler will see further action. For example, the rule list includes placeholders for proposals on topics such as “Corporate Board Diversity,” “Human Capital Management Disclosure,” and “Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices.” We do not expect the SEC to take further action on these or similar matters. Instead, in addition to the matters discussed above, we expect the SEC to focus its rulemaking resources on other topics that have been priorities of prior Republican administrations. Such topics include facilitating capital raising, expanding the definition of “accredited investor”, reform of the shareholder proposal process under SEC Rule 14a-8, and matters related to capital market structure.
Enforcement
The change in SEC leadership will also lead to a shift in SEC enforcement priorities and an enhanced focus on protecting retail investors. A frequent area where Uyeda and Peirce dissented from enforcement actions under prior Chair Gensler concerned cases where the majority sought to expand existing law or otherwise apply SEC precedent creatively. The SEC under Gensler brought several novel cases alleging failures of disclosure controls and procedures or internal controls over financial reporting in cases involving cybersecurity incidents, for example. Rather than continue to push the envelope, we expect the SEC to return to more traditional areas of enforcement.
To this end, we anticipate that SEC enforcement in the coming years will prioritize cases alleging investor fraud where there are clear misstatements or omissions of material facts. Other core SEC enforcement priorities such as insider trading, accounting fraud, Ponzi schemes, affinity frauds and other scams impacting retail investors will also likely see greater emphasis. Cases alleging only technical rule violations without investor harm or pursuing cutting-edge theories of liability are likely to be less common.
ESG enforcement is a specific area where we expect SEC priorities to shift. Under the prior administration, the SEC brought several greenwashing enforcement cases, for example. Commissioners Uyeda and Peirce were especially critical of greenwashing cases that focused on alleged failures in corporate controls or other technical violations of the law without clear fraud. Over the next four years, we expect the SEC to bring fewer cases of this kind.
Regulated Entities: It’s Time to Play Love It or Leave It with Federal Regulations
Amidst the flurry of Executive Orders (“EOs”) that tends to accompany any new administration, one EO may have flown under the radar. But for the regulated community—which, these days, includes most businesses in some form or another—this EO could be both a source of opportunity and of angst.[1]
EO 14219, titled “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative” (the “Deregulation EO”), was issued on February 19.[2] Consistent with the president’s long-stated goal to streamline and minimize federal agency regulation, the Deregulation EO sets forth a series of directives to federal agencies aimed at reducing regulations and minimizing the administrative state. This client alert summarizes the Deregulation EO and opines on the opportunities for the regulated community to seek reform or deregulation, on the one hand, or to prioritize existing or new regulations, on the other.
The Deregulation EO
The Deregulation EO directs all agency heads to review their existing regulations within 60 days for consistency with law and the administration’s policy aims, in conjunction with the Department of Government Efficiency (“DOGE”) and the Office of Management and Budget (“OMB”), and, as necessary, the Attorney General. The agencies are required to identify for deregulation their regulations that fit within any of seven categories:
Those that are unconstitutional or those that raise serious constitutional questions, such as the scope of power vested in the federal government by the Constitution:
This category is aimed at regulations that exceed the power of the federal government;
Regulations that are based on unlawful delegations of legislative power:
This category stems from the constitutional Nondelegation Doctrine, which has seen renewed interest in recent years by courts and commentators.[3] The Nondelegation Doctrine is the principle that Congress cannot delegate its legislative or lawmaking powers to other entities—including Executive Branch agencies. Historically, to pass constitutional muster, when Congress did delegate to an agency, it was required to do so by providing “intelligible principles” to the agency to guide it in its rulemaking—a relatively lax standard. But in recent years, the Nondelegation Doctrine seems poised to grow some teeth;
Regulations that are based on anything other than the best reading of the underlying statute:
This category aligns with the Supreme Court’s decision last term in Loper Bright that overruled the Chevron doctrine—the principle that if an agency’s interpretation of an ambiguous statute was reasonable, even if not the best reading, the reviewing court should defer to the agency. In Loper Bright, the Court held that reviewing courts should not defer to an agency’s interpretation of an ambiguous statute, but may only view such interpretations as persuasive[4];
Those that implicate matters of “societal, political, or economic significance that are not authorized by clear statutory language”:
This principle appears aimed at the “major questions doctrine,” announced in 2022 by the Supreme Court’s decision in West Virginia v. EPA, 597 U.S. 697. There, the Court held that an agency may not resolve through regulation a question of “vast economic and political significance” without a clear statutory authorization;
Regulations that impose significant costs on private parties that are not outweighed by public benefits;
Those that harm the national interest by “significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives”; and
Regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.
