Requirements For Professional Engineers Practicing in Connecticut
Many out-of-state professional engineering companies practice engineering in Connecticut and may not be aware of all the requirements to do so. Connecticut has certain requirements for corporations and limited liability companies (LLCs) engaging in the practice of engineering. The applicable law, General Statutes §§ 20-306a and 20-306b, requires that (1) the personnel who act as engineers on behalf of the company must be either licensed in Connecticut or exempt from Connecticut’s license requirements, and (2) the company must have been issued a certificate of registration by the State Board of Examiners for Professional Engineers and Land Surveyors (State Board). Professional engineering firms must be registered with the Secretary of State as a domestic or foreign firm prior to applying for registration from the State Board. In addition, no less than two-thirds of the individual members of an LLC or owners of a professional corporation must be individually licensed as professional engineers in Connecticut. The Connecticut Department of Consumer Protection maintains a list of all professional engineers licensed in Connecticut and all State Board registrations.
Caselaw interpreting these requirements is sparse. Strict compliance with the State Board registration requirement is not always required. In Rowley Engineering & Associates, P.C. v. Cuomo, 1991 WL 27286 (Conn. Super. Jan. 2, 1991), the defendant alleged that the plaintiff professional corporation was not entitled to its design fees because it had not been issued a certificate of registration and thus did not comply with Conn. Gen. Stat. § 20-306a. The Rowley Court rejected this argument, reasoning that the statute was established for administrative purposes to allow professional engineers to practice in a corporate form and not safeguarding life, health, or property. The Court found substantial compliance with the statute, reasoning that all of the design professionals in Rowley were, in fact, licensed to practice in Connecticut. Thus, the purpose of licensure—to protect the public—was essentially satisfied. However, strict compliance with Connecticut’s professional engineer license requirement is required. In Anmahian Winton Architects v. J. Elliot Smith Holdings, LLC, 2010 WL 1544418 (Conn. Super. Mar. 16, 2010), the Court confirmed that a professional engineer or architect license in Connecticut is required to practice in Connecticut and it does not matter that such professional is licensed in any other state. The failure to be licensed in Connecticut precludes professional engineers from enforcing their right to payment for work performed.
Professional engineering companies practicing in Connecticut should be familiar with all state requirements. The failure to do so could result in being terminated from a project and not getting paid for work otherwise properly performed. Even if the company substantially complies with the State Board registration requirement, it could be difficult to explain this to an inquiring owner.
Dubai Court of Cassation Holds Clause Providing for Court Provisional Measures Not a Waiver of Arbitration Agreement
Introduction
The Dubai Court of Cassation (Court of Cassation) in Case No. 296 of 2024 vacated the decision of the Dubai Court of Appeal (Court of Appeal) in Commercial Appeal No. 2284/2023, in which the Court of Appeal issued a decision on the merits of a claim despite the existence of an arbitration agreement. Relying upon an inaccurate translation of the arbitration agreement, the Court of Appeal found that the parties had agreed that either party could refer disputes arising out of the parties’ contract to any competent court and had therefore waived the right to arbitration. In vacating the Court of Appeal’s decision, the Court of Cassation confirmed that the Dubai courts have the authority to look to the original text of an arbitration agreement, and disregard any inaccurate translation, to ascertain the intent of the parties.
Background
The claimant filed proceedings in the Dubai Court of First Instance seeking a monetary judgment against the defendant arising out of alleged breaches of contract. The defendant did not appear before the Court of First Instance, and the Court of First instance dismissed the claim due to lack of evidence.
The claimant (appellant) filed an appeal to the Court of Appeal. The respondent to the appeal (the defendant in the lower court proceedings) argued that the claim should be dismissed on the grounds of lack of jurisdiction due to the existence of an arbitration agreement between the parties. The Court of Appeal dismissed this argument and found, based on the Arabic translation of the arbitration agreement, that the parties had agreed that either party could refer disputes arising out of the parties’ contract to any competent court and therefore, the Dubai courts had jurisdiction over the dispute.
The defendant appealed this judgment to the Court of Cassation relying upon the existence of an arbitration agreement to argue that the Dubai courts lacked jurisdiction.
