The Possible Securities Act Implications Of Harvard’s “Nyet” To Government Civil Rights Reform Demands
Last week, the United States General Services Administration, Department of Education, and Department of Health and Human Services sent a letter to Alan M. Garber, the President of Harvard University, and Penny Pritzker, Lead Member of the Harvard Corporation. The letter asserts that “Harvard has in recent years failed to live up to both the intellectual and civil rights conditions that justify federal investment”. The letter outlined an agreement in principle so that Harvard could maintain its “financial relationship with the federal government”. Harvard responded a few days later through its outside counsel with an unequivocal nyet: “Harvard will not accept the government’s terms as an agreement in principle”. Yesterday, President Trump raised the stakes even higher by posting the following:
Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting “Sickness?” he wrote on Truth Social. “Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!
In the midst of this donnybrook, Harvard is offering $750 million in bonds. According to the offering memorandum, the offer and sale has not been registered under the Securities Act of 1933 in reliance upon Section 3(a)(4). That statute exempts:
Any security issued by a person organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any person, private stockholder, or individual, or any security of a fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the Investment Company Act of 1940.
The exemption does not expressly refer to tax exempt status under the Internal Revenue Code, but the Offering Memorandum does state that the issuer is “exempt from federal income tax pursuant to Section 510(c)(3) of the Internal Revenue Code”. Loss of that tax exemption likely would call into question the availability of the Section 3(a)(4) for future offerings. With respect to the current offering, it is also possible that the Securities and Exchange Commission could question whether any part of the net earnings Harvard inure to the benefit of any person.
The Section 3(a)(4) exemption does not exempt Harvard from liability under Section12(a)(2) or Section 17 of the Securities Act. Thus, it is possible that the SEC may take an interest in the adequacy of disclosures in Harvard’s Offering Memorandum, as was recently suggested on a LinkedIn post by Professor Steven Davidoff Solomon at the University of California, Berkeley School of Law.
Finally, it should be noted that Harvard’s bond offering is not necessarily exempt from state qualification/registration requirements or antifraud provisions. State qualification/registration requirements may also apply to resales of the bonds. Thus, one or more states may decide to take a look at Harvard’s bond offering as well.
New Proposed Bill in Louisiana Targets Synthetic Dyes and Food Additives
On March 18, 2025, Louisiana introduced Senate Bill 14, a bill that would require products containing artificial dyes, chemical additives, and other ingredients to include a warning label on the product where the substances are banned or not authorized in other countries. The bill lists 51 different ingredients that would require the warning, including several synthetic dyes, synthetic or artificial vanillin, propylparaben, potassium bromate, melatonin, bleached flour, and others. Any food items containing any of the listed ingredients would be required to bear the following warning label, “WARNING: This product contains an artificial color, chemical, or food additive that is banned in Australia, Canada, the European Union, or the United Kingdom.”
Additionally, SB 14 would prohibit public schools and non-public schools receiving state funds from serving ultra-processed foods. The bill defines ultra-processed food as any food or beverage that contains the following: Blue dye 1, Blue dye 2, Green dye 3, Red dye 3, Red dye 40, Yellow dye 5, Yellow dye 6, azodicarbonamide, Butylated hydroxyanisole (BHA), Butylated hydroxytoluene (BHT), Potassium bromate, propylparaben, and titanium dioxide.
Some additional provisions of the bill would also require any food service establishment that cooks or prepares food using seed oil to display a disclaimer on the menu or other clearly visible location, prohibit soft drinks from SNAP eligibility, and require physicians and physician assistants to complete continuing education on nutrition and metabolic health.
This bill mirrors Texas SB 25, as we’ve previously blogged about, which would also require warning labels on packaged food products containing artificial colors, chemicals, or food additives that do not have a regulatory clearance in other countries.
LA SB 14 is the latest in a host of newly proposed bills this legislative cycle targeting synthetic dyes and various other food additives, which, if adopted, will create a divided and complicated regulatory scheme across the country.
Keller and Heckman will continue to monitor developments related to state legislative efforts to prohibit food additives.
President Trump Orders Closure of the Department of Education: What Schools and EdTech Companies Need to Know About FERPA
On March 20, 2025, President Donald Trump issued Executive Order 14242 directing the Secretary of Education “to the maximum extent appropriate and permitted by law, [to] take all necessary steps to facilitate the closure of the Department of Education[.]” This long-expected but dramatic move has educational institutions and education technology (EdTech) vendors—companies that provide services such as online homework, grade tracking, and teaching materials—wondering what now happens to the millions of students’ education records they maintain. More importantly for would-be brokers of student data, does the sudden disappearance of the main enforcer of the Family Educational Rights and Privacy Act of 1974 (FERPA) make student data a gold mine or a minefield?
Quick Hits
FERPA is a federal law that sets out a number of requirements educational institutions that receive federal funding must meet for the protection of student educational records.
A recent Executive Order diminishes the federal government’s power to enforce FERPA, heightening concerns that EdTech vendors could use student education data in prohibited ways.