These last three categories appear to be aimed at the business interests this administration has expressed an intention to prioritize. The directive to conduct such a comprehensive review of existing regulations and sort them into the categories listed above could be a significant undertaking for agency heads and staff, who may be simultaneously working on directives under other EOs and adjusting to the realities of reduced personnel. And as such, there may be opportunities for affected businesses to provide input, as addressed below.
The Effect of the Deregulation EO
Upon the expiration of the 60-day review period, the Office of Information and Regulatory Affairs (“OIRA”) is directed to consult with the agency heads to develop a “Unified Regulatory Agenda” to rescind or modify any regulations agencies have identified as fitting within the seven categories. In other words, the agencies are directed to deregulate, to the extent their existing regulations fall within any of these seven classes.
Further, the Deregulation EO stresses that agency heads should deprioritize regulatory enforcement of any regulations that “are based on anything other than the best reading of the statute” or those that go beyond the powers of the federal government (classes (1) and (3) above). Agency heads, in consultation with OMB, also are directed to review ongoing enforcement proceedings on a case-by-case basis and to terminate those that “do not comply with the Constitution, laws, or Administration policy.” While it might initially seem that agencies would be reluctant to categorize their own regulations into the categories mentioned in the EO (e.g., unconstitutional; based on unlawful delegations of legislative power; based on other than the best reading of the underlying statute), new personnel within various agencies are likely bringing different perspectives about existing regulations, and may have specific ideas already about the particular regulations that they believe should be rescinded.
Finally, the Deregulation EO directs agencies to promulgate new regulations, consistent with the process set forth in EO 12866 for submitting new regulations to OIRA for review, and to consult with DOGE about such new regulations. OIRA is directed to consider the factors set forth in EO 12866 as well as the seven principles set forth in the Deregulation EO. The Deregulation EO also directs the OMB to issue implementation guidance as appropriate.
Takeaways for the Regulated Community
Many businesses are subject to federal regulation, in some capacity. While the EO does not contemplate involvement by the regulated community in the 60-day review of agency regulations, nothing prevents affected industries from taking the apparent opportunity that now exists to identify and offer perspective to particular agencies and/or to OIRA about specific regulations that are problematic to their business, whether because of costs, technical compliance difficulties, or policy differences, and explaining why a regulation fits into one of the seven categories outlined in the Deregulation EO. [5]
Furthermore, if a business is subject to an ongoing enforcement proceeding (or the threat of one), the administration directive that agencies terminate such proceedings on a case-by-case basis provides a similar opportunity for companies to convey their thoughts to the relevant agency about the lawfulness and/or priority goals of the regulation at issue in that proceeding.
On the other hand, if there are regulations that are particularly beneficial to a given industry, or in which significant time or capital has been invested to further compliance, the industry may want to ensure these regulatory schemes are preserved. For these regulatory schemes, businesses may also want to reach out to the relevant agency proactively to explain why such regulations are consistent with the Deregulation EO, in an attempt to avoid the uncertainty or costs that could accompany any roll back.
While the EO does not clarify whether the coming deregulation process will follow the standard notice and comment rulemaking process of the Administrative Procedure Act—which requires a notice of proposed rulemaking in connection with the repeal of an existing regulation—that process will afford further opportunity for industry to submit comments on any regulations that an agency intends to repeal.
The Loper Bright, Corner Post, Jarkesy, and Ohio v. EPA cases demonstrate that a changing administrative state brings both opportunities and risks.[6] Staying proactive in addressing the regulatory regime applicable to a company’s industry is the best way to “take the bull by the horns”—whether that is in an effort to jettison existing, burdensome regulations, or to retain efficient, functional regulations.
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[1] See, e.g., Estimating the Impact of Regulation on Business | The Regulatory Review.
[2] Available at Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Regulatory Initiative – The White House
[3] E.g., Move Over Loper Bright — Nondelegation Doctrine Is Administrative State’s New Battleground | Carlton Fields
[4] Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
[5] Nb. There presently are various legal challenges to many of the administration’s EOs, so any action by a regulated entity should be carefully considered (perhaps in conjunction with the relevant agency) to withstand an Administrative Procedure Act or other legal challenge.