Judgment of the Court of Cassation
The Court of Cassation noted that the arbitration agreement was concluded in English and therefore, the intent of the parties had to be considered in light of the original text of the arbitration agreement and not any Arabic translation thereof. The Court of Cassation held that the original text is clear that either party may apply to any competent court for “injunctive relief” or other “provisional remedies” (but not in respect of the determination of the substantive claim). The Court of Cassation noted that these are common law terms and the closest concepts under UAE law are “provisional orders” and “provisional or precautionary measures”. The Court of Cassation confirmed that the parties’ agreement is consistent with the right of the parties, set forth in Article 18(2) of Federal Law No. 6 of 2018 (UAE Arbitration Law), to seek provisional or precautionary measures from a court of competent jurisdiction in support of current or future arbitration proceedings. Accordingly, the Court of Cassation held that the parties’ agreement did not constitute a waiver of the agreement to resolve the substantive dispute in arbitration and therefore the Court of Appeal decision must be vacated.
Analysis
This judgment confirms that, under the UAE Arbitration Law, parties may seek provisional or precautionary measures from a court of competent jurisdiction in support of current or future arbitration proceedings and that any express agreement to this effect does not constitute a waiver of the arbitration agreement. It also serves as a reminder to ensure that translations into Arabic for the use in onshore court proceedings are accurate.
What to Do if Your Federal Contract was Wrongfully Terminated by the Government
Government contracts often include a termination for convenience clause, generally allowing federal agencies to cancel agreements when it serves the government’s interest. While this power is fairly broad, it is not absolute — and when misused, contractors may have legal recourse. Several court cases highlight situations where termination for convenience was found to be an abuse of discretion or bad faith.
For government contractors, understanding these legal precedents can help identify improper terminations and explore possible remedies.
When Termination for Convenience Becomes Abuse of Discretion
Government Cannot Use Termination to Correct Procurement Mistakes
Case: Krygoski Constr. Co. v. United States, 94 F.3d 1537 (Fed. Cir. 1996)
Issue: The government mistakenly awarded a contract under a small business set-aside and later terminated it for convenience to fix the error.
Ruling: The court held that termination for convenience cannot be used to correct government procurement mistakes if it results in bad faith or an abuse of discretion.
Takeaway: The government cannot cancel contracts simply to undo its own errors in the bidding process.
Termination Cannot Be Used to Escape a Bad Bargain
Case: Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982)
Issue: The government terminated a contract for convenience after finding a cheaper option elsewhere.
Ruling: The court found that the government cannot use termination for convenience to walk away from an unfavorable deal.
Takeaway: Agencies cannot cancel contracts just to get a better price.
Using Termination to Favor Another Contractor May Be Unlawful
Case: TigerSwan, Inc. v. United States, 110 Fed. Cl. 336 (2013)
Issue: The plaintiff argued that the contract was terminated as a pretext to award it to another contractor.
Ruling: The court held that if termination is used to intentionally circumvent contractor rights or favor a competitor, it may constitute an abuse of discretion.
Takeaway: The government cannot manipulate contract terminations to steer awards toward preferred vendors.
Termination in Bad Faith Can Be Challenged
Case: Salsbury Indus. v. United States, 905 F.2d 1518 (Fed. Cir. 1990)
Issue: The contractor alleged bad faith in the termination decision.
Ruling: While the government generally has broad discretion, a termination in bad faith can be deemed wrongful.
Takeaway: Contractors must prove bad faith, but if successful, the termination can be overturned.
Arbitrary or Capricious Terminations Can Be Contested
Case: Caldwell & Santmyer, Inc. v. Glickman, 55 F.3d 1578 (Fed. Cir. 1995)
Issue: The contractor argued that the termination was arbitrary and not in the government’s best interest.
Ruling: The court stated that terminations for convenience must have a rational basis and cannot be arbitrary.
Takeaway: If a contractor can prove a lack of reasonable justification, they may challenge the termination.
Key Legal Principles from These Cases
Bad Faith or Pretextual Termination
The government cannot terminate a contract for convenience to avoid obligations or favor another contractor.
Arbitrary or Capricious Terminations
If a termination lacks a rational basis or is done without reasonable justification, it may be an abuse of discretion.
No Escape from a Bad Deal
The government cannot terminate a contract just because it finds a better option later.
What Can Government Contractors Do?
If a contractor believes a termination for convenience was wrongful, they may have legal remedies, including:
Claim Breach of Contract Damages
Typically, a contractor is only entitled to termination settlement costs (e.g., costs incurred before termination, reasonable profit on completed work, etc.). However, if the termination was arbitrary, capricious, or in bad faith, it may be treated as a breach of contract, allowing the contractor to seek lost profits.