However, vendors would do so at their own risk, as the legal landscape surrounding student education records requires compliance with more than just FERPA.
What Is FERPA?
FERPA requires educational institutions that receive federal funding to protect student educational records. FERPA applies to all public and private K-12 schools, as well as post-secondary educational institutions, that receive federal funding. Specifically, FERPA requires such educational institutions to: (i) obtain consent prior to releasing education records, (ii) permit parents and eligible students to access and correct their records, (iii) provide annual notice of rights, (iv) maintain reasonable measures to keep education records secure, and more.
While FERPA does not apply directly to EdTech companies, vendors are typically required by their contracts with individual educational institutions to comply fully with FERPA’s obligations and restrictions. FERPA does not contain a private right of action. Instead, aggrieved parents and eligible students can file complaints with the U.S. Department of Education, which investigates and enforces alleged violations. If the Department finds a FERPA violation, the relevant educational institution can be disciplined, up to and including the loss of federal funding.
A Student Data Gold Mine …
The Department has long been criticized for failing to adequately enforce FERPA. As of 2025, the Department has never imposed a financial penalty on an institution for violating FERPA, instead working with violators to achieve voluntary, monitored compliance. Many have expressed concerns that abolishing or substantially changing the structure of the Department could further erode the likelihood of strong FERPA enforcement at the federal level.
The prospect of a “Wild West” environment in the absence of the Department of Education may have schools and EdTech vendors salivating at the prospect of buying, selling, sharing, using, or otherwise processing the data of the millions of students (and former students) in the United States. Student data is a treasure trove. According to a report issued by the International Trade Administration in 2020, the EdTech market was estimated to be worth $89.49 billion, and it is projected to grow at a compound annual growth rate of 19.9 percent until 2028.
A FERPA exception already permits school officials to disclose education records to EdTech vendors if the vendor has a legitimate educational interest, the vendor is subject to the school’s supervision, and the school contractually prohibits the vendor from further disclosure. However, a federal enforcement vacuum may encourage such vendors to think they can ignore the FERPA obligations to which they have agreed when processing student data. It may also encourage third parties, contractors, consultants, and other organizations that do not fit within this exception to think they can bypass FERPA entirely.
… or a Regulatory Minefield?
Despite the potential decrease in enforcement at the federal level, (1) the existence of other FERPA regulators, (2) bipartisan interest in reform, and (3) uncertainty regarding the extent of the Department’s closure cut against any argument that FERPA compliance will be less important in the coming days.
First, FERPA does not preempt state or local laws. The Executive Order even emphasizes returning “authority over education to the States and local communities.” Nearly all states have enacted at least one state-level student privacy law that supplements FERPA with additional privacy safeguards. These will persist regardless of what happens federally. In California, for example, the Student Online Personal Information Protection Act prohibits the use of student data for targeted advertising. Many states, like Illinois, have transposed FERPA into state statutes. Other states, like Virginia, incorporate FERPA by reference, essentially making compliance a state requirement as well as a federal requirement. Keeping aware of state-level obligations is of paramount importance for both educational institutions and EdTech providers, especially because in some states, like Wyoming, civil actions for damages may be permitted under public records laws if parents or students are knowingly or intentionally denied the right to inspect public school records.
Moreover, there appears to be a strong bipartisan interest in FERPA reform, with commentators associated with the current administration indicating that they support amending FERPA to facilitate enforcement in the Department’s absence. These commentators have taken the position that “[r]ather than preserving a failing federal system, a potential reorganization of the Department of Education presents a critical opportunity to … protect student data[.]” Some interested parties have proposed a private right of action for FERPA violations, while others want to explore other avenues to fill in regulatory gaps in student privacy, including by transferring many of the Department of Education’s responsibilities to other agencies.
Finally, the true extent to which the Department will be shuttered remains to be seen, as full closure may require an act of Congress. And, it is vital to remember that FERPA is a federal law, not a Department of Education regulation. Therefore, even if the Department were to close entirely, that would not make FERPA liability vanish forever. FERPA would remain in effect, and a future administration may reinitiate enforcement.
Next Steps
Despite the potential closure of the Department of Education, schools and EdTech vendors that ignore FERPA’s obligations regarding student data nevertheless face a number of continued risks. The Department has traditionally pursued only patterns of noncompliance and egregious violations, and ignoring FERPA over the next three and a half years could be construed as just that. Moreover, for EdTech vendors, FERPA noncompliance could give rise to breach of contract claims, while enforcement by other regulators may cause the school with which the EdTech vendor is working to lose funding—and, by extension, risk the vendor missing payday. Businesses operating in the education space may want to remain mindful of the full breadth of their obligations and act accordingly, even as changes take place within the federal education (and EdTech) landscape.
Court Reverses $10 Million Sexual Harassment Verdict Due To Judge’s “Bizarre Comments”
On April 7, 2025, the California Court of Appeal reversed a whopping $10 million verdict in favor of an employee in a sexual harassment case due to the trial judge’s improper evidentiary rulings and inappropriate comments during the post-judgment phase of trial. Odom v. Los Angeles Cmty. Coll. Dist., No. B327997, 2025 WL 1021951, at *1 (Cal. Ct. App. Apr. 7, 2025).
