Richard Manfredi, Author at Gibson Dunn

The First Omnibus Package proposes to scale back sustainability reporting obligations under the CSRD as well as due diligence obligations under the CSDDD. According to the European Commission, it aims to prevent regulatory uncertainty, avoid unnecessary compliance costs, and provide companies with a clear, realistic and manageable path towards transition, which meets their sustainability obligations.

Since the announcement by the President of the European Commission, Ursula von der Leyen, on November 8, 2024, of a “drasti[c] reduc[tion] [of] administrative, regulatory and reporting burdens” in the EU, there has existed persistent speculation about a potential reform. In particular, there have been questions as to what proposals the European Commission might make to amend two of the European Union’s flagship Sustainability Directives: the Corporate Sustainability Reporting Directive (CSRD)[1] and the Corporate Sustainability Due Diligence Directive (CSDDD)[2], both of which we have previously reported on here and here, as well as here. This week, on February 26, 2025, the European Commission presented its proposal in the form of the “First Omnibus Package”.[3]

In this client alert, we set out our initial analysis of the proposed amendments in the First Omnibus Package and the implications for in-scope businesses. We consider proposed amendments to (i) CSRD Reporting; and (ii) to the CSDDD obligations and enforcement regime.

As the legislative process unfolds, we will continue to monitor and report on any new developments.

1. Executive Summary

The First Omnibus Package is split into two separate proposals: (i) a Postponement Directive[4] to delay certain reporting obligations and due diligence obligations, and (ii) an Amendment Directive[5] to revise key elements of the EU’s sustainability reporting and due diligence frameworks.

The European Commission’s proposals must still be submitted to the European Parliament and the Council as part of the ordinary legislative process (Level 1 legislation).

It is expected that the Postponement Directive is less controversial and, therefore, likely to be adopted faster to ensure that companies are not required to implement reporting or due diligence obligations that may potentially soon be revised or lifted. This is highlighted in Article 3 of the Postponement Directive which requires the Member States to adopt laws implementing the Directive into force by December 31, 2025.

The Amendment Directive, in contrast, will most likely cause lengthy negotiations. It seeks to adjust the CSRD’s scope, reporting requirements, and assurance obligations and narrows the due diligence measures required under the CSDDD to reduce complexity and improve consistency with other EU legislation.

Overall, the most significant changes proposed by the First Omnibus Package, compared with the original texts, are as follows:

CSRD Reporting

For the CSRD, entry into application is generally postponed by two years (except for public interest entities to which it already applies for financial year 2024), i.e. applying first to reporting on financial years 2027 (in 2028) onwards. Furthermore, an additional requirement of 1,000 employees is supposed to reduce the in-scope undertakings by approx. 80 %. The threshold for reporting on non-EU parent companies is increased to a net turnover of EUR 450 million of these non-EU companies in the EU.
It is further proposed to significantly reduce the data points under the EU Sustainability Reporting Standards (ESRS). Also, no additional sector-specific reporting standards shall be adopted.
Taxonomy reporting is limited to undertakings with an EU net turnover exceeding EUR 450 million and more than 1,000 employees, also expected to result in a reduction of in-scope undertakings by approximately 80 %. Also, the reporting templates shall be drastically simplified, leading to a reduction of data points by almost 70 %.

CSDDD

For the CSDDD, entry into application will be postponed by one year, i.e. it shall apply to the first group of companies mid-2028. The in-scope companies remain unchanged.
With explicit reference to the German Supply Chain Due Diligence Act (SCDDA) as an example, due diligence obligations are significantly reduced. In particular, they will generally be limited to companies’ own operations and direct business partners, unless there is “plausible information” suggesting adverse impacts by indirect business partners.
There is no longer a (harmonized) requirement that a company can be held liable for damages in case of non-compliance with the CSDDD, but the various national civil liability regimes shall apply.
Also, the original obligation for EU Member States regarding representative actions by trade unions or NGOs is revoked.
Obligations regarding Climate Transition Plans will be limited to an adoption; to “put into effect” is no longer required.

The proposed amendments in the First Omnibus Package first and foremost will most probably give enterprises more time to prepare for CSRD reporting and CSDDD compliance. It is, however, too early to rely on the proposed amendments in substance. Generally, it can be expected that CSRD and taxonomy reporting requirements will be substantially reduced. While it will make sense to monitor the new definition of in-scope entities, the substantive reporting requirements are still subject of further discussion. Regarding CSDDD, companies should not overlook the fact that the remaining obligations will still involve considerable effort and require thorough preparation until the implementation of the CSDDD. Companies subject to already existing supply chain laws in countries such as Germany and France, can attest to the extensive demands these obligations impose.

2. CSRD Reporting

The proposed amendments in the First Omnibus Package will significantly change when and to what extent companies need to disclose information in the context of the CSRD, including which companies will be required to report. In the following, we (a) will discuss changes in the area of sustainability reporting; (b) changes regarding taxonomy disclosures; and (c) will address the implications of conflicts between the suggested amendments and already transposed legislation in the EU Member States.

(a) Proposed Amendments relating to Sustainability Reporting

The First Omnibus Package proposes amendments to the CSRD, the Directive on the Annual Financial Statements, Consolidated Financial Statements and Related Reports of Certain Types of Undertakings (Accounting Directive)[6], and the Directive on Statutory Audits of Annual Accounts and Consolidated Accounts (Audit Directive)[7]. These amendments will significantly change the requirements for sustainability reporting companies have to adhere to.

Two-Year Delay for Companies to Start Reporting, No Retroactive Effect for PIEs Reporting in 2025

The Commission’s Postponement Directive proposes a two-year delay for companies that are not yet obliged to report under the CSRD.

This affects large undertakings and parent undertakings of a large group not classified as public interest entities (PIEs) which would have reported for the first time in 2026 for the financial year 2025. Under the Postponement Directive, their reporting obligation will not start until 2028 for financial years beginning on or after January 1, 2027 (“second wave entities”).
It also applies to listed small and medium-sized enterprises (SMEs), originally set to report for the financial year 2026, whose reporting will be deferred to financial years starting in 2028 (“third wave entities”).
Notably, however, this delay does not affect companies already subject to CSRD reporting obligations, such as public interest entities reporting for the first time this year for financial years starting in 2024 (“first wave entities”).
Furthermore, the European Commission has not proposed delaying reporting obligations regarding non-EU ultimate parent undertakings under Article 40a Accounting Directive.

Significant Reduction of Scope of Application

As part of its Amendment Directive, the Commission proposes to significantly narrow the scope of the CSRD. The reporting obligation is now limited to large companies or the parent company of a large group with more than 1,000 employees and either a net turnover of more than EUR 50 million or a balance sheet total of more than EUR 25 million. As a result, around 80 % of companies previously expected to be in scope will no longer be subject to mandatory sustainability reporting. This major shift excludes large undertakings with up to 1,000 employees (including PIEs from the first wave and large companies from the second wave) as well as all listed SMEs (previously part of the third wave). By eliminating the distinction between listed and non-listed undertakings, the proposal aligns with the Capital Markets Union’s goal of enhancing the attractiveness of EU-regulated markets as a financing source. Notably, the exclusion of large PIEs is part of the Amendment Directive and not the Postponement Directive, thus unlikely creating a retroactive effect for companies already reporting this year (namely large undertaking public interest entities with more than 500 employees).

With regard to reporting on non-EU ultimate parent companies, the new Article 40a of the Accounting Directive raises the net turnover threshold for non-EU undertakings from EUR 150 million to EUR 450 million, increases the EU branch threshold from EUR 40 million to EUR 50 million, and limits the requirement to report on their ultimate non-EU parent to large subsidiary undertakings as defined in the Amendment Directive.

The previously leaked proposal to raise the net turnover threshold for EU undertakings to EUR 450 million was scrapped in the official draft. Instead, the revised scope locks in the existing thresholds, while adding a 1,000-employee requirement. As the Commission states, “this revised threshold would align the CSRD more closely with the CSDDD“, signaling a decisive move toward streamlining EU sustainability regulations and drastically narrowing the number of affected companies.

Voluntary Reporting Standards and Strengthened Value-Chain Cap

As part of its Amendment Directive, the Commission introduces a new voluntary reporting standard for companies no longer subject to mandatory CSRD reporting. Based on the voluntary sustainability reporting standard for non-listed micro, small and medium enterprises (VSME) by EFRAG, these new standards will be adopted as a delegated act, with a Commission recommendation to follow soon.

The Commission also envisioned the new standards to act as a shield for companies no longer in scope of the CSRD (e.g. companies with up to 1,000 employees) that are part of the value chain of a reporting entity. When reporting on their value chain, companies may not request information beyond that described in the new voluntary reporting standards. This way, the European Commission hopes to substantially reduce the trickle-down effect.

It should be noted, however, that the Delegated Act to provide for these standards will not be adopted until after the Amendment Directive enters into force. Drafting the VSME, for example, took about two years due to public consultation. Therefore, while a delegated act as a non-legislative level 2 instrument is not as time-consuming as a Level 1 legislative act, there is a possibility that the new standards will not enter into force until 2028. By then, large in-scope companies are already required to publish their sustainability statements.

Further Simplifications and Cost Reductions

The Amendment Directive introduces several additional measures to ease reporting burdens under the current legal regimes. One important measure is the planned revision of the European Reporting Standards (ESRS) to substantially reduce the number of required data points and improve consistency across EU legislation, at the latest six months after the entry into force of the Amendment Directive. While a revision is likely less time-consuming than a new draft, it can be expected that the European Commission will need at least 1.5 years to finalize the legislative process for the respective delegated act. Nevertheless, we expect the revision to significantly limit the reporting burden on companies.

Additionally, the Amendment Directive eliminates the Commission’s empowerment to adopt sector-specific reporting standards, preventing an increase in prescribed data points for reporting undertakings and ending a state of uncertainty as these standards were meanwhile delayed.

Another significant simplification with a crucial impact on reporting costs is the removal of the reasonable assurance standard whose adoption was initially envisaged for 2028. In addition, instead of a binding obligation to adopt sustainability assurance standards by 2026, the European Commission will issue targeted assurance guidelines, allowing for a more flexible response to emerging issues and avoiding unnecessary compliance burdens.

(b) Proposed Amendments to Taxonomy Reporting

While the proposed directives do not provide for explicit changes to the EU Taxonomy Directive, the Omnibus proposal does provide for changes to the Accounting Directive and the Taxonomy Delegated Regulations which will affect the EU Taxonomy reporting requirements.

Mandatory Taxonomy Reporting Thresholds

The proposal introduces a new threshold for mandatory taxonomy reporting. Only large undertakings with an EU net turnover exceeding EUR 450 million and more than 1,000 employees will be required to report their alignment with the EU Taxonomy. This change is expected to result in approximately 80 % of companies no longer being required to report their alignment against the EU Taxonomy. The significant reduction in the number of companies subject to mandatory reporting aims to alleviate the compliance burden on smaller and mid-sized enterprises.

Simplification of the Reporting Templates

The European Commission plans to amend the Taxonomy Disclosures Delegated Act and the Taxonomy Climate and Environmental Delegated Acts to drastically simplify the reporting templates. This simplification will lead to a reduction of data points by almost 70 %, significantly easing the reporting burden for companies. Furthermore, companies will be exempt from assessing the taxonomy-eligibility and alignment of their economic activities that are not financially material for their business, such as those not exceeding 10 % of their total EU turnover, capital expenditure, or total assets. This targeted materiality approach – similar to the reporting approach under the ESRS – ensures that companies focus their reporting efforts on the most relevant and impactful areas of their business.

Voluntary Taxonomy Reporting for large Companies below Threshold

For large companies that have more than 1,000 employees but an EU net turnover below EUR 450 million, the proposal prescribes voluntary taxonomy reporting. These companies will not be obligated to report their alignment with the EU Taxonomy but may choose to do so if they find it beneficial. This voluntary approach allows companies to communicate their sustainability efforts without the pressure of mandatory disclosures, potentially attracting investments by showcasing their progress towards sustainability goals.

Partial Taxonomy-Alignment Reporting

The proposal also introduces the option for companies that have made progress towards sustainability targets but only meet certain EU Taxonomy requirements to voluntarily report on their partial taxonomy-alignment. This flexibility is designed to encourage companies to disclose their sustainability efforts even if they do not fully meet all the criteria of the EU Taxonomy. The Omnibus proposal mandates the European Commission to develop delegated acts to ensure standardization in terms of the content and presentation of this partial alignment reporting, providing clear guidelines for companies to follow.

Simplification of the “Do No Significant Harm” Criteria

Lastly, the Commission seeks to simplify the most complex “Do No Significant Harm” (DNSH) criteria for pollution prevention and control related to the use and presence of chemicals. These criteria apply horizontally to all economic sectors under the EU Taxonomy. The proposed simplifications aim to make it easier for companies to comply with the DNSH requirements without compromising environmental standards. The public consultation invites stakeholders to provide feedback on two alternative options for simplifying these criteria, ensuring that the final amendments reflect the needs and concerns of the business community.

(c) Conflict with Already Transposed Member States Legislation

Certain EU Member States (Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Sweden) have already transposed the current version of the CSRD, thereby implementing the “old” thresholds, reporting requirements and timelines. We provide regular updates on the status of transposition of the CSRD in our monthly ESG Updates. This raises the question whether companies in these jurisdictions have to comply with the current version of CSRD legislation. Technically, these laws apply, and Member States are, in principle, not prevented from introducing stricter requirements than those provided for by an EU Directive.

However, we would expect that, as a first step, the reporting obligations for all entities other than public interest entities will be suspended before they come into effect under the Postponement Directive. As stated above, we expect that the Postponement Directive will be adopted rather quickly. Article 3 of that Directive requires Member States to implement laws necessary to comply with the two-year delay before December 31, 2025, i.e., before the reporting obligations for any undertakings and groups other than public interest entities apply. Even if national legislators fail to transpose the Postponement Directive in time, we would expect that national authorities will refrain from enforcing the requirements under the current CSRD laws against such entities with a view to the discussion on the Omnibus proposal.

Regarding the scope of sustainability reporting for already in-scope public interest entities, the assessment is less straight forward. The proposed changes to the scope of application, the reporting requirements and other substantial issues are covered in the Amendment Directive which is expected to take more time until it enters into force. There is no clear answer as to how EU Member States will handle this issue. While they could decide to refrain from enforcing reporting obligations until the Amendment Directive has been approved, it is also possible for them to insist on compliance with their national laws until that date.

In this context, it should also be noted that some EU Member States already have imposed more strict reporting requirements, opting for so-called “gold-plating” in the area of sustainability reporting. Therefore, it is possible that after the Amendment Directive enters into force, some EU Member States will require more detailed reporting than stipulated at EU level. However, we consider this risk to be low in light of the strong resistance from EU Member States, e.g. Germany, France and others who have warned of too much bureaucracy and an unreasonable reporting burden on companies and explicitly supported the European Commission’s plan to simplify sustainability reporting.

3. The CSDDD

While there are many proposed changes with respect to the CSDDD, as outlined below, the companies defined as “in scope” have remained the same, i.e. there have been no changes to the thresholds. We note, however, that it is proposed to delete the review clause on inclusion of financial services in the scope of the CSDDD.

CSDDD’s extraterritorial reach to U.S. based companies has recently been challenged in a letter signed by several members of the U.S. House of Representatives to the U.S. Treasury Secretary and Director of the National Economic Council and may become a negotiating topic in U.S.-EU trade negotiations.

(a) Proposed Amendments to the CSDDD

Postponement of Application for One Year

According to the proposed Postponement Directive the deadline for EU Member States to transpose the CSDDD into national law will be postponed by one year to July 26, 2027. Consequently, the first entry into application of the CSDDD obligations will also start one year later, on July 26, 2028. In other words, there will no longer be a separate timeline for entry into application for the largest EU and non-EU companies as originally foreseen:

Narrowing the Scope in Companies’ Supply Chains

Explicitly inspired by the German SCDDA, obligations in the supply chain will be narrowed, to companies’ own operations and direct business partners. Companies will only be required to assess adverse impacts of indirect business partners if there is “plausible information” suggesting that adverse impacts have arisen or may arise there. Without such knowledge, an in-scope company will not be obliged to proactively review the supply chain further downstream. The European Commission explains that this change “[r]eliev[es] companies from the obligation to systematically conduct in-depth assessments of adverse impacts that occur or may occur in often complex value chains at the level of indirect business partners …”.[8]

In connection with limited obligations in the supply chain, the Amendment Directive also proposes to limit the information that in-scope companies may request from their SME and small midcap business partners (i.e. companies with less than 500 employees) to the information specified in the CSRD voluntary sustainability reporting standards.

Further, the reduction of obligations within the supply chain is also reflected in the proposed amendments to stakeholder engagement. Companies will be able to limit their engagement to “relevant” stakeholders in certain areas of the due diligence process, i.e. with workers, their representatives and individuals and communities whose rights or interests are or could be directly affected by the products, services and operations of the company, its subsidiaries and its business partners, and that have a link to the specific stage of the due diligence process being carried out.

Companies shall ensure compliance with due diligence standards focusing on human rights and the environment further down supply chains through their codes of conduct (“contractual cascading”).

Private and Public Enforcement

In terms of private and public enforcement, the Amendment Directive provides for three notable proposed changes:

Firstly, in terms of private enforcement, it is significant that the requirement for harmonized EU-wide civil liability regime for damages will be abolished. Thus, private enforcement is deferred to the civil liability regime of each EU Member State, which need to ensure that, if companies are held liable in case of non-compliance with the due diligence requirements under the CSDDD, the injured parties will have a right to full compensation. Further, national law is left to define whether its civil liability provisions override otherwise applicable rules of the third country where any harm occurs.

Secondly, it is also highly notable that the obligations for EU Member States regarding representative actions by trade unions or NGOs are revoked. National law will be able to support both actions brought directly by injured parties or representative actions to reflect different rules and traditions in EU Member States.

Lastly, regarding public enforcement, penalties for violations, which could be imposed by national “Supervisory Authorities” in EU Member States, will no longer be linked to 5 % of the in-scope company’s global net turnover.

Climate Transition Plans aligned with CSRD

Concerning the much-discussed requirement under the existing CSDDD to “put into effect” a Paris Agreement-aligned Climate Transition Plan, this obligation has been softened so that requirements for climate mitigation are now aligned with the CSRD. Whilst the “put into effect” part is dropped, the adoption of a Climate Transition Plan would still be required.

Remedial Measures and Periodic Assessments

The Omnibus Package also proposes to remove the obligation to be imposed on a company to terminate the business relationship as a last resort measure. Additionally, the interval between periodic assessments will be prolonged, extending the period from one year to five years.

(b) Key CSDDD Implications for In-Scope Companies

In summary, the proposed amendments in the First Omnibus Package are helpful for companies in terms of deregulating obligations and reducing complexity in their supply chains.

Nevertheless, companies should not overlook the fact that the remaining obligations will still involve considerable effort and require thorough preparation until the actual implementation of the CSDDD. Companies subject to already existing supply chain laws in countries such as Germany and France, can attest to the extensive demands these obligations impose.

Considering the strong alignment and similarity in many parts with the German SCDDA, especially after removing the main differences in scope and civil liability regime, two years of experience with the German law should and can be utilized by companies to leverage valuable insights gained from the enforcement of the German SCDDA.

To assist in-scope companies with preparations, the European Commission has committed to providing guidelines a year earlier, in July 2026, which provides more valuable time for companies to get aligned with the CSDDD.

[1] Directive (EU) 2022/2464.

[2] Directive (EU) 2024/1760.

[3] See EU Commission Press Release of February 26, 2025, available at https://ec.europa.eu/commission/presscorner/detail/en/ip_25_614, last accessed on February 28, 2025.

[4] COM(2025) 80 final, 2024/0044 (COD) – Directive of the European Parliament and of the Council amending Directives (EU)2022/2462 and (EU) 2024/1760 as regards the dates from which the Member States are to apply certain corporate sustainability reporting and due diligence requirements.

[5] COM(2025) 81 final, 2024/0045 (COD) – Directive of the European Parliament and of the Council amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2462 and (EU) 2024/1760 as regards certain corporate sustainability reporting and due diligence requirements.

[6] Directive (EU) 2013/34.

[7] Directive (EU) 2006/43.

[8] See EC link here.

The following Gibson Dunn lawyers prepared this update: Ferdinand Fromholzer, Robert Spano, Susy Bullock, Stephanie Collins, Vanessa Ludwig, Carla Baum, Johannes Reul, and Babette Milz.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s ESG: Risk, Litigation, and Reporting, Transnational Litigation, or International Arbitration practice groups, or the authors:

Ferdinand Fromholzer – Partner, ESG Group,
Munich (+49 89 189 33-270, ffromholzer@gibsondunn.com)

Robert Spano – Co-Chair, ESG Group,
London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)

Susy Bullock – Co-Chair, ESG Group,
London (+44 20 7071 4283, sbullock@gibsondunn.com)

Stephanie Collins – London (+44 20 7071 4216, scollins@gibsondunn.com)

Carla Baum – Munich (+49 89 189 33-263, cbaum@gibsondunn.com)

Vanessa Ludwig – Frankfurt (+49 69 247 411 531, vludwig@gibsondunn.com)

Johannes Reul – Munich (+49 89 189 33-272, jreul@gibsondunn.com)

Babette Milz – Munich (+49 89 189 33-283, bmilz@gibsondunn.com)

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

On February 27, 2025, the Financial Crimes Enforcement Network (FinCEN) issued guidance announcing that it will not issue fines or penalties to, or take any enforcement action against, entities that fail to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act (CTA) by the current deadline, which for most reporting entities is March 21, 2025.[1] FinCEN also announced that it intends to issue an interim final rule by March 21, 2025 to formally extend the reporting deadline. “[L]ater this year,” FinCEN plans to issue a notice of proposed rulemaking and solicit public comment on a new rule permanently revising the existing BOI reporting requirements.

Entities that may be subject to the CTA and its associated Reporting Rule that have not filed BOI reports should consult with their CTA advisors as necessary, now that FinCEN has suspended enforcement of the filing deadlines.

Prior to yesterday’s announcement, and after litigation that temporarily enjoined enforcement of the CTA from December 2024 until February 18, 2025, FinCEN had issued guidance extending the reporting deadline to March 21, 2025 or later.[2] In that same guidance, FinCEN previewed that it intended to take further steps to modify deadlines. On February 27, 2025, FinCEN issued the additional guidance described above, which has the effect of suspending the March 21, 2025 deadline.[3] Instead, FinCEN intends to issue an interim final rule before March 21, 2025, extending BOI reporting deadlines.[4]

FinCEN also announced it will issue a notice of proposed rulemaking, anticipated to be issued later this year, to adopt permanent changes to the reporting requirements to minimize the burden on small businesses while ensuring that BOI is highly useful to important national security, intelligence, and law enforcement activities.[5] As part of that rulemaking, FinCEN may also further modify applicable deadlines, and the agency intends to solicit public comment on potential revisions to existing reporting requirements.[6] The public comment period will be an important opportunity for companies to provide input to FinCEN and build a record supporting changes to the existing reporting requirements, including the burden the requirements impose on businesses, and will allow companies to preserve and highlight for FinCEN any potential legal challenges to the new proposed reporting requirements.

For additional background information, please refer to our Client Alerts issued on December 5, December 9, December 16, December 24, and December 27, 2024, January 24, 2025 and February 19, 2025.

[1] https://www.fincen.gov/news/news-releases/fincen-not-issuing-fines-or-penalties-connection-beneficial-ownership.

[2] https://fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Deadline-Extension-508FINAL.pdf.

[3] https://www.fincen.gov/news/news-releases/fincen-not-issuing-fines-or-penalties-connection-beneficial-ownership.

[4] Id.

[5] Id.

[6] Id.

Gibson Dunn has deep experience with issues relating to the Bank Secrecy Act, the Corporate Transparency Act, other AML and sanctions laws and regulations, and challenges to Congressional statutes and administrative regulations.

For assistance navigating white collar or regulatory enforcement issues, please contact the authors, the Gibson Dunn lawyer with whom you usually work, or any leader or member of the firm’s Anti-Money Laundering, Administrative Law & Regulatory, Investment Funds, Real Estate, or White Collar Defense & Investigations practice groups.

Please also feel free to contact any of the following practice group leaders and members and key CTA contacts:

Anti-Money Laundering:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
David Ware – Washington, D.C. (+1 202.887.3652, dware@gibsondunn.com)
Ella Capone – Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)
Sam Raymond – New York (+1 212.351.2499, sraymond@gibsondunn.com)

Administrative Law and Regulatory:
Stuart F. Delery – Washington, D.C. (+1 202.955.8515, sdelery@gibsondunn.com)
Eugene Scalia – Washington, D.C. (+1 202.955.8673, dforrester@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202.887.3599, hwalker@gibsondunn.com)
Matt Gregory – Washington, D.C. (+1 202.887.3635, mgregory@gibsondunn.com)

Investment Funds:
Kevin Bettsteller – Los Angeles (+1 310.552.8566, kbettsteller@gibsondunn.com)
Shannon Errico – New York (+1 212.351.2448, serrico@gibsondunn.com)
Greg Merz – Washington, D.C. (+1 202.887.3637, gmerz@gibsondunn.com)

Real Estate:
Eric M. Feuerstein – New York (+1 212.351.2323, efeuerstein@gibsondunn.com)
Jesse Sharf – Los Angeles (+1 310.552.8512, jsharf@gibsondunn.com)
Lesley V. Davis – Orange County (+1 949.451.3848, ldavis@gibsondunn.com)
Anna Korbakis – Orange County (+1 949.451.3808, akorbakis@gibsondunn.com)

White Collar Defense and Investigations:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
Winston Y. Chan – San Francisco (+1 415.393.8362, wchan@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
F. Joseph Warin – Washington, D.C. (+1 202.887.3609, fwarin@gibsondunn.com)

We are pleased to provide you with Gibson Dunn’s ESG update covering the following key developments during January 2025. Please click on the links below for further details.