Seek Contract Reinstatement
In rare cases, a court may reinstate a contract if performance is still possible.
Request an Equitable Adjustment
If part of the contract is reinstated or re-awarded, the contractor may be able to recover increased costs due to the termination and subsequent reinstatement.
Recover Attorneys’ Fees and Costs
If the contractor proves wrongful termination, they might, in limited circumstances, be entitled to legal cost reimbursement under the Equal Access to Justice Act.
Does the Sovereign Acts Doctrine Apply?
The Sovereign Acts Doctrine can shield the federal government from liability when its actions are taken in a public and general capacity (e.g., certain new legislation or wartime measures). However, if contract terminations are targeted at specific contracts rather than simply as a result of broad governmental actions, the doctrine may not apply.
So far, the Trump administration’s termination of federal contracts, although fairly widespread, has been targeted at specific types of contracts with specific agencies. As such, the government may have a difficult time establishing that its actions were not targeted at particular contracts.
Final Thoughts: Protecting Your Rights as a Government Contractor
While the government has fairly broad discretion to terminate contracts for convenience, that power is not unlimited. If termination appears pretextual, arbitrary, or in bad faith, contractors should:
Review past legal precedents
Assess with counsel whether the termination lacks a rational basis
Gather evidence to support a potential challenge
Pursue legal remedies to recover losses
By understanding their rights and legal options, government contractors may be able to protect themselves from wrongful terminations and seek just compensation.
Nevada Bill Would Bestow Personal Jurisdiction On Business Entities Who Simply Register
Earlier this month, Nevada Assemblymember Erica Roth introduced a bill, A.B. 158, to authorize Nevada courts to exercise general personal jurisdiction over entities on the sole basis that the entity:
is organized, registered or qualified to do business pursuant to the laws of this State;
expressly consents to the jurisdiction; or
has sufficient contact with Nevada such that the exercise of general personal jurisdiction does not offend traditional notions of fair play and substantial justice.
The following entities would be covered by the statute: corporations, miscellaneous organizations described in chapter 81 of NRS, limited-liability companies, limited-liability partnerships, limited partnerships, limited-liability limited partnerships, business trusts or municipal corporations created and existing under the laws of this State, any other state, territory or foreign government or the Government of the United States
The last basis is generally consistent with traditional constitutional jurisprudence. See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) quoting Milliken v. Meyer, 311 U. S. 457, 463 (1940). California has codified this principle in Section 410.10 of the Code of Civil Procedure (“A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.”).
The penultimate basis is consistent with and might even be categorized as a subset of the last. How is fair play and substantial justice offended if an entity has consented?
The first basis hearkens to the U.S. Supreme Court’s decision in Mallory v. Norfolk Southern Ry. Co., 600 US 122 (2023). In the case, the Supreme Court in a 5-4 decision held that a Pennsylvania statute did not offend the Due Process clause of the United States Constitution. The Pennsylvania statute provided that a company’s registration as a foreign corporation” is deemed “a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over” the corporation. 42 Pa. Cons. Stat. § 5301(a)(2)(i).
If A.B. 158 becomes law, the doors of Nevada’s courts will be thrown open to lawsuits against foreign entities that have registered to do business suits. These lawsuits may be brought even when the plaintiff, the defendant and the dispute occurred outside of Nevada. The case may be a boon to Nevada’s lawyers (Assemblymember Roth is a lawyer), but may have the unintended consequence of discouraging business in Nevada or encouraging creative business structures.
Fair Use Falls Short: Judge Bibas Rejects AI Training Data Defense in Thomson Reuters v. ROSS
Fair use — a critical defense in copyright law that allows limited use of copyrighted material without permission — has emerged as a key battleground in the wave of artificial intelligence (AI) copyright litigation. In a significant revision of his earlier position, Judge Stephanos Bibas in the United States District Court for the District of Delaware has dealt a blow to artificial intelligence companies by blocking their ability to rely on this defense in Thomson Reuters Enterprise Centre GmbH v. ROSS Intelligence Inc.
Fair use serves as a safety valve in copyright law, permitting uses of copyrighted works for purposes such as criticism, commentary, news reporting, teaching, scholarship, or research. Courts evaluate fair use through four factors, with particular emphasis on whether the use transforms the original work and how it affects the market for the copyrighted work.