Sabrena Odom, a tenured Los Angeles Community College (“LACC”) professor, sued LACC and one of its top administrators for sexual harassment and retaliation. After a three-week trial, the jury awarded plaintiff a total of $10 million for past and future mental suffering and emotional distress damages.
The appellate court reversed, finding that the trial judge improperly admitted 20-year old newspaper articles regarding the administrator-defendant’s alleged stalking and sexual assault of a previous partner. The judge also erred in allowing “me too” testimony from a student at LACC regarding her complaint against a different administrator.
The trial court committed additional error when the judge made “extreme and bizarre” racial and gender-based comments to defendant’s counsel, a Black woman, during the post-judgment phase of trial. Among other things, the judge talked about “miscegenation” and the societal impact of mixed-race football players as well as his support for Black Lives Matter. He also repeated an offensive joke he heard as a young lawyer about female secretaries doing a better job providing sexual favors than typing. The judge eventually recused himself after defendant’s counsel moved to disqualify him.
The Court of Appeal found the $10 million jury award to be “excessive” in that plaintiff continued to work through the close of trial and had no economic damages. The Court agreed with defendants that there is no precedent for this high of an award absent economic or debilitating injuries, and the award was grossly disproportionate to awards in comparable cases; the Court remanded for a new trial.
This case is just the latest example of a “nuclear” verdict rendered by a California jury and serves as yet another reminder to employers of the unparalleled benefits of having an arbitration program, as we have previously reported. We will continue to monitor this case for updates.
Institutions’ Title IX Compliance Under the Microscope: DOJ, ED Form Special Investigations Team to Enforce Gender Ideology EOs
Takeaway
The DOJ and ED are allocating resources to increase enforcement of Title IX concerning participation of transgender athletes, the use of intimate spaces, and “gender ideology” generally.
Article
Institutions should carefully review their policies and practices now that the Department of Justice (DOJ) and Department of Education (ED) have recently formed a special investigations team to increase and prioritize enforcement of the administration’s position under Title IX of the Education Amendments of 1972.
In February, President Donald Trump issued two executive orders on the administration’s position on Title IX’s application to gender identity and transgender students: “Keeping Men Out of Women’s Sports” and “Defending Women from Gender Ideology Extremism.”
On April 4, 2025, the DOJ and ED announced the creation of a “Title IX Special Investigations Team” for the purpose of “ensur[ing] timely, consistent resolutions to protect students, and especially female athletes, from the pernicious effects of gender ideology in school programs and activities.”
The Special Investigations Team includes:
ED Office for Civil Rights investigators and attorneys
DOJ Civil Rights Division attorneys
ED Office of General Counsel attorneys
ED Student Privacy Policy staff and an FSA Enforcement investigator
The Team appears to be a reallocation of current government resources rather than any addition of new positions or personnel.
What does this mean for institutions subject to Title IX?
The DOJ and ED are allocating resources to bolster enforcement of Title IX concerning participation of transgender athletes, the use of intimate spaces, and “gender ideology” generally. Complaints about transgender students participating in athletics or using intimate spaces based on their gender identity, as opposed to their biological sex at birth, likely will be prioritized for enforcement action. Policies and practices relating to pronouns and name changes based on gender identity also will be subject to increased scrutiny.
What should institutions do now?
Institutions subject to Title IX should review their policies and practices to ensure compliance with current law, review their Title IX training materials, and consider the benefits of providing employees with additional training.
Georgia Governor Signs Bill to Strengthen Religious Exercise Protections, but Lawmakers Leave Anti-DEI Bill on the Table
On April 4, 2025, the final day of Georgia’s legislative session, Governor Brian Kemp signed into law a “religious liberty” bill that will strengthen protections for the free exercise of religion by prohibiting state and local government actions that substantially burden religious practices or activities. However, Georgia lawmakers left on the table a bill that would have prohibited state schools, colleges, and universities from promoting diversity, equity, and inclusion (DEI) despite advancing the legislation in the final days of the legislative session.
Quick Hits
Senate Bill 36, known as the Georgia Religious Freedom Restoration Act, aims to protect the free exercise of religion by imposing a “compelling interest” test for government actions that may burden religious practices.
The bill has significant implications for Georgia schools, including state higher education institutions, as Georgia lawmakers seek to align the state with broader federal policies pushed by the Trump administration.
Despite being advanced by the Georgia Senate, House Bill 127, which seeks to ban DEI programs at state colleges and universities, ultimately did not pass the House on the final day of the session.
SB 26—Georgia Religious Freedom Restoration Act
Governor Kemp signed Senate Bill (SB) 36, known as the “Georgia Religious Freedom Restoration Act,” a day after lawmakers sent the bill for signature on April 3, 2025. The law will enshrine the “compelling interest” test for determining whether actions of the Georgia state and local governments unconstitutionally burden the free exercise of religion.