[6] Legal Experts to Lay Out Recent SCOTUS Decisions’ Impact on Business – PA Chamber
No Harm, No Foul – CIPA Claims Dismissed for Lack of Standing
The deluge of lawsuits and demand letters under the California Invasion of Privacy Act (CIPA) has prompted courts to scrutinize CIPA claims more rigorously, including the threshold question of whether CIPA plaintiffs have standing to sue. Recent federal and state court decisions have now answered the standing question in the negative, and the resulting dismissals of CIPA litigation may indicate some relief from the CIPA onslaught.
For example, in Gabrielli v. Insider, Inc., No. 24-cv-01566 (ER), 2025 WL 522515 (S.D.N.Y. Feb. 18, 2025), plaintiff claimed that the defendant violated CIPA’s restrictions as to pen registers by deploying technology on its website that captured and sent plaintiff’s IP address to a third party. As is typical in CIPA litigation, plaintiff argued that the mere statutory violation itself was sufficient to confer standing. The district court disagreed. Citing TransUnion LLC v. Ramirez, 594 U.S. 413 (2021), the district court found that plaintiff had failed to identify any harm from the alleged sharing of an IP address that was analogous to privacy interests protected under common law, rejecting plaintiff’s position that an IP address necessarily implicates “a legally protected privacy interest[.]” The district court also rejected plaintiff’s argument that CIPA’s pen register restrictions codified any substantive privacy right, holding that the alleged violation was at most a “bare procedural violation, divorced from any concrete harm.” Finding that these deficiencies could not be cured by amendment, the court dismissed the complaint without leave to amend.
Although California state courts apply a slightly different analysis, these courts generally require that a plaintiff allege a concrete injury or allege the violation of a statute that authorizes public interest lawsuits by plaintiffs not injured by the statutory violation. See, e.g., Muha v. Experian Info. Sols., Inc., 106 Cal. App. 5th 199, 208-09 (2024). A series of trial court decisions have recently concluded that CIPA is not such a statute and have dismissed lawsuits based on the premise that a mere statutory violation is insufficient to support standing. See, e.g., Rodriguez v. Fountain9, Inc., No. 24STCV04504, 2024 WL 4905217 (Cal. Super. Ct. L.A. Cty. Nov. 21, 2024). Although these decisions are not citable in California state court, they can be invoked in response to demand letters—or their reasoning deployed in motions to dismiss.
This trend further suggests that courts will continue to challenge individual and putative class action litigation brought on the premise that any CIPA violation confers sufficient standing. These decisions may stem the tide of further litigation in this area and provide companies with an additional basis to reject increasingly indiscriminate CIPA claims.
Senators Crapo and Wyden Release Draft Bipartisan Taxpayer Rights Legislation
I. Introduction
On January 30, 2025, Mike Crapo (R-ID), the Chairman of the Senate Finance Committee, and Senator Ron Wyden (D-OR), the Ranking Member of the Senate Finance Committee released a discussion draft of the “Taxpayer Assistance and Service Act” (the “bill”), a bipartisan taxpayer rights bill intended to streamline tax compliance and procedure.[1]
Many of the provisions are based on recommendations by the Taxpayer Advocate Service, an independent organization within the Internal Revenue Service (the “IRS”).
The Senators request comments on the discussion draft of the bill by March 31, 2025.[2] This blog post summarizes the bill’s key provisions.
II. Summary of the Bill’s Key Provisions
a. IRS Office of Appeals
The bill would include several provisions related to the IRS Independent Office of Appeals (“IRS Appeals”).
When a taxpayer receives a notice of deficiency (a “30-day letter’) from the IRS and disagrees with the IRS’ proposed adjustment(s), the taxpayer has the option, within 30 days of receiving the 30-day letter, to request an administrative appeal in IRS Appeals.[3] Many tax disputes are settled or compromised in IRS Appeals and without going to Tax Court. Section 7803(e)(4) provides that access to IRS Appeals is “generally available to all taxpayers”, but the regulations under section 7803(e)(4) provides a list of 24 exceptions to IRS Appeals’ consideration.[4]
In the IRS Appeals process, the taxpayer submits a protest of the IRS revenue agent’s findings, which the revenue agent submits to IRS Appeals (sometimes with the revenue agent’s rebuttal). The IRS Appeals officers review the protest and rebuttal, then request a conference to negotiate the settlement or compromise. IRS Appeals have the discretion to consider the “hazards of litigation”, or the probability that the revenue agent’s position would not be sustained in court.
