Maryland Court Rules EPA’s Termination of Environmental Justice Grants Violates APA
Changes in presidential Administration often mean changes in policy priorities and budgeting, but a Maryland federal district court recently held that the executive branch’s ability to pivot on policy has limits.
The decision in Green & Healthy Homes Initiatives, Inc., et al. v. EPA determined that the Trump Administration violated the federal Administrative Procedure Act (APA) when it cancelled all of the environmental justice (EJ) grants issued by the Biden Administration.
The decision interpreted the APA to constrain executive action and protect the integrity of federal grant programs. For grant recipients, the ruling affirms that statutory mandates cannot be set aside by administrative fiat and that courts will enforce the procedural and substantive limits imposed by US Congress. As the court noted, agencies must engage in reasoned, individualized decision-making and respect the boundaries of their delegated authority to ensure that properly issued federal grants are not casualties of shifting political winds.
Below, we break down the decision and takeaways for federal grant recipients inside and outside the EJ space.
Case Background
In 2022, as part of President Biden’s Inflation Reduction Act, Congress amended the Clean Air Act to create the Environmental and Climate Justice Block Grants program, appropriating $3 billion for grants to support pollution remediation, climate resilience, and related activities benefiting disadvantaged communities. (For more, see here.) The statute required the US Environmental Protection Agency (EPA) to use these funds for specified purposes and to award grants to eligible entities, including nonprofit organizations and local governments.
Pursuant to this mandate, EPA selected 10 Regional Grantmakers — including the plaintiffs in this case — and awarded them multi-year, multi-million-dollar grants to administer subgrant programs. However, earlier this year following a change in Administration, EPA announced that “environmental justice” was no longer an agency priority and terminated all grants under the program. (For more, see here.) The agency’s termination letters cited a lack of alignment with new agency priorities but provided little substantive explanation or individualized analysis.
The Green & Healthy Homes Decision
It was predictable that the whipsawing between the Biden Administration’s commitments to address EJ issues and the Trump Administration’s desire to “cancel” EJ (including these grants) would lead to litigation. In Green & Healthy Homes Initiative, the Minneapolis Foundation and Philanthropy Northwest filed suit challenging the termination of the grant funding under the APA, arguing that EPA’s actions were arbitrary and capricious, exceeded statutory authority, and violated their constitutional rights. The court agreed, holding that EPA’s terminations were both “in excess of statutory jurisdiction, authority, or limitations” and “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” as prohibited by 5 U.S.C. § 706(2)(A), (C). The court vacated EPA’s terminations and remanded the grant cancellation to the agency to be reevaluated, declining to issue a permanent injunction but making clear that the agency could not lawfully terminate the grants on the same grounds.
The ruling provides critical guidance on how the APA applies to federal grant terminations and clarifies the boundaries of executive discretion in administering congressionally mandated programs. Four primary takeaways include the following.
The statutes authorizing or requiring grant issuance can preclude the executive branch from reconsidering grant issuance. Similar to how courts have evaluated Trump Administration funding freezes (for more see here), the executive branch cannot unilaterally change Congress’s spending priorities. To be sure, the executive can unwind certain policies — prior Administration Executive Orders, as an example — without Congress. But agencies cannot terminate grants based solely on a change in Administration priorities where Congress directed that funds be used for specific purposes. For people or entities seeking to vindicate rights embodied in statutes, the APA serves as a check, ensuring that executive agencies cannot unilaterally override legislative directives.
Here, the court emphasized that Congress’s directive in the Clean Air Act was clear and mandatory; EPA “shall use” appropriated funds to support environmental and climate justice activities. The agency’s decision to terminate grants solely because the new Administration disagreed with the statutory purpose was found to be an impermissible override of congressional will. The court stated, “the President and federal agencies may not ignore statutory mandates or prohibitions merely because of policy disagreement with Congress.”
The APA’s “arbitrary and capricious standard” may apply to grant cancellations. Federal agencies must provide a reasoned explanation for terminating grants, supported by the administrative record and tailored to the facts of each case. Boilerplate justifications or reliance on generalized policy shifts often will not satisfy the APA’s standards.
Here, the court found that EPA’s process for terminating the grants contained no meaningful analysis or explanation. The agency relied on boilerplate language and a template letter, failed to provide individualized reasons for each termination, and did not consider the reliance interests of the grantees. The administrative record revealed that the only articulated rationale was a change in “administration priorities,” which the court deemed insufficient under the APA’s requirement for reasoned decision-making.
The executive branch lacks constitutional authority to terminate grants unless it has statutory discretion to do so. Green & Healthy Homes Initiatives reaffirms that courts can review grant terminations under the APA unless Congress has explicitly committed the matter to agency discretion. Even where regulations provide for termination based on agency priorities, that discretion is cabined by statutory mandates.
In this case, where federal regulations including 2 C.F.R. § 200.340 allow agencies to terminate grants that no longer effectuate program goals or agency priorities, that authority is expressly limited to the extent authorized by law. The court held that where Congress has imposed a specific, mandatory obligation on an agency, the executive branch cannot invoke general regulatory language or internal policy shifts to circumvent statutory requirements.
Reliance interests matter. Finally, agencies must consider the reliance interests of grantees, especially where significant investments have been made in reliance on multi-year federal funding. Here, EPA was required to provide a detailed justification for its policy priorities in light of preexisting, multi-year commitments made by grant makers.
Another Bite at the Apple to Avoid $300 Million in Damages
Last week, the Federal Circuit vacated both the infringement and damages judgments against Apple in a patent case that involves standard-essential patents (SEPs) related to Long-Term Evolution (LTE) technology brought in the Eastern District of Texas by Optis Cellular Technology, LLC. In Optis Cellular Technology, LLC v. Apple Inc. (22-1925), a panel for the Federal Circuit found that a single infringement question covering multiple patents in a jury verdict form violated Apple’s right to a unanimous jury verdict and remanded the case for a new trial. In addition, the panel addressed several patent eligibility issues and procedural errors in the trial proceedings. As a result, Apple has a second bite at the apple to try to avoid damages.
Background
Optis sued Apple in the Eastern District of Texas alleging that various Apple products implementing the LTE standard infringed five of Optis’ SEPs. The jury initially found Apple infringed certain claims of the asserted patents and awarded $506.2 million in damages. Apple moved for a new trial, arguing that the jury did not have an opportunity to hear evidence regarding Optis’ obligation to license the asserted SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms. The district court granted a new trial on damages, which ultimately resulted in a reduced damages award to Optis of $300 million. Once its post-judgment motions were denied, Apple appealed to the Federal Circuit.
The Appeal
There is a lot to unpack here, but the core issues on appeal are summarized below:
Whether the single infringement question on the verdict form covering all the asserted SEPs violated Apple’s right to jury unanimity;
Whether claims 6 and 7 of U.S. Patent No. 8,019,332 (ʼ332 patent) are patent ineligible under 35 U.S.C. § 101;
Whether the district court erred in construing claim 8 of the U.S. Patent No. 8,102,833 (ʼ833 patent);
Whether the district court erred in finding claim 1 of U.S. Patent No. 8,411,557 (’557 patent) not indefinite under 35 U.S.C. § 112; and
Whether the district court erred in admitting certain damages-related evidence.