The bill is modeled on the former federal Religious Freedom Restoration Act of 1993 (RFRA) which the Supreme Court of the United States in 1997 struck down as applicable to states.
Georgia’s SB 36 will prohibit the state and local governments from “substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability.” Such laws will only be upheld if the government demonstrates: (1) the action furthers “a compelling governmental interest” and (2) is the “least restrictive means of furthering such compelling governmental interest.”
The bill will enable an individual whose religious exercise is burdened to file a claim against the government or use it as a defense in a judicial proceeding and obtain reasonable attorneys’ fees and costs.
Notably, SB 36 will apply to “any branch, department, agency, instrumentality, and official or other person acting under color of law of this state, or any political subdivision” defined by state law, including local governments and school boards. The law may further apply to actions by state colleges and universities as Georgia courts have recognized the Board of Regents of the University System of Georgia to be a state agency or subdivision.
Proponents of the bill argued that it would protect the free exercise of religion from intrusions by federal, state, and local governments. However, opponents have argued that more religious exercise protections are unnecessary as it could lead to discrimination against LGBTQ+ people and religious minorities. More than half of states have RFRA-like protections.
In other states with similar RFRA laws, students and parents have sued colleges and universities due to various rules and regulations that govern student life. In addition, the law provides an additional avenue for employees to sue if they believe that their religious freedom is being infringed upon. Local and state governments, including public colleges and universities, may want to consider conducting a privileged review of existing laws, rules, and policies that may run afoul of the law and also consider narrowly tailoring any new actions that may face scrutiny.
HB 127—DEI Ban
In the final week of the legislative session, the Georgia Legislature advanced but ultimately did not pass House Bill (HB) 127, which would have banned a wide range of DEI programs and initiatives in Georgia’s public schools, colleges, and universities. The legislation follows President Donald Trump’s recent executive orders to eliminate “illegal” DEI programs and initiatives.
The bill would have prohibited all public schools and state colleges and universities from “promot[ing], support[ing], or maintain[ing] any programs or activities that advocate for diversity, equity, and inclusion.” Such prohibited programs under the bill would include efforts to promote:
“different treatment of, or provide special benefits to, individuals on the basis” of protected classes or characteristics;
“policies and procedures designed or implemented with reference” to protected classes or characteristics;
“training, programming, recruitment, retention, or activities” that provide “preferential treatment of any race, color, sex, ethnicity, national origin, gender identity, or sexual orientation over another”; and
“training, programming, or activities designed or implemented with reference to race, color, ethnicity, gender identity, or sexual orientation.”
Specifically, state colleges and universities would be prohibited from taking official positions on any “widely contested opinion referencing” a range of topics or principles around race and gender, including “unconscious or implicit bias,” “cultural appropriation,” “allyship,” “gender ideology or theory,” “microaggressions,” “group marginalization,” “Antiracism,” “systemic oppression,” “social justice,” “intersectionality,” “neopronouns,” “heteronormativity,” “disparate impact,” and racial or sexual privilege.
State schools and colleges that violated the bill could have been stripped of state funding or state-administered federal funding. However, the bill would not have applied to interscholastic and intercollegiate athletics programs or “to the design, designation, or use of a multiple occupancy restroom or changing area.”
Although the bill ultimately failed to pass, higher education institutions, as well as K-12 schools, may want to consider conducting a privileged review of all diversity, equity, and inclusion programs, given that the bill may be revived during a subsequent session. Further, the Trump administration has issued similar guidance to all schools that receive federal funding. Thus, many Georgia schools are already under scrutiny for diversity, equity, and inclusion programs and likely will remain so for the immediate future.
Another Win for the Administration, at Least for Now – SCOTUS Today
The motions docket of the U.S. Supreme Court remains busy.
Following the April 4 decision in Department of Education v. California—in which the Court, treating a temporary restraining order (TRO) as if it were a preliminary injunction, stayed an order that would have blocked the government from ending over 100 education-related grants and allowed the case to proceed in the U.S. Court of Appeals for the First Circuit without requiring the government to meet payment obligations—a similar result was reached today in the Court’s 7–2 order in the case of OPM v. AFGE.
In AFGE, the Court was again confronted with an application for a stay, this time with respect to an appeal to the Ninth Circuit from an injunction issued by the United States District Court for the Northern District of California that would have required the reinstatement of approximately 16,000 fired federal workers who had probationary status at the departments of Agriculture, Defense, Energy, Interior, Treasury and Veterans Affairs. The case had been brought by the American Federation of Government Employees, the AFL-CIO, and several other nonprofit organizations that argued that the terminations were based on the pretense that the employees’ performance was “deficient.” Over the dissents of Justices Sotomayor and Jackson, the Court held that the nine plaintiffs had failed to demonstrate organizational standing.
The Court’s order denying a stay does not address the claims of other plaintiffs who were not affected by the district court’s preliminary injunction. Given that there are other potential plaintiffs, as well as agencies that were not named in the instant AFGE suit, questions concerning the current administration’s mass firings of federal workers, probationary and otherwise, are still viable in other actions brought by, or on behalf of, individuals who are more likely to have sufficient standing to litigate against the government. For now, however, the administration is three for three in cases coming from the “shadow” docket (i.e., cases that have not been fully briefed and argued) that have been decided in the last two days.