IRS Appeals functions as an independent organization within the IRS and is independent of the IRS office that proposed the adjustment. Further, the revenue agent and other IRS employees are generally prohibited from engaging in ex parte communications on substantive issues with IRS Appeals without the presence of the taxpayer or their representative.[5] Still, IRS Appeals reports directly to the Commissioner. In addition, IRS Appeals may not hire its own attorneys and, instead, receives advice from IRS Chief Counsel attorneys, who often attend initial conferences.
The Taxpayer Advocate Service has previously criticized the apparent lack of impartiality in IRS Appeals and has stated that for IRS Appeals to have its own independent legal counsel “would ensure that the IRS appeals process is free of agency influence in both reality and public perception, thereby bolstering taxpayer morale and confidence in the system’s impartiality.”
The bill would authorize IRS Appeals to hire its own attorneys who report directly to the Chief of IRS Appeals (an official appointed by the Commissioner to supervise and direct IRS Appeals)[6] but would not otherwise change the role of Chief Counsel attorneys who provide advice to IRS Appeals.
Another provision in the bill would authorize IRS Appeals to directly hire candidates that are not IRS employees engaged in enforcement functions.
In addition, the bill would explicitly require IRS Appeals to evaluate and consider, “without exception”, all “hazards of litigation” in resolving tax disputes. As stated above, under current law, this is a discretionary right.
Finally, the bill would codify certain exceptions to taxpayers’ broad access to IRS Appeals, including:
Disputes that do not involve liability for tax, penalties or additions thereto;
Disputes based solely on the argument that a statute, regulation or other guidance is unconstitutional or otherwise invalid (unless there is an unreviewable decision from a federal court holding that the item is unconstitutional or otherwise invalid);
Positions rejected in federal court or identified by the Secretary of the Treasury as frivolous;
Issues resolved by closing agreements;
Matters that could interfere with criminal prosecutions of tax-related offenses; and
Cases designated by Chief Counsel for litigation.
If codified, these exceptions would enable IRS Appeals and the IRS audit function generally to avoid challenges under Loper Bright,[7] which we are seeing in many docketed cases.
Each of these provisions would be effective on the date of enactment.
b. Extend “Mailbox Rule” to Electronic Submissions So Taxpayers Have Certainty Their Materials Are Submitted on Time
Under section 7502, documents (including tax returns) and payments to the IRS are treated as timely filed and paid if they are postmarked by certain couriers by the due date, even if the IRS physically receives them after that date (the “mailbox rule”). The mailbox rule does not apply to electronic submissions and payments. If the IRS receives a document or payment late, it is treated as timely if the taxpayer can show it was timely mailed using certain delivery services. While the mailbox rule applies to electronic submissions of tax returns through electronic return transmitters, it does not apply to most electronic payments (including the Electronic Federal Tax Payment System). Accordingly, if a taxpayer whose tax return and payment is due on April 15 electronically submits the return and mails a check to the IRS on April 15, the check will be postmarked as of the due date, and the payment will be considered timely. However, if the same taxpayer instead makes the payment electronically on April 15, the payment may not be debited from the taxpayer’s account until after that date, and the payment would be considered late.
The bill would extend the mailbox rule to electronic submissions using any method permitted by the Secretary of the Treasury. The bill would also require the Secretary of the Treasury to issue regulations or other guidance not later than the date that is one year after the date of enactment, and the provision would be effective for documents and payments sent on or after that one-year anniversary.
c. Tax Court Jurisdiction & Powers
The Tax Court is one of the courts in which taxpayers may litigate tax disputes with the IRS.[8] Taxpayers do not need to pre-pay any portion of the disputed taxes in order to bring a case to the Tax Court. Appeals from the Tax Court can be made to the U.S. Court of Appeals in which, at the time the Tax Court petition was filed, the taxpayer resided or had a principal place of business, principal office or principal agency of the corporation.[9]
1. Tax Court jurisdiction & certain powers
While most cases lodged in Tax Court involve tax deficiencies and collection due process cases (i.e., “lien and levy actions”), the Tax Court also has jurisdiction over TEFRA[10] items, BBA[11] actions, certain declaratory judgment actions (including those related to an organization’s tax-exempt status), section 6110 disclosure actions and determinations of relief from joint and several liability on returns in “innocent spouse relief” cases.[12]
The bill would clarify that the Tax Court has jurisdiction to:
Redetermine IRS bans on taxpayers’ ability to claim the Earned Income Tax Credit, Child Tax Credit and American Opportunity Tax Credit (effective as of the date of enactment);
Apply equitable tolling to extend the 30-day deadline in section 6213(a) for filing a petition in a collection due process case (applies to filings made after the date of enactment);
Determine tax liabilities in collection due process appeals (effective as of the date of enactment); and
Issue refunds and credits in refund cases (effective for actions filed after the date that is 18 months after the date of enactment).