I. GLOBAL

The International Financial Reporting Standards (IFRS) Foundation publishes guide for reporting only climate-related information using International Sustainability Standards Board (ISSB) Standards

On January 30, 2025, the IFRS Foundation published a new guide to help companies prepare abbreviated disclosures using the transition relief provided under ISSB Standards IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information to report only climate-related information under IFRS S2, Climate-related Disclosures, in the first reporting year. For those filing voluntary under the ISSB standards, this relief would apply to disclosure for the fiscal year beginning on or after January 1, 2024.

The International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) jointly launch a new international framework to support the implementation of their sustainability standards

On January 27, 2025, the IAASB and IESBA jointly launched new and revised standards intended to enhance the trust and transparency of sustainability reporting and assurance. The standards are IAASB’s International Standard on Sustainability Assurance 5000 (ISSA 5000), which provides a framework for the assurance of sustainability information, and IESBA’s International Ethics Standards for Sustainability Assurance (IESSA), which provide ethical principles for sustainability reporting and assurance. ISSA 5000 and IESSA will become effective for periods starting on or after December 15, 2026, in the jurisdictions that choose to adopt them.

Net Zero Asset Managers (NZAM) and Glasgow Financial Alliance for Net Zero (GFANZ) respond to departures

Following the public withdrawals of several large financial institutions from NZAM, on January 13, 2025, NZAM announced it was launching a review of the initiative following “[r]ecent developments in the U.S. and different regulatory and client expectations in investors’ respective jurisdictions.” While the review is in process, NZAM will suspend its activities tracking signatory implementation and reporting and will remove from its website the commitment statement and list of NZAM signatories, as well as their targets and related case studies.

Citing recent departures from its Net Zero Banking Alliance, GFANZ announced a restructuring plan to focus its efforts on mobilizing capital in support of the transition to net zero. In particular, the group seeks to close “the investment gap” in support of technology and public policy and to pursue public-private partnerships.

II. UNITED KINGDOM

Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) publish Climate Change Adaptation Reports 2025

On January 30, 2025, the PRA published its report on climate change adaptation reporting. The report notes that the current goal of the Bank of England’s policy work on climate change and the transition to net zero is to play a leading role in enhancing the resilience of the UK financial system and in understanding the financial, operational, and economic impacts on the macroeconomy. The PRA expects to publish in 2025 a consultation paper seeking views on an update to Supervisory Statement 3/19 on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change.

On January 28, 2025, the FCA published its report identifying three major issues that affect climate change adaptation in the financial services industry: (i) data and modelling for quantification and management of climate risks; (ii) barriers and enablers to insurance underwriting for climate risks and in consequence lending and investment; and (iii) barriers and enablers to financial services in allocating capital to adaptation.

UK confirms 2035 Nationally Determined Contribution (NDC) emissions reduction target under the Paris Agreement

On January 30, 2025, the UK submitted its NDC target to the United Nations Framework Convention on Climate Change (UNFCCC). First announced by the Prime Minister at COP29 in November 2024, the UK has now committed to reduce all greenhouse gas emissions (GHGs) by at least 81% by 2035 compared to 1990 levels, excluding international aviation and shipping emissions. The commitment aligns with the recommendations of the U.K. government’s climate advisory body, which has verified the target as a credible contribution towards limiting global warming to 1.5 °C.

UK Government votes to end debate and adjourn the Climate and Nature Bill

On January 24, 2025, the House of Commons debate resulted in a majority decision to adjourn the Climate and Nature Bill during its second reading, thereby preventing a vote on the proposed legislation. The bill proposes to impose a duty on the Secretary of State to ensure the UK implements its obligations and commitments under the Paris Agreement and the Global Biodiversity Framework, as well as a strategy to implement certain climate and nature targets. Debate on the bill will continue in July 2025.

The Equality and Human Rights Commission (EHRC) publishes parliamentary briefing on the UK Employment Rights Bill

On January 14, 2025, the EHRC published its parliamentary briefing on the proposed UK Employment Rights Bill. The briefing notes the potential of many measures set out in the bill to improve working conditions and reduce inequalities in the workplace but also raises concerns about the level of detail intended to be left to secondary legislation. The EHRC highlights that this approach could limit the ability of parliamentarians and stakeholders to assess the legislation’s unintended impacts on certain protected groups. The briefing calls for the UK Government to consider and avoid such impacts. The EHRC also warned of the current lack of clarity around the UK Government’s intentions for enforcing the bill.

III. EUROPE

EU Commission releases proposal of “First Omnibus Package” scaling back Sustainability Reporting and Due Diligence Obligations under CSRD, Taxonomy and CSDDD

Please see Gibson Dunn’s February 28, 2025 alert, Omnibus Simplification Package Proposed by the EU Commission: Scaling Back Sustainability Reporting and Due Diligence Obligations.

EU Platform on Sustainable Finance publishes draft reports suggesting revisions and simplifications of the EU Taxonomy Regulation and Climate Delegated Act

On January 8, 2025, the EU Platform on Sustainable Finance, tasked by the EU Commission with reviewing and recommending revisions to the Climate Delegated Act as well as with simplifying the EU Taxonomy Regulation, published a draft report. The report recommends simplifying the application of Do No Significant Harm criteria and expanding the scope of activities covered by the EU Taxonomy. This includes reducing complexity, improving the clarity and consistency of technical screening criteria, and providing more detailed guidance for reporting to ease the compliance process for companies and financial institutions.

On February 5, 2025, the EU Platform on Sustainable Finance published a second report in which it outlines “specific proposals to revise the Taxonomy Disclosures Delegated Act, leading to a reduction of over a third in the reporting burden for non-financial companies and a significant simplification for financial institutions.” Key recommendations include introducing a materiality threshold for corporate KPIs, making the OpEx KPI mandatory only for R&D costs, and simplifying the Green Asset Ratio by allowing estimates and proxies for non-EU and retail exposures.

Switzerland sets new Climate Goals for 2035

On January 29, 2025, the Swiss government approved a new climate target, aiming for a 65% reduction in GHGs by 2035 compared to 1990 levels, to be implemented as an emission budget covering 2031-2035. This goal will be part of Switzerland’s second NDC under the Paris Agreement. The new target aligns with Switzerland’s Climate and Innovation Act, which mandates net zero emissions by 2050 and includes various measures to reduce energy consumption and transition away from fossil fuels. The government also plans to achieve an average 59% GHG reduction between 2031 and 2035, primarily through domestic measures, while retaining the option to use international emissions reductions.

CSRD Transposition

No countries transposed the CSRD in January; however, the Dutch government submitted a CSRD implementation bill (Wet implementatie richtlijn duurzaamheidsrapportering) to the House of Representatives for consideration. An overview of the transposition of CSRD into national laws can be found here.

IV. NORTH AMERICA

The California Air Resources Board (CARB) extends comment period deadline for California Senate Bills 253 and 261

As described in our recent blog post, on December 16, 2024, CARB issued a request for public feedback and information regarding certain implementing regulations for Senate Bill (SB) 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate Related Financial Risk Act). CARB has extended the comment deadline to March 21, 2025, due to the Southern California wildfires.

Attorneys general issue request for information to financial institutions on ESG activities

On January 27, 2025, a coalition of 11 state attorney generals, led by Texas Attorney General Ken Paxton, sent a letter to several large financial institutions expressing concern that the companies had breached their fiduciary duty to maximize shareholder returns by making investment decisions based on diversity and climate considerations.

United States Climate Alliance (U.S. Climate Alliance) reaffirms commitment to Paris Agreement climate goals amid U.S. withdrawal

On January 20, 2025, the U.S. Climate Alliance, a bipartisan coalition of 24 state governors, delivered a letter to the Executive Secretary of the UNFCCC stating that the U.S. Climate Alliance, remains committed to the Paris Agreement, is “on track to meet [its] near-term climate target by reducing collective net greenhouse gas (GHG) emissions 26 percent below 2005 levels by 2025,” and noted that the states have “broad authority” to pursue climate initiatives despite President Trump’s announcement that he will withdraw from the Paris Agreement. .

Tennessee drops ESG lawsuit against BlackRock following settlement agreement

As described in our Winter 2023 ESG update, Tennessee filed a consumer protection lawsuit in Tennessee state court against BlackRock alleging the company had misled or made false representations to the state’s consumers regarding the incorporation of ESG into its investment strategy. On January 17, 2025, Tennessee announced a settlement with BlackRock. As part of the settlement agreement, BlackRock agreed to increase disclosure and compliance around its use of ESG factors and to disclose on its website membership in climate-focused organizations. For funds that do not have investment objectives beyond financial performance or screens based on non-financial criteria, BlackRock agreed to cast votes “solely to further the financial interests of investors,” remove ESG ratings from main product pages, provide quarterly as opposed to annual disclosures regarding its proxy voting, and provide the rationale behind any proxy voting that is contrary to management’s recommendations.

Federal Acquisition Regulatory Council (FARC) withdraws proposed climate-related disclosure rule

On January 13, 2025, FARC withdrew a proposed rule titled “Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk.” The rule, originally proposed on November 14, 2022, would have required certain government contractors to publicly disclose GHG emissions and major contractors (those that received over $50 million in federal contract obligations) to disclose climate-related financial risks and set emissions reduction targets in order to qualify for future federal contracts.

In case you missed it…

The Gibson Dunn Securities Regulation and Corporate Governance Practice Group has published updates regarding the Securities and Exchange Commission’s issuance of Staff Legal Bulletin 14M, which is relevant for the 2025 shareholder proposal season; its potential strategy shift in the climate disclosure rule litigation; and its new interpretive guidance on Schedule 13G eligibility for large stockholders engaging with companies on ESG.

The Gibson Dunn Workplace DEI Task Force has published several updates for January and February summarizing the latest key developments, media coverage, case updates, and legislation related to diversity, equity, and inclusion, including dedicated alerts describing:

a recent executive order revoking affirmative action requirements for government contractors and directing agencies to identify nine large targets for investigations of private sector DEI practices;
the impacts of recent executive orders regarding race and gender on corporate DEI programs; and
potential insights an Office of Personnel Management memorandum may give into future enforcement of the DEI directives.

Gibson Dunn also published two alerts regarding energy-related executive orders:

key takeaways from the executive order “Unleashing American Energy” and its potential impact on various energy initiatives as well as the M&A and capital markets outlook for energy companies; and
ten regulatory and policy issues energy industry experts will be monitoring in the early days of President Trump’s second administration.

More information on executive orders and other announcements from the White House is available in our White House Executive Order Tracker. A collection of our analyses of the legal and industry impacts from the presidential transition is available here.

V. APAC

Securities Commission Malaysia and the Central Bank of Malaysia releases 2025 climate change priorities

On January 22, 2025, Securities Commission Malaysia and Bank Negara Malaysia, co-chairs of Joint Committee on Climate Change (JC3), held its 14th meeting and released a joint statement outlining their priorities and action plans for addressing climate change in 2025. JC3 will focus on building climate resilience in the financial sector in three key areas: addressing data challenges, facilitating small and medium enterprises’ transition, and designing climate finance solutions.

Securities Commission Malaysia releases guidance to aid company directors in driving sustainability reporting

On January 20, 2025, the Securities Commission Malaysia released a guide titled “Navigating the Transition: A Guide for Boards” to provide actionable steps for directors to adopt the National Sustainability Reporting Framework (NSRF). The NSRF addresses the use of the sustainability disclosure standards issued by the ISSB. Large-listed issuers on the Bursa Malaysia’s Main Market with market capitalization of RM2 billion and above will start NSFR implementation this year, while other listed issuers and non-listed large companies will be expected to comply with the reporting requirements by 2027 under a phased approach.

Bank of China joins the Taskforce on Nature-related Financial Disclosures

On January 13, 2025, the Taskforce on Nature-related Financial Disclosures (TNFD) welcomed the Bank of China (BOC) as the first Chinese institution to join the TNFD.

Lauren Assaf-Holmes, Mellissa Campbell Duru, Mitasha Chandok, Becky Chung, Georgia Derbyshire, Ferdinand Fromholzer, Muriel Hague, Michelle Kirschner, Vanessa Ludwig, Babette Milz, Kiernan Panish, Johannes Reul, Annie Saunders, and Helena Silewicz*

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s ESG: Risk, Litigation, and Reporting practice group:

ESG: Risk, Litigation, and Reporting Leaders and Members:
Susy Bullock – London (+44 20 7071 4283, sbullock@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Perlette M. Jura – Los Angeles (+1 213.229.7121, pjura@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, mmurphy@gibsondunn.com)
Robert Spano – London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)

*Helena Silewicz is a trainee solicitor in London and is not admitted to practice law.

This update provides an overview of the major developments in federal and state securities litigation since our 2024 Mid-Year Securities Litigation Update.

Introduction

In this update:

We report on orders from the Supreme Court that dismissed two securities-related cases from the Court’s merits docket, leaving unresolved questions about pleading standards and the nature of misstatements under the PSLRA. We also examine one potential circuit conflict involving federal courts’ jurisdiction to hear securities-related cases under the Class Action Fairness Act.
We cover recent developments in Delaware, including the latest opinion in Tornetta v. Musk, a recent Delaware Supreme Court opinion addressing aiding and abetting liability, and two new opinions addressing litigation over commercially reasonable efforts clauses.
Lawsuits challenging public companies’ environmental, social and governance (ESG) disclosures and policies continue to be filed, as do cases challenging ESG policies implemented by states, asset managers, and trading platforms. We survey notable developments in securities cases involving ESG allegations.
The cryptocurrency space has seen considerable activity since our last Update. Below, we discuss noteworthy new case filings and rulings in various lawsuits, as well as other developments that could impact cryptocurrencies going forward.
We discuss recent cases addressing price impact issues in the wake Goldman Sachs Group., Inc. v. Arkansas Teacher Retirement System. We also highlight recent opinions addressing market efficiency and preview cases on appeal implicating various reliance-related issues.
Finally, we address several other notable developments, including a recent opinion from the Second Circuit addressing materiality, a recent opinion from the Ninth Circuit involving a Special Purpose Acquisition Company or “SPAC,” a Tenth Circuit decision pertaining to short-selling, and recent securities lawsuits implicating Artificial Intelligence.

TABLE OF CONTENTS

I. Filing And Settlement Trends

II. What To Watch for In The Supreme Court

III. Delaware Developments

IV. ESG Civil Litigation

V. Cryptocurrency Litigation

VI. Market Efficiency And “Price Impact”

VII. Other Notable Developments

I. Filing And Settlement Trends

A recent NERA Economic Consulting (NERA) study provides an overview of federal securities litigation filings in 2024. This section highlights several notable trends.

A. Filing Trends

Figure 1 below reflects the federal filing rates from 1996 through 2024. In 2024, 229 federal cases were filed, matching the number of federal filings in 2023. That figure is considerably lower than in the peak years of 2017-2019, but is consistent with the number of filings from 2021 onwards. Note, however, that this figure does not include class action suits filed in state court or state court derivative suits, including those in the Delaware Court of Chancery.

Figure 1:

B. Mix Of Cases Filed In 2023

1. Filings By Industry Sector

As shown in Figure 2 below, the distribution of non-merger objections and non-crypto unregistered securities filings in 2024, varied somewhat from 2023. Notably, after a dip in 2023, the “Health and Technology Services” sector percentage returned to the percentages seen in 2021 and 2022. Similarly, the percentage of “Electronic Technology and Technology Services” filings increased in 2024, returning to levels last seen in 2021. Together, “Health and Technology Services” and “Electronic Technology and Technology Services” filings once again comprised over 50% of filings after dipping to 41% in 2023. Meanwhile, “Finance” sector filings decreased from 18% to 10%.

Figure 2:

2. Filings By Type

As shown in Figure 3 below, Rule 10b-5 filings make up the vast majority of federal filings this year. In fact, filings of other types are as low as they have been in years.

Figure 3:

3. Filings By Circuit

Figure 4 provides insight into the distribution of federal filings by Circuit. Most filings occur in the Second and Ninth Circuits. After trending down from 2021 to 2023, the number of filings in the Second Circuit increased this year. By contrast, the number of filings in the Ninth Circuit has remained steady or increased each year since 2021.

Figure 4:

4. Event-Driven And Other Special Cases

Figure 5 illustrates trends in the number of event-driven and other special case filings since 2020. The number of Artificial Intelligence-related filings in 2024, was more than double the number of such filings in 2023 and 2022. By contrast, SPAC and Cybersecurity and Customer Privacy Breach filings have decreased steadily since 2021.

Figure 5:

C. Settlement Trends

As reflected in Figure 6 below, the average settlement value in 2024 was $43 million. That is the highest number since 2016, and a significant increase from the mid-year average ($26 million). (Note that the average settlement value excludes merger-objection cases, crypto unregistered securities cases, and cases settling for more than $1 billion or $0 to the class.)

Figure 6:

As for median settlement value, it equaled the values from 2022 and 2023. At $14 million, the median settlement value also increased significantly from the mid-year median ($9 million). (Note that median settlement value excludes settlements over $1 billion, merger objection cases, crypto unregistered securities cases, and zero-dollar settlements.)

Figure 7:

II. What To Watch For In The Supreme Court

A. Supreme Court Update: Both Securities Cases Heard in November 2024 Dismissed As Improvidently Granted

As our 2024 Mid-Year Update discussed, by the beginning of its 2024 Term, the Supreme Court had granted review in two securities cases: Facebook, Inc. v. Amalgamated Bank, No. 23-980, and NVIDIA Corp. v. E. Ohman J:or Fonder AB, No. 23-970. Each case presented questions about pleading standards in securities class actions, and each petition identified circuit splits on those issues. See Petition for Writ of Certiorari at 16-17, Facebook, Inc., No. 23-980 (Mar. 4, 2024) (“Facebook Pet.”); Petition for Writ of Certiorari at 3-5, NVIDIA Corp., No. 23-970 (Mar. 4, 2024) (“NVIDIA Pet.”). However, after hearing oral argument in November 2024, in each of these cases, the Court issued a per curiam order dismissing each writ as “improvidently granted,” a disposition that sends a case back to the court below without a resolution on the merits. NVIDIA Corp. v. E. Ohman J:or Fonder AB, 2024 WL 5058572 (U.S. Dec. 11, 2024); Facebook, Inc. v. Amalgamated Bank, 604 U.S. 4 (2024); see also Garrett v. McCotter, 807 F.2d 482, 484 n.5 (5th Cir. 1987). These dismissals mean that, for now, lower courts across the country will continue to apply their own circuits’ precedents to these questions.

In Facebook, shareholders alleged that Facebook made misstatements in securities filings, where it had purportedly characterized as “hypothetical” the risk that third parties might misuse Facebook user data when that risk has already allegedly materialized. Facebook Pet. at 10. The Supreme Court granted Facebook’s petition for certiorari to resolve the question of whether risk disclosures are “false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm.” See id. at i; see also Facebook, Inc. v. Amalgamated Bank, 144 S. Ct. 2629 (2024) (granting certiorari in part). Gibson Dunn represents the petitioners in Facebook.

The question of whether such risk disclosures are misstatements unless they also disclose any and all materializations of the disclosed risk, no matter how inconsequential, remains subject to a circuit split. The Supreme Court’s dismissal in Facebook leaves intact the Ninth Circuit’s rule, which holds that a risk disclosure is materially misleading when it fails to disclose a past instance of the risk having materialized, even if the past event poses no known risk of harm. In re Facebook, Inc. Sec. Litig., 87 F.4th 934, 949-50 (9th Cir. 2023). As Facebook argued in its petition for certiorari, this puts the Ninth Circuit at odds with the Sixth Circuit, which treats risk disclosures as prospective only; and with the First, Second, Third, Fifth, Tenth, and D.C. Circuits, which have held that a risk’s materialization in the past must be disclosed only when the company knows or believes that the past event will harm the business. Facebook Pet. at 19-22 (citations omitted).

In NVIDIA, a group of investors brought a securities-fraud class action against NVIDIA, a company that produces graphics processing units (GPUs). E. Ohman J:or Fonder AB v. NVIDIA Corp., 81 F.4th 918, 924-25 (9th Cir. 2023). They alleged that NVIDIA’s CEO and two other defendants (whose dismissal was affirmed by the Ninth Circuit) had misled investors about the extent to which NVIDIA’s revenue growth was linked to demand from cryptocurrency miners. Id. at 924-27. In support of allegations about the falsity of NVIDIA’s statements and its knowledge, the investors’ amended complaint relied on statements from former NVIDIA employees about internal company documents, as well as on the independent analysis of an expert consulting firm. Id. at 929-30, 937-39.

The Supreme Court granted NVIDIA’s petition for certiorari to decide (1) whether, under the heightened pleading standards of the Private Securities Litigation Reform Act (PSLRA), plaintiffs making allegations of scienter based on company-internal documents must “plead with particularity the contents of those documents,” and (2) whether, under the PSLRA, allegations of falsity based on expert opinions—rather than “particularized allegations of fact”—suffice to survive a motion to dismiss. See NVIDIA Pet. at i; see also NVIDIA Corp. v. E. Ohman J:or Fonder AB, 144 S. Ct. 2655 (2024) (granting certiorari). Now, with certiorari dismissed in NVIDIA, both of these questions remain subject to the circuit splits identified in the NVIDIA petition. As to the standard for pleading scienter based on internal documents, the First and Ninth Circuits permit more general allegations, whereas the Second, Third, Fifth, Seventh, and Tenth Circuits require particularized allegations of the documents’ contents. NVIDIA Pet. at 4 (citations omitted). And as to the role of expert opinions in alleging falsity, the Ninth Circuit alone has held that expert opinions suffice; the Second and Fifth Circuits have held that expert opinions can “bolster” factual allegations of falsity but will be insufficient on their own to survive a motion to dismiss. See id. at 5 (citations omitted).

B. Lower Court Development: Circuit Split Recognized On Federal Court Jurisdiction Under The Class Action Fairness Act

After the Court’s dismissals in November and December, there are no securities cases currently pending before the Supreme Court. We highlight one securities-related development from the lower courts, which may reach the Supreme Court for resolution in a future Term.

On September 4, 2024, in Kim v. Cedar Realty Trust, Inc., 116 F.4th 252 (4th Cir. 2024), the Fourth Circuit acknowledged a circuit split on the extent of federal court jurisdiction under the Class Action Fairness Act (CAFA). Although the Second Circuit had determined CAFA did not confer federal subject-matter jurisdiction in a “nearly identical action,” the Kim court found that it was bound by Fourth Circuit precedent to reach a different conclusion. Id. at 260-61.

In Kim, an action brought by a class of preferred stockholders in Cedar Realty, the district court asserted subject-matter jurisdiction under CAFA’s exception to the usual jurisdictional requirement of complete diversity of citizenship between the parties. Id. at 260 (citing 28 U.S.C. §§ 1331, 1332(d)). On appeal, the Fourth Circuit raised the question of its own jurisdiction, noting that CAFA also incorporates carveouts under which there is not federal jurisdiction in cases without complete diversity. Id. Specifically, the court considered whether the Kim action “solely involve[d] a claim” relating to either state-law issues about a business entity’s internal affairs or the “rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security.” Id. at 260 (quoting 28 U.S.C. § 1332(d)(9)(B)-(C)).

The claims in Kim were for breaches of contract and fiduciary duty by Cedar Realty, based on rights and obligations arising from the preferred shares; and for interference with contract and aiding and abetting breaches of fiduciary duty, by Wheeler, which merged with Cedar Realty while the plaintiffs held their preferred stock. Id. at 258-59. The court acknowledged that a panel of the Second Circuit had found that it lacked jurisdiction under CAFA in a “nearly identical action,” Krasner v. Cedar Realty Trust, Inc., 86 F.4th 522 (2d Cir. 2023). Kim, 116 F.4th at 260-61. But the Kim court was bound by prior Fourth Circuit precedent, in which the court held that aiding-and-abetting claims against corporate outsiders do not “relate[] to” either internal corporate governance or rights and duties conferred by a security. Id. at 261 (citing Dominion Energy, Inc. v. City of Warren Police & Fire Ret. Sys., 928 F.3d 325, 335-43 (4th Cir. 2019)). Under that precedent, the Cedar Realty stockholders’ claims against Wheeler were not carved out from CAFA and the court retained federal jurisdiction over the appeal. Id.

For now, under the apparent circuit split identified in Kim, shareholder class actions like these, involving aiding-and-abetting claims against corporate outsiders, may face different treatment in different circuits. In the Fourth Circuit and any others that follow the rule stated in Kim, these cases can remain in federal court, while in the Second Circuit and any other circuits following the Krasner rule, the same claims will be remanded to state court for lack of federal jurisdiction.

III. Delaware Developments

A. Ratification In Tornetta v. Musk

On December 2, 2024, the Delaware Chancery Court issued a much-anticipated opinion in Tornetta v. Musk, 326 A.3d 1203 (Del. Ch. 2024). This latest installment in Tornetta addresses the effect on the Court’s post-trial opinion of a subsequent stockholder vote in favor of the compensation award the post-trial opinion ordered rescinded. In short, the Court concluded the subsequent vote had no effect.

Tornetta centers on Elon Musk’s 2018 compensation package. The compensation award was approved at a special meeting of the Tesla Board on January 21, 2018, and then approved by a majority of Tesla’s stockholders in March 2018. Tornetta v. Musk, 310 A.3d 430, 485-86, 490 (2024). The compensation award carried a grant date fair value of $2.6 billion and a maximum value to Musk of $55.8 billion. Id. at 445. That maximum value represented “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.” Id.

