“Claims” Under the FCA, §1983 Claim Denials on Failure-to-Exhaust Grounds, and Limits to FSIA’s Expropriation Exception – SCOTUS Today
The U.S. Supreme Court decided three cases today, with one of particular interest to many readers of this blog. So, let’s start with that one.
Wisconsin Bell v. United States ex rel. Heath is a suit brought by a qui tam relator under the federal False Claims Act (FCA), which imposes civil liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim” as statutorily defined. 31 U. S. C. §3729(a)(1)(A). The issue presented is a common one in FCA litigation, namely, what is a claim? More precisely, in the context of the case, the question is what level of participation by the government in the actual payment is required to demonstrate an actionable claim by the United States. The answer, which won’t surprise many FCA practitioners, is “not much.”
The case itself concerned the Schools and Libraries (E-Rate) Program of the Universal Service Fund, established under the Telecommunications Act of 1996, which subsidizes internet and other telecommunication services for schools and libraries throughout the country. The program is financed by payments by telecommunications carriers into a fund that is administered by a private company, which collects and distributes the money pursuant to regulations set forth by the Federal Communications Commission (FCC). Those regulations require that carriers apply a kind of most-favored-nations rule, limiting them to charging the “lowest corresponding price” that would be charged by the carriers to “similarly situated” non-residential customers. Under this regime, a school pays the carrier a discounted price, and the carrier can get reimbursement for the remainder of the base price from the fund. The school could also pay the full, non-discounted price to the carrier itself and be reimbursed by the fund.
The relator, an auditor of telecommunications bills, asserted that Wisconsin Bell defrauded the E-Rate program out of millions of dollars by consistently overcharging schools above the “lowest corresponding price.” He argued that these violations led to reimbursement rates higher than the program should have paid. His contention is that a request for E-Rate reimbursement qualified as a “claim,” a classification that requires the government to have provided some portion of the money sought. Wisconsin Bell moved to dismiss, arguing that there could be no “claim” here because the money at issue all came from private carriers and was administered completely by a private corporation.
Affirming the U.S. District Court for the Eastern District of Wisconsin, the U.S. Court of Appeals for the Seventh Circuit rejected Wisconsin Bell’s argument, holding that there was a viable claim because the government provided all the money as part of establishing the fund. Less metaphysically, it also held that the government actually provided some “portion” of E-Rate funding by depositing more than $100 million directly from the U.S. Treasury into the fund.
Justice Kagan delivered the unanimous opinion of the Supreme Court, affirming the Seventh Circuit on the narrower ground that “the E-Rate reimbursement requests at issue are ‘claims’ under the FCA because the Government ‘provided’(at a minimum) a ‘portion’ of the money applied for by transferring more than $100 million from the Treasury into the Fund.” It is important to recognize that this amount was quite separate from the funds involved in the core program at issue. Instead, it constituted delinquent contributions collected by the FCC and the U.S. Department of the Treasury, as well as civil settlements and criminal restitution payments made to the U.S. Department of Justice in response to wrongdoing in the program. This nonpassive role by the government was enough to satisfy the Court that the money was sought through an actionable “claim.”
Rather blithely, Justice Kagan analogizes these government transfers to “most Government spending: Money usually comes to the Government from private parties, and it then usually goes out to the broader community to fund programs and activities. That conclusion is enough to enable Heath’s FCA suit to proceed.”
This conclusion suggests that quibbling about what constitutes a “claim,” where government participation in payment is peripheral, is unlikely to provide an effective avenue for defending FCA lawsuits. But wait! Before closing the discussion, we must turn to the concurring opinion of Justice Thomas, who was joined by Justice Kavanaugh and, in part, by Justice Alito. They note that the Court has left open the questions of whether the government actually provides the money that requires private carriers to contribute to the E-Rate program and whether the program’s administrator is an agent of the United States. Thomas’s suggestion, in attempting to reconcile various Circuit Court opinions as to the fund, is that an FCA claim must be based upon a clear nexus with government involvement. Thomas then goes on to describe a range of cases where, although the arrangements at issue might be prescribed by the government, the absence of government money would be fatal to holding that there was a justiciable FCA claim. In other words, the kind of government payments into the fund that we see in the instant case are the likely minimum that the Court would countenance.
Perhaps a bigger storm warning is the additional concurrence of Justice Kavanaugh, joined by Justice Thomas, in noting that today’s opinion is a narrow one. However, the FCA’s qui tam provisions raise substantial questions under Article II of the Constitution. The Court has never ruled squarely as to Article II, though it has upheld qui tam cases as assignments to private parties of claims owned by the government, something like commercial relationships. Two Justices augured that potential unresolved constitutional challenges to the FCA’s qui tam regime necessarily will mean that any competent counsel will raise the point in any future FCA case not brought by the government alone. But note that Justice Alito did not join Kavanaugh’s opinion, though he did in the Thomas concurrence. Nor did any other conservative Justice. It still takes four to grant cert. But the future is a bit hazier, thanks to Justice Kavanaugh.
Justice Kavanaugh finds himself on the opposite side of Justice Thomas in the case of Williams v. Reed. Writing for himself, the Chief Justice, and Justices Sotomayor, Kagan, and Jackson, Justice Kavanaugh ruled in favor of a group of unemployed workers who contended that the Alabama Department of Labor unlawfully delayed processing their state unemployment benefits claims. They had sued in state court under 42 U. S. C. §1983, raising due process and federal statutory arguments, attempting to get their claims processed more quickly. The Alabama Secretary of Labor argued that these claims should be dismissed for lack of jurisdiction because the claimants had not satisfied the state exhaustion of remedies requirements.
