Guess Who’s Back? That’s Right – the CTA
Reporting Companies Are Now Required to Comply with the CTA by March 21, 2025
The U.S. District Court for the Eastern District of Texas lifted the stay on enforcement of the Corporate Transparency Act’s reporting requirements with its February 18, 2025, decision in Smith, et al. v. U.S. Department of the Treasury, et al.
As a result, BOI reporting is again mandatory.
As of the date of this alert, the new deadline for (a) reporting companies formed prior to January 1, 2024, to file an initial report and (b) all other reporting companies to file updated and/or corrected BOI reports is now March 21, 2025. However, if FinCEN previously gave a deadline later than March 21, 2025, to a reporting company (e.g., a disaster relief extension until April 2025), the later deadline continues to apply to that reporting company.
In FinCEN’s February 18, 2025 notice (available here: Beneficial Ownership Information Reporting | FinCEN.gov), it acknowledges that it may provide further guidance on reporting requirements prior to March 21, 2025, and as a result reporting companies may be granted additional time to comply with their BOI reporting obligations once this update (if any) is provided.
If you have been following our guidance to date, you have already gathered your BOI and should be able to file prior to March 21, 2025. If you still need assistance determining if your company is a “reporting company” or if you are required to report BOI, please reach out to your Bradley contact as soon as possible.
Legislative Note: The House of Representatives recently passed the “Protect Small Businesses from Excessive Paperwork Act,” which provides in part for an extension of the CTA reporting deadline until January 1, 2026, for reporting companies formed prior to January 1, 2024. That bill is now in committee in the Senate.
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The Supreme Court Gears Up to Resolve Circuit Split on Class Injury Requirements
On January 24, 2025, the Supreme Court granted certiorari in Laboratory Corp. of America v. Davis, No. 24-0304, which may result in the resolution of a long-standing circuit split on a dispute key to class certification. In its petition for writ of certiorari, petitioner Labcorp sought Supreme Court review of an issue that has divided federal circuit courts: what should courts do when a putative class contains numerous members who lack any Article III injury?
The underlying class action was filed against Labcorp, a leading clinical diagnostic laboratory, alleging that Labcorp’s self-service check-in kiosks, which are not independently accessible to blind individuals, violate the Americans with Disabilities Act (ADA) and California’s Unruh Act. The standing issue concerned how many members of the class were actually injured—Labcorp presented evidence that a significant percentage of visually-impaired patients were either unaware of or did not intend to use the self-service kiosks, preferring to check in with the front desk. Despite these standing issues, and applying existing Ninth Circuit law, the district court in the underlying action certified the class and the Ninth Circuit affirmed.
In its petition for certiorari, Labcorp identified three Circuit blocs that answer the question of absent class member injury in different ways: (1) “the Article III Circuits,” which deny class certification where the class includes members who have suffered no Article III injury; (2) “the De Minimis Circuits,” which apply Federal Rule of Civil Procedure 23(b)(3) and not Article III to reject classes where there are more than a de minimis number of uninjured members; and (3) “the Back-End Circuits” (including the Ninth Circuit), which do not deny class certification based on Article III issues with uninjured class members and only deny class certification under Rule 23(b)(3) if the class contains a large number of uninjured members.
The Supreme Court granted certiorari on the question: “Whether a federal court may certify a class action pursuant to Federal Rule of Civil Procedure 23(b)(3) when some members of the proposed class lack any Article III injury.” Notably, both the district court and Ninth Circuit’s decisions were unpublished. This suggests that the Court is likely poised to address the Circuit split and provide a definitive answer to the question whether any or many uninjured class members may be encompassed within a class in at the time of class certification. An answer restricting class certification to those who suffered harm from the alleged legal violation would be a game-changer for defendants facing lawsuits challenging practices that affect few people but present large potential exposure—such as those under the ADA and those concerning labels on consumer products that do not drive consumer purchasing decisions.
Nevada Bill Would Impose A Duty That Directors Be Informed
As I and others have pointed out, Nevada leans heavily on its statutes when it comes to corporate governance. Currently, NRS 78.135 provides:
The fiduciary duties of directors and officers are to exercise their respective powers in good faith and with a view to the interests of the corporation.
The analogous provision of the California General Corporation Law provides:
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
Cal. Corp. Code § 309(a). Neither statute specifically requires that a director act on an informed basis. But application of the business judgment rule in California likely requires that directors act on an informed basis. See Palm Springs Villas II Homeowners Ass’n, Inc. v. Parth, 248 Cal. App. 4th 268, 286 (2016) (“Permitting directors to remain ignorant and to rely on their uninformed beliefs to obtain summary judgment would gut the reasonable diligence element of the rule and, quite possibly, incentivize directors to remain ignorant.”). It is more debatable that Nevada’s “good faith” requires a director to act on an informed basis. After all, even an ignorant person might be considered to act in good faith if he or she has an honesty of intention.
The Nevada Legislature is now considering an amendment to NRS 78.135 to add “on an informed basis” after “in good faith”. Delaware Supreme Court Justice Henry Ridgely Horsey (the author of Smith v. Van Gorkum, 488 A.2d 858 (Del. 1985). The bill, AB 239, would make numerous other changes to Nevada’s corporate laws and I hope to cover at least some of these in future posts.