With respect to the verdict form, the panel held that the single infringement question on the verdict form, which covered all five asserted SEPs, violated Apple’s right to a unanimous verdict. While Optis argued that, because the $506.2 million damages award “corresponded exactly to the sum of the five numbers that Optis’s damages expert gave as the measure of damages for each patent,” it was clear that the jury was unanimous in finding all asserted claims were infringed, the panel disagreed and explained that each asserted SEP constitutes an independent cause of action requiring separate infringement questions for each patent to ensure a unanimous verdict.
With respect to patent eligibility, the panel reversed the district court’s finding that claims 6 and 7 of the ʼ332 patent were not directed to an abstract idea under 35 U.S.C. § 101. In particular, the panel concluded that these claims were directed to a mathematical formula, an abstract idea, and remanded for further analysis under the Alice/Mayo framework. The panel also reversed the district court’s finding that the term “selecting unit” in claim 1 of the ʼ557 patent did not invoke 35 U.S.C. § 112 ¶ 6. In this aspect, the panel determined that the term “unit” does not sufficiently connote structure and is similar to other terms that held to be nonce terms similar to “means” such that they invoke § 112 ¶ 6. Since the term was found to invoke § 112 ¶ 6, on remand, the district court will need to conduct the second step of the means-plus-function analysis and determine whether the specification discloses adequate corresponding structure. However, the Federal Circuit affirmed the district court’s construction of claim 8 of the ʼ833 patent, rejecting Apple’s argument that the claim required mapping to start from the last row of a matrix.
Finally, the Federal Circuit found that the district court abused its discretion by admitting a settlement agreement between Apple and Qualcomm, which did not involve any of the SEPs at issue in this case, and related expert testimony. Before the damages retrial before the district court, Apple had unsuccessfully argued the settlement agreement was irrelevant and should be excluded “because any alleged relevance is outweighed by the substantial risk of confusion and unfair prejudice to Apple.” While the panel did not deem the settlement to be irrelevant, it held that the probative value of the settlement agreement was substantially outweighed by the risk of unfair prejudice to Apple.
Takeaways
This decision underscores the importance of ensuring jury unanimity in patent cases involving multiple patents. While general verdict questions that apply to more than one asserted patent or patent claim may seem attractive to patent owners and, at least in this case, signed off on by the district court judge, this verdict format is going to cause problems on appeal. The decision also highlights the continued scrutiny applied to patent eligibility, as well as the admissibility of settlement agreements in determining reasonable royalties.
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An Oft-Overlooked Requirement in the N.Y. Commercial Division Rules: The Rule 11-e(d) Statement of Completion
Effective April 1, 2015, the Commercial Division of the New York State Supreme Court promulgated a series of reforms to the Rules of Practice for the Commercial Division, including the addition of new Rule 11-e, which provides specific requirements for responding and objecting to document requests.
In particular, Rule 11-e(a)-(b) requires parties to provide particularized responses and specify in detail whether documents are being withheld in response to all or part of the requests, and Rule 11-e(c) requires a date for the completion of document production prior to depositions. These are markedly different than those required by the Uniform Civil Rules that govern non-Commercial New York State Supreme Courts and County Courts, and have been the subject of much discussion by courts and practitioners in the ensuing years. However, one significant requirement of Rule 11-e that is often overlooked concerns Rule 11-e(d).
In particular, Rule 11-e(d) provides as follows:
(d) [b]y agreement of the parties to a date no later than one (1) month prior to the close of fact discovery, or at such time set by the Court, the responding party shall state, for each individual request: (i) whether the production of documents in its possession, custody or control and that are responsive to the individual request, as propounded or modified, is complete; or (ii) that there are no documents in its possession, custody or control that are responsive to the individual request as propounded or modified.
In other words, in addition to responding and objecting to document requests at the outset with specificity as required by Rule 11-e(a)-(b), one month prior to the close of fact discovery or another date set by a court, parties are further required to issue a statement that specifically denotes for each request whether document production is complete as requested or modified, or that they are not in possession of responsive documents. Such a formal obligation at the conclusion of discovery to specify whether production is complete for each individual request is not found in the Uniform Civil Rules or the Federal Rules of Civil Procedure, and appears to be entirely unique.
Despite this, Rule 11-e(d) seems to have largely gone unaddressed in the last decade with most courts and practitioners focusing instead on the other significant requirements of Rule 11-e. Even so, as recently as 2023, in Men of Steel Enterprises, LLC v. Bespoke Harlem W., LLC, 2023 N.Y. Slip Op. 30404[U] (Sup. Ct. N.Y. Co. 2023), the Honorable Joel M. Cohen ordered plaintiffs to submit amended responses to comply with the requirements of Rule 11-e(d) and did so despite the fact that plaintiffs had already represented in their opposition that they had produced all responsive documents and did not have additional documents in their possession, custody, and control—demonstrating that the Rule is alive and well and may be enforced to the full extent, even if merely as a formality. While it remains unclear how focused courts will be on the requirements of Rule 11-e(d) statements going forward, including their form and use, those practicing in the Commercial Division should be prepared to comply with its requirements.
Employers Modifying Retiree Benefits Provided More Clarity Following SCOTUS Decision (US)
Some employers offer benefits not only to their current employees, but under certain circumstances also offer certain benefits, such as health insurance, to employees who retire from working for them. Employers sometimes modify the terms of benefit policies, programs, and plans for a number of reasons, including to change coverages or eligibility requirements or to adjust contribution rates. Employers looking to make these sorts of changes, or even to discontinue certain retiree benefits, can do so now with more confidence that they won’t violate the Americans with Disabilities Act (ADA) after a recent decision by the United States Supreme Court.
On June 20, 2025, the Court decided in Stanley v. City of Sanford, Florida that retirees, as former employees, are not covered by the ADA’s anti-discrimination provision when applied to receipt of certain post-employment benefits.
The case was brought by Karyn Stanley, a firefighter who worked for a Florida city’s fire department. When she was hired in 1999, the city offered health insurance until age 65 for employees who retired either with 25 years of service and or those employees who retired due to a disability but prior to having 25 years of service. However, a few years later, in 2003, the city changed its retiree health insurance policy to provide health insurance to age 65 only for retirees with 25 years of service. Employees who retired earlier due to disability would receive coverage not until age 65, as previous, but instead only for 24 months post-retirement.
Ms. Stanley retired from the city’s fire department in 2018 after developing Parkinson’s Disease. Because she did not have 25 years of service at the time she retired due to her disability, under the 2003 policy, Ms. Stanley was eligible for only 24 months of retiree health insurance, and not coverage until age 65, as would have been the case under the policy in effect in 1999 when she was hired. Ms. Stanley sued the city, claiming that its 2003 change in policy limiting health insurance coverage for disabled retirees to 24 months from the prior policy in effect at the time of her hire which provided coverage until age 65 for disabled retirees regardless of years of service, discriminated against her on the basis of her disability in violation of the ADA.