In addition, the bill would expand the Tax Court’s power to review de novo and consider all relevant evidence in “innocent spouse relief” cases; under current law, a taxpayer is only permitted to submit to the Tax Court evidence that it has not yet submitted to the IRS if the evidence is “newly discovered.”[13] The provision would be effective for petitions and requests for “innocent spouse relief” filed or pending on or after the date of enactment.
The bill would also expand the Tax Court’s pre-trial discovery powers by authorizing the Tax Court to issue pre-trial third-party subpoenas. As a result, the Tax Court would have the power to issue subpoenas for the attendance of parties or witnesses, and the production of books, papers and other documents. The provision explicitly states that this grant of power is intended to facilitate pre-trial settlements. This provision would be effective on the date of enactment.
Further, bill would authorize the Tax Court to issue refunds and credits in collection due process cases in which it has jurisdiction to determine the taxpayer’s liability. The provision would be effective on the date of enactment.
2. Relaxation of “finality rule”
To appeal a Tax Court decision, a taxpayer must file a notice of appeal with the Tax Court clerk within 90 days after the decision was made.[14] If a Tax Court decision is not appealed to a higher court, it is not appealable or the deadline for filing a notice of appeal passes, the decision becomes final 90 days after it was made (the “finality rule”).[15]
Because of the finality rule, the Tax Court has less authority than other courts to modify or revise decisions that have become final. However, in certain cases, the Tax Court has relied on Rule 60(b) of the Federal Rules of Civil Procedure to vacate or alter a judgment, order or other part of the record to make corrections,[16] but some appellate courts have held that the Tax Court does not have the authority to rely on Rule 60 for this purpose.[17]
The bill would authorize the Tax Court to provide relief from a final judgment or order in certain circumstances where justice so requires, the standards for which are consistent with Rule 60. The bill would also clarify that the Tax Court has the authority to correct clerical errors, or mistakes from oversights or omissions, in judgments, orders or other parts of the record. The provision would be effective as of the date of enactment.
3. Judges in Tax Court
The Tax Court is made up of 19 presidentially appointed judges,[18] who are assisted in certain cases by special trial judges appointed by the Chief Judge of the Tax Court.[19]
The bill would authorize the parties to a tax case to consent to the assignment of the case to a special trial judge. This provision would be effective when the Tax Court adopts implementing rules. In addition, the bill would grant contempt authority to special trial judges in certain cases. This provision would be effective on the date of enactment.
Finally, the bill would extend the disqualification standards applicable to all federal judges to Tax Court judges and special trial judges. This provision would be effective on the date of enactment.
d. Notices of Math or Clerical Error
When a math or clerical error is identified on a taxpayer’s tax return, the IRS has the authority under section 6213(b) to send the taxpayer a notice, stating an additional amount of tax due (along with interest and penalties) or an amount of a refund (along with interest). The notices are not sent via certified or registered mail. Taxpayers have 60 days from the date of the notice to request abatement; otherwise, the assessment in the notice is final, and taxpayers lose the right to challenge the IRS in Tax Court. The notices do not always state this 60-day response period. Further, the process for screening returns for errors is highly automated, and the notices do not contain specific information on the cause or causes of the error. Given the short response period, lack of specificity and lack of guidelines on procedure, commentators (including the Taxpayer Advocate Service) have noted that many taxpayers lose their rights before they have the chance to respond.
The bill would require the IRS to provide specific information about the math or clerical error (i.e., the type and nature of the error, the Code section to which it relates, the specific line of the tax return to which it relates, and the IRS’ computation of adjustments). Further, it would require the IRS to include a response date near the top of the notice. Finally, it would require the IRS to send the notices by certified or registered mail. The provision would be effective for notices sent after the date which is 12 months after the date of enactment.