On January 30, 2024, the Court issued a post-trial opinion that ordered Elon Musk’s 2018 compensation award rescinded after finding (1) Musk was a conflicted controller with respect to the compensation award, (2) the entire fairness standard applied to the transaction as a result, (3) the defendants failed to prove the March 2018 stockholder vote on the award was “fully informed,” and (4) the defendants failed to prove the transaction was entirely fair. Id. at 501, 520-21, 526-27, 544 (2024). Roughly three months after the Court’s post-trial opinion, Tesla filed a proxy statement in which it recommended that stockholders “ratify” the compensation award that the post-trial opinion ordered rescinded. Tornetta, 326 A.3d at 1218. On June 13, 2024, Tesla stockholders voted in favor of the proposal. Id. at 1219.

On June 28, 2024, certain Tornetta defendants, citing the stockholder vote, filed a Motion to Revise the Tornetta post-trial opinion, which this latest December 2, 2024 opinion denies. Id. at 1219, 1264.

The Court provided four independent bases for doing so, one of which is addressed here—ratification. The Court rejected Tesla’s ratification arguments on the merits. It began by framing the defendants’ arguments as being incorrectly built on agency principles that treat a corporation’s directors as agents of stockholders, with stockholders, as principals, able to “do whatever they want in all contexts.” Id. at 1230. According to the Court, the defendants’ view is contrary to Delaware law, which regards directors as more “analogous to trustees for stockholders.” Id. (citations omitted). Thus, agency principles apply “only by analogy.” Id.

Next, the Court opined that Delaware recognizes two forms of stockholder ratification, one of which was applicable in its view. The Court designated the applicable form of ratification “fiduciary ratification.” Id. Per the Court, fiduciary ratification “allows stockholders to express, through an affirmative vote,” that “a corporate act is ‘consistent with shareholder interests.’” Id. (quoting Vogelstein, 699 A.2d at 335). According to the opinion, the effect of fiduciary ratification varies depending on context, ranging from “act[ing] as a complete defense,” to “hav[ing] no effect.” Id. (quoting Vogelstein, 699 A.2d at 334). “Just as the standard of review increases as conflicts become more direct and serious, the effect of fiduciary ratification diminishes.” Id. (footnote omitted).

Here, the Court explained that the fiduciary ratification was occurring in the context of a conflicted controller transaction. That context, the Court noted, presents “multiple risks to minority stockholders.” Id. Considering those risks and the presumptive application of entire fairness, the Court held that the “maximum effect of stockholder ratification . . . [would be] to shift the burden of proving entire fairness.” Id. at 1232. A standard of review shift, the Court explained, depended instead on the company committing from the outset of the transaction to the requirements set forth in MFW. Id. Tesla did not do so, however, and it could not “‘MFW’ a vote”—i.e., obtain the benefits of MFW by “implementing the MFW protections before” the stockholder ratification vote. Id. at 1233. The Court therefore rejected the ratification argument.

The Court’s post-trial opinion prompted discussion about re-domestication and the relative merits of incorporating in Delaware as compared to states like Texas and Nevada. A detailed discussion of those topics is beyond the scope of this Update, though we note that systemic movement does not appear be occurring—at least not yet. See generally Stephen M. Bainbridge, DExit Drivers: Is Delaware’s Dominance Threatened (UCLA Sch. L. Rsch. Paper No. 24-04), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4909689. This latest opinion, and its recent appeal to the Delaware Supreme Court, suggest those discussions are likely to persist, and we will continue to monitor this case and these issues as developments unfold.

B. The Delaware Supreme Court Reiterates The High Bar for Bringing Aiding And Abetting Claims Against Third-Party Buyers

In its recent decision in In re Mindbody, Inc., Stockholder Litigation, the Delaware Supreme Court reversed a controversial holding that an arms-length buyer’s “passive failure to act rather than active participation or ‘substantial assistance’ can give rise to liability.” 2024 WL 4926910, No. 484, 2023 at *30 (Del. Ch. Dec. 2, 2024). The Court also addressed the several novel issues, “including . . . whether contractual undertakings in merger agreements can create fiduciary duties for third parties to the target’s stockholders.” Id.

As discussed in our April 10, 2023 Client Alert, the Court of Chancery ruled that Mindbody’s founder and CEO, Richard Stollmeyer, breached his Revlon duties. Id. at *22. The Court of Chancery also found that (1) Stollmeyer was liable for breaching his duty of disclosure, (2) Vista Equity Partners Management, LLC (Vista)—Mindbody’s acquirer—was liable for aiding and abetting Stollmeyer’s disclosure breach, and (3) the defendants had waived the issue of settlement credit. Id. at *22. Apart from the Court of Chancery’s aiding and abetting ruling, the Delaware Supreme Court affirmed.

To be liable for aiding and abetting a breach of fiduciary duty, plaintiffs must plead and prove that the third party was a “knowing participa[nt]” in the underlying breach. Id. at *31. For its part, the Court of Chancery “held that Vista’s ‘contractual obligation’ in the [Vista-Mindbody] merger agreement to review Mindbody’s proxy statements and ‘correct’ any misstatements or omissions, and Vista’s subsequent failure to correct omissions, amounted to ‘knowing participation’ in Stollmeyer’s breach of his duty of disclosure.” Id. at *30.

The Delaware Supreme Court disagreed. In reversing the Court of Chancery’s aiding and abetting determination, the Delaware Supreme Court provided an overview of the “knowing participation” element of an aiding and abetting claim. See id. at *31-35. It explained that the “knowing” factor comprises two types of knowledge—i.e., knowledge by the alleged aider and abettor that (1) “the primary party’s conduct constitutes a breach,” and (2) its own conduct was legally improper. Id. at *32 (citation and emphasis omitted). Participation, in turn, generally requires “substantial assistance.” Id. at *33. At least in the corporate governance context, the Supreme Court explained, substantial assistance has generally been limited to “overt participation,” as opposed to a “failure to act” or “passive awareness.” Id. It also cited Section 876 of the Restatement (Second) of Torts approvingly and structured its analysis around the Restatement factors. See id. at *34-36.

Considering these various factors and elements, along with the record, the Supreme Court held that the “the ‘participation’ requirement ha[d] not been established,” and that “aspects of the scienter requirement, namely, Vista’s knowledge of the wrongfulness of its own conduct regarding the disclosure breach, also f[e]ll short.” Id. at *31. Although it described the opinion as “narrow,” the Supreme Court’s analysis in this respect nonetheless included notable commentary. For example, it held that, “in the case before [it],” “a contractual obligation between a target corporation and a third-party buyer to notify the other of potential disclosure violations” did not “create[] an independent duty of disclosure between the third-party buyer and the target’s stockholders that [could] form the basis for secondary aiding and abetting liability,” id. at *38; there are “compelling public policy reasons not to read contractual disclosure-based obligation between a third-party buyer and a target company as implying independent fiduciary duties between the third-party buyer and the target’s stockholders,” id. at *43; taking “no action to facilitate or assist [the primary violator] in his breach,” and instead merely “passively st[anding] by” did not amount to “substantial assistance,” id. at *41; and “when an aiding and abetting claim is brought against a third-party acquirer negotiating at arms’-length, participation should be the most difficult to prove,” id.

As the Court acknowledged, In re Mindbody is unlikely to be the last word on aiding and abetting liability. See id. at *39 n.117 (noting another case on appeal “addresses similar issues with different facts”). Accordingly, we will continue monitoring these issues and provide updates on future cases implicating them.

C. Delaware Supreme Court Affirms Delaware Court Of Chancery’s Dismissal Of Breach Of Fiduciary Claims Against Directors Involved In A SPAC Merger

The Delaware Supreme Court recently affirmed the dismissal of a lawsuit alleging that the sponsor of a special purpose acquisition company (SPAC) and its directors breached their fiduciary duties “by touting an outdated business model that the target had decided to scrap.” In re Hennessy Cap. Acquisition Corp. IV S’holder Litig., 318 A.3d 306, 310 (Del. Ch. 2024), aff’d, No. 245, 2024, 2024 WL 5114140 (Del. Dec. 16, 2024). In doing so, the Supreme Court adopted the reasoning of the Court of Chancery, which provided guidance clarifying that the MultiPlan standard is not as lenient as some had thought. Id.

In 2018, Hennessy Capital Acquisition Corp. IV (Hennessy) was formed as a SPAC. Id. at 311. Hennessy then merged with an entity named Canoo in late 2020. Id. at 314-15. In advance of the merger, Hennessy and Legacy Canoo issued a press release, and Hennessy subsequently issued a proxy, that outlined Canoo’s “three projected revenue streams.” Id. at 313-15. After the merger, Canoo’s board and management changed appreciably, and Canoo’s new leadership publicly announced a shift in Canoo’s business model, resulting in some volatility and an eventual fall in Canoo’s stock price. See id. at 315-17. In June 2022, the plaintiff, a Canoo stockholder, filed a putative class action alleging fiduciary duty breaches, among other claims. Id. at 317-18.

After outlining the “narrow[ness]” of a MultiPlan claim and rejecting the plaintiff’s contention that “the pleading standard is ‘relaxed’ in the context of SPAC claims,” the Court of Chancery dismissed the plaintiff’s breach of fiduciary duty claim. Id. at 319-21. The Court explained that “[t]o state a viable MultiPlan claim, a plaintiff is required to plead facts making it reasonably conceivable that conflicted fiduciaries deprived public stockholders of a fair chance to exercise their redemption rights.” Id. at 320. And in the case of disclosures, the pleaded facts “must provide grounds to infer that the defendants made a material misstatement or omission—one affecting the total mix of information available to public stockholders deciding whether to redeem.” Id. But—notwithstanding the success of prior SPAC-related suits—”[p]oor performance is not . . . indicative of a breach of fiduciary duty,” “[c]onflicts are not a cause of action,” “[a]nd pleading requirements exist even where entire fairness applies.” Id. at 310. “Entire fairness is not . . . a free pass to trial.” Id. at 319. And here, the plaintiff’s allegations were deficient under those standards.

D. Court Of Chancery Issues Opinions Providing Guidance On Commercially Reasonable Efforts Requirements Related To Earnout Provisions

The Court of Chancery issued two cases in the second half of the year finding that buyers failed to use commercially reasonable efforts to achieve agreed-upon milestones in acquisition agreements. See Fortis Advisors LLC v. Johnson & Johnson, 2024 WL 4048060 (Del. Ch. Sept. 4, 2024); S’holder Representative Servs. LLC v. Alexion Pharma., Inc., 2024 WL 4052343 (Del. Ch. Sept. 5, 2024). The opinions address two different types of common commercially reasonable efforts requirements—”inward-facing” and “outward-facing” ones—and provide helpful insight into how courts approach them.

Commercially reasonable efforts requirements are often found in earnout provisions. Earnout provision are a “common risk allocation tool[] in merger agreements” that require a buyer to “pay[] an upfront sum and an additional amount if the seller’s business achieves specific targets by a deadline,” or milestone. Fortis, 2024 WL 4048060, at *1. To lessen the risk for the seller, buyers often provide a contractual assurance that they will “devote commercially reasonable efforts” to reach the milestones. Id.

Fortis Advisors arose out of an acquisition by Johnson & Johnson (J&J) of Auris Health, Inc. (Auris), a venture-backed startup developing surgical robots. Id. As part of the acquisition, J&J agreed to pay $3.4 billion up front and another $2.35 billion upon the achievement of several commercial and regulatory milestones for two of Auris’s products. Id. The merger agreement included an “inward-facing efforts provision,” which required J&J to make “commercially reasonable efforts” to meet these milestones that were to be measured by J&J’s own standards and “usual practice” for such products. Id. at *14. Rather than make efforts to achieve those milestones, however, J&J, the Court found, instituted a series of tests designed to rank one of Auris’s products against another J&J product to determine which product to pursue and which to abandon. Id. at 2.

Among other things, the Court concluded that J&J breached its contractual obligation to use commercially reasonable efforts to reach the agreed-upon milestones for one of Auris’s products. Id. at *24-26. In doing so, the Court noted that J&J agreed to make Auris’s product a “priority medical device,” and that “commercially reasonable efforts” clauses require a party “to take all reasonable steps toward an end.” Id. at 24 (quotation omitted). The Court found that instead, J&J took steps that were “reasonably certain to have caused [the product] to miss its regulatory milestones.” Id. at *26.

Alexion arose out of Alexion Pharmaceuticals, Inc.’s (Alexion) acquisition of Syntimmune, Inc. As part of the acquisition, Alexion agreed to pay $400 million up front and an additional $800 million in installments upon the completion of several development milestones. 2024 WL 4052343, at *1, *14. The merger agreement provided that Alexion would use commercially reasonable efforts to achieve each milestone, and defined the efforts with an “outward-facing metric” of “what a similarly situated company would do” with a similar product. Id. at *1, 14. Alexion eventually terminated the acquired program altogether after its acquisition by AstraZeneca. Id. at *2, *20.

The Court concluded that Alexion breached its obligation to use commercially reasonable efforts to achieve several of the milestones. Id. at *36. In doing so, the Court noted that the merger agreement’s definition of commercially reasonable efforts did not permit Alexion to “consider its own efforts and cost required for the undertaking,” but rather only allowed for the consideration of “anticipated profitability, but only insofar as typical companies might typically consider it.” Id. at *37. As a result, the Court found that Alexion could not “consider[] its self-interest in determining what is commercially reasonable,” but rather could consider “its self-interest only in drawing the upper bound of its commercially reasonable efforts,” namely to ensure that its efforts were not “contrary to prudent business judgment.” Id.

E. The Limits Of Integration Clauses And Benefits Of Anti-Reliance Provisions

Two recent Court of Chancery decisions reinforce the limits of integrations clauses while underscoring the importance of anti-reliance provisions in precluding fraud claims. In Trifecta Multimedia Holdings Inc. v. WCG Clinical Services LLC, the plaintiff alleged that the defendant—in addition to breaching the parties’ purchase agreement—”fraudulently induced it to enter into [the] purchase agreement by claiming that the [defendant] portfolio company would be the best partner for growth, would allow the [plaintiff] healthcare company to continue operating autonomously, would support the [plaintiff] healthcare company’s sales and marketing efforts, and would generally help the [plaintiff] healthcare company secure new contracts and sell its flagship product.” 318 A.3d 450, 454 (Del. Ch. 2024). The Court, after dismissing a handful of statements as puffery, denied the defendant’s motion to dismiss in the main. Id. at 454-55. Among other things, the Court rejected the defendant’s argument that the parties’ purchase agreement precluded reliance, noting that “an integration clause, standing alone, is not sufficient to bar a fraud claim; the agreement must also contain explicit anti-reliance language,” which the parties’ agreement lacked. Id. at 465; see id. at 467.

Cytotheryx Inc. v. Castle Creek Biosciences, Inc. is similar. 2024 WL 4503220, at *3-4 (Del. Ch. Oct. 16, 2024). There, the plaintiff likewise argued that the integration clause in the parties’ agreement “prohibit[ed] any reliance on extra-contractual statements.” Id. at *3. Once again, the Court rejected the plaintiff’s argument, noting not only that the integration clause at issue did not bar the plaintiff’s particular claims but also that the parties’ agreement specifically “preserve[d] [the plaintiff’s] right to bring an action for fraud.” Id. at *5. Together Trifecta and Cytotheryx show that Delaware courts will sustain adequately pleaded fraud claims in the face of integration clauses where explicit anti-reliance provisions are absent.

F. Stockholder Agreements And Moelis

As discussed in our 2024 Mid-Year Update, the Delaware General Assembly passed S.B. 313 in July 2024, which contained what is now Section 122(18) of the Delaware General Corporation Law, in response to West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, 311 A.3d 809 (Del. Ch. 2024). As a reminder, Section 122(18) “specifically authorizes a corporation to enter into contracts with one or more of its stockholders or beneficial owners of its stock, for such minimum consideration as approved by its board of directors, and provides a non-exclusive list of contract provisions by which a corporation may agree to.” Section 122(18), however, “does not apply to or affect any civil action or proceeding completed or pending on or before” August 1, 2024—meaning it has no effect on the Moelis decision. S.B. 313 § 6. Accordingly, on August 16, 2024, Moelis filed a notice of appeal. See Moelis & Co. v. W. Palm Beach Firefighters’ Pension Fund, 340-2024, Doc. No. 74077020 (Del. Supr. Aug. 16, 2024). Briefing is now complete, and we will continue to monitor the case as it proceeds.

IV. ESG Civil Litigation

A. Environmental Litigation

Swanson v. Danimer Sci., Inc., 2024 WL 4315109 (2d Cir. Sept. 27, 2024): In May 2021, investors filed a putative class action lawsuit against Danimer Scientific, Inc., a bioplastics manufacturer, and certain executives. In re Danimer Sci. Sec. Litig., Case No. 21-cv-02708, ECF No. 1 (E.D.N.Y.). The plaintiffs alleged that the defendants made misleading public statements regarding the biodegradability of Danimer’s products. Id. ¶ 5. They further alleged that when an article published in The Wall Street Journal claimed that the timing in which the company’s product would biodegrade was more variable than suggested, the company’s stock price allegedly dropped. Id. ¶ 6. The United States District Court for the Eastern District of New York dismissed the lawsuit, concluding that the plaintiffs failed to adequately plead that the defendants knowingly made false or misleading statements about the biodegradability of the Danimer’s products. In re Danimer Sci. Sec. Litig., 2023 WL 6385642, at *16 (E.D.N.Y. Sept. 30, 2023). On appeal, the United States Court of Appeals for the Second Circuit affirmed the district court’s dismissal. Swanson, 2024 WL 4315109, at *3. The Second Circuit noted that the plaintiffs’ allegations, even when considered collectively, did not raise a strong inference that the defendants acted with the requisite intent to deceive or defraud investors. Gibson Dunn represented the defendants in this case. Id.

Lyall v. Elsevier Inc., et al., No. 24-cv-12022 (D. Mass.): The plaintiff, a former employee of a subsidiary of RELX PLC, filed a class action complaint against RELX PLC and its subsidiaries (RELX) for violations of federal securities laws on August 6, 2024. ECF No. 1. The plaintiff alleged RELX mislead both consumers and investors by greenwashing, i.e., representing to the public that it was doing more to protect the environment than it was actually doing. Id. ¶ 7. On October 16, 2024, the defendants filed a motion to dismiss the complaint, arguing that the plaintiff failed to comply with the requirements of the Private Securities Litigation Reform Act. ECF No. 12 at 1. Before the Court ruled on that motion, the plaintiff filed an amended complaint. ECF No. 25. The amended complaint continues to assert federal securities claims, alleging that RELX mislead investors by engaging in greenwashing. ECF No. 25. On February 7, 2025, the defendants moved to dismiss. ECF Nos. 28-29.

Texas et al. v. BlackRock Inc., et al., No. 24-cv-00437 (E.D. Tex.): In November 2024, Texas and 10 other states filed a lawsuit against major asset managers—BlackRock, State Street, and Vanguard—alleging their climate-focused investment strategies violated antitrust laws. ECF No. 1. The states claimed that these firms’ ESG initiatives reduced coal production, leading to higher energy prices. Id. ¶¶ 5-6. As of the date of this publication, the defendants have not yet filed an answer or a motion to dismiss the complaint. Gibson Dunn represents BlackRock in this matter.

B. Diversity And Inclusion

Alliance for Fair Board Recruitment v. SEC, No. 21-60626 (5th Cir. 2021): The petitioners in this case sued the SEC, alleging that Nasdaq’s Board Diversity Rules were unconstitutional and contrary to federal statutes. ECF No. 1-2. The Board Diversity Rules, which the SEC approved, required companies that list shares on Nasdaq’s exchange to (1) disclose aggregated information about board members’ diversity characteristics (including race, gender, and sexual orientation) and (2) provide an explanation if less than two board members are diverse. Id. at 3-4. On December 11, 2024, an en banc panel of the Fifth Circuit issued an opinion vacating the SEC’s order approving Nasdaq’s Board Diversity Rules. ECF. No. 532-1. Gibson Dunn represents Nasdaq in this action, which intervened as an interested party.

Kanaly v. McDonald et al., No. 24-cv-08839 (S.D.N.Y): On November 20, 2024, a shareholder filed a derivative complaint against Canadian athletic apparel brand Lululemon. In that lawsuit, the plaintiff, in part, alleged that the defendants made false and/or misleading statements and omissions related to IDEA, Lululemon’s diversity program. ECF No. 1 ¶ 44. Lululemon announced the IDEA program in October 2020, saying the company would aim to reflect “the diversity of the communities the Company serves and operates in around the world by 2025.” Id. ¶ 3. The plaintiff alleges that, in reality, the IDEA program was not structured to combat purported discrimination within Lululemon in any meaningful way. Id. ¶ 4. The plaintiff also alleges that the company’s 11-person board never had more than two racially diverse members during the relevant period, and that the company’s financial statements were silent on racial diversity goals. Id. ¶¶ 58, 77, 162. The defendants have not yet filed a response to the complaint.

McCollum v. Target Corp. et al., No. 25-cv-00021 (M.D. Fla.): On January 9, 2025, the plaintiff filed a shareholder derivative action on behalf of Target Corporation against officers and members of the Board alleging the Target’s Diversity, Equity, and Inclusion (DEI) initiatives and its 2023 LGBTQ Campaign harmed company investors. ECF No. 1. The plaintiff alleges that Target’s DEI initiatives and 2023 LGBTQ Campaign resulted in significant financial harm to investors by alienating a portion of the company’s customer base and leading to a decline in sales and stock value. Id. ¶ 7. The complaint asserts that the company’s directors and officers breached their fiduciary duties by deciding to pursue these initiatives. Id. ¶ 13. The defendants have not yet filed a response to the complaint.

Securities Industry & Financial Markets Association v. Ashcroft et al., No. 23-cv-04154 (W.D. Mo.): We first reported on this case in our Securities Litigation 2023 Year-End Update. In June 2023, the Missouri Securities Division adopted new rules requiring investment professionals to obtain client signatures before providing advice that “incorporates a social objective or other nonfinancial objective.” ECF No. 24 ¶¶ 69, 78. In August 2023, the Securities Industry and Financial Markets Association (SIFMA), filed a lawsuit against Missouri Secretary of State John Ashcroft and Missouri Securities Commissioner Douglas Jacoby, challenging these rules. ECF No. 1 at 41. On August 14, 2024, the U.S. District Court for the Western District of Missouri granted SIFMA’s motion for a permanent injunction, holding that the rules were preempted by federal law, violated the First Amendment, and were unconstitutionally vague. ECF. No. 115; ECF. No. 117 (as amended on August 28, 2024). This decision prevents Missouri from enforcing the contested rules.

V. Cryptocurrency Litigation

A. Class Actions

Naeem Azad v. Caitlyn Jenner, Sophia Hutchins, No. 24-cv-09768 (C.D. Cal.): On November 13, 2024, the plaintiffs filed a class action complaint in the Central District of California against Caitlyn Jenner and Sophia Hutchins, alleging violations of federal and California state securities laws. Specifically, they alleged a “scheme . . . [to] offer[] and s[ell] unregistered securities,” namely, “the cryptocurrency, $JENNER,” and “fraudulently solicit[] financially unsophisticated investors throughout the United States and abroad to purchase the unregistered securities.” ECF No. 1, ¶ 1. The plaintiffs described this cryptocurrency as a “memecoin,” i.e., a “blockchain-based digital asset that draws its inspiration from memes, characters, trends or, as in this case, the social media accounts and online presence of celebrities.” Id. ¶ 2. The value of memecoins, the plaintiffs alleged, is mainly derived from the ability of the “issuer or promoter to attract and sustain community engagement.” Id. ¶ 3. The plaintiffs—purportedly unsophisticated retail investors—accused the defendants of using social media accounts to promote the cryptocurrency without filing registration statements with the SEC or otherwise complying with all federal and state securities laws. Id. ¶¶ 4, 7. They further alleged that the defendants withheld or omitted material information from investors, such as “personal holdings” of the currency, “public wallet addresses she uses to hold or trade” the currency, and other facts. Id. ¶¶ 89-92. The case is in its early stages, and the defendants have not responded to the complaint at the time of this publication.

Hawes v. Argo Blockchain plc, 2024 WL 4451967 (S.D.N.Y. Oct. 9, 2024): On October 9, 2024, the District Court for the Southern District of New York granted defendant Argo Blockchain plc’s (Argo) motion to dismiss a securities fraud class action brought on behalf of investors who bought “American Depositary Receipts” in Argo’s U.S. IPO and in the aftermarket. Id. at *1. The plaintiffs filed their original class action complaint on January 26, 2023, ECF No. 1, and filed their amended complaint on September 26, 2023, ECF No. 45. Argo is a global cryptocurrency mining business, with facilities in Canada and Texas. ECF No. 45, ¶¶ 3-4. “Like many investors in the cryptocurrency arena, [the plaintiffs] lost money – specifically when, in mid-2022, Argo announced that unexpected increases in energy prices and a fall in the price of Bitcoin led to a decline in the price of Argo’s shares and ADRs.” Hawes, 2024 WL 4451967, at *1. The plaintiffs, accordingly, brought claims under the Securities Act and the Securities and Exchange Act, alleging that the defendants made “misleading statements deal[ing] principally with Argo’s capitalization and its ability to withstand adverse market conditions.” Id. The Court dismissed the plaintiffs’ complaint, noting that the “fact that an adverse event occurred following the making of a statement to the market . . . is an insufficient basis from which to infer that the statement was false when made,” and rejected the plaintiffs’ “[h]indsight pleading,” which is “too frequently seen in securities fraud cases.” Id. at *3. The Court also took pains to evaluate, and then reject, every allegedly misleading statement in the plaintiffs’ complaint. As of the date of this publication, no notice of appeal has been filed.