Department of Education v. California is one of the three, and OPM v. AFGE is another. The third, decided late yesterday, is Trump v. J.G.G. This case concerns the detention and removal from the United States of Venezuelans believed to be members of Tren de Aragua, a gang that has been designated by the U.S. State Department as a foreign terrorist organization. The basis for these arrests and expulsions is yet another presidential proclamation, this one pursuant to the Alien Enemies Act (AEA), 50 U. S. C. §21.
In a widely publicized suit brought by five detainees and a putative class, Judge James Boasberg of the D.C. District Court issued two TROs intended to prevent the removal of the named plaintiffs and putative class members pending the resolution of their general and personal claims. As has been widely reported, many of these persons were shipped out of the country, arguably before Judge Boasberg had rendered a formal, written opinion, and their potential return from El Salvador and elsewhere is a hot political issue. Others are in Texas, and their cases will be able to proceed. It is important to note that these plaintiffs had dismissed that portion of their complaint that invoked habeas corpus.
Given that, by its literal wording, the AEA applies to individuals who are citizens of enemy nations, and then only in times of declared war, actual or attempted invasions, and “predatory incursions,” and that none of these conditions would appear to be present, I had thought that the government’s defense would have been rejected out of hand. However, any such determination will have to await future litigation. You might remember learning in high school of the Alien and Sedition Acts that, in the post-Revolutionary era, were designed by Congress to deport citizens of a “hostile government” who were at least 14 years old. Indeed, the AEA was enacted 227 years ago, in 1798, and, until now, has been employed only three times: The War of 1812, World War I, and World War II. Thus, the current state of affairs, initiated by an unprecedented presidential proclamation that foreign gangsters have infiltrated our country and activated the AEA, would appear to be an anomaly.
However, the lawfulness of the detentions and removals will not be determined at present. Instead, in yet another case where the Supreme Court treats a TRO as a preliminary injunction, seven Justices have held that, although judicial review under the AEA is limited, an “individual subject to detention and removal under that statute is entitled to ‘judicial review’ as to ‘questions of interpretation and constitutionality’ of the Act as well as whether he or she ‘is in fact an alien enemy fourteen years of age or older.” Indeed, the government now concedes the point. Thus, the Supreme Court ruled that the detainees are entitled to notice and a hearing that would enable them to challenge their removal.
Notwithstanding their dismissal of the claim that invoked habeas corpus, the Court held that this, not the Administrative Procedure Act, would be the proper basis for a cause of action and that the venue to hear it would be in the district of confinement, i.e., in Texas, not Washington, DC. The question remains as to how many detainees are still in the United States and thus able to take advantage of the relief afforded by the Court, which did not consider the fact that the administration is arguing elsewhere that it cannot be ordered to seek the return of persons expelled to another country. However, as Justice Kavanaugh notes in concurring, the issue is not whether the detainees will obtain a review of their claims—on which all nine Justices agree—but only where. Of course, one should not overlook the dissent written by Justice Sotomayor, joined by Justices Kagan and Jackson, and the (to many) surprising joinder in large part of Justice Barrett critical of the application of a statute intended for use in wartime and under circumstances here that the dissenters believe were created by the duplicity of the government.
In the final analysis, though the government will claim, not without cause, that it has achieved considerable victories and enhancements of executive authority in these three cases, such victories may very well prove transitory in the litigation maelstrom that the current administration has unleashed. An admirer of Homer’s Odyssey will recall how Odysseus’s men, driven by greed, opened the bag of winds that the god Aeolus had provided, thinking it contained treasure. It has yet to be determined how the administration will ultimately be “rewarded.”
Landmark Settlement in NCAA NIL Litigation: Federal Judge Approves Settlement Over NIL Recruiting Rules
On March 21, 2025, the U.S. District Court for the Eastern District of Tennessee made its preliminary injunction permanent and approved a settlement as it relates to the National Collegiate Athletic Association’s (NCAA) bylaw banning the use of name, image, and likeness (NIL) compensation during the recruitment of student-athletes (the NIL Recruiting Ban).
Quick Hits
A federal district court in Tennessee recently approved a settlement permanently enjoining the NCAA’s Recruiting Ban.
The NCAA will no longer enforce NIL recruiting rules.
The NCAA has committed to publicizing any new proposed rules related to NIL opportunities (on a dedicated webpage) for the next five years—at least thirty days prior to any vote on final approval.
The settlement does not prevent the NCAA from its ability to adopt reasonable rules that prohibit compensation that is not for a student-athlete’s or prospective athlete’s NIL.
Background
The lawsuit was initiated in January 2024 by the states of Tennessee and Virginia, with Florida, New York, and the District of Columbia joining the suit in May of the same year. The lawsuit challenged the NCAA’s bylaw that prevented student-athletes from learning about or negotiating potential NIL compensation from third parties during the recruiting process. This rule was seen as a significant barrier for student-athletes when deciding whether to commit to or transfer to a particular university.