The case originated when Thomson Reuters sued ROSS Intelligence for using content from Westlaw — the legal research platform’s headnotes and proprietary Key Number System — to train an AI-powered legal research competitor. ROSS had initially sought to license Westlaw content, but when Thomson Reuters refused, ROSS turned to a third-party company, LegalEase Solutions. LegalEase created approximately 25,000 legal question-and-answer pairs, allegedly derived from Westlaw’s copyrighted content, which ROSS then used to train its AI system.
In September 2023, Bibas denied Thomson Reuters’ motion for summary judgment on fair use, finding that the question was heavily fact-dependent and required jury determination. He particularly emphasized factual disputes about whether ROSS’s use was transformative and how it affected potential markets.
However, in August 2024, Bibas took the unusual step of continuing the scheduled trial and inviting renewed summary judgment briefing. His opinion represents a dramatic shift, explicitly acknowledging that his “prior opinion wrongly concluded that I had to send this factor to a jury.” While noting that fair use involves mixed questions of law and fact, Bibas recognized that the ultimate determination in this case “primarily involves legal work.”
Bibas’ unusual move to invite renewed briefing stemmed from his realization, upon deeper study of fair use doctrine, that his earlier ruling afforded too much weight to factual disputes and did not fully account for how courts should assess transformative use in AI-related cases. Rather than viewing transformation through the lens of whether ROSS created a novel product, Bibas recognized that the key question was whether ROSS’s use of Thomson Reuters’ content served substantially the same purpose as the original works.
He concluded that while fair use involves factual elements, the dispositive questions in the case were ultimately legal ones appropriate for resolution by the court. His key analytical shifts included rejecting the notion that ROSS’s use might be transformative merely because it created a “brand-new research platform.”
Critically, Bibas distinguished ROSS’s use from cases like Google v. Oracle where copying was necessary to access underlying functional elements. While Google needed to copy Java API code to enable interoperability between software programs, ROSS had no similar technical necessity to copy Westlaw’s headnotes and organizational system. ROSS could have developed its own legal summaries and classification scheme to train its AI — it simply found it more expedient to build upon Thomson Reuters’ existing work.
The concept of “transformative” use lies at the heart of the fair use analysis. This principle was recently examined by the Supreme Court in Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, where the Court significantly narrowed the scope of transformative use under the first fair use factor. The Court held that when two works serve “substantially the same purpose,” the fact that the second work may add “new expression, meaning, or message” is not enough to tip the first factor in favor of fair use.
This framework for analyzing transformative use provides important context for understanding how courts may evaluate AI companies’ fair use defenses. AI companies have consistently argued that their use of copyrighted materials for training data is transformative because the AI systems learn patterns and relationships from the works rather than reproducing their expressive content. They contend that this process fundamentally transforms the original works’ purpose and character. However, Bibas’ ruling suggests courts may be increasingly skeptical of such arguments, particularly when the resulting AI products compete in similar markets to the original works.
While this ruling represents a setback for one of the key defenses believed to be available to AI companies in copyright litigation, fair use is only one of several defenses these companies are raising in more than 30 pending lawsuits. Other defenses include arguments about copyrightability, substantial similarity, and whether training data uses constitute copying at all. A weakening of the fair use defense, while significant, does not necessarily predict the ultimate outcome of these cases.
Additionally, this case involved a particularly direct form of market competition — an AI system trained on legal content to compete with the original legal research platform. Other cases involving different types of training data or AI applications that don’t directly compete with the source materials might be distinguished. For instance, an AI trained on literary works to generate news articles might present a more compelling case for transformative use since the end product serves a fundamentally different purpose than the training data.
Nevertheless, Bibas’ ruling may alter how AI companies approach training data acquisition. If other courts follow his lead in viewing fair use primarily as a legal rather than factual determination, these companies may explore licensing agreements with copyright holders — a process that some have already undertaken.
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Ex-Schwab Employee Prohibited from Using Client Information
In the case of Charles Schwab & Co., Inc. v. Roberto Ivan Ortega (Case No. 4:24−cv−04962), the United States District Court for the Southern District of Texas issued a Stipulated Preliminary Injunction Order on February 12, 2025.
Charles Schwab alleges that Roberto Ivan Ortega misappropriated its trade secrets and client information to solicit the business of former customers after joining a competitor. After Ortega refused Schwab’s requests to return its information, Schwab filed suit and moved for a preliminary injunction preventing the use or disclosure of its information.