B. Regulatory Lawsuits

SEC v. Payward, Inc., 2024 WL 4819259 (N.D. Cal. Nov. 18, 2024): On November 18, 2024, the United States District Court for the Northern District of California denied a motion by Payward, Inc. (also known as “Kraken”) to certify for interlocutory appeal the Court’s August 23, 2024 order denying Kraken’s motion to dismiss. Id. at *1. The Court ruled that only discovery would establish whether the third-party cryptocurrency assets that are sold, exchanged, and traded on Kraken form the basis of investment contracts such that transactions involving those assets are subject to the securities laws. Id. at *2. On November 19, 2024, the parties filed a joint statement about a discovery dispute concerning the SEC’s objections to Kraken’s requests for three categories of documents concerning (1) Bitcoin and Ether, (2) the SEC’s public statements and testimony regarding digital assets, and (3) the SEC’s internal trading policies on digital assets. ECF No. 108 at 1. The case was referred to a magistrate judge for discovery, ECF No. 109, and the Court denied Kraken’s request to compel the production of these documents on December 16, 2024, ECF No. 113. On December 26, 2024, the Court granted the parties’ stipulated agreement to stay Kraken’s deadline to file objections to the Court’s order until March 31, 2025, so as to allow Kraken time to narrow its document requests. ECF No. 116. On January 24, 2025, the Court granted in part the SEC’s motion for judgment on the pleadings. ECF No. 126.

SEC v. Balina, 2024 WL 4607048 (W.D. Tex. Aug. 16, 2024): On August 16, 2024, the United States District Court for the Western District of Texas granted Ian Balina’s motion to certify its May 22, 2024 order for interlocutory appeal to allow the Fifth Circuit to consider whether Balina’s purported sales, offers to sell, and promotion of Sparkster or “SPRK” was domestic or extraterritorial conduct. Id. at *3. Balina did not seek to appeal the Court’s decision that tokens are securities as a matter of law. As discussed in a previous update, the SEC alleges that Balina, a cryptocurrency investor, sold and promoted SPRK tokens without disclosing his compensation, and the SEC maintains that U.S. securities laws apply because Balina targeted U.S. investors on U.S. social media platforms. ECF No. 1, ¶¶ 1-5. Balina contends that because his transactions occurred outside the United States, they are outside the purview of Section 5(a), 5(c), and 17(b) of the Securities Act. ECF No. 7 at 35. Trial, which had been set for January 13, 2025, is suspended pending resolution of the interlocutory appeal.

SEC v. Cumberland DRW LLC, No. 24-cv-09842 (N.D. Ill.): On October 10, 2024, the SEC charged Chicago-based Cumberland DRW LLC with operating as an unregistered dealer in more than $2 billion of crypto assets. ECF No. 1. On December 31, 2024, the defendant filed an unopposed motion to extend the briefing schedule regarding its motion to dismiss, pointing to news articles asserting that the upcoming change in Presidential administrations could impact crypto-related cases as the Trump administration would likely pull back on crypto-related enforcement. ECF No. 22. The Court denied the request, finding that neither the possibility of withdrawal of the lawsuit due to a change of administration nor the other reasons cited warranted an extension. ECF No. 24. Cumberland’s motion to dismiss, ECF No. 28, filed on January 15, 2025, remains pending.

C. Other Developments

Coinbase, Inc. v. SEC, 2025 WL 78330 (3d. Cir. Jan. 13, 2025): In July 2022—almost a year before the SEC publicly filed an enforcement case against Coinbase in federal court in the Southern District of New York for allegedly operating as an unregistered broker, exchange, and clearing agency—Coinbase petitioned the SEC to create clear rules on how federal securities laws apply to digital assets. The SEC denied Coinbase’s petition in a single paragraph, and Coinbase subsequently sought judicial review of that denial under the Administrative Procedure Act, asking the Third Circuit to order the SEC to institute a notice-and-comment rulemaking proceeding. The Court heard oral argument on September 24, 2024. Coinbase, represented by Gibson Dunn, asserted that (1) the SEC acted arbitrarily and capriciously by bringing enforcement actions seeking to apply the securities laws to digital assets without engaging in rulemaking, (2) digital assets are largely incompatible with existing securities regulations for several reasons, and these workability concerns are fundamental changes in the factual predicates underlying the existing securities-law framework, and (3) the SEC’s order was insufficiently reasoned. The Third Circuit issued its opinion on January 13, 2025, in which it declined to require the SEC to engage in formal notice-and-comment rulemaking regarding the application of securities laws to digital assets, but did require the SEC to provide a more complete explanation for its refusal to engage in such rulemaking. Id. at *1.

Crypto Freedom All. of Texas v. SEC, 2024 WL 4858590 (N.D. Tex. Nov. 21, 2024): As reported in our 2024 Mid-Year Update, CFAT and the Blockchain Association filed an action challenging the SEC’s Dealer Rule on April 23, 2024. Crypto Freedom Alliance of Texas v. SEC, No. 24-cv-361, ECF No. 1, ¶¶ 4, 7 (N.D. Tex. filed Apr. 23, 2024). The plaintiffs sought summary judgment on May 17, 2024. ECF No. 28. The SEC filed a cross-motion for summary judgment on June 26, 2024. ECF No. 38. The Court ruled in favor of the plaintiffs, finding that “Defendants engaged in unlawful agency action taken in excess of their authority.” Crypto Freedom All. of Texas, 2024 WL 4858590 at *1. The Court explained that “the Dealer Rule departs from . . . commonly recognized and historical interpretations by broadly defining a dealer as someone who ‘engage[s] in a regular pattern of buying and selling securities that has the effect of providing liquidity to other market participants.’” Id. at *4 (quoting Further Definition of “As a Part of a Regular Business,” 89 Fed. Reg. at 14944). “The Rule as it currently stands de facto removes the distinction between ‘trader’ and ‘dealer’ as they have commonly been defined for nearly 100 years.” Id. at *5. Accordingly, the Court vacated the Dealer Rule. Id. at *5. On January 17, 2025, the SEC filed a notice of appeal for the Fifth Circuit to review the district court’s decision. ECF No. 53. The SEC subsequently moved to dismiss the appeal, and dismissal was granted.

VI. Market Efficiency And “Price Impact” Cases

A. Price Impact

Because reliance is an essential element of securities fraud, plaintiffs seeking to bring securities claims as class actions must show that reliance can be presumed, rather than proven for each individual class member. To do this, plaintiffs typically invoke the decades-old precedent from Basic Inc. v. Levinson, 485 U.S. 224 (1988), which allows a rebuttable presumption of reliance if certain threshold requirements are met. Basic reasoned that material misrepresentations about a stock that trades in an efficient market would be reflected in the stock’s market price, and that any investor who decided to purchase based on the market price indirectly relied on all public information. See Basic, 485 U.S. at 247. Since the Supreme Court’s 2014 decision in Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014), defendants have focused on rebutting that presumption of reliance with evidence that the statements at issue did not actually impact the stock price and, therefore, class members trading on the open market did not rely on them.

As we covered in our 2024 Mid-Year Update and our 2023 Year-End Update, in 2021, the Supreme Court in Goldman Sachs Group., Inc. v. Arkansas Teacher Retirement System (“Goldman”) held that courts analyzing whether to certify a class must consider all evidence of price impact, even if the evidence overlaps with materiality and other merits questions. 594 U.S. 113, 121-22 (2021). If a plaintiff’s price impact theory is “inflation-maintenance”—where the price impact of a challenged statement is shown indirectly by a drop in the company’s stock price following a corrective disclosure, instead of by an increase in price when the statement is made—a court must consider whether there is a “mismatch” between the alleged corrective disclosure and challenged statement. Id. at 123. In 2023, the Second Circuit elaborated on the Goldman “mismatch framework,” and held that when plaintiffs rely on the inflation-maintenance theory they cannot simply “identify a specific back-end, price-dropping event” and match it to “a front-end disclosure bearing on the same subject” unless “the front-end disclosure is sufficiently detailed in the first place.” Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 77 F.4th 74, 81, 102 (2d Cir. 2023) (“ATRS”).

This year, the Ninth Circuit will opine for the first time on the application of Goldman. A district judge recently held that a series of negative disclosures related to the “Zillow Offers” group need not “precisely mirror” the alleged misrepresentation to support a finding of price impact, and any mismatch was not sufficient to rebut the presumption of reliance. Jaeger v. Zillow Grp., Inc., ___ F. Supp. 3d ____, 2024 WL 3924557, at *6 (W.D. Wash. Aug. 23, 2024). On January 8, Zillow filed its opening brief with the Ninth Circuit, arguing that the lower court erred, in part by disregarding the Company’s evidence from its expert that “no analyst referred to the allegedly concealed information,” and the “stock price declines were attributable to factors unrelated to the alleged misstatements.” Opening Brief of Defendant-Appellants at 53, Jeager v. Zillow Group, Inc., Case No. 24-6605 (9th Cir. Jan. 8, 2025), ECF No. 10-1.

Lower courts also continue to examine price impact arguments, with a focus on what “mismatch” between the alleged corrective disclosures and the challenged statements is sufficient to defeat the presumption. See, e.g., See, e.g., Pardi v. Tricida, Inc., 2024 WL 4336627, at *7 (N.D. Cal. Sept. 27, 2024).

B. Affiliate Ute Presumption

In 2025, we expect the Sixth Circuit will decide whether the Supreme Court’s decision in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972)—which presumes class wide reliance on “omissions” without requiring plaintiffs to prove the Basic prerequisites—applies to cases that have a “mix” of both omissions and misrepresentations. Opening Brief of Defendants at 8-9, In re: FirstEnergy Corp. Sec. Litig., Case No. 23-0303 (6th Cir. Apr. 14, 2023). FirstEnergy has argued that the district court inappropriately extended Affiliated Ute to allegations of incomplete statements or “half-truths,” and has asked the Sixth Circuit to vacate the district court’s decision to certify. Id. at 9. In reaching a decision, the Sixth Circuit will have to consider whether Affiliated Ute can be reconciled with Macquarie Infrastructure Corp. v. Moab Partners, L. P., in which the Supreme Court recently held that “pure omissions” are not actionable under Rule 10b-5 of the Exchange Act, 601 U.S. 257, 260 (2024), as well as decisions from other circuits holding that Affiliated Ute only allows the reliance element to be presumed in cases involving primarily omissions. See, e.g., Binder v. Gillespie, 184 F.3d 1059, 1063-64 (9th Cir. 1999); Waggoner v. Barclays PLC, 875 F.3d 79, 93-96 (2d Cir. 2017); Joseph v. Wiles, 223 F.3d 1155, 1162-63 (10th Cir. 2000), abrogated on other grounds by Cal. Pub. Emps. Ret. Sys. v. ANZ Sec., Inc., 582 U.S. 497 (2017).

C. Basic Presumption

In a fairly recent development, the “meme stock” phenomenon has made it more challenging for investors to invoke the Basic presumption in the first place. The “meme stock” phenomenon began online during the COVID-19 pandemic, when investors began using social media to coordinate “short squeezes,” causing large impacts in the market for the target security.

In Bratya SPRL v. Bed Bath & Beyond Corp., 2024 WL 4332616, at *9-19 (D.D.C. Sept. 27, 2024), Bed Bath & Beyond argued its stock’s status as a meme stock, which put the price “in wild flux” despite the absence of new, value-relevant information, in the weeks before and during the class period, rendered the stock’s market inefficient throughout the class period. Id. at *12. The Court agreed and declined to certify the class. Id. at *19-21. Although the Court noted that typical factors indicated an efficient market, it found the short squeeze dynamics undermined the relevance of the traditional factors by rendering the market so volatile that it cannot possibly have “reflected all public, material information,” including the alleged misstatements. Id. at *12.

In Shupe v. Rocket Companies, Inc., the Court rejected the defendant’s argument that its two-day status as a “meme stock” during the two-month-long class period rendered the market for its stock inefficient. Shupe v. Rocket Companies, Inc., ___ F. Supp. 3d ____, 2024 WL 4349172, at *19-24 (E.D. Mich. Sept. 30, 2024). There, the Court held that the plaintiffs still were entitled to the Basic presumption because “meme-stocks and efficient markets are not mutually exclusive” and even inaccurately priced stocks can still respond to false statements, causing loss. Id. at *23 (citing Halliburton, 573 U.S. at 272). The Rocket Companies court still declined to certify the class because the defendants successfully rebutted the presumption of reliance by demonstrating that the analysts did not report on the alleged misstatement throughout the class period, thus severing the link between price drop and the misrepresentations. Id. at *24-26 (citing ATRS 77 F.4th at 104).

VII. Other Notable Developments

A. Second Circuit Reconsiders And Reverses Prior Decision, Now Finds Auditor Opinions Can Be Material

In New England Carpenters Guaranteed Annuity and Pension Funds v. DeCarlo (“DeCarlo II”), the Second Circuit reconsidered and reversed its own prior opinion concerning 10b-5 claims involving auditor opinions, now concluding that standardized language in auditor opinions may be material to investors. 122 F.4th 28 (2d Cir. 2023) (opinion amended on October 31, 2024).

As detailed in our 2023 Year-End Update, the plaintiffs alleged violations of the Securities Act and the Exchange Act against AmTrust Financial Services, its officers and directors, various underwriters, and its auditor, BDO, arising from AmTrust’s restatement of five years of financial statements. See New Eng. Carpenters Guaranteed Annuity & Pension Funds v. DeCarlo (“DeCarlo I”), 80 F.4th 158, 174-79 (2d Cir. 2023). In DeCarlo I, the Second Circuit affirmed the dismissal of 10b-5 claims against the auditor, finding that the “[c]omplaint fail[ed] to allege any link between BDO’s misstatements in the 2013 Auditor Opinion and the material errors contained in AmTrust’s 2013 Form 10-K,” and called the audit statements “so general . . . that a reasonable investor would not depend on them as a guarantee.” Id. at 182 (internal citations omitted).

Upon reconsideration, the Second Circuit reversed its earlier opinion, now reasoning that “[a]lthough the challenged audit certification reflects standardized language, it is not so general that a reasonable investor would not depend on it as a guarantee.” DeCarlo II, 122 F.4th at 53 (internal citations omitted). The Court further explained that “BDO’s certification that the audit was conducted in accordance with PCAOB standards succinctly conveyed to investors that AmTrust’s audited financial statements were reliable,” and had the auditor not issued an opinion, it “would have alerted investors to potential problems in the company’s financial reports.” Id.

The Second Circuit also found the complaint adequately alleged loss causation against the auditor, explaining that a “[Wall Street Journal] article revealed the specific deficiencies that rendered the audit opinion misleading” and calling the article a “‘clean match’ between the misleading audit opinion and the subsequent disclosure.” Id. at 54. The Court was also satisfied that the complaint adequately alleged scienter by “alleg[ing] that BDO consciously covered up its own misrepresentation that its audit complied with PCAOB standards.” Id. at 55.

B. Ninth Circuit Clarifies SPAC Investors Lack Standing To Challenge Statements Made By The Target Acquisition Company Prior To A De-SPAC Merger

In a follow up to our prior discussion of standing issues related to SPACs in our 2023 Mid-Year Update, the Ninth Circuit became only the second appellate court to analyze standing for 10b-5 claims challenging pre-merger statements made by the target acquisition company. In In re CCIV / Lucid Motors Securities Litigation, the Ninth Circuit addressed the standing of investors who purchased shares in Churchill Capital Corporation IV (CCIV), a SPAC, before its merger with Lucid Motors. 110 F.4th 1181, 1182 (9th Cir. 2024). Reversing the district court’s decision (previously detailed in our 2022 Year-End Securities Litigation Update), the Ninth Circuit held that investors in the SPAC lacked standing to sue for alleged misstatements by the target acquisition company made before the merger because the investors purchased stock in the SPAC, not the target acquisition company that allegedly made the misstatements. Id. at 1187. The Ninth Circuit’s decision is consistent with the Second Circuit’s decision in Menora Mivtachim Insurance Ltd. V. Frutarom Industries Ltd., 54 F.4th 82, 88 (2d Cir. 2022) (“Menora”).

The plaintiffs in CCIV alleged Lucid’s CEO “made misrepresentations about Lucid’s ability to meet certain production targets” before either company publicly announced the merger, though “extensive reporting in the financial press” speculated a deal was imminent. 110 F.4th at 1183. The plaintiffs purchased CCIV stock based on these statements by Lucid’s CEO when Lucid was still a private company and before the merger was announced. Id. The plaintiffs alleged that it was not until the day the merger was announced that the true production targets were revealed to be far below Lucid’s CEO’s projections. Id.

The Ninth Circuit held that the plaintiffs lacked standing. Id. at 1187. Relying on the purchaser-seller rule (or Birnbaum Rule) announced in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 742 (1975), the Ninth Circuit found that Section 10(b) standing is a “bright-line rule” requiring that a “plaintiff purchased or sold the securities about which the alleged misrepresentations were made.” Id. at 1186. The plaintiffs had urged the Court to instead use a “connected to” standard, which would analyze standing on a “case-by-case basis” by looking at “whether the security plaintiff purchased is sufficiently connected to the misstatement.” Id. The Ninth Circuit declined to adopt that rule, noting the Second Circuit had recently rejected a similar argument in Menora. Id. at 1185 (citing Menora, 54 F.4th at 86). Instead, the Court explained the alleged misrepresentations were those of Lucid when it was a private company, and not of CCIV, the SPAC whose shares the plaintiffs had purchased, and dismissed the case. Id. at 1186-87.

C. Tenth Circuit Rejects Short Sellers’ 10b-5 And Market Manipulation Claims

In In re Overstock Securities Litigation, the Tenth Circuit made it more difficult for short seller investors to challenge statements and actions taken by companies. In brief, it provided an avenue for the defendants to rebut the presumption of reliance against short seller plaintiffs whose lending contracts include an obligation to repurchase shares, while also clarifying market manipulation requires some element of deception. 119 F.4th 787 (10th Cir. 2024).

The short-seller plaintiff alleged that Overstock manipulated the market by announcing plans to issue an unregistered digital dividend to create a short squeeze, which artificially inflated the stock price. Overstock, 119 F.4th at 795-98. The Court ultimately concluded that the short seller failed to plausibly allege reliance as required to bring a 10b-5 claim. Id. at 799. The Court clarified that short sellers (whose investment strategy is based on borrowing the stock and selling it high with an obligation to repurchase it at some point in the future) may rely upon the Basic presumption of reliance. Id. at 800 (citing Basic Inc. v. Levinson, 485 U.S. 224, 248-49 (1988)). But this presumption can be rebutted “by demonstrating that the plaintiff would have bought or sold the stock even if he was aware that the stock’s price was tainted by fraud,” or traded their shares while believing the defendants’ statements were false “because of other unrelated concerns.” Id. (quotations and citations omitted). Here, the short seller admitted it bought shares to cover its position to satisfy its lending contracts because of the dividend, not because of the alleged misrepresentations. Id.

The Tenth Circuit affirmed the dismissal of the short seller’s manipulation claims, holding “that an open-market transaction may qualify as manipulative conduct, but only if accompanied by plausibly alleged deception” and noting that Overstock’s “truthful disclosure of the terms of the upcoming dividend transaction did not deceive investors.” Id. at 802-03. The Court also reasoned that even though an open-market transaction was not inherently manipulative, such a transaction could become so if done with manipulative intent. Id. The Court concluded that manipulative intent required an element of “secrecy” that was not present. Id. at 804.

D. 2024 Marked An Increase In Securities Class Actions Related To Artificial Intelligence

As discussed in the 2024 Mid-Year Update, the number of Artificial Intelligence-related filings are on the rise as both private plaintiffs and the SEC focus on “AI washing” claims, and 2025 will likely be no different.

Similar to “greenwashing” claims, AI washing claims involve allegations that a company’s AI statements or disclosures misrepresented its AI capabilities or failed to disclose risks associated with its use of AI. These claims can be brought against AI companies or companies that use AI for various business purposes. For example, in Hoare v. Oddity Tech Ltd., 24-cv-06571 (S.D.N.Y. July 19, 2024), the plaintiffs alleged that Oddity, a consumer wellness platform that portrayed itself as a “disruptor in the cosmetics industry” falsely claimed to use “proprietary AI technologies to target consumer needs” through the use of algorithms and machine-learning models to match customers with beauty products. Dkt. 1 at ¶ 28. The plaintiffs allege that Oddity “overstated its AI technology and capabilities, and/or the extent to which this technology drove the Company’s sales” because Oddity’s AI-product-matching technology amounted to a normal questionnaire. Id. ¶¶ 44, 47. Similarly, in SEC v. Raz, 24-cv-04466 (S.D.N.Y. June 11, 2024), the SEC alleges that the founder of a technology platform that claimed to use artificial intelligence to match its clients with diverse job candidates from underrepresented backgrounds made false and misleading statements about the platform’s AI capabilities. Dkt. 1 at ¶ 2. The SEC alleges that the technology platform did not actually use AI and automation and “its technology was not as advanced” as the founder claimed. Id. at ¶¶ 67-68. The case is currently stayed pending the conclusion of a criminal case against the founder. See SEC v. Raz, 1:24-cv-04466 (S.D.N.Y. July 31, 2024), Stipulation and Order at 1.

We will continue to monitor these and similar cases in the coming year.

The following Gibson Dunn lawyers prepared this update: Monica K. Loseman, Brian M. Lutz, Craig Varnen, Jefferson E. Bell, Michael D. Celio, Allison Kostecka, Mary Beth Maloney, Mark Mixon, Lissa Percopo, Chase Weidner, Luke A. Dougherty, Lydia Lulkin, Tim Kolesk, Trevor Gopnik, Dillon M. Westfall, Megan R. Murphy, Mimra Aslaoui, Edmund Bannister, Kio Bell, Angela A. Coco, Justine Drohan, John Harrison, John Ito, Joel A. Kagan, Christopher Scott, Ty Shockley, Beshoy Shokralla, and Alon Sugarman.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Securities Litigation practice group:

Christopher D. Belelieu – New York (+1 212.351.3801, cbelelieu@gibsondunn.com)
Jefferson Bell – New York (+1 212.351.2395, jbell@gibsondunn.com)
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Jason J. Mendro – Co-Chair, Washington, D.C. (+1 202.887.3726, jmendro@gibsondunn.com)
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Craig Varnen – Co-Chair, Los Angeles (+1 213.229.7922, cvarnen@gibsondunn.com)
Allison K. Kostecka – Denver (+1 303.298.5718, akostecka@gibsondunn.com)
Mark H. Mixon, Jr. – New York (+1 212.351.2394, mmixon@gibsondunn.com)

Dewberry Group, Inc. v. Dewberry Engineers, Inc., No. 23-900 – Decided February 26, 2025

Today, the Supreme Court unanimously held that a court awarding disgorgement of the “defendant’s profits” under the Lanham Act cannot include the profits of the defendant’s non‑party corporate affiliates.

“[The Lanham Act] cannot justify ignoring the distinction between a corporate defendant (i.e., Dewberry Group) and its separately incorporated affiliates. By treating those entities as one and the same, the courts below approved an award including non-defendants’ profits—and thus went further than the Lanham Act permits.”

Justice Kagan, Writing for the Court

Background:

The Lanham Act authorizes a prevailing trademark plaintiff to recover, “subject to the principles of equity,” the “defendant’s profits,” as well as any damages the owner sustained and costs of the suit. 15 U.S.C. § 1117(a). If the court finds that “the amount of the recovery based on profits is either inadequate or excessive,” it “may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.” Id.

Dewberry Engineers sued the similarly named Dewberry Group for infringing on its registered “Dewberry” trademark. After the district court held Dewberry Group liable, it ordered Dewberry Group to disgorge nearly $43 million in profits earned by its affiliate companies, which are separate corporations and not parties to the suit. The Fourth Circuit affirmed in a divided decision, holding that, even though Dewberry Engineers did not try to pierce the corporate veil separating Dewberry Group from its legally distinct affiliates, the district court correctly treated Dewberry Group and the affiliates as a single corporate entity when calculating the profits from infringement.

Issue:

Can an award of “defendant’s profits” under the Lanham Act include profits earned by the defendant’s separate non-party corporate affiliates?

Court’s Holding:

Under the Lanham Act, a court may not overlook corporate separateness and treat the defendant and its affiliates as a single corporate entity when calculating the “defendant’s profits” from trademark infringement, absent a showing that veil-piercing is appropriate.

What It Means:

The opinion underscores that corporate separateness is foundational and that Congress must speak clearly if it wishes to displace that rule. Because nothing in the text of the Lanham Act overcomes that principle, courts may not disregard corporate separateness when calculating a defendant’s profits, unless a traditional rationale for piercing the corporate veil applies.
The Court also rejected the argument that the provision of the Lanham Act authorizing the court to “enter judgment for such sum as the court shall find to be just” if the amount of recovery based on profits is “inadequate or excessive” permits courts to reach “non‑defendants’ profits.”
Although the opinion emphasizes the importance of corporate separateness, it left a number of questions to be resolved in future cases. It did not address, for instance, whether courts “can look behind a defendant’s tax or accounting records to consider ‘the economic realities of a transaction’ and identify the defendant’s ‘true financial gain.’”

Gibson Dunn represented winning party Dewberry Group

The Court’s opinion is available here.

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Jonathan C. Bond +1 202.887.3704 jbond@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Thomas G. Hungar +1 202.887.3784 thungar@gibsondunn.com
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com	Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Helgi C. Walker +1 202.887.3599 hwalker@gibsondunn.com

Related Practice: Intellectual Property

Kate Dominguez
+1 212.351.2338
kdominguez@gibsondunn.com

Josh Krevitt
+1 212.351.4000
jkrevitt@gibsondunn.com

Jane M. Love, Ph.D.
+1 212.351.3922
jlove@gibsondunn.com

Howard S. Hogan
+1 202.887.3640
hhogan@gibsondunn.com

Ilissa Samplin
+1 213.229.7354
isamplin@gibsondunn.com

This alert was prepared by associates Patrick J. Fuster, Matt Aidan Getz, and Connor P. Mui.

On February 21, 2025, the White House issued the “America First Investment Policy” National Security Presidential Memorandum, signaling an intention to increase restrictions and modify review criteria for U.S. inbound investments with Chinese touchpoints and expand the scope of the nascent outbound investment restrictions.