[1] A section-by-section summary of the bill is accessible at TAS Act Discussion Draft Section by Section.
[2] Comments can be sent to [email protected].
[3] Taxpayers that initially bypass the IRS Appeals process and go directly to Tax Court generally still have the right and opportunity to settle the dispute in IRS Appeals.
[4] See generally T.D. 10030.
[5] See, e.g., Internal Revenue Service Restructuring and Reform Act of 1988, Pub. L. No. 105-206, 112 Stat. 685 (July 22, 1998); Rev. Proc. 2012-18, 2012-1 C.B. 455.
[6] Section 7804(e)(2).
[7] See generally Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
[8] The Tax Court is established under section 7441, pursuant to Article 1 of the U.S. Constitution.
[9] Section 7482.
[10] Tax Equity and Fiscal Responsibility Act.
[11] Bipartisan Budget Act of 2015.
[12] See Tax Court Rule 13.
[13] Section 6015(e).
[14] Section 7483.
[15] Section 7481.
[16] When there is no applicable Tax Court procedural rule, Tax Court Rule 1(b) authorizes the Tax Court to rely on the Federal Rules of Civil Procedure “to the extent that they are suitably adaptable to govern the matter at hand.”
[17] See, e.g., Heim v. Comm’r, 872 F.2d 245 (8th Cir. 1989).
[18] Section 7443(a).
[19] Section 7443A.
The Inside Basis: Post-Wayfair Sales Tax Compliance and Exposure [Podcast]
K&L Gates Tax partner Will LeDoux joins Randy Clark for a discussion of the 2018 Supreme Court case South Dakota v. Wayfair and its impact on sales tax nexus and subsequent transaction considerations.
Veil-Piercing Update: Supreme Court Restores the Status Quo, For Now
The US Supreme Court unanimously declined to reshape the corporate veil-piercing doctrine when presented with the opportunity to do so in Dewberry Group, Inc. v. Dewberry Engineers, Inc. On February 26, 2025, the Supreme Court issued an opinion vacating and remanding the US Court of Appeals Fourth Circuit’s decision affirming an award in a trademark infringement dispute under the Lanham Act that included disgorgement of profits from the named defendant’s non-party corporate affiliates. (Bracewell previously reported on this case in a client alert on November 20, 2024.) The Supreme Court held that because the affiliates were not joined as parties, and because they were separate corporate entities, they could not be made responsible for the defendant’s damages in the absence of a finding that the traditional standards for corporate veil-piercing had been met.
In vacating and remanding the decision, the Supreme Court rejected the US District Court for the Eastern District of Virginia’s treatment of the defendant and its non-party affiliates as a single corporate entity and instead interpreted the Lanham Act’s use of the term “defendant’s profits” to refer only to corporate defendants that were actually included as parties in the suit. Thus, the Court ruled that the District Court should not have included the profits of a non-party defendant in its damages award. Additionally, the Court ruled that the Fourth Circuit and the District Court had not undertaken an adequate analysis under the statute’s relevant provisions before considering the profits of the defendant’s non-party affiliates.
Notably, however, the Supreme Court declined to address several issues: whether proper use of the Lanham Act’s “just-sum” provision could result in a profit disgorgement award that includes profits of non-party entities; whether courts should look beyond the “just-sum” provision and into the “economic realities” of a defendant’s affiliates, an approach suggested in an amicus curiae brief submitted by the United States; and whether corporate veil-piercing is “an available option on remand.”
Justice Sotomayor, joining the majority opinion in full, authored a concurrence to encourage lower courts to consider the “economic reality” argument put forth by the United States in its amicus curiae brief. Under this approach, a court could look to non-arm’s-length relationships between defendant corporations and affiliates, or below-market rates charged by defendant corporations to affiliates for trademark-infringing services. Justice Sotomayor emphasized, “courts must be attentive to practical business realities for a Nation’s trademark laws to function, and the Lanham Act gives courts the power and the duty to do so.”
In response to the Supreme Court’s remand, the District Court could more fully engage in a “just-sum” analysis under the Lanham Act. Alternatively, the District Court could consider a veil-piercing approach or another equitable strategy to uncover the “economic reality” of the infringing party. For now, however, the traditional standards for corporate veil-piercing remain intact.