Writing for the majority – only Justice Jackson dissented from the essential holding of the case – Justice Gorsuch explained that Ms. Stanley could not maintain her ADA claim against the city because the ADA only permits “qualified individuals” – those who held and could perform the essential functions of a position at the time of the alleged discriminatory act – to bring suit. Because Ms. Stanley was no longer working for the city nor able to perform the essential functions of her position when she sued the city, the Court explained that she was not covered by the ADA’s anti-discrimination provision, the plain language of which protects only current employees from disability-based discrimination. The Court did note, however, that although Ms. Stanley could not bring her ADA claim, other statutes, including the Rehabilitation Act and state law, may afford alternative avenues for relief.
In light of Stanley, those employers who provide retiree benefits now have more clarity that making changes to benefits that may negatively impact disabled retirees will not violate the ADA. But, as noted, that does not mean that such changes will necessarily be entirely lawful, as other laws may provide protection to disabled retirees or otherwise limit what sort of changes an employer can make in retiree benefit policies, programs, and plans.
Democratic Commissioners Reinstated at CPSC – for Now
As legal challenges continue regarding whether the President of the United States can terminate confirmed commissioners at a variety of “independent” agencies without cause, eyes turn to the Consumer Product Safety Commission (CPSC or Commission). In short, after challenging their firing by President Trump in court, the three Democratic CPSC commissioners are now back at their desks. On June 13, 2025, Judge Matthew Maddox of the Maryland District Court ruled that the firing violated federal law and ordered the commissioners’ immediate reinstatement. Siding with the plaintiffs, Judge Maddox held that “President Donald J. Trump’s purported termination of Plaintiffs Mary Boyle, Alexander Hoehn-Saric, and Richard Trumka Jr. from their roles as Commissioners of the Consumer Product Safety Commission … is ultra vires, contrary to law, and without legal effect.”
Having been restored to their positions at the CPSC, Commissioners Boyle, Hoehn-Saric, and Trumka have responded to actions taken by their Republican colleagues, Acting Chair Peter Feldman and Commissioner Douglas Dziak, during their absence. At the outset, they contend that because their firings were invalid, quorum requirements under 15 U.S.C. § 2053(d) were not met, and, therefore, any votes taken since their termination are invalid. For example, a June 17, 2025, “Time Critical Ballot” overturned the May 13, 2025, vote to withdraw a Notice of Proposed Rulemaking proposing a new safety standard for lithium-ion batteries in e-mobility devices, which we wrote about here and here. The three reinstated commissioners also voted to terminate “staff who have been hired, detailed, or otherwise placed at CPSC for the express purpose of carrying out Implementing The President’s ‘Department Of Government Efficiency’ Cost Efficiency Initiative Executive Order without majority approval by the full Commission.” Acting Chair Feldman and Commissioner Dziak abstained.
The Administration promptly appealed the District Court’s decision to the Fourth Circuit and then asked both the Fourth Circuit and the District Court to pause the District Court’s order reinstating the three Democratic commissioners, pending the appeal. Unsurprisingly, the reinstated commissioners opposed the stay request. On June 23, 2025, Judge Maddox denied (Pacer subscription required) the motion before him, while the motion for a stay before the Fourth Circuit is now fully briefed and ripe for a decision.
Both parties cited the May 22, 2025, emergency order issued by the Supreme Court in Trump v. Wilcox in support of their position. In Wilcox, the Supreme Court determined that a stay of a preliminary injunction reinstating terminated federal officers (in that case, involving officials of the National Labor Relations Board) was “appropriate to avoid the disruptive effect of the repeated removal and reinstatement of officers during the pendency of this litigation.” Unlike the preliminary posture of that case, however, the District Court in the present CPSC case issued a permanent injunction reinstating the commissioners. Thus, according to Judge Maddox, the risk of disruption from “repeated removal and reinstatement” is “no longer a factor.” As the dissenting Justices in Wilcox recognized, the emergency order in that case calls into serious doubt the continued validity of a 90-year-old Supreme Court precedent, Humphry’s Executor v. U.S., which generally held that Congress has power to create independent agencies, such as the CPSC, and forbids the Executive to remove independent agency members except for cause.
The central legal question regarding the President’s authority under the Constitution to terminate officers of federal agencies with or without cause is expected to eventually land before the Supreme Court as this and other challenges to federal agency terminations continue. While the future of Humphry’s Executor remains uncertain, all eyes are now on the Fourth Circuit to see whether the three CPSC Democratic commissioners will remain in their positions.
Recent Ninth Circuit Opinion Finds Failure of Company to Push Back on an SEC Comment as Evidence of Alleged Section 12(a)(2) Liability
In monitoring recently issued court opinions touching on securities law, we came across one that was particularly interesting because of its potential practical implications in the context of companies responding to SEC comment letters. Any company that has received an SEC staff comment letter related to its disclosures understands that there could be any number of reasons for the company’s decision on how to respond to a given SEC comment. However, the Ninth Circuit’s recent panel opinion in Pino v. Cardone Capital, LLC, suggests that a company’s lack of pushback to an SEC comment may evidence the company’s state of mind for purposes of evaluating potential liability under Section 12(a)(2) of the Securities Act.
Background
Pino is a putative class action alleging that the defendant knew the falsity of opinions it stated to prospective investors while marketing a Regulation A offering in which the plaintiff retail investor purchased interests in real estate investment funds. The plaintiff sued the investment funds, their management entity, and the manager’s founding executive, alleging violations of Section 12(a)(2) due to misstatements and omissions made by the executive on social media to prospective investors around the time of the offering. The complaint primarily alleged that defendants made misleading opinion statements on social media regarding the projected IRR the funds would achieve. Specifically, the executive allegedly boasted on Instagram that investors could double their money and told viewers on YouTube:
[Y]ou’re gonna walk away with a 15% annualized return. If I’m in that deal for 10 years, you’re gonna earn 150%…You can tell the SEC that’s what I said it would be…some people call me Nostradamus, because I’m predicting the future dude, this is what’s gonna happen.
The complaint also alleged that defendants’ social media communications to would-be investors contained misleading omissions by failing to disclose a letter from the SEC to the company asking it to remove the IRR and distribution projections from the Regulation A offering circular on the basis that the projections lacked backing.
The district court granted defendants’ motion to dismiss. Plaintiff appealed to the Ninth Circuit, which reversed.
Ninth Circuit Analysis
Section 12(a)(2) of the Securities Act provides a cause of action where securities are offered or sold using prospectuses or oral communications that contain material misstatements or omissions. The Ninth Circuit panel noted that plaintiff’s Section 12(a)(2) claim regarding defendants’ social media statements must adequately plead “subjective falsity,” meaning under Omnicare that “the speaker did not hold the belief [he] professed.”
In determining that plaintiff adequately pled subjective falsity, the panel placed particular emphasis on the SEC comment letter process relating to the funds’ Regulation A offering statement:
Pino’s allegation of Cardone’s subjective disbelief is both strong and reasonable: Cardone made a projection of 15% IRR and relatedly high distributions in its initial offering circular. The SEC reviewed the offer and in a letter to Cardone stated these projections lacked backing and should be removed. Cardone pushed back on other criticisms from the SEC, but not this one, suggesting Cardone did not truly believe its own projections and lacked evidence to rebut the SEC. [Emphasis added.] Even so, Cardone continued to repeat the IRR and distribution projections in other communications to would-be investors on social media.