On February 21, 2025, the White House issued a National Security Presidential Memorandum titled the “America First Investment Policy” (the “America First Investment memo”) and accompanying fact sheet (Fact Sheet) proposing material changes to the U.S. foreign direct investment and outbound investment regulatory landscape, including to regulations for the Committee on Foreign Investment in the United States (CFIUS) and the Outbound Investment Security Program. It also directs CFIUS to promulgate new rules and regulations to implement some of these changes.

The America First Investment memo both underscores some continuing trends and foreshadows more significant changes to come in the months ahead. Of note, there will be no immediate change to CFIUS or the Outbound Investment Security Program because the memo requires further implementing rules and other agency action and potentially, in some cases, further action by Congress. That said, investors and companies should start considering the memo’s directives now, while continuing to monitor new developments from the Trump Administration, as they plan for transactions that will close later in 2025 and in 2026.

Continuing Trends:

The America First Investment memo elaborates on a few continuing trends:

1. The United States will remain open to investment, particularly passive
investment.

The memo reiterates the United States’ long-held policy of being “open” to foreign investment, noting that “[o]ur Nation is committed to maintaining the strong, open investment environment that benefits our economy and our people.” Specifically, the memo states that “passive investments from all foreign persons”—which “include non-controlling stakes and shares with no voting, board, or other governance rights and that do not confer any managerial influence, substantive decisionmaking, or non-public access to technologies or technical information, products, or services”—will continue to be welcomed and encouraged.

2. The United States will continue to disfavor non-passive investment—
both inbound and outbound—implicating China and other “foreign
adversaries.”

The memo specifies that “foreign adversaries” include the People’s Republic of China, including Hong Kong and Macau (China), as well as Cuba, Iran, North Korea, Venezuela, and—notably—Russia. For nearly a decade, the United States has presented an increasingly harsh investment environment for non-passive Chinese investors. The memo reiterates a continuation of this trend. Moreover, CFIUS continues to exercise greater scrutiny of non-Chinese investors’ ties to China, including through their minority investors, joint ventures, supply chain risk, and even arms-length commercial agreements. One example of relationships that continue gaining ever greater scrutiny is cooperation on technology development.

3. The United States will maintain restrictions on outbound investments to
China and look to expand these restrictions to additional industries.

As we discussed in a recent client alert, the newly enacted Outbound Investment Security Program that places conditions on certain U.S. person investments in the Chinese semiconductors, artificial intelligence, and quantum technology sectors is here to stay, and may be expanded further this year. The America First Investment memo directs that covered sectors be “reviewed and updated regularly” and enumerates a few sectors that may be added to the list of prohibited sectors, including biotechnology, hypersonics, aerospace, advanced manufacturing, and directed energy.

Changes to Come:

1. While lacking in detail, the memo directs CFIUS to develop rules
for an expedited “fast-track” process for foreign investment from
allied and partner countries.

The America First Investment memo directs the U.S. government to create an “expedited ‘fast-track’ process, based on ‘objective standards,’ to facilitate greater investment from specified allied and partner sources in United States businesses involved with United States advanced technology and other important areas.”[1] The memo states that the investments may include certain security provisions and assurances that the investors will not partner with U.S. foreign adversaries “in corresponding areas.” The memo raises critical, threshold questions, which we expect will be answered in the implementing laws and regulations and associated guidance:

How will this work? The memo provides no detail on what the fast-track process will look like or what the timing for reviews will be, nor what the attendant security provisions may look like. Important terms, such as “objective standards” remain undefined.

What will count as partnering with foreign adversaries? The memo does not provide any information on what constitutes “partnering.” While we would expect investments to be covered, it remains unclear whether investors will receive unfavorable treatment based on having Chinese vendors, customers, or entities and facilities located in China. Similarly, the memo does not explain to what extent partners and allies must distance themselves from China to gain favorable investment treatment. While the Fact Sheet indicates that any restrictions on partnering will be limited to “corresponding areas” (i.e., “advanced technology and other important areas”), the memo itself does not include any such qualification and suggests a rather broad restriction on engagement with Chinese counterparties.

To whom will this apply? Although the memo does not provide a list of approved allies and partners, it explains that some have “tremendous sovereign wealth funds.” This suggests a possible deviation from long-held practice for CFIUS to more strictly scrutinize government-controlled investors, including those from the Middle East.

2. The memo calls for expanded authorities for CFIUS to more strictly
scrutinize greenfield investments.

In past years, CFIUS’s primary tool to review and restrict greenfield investment in the United States, particularly by investors affiliated with China, was through its real estate regulations. We discussed expansions to real estate reviews in a recent client alert. Some of the real estate-related risks that the memo highlights include China’s investments in U.S. “food supplies, farmland, minerals, natural resources, ports, and shipping terminals,” with particular attention on “farmland and real estate near sensitive facilities.” In addition to restrictions on investment in real estate, President Trump appears poised to continue the previous administration’s efforts to further restrict greenfield investments by seeking additional authority for CFIUS to review these projects. This will require, as the memo notes, “consultation with Congress” and updated laws to expand CFIUS’s already expansive jurisdiction.

3. The memo portends sweeping changes to how CFIUS uses national
security mitigation agreements.

The memo states that the Trump Administration will “cease the use of overly bureaucratic, complex, and open-ended ‘mitigation’ agreements for United States investments from foreign adversary countries.” This suggests that more transactions from adversary countries could be blocked outright, rather than being approved subject to mitigation. Allied and partner nations may also feel pressure to reduce future investments in U.S. foreign adversaries in order to receive more favorable mitigation agreement conditions, or to avoid mitigation altogether. More generally, the memo states that “mitigation agreements should consist of concrete actions that companies can complete within a specific time, rather than perpetual and expensive compliance obligations.” The memo raises many questions about how this will work in practice because, owing to the nature of developing technology and evolving threats to national security, compliance efforts for areas related to personal data, cybersecurity, and sensitive and export-controlled technology are ongoing efforts—not one and done fixes.

4. The memo directs greater scrutiny be applied to investment in Chinese
companies.

The memo calls attention to Chinese companies raising capital by selling interests to American investors through foreign public exchanges and U.S. exchanges, which the memo warns “exploits United States investors to finance and advance the development and modernization of [China’s] military.” The memo directs the review of a few laws and regulations governing investments into Chinese companies, including the 1984 U.S./China tax treaty, financial auditing standards and rules for U.S. exchanges, and restrictions on U.S. pension plan investments through foreign exchanges. Notably, review of the outbound investment restrictions will also include the potential application of restrictions to investments by U.S. pension funds, university endowments, and other limited-partner investors in publicly traded securities of Chinese companies engaged in certain sensitive sectors. Such restrictions would mark a significant intensification of the Outbound Investment Security Program that currently specifically excludes investments in publicly traded securities from its ambit, though investments by U.S. persons in certain publicly traded securities of Chinese military-industrial complex companies are separately restricted by the U.S. Department of the Treasury.

As the Trump Administration attempts to leave its mark on U.S. inbound and outbound investments, we expect additional action in the coming months to implement provisions of the America First Investment memo. Companies should remain abreast of changing regulations and enforcement priorities moving forward.

[1] The memo also highlights expedited environmental reviews for investments over $1 billion but does not provide any details of the conditions or process for these reviews, nor the timing for when they will be implemented.

The following Gibson Dunn lawyers prepared this update: Adam M. Smith, Stephenie Gosnell Handler, David Wolber, Michelle Weinbaum, Dharak Bhavsar, and Chris Mullen.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s International Trade Advisory & Enforcement practice group:

United States:
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Qi Yue – Beijing (+86 10 6502 8534, qyue@gibsondunn.com)
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Arnold Pun – Hong Kong (+852 2214 3838, apun@gibsondunn.com)

Europe:
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Patrick Doris – London (+44 207 071 4276, pdoris@gibsondunn.com)
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Vanessa Ludwig – Frankfurt (+49 69 247 411 531, vludwig@gibsondunn.com)

Join us for a 30-minute briefing covering several Executive Compensation practice topics. The program is part of a quarterly webcast series designed to provide quick insights into emerging issues and practical advice.

Topics discussed:

What’s next for the FTC’s non-compete ban?
The rapidly evolving legislative and regulatory landscape of restrictive covenants.
Alternative strategies to protect trade secrets and confidential information.
Key considerations for restrictive covenant design and implementation.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 0.5 credit hours, of which 0.5 credit hours may be applied toward the areas of professional practice requirement.

This course is approved for transitional/non-transitional credit.

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 0.5 hours in the General Category.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

PANELISTS:

Gina Hancock is a partner in the Dallas office. She practices in the firm’s Executive Compensation and Employee Benefits Department. Gina has significant experience with executive compensation, complex domestic and international transactional matters, initial public offerings, health and welfare benefit plan, retirement plan, and related matters. Her practice focuses on all aspects of equity compensation; employee stock purchase plans; 401(k), pension and nonqualified deferred compensation plans; executive employment, severance, retention, change in control and restrictive covenant agreements; incentive compensation; and cafeteria and other welfare benefit plans. She also provides advice with respect to general corporate governance and disclosure matters.

Andrew Kilberg is a partner in Gibson, Dunn & Crutcher’s Washington, D.C. office, where he practices in the firm’s litigation department. A member of the firm’s Labor and Employment, Administrative and Regulatory, and Appellate and Constitutional Law practice groups, Andrew has significant experience challenging onerous federal regulations, advising on regulatory proposals, and defending agency enforcement actions and investigations. He has represented clients in federal district and appellate courts and before the U.S. Supreme Court, as well as before various agencies, authoring dozens of briefs, comment letters, and other submissions. His matters have covered wage and hour, ERISA, occupational safety and health, anti-discrimination, whistleblower, and labor relations issues.

Ashley Romanias is an associate in the Washington, D.C. office of Gibson, Dunn & Crutcher. She is a member of the firm’s Executive Compensation and Employee Benefits practice group. Ashley’s experience includes advising public and private companies on executive officer separations and other transitions. She also provides advice to clients regarding securities law disclosure and advises for-profit and nonprofit companies on corporate governance matters. She also advises clients in connection with mergers, acquisitions, carve-outs, add-ons, spin-offs, and other transactions.

Looking back at 2024 and forward to the new year, False Claims Act (FCA) enforcement in the life sciences industry appears likely to remain a top priority for regulators—despite the significant flux at the U.S. Department of Justice. With significant settlements, increased whistleblower actions, and evolving legal interpretations, companies must be prepared for heightened scrutiny of pricing, reimbursement, research, patient support, and marketing practices, and the emerging application of the FCA to companies with DEI programs. This webcast provides a review of key FCA developments from 2024 and a look ahead to emerging enforcement trends and regulatory priorities affecting pharmaceutical, biotech, and medical device companies in the transition to the Trump Administration.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hours, of which 1.5 credit hours may be applied toward the areas of professional practice requirement.

This course is approved for transitional/non-transitional credit.

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hours in the General Category.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

PANELISTS:

John D.W. Partridge, a Co-Chair of the FDA and Health Care Practice Group and Chambers-ranked white collar defense and government investigations lawyer, focuses on government and internal investigations, white collar defense, and complex litigation for clients in the life science and health care industries, among others. John has particular experience with the Anti-Kickback Statute, the False Claims Act, the Foreign Corrupt Practices Act, and the Federal Food, Drug, and Cosmetic Act, including defending major corporations in investigations pursued by the U.S. Department of Justice and the U.S. Securities and Exchange Commission.

Jonathan M. Phillips is a partner in the Washington, D.C. office where he is a member of the firm’s litigation department and Co-Chair of the FDA and Health Care Practice Group and False Claims Act/Qui Tam Defense Practice Group. A former DOJ Trial Attorney, his practice focuses on FDA and health care enforcement, compliance, and litigation, as well as other white collar enforcement matters and related litigation. Mr. Phillips is ranked nationally as a leading False Claims Act practitioner by Chambers USA.

Jake M. Shields is a partner in the Washington, D.C. office and a member of the firm’s False Claims Act, FDA & Heath Care, Life Sciences, Cybersecurity, Government Contracts, Antitrust, Litigation, and White-Collar Defense and Investigations Practice Groups. An expert in the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, & Enforcement Act (FIRREA), Jake was a Senior Trial Counsel at the Civil Frauds Section of the U.S. Department of Justice where, over an eight-year career spanning administrations of both major political parties, he investigated and litigated FCA and FIRREA cases on behalf of the federal government.

Blair Watler is a senior associate in the Washington, D.C. office. She practices in the firm’s Litigation Department with a focus on white collar defense and investigations. Blair’s experience includes representing and advising clients in government investigations and enforcement actions by the U.S. Department of Justice and the U.S. Securities and Exchange Commission involving the Foreign Corrupt Practices Act, the False Claims Act, and the Federal Food, Drug, and Cosmetic Act.

Gibson Dunn has been advising a group of about 180 senior secured creditors of Altice France, holding an aggregate amount of c.€20 billion in claims. Altice France is a major telecommunications company held by Patrick Drahi.

As legal counsel to this ad hoc secured creditor group (advising on U.S., French, and EU law), Gibson Dunn took part in the negotiation of a landmark restructuring agreement with the company that will substantially de-lever its balance sheet, initially burdened with €24 billion in debt, in what will be the largest restructuring in the world over the past year and one of the largest in Europe historically.

The Gibson Dunn team was led by restructuring partners Jean-Pierre Farges and Scott Greenberg and included partners Benoit Fleury, Michael J. Cohen, Caith Kushner, Amanda Bevan-de Bernède, and Jérôme Delaurière. Also advising were counsel Clarisse Bouchetemblé and Christopher Dickson and associates Antoine Bécot and Charles Peugnet.

Pitts v. Rivas, No. 23-0427 – Decided February 21, 2025

On Friday, a unanimous Texas Supreme Court adopted the anti-fracturing rule, confirming that plaintiffs can’t use artful pleading—for example, recasting professional negligence claims as fraud or breach of fiduciary duty—to gain a litigation advantage.

“Under the anti-fracturing rule, if the crux or gravamen of the plaintiff’s claim is a complaint about the quality of professional services provided by the defendant, then the claim will be treated as one for professional negligence even if the petition also attempts to repackage the allegations under the banner of additional claims.”

Chief Justice Blacklock, writing for the Court

Background:

A home builder and real estate developer sued his accountants, alleging they improperly prepared his financial statements. He asserted claims for professional negligence, fraud, breach of fiduciary duty, and breach of contract.

The accountants argued that the fraud and breach of fiduciary duty claims were barred by the anti-fracturing rule, which prevents plaintiffs from pleading around a professional negligence claim for some litigation advantage—here, to avoid the statute of limitations. The trial court granted summary judgment, but the court of appeals reversed, finding that the fraud and breach of fiduciary duty claims survived because they alleged additional misconduct and acts beyond the scope of the parties’ written agreements.

Issue:

Does the anti-fracturing rule bar plaintiffs from relabeling their professional negligence claims to gain a litigation advantage, even if the professional services at issue are outside the scope of a written contract?

Court’s Holding:

Yes. The anti-fracturing rule applies whenever the crux of the plaintiff’s allegations sound in professional negligence.

What It Means:

By formally adopting the anti-fracturing rule—which Texas courts of appeals have applied for decades—the Court made clear that parties can’t use artful pleading to evade the procedural and substantive rules that would otherwise apply to their claims. Courts should look beyond immaterial or formal distinctions between the claims pursued and a professional negligence claim to determine whether the conduct alleged and supporting evidence equate to professional negligence.
The Court explained that the anti-fracturing rule “ensure[s] that professional malpractice allegations are litigated under the law applicable to professional malpractice claims.”
Friday’s decision fits within with the Court’s broader jurisprudence, which consistently refuses to permit artful pleading to defeat substantive or procedural rules. It should make it easier for defendants to winnow artfully pleaded claims earlier in litigation.
The Court held that the plaintiff had not met the high bar for showing that an informal fiduciary relationship—a fiduciary duty that arises from “personal relationships of special trust and confidence” rather than a defined, legally recognized fiduciary role—existed between him and the accountants. A four-Justice concurrence (Justice Huddle, joined by Justices Lehrmann, Bland, and Young) went further, arguing that the doctrine should be discarded entirely. The remaining Justices expressed no view on this question.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Texas Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Texas General Litigation

Trey Cox +1 214.698.3256 tcox@gibsondunn.com	Collin Cox +1 346.718.6604 ccox@gibsondunn.com	Gregg Costa +1 346.718.6649 gcosta@gibsondunn.com
Ashley Johnson +1 214.698.3111 ajohnson@gibsondunn.com

This alert was prepared by Texas associates Elizabeth Kiernan, Stephen Hammer, and Catherine Frappier.

Gibson Dunn is available to help clients understand what these and other expected regulatory reforms will mean for them and how to navigate the shifting regulatory environment.

On February 19, 2025, President Trump signed an executive order titled, Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative. The order aims to focus “limited enforcement resources on regulations squarely authorized by constitutional” statutes and to “commence the deconstruction of the overbearing and burdensome administrative state,” which the accompanying “fact sheet“ claims will “unleash a new Golden Age of America.” While the executive order leaves many questions about the Trump Administration’s enforcement plans unanswered, it confirms that the Administration is likely to move regulatory enforcement in a direction that will have significant implications for corporate America.

The order’s core mandates are two-fold. First, agency heads are directed, “in coordination with their DOGE Team Leads,” to initiate a review process to identify potentially unconstitutional or otherwise problematic regulations and guidance documents—a process that Gibson Dunn has analyzed in a separate alert. As further described in that alert, the order directs agency heads to initiate a 60-day review of all regulations “for consistency with law and Administration policy,” with the goal of rescinding or modifying inconsistent regulations in conjunction with the Administrator of the Office of Information and Regulatory Affairs (OIRA). Second, the executive order requires agency heads to de-prioritize or terminate enforcement actions that are based on regulations that are at odds with federal statutory authority, the Constitution, or Administration policy.

Specifically, in parallel with reviewing regulations, the order directs agency heads to exercise their enforcement discretion to de-prioritize and terminate certain types of enforcement, subject to their “paramount obligation to discharge their legal obligations, protect public safety, and advance the national interest.” Agency heads should identify enforcement actions arising from regulations “that are based on anything other than the best reading of a statute” or that exceed the powers vested by the Constitution in the federal government.

Agency heads are also directed to “determine whether ongoing enforcement of any regulations identified in their regulatory review is compliant with law and Administration policy,” and, in consultation with the Director of the Office of Management and Budget (OMB), “on a case-by-case basis and as appropriate and consistent with applicable law, then direct the termination of all such enforcement proceedings that do not comply with the Constitution, laws, or Administration policy.”

The order defines enforcement actions broadly to include “all attempts, civil or criminal, by any agency to deprive a private party of life, liberty, or property, or in any way affect a private party’s rights or obligations” regardless of how the agency historically labeled the action. The order’s directives thus appear to reach not only administrative agencies charged with civil enforcement, but also the Department of Justice’s (DOJ) criminal enforcement policies, guidelines, and actions. We can anticipate that many ongoing Biden-era enforcement actions may be reviewed under the order.

Several areas are expressly exempted from the order—specifically, “any action related to a military, national security, homeland security, foreign affairs, or immigration-related function of the United States.” The order also does not apply to personnel decisions within the executive branch or “anything else” exempted by the director of OMB.

Potential Impact and Implications

The order’s directive regarding enforcement may affect different areas of federal enforcement to different extents, both in the immediate days ahead, as the order is implemented and faces any legal challenge, and longer into the future.

The extent of the impact of the order remains to be seen. In the short term, the order could lead agencies to pause or abandon ongoing investigations and enforcement actions, whether because those actions appear immediately to be contrary to Administration priorities or as a result of a review process. Additionally, the rapidly changing personnel landscape following DOGE-related initiatives and reductions in force may slow agency actions, including the review of enforcement actions required under this order, as a function of limited enforcement resources.

The order’s focus on ensuring that enforcement actions are properly grounded in authority granted to the agency by statute echoes the reasoning of the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), impacts of which Gibson Dunn has discussed previously. In that opinion, the Supreme Court overruled Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984), ending judicial deference to administrative agencies’ reasonable interpretations of ambiguous statutes and requiring that judges, rather than administrative agencies, declare what the law is, including with respect to statutes that may be the basis for enforcement actions. The executive order expressly directs agencies to focus enforcement on regulations that are “squarely authorized by constitutional” statutes. And this action by President Trump follows his direction a day earlier, in EO 14215, that “[n]o employee of the executive branch acting in their official capacity may advance an interpretation of the law as the position of the United States that contravenes the President or the Attorney General’s opinion on a matter of law, including but not limited to the issuance of regulations, guidance, and positions advanced in litigation.”

The implications may be more readily apparent for certain industries and areas than others. For example, even before the order, the U.S. Securities and Exchange Commission (SEC) had begun to reverse its Biden Era enforcement positions in the cryptocurrency space (including some that harken back to the first Trump Administration), as evidenced by the SEC seeking to dismiss high-profile litigation,[1] announcing internal reorganizations with the express goal of deploying enforcement resources judiciously,[2] rescinding certain staff bulletins that were part of the Biden Administration’s “stark aberration from longstanding norms as to” the SEC’s “legal authority, policy priorities, and use of enforcement,”[3] and forming a task force to “operate within the statutory framework provided by Congress” and establish “a sensible regulatory path” regarding crypto “that respects the bounds of the law.”[4]

Even for industries that have not yet been touched by Trump Administration shifts in focus, the executive order may create opportunities for entities that are highly regulated or subject to elevated enforcement scrutiny to argue that ongoing enforcement actions should be terminated. Such entities may need to brace for an extended period of uncertainty as their regulators determine how to implement the order. As a result, identifying, assessing, and quantifying regulatory and enforcement risks in the next several years might involve aiming at a moving target.

Open Questions

Although the language in the executive order reaches broadly, the full extent and specific bounds of its impact remain unclear. We expect at least two types of shifts, occurring in parallel and sometimes overlapping: (1) steps to end enforcement actions not based on the best reading of the relevant statute, and (2) changes that further the Administration’s new policy priorities. Some immediate questions arising from the order include, in each category:

Shifts to End Enforcement Not Based on the “Best Reading” of the Law

Might the reviews of enforcement actions cause agencies to terminate compliance monitors, other mandated remedial measures, and undertakings arising from previously resolved enforcement actions? The order directs a review only of “ongoing” enforcement actions, contemplates termination of any non-compliant enforcement actions, and provides direction for prospective enforcement. In contrast to at least one other recent executive order (EO 14209), it does not expressly require agencies to review prior enforcement actions that have concluded. With respect to actions that have already been resolved, it remains unclear to what extent an agency might—or could, legally—seek to terminate ongoing obligations (such as corporate compliance commitments and self-reporting obligations) or to redress past enforcement actions that are now determined to be federal overreach or non-compliant with Administration policy. Such a possibility would be consistent with the approach required by EO 14209 regarding Foreign Corrupt Practices Act (FCPA) enforcement actions, discussed in our recent client alert. In a recent memorandum, the Administration also signaled an end, in the context of the foreign investment in the United States, to “open-ended ‘mitigation’ agreements” in favor of “concrete actions . . . within a specific time, rather than perpetual and expensive compliance obligations.”
What are the implications of this executive order on the use of guidance documents as a basis for enforcement actions? During the previous Trump Administration, DOJ’s Office of the Associate Attorney General issued a policy prohibiting the use of guidance documents to establish violations of law in civil enforcement actions.[5] This executive order directs agencies to de-prioritize actions to enforce certain regulations and defines “regulation” as including non-binding guidance documents, but it does not explicitly address enforcement actions that enforce guidance documents. We expect this Administration may reinstate its previous policy, or a version thereof, and view with skepticism investigations and enforcement actions premised on violations of agency guidance. Such skepticism could have particularly meaningful effects in False Claims Act or criminal enforcement actions related to healthcare, government contracting, and regulated products.
What is the interplay between this executive order and Attorney General Bondi’s recently issued policy memoranda? The Attorney General’s memoranda issued shortly after her swearing in are consistent with the policy pronouncements in this order. For example, we previously asked whether Attorney General Bondi’s February 5, 2025 memorandum, Reinstating the Prohibition on Improper Guidance Documents, signaled that DOJ may rescind Biden Administration guidance and memoranda regarding criminal enforcement, such as the current incarnations of the Criminal Division’s Evaluation of Corporate Compliance Programs guidance or Corporate Enforcement and Voluntary Self-Disclosure Policy. This executive order is another sign pointing in the direction of possible significant revisions in this space.
Do agency administrative proceedings have much of a future? The order’s focus on regulations’ conformity with clearly vested authority could dovetail with a continued push to constrain regulatory enforcement processes with a strict reading of the Constitution. In the wake of the Supreme Court’s opinion in Loper Bright, it would not be a surprise to see Trump Administration agencies bring more enforcement actions in federal courts, which is already required for certain categories of enforcement following the Supreme Court’s opinion in SEC v. Jarkesy, 603 U.S. 109 (2024).

Shifts in Furtherance of Administration Policies and Priorities

What impact will the executive order have on negotiated resolutions and settlements of enforcement actions? The order may have some impact on settlements and negotiated resolutions, but it remains an open question whether an interest in saving limited resources will lead to a greater tendency to settle or whether agencies will opt instead for litigation to press aggressive readings of statutes, regulations, or executive branch authority in service of the Administration’s priorities. By broadly defining enforcement actions, the order appears to apply equally to enforcement actions in adversarial proceedings and to those on pathways to negotiated resolutions. Agencies have historically used such settlements to save limited agency resources—one of the stated goals of the order. However, the order’s central theme of ensuring agencies bring only a subset of the enforcement actions they have historically pursued may mean less appetite for negotiated resolutions, if that subset is composed of stronger cases in areas important to the Administration.
How will agencies continue enforcement outside the Administration’s stated priorities? It remains unclear how and to what extent agencies with legal obligations and a remit that partially touch on stated Administration priorities will conduct enforcement in other areas, and how agencies without such a remit will continue enforcement or receive further guidance and direction. In the latter category, the Consumer Financial Protection Bureau (CFPB) stands out as an early example of the Administration taking steps that effectively end agency enforcement that did not align with its policies, as Gibson Dunn discussed in a recent alert.