Faced with the reality that a court would likely enter an injunction, Ortega’s counsel agreed to an injunction that prohibited Ortega from using, disclosing, or disseminating Schwab confidential information or soliciting Schwab customers. Ortega is also required to give Schwab access to his computing devices for Schwab to conduct discovery to uncover the scope of the misappropriation.
Courts continue to stress the need to maintain the status quo in cases involving the theft of information. Employers must take the necessary steps to prevent the theft of their information and in the cases where their information has been taken, prevent the use or disclosure of that information by filing a lawsuit and seeking an injunction.
GIFTED DISMISSAL: Judge Dismisses TCPA Claim Based on Argument Made by the Plaintiff
I have an interesting update regarding Mark Dobronski, an individual who has put himself on the plaintiff-end of numerous TCPA lawsuits. On a motion for summary judgment, he recently saw five out of the six claims he had made against the defendant thrown out. Dobronski v. Fortis Payment Systems, LLC, No. 23-cv-12391, 2025 WL 486667, *1 (E.D. Mich. Feb. 13, 2025) (order granting in part and denying in part motion for summary judgment). Unsurprisingly, all of the plaintiff’s claims in this case were related to telemarketing communications. Id.
For a quick procedural backdrop here, the motion for summary judgment was referred to a magistrate judge, who issued a report and recommendation. Magistrate judges are judges appointed by district court judges, to help them in certain types of cases—such as discovery disputes and dispositive motions.
After a magistrate judge issues a report and recommendation, parties generally have an opportunity to file objections to that report and recommendation before the district judge issues the final decision at the trial court level. Here, the district judge was doing just that—reviewing the parties’ objections to the magistrate judge’s report and recommendation.
In this action, the plaintiff filed four TCPA-related claims. Id. The magistrate judge recommended dismissal of two out of those four TCPA-related claims. Id. The defendant did not object to the non-dismissal of the remaining two TCPA claims. Id. Amazingly, the district judge dismissed one of those claims anyway, dismissing five out of the plaintiff’s six total claims. Id. at *3-4.
But, how did the district court decide on its own to dismiss one of those claims without an objection by the defendant?
In the plaintiff’s objection to the dismissal of one of his state law claims, the plaintiff pointed to the magistrate judge’s analysis of one of his TCPA claims and effectively said, because that TCPA count survived, the analogous state law claim should also survive the motion for summary judgment. See id at *4.
The district judge took a closer look at that TCPA Claim—for failure to honor a Do-Not-Call (“DNC”) request—and found the exact opposite. See id. Not only should the analogous state law claim still be dismissed, but the TCPA claim actually must go too—as the plaintiff failed to present any evidence that the defendant received a request not to call the plaintiff. Id.
The surviving claim on this action was for a traditional TCPA DNC violation. Id. at *2. Still, it is pretty surprising to see an extra claim thrown out by a district judge, where the defendant did not even object to the magistrate judge’s ruling on that claim.
It can seem straightforward. But in many actions such as this one, alleging multiple types of violations, plaintiffs can sometimes let required parts of their claims slip through the cracks. That is what happened here. And although defense counsel should have raised the issue of whether they received the DNC request on their own in their motion for summary judgment, the district court effectively gifted them a dismissal.
Best practice—do not rely on any court to do that for you!
Renewed Prohibition on Use of Sub-Regulatory Guidance – Key to False Claims Act Cases
It’s déjà vu all over again.”[1] Attorney General Pam Bondi has not surprisingly renewed the prior Trump administration’s prohibition on the use of sub-regulatory guidance, potentially altering the landscape for False Claims Act cases pursued during the second Trump administration.
This development is the latest in a series of efforts to allow reliance on government guidance — or not. To catch everyone up:
On February 5, 2025, Bondi issued a memorandum, titled “Reinstating the Prohibition on Improper Guidance Documents” (the “Bondi Memo”).
The Bondi Memo expressly withdrew prior Attorney General Merrick Garland’s own July 1, 2021. memorandum, titled “Issuance and Use of Guidance Documents by the Department of Justice” (the Garland Memo).