That is, in the panel’s view, in acquiescing without objection to the SEC’s challenge to the offering statement disclosure about IRR projections, defendants plausibly could be alleged to have conceded the subjective falsity of their social media statements on the same topic:
We acknowledge that the SEC’s letter itself did not take a position on the subjective belief or objective falsity of the projections. But Cardone’s telling reaction to the SEC letter — removing the projections without any rebuttal or comment — evinces Cardone’s subjective disbelief. Construing the facts in the light most favorable to Pino plausibly supports the claim that Cardone did not believe these projections in the first place.
For reference, the exchange below is what we believe the Ninth Circuit is referencing.
SEC Comment:
“We note your disclosure on page 17 and throughout the offering statement that references your strategy to pay a monthly distribution to investors that will result in a return of approximately 15% annualized return on investment. We further note you have commenced only limited operations, have not paid any distributions to date and do not appear to have a basis for such return. Please revise to remove this disclosure throughout the offering statement.”
Company Response:
“We have removed the references on pages 17, 26, and 32.”
Perhaps just as interestingly, the Ninth Circuit panel found that plaintiff had plausibly pled a Section 12(a)(2) violation on the basis that defendants’ social media communications did not mention the SEC comment letter, thus constituting under Omnicare a material omission of which the purchaser was not otherwise aware. The panel in this connection rejected defendants’ argument that the availability of the relevant SEC correspondence on EDGAR meant that plaintiff in fact had constructive knowledge of the alleged material omission; instead, the panel ruled that only a plaintiff’s actual knowledge of an omission can defeat a Section 12 claim.
Revisiting Tandy Representations and the Titan Report
Reading this case, we can’t help thinking about the old “Tandy” representations. Beginning in the mid-1970s, the SEC staff began to include in filing review comment letters what became known as “Tandy” language, a name derived from the Tandy Corporation, the first company to receive a letter containing this language. Tandy letters required a company to acknowledge in writing that the disclosure in the document was its responsibility and to affirmatively state that it would not raise the SEC review process and acceleration of effectiveness as a defense in any legal proceeding. (Emphasis added.) In 2004, the staff announced a new policy to release to the public most filing review correspondence without requiring a request for it under the Freedom of Information Act. In connection with this announcement, the staff also indicated that it would begin to include Tandy language in comment letters relating to all disclosure filing reviews. In October 2016, the Staff changed its policy and now no longer requires these representations. Instead, the Staff includes this statement in its comment letters:
We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.
The Pino opinion suggests that, depending on the circumstances, a company may want to consider including a statement in its comment letter response that is effectively the obverse of a Tandy representation — that is, a statement to the effect that the company’s response to any particular comment should not be construed as indicating the company’s agreement with the comment. In other words, while Tandy said that the company would not use the SEC review process as a shield in a legal proceeding, Pino entailed the plaintiff using the SEC review process as a sword, and companies may wish to consider defending themselves preemptively from that risk.
The idea of a company preemptively including disclaimer language to defend itself from potential disclosed-based claims has some historical precedent, in the form of market practice that developed from the SEC’s Titan Report. That 2005 publication warned that representations and warranties in publicly filed merger agreements can be considered investor disclosures and thus subject to anti-fraud liability if materially misleading. Subsequent to the Titan Report, companies began including disclaimer language to investors about the representations and warranties in a negotiated merger agreement. Below is an example from a recent 8-K:
The Merger Agreement has been attached to provide investors with information regarding its terms. It is not intended to provide any other factual information about [_______], Merger Sub or the Company. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement are qualified by information in a confidential disclosure letter provided by the Company to [_______] in connection with the signing of the Merger Agreement or in filings of the parties with the United States Securities and Exchange Commission (the “SEC”). This confidential disclosure letter contains information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants set forth in the Merger Agreement. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, are subject to limitations agreed upon by the parties to the Merger Agreement and are subject to standards of materiality applicable to the parties that differ from those applicable to investors. Information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in [_______]’s or the Company’s public disclosures. Moreover, the representations and warranties in the Merger Agreement were used for the purposes of allocating risk between [_______] and the Company rather than establishing matters of fact. In addition, investors are not third-party beneficiaries under the Merger Agreement. Accordingly, the representations and warranties in the Merger Agreement should not be relied on as characterization of the actual state of facts about [_______], Merger Sub or the Company.
Takeaways
Since virtually all public companies are subject to SEC review and comment on their ’33 and ’34 Act filings, we believe the concept underlying Pino (i.e., the idea that a plaintiff can get Section 12(a)(2) mileage from a company’s decision not to fight an SEC comment) should be considered by companies and their counsel when they are preparing an SEC response letter. While the statements at issue in Pino related to projections, it isn’t difficult to extend the concept to other more customary items subject to SEC comment, such as non-GAAP financial measures, contingencies disclosures, and revenue recognition, among others. Depending on the context, companies may want to consider whether it is appropriate to include some additional disclosure in the response letter when the company’s response (or lack thereof) could be used against them by a plaintiff searching for evidence to support a Section 12(a)(2) or similar claim.
Best Practices When Taking Voluntary Compliance Steps Using Workforce Analytics
The Trump administration has decisively shifted its approach to enforcing employment discrimination laws, leaving employers grappling for clarity and stability to inform their efforts to prevent and manage legal risks stemming from harassment and discrimination. Workforce analytics, accompanied by privileged legal advice tethered to risk tolerance, can assist employers to identify and address potential workplace discrimination issues minimizing legal risk amid the administration’s shifting enforcement priorities.
Quick Hits
The Trump administration has sought to end both federal enforcement of antidiscrimination laws based on disparate impact theories and to eliminate employer DEI programs.
Even with these shifting priorities, it remains critically important for employers to collect and study applicant and employee demographic data to maintain compliance with equal opportunity and antidiscrimination laws, as well as to be prepared for scrutiny under the Trump administration’s shifting policies.
Employers may want to consider proactive collection and analysis of workforce demographic data, barrier analyses, and enhanced training programs to ensure compliance with equal employment opportunity and antidiscrimination laws.
The administration—largely through the issuance of executive orders (EO)—has prioritized merit-based opportunity, sought to end usage of disparate impact theories of discrimination, rescinded federal contractor obligations to provide affirmative action and discrimination protections for women and minorities, sought to eliminate “illegal” diversity, equity, and inclusion (DEI) initiatives, and focused on stopping anti-American and anti-Christian bias and combating antisemitism. The Equal Employment Opportunity Commission (EEOC), the U.S. Department of Labor (DOL), and the U.S. Department of Justice (DOJ) have all taken actions to advance the Trump administration’s policy objectives, but questions remain.
In particular, the Trump administration’s focus on discouraging the collection of applicant data related to race, ethnicity, and sex, coupled with its messaging on unlawful race and sex discrimination in DEI programs, has many employers hesitant to collect, maintain, and analyze demographic information from their applicants and employees.
This legal landscape is especially confusing for federal contractors given the wind down of EO 11246 obligations, but the administration’s new focus impacts all employers. As a result, employers face challenges complying with legal obligations and effectively managing risks associated with workplace discrimination and harassment.