In February 2024, the court granted a preliminary injunction blocking the NCAA from enforcing the bylaw while the lawsuit was ongoing. The court found a strong likelihood that the prohibition violated federal antitrust laws and caused harm to student-athletes. The parties involved in the lawsuit subsequently filed a joint request for the judge to approve the settlement on March 17, 2025.
The Settlement and Its Implications
The court signed off on the settlement agreement, which not only resolves the current litigation but also imposes a permanent ban on similar NIL recruiting restrictions in the future. As part of the agreement, the NCAA will no longer enforce NIL recruiting bylaws. Further, the NCAA has committed to publicizing any new proposed bylaws related to NIL opportunities on a dedicated public website for the next five years, at least thirty days prior to any vote on final approval. That public website is required to give users the option to subscribe to receive automatic updates when new information appears on the webpage.
Key Takeaways
By eliminating the NIL recruiting rules and ensuring transparency in future changes, the settlement agreement provides clarity to member schools and collectives that were concerned about compliance with the NIL Recruiting Ban. Member schools are still prohibited from engaging in NIL discussions with prospective student-athletes or potential transfer student-athletes or compensating student-athletes for NIL; however, third-party entities—including boosters or collectives of boosters—are allowed to engage in such activity due to the permanent injunction.
What’s Next for the U.S. Department of Education?
A recent executive order signed by President Trump focuses on shrinking the Department of Education to prepare it for a possible future closure
Actual closure requires an act of Congress
The executive order directs the department to focus on DEI initiatives while open
President Donald Trump recently signed an executive order directing the secretary of the Department of Education to begin “tak[ing] all necessary steps to facilitate the closure of the Department of Education and return authority over education to the States and local communities while ensuring the effective and uninterrupted delivery of services, programs, and benefits on which Americans rely.”
In preparation for its closure, the Department of Education recently reduced its workforce by nearly 2,000 employees and began determining which federal departments will be responsible for the regulation and enforcement of various federal education laws in the event of the department’s closure.
Department of Education and an Act of Congress
As acknowledged by the administration, while President Trump can reduce the workforce and capacity of the Department of Education, actually closing the department requires Congress’ approval. On March 20, President Trump made it clear that a major purpose of the executive order directing the dismantling of the Department of Education is to prepare for its closure in the event Congress approves.
Uncertain Regulatory Landscape
In the event Congress does approve the Department of Education’s closure, there are still several education-related federal laws and programs requiring regulation and enforcement. While attempting to close the Department of Education, the administration has reportedly begun contemplating which entities will take on regulation and enforcement of these laws, noting special education law regulation and enforcement would likely be handled by the Department of Health and Human Services while the Small Business Administration would administer the federal student loan program. Notably, the administration has not addressed which agency would take over Title IX investigations.
Regulation and enforcement of education-related laws and programs by other agencies could be slow to come, as regulators learn these laws and programs and entities covered by these laws learn to work with new regulators. There will also likely be questions raised regarding whether these agencies possess the delegated authority required to enforce and regulate compliance with these laws.
Focus of the Department of Education Until Closure
While the Department of Education remains open, the executive order directs the secretary to “ensure that the allocation of any Federal Department of Education funds is subject to rigorous compliance with Federal law and Administration policy, including the requirement that any program or activity receiving Federal assistance terminate illegal discrimination obscured under the label ‘diversity, equity, and inclusion’ or similar terms and programs promoting gender ideology,” likely referring to recently issued executive orders on DEI and gender and the requirements of the Department of Education’s recent Dear Colleague Letter and corresponding FAQs. The Department of Education has already begun complying with this directive, investigating universities for alleged race-based admissions processes and scholarships and school districts for allegedly permitting transgender girls to use female changing rooms.
Takeaways
While the executive order did not close the department, the department continues to decrease in size and capacity. The executive order suggests DEI initiatives will be a focus of the department going forward. The administration is reportedly determining distribution of the department’s duties among other federal agencies in the event department closure occurs.
NIH Funding Pressure: Impacts of Indirect Cost Caps and Grant Freezes
Institutions of higher education (IHEs) and affiliated medical centers and research centers are aware of the significant policy shifts affecting National Institutes of Health (NIH) funding since January 2025. This client alert examines the legal, operational, and strategic impacts of the 15% indirect cost reimbursement cap and the freeze on grant and contract processing at the NIH. Specific examples of enforcement, institutional responses, and pending legal challenges illustrate how these changes are unfolding in practice and the risks institutions face.
NIH’s Indirect Cost Cap
On February 7, 2025, the NIH issued Supplemental Guidance NOT-OD-25-068, which imposes a cap of 15% on indirect cost rates for all grant awards. This measure replaces institution-specific negotiated rates that, in many cases, exceeded 50%. The proposed 15% indirect cost cap has not only caught many institutions off guard but also immediately strained their finances. Institutions rely on these reimbursements to support research infrastructure and administration and may need to reallocate institutional funds or seek private funding to fill the gap.