Questions Implicating Both Types of Shifts

Do the order’s exemptions and “paramount obligations” matter? Although the subject matters explicitly exempted by the order appear straightforward, the devil may lie in the details. For example, EO 14209, which a week earlier mandated a review of FCPA enforcement, expressly relied on those enforcement actions’ importance in foreign affairs—an area exempt from this order. The accompanying fact sheet to that executive order also characterized the need for strategic advantages in critical minerals, deepwater ports, and other key infrastructure or assets around the world as “critical” to national security—another exemption from this order. Assuming the Administration maintains a consistent view, enforcement actions in these areas—and related regulations, policies, and guidance—would all be exempt from this order’s directives. It is equally possible, in theory, that agency heads’ “paramount obligations” to discharge their duties, protect public safety, and further national interests could exempt certain types of enforcement from the order’s directives.
Is change the only constant? These directives are but the latest in a series of executive orders, which we track and have analyzed at length. It would be difficult to summarize succinctly their collective breadth and varying degrees of specificity. One thing we can say is that we have now seen several instances of executive orders intersecting with, and building upon, earlier ones. It is possible, if not probable, that the Administration will issue other directives that have an impact on a particular agency, regulation, or enforcement action before the agencies complete their reviews or OIRA develops a Unified Regulatory Agenda, as prescribed by this order.

We will continue monitoring and reporting on the changes implemented by the new Administration.

[1] See Dave Michaels & Vicky Ge Huang, Coinbase Says SEC Intends to Drop Lawsuit Against Crypto Exchange, Wall St. J., Feb. 21, 2025.

[2] See Press Release, SEC, SEC Announces Cyber and Emerging Technologies Unit to Protect Retail Investors (Feb. 20, 2025), https://www.sec.gov/newsroom/press-releases/2025-42.

[3] Mark T. Uyeda, Acting Chairman, SEC, Remarks at the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference (Feb. 24, 2025), https://www.sec.gov/newsroom/speeches-statements/uyeda-remarks-florida-bar-022425.

[4] Press Release, SEC, SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force (Jan. 21, 2025), https://www.sec.gov/newsroom/press-releases/2025-30.

[5] Memorandum from the Associate Attorney General to Heads of Civil Litigating Components, DOJ, Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases (Jan. 25, 2018), https://www.justice.gov/archives/opa/press-release/file/1028756/dl?inline. See Press Release, DOJ, Associate Attorney General Brand Announces End to Use of Civil Enforcement Authority to Enforce Agency Guidance Documents (Jan. 25, 2018), https://www.justice.gov/archives/opa/pr/associate-attorney-general-brand-announces-end-use-civil-enforcement-authority-enforce-agency.

The following Gibson Dunn lawyers prepared this update: F. Joseph Warin, Stephanie Brooker, David Burns, M. Kendall Day, Stuart F. Delery, Gustav W. Eyler, Melissa L. Farrar, Amy Feagles, Svetlana S. Gans, Katlin McKelvie, David C. Ware, Bryan H. Parr, Chelsea D’Olivo, Veronica Goodson, and Todd Truesdale.

Gibson Dunn’s White Collar Defense and Investigations Practice Group successfully defends corporations and senior corporate executives in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies and their boards of directors in almost every business sector. The Group has members across the globe and in every domestic office of the Firm and draws on more than 125 attorneys with deep government experience, including more than 50 former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission, as well as former non-U.S. enforcers.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of Gibson Dunn’s White Collar Defense and Investigations or Anti-Corruption and FCPA practice groups:

Washington, D.C.
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)
Stephanie Brooker (+1 202.887.3502, sbrooker@gibsondunn.com)
Courtney M. Brown (+1 202.955.8685, cmbrown@gibsondunn.com)
David P. Burns (+1 202.887.3786, dburns@gibsondunn.com)
John W.F. Chesley (+1 202.887.3788, jchesley@gibsondunn.com)
Daniel P. Chung (+1 202.887.3729, dchung@gibsondunn.com)
M. Kendall Day (+1 202.955.8220, kday@gibsondunn.com)
Stuart F. Delery (+1 202.955.8515, sdelery@gibsondunn.com)
Michael S. Diamant (+1 202.887.3604, mdiamant@gibsondunn.com)
Gustav W. Eyler (+1 202.955.8610, geyler@gibsondunn.com)
Melissa Farrar (+1 202.887.3579, mfarrar@gibsondunn.com)
Amy Feagles (+1 202.887.3699, afeagles@gibsondunn.com)
Scott D. Hammond (+1 202.887.3684, shammond@gibsondunn.com)
George J. Hazel (+1 202.887.3674, ghazel@gibsondunn.com)
Jake M. Shields (+1 202.955.8201, jmshields@gibsondunn.com)
Adam M. Smith (+1 202.887.3547, asmith@gibsondunn.com)
Patrick F. Stokes (+1 202.955.8504, pstokes@gibsondunn.com)
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Bryan Parr (+1 202.777.9560, bparr@gibsondunn.com)
Nicole Lee (+1 202.887.3717, nlee@gibsondunn.com)
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In 2024, Gibson Dunn’s pro bono practice continued to expand access to justice and equality under the law. We provided legal representation to those who could not otherwise afford it, and we tackled some of the most important and complex legal and humanitarian issues of our day. Our pro bono work is a reflection of the diverse interests and beliefs of our attorneys, the caliber of their legal skills, and the shared commitment they have to benefiting their communities and our world. As a Firm, we devoted over 200,000 hours to pro bono work and launched more than 750 new pro bono projects in 2024—smashing all prior records. We have no doubt that Gibson Dunn’s pro bono practice will continue to grow in 2025, as we lean into new challenges, address an ever-changing legal landscape, and battle the ever-present inequities that persist in our world.

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Gibson Dunn’s Immigration Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

Over the past month, the Trump administration has imposed several limitations on the ability of noncitizens from countries experiencing times of crisis to obtain temporary refuge in the United States. For example, the administration canceled a Biden-era program allowing nationals of Cuba, Haiti, Nicaragua, and Venezuela with U.S.-based sponsors to obtain short-term lawful status and work authorization in the United States. The program was created in part to minimize unlawful migration from individuals fleeing desperate circumstances, as each of these countries has experienced massive economic collapses, widespread government corruption, and persecution of political dissenters and marginalized groups over the past few years.[1]

Further, earlier this month, the administration announced that it was “pausing” these individuals’ applications for other, more durable forms of immigration status in the United States.[2] While presently unclear, this ostensibly includes forms of relief individuals fleeing persecution are entitled to seek under applicable U.S. and international law. Court challenges for each of these actions is either already underway or anticipated.

Termination of the CHNV Humanitarian Parole Program

On January 20, 2025, President Trump issued an executive order, titled Securing Our Borders, that directed the Secretary of Homeland Security to “take appropriate action to . . . [t]erminate all categorical parole programs that are contrary to the policies of the United States established in [President Trump’s] Executive Orders, including the program known as the ‘Processes for Cubans, Haitians, Nicaraguans, and Venezuelans,’” also known as the CHNV program.[3] Recently, news sources have reported that the Department of Homeland Security (DHS) has proposed (in an unpublished memorandum) such termination of the CHNV program.[4] The proposal would purport to revoke the parole status of CHNV parolees and place them in deportation proceedings if the parolees have failed to apply for, or obtain, another immigration benefit.[5]

The CHNV program was announced by the Biden Administration on January 5, 2023, and allows certain nationals from Cuba, Haiti, Nicaragua, and Venezuela to apply to be temporarily paroled into the United States for up to two years.[6] The CHNV program, which does not grant long-term immigration status to these individuals, is an emergency measure that allows applicants from these four countries who meet stringent requirements to come to the United States for urgent humanitarian reasons. The program requires applicants to meet various criteria, including having a U.S.-based financial supporter and passing security vetting. Once accepted, “parolees” can seek certain immigration benefits, including employment authorization, and can apply for other forms of humanitarian relief (e.g., asylum). The program accepts only 30,000 people each month; through the end of December 2024, approximately 531,000 people had been granted parole status through the CHNV program.[7]

The full effects of the program’s termination are currently unclear. Nothing has been reported on how U.S. Citizenship and Immigration Services (USCIS) will handle pending CHNV applications, although it seems likely from the Trump Administration’s rhetoric that those applications will be rejected, and thus those applicants not eligible to apply for work authorization on that basis alone. It is also unclear how many of the 531,000 parolees under the CHNV program have applied for alternative immigration benefits (and thus are potentially able to, if eligible, retain work authorization under those programs). Based on what has been reported, it seems likely that parolees who have not applied for alternative immigration benefits could have their parole—and work authorization—revoked. In that event, without status or parole permitting the parolees to stay in the country, they could be at risk of removal from the United States; many parolees could even be subject to an expedited removal process whereby they could be removed from the United States without ever seeing a judge or being permitted to raise claims for relief in a court.

The CHNV program may not be the only humanitarian parole program currently at risk of termination. On January 28, 2025, USCIS reported that it was pausing acceptance of the form that U.S. supporters of CHNV applicants need to submit to start the application process (Form I-134A, the Online Request to be a Supporter and Declaration of Financial Support).[8] But this is the same form used for applications for other “categorical” parole programs, including Uniting for Ukraine (for Ukrainians fleeing Russian invasion). Thus, new applications under those programs may also not be processed. In addition, several U.S. Senators have written a letter expressing their concern over the Department of Homeland Security’s directive to “‘phase out’ humanitarian parole” and the potential impact on Afghans fleeing from the Taliban who are seeking such status.[9]

Petitioners are still technically able to submit humanitarian parole applications for either themselves or other individuals located outside the United States, including individuals from the CHNV countries, which will be processed on a case-by-case basis by federal agencies. However, given the Trump administration’s expressed skepticism toward this mechanism and the discretionary nature of humanitarian parole, those individual applications likely have a very low chance of approval.

Pause on Certain Humanitarian Parolees’ Ability to Apply for Others Forms of Status: On February 14, 2025, Andrew Davidson, the acting deputy director of USCIS, ordered an “administrative pause” on accepting or processing applications for immigration benefits other than humanitarian parole for recipients of the CHNV and Uniting for Ukraine programs, as well as certain other individuals.[10] USCIS cited fraud and national security risks as the justification for the freeze.[11] Under this administrative pause, USCIS will not process any applications for asylum, temporary protected status, or family-based visas from individuals who entered the United States under one of the affected humanitarian parole programs.

USCIS justified their directive by stating that “fraud information and public safety or national security concerns are not being properly flagged in USCIS’ adjudicative systems.”[12] The concerns include “serial sponsors,” applications submitted for deceased individuals or with identical addresses, and grants of parole without being “fully vetted.”[13] The USCIS memorandum references the Biden Administration’s July 2024 pause to the CHNV program due to fraud concerns over screening processes for sponsor applications.[14] However, this temporary pause only affected travel authorizations and did not affect the application process—let alone these individuals’ abilities to apply for entirely separate forms of immigration status while lawfully present in the country.[15]

While the administrative pause is indefinite, the memorandum states that the pause will be lifted only after a “comprehensive review and evaluation of the in-country population of aliens who are or were paroled into the United States under these categorical parole programs.”[16] Currently, it is unclear how applications for other forms of immigration status submitted by these individuals will be treated by USCIS—it is possible they will simply not be processed.

Termination of Temporary Protected Status (TPS) for Venezuelans

Temporary Protected Status (TPS) is a lawful immigration status granted by “[t]he Attorney General, after consultation with appropriate agencies of the Government” to nationals of a specific country who are present in the United States at the time of the country’s designation.[17] TPS is unavailable to individuals who have been convicted of most crimes or otherwise present security concerns; it is within the Attorney General’s discretion to grant TPS.[18] If the Secretary of Homeland Security determines that the designated country no longer meets these conditions, the Attorney General must terminate the designation.[19]

In response to the “severe humanitarian emergency” in Venezuela—marked by economic crisis, political crisis, health crisis, food insecurity, a “collapse of basic services,” crime, and human rights violations—then-Secretary of Homeland Security Alejandro Mayorkas designated Venezuela for TPS in 2021.[20] Then-Secretary Mayorkas later extended that designation twice for a total of 36 months. At the time of the second extension (October 3, 2023), he also redesignated Venezuela for 18 months, explicitly creating “two distinct TPS designations of Venezuela”. In other words, Venezuelans who had obtained TPS through the initial 2021 designation could extend their TPS status through September 10, 2025, while more recent arrivals could apply for TPS via the 2023 designation. On January 17, 2025, then-Secretary Mayorkas consolidated and extended those separate designations for 18 months, such that TPS status for all Venezuelans was extended through October 2, 2026.[21]

On January 28, 2025, Secretary of Homeland Security Kristi Noem vacated the January 17, 2025 extension of Venezuelan TPS.[22] A week later, on February 5, 2025, USCIS announced the termination of the October 3, 2023 designation of Venezuela for TPS, effective April 6, 2025.[23] Although USCIS did not terminate the 2021 TPS designation, it vacated the extension through October 2026. As a result, TPS status under the 2021 designation is now set to expire on September 10, 2025, barring any further agency action.[24] The vacatur and termination already are the subject of two lawsuits, which are pending in the Northern District of California and the District of Maryland.

Policy Considerations. The February 5, 2025 notice explains that termination of Venezuela’s TPS designation is based not on changed conditions in Venezuela, but rather on DHS’s assessment that “it is contrary to the national interest to permit the Venezuelan nationals (or aliens having no nationality who last habitually resided in Venezuela) to remain temporarily in the United States.”[25] This conclusion rests on four “policy imperatives” articulated by President Trump in recent executive orders and proclamations.[26]

First, DHS points to the direction to terminate the CHNV program. The notice explains that an estimated 33,600 individuals in the country as CHNV parolees secured TPS status and employment authorization under the 2023 authorization and cites concerns about the resources of local communities where those with TPS status are settling.[27] The notice also cites concerns about crimes blamed on a Venezuelan gang.[28]
Second, DHS cites President Trump’s emphasis on enforcing immigration laws, as well as his statement in Executive Order 14159 (“Protecting the American People Against Invasion”) that “the prior administration invited, administered, and oversaw an unprecedented flood of illegal immigration into the United States [that] . . . has cost taxpayers billions of dollars.”[29] That same order instructed the Secretary of State, the Attorney General, and the Secretary of Homeland Security to “ensur[e] that designations of Temporary Protected Status are consistent with [the INA], and that such designations are appropriately limited in scope and made for only so long as may be necessary to fulfill the textual requirements of that statute.”[30]
Third, DHS points to President Trump’s declaration of a national emergency at the southern border, combined with the potential “magnet effect” of a TPS designation.[31]
Fourth, DHS points to President Trump’s directive that “the foreign policy of the United States shall champion core American interests and always put America and American citizens first.”[32] Expanding on this pronouncement, the notice states that “U.S. foreign policy interests, particularly in the Western Hemisphere, are best served and protected by curtailing policies that facilitate or encourage illegal and destabilizing migration.”[33]

Current Status: The status of Venezuelan nationals who were granted TPS under the 2021 designation is currently unchanged, although their TPS status will now expire on September 10, 2025 (instead of October 2, 2026). Those who received TPS through the 2023 designation and have no other form of lawful immigration status may lose their immigration status and employment authorization on April 6, 2025, barring injunctive relief in the litigation challenging the termination or changes to individual circumstances.

[1] See, e.g., Amnesty International Report on Cuba 2023/4, available at https://www.amnesty.org/en/location/americas/central-america-and-the-caribbean/cuba/report-cuba/; Amnesty International Report of Haiti 2023/4, available at https://www.amnesty.org/en/location/americas/central-america-and-the-caribbean/haiti/; Amnesty International Report of Nicaragua 2023/4, available at https://www.amnesty.org/en/location/americas/central-america-and-the-caribbean/nicaragua/; Amnesty International Report of Venezuela 2023/4, available at https://www.amnesty.org/en/location/americas/south-america/venezuela/report-venezuela/

[2] Camilo Montoya-Galvez, US Pauses Immigration Applications for Certain Migrants Welcomed Under Biden, CBS News (Feb. 19, 2025), available at https://www.cbsnews.com/news/u-s-pauses-immigration-applications-for-certain-migrants-welcomed-under-biden/

[3] Exec. Order No. 14165, 90 F.R. 8467, § 7(b) (Jan. 20, 2025), available at https://www.federalregister.gov/documents/2025/01/30/2025-02015/securing-our-borders.

[4] See, e.g., Camilo Montoya-Galvez, Trump Officials Make Plans to Revoke Legal Status of Migrants Welcomed Under Biden, CBS News (Feb. 1, 2025), https://www.cbsnews.com/news/trump-officials-make-plans-to-revoke-legal-status-of-migrants-welcomed-under-biden/.

[5] Id.

[6] See The Biden Administration’s Humanitarian Parole Program for Cubans, Haitians, Nicaraguans, and Venezuelans: An Overview, Am. Immigration Council (Oct. 31, 2023), https://www.americanimmigrationcouncil.org/research/biden-administrations-humanitarian-parole-program-cubans-haitians-nicaraguans-and; What is the CHNV Parole Program?, Global Refuge (Oct. 23, 2024), https://www.globalrefuge.org/news/what-is-the-chnv-parole-program/.

[7] https://www.cbp.gov/newsroom/national-media-release/cbp-releases-december-2024-monthly-update

[8] See Update on Form I-134A, USCIS (Jan. 28, 2025), https://www.uscis.gov/newsroom/alerts/update-on-form-i-134a.

[9] See Letter from Amy Klobuchar, United States Senator, et al. to Pete Hegseth, Sec’y, U.S. Dep’t of Defense, Marco Rubio, Sec’y, U.S. Dep’t of State, and Kristi Noem, Sec’y, U.S. Dep’t of Homeland Sec. (Feb. 4, 2025), https://www.klobuchar.senate.gov/public/index.cfm/2025/2/klobuchar-colleagues-call-on-administration-to-clarify-status-of-afghan-wartime-allies.

[10] Camilo Montoya-Galvez, US Pauses Immigration Applications for Certain Migrants Welcomed Under Biden, CBS News (Feb. 19, 2025), available at https://www.cbsnews.com/news/u-s-pauses-immigration-applications-for-certain-migrants-welcomed-under-biden/.

[11] Id.

[12] Id.

[13] Id.

[14] Id. See Kristina Cooke & Ted Hesson, US Pause Humanitarian Entry Program for Citizens of Four Countries, Reuters (Aug. 2, 2024), available at https://www.reuters.com/world/us/us-pauses-humanitarian-entry-program-citizens-four-countries-2024-08-02/.

[15] Ted Hessen & Kanishka Singh, US Government Resumes Humanitarian Entry Program for Citizens of 4 Countries, Reuters (Aug. 29, 2024), https://www.reuters.com/world/us/us-government-resumes-humanitarian-entry-program-citizens-4-countries-2024-08-29/.

[16] Camilo Montoya-Galvez, US Pauses Immigration Applications for Certain Migrants Welcomed Under Biden, CBS News (Feb. 19, 2025), available at https://www.cbsnews.com/news/u-s-pauses-immigration-applications-for-certain-migrants-welcomed-under-biden/.

[17] 8 U.S.C. § 1254a(b)(1).

[18] 8 U.S.C. § 1254a(c)(2)(B); 8 U.S.C. § 1231(b)(3)(B); see also Asylum Bars, USCIS (last updated May 31, 2022), available at https://www.uscis.gov/humanitarian/refugees-and-asylum/asylum/asylum-bars.

[19] 8 U.S.C. § 1254a(b)(3)(B).

[20] Designation of Venezuela for Temporary Protected Status and Implementation of Employment Authorization for Venezuelans Covered by Deferred Enforced Departure, 86 FR 13574 (Mar. 9, 2021), available at https://www.federalregister.gov/documents/2021/03/09/2021-04951/designation-of-venezuela-for-temporary-protected-status-and-implementation-of-employment.

[21] Extension of the 2023 Designation of Venezuela for Temporary Protected Status, 90 FR 5961 (Jan. 17, 2025), available at https://www.federalregister.gov/documents/2025/01/17/2025-00769/extension-of-the-2023-designation-of-venezuela-for-temporary-protected-status.

[22] Vacatur of 2025 Temporary Protected Status Decision for Venezuela, 90 F.R. 8805 (Feb. 3, 2025), available at https://www.federalregister.gov/documents/2025/02/03/2025-02183/vacatur-of-2025-temporary-protected-status-decision-for-venezuela.

[23] Termination of the October 3, 2023 Designation of Venezuela for Temporary Protected Status, 90 F.R. 9040 (Feb. 5, 2025), available at https://www.federalregister.gov/documents/2025/02/05/2025-02294/termination-of-the-october-3-2023-designation-of-venezuela-for-temporary-protected-status (quoting 8 U.S.C. 1254a(b)(1).

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] Id.

[29] E.O. 14159, Protecting the American People Against Invasion, 90 F.R. 8443 (Jan. 20, 2025), available at https://www.federalregister.gov/documents/2025/01/29/2025-02006/protecting-the-american-people-against-invasion.

[30] Id.

[31] Id.

[32] Id.; see also Proc. 10886, Declaring a National Emergency at the Southern Border of the United States, 90 F.R. 8327 (Jan. 20, 2025), available at https://www.federalregister.gov/documents/2025/01/29/2025-01948/declaring-a-national-emergency-at-the-southern-border-of-the-united-states.

[33] Termination of the October 3, 2023 Designation of Venezuela for Temporary Protected Status, 90 F.R. 9040 (Feb. 5, 2025), available at https://www.federalregister.gov/documents/2025/02/05/2025-02294/termination-of-the-october-3-2023-designation-of-venezuela-for-temporary-protected-status (quoting 8 U.S.C. 1254a(b)(1)).

The following Gibson Dunn lawyers prepared this update: Stuart Delery, Ariana Sanudo, Patty Herold, Laura Raposo, Cydney Swain, Carolyn Ye, and Kayla Jahangiri.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, any leader or member of the firm’s Pro Bono, Public Policy, Administrative Law & Regulatory, Appellate & Constitutional Law, or Labor & Employment practice groups, or the following members of the firm’s Immigration Task Force:

Stuart F. Delery – Co-Chair, Administrative Law & Regulatory Practice Group,
Washington, D.C. (+1 202.955.8515, sdelery@gibsondunn.com)

Naima L. Farrell – Partner, Labor & Employment Practice Group,
Washington, D.C. (+1 202.887.3559, nfarrell@gibsondunn.com)

Nancy Hart – Partner, Litigation Practice Group,
New York (+1 212.351.3897, nhart@gibsondunn.com)

Katie Marquart – Partner & Chair, Pro Bono Practice Group,
Los Angeles (+1 213.229.7475, kmarquart@gibsondunn.com)

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New York (+1 212.351.5341, lraposo@gibsondunn.com)

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Washington, D.C. (+1 202.887.3596, mrozen@gibsondunn.com)

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On February 20, 2025, the Federal Energy Regulatory Commission (FERC) issued two important orders addressing the treatment of co-located loads, including data centers, in the PJM Interconnection, L.L.C. (PJM) region. FERC directed PJM and its Transmission Owners (the TOs) to take steps to resolve co-located load issues.

I. Introduction

In the marquee order of the day, FERC consolidated several proceedings raising questions about co-located loads and data centers and instituted a “show cause” proceeding under Section 206 of the Federal Power Act (FPA) and directed PJM and the TOs—within thirty (30) days—to either (a) demonstrate that the PJM Open Access Transmission Tariff along with related PJM governing documents (PJM Tariff) is just and reasonable without any changes notwithstanding its failure to state with sufficient clarity or consistency the rates, terms, and conditions of service that apply to co-located load arrangements or (b) explain what changes to the PJM Tariff would remedy the identified concerns if FERC were to find the PJM Tariff unjust and unreasonable. The order directs PJM and the TOs to respond to numerous complex questions (38, to be exact) related to co-located loads. Importantly, FERC invites other interested parties to submit responses to PJM and the TOs filings.[1] FERC directs PJM and the PJM TOs to respond to the Show Cause Order and answer all 38 specific questions within 30 days – by March 24, 2025. Other interested parties are invited to file responses within 30 days of the PJM and PJM TO filings.

In a second related order, FERC rejected the Exelon TOs’ proposed tariff filings under Section 205 of the FPA aimed at clarifying how the Exelon TOs would treat co-located load. FERC said that the proposed changes would change a defined term or condition in the PJM Tariff, and found that individual PJM TOs do not have Section 205 filing rights to proposed changes to such terms and conditions.[2] However, as discussed herein, the substantive issues raised by the Exelon TOs are incorporated into the questions raised in the FERC Show Cause Order.

In the following paragraphs we provide more detail on these proceedings and why the co-located load issue has become an acute concern for PJM, the PJM TOs, generators and data center developers in PJM, and state regulators. The Show Cause Order also has important implications for generators, data center developers, RTOs, transmission owners, and state regulators across the country.

II. New FERC Orders on Co-Located Loads, including Data Centers

a. PJM Consolidated Show Cause Order

The new Consolidated Show Cause Order consolidates two pre-existing dockets (a technical conference docket and a complaint docket) with a new Section 206 docket and directs PJM and its TOs to make further filings to address crucial questions raised by FERC regarding co-located loads and their impact on the transmission system.[3] The first pre-existing docket, Docket No. AD24-11-000, is for the FERC technical conference on co-located large loads held on November 1, 2024. The second pre-existing docket, Docket No. EL25-20-000, is regarding the Constellation Energy Generation, LLC complaint against PJM (“Constellation Complaint”) asking that FERC (1) find the PJM Tariff unjust and unreasonable because it does not address the interconnection of co-located loads and (2) incorporate parts of PJM’s existing guidance on co-located loads into the PJM Tariff. FERC consolidated the two pre-existing dockets into the Show Cause Order in order to capture the extensive records that had been created in these two proceedings. Notably, however, FERC did not grant the Constellation Complaint, and instead indicated that that the PJM Tariff appears to be unjust and unreasonable in its treatment of co-located loads.