FinCEN Resumes Corporate Transparency Act Enforcement
The last remaining nationwide injunction prohibiting enforcement of the Corporate Transparency Act (CTA) has been stayed, clearing the way for the federal government to resume enforcing the CTA.
In the case of Smith, et al. v. U.S. Department of the Treasury, District Court Judge Jeremy Kernodle stated that, in light of the Supreme Court’s recent order in the Texas Top Cop Shop litigation, he would stay his previously issued nationwide injunction pending disposition of the matters on appeal.
As a result of Judge Kernodle’s order, the federal government may proceed to enforce the CTA and FinCEN intends to do so, stating that “beneficial ownership information (BOI) reporting obligations are once again back in effect.”
FinCEN also extended the reporting deadline for most companies.
For the vast majority of reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is now March 21, 2025. 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 example, if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it should follow the April deadline, not the March deadline.
Further adjustments to reporting deadlines and obligations could occur. FinCEN stated that, during the current thirty-day extension period, it will “assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.” FinCEN further stated that it “intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.” Litigation in the Texas Top Cop Shop and Smith v. Treasury cases is ongoing and the plaintiffs in these cases could prevail on their claims.
Because the CTA is back in effect, reporting companies should be prepared to file their BOI reports by March 21, 2025. Reporting companies that have already filed their initial beneficial ownership reports should review those reports to determine if they need to submit updated filings (e.g., because the previously reported information has changed).
Given the possibility of further extensions being granted before March 21, 2025, reporting companies may want to refrain from submitting their BOI reports until a date that is closer to the applicable reporting deadline.
Risky Business: Distressed Companies and Payments in the Shadow of Bankruptcy
Doing business with a customer in the shadow of bankruptcy is risky.
A hallmark of bankruptcy law is equal treatment of similarly-situated creditors. The Bankruptcy Code frowns upon a debtor who, while insolvent, pays some creditors but not others in the run-up to bankruptcy – whether voluntarily or due to pressure. Under the Bankruptcy Code, payments by an insolvent debtor to creditors in the 90 days before bankruptcy, on account of an antecedent debt, are presumptively avoidable. That means if you get one of these “preference payments,” you may be forced to return it.
There are, however, defenses to a preference payment, one of which is the “ordinary course of business” defense. A recent decision from a bankruptcy court in Delaware provides an illuminating case study on behavior that will and won’t be considered “ordinary course.” In doing so, it educates companies on best practices in dealing with a customer headed towards bankruptcy and suggests the likelihood that a bankruptcy court would order you to disgorge preference payments you received.
The Delaware case involved Fred’s, a chain of retail stores like Dollar General. C.H. Robinson provided transportation and logistics to Fred’s under a $3 million credit line. Fred’s was required to pay invoices within 30 days. When Fred’s started closing stores and struggling to make payments, C.H. Robinson tightened the credit terms by reducing the credit line to $1.75 million and then $1 million. C.H. Robinson also warned Fred’s that it would not ship Fred’s product if Fred’s did not pay to catch-up on past-due invoices. C.H. Robinson also threatened to reduce the credit terms to a 14-day payment on invoices.
Fred’s ultimately filed bankruptcy and confirmed a liquidating plan. The court-appointed liquidating trustee sued C.H. Robinson to recover 15 payments totaling over $3.4 million it received from Fred’s during the 90-day preference period.
In defense, C.H. Robinson raised the “ordinary course” defense. They argued that it was standard practice in the transportation and logistics industry to tighten credit limits based on changes in a client’s financial status and predicted future performance, so any payments resulting from that tightening were in the “ordinary course of business.”
The Bankruptcy Code requires the recipient of a preference payment to show that the debt itself was incurred in the ordinary course of the business of both parties and that the payment of that debt was (a) made in the ordinary course of the business of both parties (what is sometimes described as the “subjective” test) or (b) made according to ordinary business terms (the “objective” test). The phrase “ordinary business terms” in the objective test looks to the general norms of the creditor’s industry.
The Court stressed that “ordinary course” and “ordinary business terms” mean conduct that is ordinary when dealing with a healthy company. “Ordinary course” does not apply to how either the defendant or the industry treats a distressed company. Thus, preference payments made under a payment plan are not “ordinary course,” nor are payments resulting from pressure tactics. The relevant yardstick is a healthy debtor, not a distressed one.
The upshot is that “ordinary course” means business as usual. A distressed debtor can pay you the way they always paid you. But if the distressed debtor singles you out as special among all his creditors and brings your past-due obligation current before bankruptcy, it might not be ordinary course. And if you resorted to a demand letter, threat, workout agreement, or full nelson to get the distressed debtor to cough up his payments, then it’s probably not ordinary course.
Doing business with a distressed debtor can pose a dilemma for companies. When faced with this situation, seek all the financial information you can get your hands on to understand the debtor’s situation. Continuing to provide the debtor credit or goods and services under ordinary terms may save it from bankruptcy. And if they stop paying you, you can do everything allowed under your contract to collect. But you need to be prepared for a preference claim if the debtor files bankruptcy.