Preserving and Maximizing Defense Coverage Through Final Adjudication
Last week, the Ninth Circuit affirmed fraud convictions for Theranos’ former CEO, Elizabeth Holmes, and former COO, Ramesh Balwani, upholding an order finding both defendants personally liable for $452 million in restitution to various Theranos investors. While it remains to be seen whether the embattled executives will pursue further appeals to the US Supreme Court, the years of litigation and appeals following Theranos’s untimely demise in 2018 highlight the importance of directors and officers having robust “final adjudication” language in conduct exclusions found in all D&O liability policies.
Modern D&O policies contain exclusions for fraudulent or criminal acts. But those exclusions usually cannot apply until a “final adjudication” establishes that the alleged fraudulent or criminal conduct actually occurred. The result is that individuals defending against alleged fraud get the benefit of a defense funded by the D&O policy unless and until the fraud is finally proven. And even where fraud is finally adjudicated, the onus is placed on the insurer to try to recover those costs from the policyholder, which is easier said than done when an entity is insolvent or a beleaguered individual endured years of litigation and appeals. In both cases, the insured may be unable to repay thousands if not millions of dollars in advanced legal fees and expenses if dragged into a new lawsuit by the D&O insurer.
The importance of securing timely and robust defense coverage cannot be overstated. In the case of Theranos, some investors have alleged that the company maintained at least $30 million in D&O coverage. Yet Elizabeth Holmes’ defense alone reportedly cost in excess of $30 million.
When reviewing your D&O policy with an eye towards maximizing executive protection and defense coverage, consider these key issues:
What is a “final adjudication”? Negotiate triggers in conduct exclusions to be as narrow as possible. If the policy requires a final adjudication, how is that defined? Some policies specify complete exhaustion of all appeals, while others may trigger at earlier stages. Does the exclusion contemplate adjudications in the underlying action only or in other actions, like those initiated by the insurer to determine coverage under the policy? Are defense expenses expressly carved out from the exclusion? Slight variations can materially impact whether coverage is preserved.
What are the insurer’s advancement obligations? A narrow conduct exclusion is only effective if the policyholder can receive the benefits of full and efficient reimbursement of ongoing defense costs in litigation prior to any final adjudication. At a minimum, the policy should make clear that the insurer has a duty to advance defense costs until it is determined that the previously advanced defense costs are not insured.
But how quickly must those payments be made? And what happens if there is a dispute where the insurer is claiming that uncovered parties, claims, or matters allow for limited defense reimbursement under the policy’s “allocation” provision? Following the flow of money from the insurer to the individual (and perhaps back again in a repayment situation) will ensure there are no reimbursement snafus in the midst of contentious litigation that distracts from the underlying defense.
How to ensure protection for “innocent” insureds? If one bad actor commits fraud and loses coverage, it should not impact coverage for other individual defendants. Pay close attention to “severability” provisions. Does the policy provide full or limited severability? When, if at all, can wrongful acts committed by one insured by imputed to other insureds who were not involved in the wrongdoing? How does the policy treat other misrepresentations, like those in applications?
How to protect executives when the company cannot? Under most D&O policies, the company has access to the same set of limits that otherwise would be available to protect individual insureds. If the company can indemnify and advance legal fees for its executives, those shared limits are usually not problematic. But when the company is insolvent and in bankruptcy, as was the case with Theranos, the D&O policy is the only source of protection preventing executives from personal exposure.
The solution is purchasing dedicated “Side A” coverage that sets aside separate limits that are available exclusively for the benefit of directors and officers when the company is unable or unwilling to provide indemnification. Some D&O policy forms provide built-in dedicated Side A-only limits, but many times they are purchased through standalone policies. Structuring a D&O program with adequate Side A coverage can ensure executives have an insurance backstop to defend, settle, and pay claims when they need it most.
For corporate executives, these small but important aspects of defense coverage under D&O policies can be the difference between executives being fully protected in protracted litigation and being left uninsured and subject to personal exposure.
Out With a Bang: Treasury Restricts Corporate Transparency Act to Foreign Reporting Companies
On March 2, 2025, the Treasury Department announced suspension of the March 21, 2025 deadline for filing under the Corporate Transparency Act (CTA) for any domestic companies or U.S. citizens.
Treasury said that it is preparing a proposed rulemaking to narrow the scope of the rule to foreign reporting companies only. “Foreign reporting companies,” under the present formulation, are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the U.S. by filing a document with a secretary of state or any similar office.