In the Consolidated Show Cause Order, FERC discussed the questions that were raised in the consolidated proceedings but provided very few answers to most of those questions. FERC did, however, show its hand on a few important issues related to co-located load. First, FERC addressed federal and state jurisdiction over the sale of electricity, an issue which had been raised not only in the consolidated proceedings but also in a separate another, unconsolidated proceeding in which Exelon companies filed a petition for declaratory order field by two of Exelon’s TOs in Docket No. EL24-149-000 (“Exelon Petition”). In that Petition, the Exelon TOs requested FERC to find, among other things, that “interconnection of end-use load is a matter of state, not federal, jurisdiction.”[4] In the Consolidated Show Cause Order, FERC addressed important aspects of federal and state jurisdiction over co-located loads. First, FERC confirmed that its own jurisdiction is over interstate wholesale sales, interstate transmission, and the facilities used for such transmission and sale, while states’ jurisdiction is “over any other sale of electric energy,” which includes retail sales, non-interstate wholesale sales, and sales that are not for resale (i.e., sales made directly to the end-user).[5] Importantly, FERC found that as “[a]pplied in the context of co-location, . . . under the FPA, the states get to determine which entities are legally permitted to provide electricity to retail customers in co-location arrangements.”[6] Confirming this, FERC stated “[t]hat is true irrespective of where the load interconnects (i.e., to the distribution system, the transmission system, or the generator itself).”[7] Further clarifying jurisdiction, FERC stated “if [sales] are made directly to the end-use customer . . . then the co-located generator’s sales are under state jurisdiction.”[8]

Also, while it did not yet draw conclusions, FERC indicated that it is very concerned that co-located loads are not being required to pay for PJM wholesale services they are receiving, and likely benefit from the use of the PJM transmission system. FERC stated “we are especially concerned that the absence of [PJM] Tariff provisions creates the potential that participates in a co-location arrangement may not be required to pay for wholesale services that they receive, as required by the cost causation principle . . . .”[9] FERC also stated that “[t]he record demonstrates that different co-location arrangement are likely to use or benefit from the transmission system in different ways depending on how they are configured . . . .”[10] In particular, with regard to black start service, FERC stated that it “appears to be undisputed in the record” that co-located load arrangements with nuclear facilities cannot function without a PJM resource providing black start service.[11] We expect that these issues will be vigorously addressed in the responses to FERC’s 38 questions.

In contrast to the jurisdictional question, FERC did not offer much substantive guidance on the many other co-located load questions raised at the technical conference and in the Constellation Complaint. Instead, FERC asked PJM and the TOs to answer a list of 38 questions about co-located loads, and will allow interested parties to respond to PJM and the TOs’ answers to those questions. FERC also specifically stated that parties could “introduce the issues raised in the [Exelon Petition]” into the consolidated dockets in order to address those issues there.[12]

Although FERC stated in the Consolidated Show Cause Order that the PJM Tariff may be unjust and unreasonable , it stopped short of finding that PJM’s Tariff was actually unjust and unreasonable. Instead, FERC noted concerns with the status quo of co-location arrangements in PJM, noting in particular the PJM Tariff may be unjust and unreasonable because it (1) “does not contain provisions addressing with sufficient clarity or consistency the rates, terms, and conditions of service that apply to co-location arrangements;”[13] (2) lacks “rates, terms, and conditions governing the use and sale of ancillary services and black start services by co-location arrangements;”[14] and (3) “lacks rules necessary to provide PJM with sufficient information to perform appropriate analysis to ensure reliable system operations given the characteristics of co-location arrangements.”[15]

FERC’s 38 questions request input on a broad swath of topics related to co-located load, including:

whether filers agree with FERC’s assessment of FERC’s and states’ jurisdiction over issues related to co-location arrangements;
how co-located loads rely on or use the transmission system or increase transmission-related costs to other parties;
what it means to be “electrically connected and synchronized to the PJM Transmission System when consuming power;”
whether co-located loads should be required to take certain types of transmission service and how they should be charged for those services;
the types of ancillary or wholesale services co-located loads use or would benefit from using, how to charge for those services, and how PJM should determine which co-located loads use such services;
how study processes, interconnection procedures and agreements, and cost allocation processes should be modified to account for co-located loads and generators;
how PJM’s capacity market should be modified to ensure the PJM Tariff specifies how co-located generators may participate in the capacity market;
whether PJM’s existing rules are sufficient to ensure resource adequacy if increasing numbers of existing large generators choose to co-locate with load;
what deactivation or interconnection modification studies should be required to ensure resource adequacy when an existing generator seeks to co-locate with load and what remediation techniques may be appropriate to address issues identified through such studies;
what changes may be necessary to PJM’s planning processes to prepare for and address resource adequacy and reliability impacts of co-location arrangements;
under what circumstances PJM should be permitted to direct operators of co-located arrangements to shed load in response to a system emergency;
benefits of co-location, such as the potential for reducing required transmission system upgrades, reducing congestion, or providing operational flexibility in times of system stress or emergency;
national security implications of co-location; and
the justness and reasonableness of removing generation units originally paid for by utility consumers to supply energy to one or a few large customers.

b. Order Rejecting Exelon TO Tariff Filings

In Docket Nos. ER24-2888-001 et al., the Exelon TOs proposed changes under Section 205 of the FPA to the Exelon-specific provisions of Attachment H of the PJM Tariff that would have required co-located load either to be “designated as Network Load,” or to arrange “appropriate Point-to-Point transmission service . . . for the end-use customer,” by modifying the definition of “Network Load.”[16] FERC sidestepped the Exelon filings on a legal technicality. However, FERC captured the issues raised by Exelon, including the important matter of state and federal jurisdiction, in the Show Cause order. FERC rejected Exelon’s Section 205 filing, finding that Exelon’s proposed change to the definition of “Network Load” would altered “terms and conditions” of the PJM Tariff, and only PJM (not TOs) can propose changes to the generally-applicable terms and conditions of the PJM Tariff under Section 205.[17] Based on that determination, FERC completely bypassed the substance of the Exelon filings.[18] However, in his concurrence, Commissioner Willie Phillips observed that the issues raised by Exelon are incorporated in the Consolidated Show Cause Order, and noted that he is “grateful that [Exelon] has raised such important questions, which will help the Commission set the framework for how we address co-location arrangements going forward, including a transparent mechanism for ensuring that large loads pay their fair share of costs.”[19]

c. No Order on Exelon Petition for Declaratory Order on Co-Located Loads

Notably absent from FERC’s orders was any action on Exelon’s pending petition for declaratory order regarding co-located loads in Docket No. EL24-149-000. In that the Exelon Petition, two Exelon TOs (BG&E and PECO) asked FERC to address jurisdictional issues for co-located loads, including whether interconnection of end-use load is a matter of state, not federal, jurisdiction. It was filed in October 2024, and FERC has not acted on the Petition. In the new Show Cause Order, however, FERC squarely addresses matters of FERC and state jurisdiction, and asks parties to comment on FERC’s view in the 38 questions. Because FERC addressed jurisdiction in the Show Cause Order, it is possible that FERC will not act on the Exelon Petition.

III. Next Steps and FERC-Wide Implications

In the Consolidated Show Cause Order, FERC directs PJM and the TOs to respond to FERC’s concerns regarding the treatment of co-located loads under the PJM Tariff. FERC directed PJM and the TOs to within 30 days (by March 24, 2025) to either (a) demonstrate the PJM Tariff remains just and reasonable with no changes, or (b) explain what changes to the PJM Tariff would remedy the identified concerns.[20] FERC also directed PJM and the TOs to answer all 38 of FERC’s questions on co-located loads, with supporting evidence and analysis. FERC indicated that interested parties may respond to PJM and the TOs’ filings within 30 days of PJM’s and the PJM TOs’ filings, addressing either or both (a) whether the current PJM Tariff is just and reasonable and not unduly discriminatory or preferential, and (b) if not, what changes to the PJM Tariff should be implemented as a replacement rate.[21]

We expect the outcome of this proceeding will have broad impacts on the co-located load and data center requirements in other FERC-jurisdictional ISO and RTO regions. If the PJM Tariff is unjust and unreasonable because it does not address co-located load matters, then other ISO and RTO tariffs presumably would be found by FERC to be unjust and unreasonable as well. As a result, a broad array of interested parties, including generators, data center developers, transmission owners, and RTOs and ISOs are advised to pay close attention to this PJM proceeding. Interested parties may consider filing comments on the PJM and TO filings scheduled for March 24. Such responsive comments would be due in late April.

[1] PJM Interconnection, L.L.C., 190 FERC ¶ 61,115 (2025) (“Consolidated Show Cause Order”).

[2] PJM Interconnection, L.L.C., 190 FERC ¶ 61,109 (2025) (“PJM Exelon Order”).

[3] Consolidated Show Cause Order.

[4] Petition for Declaratory Order of Baltimore Gas & Electric Company and PECO Energy Company, Docket No. EL24-149-000 (Sep. 30, 2025).

[5] Consolidated Show Cause Order at PP 66-67.

[6] Id. at P 69 (emphasis added).

[7] Id. at P 69 (emphasis added).

[8] Id. at P 71 (emphasis added).

[9] Id. at P 74.

[10] Id. at P 76.

[11] Id. at P 81.

[12] Id. at P 73, n.225 (mentioning Docket No. ER24-149-000 stating that “to the extent that parties to this proceeding want to introduce the issues raised in the petition in Docket No. EL24-149-000 to this proceeding and address those issues, they are free to do so.”).

[13] Id. at P 74.

[14] Id. at P 82.

[15] Id. at P 83.

[16] Tariff Filing of Atlantic City Electric Company, Docket No. ER24-2888-000 (Aug. 8, 2024).

[17] PJM Exelon Order at P 33.

[18] Id. at P 39.

[19] Id., Commissioner Phillips Concurrence at PP 5-7.

[20] Consolidated Show Cause Order at P 87, Ordering Para. (B).

[21] Id. at P 87.

The following Gibson Dunn lawyers prepared this update: William R. Hollaway, Ph.D., Tory Lauterbach, Janine Durand, and Jess Rollinson.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. To learn more about these issues or for assistance with data center energy supply issues, such as preparing comments to be filed in the above-discussed proceedings, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Energy Regulation and Litigation, Power and Renewables, Real Estate/Data Centers, Cleantech, or Oil and Gas practice groups, or the following members of the firm’s Energy team:

Energy Regulation and Litigation:
William R. Hollaway – Washington, D.C. (+1 202.955.8592, whollaway@gibsondunn.com)
Tory Lauterbach – Washington, D.C. (+1 202.955.8519, tlauterbach@gibsondunn.com)

Power and Renewables:
Peter J. Hanlon – New York (+1 212.351.2425, phanlon@gibsondunn.com)
Nicholas H. Politan, Jr. – New York (+1 212.351.2616, npolitan@gibsondunn.com)

Real Estate/Data Centers:
Emily Naughton – Washington, D.C. (+1 202.955.8509, enaughton@gibsondunn.com)
Whitney Smith – Washington, D.C. (+1 202.777.9307, wsmith@gibsondunn.com)

Cleantech:
John T. Gaffney – New York (+1 212.351.2626, jgaffney@gibsondunn.com)
Daniel S. Alterbaum – New York (+1 212.351.4084, dalterbaum@gibsondunn.com)
Adam Whitehouse – Houston (+1 346.718.6696, awhitehouse@gibsondunn.com)

Oil and Gas:
Michael P. Darden – Houston (+1 346.718.6789, mpdarden@gibsondunn.com)
Rahul D. Vashi – Houston (+1 346.718.6659, rvashi@gibsondunn.com)

New Developments

SEC Announces Cyber and Emerging Technologies Unit to Protect Retail Investors. On February 20, the SEC announced the creation of the Cyber and Emerging Technologies Unit (“CETU”). According to the SEC, CETU will focus on combatting cyber-related misconduct and is intended to protect retail investors from bad actors in the emerging technologies space. CETU, led by Laura D’Allaird, replaces the Crypto Assets and Cyber Unit and is comprised of approximately 30 fraud specialists and attorneys across multiple SEC offices. The SEC noted that CETU will utilize the staff’s substantial fintech and cyber-related experience to combat misconduct as it relates to securities transactions in the following priority areas: fraud committed using emerging technologies, such as artificial intelligence and machine learning; use of social media, the dark web, or false websites to perpetrate fraud; hacking to obtain material nonpublic information; takeovers of retail brokerage accounts; fraud involving blockchain technology and crypto assets; regulated entities’ compliance with cybersecurity rules and regulations; and public issuer fraudulent disclosure relating to cybersecurity. [NEW]
Acting Chairman Pham Announces Brian Young as Director of Enforcement. On February 14, the CFTC Acting Chairman Caroline D. Pham today announced Brian Young will serve as the agency’s Director of Enforcement. Young has been serving in an acting capacity since January 22, and previously was the Director of the Whistleblower Office. He is a distinguished federal prosecutor with nearly 20 years of service at the Department of Justice, including Acting Director of Litigation for the Antitrust Division and Chief of the Litigation Unit for the Fraud Section of the Criminal Division, and has successfully tried some of the most high-profile criminal fraud and manipulation cases in the CFTC’s markets.
Trump Plans to Pick Brian Quintenz to Lead CFTC. On February 11, several mainstream news sources began to report that U.S. President Donald Trump plans to nominate Brian Quintenz, the head of policy at Andreessen Horowitz’s a16z crypto arm, as Chairman of the CFTC. Quintenz previously served as a commissioner for the CFTC during the first Trump administration.
CFTC Announces Crypto CEO Forum to Launch Digital Asset Markets Pilot. On February 7, the CFTC announced that it will hold a CEO Forum of industry-leading firms to discuss the launch of the CFTC’s digital asset markets pilot program for tokenized non-cash collateral such as stablecoins. Participants will include Circle, Coinbase, Crypto.com, MoonPay and Ripple.
CFTC Statement on Allegations Targeting Acting Chairman. On February 6, the CFTC released a statement regarding allegations targeting Acting Chairman Pham.
David Gillers to Step Down as Chief of Staff. On February 6, the CFTC announced that David Gillers will step down as Chief of Staff to Commissioner Behnam on February 7.
CFTC Announces Prediction Markets Roundtable. On February 5, the CFTC announced that it will hold a public roundtable in approximately 45 days at the conclusion of its requests for information on certain sports-related event contracts. The CFTC said that the goal of the roundtable is to develop a robust administrative record with studies, data, expert reports, and public input from a wide variety of stakeholder groups to inform the Commission’s approach to regulation and oversight of prediction markets, including sports-related event contracts. According to the CFTC, the roundtable will include discussion of key obstacles to the balanced regulation of prediction markets, retail binary options fraud and customer protection, potential revisions to Part 38 and Part 40 of CFTC regulations to address prediction markets, and other improvements to the regulation of event contracts to facilitate innovation. The roundtable will be held at the CFTC’s headquarters in Washington, D.C.
CFTC Division of Enforcement to Refocus on Fraud and Helping Victims, Stop Regulation by Enforcement. On February 4, CFTC Acting Chairman Caroline D. Pham announced a reorganization of the Division of Enforcement’s task forces to combat fraud and help victims while ending the practice of regulation by enforcement. According to the CFTC, previous task forces will be simplified into two new Division of Enforcement task forces: the Complex Fraud Task Force and the Retail Fraud and General Enforcement Task Force. The Complex Fraud Task Force will be responsible for all preliminary inquiries, investigations, and litigations relating to complex fraud and manipulation across all asset classes. The Acting Chief will be Deputy Director Paul Hayeck. The Retail Fraud and General Enforcement Task Force will focus on retail fraud and handle general enforcement matters involving other violations of the Commodity Exchange Act. The Acting Chief will be Deputy Director Charles Marvine.
CFTC Staff Issues No-Action Letter to Korea Exchange Concerning the Offer or Sale of KOSPI and Mini KOSPI 200 Futures Contracts. On February 4, the CFTC’s Division of Market Oversight issued a no-action letter stating it will not recommend the CFTC take enforcement action against Korea Exchange (“KRX”) for the offer or sale of Korea Composite Stock Price Index (“KOSPI”) 200 Futures Contracts and Mini KOSPI 200 Futures Contracts to persons located within the United State while the Commission’s review of KRX’s forthcoming request for certification of the contracts under CFTC Regulation 30.13 is pending. DMO issued similar letters when the KOSPI 200 became a broad-based security index in 2021 and 2022. See CFTC Press Release Nos. 8464-21 and 8610-22. The KOSPI 200 became a narrow-based security index in February 2024. The KOSPI 200 is set to become a broad-based security index on February 6, 2025, and the no-action position in DMO’s letter will be effective on that date.

New Developments Outside the U.S.

IOSCO concludes Thematic Review on Technological Challenges to Effective Market Surveillance. On February 19, IOSCO published a Thematic Review on the status of implementation of its recommendations on Technological Challenges to Effective Market Surveillance issued in 2013. The IOSCO Assessment Committee conducted the review and assessed the consistency of outcomes arising from the implementation of its recommendations by market authorities in 34 IOSCO member jurisdictions. According to IOSCO, the review found that most market authorities have implemented the recommendations and have made significant progress in addressing technological challenges to market surveillance, particularly in more complex markets. However, IOSCO noted the following concerns: some regulators lack the necessary organizational and technical capabilities to conduct effective surveillance of their markets in the midst of rapid technological developments; the absence of regular review of the surveillance capabilities of market authorities; difficulties with regard to the collection and comparison of data across venues in markets with multiple trading venues; and the inability of many regulators to map their cross-border surveillance capabilities. [NEW]
ESMA Consults on the Criteria for the Assessment of Knowledge and Competence Under MiCA. On February 17, ESMA launched a consultation on the criteria for the assessment of knowledge and competence of crypto-asset service providers’ (“CASPs”) staff giving information or advice on crypto-assets or crypto-asset services. ESMA is seeking stakeholder inputs about, notably: the minimum requirements regarding knowledge and competence of staff providing information or advice on crypto-assets or crypto-asset services; and organizational requirements of CASPs for the assessment, maintenance and updating of knowledge and competence of the staff providing information or advice. ESMA said that the guidelines aim to ensure staff giving information or advising on crypto-assets or crypto-asset services have a minimum level of knowledge and competence, enhancing investor protection and trust in the crypto-asset markets.  ESMA indicated that it will consider all comments received by April 22, 2025. [NEW]
ASIC Updates Technical Guidance on OTC Derivative Transaction Reporting. The Australian Securities and Investments Commission (“ASIC”) has updated its technical guidance on OTC derivatives reporting under ASIC Derivative Transaction Rules (Reporting) 2024. The guidance includes ASIC’s observations on, and the industry’s experience with, reporting under the 2024 rules since their commencement on October 21, 2024. It also responds to the industry’s requests for additional clarifications. The key updates include: emphasizing reporting entities’ responsibilities to create unique product identifier codes for accurate reporting; recognizing circumstances when ‘effective date’ and ‘event timestamp’ are reported on a back-dated basis; and clarifying certain aspects of ‘block trade’ reporting. The updated technical guidance is available on ASIC’s derivative transaction reporting webpage. [NEW]
ESMA Launches a Common Supervisory Action with NCAs on Compliance and Internal Audit Functions. On February 14, ESMA launched a Common Supervisory Action (“CSA”) with National Competent Authorities (“NCAs”) on compliance and internal audit functions of undertaking for collective investment in transferable securities (“UCITS”) management companies and Alternative Investment Fund Managers (“AIFMs”) across the EU. The CSA will be conducted throughout 2025 and aims to assess to what extent UCITS management companies and AIFMs have established effective compliance and internal audit functions with the adequate staffing, authority, knowledge, and expertise to perform their duties under the AIFM and UCITS Directives.
ESMA Consults on Amendments to Settlement Discipline. On February 13, ESMA launched a consultation on settlement discipline, with the objective of improving settlement efficiency across various areas. ESMA is consulting on a set of proposals to amend the technical standards on settlement discipline that include: reduced timeframes for allocations and confirmations, the use of electronic, machine-readable allocations and confirmations according to international standards, and the implementation of hold & release and partial settlement by all central securities depositories.
ESMA Consults on Revised Disclosure Requirements for Private Securitizations. On February 13, ESMA launched a consultation on revising the disclosure framework for private securitizations under the Securitization Regulation (“SECR”). The consultation proposes a simplified disclosure template for private securitizations designed to improve proportionality in information-sharing processes while ensuring that supervisory authorities retain access to the essential data for effective oversight. The new template introduces aggregate-level reporting and streamlined requirements for transaction-specific data, reflecting the operational realities of private securitizations.
Geopolitical and Macroeconomic Developments Driving Market Uncertainty. On February 13, ESMA published its first risk monitoring report of 2025, setting out the key risk drivers currently facing EU financial markets. ESMA finds that overall risks in EU securities markets are high, and market participants should be wary of potential market corrections.
ESMA Appoints Birgit Puck as new Chair of the Markets Standing Committee. On February 11, ESMA appointed Birgit Puck, Finanzmarktaufsicht, as a new Chair of the Markets Standing Committee.
ESMA consults on CCP Authorizations, Extensions and Validations. On February 7, ESMA launched two public consultations following the review of the European Market Infrastructure Regulation (“EMIR 3”). ESMA is encouraging stakeholders to share their views on: (i) the conditions for extensions of authorization and the list of required documents and information for applications by central counterparties (“CCPs”) for initial authorizations and extensions, and (ii) the conditions for validations of changes to CCP’s models and parameters and the list of required documents and information for applications for validations of such changes. EMIR 3 introduces several measures to make EU clearing services and EU CCPs more efficient and competitive, notably by streamlining and shortening supervisory procedures for initial authorizations, extensions of authorization and validations of changes to models and parameters.
DPE Regime for Post-Trade Transparency Becomes Operational. On February 3, the public register listing designated publishing entities (“DPEs”) that now bear the reporting obligation for post-trade transparency under MIFIR went live, bringing the DPE regime into full operational effect. The public register can be found here. The post-trade reporting obligation for systematic internalizers (“SIs”) has been replaced by an analogous obligation on investment firms that have chosen to register as DPEs. As a further consequence of the DPE regime launch, ESMA has decided to discontinue the voluntary publication of quarterly SI calculations data early, ahead of the scheduled removal of the obligation on ESMA to perform SI calculations from September 2025. As of February 1, the mandatory SI regime will no longer apply and investment firms will not need to perform the SI test. However, investment firms can continue to opt into the SI regime. ESMA’s press release on these measures can be found here.

New Industry-Led Developments

ISDA Responds to FCA on Improving the UK Transaction Reporting Regime. On February 14, ISDA submitted a response to the UK Financial Conduct Authority’s discussion paper (DP) 24/2 on improving the UK transaction reporting regime. In the response, ISDA indicated its support for the use of the unique product identifier in place of the international securities identification numbering system. ISDA also highlighted its opinion on the importance of aligning to global standards and similar reporting regimes, reducing duplicative reporting and using existing technology and data standards, such as the Common Domain Model and ISDA’s Digital Regulatory Reporting initiative. [NEW]
ISDA and IIF Respond on Counterparty Credit Risk Hedging. On January 31, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the Basel Committee on Banking Supervision’s proposed technical amendment on counterparty credit risk (“CCR”) hedging exposures. In the response, the associations explain that they believe the proposed changes to the treatment of CCR hedges are unnecessary, as the current substitution method is already very conservative and the new calculation would be complex and burdensome.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, and Karin Thrasher.

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus – New York (212.351.3869, alapidus@gibsondunn.com )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

William R. Hallatt , Hong Kong (+852 2214 3836, whallatt@gibsondunn.com )

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki , New York (212.351.4028, mtakagaki@gibsondunn.com )

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@gibsondunn.com)

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

This update provides an overview of key class action-related developments from the fourth quarter of 2024 (October through December).

Table of Contents

Part I summarizes decisions from the Ninth and Fourth Circuits reversing class certification under Rule 23’s commonality and predominance requirements; and
Part II highlights decisions from two courts of appeals analyzing the enforcement of arbitration agreements.

I. The Ninth and Fourth Circuits Reverse Class Certification for Want of Commonality
and Predominance Under Rule 23

Two appellate decisions from this past quarter illustrate the vital role of appellate courts in ensuring compliance with Rule 23’s stringent requirements.

One argument frequently advanced by plaintiffs seeking class certification is that certification is proper because they have alleged that a defendant engaged in a uniform legal violation across the putative class. But the Ninth Circuit’s decision in Small v. Allianz Life Insurance Co., 122 F.4th 1182 (9th Cir. 2024)—a closely watched case involving issues relevant to many pending class actions against life insurers—shows that an asserted uniform legal violation isn’t always enough.

In Small, the district court had certified a class of life-insurance beneficiaries who claimed that their insurer failed to comply with statutory notice requirements before terminating policies for non-payment of premium. The Ninth Circuit reversed. It acknowledged that the question whether the insurer “had a corporate policy to terminate life insurance policies for non-payment of premiums without first complying with” the statutory notice requirements may indeed have been a common question. 122 F.4th at 1198. But it further held that this question would not predominate because class members would still need to show that the insurer’s failure to provide the required notice caused the policies to lapse and thus the policyholders to lose their coverage. Id. at 1198-99. In light of evidence that many policyholders knowingly or intentionally let their policies lapse due to nonpayment, the Ninth Circuit ruled that determining whether the lapse was caused by the insurer’s failure to notify (rather than by a policyholder’s intentional nonpayment) could not be determined on a classwide basis. Id. at 1199-200. (Gibson Dunn filed an amicus brief on behalf of Hancock Life Insurance in support of the insurer.)