The Boundaries of Chapter 93A
The scope of Chapter 93A is not unlimited, as the Appeals Court of Massachusetts recently confirmed in Beaudoin v. Massachusetts School of Law at Andover, Inc. The case involved a law student who was disenrolled from the school for not obtaining a COVID-19 vaccination, contrary to what he alleged were the school’s representations. He brought claims for breach of contract, promissory estoppel, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, Chapter 93A, and unjust enrichment. The trial court dismissed the complaint under Mass. R. Civ. P. 12(b)(6) for failure to state a claim.
The Appeals Court affirmed the dismissal of the Chapter 93A claim, noting that (i) Chapter 93A, Section 2 prohibits unlawful acts and practices occurring “in the conduct of any trade or commerce” and (ii) although charitable corporations “are not immune” from Chapter 93A’s reach, in most cases, a charitable corporate’s activities in furtherance of its core mission will not be engaged in “trade or commerce” under Section 2. This decision relies on the Supreme Judicial Court’s oft-quoted decision in Linkage Corporation v. Boston Univ. Trustees (1997) and the First Circuit’s Squeri v. Mount Ida Coll. (2020). As the law student’s Chapter 93A claims focused on the alleged unfair and deceptive recruiting of students to enroll at the school, the claims arose from the nonprofit law school’s provision of education to students and, as such, the challenged acts and practices did not fall into “the conduct of any trade or commerce.” The Appeals Court, however, reversed the Trial Court’s dismissal of various common law claims.
This case demonstrates that plaintiffs and defendants alike must always consider whether challenged conduct under Chapter 93A fits the definitions required to trigger coverage and whether adding a Chapter 93A count is appropriate or will cause initial dispositive motion practice.
Important Update – Corporate Transparency Act Filing Obligations Reinstated and Mandatory
CTA filings are obligatory again. Most reporting companies have until March 21, 2025 to complete their filings. If you adopted a wait-and-see posture in regard to making your CTA BOIR filings, the wait is unfortunately over.
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Since December 2024, the CTA has been subject to nationwide injunctions (which have prohibited FinCEN’s enforcement of the CTA’s filing deadlines). Such deadlines are divided into two primary parts: the filing deadline for (i) reporting companies that were in existence prior to 1/1/2024 (“Pre-‘24 Companies”) and (ii) reporting companies formed on or after 1/1/2024 (“New Companies”).
Because the last of the injunctions (in Smith v Treasury in the 5th Circuit) has now been put on hold, FinCEN may immediately begin enforcing the CTA filing deadlines again, including for Pre-‘24 Companies.
In response to the Smith v Treasury ruling, FinCEN announced on February 19, 2025 the following:
With the February 18, 2025, decision by 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.), beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are once again back in effect. However, because the Department of the Treasury (Treasury) recognizes that reporting companies may need additional time to comply with their BOI reporting obligations, FinCEN is generally extending the deadline 30 calendar days from February 19, 2025, for most companies.
Notably, in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.
FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.
FinCEN then stated specifically with regard to the current CTA reporting deadlines:
For the vast majority of reporting companies, the new deadline to file an initial, updated and/ or corrected BOI report is now March 21, 2025. FinCEN will provide an update before then of any further modification of this deadline, recognizing that reporting companies may need additional time to comply with their BOI reporting obligations once this update is provided.
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 example, if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it should follow the April deadline, not the March deadline.
As indicated in the alert titled “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)”, Plaintiffs in National Small Business United v. Yellen, No. 5:22-cv01448 (N.D. Ala.)—namely, Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)—are not currently required to report their beneficial ownership information to FinCEN at this time.
As a result:
All Pre-‘24 Companies (entities formed prior to 1/1/2024) are required to complete their initial filing by March 21, 2025. Note that the Pre-’24 Companies originally had a 1/1/2025 filing deadline, prior to the court actions.
All New Companies (entities formed on or after 1/1/2024) are required to complete their initial filing by March 21, 2025.
Additional Information:
Courts: While there are ongoing court proceedings that could impact the CTA in the future, there are no currently applicable injunctions (and no additional court rulings are anticipated that would alter the deadlines above). The injunctions that were recently effective were preliminary injunctions (i.e., they were issued before the courts had ruled on the merits of the cases) and courts, including the U.S. Supreme Court, have indicated that a preliminary injunction is not appropriate in this case. Courts have split as to whether or not they find the CTA to be “constitutional” (or, whether they presume the CTA to be “constitutional” in cases where a finding has not yet been made). To date, multiple courts in the 1st Circuit, 4th Circuit and 9th Circuit have issued rulings favorable to the CTA and its constitutionality, and multiple courts in the 5th Circuit and 11th Circuit have issued rulings against the constitutionality of the CTA.
Administration: While the new Administration has not made public statements regarding its intention for the CTA, and it could always change its tact, it has thus far supported the CTA in CTA related cases through recent court filings and the above FinCEN pronouncement.
Congress: The U.S. House of Representatives, on February 11, 2025, by a vote of 408 – 0, approved a bill to extend the BOIR filing deadline for only Pre-‘24 Companies to January 1, 2026. This bill has not been passed by the Senate, and, as drafted, would only delay a portion of the filings due under the CTA, and would not impact the filing obligations of New Companies.