Legal challenges have followed swiftly. A coalition of 22 states filed suit against the federal government in Commonwealth of Massachusetts v. National Institutes of Health , No. 1:25-cv-10338 (D. Mass. filed Feb. 10, 2025), arguing that the NIH’s abrupt imposition of a uniform cap constitutes a substantive rule change requiring formal rulemaking under 5 U.S.C. § 553, and that the policy change is arbitrary and capricious under 5 U.S.C. § 706(2)(A), lacking a rational basis or sufficient explanation. Two related lawsuits are Association of American Universities v. National Institutes of Health (D. Mass.) and Association of American Medical Colleges v. National Institutes of Health (D. Mass.). In response, the federal district court in Massachusetts issued a nationwide preliminary injunction on March 10, 2025, halting enforcement of the cap. The court’s ruling emphasized the potential for irreparable harm to research institutions.
However, final adjudication of these cases may either reinstate or permanently vacate the indirect cost cap. Given this uncertainty, colleges and universities have reacted by restricting incoming Ph.D. admissions, implementing hiring freezes, and larger capital projects centered on their research enterprises.
Grant Funding Freezes at the NIH
On January 27, 2025, the Office of Management & Budget (OMB) issued a memorandum directing federal agencies, including the NIH, to pause funding. As a result of two federal court cases, National Council of Nonprofits et al. v. Office of Management & Budget et al. (D.D.C.) and State of New York et al. v. Donald J. Trump et al. (D.R.I.), the funding freeze was enjoined.
Yet, issues have persisted at the NIH where scheduled NIH study sections for grants were paused and NIH advisory councils have not convened, leading delays in the timely review and processing of new grant applications and renewals.
Funding freezes and delays have created significant uncertainty in vital research areas, including oncology, neurodegenerative diseases, and public health initiatives. These disruptions not only affect current research but also threaten the pipeline of future scientific innovation and talent development, as incoming Ph.D. admissions may be restricted, faculty members may see funding for research dry up, and principal investigators may lack the funds to hire research assistants in their labs.
Restricting Funding as an Enforcement Mechanism
Certain institutions have expressed concern that the administration is using funding cuts to circumvent processes under Title VI or Title IX, citing concerns related to alleged race/ethnicity or gender-based discrimination.
We anticipate that institutions may challenge such enforcement efforts as exceeding statutory authority under the enabling legislation for federal agencies, such as the NIH, as well as exceeding statutory authority under the civil rights laws. Constitutional claims may also arise under the Spending Clause, arguing that the federal government cannot impose new conditions on previously awarded funds.
Strategic Considerations for Higher Education
In light of these developments, IHEs should proactively manage the risks associated with NIH funding changes, including:
Reviewing current NIH grant and contracts and internal compliance policies to identify vulnerabilities.
Planning for potential budget shortfalls within the research enterprise, identifying alternative funding sources, and reallocating institutional resources as needed.
Closely following ongoing litigation concerning the indirect cost cap and funding freezes to inform compliance and financial planning.
Collaborating with peer institutions, higher education associations, and legal counsel to support coordinated advocacy and collaborative solutions.
Evaluating internal decision-making processes to ensure preparedness for potential federal inquiries, enforcement actions, or policy shifts.
Conclusion
Colleges and universities and their affiliated medical centers and research centers face an evolving NIH funding environment. While court orders have temporarily halted some measures, the broader shift in federal research funding has significant implications for research continuity, institutional budgets, and academic autonomy.
When Is a TRO Treatable as a Preliminary Injunction? – SCOTUS Today
While not a decision on the merits, the U.S. Supreme Court’s opinion on April 4, 2025, in Department of Education v. California is worth considering.
The case came to the Court on an application to stay the temporary restraining order (TRO) of the U.S. District Court for the District of Massachusetts enjoining the government from terminating various education-related grants made by the U.S. Department of Education, and requiring that department’s payment of past-due grant obligations and the continuing payment of current and future ones. The district court based its conclusion on its finding that the respondents were likely to succeed on the merits of their claims under the Administrative Procedure Act (APA).
In a per curiam opinion, the Supreme Court viewed the TRO as having “many of the hallmarks of a preliminary injunction” and treated it that way. In granting the stay, the Court held that the government was likely to succeed in showing that the district court lacked jurisdiction under the APA to order the payment of money. While the APA provides a limited waiver of sovereign immunity on the part of the government, that waiver “does not extend to orders [of a district court] to enforce a contractual obligation to pay money” along the lines of what the district court ordered here. Instead, noted the Court, the Tucker Act, 28 U. S. C. §1491(a)(1), gives the Court of Federal Claims jurisdiction over suits based on “any express or implied contract with the United States.”