However, a close review of the EEOC’s Fiscal Year 2026 Congressional Budget Justification submitted to Congress in May 2025 reveals that EEOC investigations will continue to focus on employer data. According to the budget justification, the EEOC is committed to educating and informing its own staff to “combat systemic harassment, eliminate barriers in hiring and recruitment, recognize potential patterns of discrimination, and examine and analyze these often large or complex investigations effectively.” The agency said that in fiscal year (FY) FY2026, it plans to “conduct mid and advanced level training for field staff and assist with the development of class investigations, data requests, and data analysis for pattern and practice disparate treatment cases.” (emphasis added).
The EEOC’s characterization of budget funds sought for its litigation program is also instructive. As of March 31, 2025, 46 percent of the EEOC’s litigation docket involved systemic discrimination or class lawsuits. Citing efforts to enforce EO 14173, the Commission contemplates involving “expert witnesses” and “the discovery of large-scale selection data to prove the existence and extent of a pattern or practice of discrimination.” The Commission justifies its resource request “to remedy discrimination on prioritized issues,” and argues aggressive enforcement will result in “a strong incentive for voluntary compliance” by employers.
Shifting Enforcement Targets
Employers may see an increase in EEOC charges from charging parties and Commissioner’s as well as other enforcement activities that align with the current administration’s priorities, including enforcement regarding DEI programs, so-called anti-American bias, national origin discrimination, and anti-Semitism. As just one example, the EEOC recently settled a systemic investigation into national origin and anti-American bias for $1.4 million dollars.
EEOC Acting Chair Andrea Lucas has repeatedly warned employers that EEOC focus will be on intentional disparate treatment cases where there has been a “pattern or practice” of discrimination. Like disparate impact, “pattern or practice” claims are rooted in systemic issues and typically involve the use of statistical evidence related to allegedly aggrieved individuals.
The 2024 Supreme Court decision in Muldrow v. City of St. Louis (rejecting a heightened bar for alleging an employment decision or policy resulted in an adverse impact on terms and conditions of employment) and the 2025 decision in Ames v. Ohio Department of Youth Services (rejecting a higher evidentiary standard for employees from majority groups to prove employment discrimination), have made it easier for plaintiffs to plead and prove employment discrimination claims under Title VII. The decisions seemed to have widened the doorway for more claims from individuals from majority groups (so-called reverse discrimination claims) and potentially made it easier to evade summary judgment and reach a jury trial if litigation ensues.
Moreover, federal contractors, institutions relying on federal contracts or grants, and federal money recipients face additional concerns with False Claims Act (FCA) liability. President Trump’s EO 14173, which seeks to require entities to certify for purposes of the FCA that they do not maintain unlawful discriminatory policies, namely illegal DEI policies. The DOJ has launched an initiative to use the FCA to investigate civil rights violations committed by federal fund recipients, expanding legal exposure to such employers.
Proactive Steps
Given the current legal landscape, employers may want to take proactive steps to ensure compliance with equal employment opportunity and antidiscrimination laws. These steps may include:
Collect and Analyze Demographic Data: Collecting and analyzing demographic data can be crucial for identifying and addressing disparities within the workplace and for documenting and demonstrating reasons for employment decisions or policies. While there may be concerns about collecting demographic data, such concerns may be alleviated by keeping data confidential and analyzing it under attorney-client privilege.
Barrier Analysis: Barrier analysis involves identifying and addressing obstacles that may prevent equal employment opportunities. This can include reviewing hiring practices, promotion policies, and other employment decisions that cover all aspects of the employment life cycle to ensure they do not disproportionately impact certain groups. By conducting a thorough barrier analysis, employers can proactively address potential issues before they become legal problems and remove barriers.
Review and Update Policies: Regular reviews of and updates to employers’ antidiscrimination and harassment policies can help ensure they align with current laws and the administration’s priorities, as well as employers’ values, goals, and objectives. Such reviews may include policies related to DEI, national origin discrimination, and anti-Semitism.
Provide Training: Implementing regular training programs for company leaders, managers, and employees on new antidiscrimination enforcement developments can help prevent discriminatory behavior and ensure that all employees understand their rights and responsibilities. Updating modules and examples to reflect changing priorities may help employers remain compliant. Likewise, covering a wide variety of scenarios and examples, including majority characteristics, can be important to review and include.
Next Steps
The shifting landscape of employment law presents both challenges and opportunities for employers. To be prepared, employers can stay informed on the latest actions and consider which proactive steps may be best to avoid potential liability and achieve their goals and objectives.
SYSTEM REBOOT ON AUTODIALERS?: McLaughlin and the Future of TCPA Statutory Interpretation
Greetings TCPAWorld!
The Supreme Court dropped another surprise that’s about to turn everything upside down again. See McLaughlin Chiropractic Assocs. v. McKesson Corp., No. 23-1226, 2025 U.S. LEXIS 2385 (June 20, 2025). McLaughlin was not, in turn, about autodialers at all—it was about whether courts must consider FCC interpretations under the Hobbs Act. But what about the ripple effects for automatic telephone dialing systems (“ATDS”)? Absolutely, potentially massive.
For the past four years, we’ve all been living in the post-Facebook (Facebook, Inc. v. Duguid, 592 U.S. 395 (2021)) world where everyone pretty much agreed on what an automatic telephone dialing system actually means. The Supreme Court seemed to settle the matter: to qualify as an ATDS, your equipment must have the capacity to store or produce telephone numbers using a random or sequential number generator and then dial those numbers.
That narrow interpretation was huge for businesses that had been facing significant challenges from TCPA class actions. Before this clarification, plaintiff attorneys were arguing that any system capable of storing phone numbers and dialing them automatically—such as a smartphone, a basic CRM system, or even predictive dialers calling from customer lists—could qualify as an ATDS. The Supreme Court’s grammatical analysis put an end to that madness by concluding that “using a random or sequential number generator” modifies both “store” and “produce,” meaning you need the random generation component for either function.
But here’s where McLaughlin comes in and changes everything we think we already know. Justice Kavanaugh’s majority opinion established a principle that will reshape how every TCPA case is litigated: district courts must independently interpret statutes under ordinary principles of statutory construction, giving only “appropriate respect” to agency interpretations. This is not a minor shift at all, as it explicitly disclaims the view that district courts are bound by FCC interpretations in private TCPA actions. WOW!
Now let’s not put the cart before the horse. That means the FCC no longer controls how district courts interpret the TCPA, although its guidance may still be considered persuasive.
This represents a gigantic shift from the old days, when FCC orders interpreting the TCPA were treated as binding under Hobbs Act jurisdictional preclusion. District courts previously could not disagree with FCC interpretations because challenges had to go to the courts of appeals. Now, following McLaughlin and last year’s Loper Bright decision, which eliminated Chevron deference entirely, federal judges must do the hard work of statutory interpretation themselves.
So what does this mean for ATDS? While Facebook settled the core definition at the Supreme Court level, there were still plenty of gray areas that the FCC had been filling in with guidance and interpretations. Now, district courts can look at those same issues with fresh eyes. See the challenge here? This will no doubt create new circuit splits and ALOT more unpredictability.