The Intellectual Property Enterprise Court
In the UK, intellectual property (IP) infringement claims and other disputes in which IP is a major concern can be brought in either the High Court or in many cases the specialist Intellectual Property Enterprise Court (IPEC). Based at the Rolls Building in central London, the IPEC has a more streamlined procedure than the High Court and employs a full-time specialist IP judge (currently Judge Hacon) and a number of specialist deputy judges, which aids the development of a consistent approach to cases that can often cost less than in the High Court.
Is IPEC Suitable for a Claim?
The IPEC can hear all types of IP disputes, including IP infringement claims along with other disputes in which IP is a major concern. Importantly, the court has the power to award all of the same remedies available in the High Court (interim injunctions, damages, delivery up etc.). Examples of the types of cases which have previously been heard in the IPEC include: IP infringement claims, amendments of patents, compensation for employees in respect of patented inventions created by them and claims relating to a breach of confidentiality including misuse of trade secrets.
However, limitations are placed on the value of claims which can be heard by the IPEC as it offers either a small claims track for low value disputes (where the amount in dispute is £10,000 or less) or a multitrack option for claims valued between £10,000 to £500,000, meaning that any claim above £500,000 must be brought in the High Court.
A number of procedural restrictions also apply for IPEC claims. As such, in practice the IPEC is generally best-placed to hear less complex IP disputes that do not involve very complex legal or fact heavy disputes as these restrictions include:
IPEC trials should last for two days or less (and in practice many cases are heard in a single day).
The default position is that there is no disclosure of documents as part of an IPEC trial unless IPEC orders that; however, IPEC may order the disclosure of “adverse” documents known by the parties to an IP dispute.
IPEC has strict controls regarding the cross-examination of witnesses, which is only permitted on topics which the judge deems necessary.
Orders for recovery of legal costs are capped at £60,000 meaning that the losing party will only ever have to pay the other party’s costs up to £60,000 (excluding court fees and wasted costs orders).
Whilst an important benefit of the streamlined IPEC procedure is improved access to justice for small and medium sized companies involved in IP disputes, it is important to remember that access to the IPEC is not limited only to small and medium-sized companies and is available to all claimants regardless of size. As such, at the outset of any IP dispute claimants should always consider whether the IPEC as opposed to the High Court may be the most suitable forum. For more details of IPEC click here.
This Week in 340B: February 11 – 17, 2025
Find this week’s updates on 340B litigation to help you stay in the know on how 340B cases are developing across the country. Each week we comb through the dockets of more than 50 340B cases to provide you with a quick summary of relevant updates from the prior week in this industry-shaping body of litigation.
Issues at Stake: Contract Pharmacy; Medicare Payment; Rebate Model
In a case challenging a proposed state law governing contract pharmacy arrangements in Missouri, the court granted in part and denied in part defendant’s and intervenor’s separate motions to dismiss.
In a breach of contract claim filed by a 340B covered entity against several related party Medicare Advantage plans, defendants filed a reply in support of their motion to compel plaintiff’s claims spreadsheets.
In five cases against the Health Resources and Services Administration (HRSA) alleging that HRSA unlawfully refused to approve drug manufacturers’ proposed rebate models:
Five amicus briefs were filed in support of the drug manufacturer.
In four such cases, drug manufacturers filed a joint position statement on consolidation.
In one such case, a drug manufacturer filed a notice of opposition to consolidation and memorandum in opposition to intervenors.
In one such case, the government filed a position statement in support of consolidation.
Kelsey Reinhardt and Nadine Tejadilla also contributed to this article.
Personal Jurisdiction Considerations for International Biosimilars Companies
The Federal Circuit recently issued decisions in a pair of appeals that provide guidance about when international filers of abbreviated Biologics License Applications (aBLAs) are subject to jurisdiction in the United States. Specifically, the Federal Circuit held that international biosimilars companies are subject to jurisdiction in the United States when they have submitted an aBLA with the intent to market the finished product in the forum state.
1. Regeneron’s Patent Infringement Lawsuits
The plaintiff in each case is Regeneron Pharmaceuticals, Inc., which holds Biologics License Application (BLA) No. 125387 for EYELEA®, which is approved by the U.S. Food and Drug Administration (FDA) for the treatment of patients with angiogenic eye diseases—Wet Age-Related Macular Degeneration (AMD), Macular Edema following Retinal Vein Occlusion (RVO), Diabetic Macular Edema (DME) and Diabetic Retinopathy (DR)—via injection into the body of the eye.
Regeneron sued several companies, including Samsung Bioepis Co., Ltd. (SB) and Formycon AG (Formycon), that had filed aBLAs with the FDA seeking approval under the Biologics Price Competition and Innovation Act (BPCIA) to market EYLEA® biosimilars. The cases were consolidated in the U.S. District for the Northern District of West Virginia and the district issued preliminary injunctions against SB and Formycon, barring them from offering for sale or selling the products described in their aBLAs, which have been approved by the FDA. SB appealed the preliminary injunction on several grounds, including that they were not subject to personal jurisdiction, which is the focus of this article.
2. SB’s Connections to the United States
SB is a biosimilar-products company headquartered in Incheon, South Korea. SB argued it has no facilities or employees in the United States; is not registered to do business and has no registered agent in West Virginia; and does not do business with entities in West Virginia. SB also argued that although it would sell its finished product to Biogen MA Inc. (a U.S. company) in a state other than West Virginia, it would not distribute, market or otherwise sell the product in the United States.