The Bondi Memo also tacitly revived prior Attorney General Jeff Sessions’ November 2017 memorandum, titled “Prohibition on Improper Guidance Documents” (the “Sessions Memo”), and a January 2018 memorandum from Associate Attorney General Rachel Brand, titled “Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases” (the “Brand Memo”).[2]
In this latest Bondi Memo, the DOJ states, “[g]uidance documents” that have not undergone “the rule making process established by law yet purport to have a direct effect on the rights and obligations of private parties” are not lawful regulatory authority. This recission is to “restore the Department to the lawful use of regulatory authority” and advance DOJ’s “compliance with its mission and duty to uphold the law.” Accordingly, DOJ attorneys likely will not be permitted to rely on agency guidance to establish a violation of law or a false statement in a False Claims Act case.
DOJ’s reliance on agency guidance already was in doubt after the Supreme Court’s 2024 decision in Loper Bright, which reworked how courts should view agency guidance. The Garland Memo had asserted that DOJ attorneys “may rely on relevant guidance documents . . . including when a guidance document may be entitled to deference or otherwise carry persuasive wait with respect to the meaning of applicable legal requirements.” Loper Bright, however, made clear that agencies are not entitled to deference unless deference is expressly provided for by statute. And even prior to Loper Bright, the Supreme Court, in Kisor v. Wilkie, confirmed agency guidance “never forms the basis for an enforcement action’’ because such documents cannot “impose any legal binding requirements on private parties.” 588 U.S. 558, 584 (2019) (internal citations omitted). The Bondi Memo is yet another attack on what may be considered agency overreach.
Because the Garland Memo itself rescinded two memoranda from the previous Trump administration DOJ officials, these prior Sessions and Brand memoranda tacitly are restored by the recission of the Garland Memo. Both memoranda restricted DOJ’s use of sub-regulatory guidance and prevented DOJ from using guidance documents to “determine compliance with existing regulatory and statutory requirements.” See Sessions Memo & Brand Memo (prohibiting use of “noncompliance with guidance documents as a basis for proving violations of applicable law.”)
What presently is murky is whether DOJ still may use guidance documents to establish scienter. The Brand Memo had provided that “some guidance documents simply explain or paraphrase legal mandates from existing statutes or regulations, and the Department may use evidence that a party read such a guidance document to help prove that the party had the requisite knowledge of the mandate.” It has been a longstanding DOJ practice to use guidance documents to show scienter, and the practice was permitted under the first Trump administration and the perhaps now-restored Brand Memo. The Bondi Memo does not directly address the use of agency guidance to show scienter, nor does it announce any new policy. However, more guidance is coming: The Bondi Memo directs the associate attorney general to prepare a report within 30 days “concerning strategies and measures that can be utilized to eliminate the illegal or improper use of guidance documents.”
What to Expect
This restriction on the use of guidance documents to bring FCA and other cases — in conjunction with Loper Bright — prevents DOJ attorneys from basing claims against recipients of government funding based on potential legal violations derived from or supposedly clarified in agency guidance. However, we anticipate DOJ likely will still use guidance documents in efforts to establish scienter. The forthcoming Associate Attorney General report may shed more light on DOJ’s plans in this area.
[1] Baseball lore includes the story that Yogi Berra said this after Mickey Mantle and Roger Maris hit back-to-back homeruns in 1961, as they were chasing Babe Ruth’s homerun record.
[2] Foley’s previous analysis of the Brand Memorandum and its impact on the health care landscape is located here: DOJ Memoranda Ushering in New Era for Health Care Enforcement.
Navigating Non-Compete Agreements: Key Considerations for In-House Counsel in Franchise Businesses
In May of last year, the Federal Trade Commission (FTC) sought to ban non-compete agreements in most employment contracts. Franchise agreements were an exception. However, before the rule could take effect in September, a federal court vacated the ruling in August, asserting that the FTC lacked the authority to enforce such a regulation.
Following this setback, the FTC promptly filed a notice of appeal with the Fifth Circuit Court of Appeals, keeping the issue in legal limbo.
Franchisors should understand the implications of non-compete agreements is essential. While these clauses serve to protect franchisors’ proprietary interests, trade secrets, and system integrity, they also pose challenges for franchisees, who may perceive them as unfair restrictions on future business opportunities. Franchisees argue that post-term non-competes hinder their ability to leverage their experience and investment after exiting a franchise system, limiting market competition and personal livelihood. Conversely, franchisors maintain that such provisions are necessary to preserve brand integrity, protect franchisees who remain in the system, and safeguard proprietary business models.