Holding against the Secretary, the Court’s majority opined that where a state court’s application of a state exhaustion requirement effectively immunizes state officials from §1983 claims challenging delays in the administrative process, state courts may not deny those §1983 claims on failure-to-exhaust grounds. Citing several analogous precedents, the majority decided what I submit looks like a garden-variety supremacy case. After all, as Kavanaugh notes, the “Court has long held that ‘a state law that immunizes government conduct otherwise subject to suit under §1983 is preempted, even where the federal civil rights litigation takes place in state court.’” See Felder v. Casey, 487 U. S. 131 (1988).
Justice Thomas and his conservative allies didn’t see it that way at all. Quoting himself in dissent in another case, Justice Thomas asserts that “[o]ur federal system gives States ‘plenary authority to decide whether their local courts will have subject-matter jurisdiction over federal causes of action.’ Haywood v. Drown, 556 U. S. 729, 743 (2009) (THOMAS, J., dissenting).” Well, he didn’t persuade a majority then, and he didn’t do so now in this §1983 case.
Finally, in Republic of Hungary v. Simon, a unanimous Court, per Justice Sotomayor, considered the provision of the Foreign Sovereign Immunities Act of 1976 (FSIA) that provides foreign states with presumptive immunity from suit in the United States. 28 U. S. C. §1604. That provision has an expropriation exception that permits claims when “rights in property taken in violation of international law are in issue” and either the property itself or any property “exchanged for” the expropriated property has a commercial nexus to the United States. 28 U. S. C. §1605(a)(3).
The Simon case involved a suit by Jewish survivors of the Hungarian Holocaust and their heirs against Hungary and its national railway, MÁV-csoport, in federal court, seeking damages for property allegedly seized during World War II. They alleged that the expropriated property was liquidated and the proceeds commingled with other government funds that were used in connection with commercial activities in the United States. The lower courts determined that the “commingling theory” satisfied the commercial nexus requirement in §1605(a)(3) and that requiring the plaintiffs to trace the particular funds from the sale of their specific expropriated property to the United States would make the exception a “nullity.”
The Supreme Court didn’t quite agree, holding that alleging the commingling of funds alone cannot satisfy the commercial nexus requirement of the FSIA’s expropriation exception. “Instead, the exception requires plaintiffs to trace either the specific expropriated property itself or ‘any property exchanged for such property’ to the United States (or to the possession of a foreign state instrumentally engaged in United States commercial activity).”
The three cases decided today bring the total decisions of the term to eight. Stay tuned because a torrent might be on the horizon.
Michigan Overhauls Paid Sick Leave and Minimum Wage Laws
On February 21, 2025, Governor Gretchen Whitmer signed into law two bills amending the state’s Wage Act and Earned Sick Time Act (ESTA).
As we previously explained, absent those amendments, February 21 would have been the effective date for those laws as ordered by the Michigan Supreme Court. Below, we share highlights of the new bills as preliminary guidance.
Changes to the Wage Act
Steeper Minimum Wage Hikes, Faster
Senate Bill 8 (SB 8), the bill that amended the Wage Act, retains the $12.48 per hour minimum wage rate set to take effect February 21. Thereafter, minimum wage will rise again on January 1, 2026 (and on the first of the year annually thereafter) to $13.73, a higher wage rate than the originally scheduled hourly rate of $13.29. The 2027 increase will also be larger than scheduled, jumping to an hourly rate of $15.00.
In short, minimum wage earners will see bigger hikes, sooner, under SB 8. The main takeaway for Michigan employers concerned about compliance as of February 21 is that the statewide minimum wage as of that date is $12.48 per hour.
Smaller Tip Credit Reductions, No Abolishment, Plus Enforcement
SB 8 will not gradually phase out tip credits, which would have occurred under the state Supreme Court Order. Instead, the proportional maximum credit will diminish by 2% annually through 2031, when a tipped worker’s minimum wage would equal 50% of the full minimum wage.
Effective today, employers must ensure that tipped workers receive a minimum rate of $4.74, which is 38% of the full minimum wage. Note that this is meaningfully lower than what the Order required ($6.49 per hour, or 48% of the full minimum wage).
SB 8 also adds a maximum civil fine of $2,500 on employers who fail to comply with the minimum wage scheme for tipped workers.
Changes to ESTA
House Bill 4002 (HB 4002), the bill that amended ESTA, significantly modified the Supreme Court’s Order. The key changes from the Order are as follows:
A revised definition of “small business” from “fewer than 10” to “10 or fewer” employees, along with a delay of mandatory paid earned sick time accrual and usage for small business employees until October 1, 2025.
Excluding the following individuals from paid earned sick time eligibility: trainees or interns and youth employees, as well as employees who schedule their own working hours and are not subject to disciplinary action if they do not schedule a minimum number of working hours.
Clarification that paid earned sick time does not accrue while an employee is taking paid time off, and that employers may cap usage and carryover of accrued paid leave at 72 hours per year, or at 40 hours per year if they are a small business.
Express permission to frontload paid earned sick time, including detailed instructions about how to frontload part-time employees’ leave and waiving requirements to track accruals, carryover unused time or pay out the value of unused time at the end of the year for frontloading employers.
Changes to language regarding an employee’s request for an “unforeseeable” need to use paid earned sick time, including requiring employee to give notice as soon as “practicable” or in accordance with the employer’s policy related to requesting or using sick time or leave (assuming the employer has provided a copy of the policy to the employee and the policy permits the employee to request leave after becoming aware of the need), and permitting employers to take adverse action against employees who do not comply with notice requirements.