Post-McLaughlin, one district court might look at the statutory text and decide that “capacity” means what you can do right now, not what you could theoretically do with software modifications. Another court three states over might stick closer to the FCC’s broader interpretation. Yet another might split the difference and require some middle ground between current functionality and theoretical potential. Suddenly, we’re back to forum shopping and conflicting precedents across jurisdictions, with plaintiffs rushing to file in friendly districts while defendants attempt to relocate cases to more favorable venues.
Then there’s the question of human intervention. FCC guidance has generally stated that if a human must initiate every call, you’re probably not dealing with an ATDS. But how much human involvement is enough? What if a person loads the contact list, but the system dials automatically? What about click-to-call platforms where humans trigger each individual call? These cases, which seemed settled under FCC guidance, are now fair game for independent judicial interpretation.
The world of predictive dialing is an exciting one. Modern predictive dialers that operate from stored customer lists were largely exempted after Facebook, as they don’t use random generation. But there are still cases—systems that use algorithms to select numbers sequentially within targeted lists, or platforms that employ some mathematical progression that might arguably qualify as “sequential.” Without FCC deference, creative plaintiff attorneys can argue these distinctions to judges who might see things differently than the agency.
And don’t get me started on platform-specific technologies. Peer-to-peer texting systems, automated appointment scheduling, click-to-call functionality—all these technologies that the FCC has weighed in on over the years are now subject to fresh judicial analysis. A district judge unfamiliar with a specific platform may interpret the statutory language differently from an agency with telecommunications expertise.
The implications extend beyond federal courts as well. It’s only fitting that I talk about Florida, my home state. Florida’s Telephone Solicitation Act (“FTSA”) is likely the best example of how states have been attempting to fill the gap and narrow the federal interpretation. The FTSA initially defined prohibited technology as “an automated system for the selection or dialing of telephone numbers”—notice the “or” instead of “and,” and the complete absence of any random or sequential number generation requirement.
Florida amended the law in 2023 to require systems that both select and dial numbers; however, this still doesn’t incorporate the TCPA’s requirement for random or sequential number generation. You’ve got a peculiar situation where technology that’s perfectly legal under federal law may still be considered a violation of Florida state law. The McLaughlin principle doesn’t directly affect how state courts interpret state statutes. Still, it certainly signals a broader trend toward judicial skepticism of agency interpretations that extend beyond what the actual statutory text states.
Speaking of that trend, we just saw another example play out in real time. The Eleventh Circuit’s decision in Insurance Marketing Coalition v. FCC struck down the FCC’s one-to-one consent rule, essentially telling the agency that it had overstepped its authority. See Ins. Mktg. Coal. Ltd. v. FCC, 127 F.4th 303 (11th Cir. 2025). The reasoning there—that agencies can only “reasonably define” statutory provisions without altering them—sounds awfully similar to the McLaughlin approach.
So, how will this ultimately play out? I’m glad you asked. For defense attorneys, McLaughlin opens up a whole new playbook. Instead of having to work around FCC interpretations of ATDS scenarios, you can now argue directly from statutory text and context. Got a client using technology that stores numbers but doesn’t generate them randomly? Make the textual argument. Using a system with human intervention that the FCC once deemed “automated”? Point the court to the text. Using some algorithmic selection that doesn’t quite fit the random/sequential concept? Time to get creative with statutory interpretation.
The flip side is that plaintiff attorneys also gain new opportunities. They can argue for broader textual interpretations of ATDS without having to overcome existing FCC guidance. The whole question of what “capacity,” “production,” and “storage” mean in the context of modern technology is back on the table.
From a compliance perspective, this creates a much more complex landscape. It used to be that if you followed FCC guidance, you had a pretty good safe harbor. Now you’ve got to think about how different district courts in different jurisdictions might independently interpret the same statutory language. For instance, compliance that works perfectly in the Ninth Circuit might change drastically in the Fifth Circuit, not because the law changed, but because different judges reached different conclusions about what Congress meant when it wrote about ATDS.
This all fits into the constraining of administrative power and the return of interpretive authority to the judiciary. Following Loper Bright’s elimination of Chevron deference and McLaughlin’s limitation of Hobbs Act preclusion, we’re witnessing a fundamental rebalancing toward judicial supremacy in statutory interpretation. Bottom line for anyone in the TCPA space, this means possibly less predictability in the short term, but potentially more sophisticated, text-based analysis over time. Exciting stuff!
Trade Secret Law Evolution Podcast Episode 78: When Are Misappropriators Dangerous Enough to be Enjoined? [Podcast]
In this episode, Jordan discusses a recent case from the Southern District of New York where an injunction was partially granted on a breach of contract claim but not on the trade secret claim. The Court found the plaintiffs didn’t make a sufficient showing on irreparable harm, based on a lack of “danger” that the misappropriator would disclose the trade secrets to someone else.
SCOTUS Says District Courts Are Not Bound by FCC Orders Interpreting the TCPA
On June 20, 2025, the U.S. Supreme Court delivered an opinion that could dramatically change the landscape of class actions under the Telephone Consumer Protection Act (TCPA).
In the case—McLaughlin Chiropractic Associates, Inc. v. McKesson Corporation—the Court held that the Hobbs Act does not bind district courts in civil enforcement proceedings to accept an agency’s interpretation of statutes such as the TCPA. The Court emphasized that district courts “instead must determine the meaning of the law under ordinary principles of statutory interpretation, affording appropriate respect to the agency’s interpretation.” More directly, the FCC’s word is not the last in determining the TCPA’s definitional and liability standards.
The underlying case involved a dispute as to whether the district court was bound to follow an FCC order that “an online fax service is not a ‘telephone facsimile machine’” actionable under the TCPA. The district court ultimately decided that the FCC’s ruling was “a final, binding order” dictating how the law must be applied. The Ninth Circuit affirmed that decision.
A 6-3 Supreme Court majority, however, held that both lower courts got it wrong. District courts are not barred from independently assessing whether the FCC’s interpretation of the statute is correct and, in fact, categorically refusing to interpret the statute is error.
Suddenly with the Court’s decision, decades of FCC orders—as well as years of judicial precedent adopting the FCC’s interpretation of the law—are called into question. New battlegrounds are sure to arise as litigants seek to redefine “correct” interpretations of the TCPA’s requirements, including with respect to definitional language in the statute, its applicability to text message communications, and the scope of consent and opt-out compliance requirements under the law.
A three-justice dissent, led by Justice Kagan, notably raises concern with the majority’s holding, finding that the decision will lead to regulatory uncertainty, undermine the stability of administrative programs, and cause parties to disregard pre-enforcement agency orders.
Whatever the end result may be, there should be no dispute that McLaughlin will change how parties previously litigated TCPA class actions, and it opens opportunities for defense attorneys to make new arguments protecting clients against massive TCPA liability risks moving forward.
“Prior Knowledge” Claims and How to Avoid Them
The Sixth Circuit recently affirmed a professional liability insurer’s denial of coverage based on an assembly-line equipment designer and manufacturer’s prior knowledge of a customer dispute that predated the policy’s effective date. The decision, Fives ST Corp., v. Allied World Surplus Lines Ins. Co., No. 24-1921, 2025 WL 1639637 (6th Cir. June 10, 2025), highlights the importance of adequate disclosures during policy underwriting and common missteps based on alleged prior knowledge of claims or alleged wrongdoing that can lead to denials and coverage disputes months or years later when those disputes escalate into formal litigation.