3. Formycon’s Connections to the United States
Formycon is a biopharmaceutical company based in Bavaria, Germany. Formycon argued that it has no “direct” ties to West Virginia; is not registered to do business and has no registered agent there; has no assets or employees there; and that it had contracted with manufacturers and packaging partners who would produce the finished product and related materials in other states. Formycon further argued that having developed the product pursuant to an agreement with another German company, it had no plans or rights to itself commercialize the product in the United States. Instead, the product would be sold to another company for marketing and distribution, and Formycon would have no control over the selection of that company or its decisions regarding commercialization.
4. The Federal Circuit’s Jurisdiction Analysis
When evaluating if a defendant is subject to personal jurisdiction in the forum of a particular state, the court looks to (1) whether the state’s long-arm statute permits service of process and (2) whether the assertion of jurisdiction would be inconsistent with due process under the U.S. Constitution. In many states, including West Virginia, the long-arm statutes are “coextensive with the full reach of due process,” so the questions collapse into one constitutional inquiry.
Under the U.S. Constitution, a court in a state may exercise jurisdiction over a defendant that has sufficient “minimum contacts” with the state that it would not “offend traditional notions of fair play and substantial justice.” This standard requires that the defendant’s suit-related conduct create a “substantial connection” with the forum state. The application of the standard in these cases is not necessarily straightforward because patent infringement cases based on an aBLA filing are not easily analogized to other types of actions or even traditional patent infringement cases.
The Federal Circuit, therefore, relied on its precedent in Acorda Therapeutics Inc. v. Mylan Pharmaceuticals Inc., 817 F.3d 755 (Fed. Cir. 2016), which considered the jurisdictional question in the context of a suit arising out of the filing of an Abbreviated New Drug Application (ANDA). In Acorda, the court had held that “minimum contacts” were satisfied by planned future interactions with the state. The submission of an ANDA with the intent to distribute the generic product in a state was held sufficient to support exercising jurisdiction.
Extending Acorda to aBLA cases, the Federal Circuit found similar evidence of conduct sufficient to exercise jurisdiction. Specifically as to SB, the court observed that SB had filed an aBLA; had served Regeneron with a Notice of Commercial Marketing, which communicates an intent to market upon FDA approval; had engaged various partners within the United States; and had entered into a nationwide distribution agreement with a U.S. company, through which SB retained “significant involvement” in commercialization activities.
Notwithstanding the apparent differences in involvement in commercialization activities, the Federal Circuit also found that Formycon intended to market the finished product in West Virginia and other states. As with SB, the court relied on Formycon’s filing of the aBLA, service of Notice of Commercial Marketing, and partnering with U.S. companies to manufacture, package and label its product. Although it had not yet entered into an agreement with a marketing partner, the court found Formycon intended to ultimately distribute the finished product nationwide.
Thus, filing an aBLA, providing Notice of Commercial Marketing, and having more than speculative plans to market the finished product throughout the United States appears sufficient to subject an international biosimilar company to jurisdiction in any state having a long-arm statute coextensive with the U.S. Constitution. The stronger the relationship to commercialization plans, the stronger the argument will be for jurisdiction, although these factors appear to primarily support a finding of jurisdiction as opposed to playing a significant role in the analysis in the first instance.
5. Guidance for International Biosimilars Companies
International biosimilars companies that file aBLAs in the United States with plans to market the finished product should expect a high likelihood of being subject to jurisdiction for related patent infringement cases. Some steps may mitigate the risk, however, and increase the likelihood of avoiding jurisdiction:
Reduce contact with the United States as much as possible. For example, perform all development, sourcing, manufacturing, packaging and labeling outside the United States.
Introduce layers between the aBLA filer and the ultimate marketer. For example, the aBLA filer may contract with other international companies that, in turn, independently contract with a marketing partner in the United States. If the agreement between the aBLA filer and the second international company is not limited to marketing rights in the United States, that may further help.
Carve out particular states. If there are states in which the international biosimilar company does not want to be subject to jurisdiction, expressly exclude those states from commercialization agreements.
These and other factors can significantly affect whether a company is ultimately subject to jurisdiction in the United States, and similar considerations may affect other partners in the international supply chain.
Beware Broader Insurance Coverage Exclusions for Biometric Information Privacy Law Claims
It has been nearly two decades since Illinois introduced the first biometric information privacy law in the country in 2008, the Illinois Biometric Information Privacy Act (“BIPA”). Since then, litigation relating to biometric information privacy laws has mushroomed, and the insurance industry has responded with increasingly broad exclusions for claims stemming from the litigation. A recent Illinois Appellate Court decision in Ohio Security Ins. Co. and the Ohio Cas. Ins. Co. v. Wexford Home Corp., 2024 IL App (1st) 232311-U, demonstrates this ongoing evolution.
The plaintiff in a putative class action lawsuit sued Wexford Home Corporation (“Wexford”), alleging that Wexford violated BIPA by collecting, recording, storing, sharing and discussing its employees’ biometric information without complying with BIPA’s statutory disclosure limitations. Wexford tendered the putative class action lawsuit to its insurers, Ohio Security Insurance Company and Ohio Casualty Insurance Company, both of which denied coverage and filed a declaratory judgment action seeking a ruling that the insurers had no duty to defend or indemnify Wexford.