Added language permitting an employer to take adverse personnel action against an employee if the employee uses paid earned sick time for a purpose other than a purpose sanctioned by ESTA, or who violates the ESTA’s notice requirements.
Elimination of a private right of action, but expansion of potential civil penalties that the state’s Department of Labor and Economic Opportunity (LEO) may impose through an administrative proceeding, including, but not limited to, a civil penalty up to eight (8) times the employee’s normal hourly wage.
What Should Michigan Employers Do?
Employers must immediately comply with the Wage Act and pay non-exempt workers a general minimum wage of at least $12.48 per hour and tipped workers a rate of at least $4.74 per hour.
As for ESTA, “small employers” can wait until October 2025 to begin providing benefits, but all employers should take steps to comply. Many of the ESTA amendments clarify the initial version of Supreme Court’s Order, so steps employers have likely taken to prepare for the February 21 effective date will be a helpful starting point. Epstein Becker Green soon will publish more detailed insights about ESTA and its relationship to other leave laws.
Second Circuit Upholds Reverse Redlining Verdict Against Mortgage Lender
On February 14, a divided Second Circuit panel upheld a 2016 jury verdict which found that a mortgage lender violated, among other laws, the Equal Credit Opportunity Act (“ECOA”) by engaging in “reverse redlining” when it allegedly targeted Black and Latino homeowners with predatory loans.
The majority held that the district court did not abuse its discretion by applying equitable tolling to the plaintiff’s claims, and rejected the mortgage lender’s argument that the statute of limitations began running at loan origination. Instead, the statute of limitations began to run when the plaintiffs discovered that they were the alleged victims of discrimination in connection with their predatory loans.
The majority also rejected the mortgage lender’s challenges to the district court’s jury instructions finding they sufficiently conveyed the requirement for proving disparate impact.
Putting It Into Practice: While we will likely see a pullback in ECOA enforcement under the Trump administration, financial institutions are reminded that many statutes, including ECOA, have an independent right of action. As such, we expect the plaintiffs’ bar to continue to remain busy in bringing lawsuits. Accordingly, lenders should continue to review their own fair lending protocols to ensure they maintain appropriate compliance practices.
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Corporate Transparency Act Enforceable Again
On February 18, 2025, the U.S. District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, et al., 6:24-cv-00336 (E.D. Tex.), stayed the nationwide injunction on enforcement of the Corporate Transparency Act, thereby requiring all reporting companies to file beneficial ownership information (“BOI”) with FinCEN.
Accordingly, the new deadline to file an initial, updated, or corrected BOI report is now March 21, 2025. However, reporting companies that were previously given a reporting deadline later than the March 21, 2025, deadline must file their initial BOI report by that later deadline. For instance, this exception applies if your reporting company qualifies for certain disaster relief extensions.
In addition, on February 10, 2025, the U.S. House of Representatives passed the Protect Small Businesses from Excess Paperwork Act of 2025 (“H.R. 736”), which would extend the Corporate Transparency Act’s original filing deadline of January 1, 2025, to January 1, 2026. Importantly, the U.S. Senate has not passed H.R. 736. If passed by the U.S. Senate and signed by the President, the new filing deadline will be January 1, 2026.
Given the shifting regulatory landscape, businesses should stay informed and ensure compliance to avoid potential penalties. For a detailed breakdown of the reporting requirements under the Corporate Transparency Act, visit this article.
CTA Reporting Restored: FinCEN Extends Filing Deadlines and Signals Revisions to Reporting Requirements After Federal Court Lifts Stay
On February 18, 2025, the U.S. District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, et al., 6:24-cv-00336 (E.D. Tex), lifted its order staying the Financial Crimes Enforcement Network (FinCEN) regulations establishing the Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA).
Immediately following this action, FinCEN announced an extension of the deadline for companies to file BOI reports by 30 calendar days. Thus, the new deadline for companies to file an initial, updated, and/or corrected BOI report is Friday, March 21, 2025. The March 21 filing deadline applies to:
existing companies that were originally required to file before January 1, 2025;
companies that were formed in 2024 and originally required to file within 60 days of the formation date; and
companies that were formed on or after January 1, 2025, and before February 20, 2025.
Additionally, the U.S. Department of the Treasury has committed, during this 30-day period, to assess its options to further modify deadlines, prioritize reporting for those entities that pose the most significant national security risks, and initiate a process during this year to revise BOI reporting requirements to reduce the burden for lower-risk entities, such as many U.S. small businesses.
The exceptions to the March 21 reporting deadline include the following:
Those companies that were previously given a reporting deadline later than March 21, 2025—e.g., companies having a later reporting deadline because they qualified for certain disaster relief extensions that were previously granted by FinCEN—may file their BOI report based on that later deadline.
Plaintiffs in the case National Small Business United v. Yellen, 5-22-cv-01488 (N.D. Ala.), are not currently required to report BOI information to FinCEN.
FinCEN announced this change in filing requirements through a notice posted on the BOI Beneficial Ownership Information web page titled “Corporate Transparency Act Reporting Requirements Back in Effect with Extended Reporting Deadline; FinCEN Announces Intention to Revise Reporting Rule.