Background
Fives ST Corporation was consistently late in delivering equipment to a customer. In 2020, the customer made a demand for liquidated damages, which eventually led to the parties settling for €100,000 and an agreement for FST to provide on-site services.
The negotiated resolution did not last long. In 2021, the customer sent another letter alleging that FST’s ongoing design failures had required the customer to bear substantial costs. FST disagreed, but a specialist retained by FST had already concluded that FST’s equipment was defective, which was causing it to malfunction.
In the midst of the customer quarrel, FST applied for a new professional liability insurance policy, which would cover FST’s provision of services to customers like the design and construction of assembly lines already at issue in the dispute.
The insurance application used to underwrite the policy asked if any officers or employees at FST had “knowledge of any act, error or omission, unresolved job dispute (including fee disputes), accident or any other circumstance that is or could be the basis for a claim” under the proposed policy. The application form also stated that “if such knowledge or information exists, any claim arising therefrom is excluded from this insurance.” FST had originally left this question blank, but when pressed by the underwriters, FST responded “no.”
The insurer eventually issued the policy, agreeing to indemnify FST for any “Claim” “arising out of a Wrongful Act in the rendering or failure to render Professional Services,” which was defined to include services performed for others in FST’s capacity as a construction manager. Concurrently, FST’s customer dispute continued to escalate, leading the customer to file a lawsuit alleging that FST breached its contractual obligations in “mis-designing the equipment, failing to own up to its own failure, and continuously stringing [the customer] along with missed deadlines, false promises, and partial fixes.”
After the insurer denied FST’s claim, FST sued seeking defense and indemnification under its professional liability policy. The district court upheld the denial, finding that FST knew about circumstances that could give rise to a claim under the policy and failed to disclose that on the application.
The Court’s Analysis
The Sixth Circuit affirmed the no-coverage ruling on appeal, focusing principally on one fact: FST had knowledge of its dispute with the customer when it applied for the policy and inaccurately responded “no” to the question in the application asking about FST’s knowledge of any act, error, or omission that could give rise to a claim under the policy.
The Sixth Circuit began by asking “Did FST have knowledge of its ongoing dispute with its customer when it applied for the Allied World policy?” Applying Michigan law, the court concluded the answer was yes.
The policy required two conditions to get coverage. First, the claimant’s alleged “wrongful acts” had to have taken place during the covered period of December 29, 2003, and December 31, 2022. And second, more importantly, FST’s officers and employees could not have any knowledge of those “wrongful acts” or circumstance that could give rise to a claim under the policy. When FST applied for the policy, it claimed no knowledge of disputes related to its professional services, despite being aware of potential design-defect claims from the customer assembly line for over a year prior. While the parties were negotiating a settlement, the customer continued to find defects with FST’s equipment and emailed FST a list of issues it had with the equipment FST had provided. These design and assembly issues, the court concluded, “fell at the heart of FST’s role” as a construction manager. At the time it applied for coverage, therefore, FST knew about acts, errors, or omissions, or unresolved job disputes that could be the basis for a claim.
FST argued that the dispute was simply “run-of-the-mill business and contractual disputes around the timing of delivery.” Not so, the Sixth Circuit reasoned, because FST itself recognized that the dispute centered around a “design issue,” which FST knew about when it applied for coverage.
The court also rejected FST’s argument that the alleged design defects were about a component part designed by one of FST’s subcontractors. That defense failed because FST, not its subcontractor, was contractually responsible for supplying the relevant equipment to the customer.
FST finally contended that insurers usually are not allowed to deny coverage just because the policy took effect after the circumstances giving rise to the claims. The court acknowledged that principle under Michigan law but found it inapposite to FST’s customer dispute because FST’s knowledge of the ongoing or potential claims meant that there was no coverage at all.
“Prior Knowledge” Issues and Ways to Avoid Them
Liability policies written on a “claims made” basis are designed to respond to claims asserted after the policy’s effective date, even if the alleged wrongdoing took place prior to the effective date. But insurers are wary of insuring “known risks,” which can arise in numerous ways.
Like the questionnaire in the FST dispute, one way insurers identify those risks is through application questions, asking the applicant to disclose knowledge of past disputes, demands, claims, and other grounds that may give rise to a potential claim under the anticipated policy. Another way is through the policy itself, which may include exclusions or other limitations aimed at preventing an insured from purchasing a policy for risks it knew about before applying for coverage.
The Fives ST coverage litigation highlights several key takeaways for policyholders looking to avoid similar prior-knowledge issues arising from either the underwriting process or problematic policy language.
Pay Close Attention to Underwriting Disclosures. Policyholders must remain vigilant in completing applications and fielding underwriter inquiries to avoid potential gaps in coverage, coverage denials, or policy rescission.
Misrepresentations or omissions on applications can lead to coverage denials or policy rescission. As shown in the Fives ST lawsuit, small details (or omissions) in policy applications and other disclosures to underwriters can be the difference between recovery and denial. Beyond applications, policyholders could run afoul of prior knowledge issues in other ways, like signing warranty letters (to obtain higher limits) or even making offhand statements to underwriters on phone calls or in emails. The bottom line is that these disclosures are more than a procedural hurdle to clear before obtaining insurance coverage—the facts and information disclosed in underwriting can later bar coverage—or worse, lead to rescinded policies—if the information is later deemed incomplete or inaccurate.
Beware of Prior Knowledge Exclusions. FST learned the hard way that incomplete or inaccurate representations during the underwriting process can limit or eliminate coverage for future exposures. But that is not the only way prior knowledge impacts claims. Liability carriers often include “prior knowledge” exclusions that can bar coverage if prior to policy inception the insured had a reasonable basis to believe that the wrongful acts at issue could result in a claim.
As with most exclusions, prior knowledge clauses vary widely and are subject to negotiation and, if needed, modification. Whose knowledge is relevant? What knowledge is required to trigger the exclusion and how, if at all, is that requirement qualified? Asking these and other questions in reviewing policy proposals can help identify overbreadth and avoid surprises when submitting claims.
Consider Retroactive Dates. A corollary to the prior knowledge exclusion is the policy’s so-called “retroactive” date. A retroactive date in many claims-made policies is a provision eliminating coverage for claims for wrongful acts taking place before a specific date, even if the claim is first made against the insured during the policy period. Some policies provide “full” prior acts coverage, without a retroactive date.
As you can imagine, the difference in coverage between a policy with a recent retroactive date and full-prior-acts coverage is stark. While extensions to cover all prior acts may not be possible in all cases, understanding these distinctions at the time of policy placement is important to avoid mismatched expectations when a claim arises.
Reporting and Understanding Different Types of “Claims.” Another feature of modern claims-made policies is that coverage is triggered based on when a claim is first made against the insured and reported to the insurer. This is very different from other coverages—like commercial general liability policies—that allow for reporting months or years after a policy expires, so long as the underlying occurrence (e.g., injury, accident) happened during the policy period.
For those reasons, providing notice early and often is paramount. That includes reporting both actual and potential claims (referred to as “notice of circumstances”) consistent with policy requirements. Those notice obligations turn on whether a “Claim” is made against an insured, regardless of whether the claim is frivolous, will be dismissed, or will pose a material exposure to the company or the liability insurer.