The Supreme Court also found that, in view of the fact that no grantee had promised to return grant funds if they were paid out but their termination was later reinstated, the government’s claim that it would be unlikely to recover such funds under that scenario is unrefuted. Nor would the respondents suffer irreparable injury, because they conceded that they have sufficient funds to keep their operations going while the underlying case proceeds and would be able to recover any wrongfully withheld funds later in the Court of Federal Claims. Accordingly, the Supreme Court granted the stay pending the disposition of the appeal to the U.S. Court of Appeals for the First Circuit and a possible disposition of a writ of certiorari. The Chief Justice simply stated that he would deny the application, and short dissents were written by Justice Kagan and Justice Jackson, who was joined by Justice Sotomayor.
Given that the underlying dispute will continue until resolved by the appeals court and, potentially, by the Supreme Court, and that the respondents might be made whole if they were to win, this is not exactly a landmark decision. I summarize it now because what I’m already seeing is a host of APA-related and other actions challenging the many executive orders and other policy dictates being issued by the current administration. In the health care space, for example, we are already seeing challenges to grant terminations and denials based upon grounds just like those raised in the instant case. Knowing the criteria that a majority of the Supreme Court would rely upon in applying the APA in such cases should therefore be instructive to counsel for future complainants.
EdTech and Privacy of Student Information: A Case Study
On March 27, 2025, a class action lawsuit was filed against the education technology (EdTech) company Instructure, the parent company of Canvas, a popular learning management system. The complaint alleges that Instructure violated children’s federal and state privacy rights. According to the complaint, Instructure states that it collects various account information about children, including name, gender/pronouns, academic institution and student ID, as well as profile pictures. Instructure also reportedly collects student activity data, such as messages, discussion comments, test results and grades, search activity, and user-submitted content. User-submitted content includes uploaded files, such as essays, research reports, photo/video media, and creative writing. The complaint asserts that this amount of data surpasses what is traditionally considered an education record and allows Instructure to “build dynamic, robust, and intimate dossiers of children.”
Let’s dive deeper into various allegations within the complaint and consider several themes.
Words matter
According to the complaint, Instructure’s terms state that it uses and discloses student information to, among other purposes, personalize the user experience, analyze trends, and track users’ movements around products. Specifically, the plaintiffs claim that some of Instructure’s platforms are designed to assist colleges and employers with recruitment by providing them access to data-derived student “insights.”
Companies should consider whether their uses and disclosures pertaining to personal information are transparent. If data may be used for marketing or advertising purposes, that should be clear to the consumer. If the data may be used in other related contexts, policies and terms should also make that clear. Vague words could lead to allegations of misleading statements.
The complaint also compiles various statements by Instructure and its officers regarding the organization’s data practices, including the Data Protection Officer’s statement that “privacy standards are embedded in our corporate DNA” and that Instructure’s privacy approach is “built upon five key principles: transparency, accountability, integrity, security, and confidentiality.”
Companies should be able to back up their statements about privacy practices with their actual privacy approach, or such publicly-made statements could be used against them in litigation.
Clarity of third-party access
The complaint asserts that Instructure uses an application programming interface (API) to allow third-party developers to build integrations through Instructure’s product suite. An API allows software applications to communicate and exchange data. According to the plaintiffs, Instructure’s Live Event API enables third parties to “access granular, child-specific information, such as time taken to finish a test, when a student submits a test, how long a child uses a product at a time, ‘common patterns’ among a child’s product usage, [and] what assignments are most challenging.” Furthermore, the product-specific Canvas API reportedly allows third parties to access data relating to user communications and group discussions, quiz submissions, and grades.
The average consumer does not understand “API” and “live event” nor know how an API transfers information, even if a company discloses its API use. Companies should make clear, in plain language, the nature and extent of information they share with partner institutions to avoid unauthorized disclosure claims.
Reasonably understandable information and informed consent
The plaintiffs assert that users of Instructure products cannot provide informed consent because a reasonable person would not know what they were consenting to in agreeing to use these products. The complaint lists 19 separate policies on Instructure’s data practices available on its website – including terms of use, privacy notice, and acceptable use policy – noting that “information relating to Instructure’s data practices and those of its third-party partners are scattered across its sprawling website and others’ websites.”
Companies may consider making their website terms of use and related agreements more understandable and accessible to the average consumer of that product/service to minimize the risk of “no consent” claims. For example, consumers in states with opt-out rights should easily be able to access information to exercise those rights. Providing numerous forms across varying locations could leave room for allegations that the company hid the ball regarding privacy.
Evolving role of EdTech
Among other state law claims, the complaint sets forth claims under the Fourth and 14th Amendments to the U.S. Constitution. Though claims of constitutional violations can only be brought against government entities, plaintiffs allege that Instructure is authorized to “perform a function that is traditionally and exclusively a public function performed by the government, namely, the collection and management of public-school-related data, including education records and other student information,” thereby making the company subject to constitutional requirements as a “state actor.” When our parents and grandparents went to school, digital access to student information with the click of a button did not exist. The digital transformation has allowed public and private entities to outsource various functions to third-party technology companies. In the state actor context, this evolution of roles poses an interesting question of where to draw the line on whether private technology companies themselves should become subject to the same regulations imposed on public actors in the interest of protecting fundamental rights