The insurers argued that there was no duty to defend or indemnify based on three exclusions: (1) the “Recording And Distribution Of Material Or Information In Violation Of Law” exclusion (“Recording and Distribution Exclusion”), (2) the “Exclusion-Access Or Disclosure Of Confidential And Data-Related Liability-With Limited Bodily Injury Exception,” and (3) the “Employment-Related Practices Exclusion.”
The parties cross-moved for judgment on the pleadings, and the trial court granted judgment for Wexford, finding that the insurers owed a defense. The trial court reasoned that publication of material that violates a person’s right to privacy met the policies’ definition of personal and advertising injury, and therefore no exclusions applied to bar coverage. The insurers appealed. Although the insurers did not challenge the trial court’s ruling that the alleged BIPA claims qualified as personal or advertising injury sufficient to trigger coverage, they maintained that the trial court erred by not applying the three exclusions.
On appeal, the court focused on the Recording and Distribution Exclusion, which purports to bar coverage where the personal or advertising injury arises from the violation of any of three enumerated statutes (TCPA, CAN-SPAM Act, and FCRA) or any other statute that falls within a broad “catch all” provision that expands the exclusion to include violations of “[a]ny federal, state or local statute, ordinance or regulations other than the [three enumerated statutes] that addresses, prohibits, or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information.”
The court relied on its earlier decision, National Fire Ins. Co. of Hartford and Cont’l Ins. Co. v. Visual Park Co., Inc., 2023 IL App (1st) 221160, in which it found an identical Recording and Distribution Exclusion to bar coverage for BIPA claims. That decision, however, represented a departure from earlier decisions that found similar catchall provisions did not encompass BIPA claims. For example, in W. Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978, 183 N.E.3d 47 (May 20, 2021), the same appellate court that decided Visual Park explained that the interpretive canon of ejusdem generis (which requires that general words following an enumeration of specific persons or things are deemed to apply only to persons or things of the same general kind or class of the specifically enumerated persons or things) required a finding that a similar catchall exclusion would be afforded limited reach and not extend to BIPA claims. In the Visual Park case, on the other hand, the appellate court concluded that a catchall provision like the one in Wexford was materially different and broader than prior versions of the exclusion. According to the Visual Park court, the exclusion’s reference to “disposal,” “collecting,” or “recording” of material or information sufficiently encompassed BIPA violations, whereas prior versions apparently did not. The appellate court again applied the interpretive canon of ejusdem generis to reach conclusions about the exclusion’s intended reach. The court reasoned that because the specifically enumerated statutes in the Recording and Distribution Exclusion protected personal information and privacy, the general catchall must have been intended to do so as well.
As Wexford, Visual Park, and the pre-Visual Park decisions illustrate, insurers are broadening the scope of exclusions that potentially apply to BIPA-related claims. Policyholders should carefully review their policies annually to identify changes in wording that might have a material impact on the scope of coverage. Experienced brokers and coverage counsel can help to ensure that material changes are identified early and, where appropriate, modified or deleted by endorsement.
False Claims Act Liability Based on a DEI Program? Let’s Think It Through.
One of the more attention-grabbing aspects of Executive Order (“EO”) 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” is the specter of False Claims Act (“FCA”) liability for federal contractors based on their Diversity, Equity, and Inclusion (“DEI”) programs. Many workplace DEI programs have been viewed as a complement to federal anti-discrimination law—a tool for reducing the risk of discrimination lawsuits. The new administration, however, views DEI programs as a potential source of discrimination. EO 14173 proclaims that “critical and influential institutions of American society . . . have adopted and actively use dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called ‘diversity, equity, and inclusion’ (DEI) or ‘diversity, equity, inclusion, and accessibility’ (DEIA) that can violate the civil-rights laws of this Nation.” To counteract this potential “illegal” use of DEI programs, the Trump administration is leveraging the FCA, a powerful anti-fraud statute, to enforce its policy within the federal government contractor community.
We discuss below the framework of the FCA, how it might apply to federal contractor DEI programs under the administration’s orders, and potential hurdles the government may face in pursuing FCA claims based on a contractor’s allegedly illegal DEI program. We recommend steps contractors can take to mitigate potential FCA risks when evaluating their own DEI programs.
How Does the False Claims Act Work?
The FCA creates civil monetary liability for those who submit to the government (1) a false or misleading claim or statement, (2) while knowing that the claim was false, and where (3) the false claim or statement is material to the government’s payment decision.
The courts have recognized a number of circumstances that can give rise to FCA liability. As relevant to EO 14173, the government might assert that a contractor submits a “legally false” claim when it knowingly fails to comply with a contractual or legal requirement, even if the contractor otherwise performs the services or provides the goods that are the subject of the contract. This theory posits that the contractor “impliedly certifies” its compliance with a material term or requirement at the time it submits its claim for payment.[1]
The consequences of FCA liability can be significant. The statute allows the government to recover treble damages (i.e., three times the amount that the government was harmed), plus civil penalties that attach to each false or fraudulent claim.[2] Government contractors also may find themselves facing severe collateral consequences, as a finding of FCA liability often leads to suspension and debarment proceedings, which threaten the contractor’s eligibility for future federal awards.