NASAA’s Guidance on Franchise Non-Compete Agreements
Amid this ongoing legal and policy debate, on January 27, 2025, the Franchise and Business Opportunities Project Group—part of the North American Securities Administrators Association (NASAA)—issued guidance on post-term non-competes within franchise agreements. See https://www.nasaa.org/wp-content/uploads/2025/01/Post-Term-Non-Compete-Provisions-in-Franchise-Agreements-Should-Be-Reasonable.pdf. Their recommendations address several critical aspects of the franchisor-franchisee relationship:
1. The Uniqueness of Franchise Relationships
Unlike a traditional buyer-seller transaction, a franchise agreement grants a franchisee the right to operate a business using an established system for a defined period.
Franchisors grow their brand by leveraging franchisees’ investments rather than solely relying on their own capital.
2. Differing Expectations Between Franchisors and Franchisees
Franchisors seek to expand their system to strengthen brand value, market reach, and overall profitability.
Franchisees, as business owners, aim to maximize their autonomy, investment returns, and long-term viability.
3. End-of-Relationship Challenges
Divergent expectations often become most pronounced at the conclusion of the franchise relationship.
While franchisors enforce post-termination rights, franchisees may wish to utilize their experience and business acumen in new ventures.
4. What Constitutes a “Reasonable” Post-Term Non-Compete?
NASAA recommends that franchisors craft post-term non-compete agreements that are reasonable and clearly define legitimate business interests. Key considerations include:
Scope: Restrictions should apply only to competitive businesses directly related to the franchise system, avoiding overly broad limitations.
Duration: Non-competes should be limited to the time reasonably necessary to protect the franchisor’s business interests. While the appropriate timeframe varies across industries, agreements should avoid excessive restrictions.
Geographic Limitations: Any territorial restrictions should be as narrow as possible, potentially applying only to a specified radius around the franchise location or other branded outlets.
5. Compliance and Best Practices for Franchisors
Beyond restrictive covenants, franchisors should ensure that franchise agreements require the return of branding assets, including trademarks, trade dress, signage, and domain names, upon termination or expiration.
For in-house attorneys managing franchise agreements, these developments underscore the importance of periodically reviewing non-compete provisions to ensure compliance with evolving legal standards and industry best practices. Given the FTC’s ongoing legal battle and NASAA’s evolving stance, franchisors should consult experienced franchise counsel to assess whether modifications to existing agreements are warranted.
By staying proactive, in-house legal teams can help maintain a fair balance between protecting the franchisor’s business model and allowing former franchisees to pursue future opportunities within reasonable constraints.
DUMBEST SCHEME EVER?: FCC Proposes $4.5MM Penalty on Carrier Telnyx LLC After Bad Guys Pose as the FCC…
In In the Matter of Telnyx LLC, File No.: EB-TCD-24-00037170, NAL/Acct. No.: 202432170009, FRN: 0018998724 (Feb 4, 2025 released) the FCC stated the Commission’s “staff and their family members, among others, were targeted with calls containing artificial and prerecorded voice messages that purported to be from a fictitious FCC ‘Fraud Prevention Team’ as part of a government imposter scam aimed at fraudulently extracting payments of large amounts of money by intimidating recipients of the calls.”
So, they targeted FCC employees–the primary federal regulator of robocalls– with fake fraud prevention robocalls. I mean, the chutzpah.
Per the order, “[t]he FCC has no such “Fraud Prevention Team” and the FCC was not responsible for these calls.” But when they were answered the called party was threatened with prosecution unless they– you guessed it– bought some gift cards:
” One recipient of an Imposter Call reported that they were ultimately connected to someone who “demand[ed] that [they] pay the FCC $1000 in Google gift cards to avoid jail time for [their] crimes against the state.”
Unsurprisingly the Commission was pissed and wanted blood, or the money equivalent of blood.
Being unable to determine who the real bad guys were they took out their fury upon the carrier that apparently permitted the calls to get connected– Telnyx LLC. In the FCC’s words the company failed “to take affirmative, effective measures to prevent malicious actors from using its network to originate illegal voice traffic.”
Now what’s interesting is that Telnyx apparently signed up MarioCop on February 6, 2024, and the calls went out that same day. Telnyx then stopped the traffic immediately. But that did not save it from penalty. The FCC was pissed Telnyx let these guys on the network to begin with.