The CEQ has No Clothes: The End of CEQ’s NEPA Regulations and the Future of NEPA Practice
On February 20, 2025, the White House Council on Environmental Quality (CEQ) posted a pre-publication notice on its website of an Interim Final Rule that rescinds its regulations implementing the National Environmental Policy Act (NEPA), which, in one form or another, have guided NEPA practice since 1978. CEQ simultaneously issued new guidance to federal agencies for revising their NEPA implementing procedures consistent with the NEPA statute and President Trump’s Executive Order 14,154 (Unleashing American Energy). The Interim Final Rule was submitted for publication in the Federal Register on February 19, 2025 and will become effective 45 days after it is published. This action represents the final blow to CEQ’s NEPA regulations, coming in the wake of two recent federal court decisions in the past few months that foreshadowed their impending demise. In light of those court decisions, CEQ is unlikely to issue new regulations, even under a future presidential administration, without express congressional authorization.
Background
NEPA generally applies to discretionary actions involving federal agencies, including projects carried out by a federal agency itself or by private parties that receive a permit or financial assistance from a federal agency. When NEPA is triggered, it requires a federal agency to analyze the environmental impacts of the project before making a decision to carry it out or issue an approval that may also include conditions or mitigation requirements. NEPA is a procedural law and does not mandate a specific outcome or require that the project proponent mitigate any identified environmental impacts.
NEPA, which was enacted in 1970, is a rather barebones statute. NEPA practice has long been governed by CEQ’s NEPA regulations, which were first promulgated in 1978 after President Carter issued Executive Order 11,991 (Relating to Protection and Enhancement of Environmental Quality) earlier that year directing CEQ to replace its earlier nonbinding guidance. Many common features of NEPA practice — such as environmental assessments, categorical exclusions, programmatic environmental documents, supplemental environmental documents, lead and cooperating agencies, required analysis of a no-action alternative, and required analysis of mitigation measures — are directly tied to CEQ’s 1978 NEPA regulations (some were eventually codified by Congress’s 2023 amendments to NEPA). Agencies could also develop their own NEPA implementing procedures consistent with CEQ’s regulations. Except for one relatively minor amendment in 1986, CEQ’s NEPA regulations did not change between 1978 and 2020, and a large body of case law resulted as courts evaluated agencies’ compliance with the regulations. CEQ substantially revised its regulations during the first Trump administration (in 2020) and during the Biden administration (in 2021 and 2024). For the past nearly 50 years, federal agencies, courts (including the Supreme Court), and NEPA practitioners have largely accepted CEQ’s authority to issue binding regulations without objection.
Recent Court Decisions
Two recent federal court cases challenged the longstanding assumption of CEQ’s authority. First, as we previously reported, in November 2024 the U.S. Court of Appeals for the D.C. Circuit found that CEQ lacked authority to issue binding regulations. (Marin Audubon Society v. Federal Aviation Administration, No. 23-1067 (D.C. Cir. Nov. 12, 2024).) On January 31, the full D.C. Circuit denied a petition for rehearing en banc, with a majority of the judges issuing a concurring statement explaining that the earlier decision’s “rejection of the CEQ’s authority to issue binding NEPA regulations was unnecessary to the panel’s disposition” and, impliedly, not part of the court’s holding.
Then, on February 3, in a different case, a federal district court in North Dakota issued a decision expressly holding that CEQ lacked authority to issue binding regulations. (Iowa v. CEQ, No. 1:24-cv-00089 (D.N.D. Feb. 3, 2025).) That case was brought by Iowa and a coalition of 20 other states to challenge CEQ’s regulations issued in May 2024. The court’s decision closely followed the D.C. Circuit’s analysis in Marin Audubon and came to the same conclusion: CEQ does not (and never did) have the authority to issue binding regulations. The court reasoned that CEQ, which was established by NEPA, was authorized by statute only to “make recommendations to the President.” Thus, based on constitutional separation-of-powers principles, President Carter’s 1978 Executive Order could not legally confer regulatory authority on CEQ in the absence of congressional authorization.
Because the court found that CEQ had no regulatory authority, it vacated the challenged 2024 regulations. Notably, although the court’s conclusion about CEQ authority supported vacatur of all CEQ NEPA regulations, it vacated only the 2024 regulations that were challenged in the case before it, leaving “the version of NEPA in place on June 30, 2024, the day before the rule took effect.” The court noted, however, that “it is very likely that if the CEQ has no authority to promulgate the 2024 Rule, it had no authority for the 2020 Rule or the 1978 Rule and the last valid guidelines from CEQ were those set out under President Nixon.”
The court concluded: “The first step to fixing a problem is admitting you have one. The truth is that for the past forty years all three branches of government operated under the erroneous assumption that CEQ had authority. But now everyone knows the state of the emperor’s clothing and it is something we cannot unsee. . . . If Congress wants CEQ to issue regulations, it needs to go through the formal process and grant CEQ the authority to do so.”
CEQ’s Recission of its NEPA Regulations
Meanwhile, CEQ’s NEPA regulations were concurrently under fire from the executive branch. On January 20, President Trump issued Executive Order 14,154 (Unleashing American Energy), which was largely targeted at removing perceived barriers to domestic fossil fuel production and mining, including federal environmental permitting processes. To that end, Section 5 of the Executive Order revoked President Carter’s 1978 Executive Order directing CEQ to issue binding regulations and directed the chairperson of CEQ to, by February 19, (1) propose rescinding all CEQ NEPA regulations and (2) issue new guidance to federal agencies for implementing NEPA. CEQ has now done as directed.
The Interim Final Rule proposes to rescind the entirety of CEQ’s regulations. It will go into effect 45 days after it is published in the Federal Register to give the public an opportunity to submit comments, which CEQ will “consider and respond to” prior to finalizing the rule. In the preamble to the Interim Final Rule, CEQ states it has “concluded that it may lack authority to issue binding rules on agencies in the absence of the now-rescinded E.O. 11191.” While CEQ considers the revocation of the Carter Executive Order to constitute an “independent and sufficient reason” for rescinding the NEPA regulations, it also agrees (contrary to its longstanding and customary practice) that “the plain text of NEPA itself may not directly grant CEQ the power to issue regulations binding upon executive agencies.”