One of the unique features of the FCA is its whistleblower provisions, which allow a private person (or company) to file an FCA lawsuit on behalf of the government. Such qui tam lawsuits are filed in court, but under seal—i.e., not available to the public—to allow the government to investigate the claims and decide whether to participate in the whistleblower’s claims. The FCA provides strong financial incentives to would-be qui tam plaintiffs, by allowing them to share in any recovery to the government, and to recover their attorney’s fees and costs incurred in bringing the action.
Whistleblower-initiated FCA activity is on the increase. Recent data shows that nearly 1,000 qui tam actions were filed in fiscal year 2024. Further, of the $2.9 billion that the government recovered through the FCA in 2024, more than $2.4 billion resulted from qui tam cases. Whistleblowers received more than $400 million through these recoveries.
How Might Federal Contractor DEI Programs Give Rise to FCA Liability?
EO 14173 requires every government agency to include in every contract or grant award a provision confirming that the contractor understands and agrees that “its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions,” for purposes of the FCA. Those agreements must also require contractors and grantees to certify that “it does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws.” By citing the FCA and specifically invoking the element of materiality requiring certification, EO 14173 signals that the administration intends to enforce its policies through the FCA.
Once a contractor provides the certification envisioned by EO 14173,[3] the potential exists for the government or a whistleblower to initiate an FCA action on the theory that the contractor’s DEI program violates federal anti-discrimination law. Some government contractors may think they should immediately abolish their DEI programs in order to neutralize the potential risk of costly FCA investigations and litigation. But as we explain below, actually winning an FCA case on the basis that the contractor’s DEI program violates applicable federal law will not be slam dunk.
What Are Some Potential Hurdles to Proving an FCA Violation Based on a DEI Program?
The plaintiff, whether the government or a whistleblower, bears the burden of proving each element of the alleged FCA violation. The elements of falsity, scienter, and materiality could each face obstacles of proof in establishing liability based on allegedly improper DEI program.
Falsity. To establish falsity, the government must show that the defendant contractor submitted a claim for payment to the government without disclosing that its DEI program violated federal anti-discrimination laws. The government may try to argue that some portion of the contractor’s DEI program is manifestly unlawful, but federal courts are divided as to whether contemporaneous, good faith differences in interpretation related to a disputed legal question (e.g., what constitutes “illegal DEI”) are “false” under the FCA. A number of courts require that an alleged statement or “implied certification” is objectively false.
Adding to the uncertainty here, neither the EO nor the versions of the contractor certification proposed so far define key terms such as “promoting,” “DEI,” and “illegal DEI.” The administration’s apparent view that certain DEI programs violate anti-discrimination statutes, such as Title VII of the Civil Rights Act, may not receive the deference that the courts once extended to the Executive Branch.[4]
Scienter. A false statement or certification is not actionable under the FCA unless the contractor “knew”—or at a minimum, recklessly disregarded—the falsity at the time its claim was submitted. A contractor’s honestly held, good faith belief in the truthfulness of its certification is a strong defense to liability.[5] Where contractors are required already to comply with federal anti-discrimination laws, it seems likely that they hold a good faith belief that their DEI programs are consistent with, and not contrary, to those laws. We expect that the government will face significant hurdles in proving that contractors “knowingly” engaged in “illegal” DEI programs.
Materiality. While EO 14173 expressly invokes materiality language in its anticipated contract and grant provisions, that alone is insufficient to establish the materiality element under the FCA. Indeed, the Supreme Court has held specifically that a contract provision or regulation requiring compliance as an express condition of payment is not dispositive on materiality.[6] Instead, establishing the materiality element under the FCA requires consideration of a variety of factors, including whether the government continued to pay the contractor’s claims in full, knowing that there were questions as to the legality of the contractor’s DEI program. Given the demanding standard required to establish materiality, contractors should not feel pressured to readily concede this element merely because the of a DEI certification in their contracts.
What Steps Should Federal Contractors Take to Reduce Their Risk?
Despite these likely obstacles to establishing FCA liability, EO 14173 will no doubt engender FCA investigations and whistleblower complaints in the upcoming months. To prepare for the new legal landscape, contractors should take the following precautions.
Conduct a Thorough, Privileged Analysis of All Aspects of the DEI Program
Contractors may think that abolishing their DEI program will erase the FCA risk. However, the government has cautioned that those who try to hide DEI activities by “misleadingly relabeling” them,[7] will still face scrutiny. Accordingly, FCA whistleblowers may be undeterred by the absence of a specific program called DEI, particularly if such an initiative existed previously.
To be clear, even under EO 14173, it is not illegal to have a DEI program. If a contractor has such a program, now is the time to undertake a comprehensive review to ensure that it comports with current anti-discrimination laws. There are several benefits to engaging counsel to conduct this review, even if the contractor believes its DEI program is lawful. First, evaluating the program through the more critical lens of the current administration can identify any aspects that should be amended to mitigate misunderstanding and risk. Second, engaging in such a review can help establish the contractor’s good faith belief in the truthfulness of its DEI certification. Third, the review can allow a contractor to explain to the government, if necessary, the legality and business value of each element of its DEI program.