To assess whether and how to report claims, one must first understand what constitutes a “Claim” in the first place. Many sophisticated companies and executives are surprised to learn about how broadly-defined that term is in many claims-made policies, including that seemingly routine emails and other written communications from customers, investors, and other putative claims can arise to the level of a claim that triggers a reporting obligation. And that’s not even accounting for lesser-known but equally important coverage extensions for things like “pre-claim inquiries” and other matters.
In short, arming in-house counsel, risk managers, executives, and other key decision makers with adequate knowledge of how policies operate and how the company needs to respond to claims can help avoid late notice and the coverage denials that come with it.
Conclusion
Insurers will not hesitate to investigate all potentially viable defenses to coverage—including rescission—based on the policyholder’s prior knowledge of facts or circumstances giving rise to a claim submitted under a liability policy. The Fives ST opinion illustrates that coverage missteps can occur long before a claim arises and that the time to assess disclosure obligations and exclusions that might foreclose coverage based on prior knowledge is before the policy is procured or renewed. Engaging experienced brokers, consultants, coverage counsel, and other risk professionals before a claim or dispute arises can help mitigate the risk of a coverage dispute and to maximize recovery in the event of a claim.
After Oral Argument, Supreme Court Dismisses Labcorp Appeal of Class Certification Based On Article III Standing and Circuit Split Persists
On April 29, 2025, the Supreme Court heard oral argument in Labcorp v. Davis, in which it considered the question of whether Article III standing must be determined for all members of the class, including uninjured members, at the outset of class certification. The issue presented is one that has deeply divided the federal courts of appeals after it was left open by the Court’s prior rulings in TransUnion LLC v. Ramirez and Spokeo, Inc. v. Robins. On June 5, 2025, the Supreme Court dismissed the case as improvidently granted, leaving the question unresolved.
Backdrop: Labcorp Case Before the Ninth Circuit
In 2020, a class actional lawsuit was filed against Labcorp alleging that its express self-check-in kiosks violated federal and California disability laws because they were not accessible to blind individuals. The District Court certified two classes of legally blind Labcorp patients who were unable to access the kiosks: a nationwide class for purposes of injunctive relief under the ADA and a California class for purposes of monetary damages under the California statute.
On appeal, the Ninth Circuit affirmed the class certifications. Labcorp petitioned for review, arguing that only those who actually used the kiosks had Article III standing to sue and all uninjured members included in the class could not sustain their claims because they lacked an Article III injury.
The Supreme Court granted certiorari. The question presented for the Court’s consideration was as follows:
May a federal court 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?
Labcorp’s Argument: Article III Standing Necessary for Class Certification
Petitioner Labcorp’s argument hinged on the predominance requirement of Rule 23(b)(3). Citing to In re Rail Freight Fuel Surcharge Antitrust Litigation and In re Asacol Antitrust Litigation from the D.C. Circuit and First Circuit, respectively, counsel for Labcorp noted that, when a class is defined to include plaintiffs without Article III standing, the Article III issue predominates and swamps any common issues.
Labcorp explained that, if a class is defined on the front end such that both injured and uninjured individuals are encompassed by the definition of the class, thousands of mini-trials would have to be conducted to separate them, which it argued would become more important than any other common issues.
The justices questioned Labcorp as to why uninjured members would require standing given that, ordinarily, only one person must satisfy the standing criteria in order to invoke the jurisdiction of the Court.
Moreover, the justices highlighted that, specifically in the class context, absent class member claims are added to the case when it is certified, but they are not added as new parties. Based on this distinction, the justices further questioned why it would be necessary to prove whether individuals were injured or uninjured at the outset.
The justices’ final line of questioning pertained to when the appropriate time would be to determine Article III standing, with one of the justices suggesting that the determination of Article III standing is only pertinent when apportioning damages.
The rationale for this was that courts do not do anything with respect to uninjured members’ claims until the damages stage. Thus, because uninjured class members’ claims are “just riding along [and] not affecting the litigation in any way,” the justices highlighted that this cast doubt on the necessity of a showing of Article III standing at the outset.
Respondent’s Argument: Article III Standing Not a Requirement for Absent Members
Counsel for Respondent Davis began his argument highlighting that centuries of precedent dictate that only the representative of a class, who is actually before the court as a named party, must prove Article III standing at the outset of class certification and not the absent class members.
Further, Davis’ counsel argued that the understanding has always been that absent class members are not parties over whom the court exercises jurisdiction unless and until the court is doing one of two things: exercising its remedial power with respect to an absentee or deciding a question that it wouldn’t otherwise have to decide, such as an individual question.
The justices’ main line of questioning revolved around how uninjured members would be eventually left out of the damages calculation. Counsel noted that there would have to be an administratively feasible mechanism outlined at the outset to weed out the uninjured members for damages purposes.
Counsel for Davis ended by arguing that Labcorp’s proposed alternative could actually have disastrous consequences for other defendants. As is, defendants can “rest easy knowing that they’ve prevailed in a class action and someone isn’t going to run into state court and bring the exact same claim and say, a-ha, we didn’t have Article III standing in that first case.” This, counsel argued, would disturb the finality of class-wide judgments.
Supreme Court’s Dismissal of the Case and Kavanaugh’s Dissent
On June 5, 2025, the Supreme Court dismissed the case, noting that it had been improvidently granted. Justice Kavanaugh, however, dissented, and the concerns highlighted in his dissent were foreshadowed by his questioning concerning real-world consequences during argument.
Justice Kavanaugh stated that he “would hold that a federal court may not certify a damages class that includes both injured and uninjured members.” His rationale was that, when there is a damages class that includes both injured and uninjured members, the case could not by definition meet the Rule 23 requirement that common questions predominate.
Turning attention to real-world consequences, Justice Kavanaugh noted that classes that are overinflated with uninjured members threaten massive liability for businesses that are targeted with class actions. This, he said, can coerce businesses into unjustifiably costly settlements, which could have severe and widespread consequences. When forced into unjustifiably costly settlements, businesses would then raise the costs of doing business and would be forced to pass on the costs to consumers in the form of higher prices, to retirement account holders in the form of lower returns, and to workers in the form of lower salaries and lesser benefits.
Future of Article III Standing and Class Certification with a Surviving Circuit-Court Split
Currently, there is a three-way split amongst circuits regarding the question of Article III standing and class certification.
The D.C. Circuit and First Circuit permit certification of a class only if the number of uninjured members is de minimis. The Ninth Circuit permits certification even if the class includes more than a de minimis number of uninjured class members. The Eighth and Second Circuits have taken the strictest approach, rejecting certification if any members are uninjured.
Because the Supreme Court still has not ruled on the issue, defendants should continue to scrutinize potential standing deficiencies for both class representatives and absent class members as well. However, there may yet be a resolution, as the issue has been raised again in State Farm Mut. Auto. Ins. Co. v. Jama.
In its petition for certiorari, State Farm poses the question of whether a Rule 23(b)(3) damages class can be certified when some members of the proposed class lack any Article III injury. Whether the Supreme Court will grant certiorari is unclear, but if it does, there will be a renewed opportunity for the Court to answer the question and resolve the longstanding circuit split on the issue.