CEQ Guidance to Federal Agencies Regarding NEPA Implementation
At the same time CEQ proposed to rescind its NEPA regulations, it also issued guidance to federal agencies for implementing NEPA going forward and for revising or establishing their own NEPA-implementing procedures, consistent with the NEPA statute and Executive Order 14,154. That guidance recommends agencies “continue to follow their existing practices and procedures for implementing NEPA” while they work on their new procedures and “should not delay pending or ongoing NEPA analyses while undertaking these revisions.” As to these pending or ongoing NEPA reviews, CEQ advises agencies to “apply their current NEPA implementing procedures” and “consider voluntarily relying on” the soon-to-be rescinded regulations.
The guidance also proposes a path forward to agencies to follow in drafting new procedures. It “encourages agencies” to use the 2020 NEPA regulation revisions as a framework and advises that agencies should consider the following:
Prioritize project-sponsor-prepared environmental documents for expeditious review.
Ensure that the statutory timelines established in section 107 of NEPA will be met for completing environmental reviews. (Generally, one year for a completion of an environmental assessment and two years for an environmental impact statement.)
Include an analysis of any adverse environmental effects of not implementing the proposed action in the analysis of a no action alternative to the extent that a no action alternative is feasible.
Analyze the reasonably foreseeable effects of the proposed action consistent with section 102 of NEPA, which does not employ the term “cumulative effects.”
Define agency actions with “no or minimal federal funding” or that involve “loans, loan guarantees, or other forms of financial assistance” where the agency does not exercise sufficient control over the subsequent use of such financial assistance or the effect of the action to not qualify as “major Federal actions.”
Not include an environmental justice analysis, since Executive Order 12,898, which required all federal agencies to “make achieving environmental justice part of its mission” was separately revoked by Executive Order 14,173.
CEQ has set a 12-month timeframe for federal agencies to complete the revision of their NEPA procedures. Agencies must consult with CEQ while revising their implementation procedures and CEQ will hold monthly meetings of the “Federal Agency NEPA Contacts and the NEPA Implementation Working Group” as required by Executive Order 14,154 to coordinate revisions amongst the agencies. Within 30 days of the guidance memorandum, agencies must develop and submit to CEQ a proposed schedule for updating their implementation procedures.
NEPA Practice in the Near Future
Going forward, agencies, project applicants, and NEPA practitioners should rely upon the NEPA statute (as amended by the Fiscal Responsibility Act in 2023) as primary authority. For projects with ongoing or pending NEPA review, applicants should expect federal agencies to continue to apply their existing NEPA practices and rely on the soon-to-be rescinded regulations, except to the extent they are inconsistent with Executive Order 15,154 or the NEPA statute (and in that regard, they will need to be closely evaluated on an individual basis). Case law also will need to be closely analyzed to determine whether courts’ holdings in prior cases were predicated on the statute itself (and therefore, still have binding or persuasive authority, depending on the court) or were based on CEQ’s regulations (in which case they should no longer have any authority). CEQ’s guidance is expressly non-binding, but should also be considered.
In a twist of irony, the rescission of CEQ’s NEPA regulations could lead to greater delays in environmental reviews and permitting (including for fossil fuel production and mining projects favored by Executive Order 14,514), at least in the near term. CEQ’s regulations created uniform procedures that applied to all federal agencies, which was particularly helpful for complex projects that require approvals from multiple federal agencies. Without uniform regulations, each individual agency might now impose its own requirements on the NEPA process. This could result in greater challenges coordinating environmental reviews and permitting among multiple agencies, although CEQ will likely attempt to harmonize implementation procedures as it reviews agencies’ proposals. In addition, permitting delays are expected as agency staff adjust to the new landscape and determine how to comply with NEPA without reliance upon CEQ’s regulations. Staffing shortages resulting from the Trump administration’s efforts to reshape the federal workforce are also likely to additionally exacerbate these problems.
Relatedly, this term, the Supreme Court is considering its first NEPA case since 2004 (Seven County Infrastructure Coalition v. Eagle County) involving the scope of impacts that agencies must consider. Because the case involves the NEPA statute rather than its implementing regulations, the rescission of CEQ’s regulations is unlikely to affect the decision. Oral argument was held in December, and a decision is expected this spring. We will continue to track developments related to this decision.
CFPB Small Business Lending Data Rule Survives Challenge in Federal Court
On February 19, a federal magistrate judge for the United States District Court for the Southern District of Florida issued a report and recommendation rejecting a trade group’s challenge to the CFPB’s small business lending data rule. The ruling found that merchant cash advances lawfully fall within the scope of the rule. The trade group’s lawsuit sought to exclude merchant cash advances from the rule, arguing, among other things, that such transactions do not constitute “credit” under the Equal Credit Opportunity Act (the “ECOA”) and that the rule was arbitrary and capricious, in violation of the Administrative Procedure Act.
Specifically, the trade group’s allegations included the following:
Dispute over the definition of credit. The trade group alleged that the CFPB exceeded its statutory authority by classifying merchant cash advances as “credit” under ECOA and that these transactions do not meet the traditional definition of credit.
Regulatory fairness concerns. The trade group argued that the rule is arbitrary and capricious because the CFPB aimed to “level the playing field” rather than adhering strictly to statutory mandates. The trade group claimed that the CFPB selectively targeted merchant cash advance products without proper justification.