Conduct a Privileged Assessment of Public-Facing DEI Messaging
Federal contractors also should undertake a privileged review of all public-facing DEI messaging and disclosures. These can appear in various places including on a company’s website, in its SEC filings, in recruiting materials, and on intranet platforms. Again, this evaluation can identify and mitigate the risk that any portion of the DEI program appears unlawful, even if it is not in practice or substance. Changes to descriptions of a company’s DEI program or its commitments to non-discrimination should be made in consultation with counsel and appropriate internal and external stakeholders, to avoid inadvertent legal admissions or the perception that a company has abandoned its previously stated commitment to compliance with the law.
Maintain Real-Time Awareness and Develop a Strategy Regarding the Certification
Agencies already have begun sending their own versions of a DEI certification to contractors as proposed bilateral modifications to existing contracts, often with a demand for a response within just a few days. For new contracts, the government may include the new certification in a portal with other representations and certifications that a contractor must complete in connection with maintaining eligibility or submitting proposals. It is critical to anticipate, identify, and be ready for the moment when a DEI certification becomes applicable to the contractor organization. Contractors should identify the person(s) within their organization likely to receive the certification requests and provide them with instructions and training on how to respond.
We also recommend consulting legal counsel in connection with making any proposed certification. Contractors may be able to present alternative responses to agency requests, rather than immediately agreeing to an ill-defined certification. For instance, the contractor might bring the ambiguities in the certification language to the attention of the Contracting Officer, while contemporaneously memorializing the basis for the contractor’s reasonable interpretation of the ambiguous certification to assist in the defense of a future FCA claim.
Do Not Retaliate Against Employees (or Anyone) Asking Questions About the Legality of the DEI Program
In the coming months, potential whistleblowers may be sizing up whether there is a possibility for an FCA action. In so doing, they may raise questions or concerns about a contractor’s DEI program. The FCA includes anti-retaliation provisions that can expose a company to an employment lawsuit, even if a substantive FCA violation cannot be established. Anticipating how to address questions about the DEI program (and documenting such exchanges) may help avoid potential legal challenges. Contractors should also confirm that employees have multiple, safe avenues to report, and provide managers and human resources professionals with guidance for responding appropriately.
Review and Consider Updates to Internal Company Policies on DEI
Contractors should consider whether to update internal policies to reflect that they contemporaneously reviewed the requirements of EO 14173 and made efforts to comply with its directives. For instance, internal policies could be amended to more clearly state that employment decisions are based on merit and not on protected characteristics. Policies could be developed that expressly disallow race or gender-based quotas, workforce balancing, required composition of hiring panels, diverse slate policies, or DEI training relying on stereotypes. Having recently updated policies that align with the new EO may provide greater protection in the event of a government investigation, particularly if contractors can demonstrate that these new policies are subject to an internal control schedule to test for compliance.
Conclusion
We anticipate the administration will seek to vigorously enforce the requirements of EO 14173. Indeed, the EO contemplates civil compliance investigations of numerous entities ranging from publicly traded corporations to institutions of higher education. Although contractors should remain vigilant about compliance, they should also keep in mind that FCA liability for an allegedly “illegal DEI” program is not a foregone conclusion, even in the face of a certification regarding materiality. The government (or whistleblower) must still establish an FCA violation on the specific facts at issue and likely will face challenges given the many ambiguities in the EO and in the certifications and provisions proposed to date. Even a meritless FCA suit quickly dismissed, though, is something contractors will want to avoid. Thus, it is critical to undertake steps to mitigate the risk of a qui tam action.
[1] The Supreme Court acknowledged the implied false certification theory of FCA liability in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016).
[2] 31 U.S.C. § 3729(a)(1).
[3] How the government will include this certification into all federal contracts is not yet clear. Some contractors have begun receiving proposed bilateral contract modifications with certification language (each slightly differently worded). For new contracts, the certification likely will appear on a portal along with other routine government contracts representations and certifications. It is also worth noting that, the ordered DEI certification should be subject to notice and comment rulemaking under the OFPP Act, 41 U.S.C. § 1707; yet the administration has paused rulemaking under a memorandum dated January 20, 2025 titled Regulatory Freeze Pending Review – The White House. Failure to engage in rulemaking could render the proposed DEI certifications unenforceable. See Navajo Ref. Co., L.P. v. United States, 58 Fed. Cl. 200, 209 (2003) (contract clause invalid because no notice and comment process occurred pursuant to the OFPP Act); La Gloria Oil & Gas Co. v. United States, 56 Fed. Cl. 211, 221–22 (2003) (same), abrogated on other grounds by Tesoro Hawaii Corp. v. United States, 405 F.3d 1339 (Fed. Cir. 2005).
[4] See Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 412-13 (2024) (holding that courts should not defer to administrative agencies’ interpretations of statutes that are clear and unambiguous).
[5] See United States ex rel. Schutte v. SuperValu, Inc., 598 U.S.C. 739, 749 (2023) (“The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonably person may have known or believed.”).
[6] See Universal Health Servs., Inc. v. Escobar, 579 U.S. 176, 190 (2016) (“. . . not every undisclosed violation of an express condition of payment automatically triggers liability. Whether a provision is labeled a condition of payment is relevant to but not dispositive of the materiality inquiry.”).
[7] See, e.g., Ending Radical And Wasteful Government DEI Programs And Preferencing – The White House (Feb. 5, 2025; Dep’t of Justice, Office of Attorney General Memorandum (February 5, 2025).