While the rule may be subject to legal challenge, as the narrowing proposed by the Treasury Department is inconsistent with the text of the CTA itself, it is not clear who, if anyone, would challenge the new proposed rules. Congress is also contemplating changes to the law.
The determination from Treasury follows the February 17, 2025 decision out of the Eastern District of Texas in Smith v. United States Department of the Treasury, which lifted the last remaining nationwide preliminary injunction on enforcement of the filing deadline, following the Supreme Court’s stay of the injunction in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al., earlier this year.
Passed in the first Trump Administration but implemented during the Biden presidency, the CTA — an anti-money laundering law designed to combat terrorist financing, seize proceeds of drug trafficking, and root out illicit assets of sanctioned parties and foreign criminals in the U.S. — faced legal challenges around the country, many of which are still pending before appellate courts.
Treasury has not announced what will happen to the information provided by entities that have already filed under the CTA. However, domestic companies and U.S. citizens are no longer under any obligation to keep that information up to date given the suspension of enforcement.
LINCARE GOES DOWN!: Home Respiratory Care Company Crushed With TCPA Class Action Certification Ruling After Making Calls to Customers of Predecessor Company
Here’s another big one folks.
One company buys another company and then sends marketing messages to the form company’s customers.
Seems ok, right?
Nope and Lincare just found that out the hard way.
In Morris v. Lincare, Inc. 2025 WL 605616 (M.D. Fl. Feb. 25, 2025) a court certified a TCPA class action involving Lincare’s prerecorded messages to consumers who had consented to receive contact from a predecessor company.
In Morris the class members had all signed express written consent agreements with American HomePatient, Inc. However, Lincare apparently purchased the company and absorbed it various assets–including its contact list.
Lincare began sending prerecorded messages to the Plaintiff after the transition took place and Plaintiff sued arguing it had consented to calls from API, but not from Lincare.
While the Court in Morris did not answer the ultimate substantive question of whether or not the consent was valid it did certify the case as a class action finding that the issue of consent–amongst others–was common across the entire class. As such the court certified the case as a class action.
The result is that Lincare must now face suit over calls made to over 1,800 people and faces millions in potential damages– for doing nothing more than calling people that had consented to receive calls from a company it purchased.
This is an important case for folks considering as part of due diligence for an asset purchase or company acquisition. Troutman Amin, LLP commonly gets brought in a part of diligence reviews for mergers and acquisitions where TCPA issues are apparent. But many M&A teams completely miss TCPA risk– as Morris really highlights the need to pay attention to these issues and to understand the limits on using consent forms naming different entities.
Tired of #biglaw firms billing you like crazy and then trying to get you to settle TCPA class actions for millions?
FDIC Withdraws Support for Colorado’s Opt-Out Law Before Tenth Circuit
On February 26, the FDIC withdrew its amicus brief in the 10th Circuit Court of Appeals challenging Colorado’s 2023 opt-out law which aimed to restricting higher-cost online lending. The FDIC’s decision follows a shift in the agency’s leadership and marks a departure from the previous administration’s position supporting Colorado’s interpretation of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA).
Colorado’s opt-out law invokes a provision of DIDMCA that allows states to exclude themselves from the federal interest rate exportation framework, which enables banks to lend nationally at rates permitted by their home states. The law seeks to apply Colorado’s interest rate caps—some as low as 15%—to all loans made to Colorado residents, including those issued by out-of-state banks in partnership with fintech firms.
A coalition of industry groups challenged the law, arguing that Colorado is overstepping its authority by attempting to regulate lending that occurs outside the state. In June 2024, a federal district court sided with the industry groups, ruling that a loan is made where the lender performs its loan-making functions rather than where the borrower is located. The court issued a preliminary injunction preventing Colorado from enforcing the law against out-of-state lenders.
The FDIC initially supported Colorado’s position, arguing in its amicus brief that, for purposes of DIDMCA’s opt-out provision, a loan can be considered “made” where the borrower is located. However, citing a recent change in administration, the agency withdrew its brief before the Tenth Circuit could hear oral arguments in Colorado’s appeal.
Putting It Into Practice: The withdrawal follows the FDIC’s transition to Republican-led leadership under Acting Chairman Travis Hill, who has signaled a more favorable stance toward bank-fintech partnerships (previously discussed here). With oral arguments set for March 18, a ruling upholding Colorado’s law could inspire similar state restrictions, while a decision favoring industry plaintiffs would reaffirm federal rate exportation rules under the DIDMCA.
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