Lack of adequate industry consideration. The trade group alleged that the CFPB failed to properly consider their public comments and industry concerns during the rulemaking process, and that it did not adequately assess the economic impact the rule could have on small business financing.
The court rejected these claims, concluding that merchant cash advances meet the definition of credit under ECOA because they involve deferred debt payments. The court also determined that the CFPB acted within its statutory authority under Section 1071 of the Dodd-Frank Act. Additionally, the court found that the CFPB sufficiently considered industry concerns and balanced the benefits of merchant cash advances against the potential risks to small businesses.
Putting It Into Practice: The magistrate judges findings will need to be adopted by the district court. But it affirms the Bureau’s data collection mandate under the Dodd-Frank Act. However, with the CFPB’s future regulatory activities in flux, it remains to be seen what will eventually happen with the rule. Small business lenders should continue to monitor pending litigation and political developments that could affect their compliance obligations.
D.C. Court Finds A Piggyback Statute Of Limitations In Segway-Crash Case
According to court filings, on October 11, 2019, a Segway struck Marilyn Kubichek and Dorothy Baldwin as they strolled along a D.C. sidewalk.
On December 20, 2022, they filed two complaints in the Superior Court based on the Segway incident – one against the operator of the Segway that they said hit them, and one against the tour organizer. The cases were consolidated into one proceeding, Kubichek et al. v. Unlimited Biking et al.
Unfortunately for Ms. Kubichek and Ms. Baldwin, the statute of limitations for negligence in D.C. is three years. Their claims had become untimely before they filed their complaints.
Defendant Eduardo Samonte asserted the statute of limitations in a motion to dismiss, which was granted.
In fact, the order granting Mr. Samonte’s motion actually dismissed the case against both defendants. But the other defendant, Unlimited Biking, had not asserted the statute of limitations.
The question for the Court of Appeals was whether the complaint against Unlimited Biking could be dismissed based on Mr. Samonte’s motion.
Generally speaking, it’s on a defendant to assert the statute of limitations as a defense to the claims against it. Courts don’t do that on their own, and a defendant that fails to assert the statute in its answer to the complaint, or in a motion to dismiss, typically waives the defense.
The Court of Appeals returned to a 1993 case called Feldman, which had suggested that a trial court might have the power to invoke the statute-of-limitations defense on its own, but only if it “is clear from the face of the complaint” that the statutory period has expired.
In the Kubichek case, the Court of Appeals found that it was not clear from the complaints that the statute of limitations had expired.
So – back to court for Unlimited Biking, right?
Not so fast. The Court of Appeals proceeded to fashion a new, “narrow exception” whereby the dismissal of the complaint against Unlimited Biking could be affirmed.
The rule used by the Court appears to work this way:
One defendant asserts the statute of limitations.
+
The plaintiffs have a chance to litigate the issue.
+
The facts relevant to the application of the statute of limitations are not disputed.
+
The relevant facts are the same with respect to both defendants.
=
The trial court may dismiss claims against a defendant that did not assert the statute of limitations.
No litigator or party should neglect to assert a statute-of-limitations defense at the earliest opportunity in a case where the defense may apply. But, after Kubichek, if you are so neglectful, your co-defendant may save you.
Just one more reason why persons who have been harmed and believe they have legal claims should be careful not to wait too long to go to court.
No Business Transaction, No Chapter 93A Claim: Mass. Courts Clarify Requirements
To pursue a Chapter 93A claim, there must be some business, commercial, or transactional relationship between the plaintiff(s) and the defendant(s). An indirect commercial link—such as upstream purchasers—may be sufficient to state a valid claim, but there must ultimately be some commercial connection between the plaintiff and defendant. The District of Massachusetts and the Appeals Court of Massachusetts recently affirmed this requirement in two separate cases.
First, the District of Massachusetts affirmed this principle when it denied plaintiffs’ motion for leave to conduct limited discovery, as the allegations in the complaint only highlighted the commercial relationship between the various defendants and not with the plaintiff. In Courtemanche v. Motorola Sols., Inc., plaintiffs brought a putative class action against a group of commercial defendants and the superintendent of Massachusetts State Police, alleging that the State Police unlawfully recorded conversation content between officers and plaintiffs, and then later used those recordings to pursue criminal charges against plaintiffs. The commercial defendants allegedly willfully assisted the State Police by providing them with intercepting devices and storing the recordings on their servers. The commercial defendants moved to dismiss based on plaintiffs’ failure to allege a business, commercial, or transactional relationship between them and the commercial defendants. Plaintiffs then sought to conduct limited discovery in order to establish such a relationship. The court concluded that allowing even limited discovery on the issue would only amount to an inappropriate fishing expedition and denied the motion.
Shortly thereafter, the Massachusetts Appeals Court reversed portions of a consolidated judgment against defendants for Chapter 93A § 11 violations in Flightlevel Norwood, LLC v. Boston Executive Helicopters, LLC. On appeal, the defendants argued, and the Appeals Court agreed, that the trial judge erred in denying their motion for judgment notwithstanding the verdict. The parties both operated businesses at the Norwood Memorial Airport and subleased adjoining parcels of land with a taxiway running along their common border. At trial, plaintiff argued that defendants engaged in unfair acts to exercise dominion and control over plaintiff’s leasehold to advance defendants’ commercial interests and deliberately interfere with plaintiff’s commercial operations. The Appeals Court reiterated that to maintain a Section 11 claim, a business needs to show more than just being harmed by another business’s unfair practices. Instead, plaintiff must prove that it had a significant business deal with the other company, and that the unfair practices occurred as part of the deal. The Appeals Court thus concluded that Chapter 93A § 11 was inapplicable, as there was no business transaction between the parties.