And when you dig down into this there are red flags everywhere to be seen:
The company address provided by MarioCop was the address of a Sheraton hotel in Canada.
The email address domain used by MarioCop (@mariocop123.com) is not a real domain associated with any known business.
The IP address for the MarioCop Account was from Edinburgh, Scotland and was not affiliated with the physical Toronto address; and, perhaps most tellingly:
MarioCop paid Telnyx in Bitcoin and the Bitcoin transaction ID and wallet address the MarioCop Accounts used to pay Telnyx were anonymized and could not be traced.
They paid in Bitcoin????????????????
Just unreal.
Obviously pretty serious lapses in the KYC process here. And the FCC proposes to hit Telnyx with a $4.5MM penalty as a result.
Gumble Grumble: $1.5MM Deere Credit Services TCPA Class Action Settlement Meets with Final Approval–NCLC Slated To Receive More Cash
No matter how many times I raise the issue, it seems, TCPA defense counsel are still not getting the message.
DO NOT APPOINT NCLC AS CY PRES RECIPIENT IN TCPA CLASS ACTION SETTLEMENTS.
The NCLC famously advocates before the FCC and Congress for broader and more expansive TCPA coverage–leading to TCPA lawsuits–and then accepts money from resulting TCPA settlements. Yet they tell folks they are advocating on behalf of “low income clients” never mentioning that their funded by the TCPA plaintiff’s bar.
Disgusting.
I have mentioned this issue several times on TCPAWorld and yet the latest TCPA settlement to receive approval, once again, has NCLC listed as a cy pres recipient.
In Cornelius v. Deere Credit 2025 WL 502089 (S.D. Ga Feb. 13, 2025) the court granted final approval to a $1.5MM TCPA class action settlement involving prerecorded servicing calls to wrong numbers.
The class was: “all persons throughout the United States (1) to whom Deere Credi Services, Inc. placed a call, (2) directed to a number assigned to a cellular telephone service, but not assigned to a Deere Credit Services, Inc. customer or accountholder, (3) in connection with which Deere Credit Services, Inc. used an artificial or prerecorded voice, (4) from February 2, 2020 through June 25, 2024.”
The plaintiff’s lawyers– the Wolf and Mr. Number One teamed up for this one–walked with $500k.
And the National Consumer Law Center is the cy pres designee. (That means they will get any left over money from the class if checks aren’t cashed, etc.– can often be tens or hundreds of thousands of dollars, although will likely be less in this smaller settlement.)
If you’re a TCPA class action defense counsel that uses NCLC as a cy pres recipient in a TCPA class action settlement expect to be called out BY NAME when I cover the settlement. That’s how we’re going to handle these things from now on.
And you should really be appointing R.E.A.C.H. as the cy pres in these cases folks–R.E.A.C.H. has stopped way more robocalls than NCLC and works hard to educate and advocate for compliance with the folks in the industry that causes the most preventable robocalls. No better organization than R.E.A.C.H. to receive cy pres dollars– but better to give it to ANYONE else over NCLC.
Texas Federal Court Pauses CFPB Rule Banning Medical Debt from Credit Reports
On February 6, a judge for the United District Court for the Eastern District of Texas issued a 90-day stay on the CFPB’s final rule prohibiting the inclusion of medical debt in consumer credit reports, delaying the rule’s effective date from March 17 to June 15.
The CFPB’s rule (which we previously discussed here and here) seeks to prohibit consumer reporting agencies from including these unpaid medical bills in credit reports and prohibit lenders from considering medical debt when making credit decisions. The pause follows a legal challenge (previously discussed here) from industry trade associations, contending that the rule exceeds the CFPB’s authority under the Fair Credit Reporting Act (FCRA).
Putting It Into Practice: The 90-day delay temporarily halts implementation of the CFPB’s rule, however its future remains uncertain under new CFPB leadership. The rule would have been effective 60 days after publication in the Federal Register. However, the Bureau’s first Acting Director, Scott Bessent “suspend[ed] the effective dates of all final rules that have been issued or published but that have not yet become effective. Any formal changes to the rules would require adherence to the Administrative Procedure Act (APA) through formal notice-and-comment rulemaking. The rule is also subject to a challenge under the Congressional Review Act. Consumer reporting agencies should continue to monitor these developments closely, as the litigation could lead to further delays or a potential invalidation of the rule.
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