Two Lawsuits Challenge Trump Administration’s Termination of Venezuela TPS
Advocacy groups and Venezuelan immigrants have filed suit in federal courts over terminated removal protections for Venezuelans in the United States.
On Feb. 19, 2025, the National TPS Alliance, an advocacy group for immigrants who have been granted Temporary Protected Status (TPS), and seven Venezuelans living in the United States, filed a lawsuit in the U.S. District Court for the Northern District of California challenging the Department of Homeland Security’s (DHS’s) decision to terminate Venezuela TPS. The termination impacts approximately 600,000 Venezuelan nationals (350,000 under the 2023 designation and 250,000 under the 2021 designation).
On Feb. 20, 2025, immigrant advocacy groups CASA, Inc. and Make the Road New York filed a lawsuit in the U.S. District Court for the District of Maryland also challenging the termination of Venezuela TPS.
Both suits allege that DHS Secretary Kristi Noem lacked legal authority to vacate former DHS Secretary Alejandro Mayorkas’ Jan. 17, 2025, decision to grant an 18-month extension of TPS for Venezuela.
The suits further contend that even if DHS possessed legal authority to terminate Venezuela TPS, it arbitrarily deviated from prior decisions, incorrectly concluding that Venezuelans granted TPS reside in the United States illegally.
The plaintiffs also allege that Secretary Noem’s decision was motivated by “racial animus,” pointing to an interview she gave to Fox News announcing her Feb. 5, 2025, decision to terminate Venezuela TPS in which she referred to Venezuelans granted TPS as “dirtbags.”
Both suits cite violations of the Administrative Procedure Act (APA) and the Fifth Amendment’s Equal Protection and Substantive Due Process clauses. They ask the courts to declare that former DHS Secretary Mayorkas’ 18-month extension of Venezuela TPS remains in effect and to enjoin enforcement of the Feb. 3, 2025, vacatur and Feb. 5, 2025, termination decisions.
Both suits have the potential to extend the Venezuela TPS designation for individuals who registered under both the 2021 and 2023 designations, as well as the validity of work authorizations based upon Venezuela TPS, while the litigation is pending.
Delaware Policymakers Act to Enhance Deal Protection Devices and Liability Safe-Harbors and Limit Books and Records Inspections and Litigation Fees
On February 17, 2025, Delaware policymakers, including the governor and a group of bipartisan legislative leaders, took noteworthy steps to enhance transactional certainty and deal protection devices and decrease director, officer, and controlling stockholder liability and related litigation expenses and fees. First, in Senate Bill 21, the legislature has proposed amendments to the Delaware General Corporation Law (DGCL) that would increase protections for directors, officers, and controlling stockholders from fiduciary duty claims and liability when using certain cleansing procedures and decrease stockholders’ access to corporate books and records (Proposed Amendments). Second, in Senate Concurrent Resolution 17, the legislature has requested that the Council of the Corporation Law Section of the Delaware State Bar Association (Council) prepare a report with recommendations for legislative action regarding incentives and caps related to fees granted by the Delaware courts to attorneys representing plaintiff-stockholders (Requested Report). Although the Proposed Amendments remain subject to approval by the Delaware legislature and governor, they are immediately relevant to all companies and investors, and particularly those considering whether to incorporate or remain in Delaware. Overview of the Proposed Amendments
The Proposed Amendments would significantly modify Sections 144 and 220 of the DGCL. These changes are intended to counteract case law developments in the Delaware litigation and transactional landscape over the past decade and provide all stakeholders with greater clarity and transactional certainty going forward. Specifically, amended Section 144 would codify variations on the deal protection devices used for cleansing breach of fiduciary duty claims by approval of disinterested stockholders (under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), in the absence of a conflicted controlling stockholder transaction) and by approval of both an independent director committee and unaffiliated stockholders (under Kahn v. M & F Worldwide Corp., 88 A.3d 635 (2014), as a conflicted controlling stockholder transaction). Amended Section 220 would largely restrict the inspection of records other than specified formal corporate records. Each of these topics has figured prominently in the recent discourse regarding Delaware’s prominence as a corporate home and source of corporate law and the possibility of a shift toward other jurisdictions. Delaware now appears poised to quickly respond to that discourse by adopting the state-of-the-art Proposed Amendments which will offer corporate constituents unparalleled clarity and transactional certainty moving forward.
Proposed Amendments to Section 144
Section 144 currently provides a limited safe harbor from voidness of interested transactions. The Proposed Amendments to Section 144 would prevent equitable relief, damages, or other sanctions against directors, officers, and controlling stockholders in conflicted transactions under certain circumstances. Amended Section 144 offers cleansing of fiduciary duty claims and liability in three different scenarios: (1) conflicted transactions without a conflicted controlling stockholder (Non-Controller Transactions); (2) conflicted controlling stockholder transactions other than a going-private transaction (Controller Transaction); and (3) conflicted controlling stockholder going-private transaction (Going Private Transaction).
Similar to Corwin and MFW, amended Section 144 would permit fiduciary duty claims related to Non-Controller Transactions to be cleansed by disinterested stockholder approval, while fiduciary duty claims related to Going Private Transactions would require approval by both an independent director committee and disinterested stockholders. In a noteworthy shift, under amended Section 144, claims and liability related to Controller Transactions could be cleansed by disinterested director or independent committee approval instead of both. However, in another notable shift, the requirements for utilizing these deal protection devices under amended Section 144 would be less stringent than under existing law in a few important ways, including that under amended Section 144, (i) a cleansing procedure need not be in place from the outset, (ii) disinterested stockholder approval is determined on a votes cast basis, (iii) an independent committee must only be majority composed by independent directors, (iv) the independence of public company directors is presumably satisfied by applicable stock exchange standards, and (v) Controller Transactions may be cleansed by only one of disinterested stockholder or independent committee approval. Amended Section 144 would also address the critical threshold matter of how a controlling stockholder is defined, by prescribing a standard that is higher and narrower than at Delaware common law, requiring either majority voting power, or one-third voting power in director elections and power to exercise managerial authority over the corporation.
Proposed Amendments to Section 220
Section 220 currently provides stockholders with rights to demand inspection of corporate books and records related to a proper purpose as a stockholder and the right to petition the Delaware Court of Chancery to compel such an inspection based on a credible basis for the inspection. As amended, Section 220 would retain that general framework but would generally limit inspections to specified formal books and records and restrict the stockholder’s ability to obtain redress from the court. Amended Section 220 would also prevent the court from ordering inspection of other corporate records such as informal records and director texts and emails, unless the corporation failed to maintain stockholder meeting minutes and consents for the past three years, board meeting minutes and actions, and financial statements for the past three years (and, if the corporation has publicly listed stock, director and officer independence questionnaires). Amended Section 220 would also increase the standards applicable to an inspection petition, by requiring (i) the books and records to be specifically related to the purpose and (ii) the stockholder to describe its purpose and the demanded books and records with reasonable particularity. By limiting the scope of books and records available for inspection under Section 220, the Proposed Amendments would also clarify and generally limit the books and records available pursuant to a director’s inspection demand.
Requested Report regarding Litigation Fees
In the Requested Report, the legislature has asked the Council to report on potentially appropriate legislative action regarding attorneys’ fees in litigation, expressly including incentives and caps on those fees. The legislature’s request acknowledges the difficulty and importance of striking the right balance in this sensitive area, while suggesting that the legislature may be inclined to impose limits on corporate litigation fees. This is a topic that has also factored into the discourse over whether companies intend to remain incorporated in Delaware. Although the Proposed Amendments were not subjected to the Council’s drafting and review process which has applied as a matter of course to DGCL amendments for more than 50 years, the Requested Report may indicate the legislature’s desire for this matter to run the Council’s typical gamut involving law firms spanning the spectrum of clients and interests. If the Requested Report does lead to legislative caps on attorneys’ fees in corporate litigation, then that would add to the insulating effect of the Proposed Amendments and further reduce companies’ exposure to litigation expenses.
Outlook
Delaware has responded to critics aggressively in a way that may have lasting effects on the corporate, M&A, and litigation landscape. We view these legislative actions as important developments for any board, management team, or investor and in any conversation regarding whether to incorporate, remain, or invest in Delaware or another jurisdiction. At a minimum, the Proposed Amendments would clarify a path forward for recordkeeping and conflict transaction authorization, while emphasizing the benefits of good corporate hygiene, the inclusion of independent directors, and the presence of empowered board committees. From the perspective of the corporate franchise, this demonstrates Delaware’s commitment to flexibility, an enabling corporate statute, responsiveness to corporate constituents, and legal certainty, and these are all factors that have been identified as key elements in the conversation over Delaware’s continued global leadership in corporate law. However, the Proposed Amendments and the Requested Report are not yet law; we anticipate that the precise implications will continue to play out over the coming months and years and will be monitoring for further developments.
View Senate Bill 21
View Senate Concurrent Resolution 17
Commercial Agents Regulations: Here to Stay
In October 2024 we reported on the case of Kompakwerk GmbH v Liveperson Netherlands B.V. [CL-2018-000802] which concerned the question of whether an agent selling access to end users in Great Britain to a third-party software as a service (SaaS) product should be considered an agent for the purposes of the Commercial Agents (Council Directive) Regulations 1993 (the Regulations). For the reasons set out in our post on that case, the Court decided that the agent did not.
As further detailed in that earlier report, in Great Britain the Regulations protect both individual self-employed agents and companies who act as agents and sell goods (but not services) on the behalf of another (their Principal). The Regulations are generally favourable towards agents providing many protections, most of which cannot be contracted out of (even by agreement) whilst an agency arrangement remains in place. A key protection for agents is the right to claim a potentially significant compensation payment from their Principal in most termination scenarios.
As noted in that earlier report, at the time of this case a government consultation, begun under the previous Conservative government, was ongoing to consider whether to bring forward new legislation to stop the Regulations from applying to new agency contracts in Great Britain.
The outcome of that consultation was published on 13 February 2025 and perhaps unsurprisingly the new Labour government has decided not to proceed with this proposal meaning that the Regulations will be retained in their current form without amendment and will continue to apply to new agency contracts in Great Britain which meet the existing criteria under the Regulations.
An interesting footnote to this response is that of the 86 respondents to this consultation only seven were Principals with the vast majority of respondents being agents understandably keen to retain the Regulations in their current form. Whilst a few Principals did comment that the Regulations did not allow for contracts to be freely negotiated between an agent and principal, there was not considered to be a sufficiently large body of evidence to suggest that was a major issue with a strong case for change.
This shows the importance for interested parties to take the time to respond to consultations such as this to influence future change and regulation – a timely reminder for both AI developers and copyright holders that the deadline for providing responses to the government’s current consultation on potential changes to UK copyright law for AI training purposes closes next week.