Another notable decision from this quarter, Stafford v. Bojangles’ Restaurants, Inc, 123 F.4th 671 (4th Cir. 2024), underscores that class certification is particularly inappropriate where there’s no uniform unlawful conduct in the first place. In this case, shift managers at Bojangles asserted claims under the Fair Labor Standards Act, alleging unpaid off-the-clock work and unauthorized edits to employee time records. Id. at 676-77. The district court certified classes defined as “all persons who worked as a shift manager at Bojangles” in North Carolina and South Carolina, relying “heavily on the fact that 80% of prospective class members worked opening shifts” and were thus subject to Bojangles’ Opening Checklist “policy.” Id. at 677.

The Fourth Circuit held that the district court made two errors. First, the district court granted certification based on “a vague and overly general ‘policy’ by which Bojangles allegedly mandated shift managers’ off-the-clock work and time-record edits,” without actual evidence of across-the-board company policies to that effect. 123 F.4th at 679-80. Because the plaintiffs hadn’t shown uniform conduct on the defendant’s part, the Fourth Circuit ruled they could satisfy neither commonality nor predominance. Id. at 679-80. Second, the district court defined the class too broadly, with “[n]o reference . . . to the type of off-the-clock work class members performed or whether a class member even performed off-the-clock work at all.” Id. at 681. The Fourth Circuit emphasized that “[t]he sheer breadth of the class definitions” can reveal the “underlying flaws with the classes’ commonality, predominance, and typicality.” Id.

II. The Courts of Appeals Continue to Address Issues Relating to Arbitration

Arbitration continues to be an important issue affecting many putative class actions, and two recent decisions from the courts of appeals show the variety of issues that arise when it comes to enforcing arbitration agreements.

In New Heights Farm I, LLC v. Great American Insurance Co., 119 F.4th 455 (6th Cir. 2024), the Sixth Circuit affirmed an order compelling arbitration and held that the parties had validly delegated threshold arbitrability questions to the arbitrator. Although the parties’ contract itself did not include an express delegation clause, the court nonetheless observed that the parties’ contract referred disputes to “arbitration in accordance with the rules of the American Arbitration Association.” Id. at 461. And because the American Arbitration Association’s rules in turn include a rule that the arbitrator may “rule on his or her own jurisdiction,” the court found this delegation rule to be incorporated into the parties’ contract. Id. New Heights represents the latest in a long line of decisions recognizing that incorporation of arbitration rules that themselves give arbitrators the power to resolve threshold disputes will satisfy the “clear and unmistakable” standard for delegation of arbitrability. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 69 n.1 (2010).

And in Young v. Experian Information Solutions, Inc., 119 F.4th 314 (3d Cir. 2024), the Third Circuit clarified the proper standard for discovery when a party moves to compel arbitration. Because the plaintiff’s complaint didn’t mention the arbitration agreement, the district court ruled that the defendant’s motion to compel arbitration should be decided under a summary judgment standard and permitted “discovery on the narrow issue of whether an arbitration agreement exist[ed].” Id. at 317-18. But on appeal, the Third Circuit held that the district court erred in granting discovery on the issue of arbitrability, clarifying that even when a motion to compel arbitration is decided under the summary-judgment standard, “discovery addressing a motion to compel arbitration is unnecessary when no factual dispute exists as to the existence or scope of the arbitration agreement.” Id. at 319-20.

The following Gibson Dunn lawyers contributed to this update: Jessica Pearigen, Cate Harding, Daniel Magalotti, Matt Aidan Getz, Wesley Sze, Lauren Blas, Bradley Hamburger, Kahn Scolnick, and Christopher Chorba.

Gibson Dunn attorneys are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Class Actions, Litigation, or Appellate and Constitutional Law practice groups, or any of the following lawyers:

Theodore J. Boutrous, Jr. – Los Angeles (+1 213.229.7000, tboutrous@gibsondunn.com)

Christopher Chorba – Co-Chair, Class Actions Practice Group, Los Angeles
(+1 213.229.7396, cchorba@gibsondunn.com)

Theane Evangelis – Co-Chair, Litigation Practice Group, Los Angeles
(+1 213.229.7726, tevangelis@gibsondunn.com)

Lauren R. Goldman – Co-Chair, Technology Litigation Practice Group, New York
(+1 212.351.2375, lgoldman@gibsondunn.com)

Kahn A. Scolnick – Co-Chair, Class Actions Practice Group, Los Angeles
(+1 213.229.7656, kscolnick@gibsondunn.com)

Bradley J. Hamburger – Los Angeles (+1 213.229.7658, bhamburger@gibsondunn.com)

Michael Holecek – Los Angeles (+1 213.229.7018, mholecek@gibsondunn.com)

Lauren M. Blas – Los Angeles (+1 213.229.7503, lblas@gibsondunn.com)

On February 18, 2025, the First Circuit handed down a much-anticipated decision on the causation element of False Claims Act (FCA) cases premised on the Anti-Kickback Statute (AKS), as amended by the Affordable Care Act in 2010. See United States v. Regeneron Pharms., Inc., No. 23-2086, slip op. (1st Cir. Feb. 18, 2025).

Summary

Since 2010, the Anti-Kickback Statute has provided that claim for government payment “resulting from” an AKS violation is automatically false or fraudulent for purposes of the FCA. The U.S. Department of Justice historically has interpreted this provision exceptionally broadly, often taking the position that a kickback inherently “taints” every claim submitted after a kickback is payment, regardless of whether the provider would have prescribed or recommended an item or service even without the kickback. That is, DOJ’s view has been that it should not have to prove a claim was actually caused by a kickback at all.

The First Circuit, however, joined the Sixth and Eighth Circuits—and deepened a split with the Third Circuit—in holding that, to prove that a claim “result[s] from” an AKS violation, the government (or a qui tam relator) must prove that the claim would not have been submitted but for the AKS violation. The First Circuit rejected less onerous causation standards advanced by the government and adopted by the Third Circuit—including variations of DOJ’s so-called “taint” theory of AKS-based FCA liability. But the First Circuit’s opinion simultaneously muddied the waters, as it observed that the AKS’s “resulting from” provision is just one “pathway” to FCA liability from an AKS violation, and that FCA plaintiffs could pursue a different “pathway”—not before the Court on appeal—based on alleged materially false certifications of AKS compliance to government health programs.

The Regeneron Decision

Regeneron Pharmaceuticals manufactures, markets, and sells the drug Eylea, a treatment for wet age-related macular degeneration (AMD). The drug is reimbursed under Medicare Part B, which requires patients to pay 20% of the drug’s cost as a co-pay. The government accused Regeneron of violating the AKS by indirectly paying the copayments for Medicare patients who took the drug. According to the government, the price of the drug—more than $1,800 per injection—meant that patients often faced annual out-of-pocket costs exceeding $2,000, which discouraged them from using the drug.

To alleviate this financial burden, Regeneron allegedly donated more than $60 million to the Chronic Disease Fund (CDF), a charitable foundation that provides copayment assistance. The government alleged that these donations comprised kickbacks intended to induce doctors to prescribe Eylea (and patients to maintain their prescriptions), thereby increasing Medicare reimbursement claims. The government argued that, because these payments violated the AKS, any Medicare claim for Eylea prescribed to a patient who received this co-pay assistance should be considered false or fraudulent under the FCA.

In litigation with DOJ, Regeneron argued that its co-pay assistance did not directly cause doctors to prescribe Eylea and that a Medicare claim should only be false under the FCA if the kickback was the but-for cause of the claim. In other words, if a doctor would have prescribed Eylea and submitted a Medicare claim even without the co-pay assistance, then the claim could not have “resulted from” an AKS violation. The district court sided with this argument, granted Regeneron’s motion to dismiss DOJ’s complaint, and then agreed to certify the issue for interlocutory review.

On appeal, the First Circuit focused on the phrase “resulting from” in the text of the AKS, which (as amended in 2010) states that “a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim” under the FCA. 42 U.S.C. § 1320a-7b(g) (emphasis added).

The First Circuit held that the “resulting from” phrase imposes a but-for causation standard. This means that for a claim to be considered false under the FCA due to an AKS violation, the government (or a qui tam relator) must prove that the kickback was the “actual cause” of the claim being submitted. The court relied on Supreme Court precedent (e.g., Burrage v. United States, 571 U.S. 204 (2014) and Paroline v. United States, 572 U.S. 434 (2014)) which generally interpreted similar causation language as requiring proof that the event in question would not have occurred but for the preceding act. The First Circuit found no textual or contextual reasons to deviate from this default causal standard. Notably, the First Circuit rejected the government’s argument that, for example, the legislative history and purpose of the AKS require a broader construction of the phrase “resulting from” (i.e., an interpretation that would allow liability even when the claim would have been submitted regardless of the kickback).

But the First Circuit also indicated that a false-certification theory can provide a separate pathway to proving FCA liability based on alleged kickbacks—and has a different causation standard. Before Congress amended the AKS in 2010, courts recognized that FCA liability could attach to AKS violations under a false-certification theory if compliance with the AKS was material to the government’s decision to pay a claim. On appeal, the government argued that Congress enacted the 2010 amendment to supplement, not replace, false-certification case law. The First Circuit agreed, holding that false certification remains a valid theory of FCA liability even after the amendment. The court explained that theory requires proof that the provider falsely represented compliance with the AKS and that the misrepresentation could have influenced the government’s decision to pay a claim (i.e., was material to the payment), but does not require proof that the AKS violation was a but-for cause of the submission of the claim.

Other Relevant Jurisprudence

In reaching this result, the First Circuit joins the Sixth and Eighth Circuits in holding that “resulting from” requires but-for causation. See United States ex rel. Martin v. Hathaway, 63 F.4th 1043 (6th Cir. 2023); United States ex rel. Cairns v. D.S. Med. LLC, 42 F.4th 828 (8th Cir. 2022). In those cases, the Sixth and Eighth Circuits had held that the government or a relator must show that, but for the AKS violation, the false claim would not have been submitted to a federal healthcare program.

In so holding, those circuits rejected the Third Circuit’s less stringent approach from United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89 (3d Cir. 2018). In Greenfield, the Third Circuit held that an AKS violation can trigger FCA liability even if there is no proof that the kickback directly caused the claim as long as a patient has been exposed to an illegal inducement before a claim is submitted.

Potential Ramifications

Although the First Circuit provided much-needed clarity on the “resulting from” language in the AKS, its analysis of the certification issue may cause the government or relators to attempt an end run around the as-amended AKS and revert to the no-causation “taint theory” of liability. Meanwhile, Supreme Court review of the AKS causation question feels inevitable—there is a circuit split; the Court has taken up an FCA-related case in most terms in recent memory; and the Court has previously agreed to take up cases like Burrage and Paroline. But given the Regeneron court’s apparent invitation to a different “pathway” to AKS-based FCA claims, plaintiffs may feel less need to press the issue in petitions for certiorari.

In the meantime, we expect to see:

Efforts by the defense bar to persuade other circuit courts to side with the First, Sixth, and Eighth Circuits;
Scrutiny at the pleading stage as to whether the government or relators have adequately pleaded a causal connection between alleged AKS violations and false claims;
Litigation in other circuits about whether the certification “pathway” remains open after Congress amended the AKS to link it to the FCA;
Additional arguments by defendants regarding the various factors that contribute to a healthcare provider’s decision-making (e.g., analysis of clinical treatment guidelines, Department of Health and Human Services expert panel recommendations, clinical treatment patterns, and/or medical association guidance, prior efficacious use of a particular therapy, etc.);
Increased use of statistical experts to try to demonstrate (or rebut) but-for causation; and
Arguments focused on DOJ’s historical position that the measure of damages in AKS matters is the full value of the paid claim.

Open questions about the scope of liability in AKS-based FCA cases still abound after Regeneron. The Supreme Court has been clear in recent years that it believes the elements of common law fraud should be read into the FCA—elements that presumably include causation. Thus, it stands to reason that even certification theories require proof of causation—and we expect that defendants will retrench and advance causation-, falsity-, and materiality-focused arguments even under those theories.

Moreover, none of the cases interpreting the AKS’s causation requirement have taken head-on the question of what the government’s damages should be in a civil FCA case based on alleged AKS violations. The FCA imposes liability only on those damages “sustained by” the government. While the government’s position in AKS cases is that its damages are 100% of the claim amount—even where the item or service claimed for reimbursement was medically necessary and actually provided—that position does not square with common law principles of fraud damages or federal courts’ analysis of damages in other types of FCA cases. Regardless of how the AKS causation question is ultimately answered in the coming months and years, we may well see a new wave of cases focused on this damages question.

The following Gibson Dunn lawyers prepared this update: Jonathan Phillips, John Partridge, Jake Shields, and John Turquet Bravard.

Gibson Dunn lawyers regularly counsel clients on the False Claims Act issues and are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s False Claims Act/Qui Tam Defense practice group:

Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202.887.3546, jphillips@gibsondunn.com)
Stuart F. Delery (+1 202.955.8515,sdelery@gibsondunn.com)
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)
Jake M. Shields (+1 202.955.8201, jmshields@gibsondunn.com)
Gustav W. Eyler (+1 202.955.8610, geyler@gibsondunn.com)
Lindsay M. Paulin (+1 202.887.3701, lpaulin@gibsondunn.com)
Geoffrey M. Sigler (+1 202.887.3752, gsigler@gibsondunn.com)
Joseph D. West (+1 202.955.8658, jwest@gibsondunn.com)

San Francisco
Winston Y. Chan – Co-Chair (+1 415.393.8362, wchan@gibsondunn.com)
Charles J. Stevens (+1 415.393.8391, cstevens@gibsondunn.com)

New York
Reed Brodsky (+1 212.351.5334, rbrodsky@gibsondunn.com)
Mylan Denerstein (+1 212.351.3850, mdenerstein@gibsondunn.com)

Denver
John D.W. Partridge (+1 303.298.5931, jpartridge@gibsondunn.com)
Ryan T. Bergsieker (+1 303.298.5774, rbergsieker@gibsondunn.com)
Monica K. Loseman (+1 303.298.5784, mloseman@gibsondunn.com)

Dallas
Andrew LeGrand (+1 214.698.3405, alegrand@gibsondunn.com)

Los Angeles
James L. Zelenay Jr. (+1 213.229.7449, jzelenay@gibsondunn.com)
Nicola T. Hanna (+1 213.229.7269, nhanna@gibsondunn.com)
Jeremy S. Smith (+1 213.229.7973, jssmith@gibsondunn.com)
Deborah L. Stein (+1 213.229.7164, dstein@gibsondunn.com)
Dhananjay S. Manthripragada (+1 213.229.7366, dmanthripragada@gibsondunn.com)

Palo Alto
Benjamin Wagner (+1 650.849.5395, bwagner@gibsondunn.com)

Gibson Dunn’s U.S. Supreme Court Round-Up provides summaries of cases decided during the October 2024 Term and highlights other key developments on the Court’s docket. During the October 2023 Term, the Court heard 61 oral arguments and released 59 opinions. For the October 2024 Term, the Court has granted 71 petitions for a total of 62 arguments. To date, it has heard 34 arguments in 36 cases and disposed of seven cases, releasing four opinions in five cases and dismissing two cases as improvidently granted.

Spearheaded by Miguel Estrada, the U.S. Supreme Court Round-Up keeps clients apprised of the Court’s most recent actions. The Round-Up previews cases scheduled for argument, tracks the actions of the Office of the Solicitor General, and recaps recent opinions. The Round-Up provides a concise, substantive analysis of the Court’s actions. Its easy-to-use format allows the reader to identify what is on the Court’s docket at any given time, and to see what issues the Court will be taking up next. The Round-Up is the ideal resource for busy practitioners seeking an in-depth, timely, and objective report on the Court’s actions.

View the Round-Up Here

Gibson Dunn has a longstanding, high-profile presence before the Supreme Court of the United States, appearing numerous times in the past decade in a variety of cases. Twelve current Gibson Dunn lawyers have argued before the Supreme Court, and during the Court’s ten most recent Terms, the firm has argued a total of 27 cases, including closely watched cases with far-reaching significance in the areas of intellectual property, securities, separation of powers, and federalism. Moreover, although the grant rate for petitions for certiorari is below 1%, Gibson Dunn’s petitions have captured the Court’s attention: Gibson Dunn has persuaded the Court to grant over 40 petitions for certiorari since 2006.

* * * *

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the U.S. Supreme Court. Please feel free to contact the following attorneys in the firm’s Washington, D.C. office, or any member of the Appellate and Constitutional Law Practice Group.

Miguel A. Estrada (+1 202.955.8257, mestrada@gibsondunn.com)

Jessica L. Wagner (+1 202.955.8652, jwagner@gibsondunn.com)

Lavi Ben Dor (+1 202.777.9331, lbendor@gibsondunn.com)

Christian Talley (+1 202.777.9537, ctalley@gibsondunn.com)

The developments follow mounting concerns in Delaware about “DExit”—the actual and potential departures of Delaware-incorporated corporations from the State for jurisdictions perceived to be more friendly to certain types of corporations.

On February 17, 2025, amendments were introduced in the Delaware legislature intended to both lower Delaware courts’ scrutiny of controlling stockholder transactions and moderate the scope of investors’ access to company books and records. Senate Bill 21 (SB21) proposes amendments to Sections 144 and 220 of the Delaware General Corporation Law (DGCL). The bill’s lead sponsor has stated publicly that the amendments would not apply retroactively.

These developments follow mounting concerns in Delaware about “DExit”—the actual and potential departures of Delaware-incorporated corporations from the State for jurisdictions perceived to be more friendly to certain types of corporations.[1]

Proposed Amendments to Section 144

SB21 proposes amendments to Section 144 of the DGCL that, if adopted, would significantly change how controlling stockholder transactions are reviewed by the court.[2] The amendments also would strengthen the presumption that a public company director is disinterested and independent.

Controller Transactions Other than Going Private Transactions. SB21 would legislatively reverse the Delaware Supreme Court’s recent decision in In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024). As Gibson Dunn discussed in its April 8, 2024 Client Alert, Match reaffirmed that entire fairness is the default standard of review for corporate acts or transactions involving a controlling stockholder unless procedures are in place satisfying the requirements of Kahn v. M&F Worldwide Corp.,88 A.3d 635, 645 (Del. 2014) (“MFW”), and related case law; Match also held that all members of a special committee must be disinterested and independent to shift the burden or standard of review at the pleading stage. SB21 also lowers the requirements of MFW.

SB21 proposes the following changes to the current common law, as articulated in Match, MFW, and related cases:

Current Common Law	Proposed Amendments
Entire fairness applies to controller acts or transactions approved by either a special committee of independent and disinterested directors or disinterested stockholders, unless the below elements are satisfied.	The business judgment rule applies to controller acts or transactions (other than going private transactions) approved by either a special committee of independent and disinterested directors or disinterested stockholders.
An act or transaction must be conditioned on special committee and disinterested stockholder approval from inception, i.e. before substantive economic negotiations begin.	For disinterested stockholder approval to be effective, the act or transaction must be conditioned on such approval at or prior to the time it is submitted to stockholders.
All members of the special committee are disinterested and independent.	A majority of the members of the special committee are disinterested and independent.
The special committee is empowered to select and retain its own advisors.	The special committee need not be empowered to select and retain its own advisors.
The special committee is empowered to reject the proposed act or transaction.	The special committee is empowered to reject the proposed act or transaction (no change).
The special committee satisfies its duty of care in negotiating the act or transaction.	The special committee approves the act or transaction in good faith.
The act or transaction must be approved by a majority of outstanding voting power of disinterested stockholders.	The act or transaction must be approved by a majority of votes cast by disinterested stockholders.
Disinterested stockholder approval must be uncoerced and fully informed.	Disinterested stockholder approval must be uncoerced and fully informed (no change).

Going Private Transactions. Under the amendments, for the business judgment rule to apply to going private transactions at the pleading stage, such transactions would require informed, uncoerced approval by both a special committee and disinterested stockholders, subject to the other changes to MFW discussed above.
- For public companies, SB21 would define “going private transaction” as a Rule 13e-3 transaction (as defined in 17 CFR § 240.13e-3(a)(3)).
- Otherwise, a “going private transaction” would be one in which all shares of capital stock held by disinterested stockholders are cancelled or acquired (other than those of the controlling stockholder).
Definition of Controlling Stockholder. The amendments propose to define who is a controlling stockholder to address uncertainty in Delaware law regarding who may be a “controlling stockholder.”
- A stockholder with majority voting power is and would be controlling.
- Otherwise, a stockholder with less than majority voting power would be controlling only if it has both (i) power functionally equivalent to majority voting power by virtue of one-third in voting power of the outstanding stock of the corporation entitled to vote (A) generally in the election of directors or (B) for the election of directors who have a majority in voting power of the votes of all directors on the board of directors, and (ii) power to exercise managerial authority over the business and affairs of the corporation.
Exculpation for Controlling Stockholders. The amendments would exculpate controlling stockholders and members of a control group from liability for duty of care violations. The exculpation would automatically apply without any option to opt out.
Disinterestedness and Independence of Public Company Directors. The amendments would define what it means to be “disinterested” for purposes of “disinterested” director or stockholder status. Among other things, for publicly listed companies, a director would be presumed to be a disinterested director with respect to an act or transaction to which he or she is not a party if the board determined that such director is an independent director or satisfies the relevant criteria for determining director independence under any applicable stock exchange rule. This presumption would be more difficult to rebut at the pleading stage, because rebuttal requires “substantial and particularized facts” of a “material interest” or a “material relationship,” as defined in the proposed amendments. Historically, Delaware took a facts-and-circumstances approach to director conflicts (for Delaware law purposes), which introduced uncertainty around which directors would qualify as disinterested and independent under what circumstances.
- Nomination or Election by Interested Person. Under the amendments, an interested person’s nomination or election of a director to the board would not, by itself, evidence that such director, if not a party to an act or transaction, is not a disinterested director. This means that directors designated to a board by a stockholder, for instance, would not automatically be disqualified from being considered independent for Delaware law purposes.

Proposed Amendments to Section 220

Following judicial expansion of stockholder inspection rights in recent years, corporations have increasingly been subjected to invasive demands for an ever-widening range of corporate records, including director, officer, or management communications that in some cases courts have permitted for inspection. SB21 proposes amendments to Section 220 of the DGCL that would narrow the scope of books and records available to stockholders and increase the burden on stockholders for obtaining such records.

Scope of Books and Records. The amendments would limit the definition of “books and records” to the certificate, bylaws, minutes and signed consents of stockholder meetings, formal communications to stockholders as a whole, minutes and resolutions of the board and committees, materials provided to the board and committees, annual financial statements, Section 122(18) (i.e., Moelis) agreements, and director independence questionnaires. Director, officer, and manager communications like emails and text messages are notably absent from this definition.
Relevant Period. The amendments would limit the period of time from which stockholders may inspect books and records to those within three years of the date of the demand.
Demand Requirement. Under the amendments, to obtain inspection, a stockholder demand would be required to describe its purpose and the records it seeks with “reasonable particularity.” At least for the purpose of investigating suspected mismanagement or wrongdoing, this would appear to heighten, if not outright replace, the low “credible basis” standard.
Protections. The amendments would codify the court’s current practice of permitting a company to impose reasonable restrictions on confidentiality, use, and distribution of books and records, and deeming produced materials to be incorporated by reference into any complaint. The latter is important because otherwise stockholders can mislead the court by cherry-picking facts from documents in a complaint without permitting the court to consider the whole document. A company also would be permitted to redact portions of documents that are not specifically related to the stockholder’s purpose.
Court’s Discretion to Expand “Books and Records.” The amendments would prohibit the court from compelling production of materials outside the defined term—e.g., director, officer, or management communications—with a few narrow exceptions. If the amendments are adopted and a company does not have minutes and consents of stockholder meetings, minutes and resolutions of the board and committees, or annual financial statements (and, for public companies, director questionnaires), then the court would be permitted to order production of additional records that are the “functional equivalent” of these materials and “only to the extent necessary and essential” to fulfill a proper purpose.
- Notably, under the amendments, in the event board or committee materials do not exist or are unavailable, the court would not be permitted to order production of additional materials.

More to Come

The legislature published a Press Release about SB21 and Senate Concurrent Resolution 17 (SCR17). SCR17 also directs the Corporation Law Council to report to the governor by March 31, 2025, with recommendations for legislative action that might help balance the fee awards so that they are not overly excessive. These proposed amendments will undoubtedly be subject to public debate in the coming weeks, as some academics and plaintiffs’ firms are objecting to not only the merits of the amendments, but also the process and timing of their consideration by the CLC and Delaware legislature.

Gibson Dunn will continue monitoring these developments as they progress.

[1] For example, following Tesla’s reincorporation in Texas, TradeDesk reincorporated in Nevada, Dropbox filed notice that it is in the process of reincorporating in Nevada, and other controller-led companies announced they are considering reincorporation.

[2] SB21 also would provide a safe harbor for an act or transaction for which a majority of directors are conflicted—for example, decisions regarding director compensation—if such act or transaction is approved by a majority of the disinterested, independent directors or approved or ratified by disinterested stockholders, in each case on a fully informed basis.

The following Gibson Dunn lawyers prepared this update: Ari Lanin, Monica K. Loseman, Brian M. Lutz, Mary Beth Maloney, Julia Lapitskaya, Colin B. Davis, Jonathan D. Fortney, and Mark H. Mixon, Jr.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following Securities Litigation, Mergers and Acquisitions, Private Equity, or Securities Regulation and Corporate Governance practice group leaders and members:

Securities Litigation:
Colin B. Davis – Orange County (+1 949.451.3993, cdavis@gibsondunn.com)
Jonathan D. Fortney – New York (+1 212.351.2386, jfortney@gibsondunn.com)
Monica K. Loseman – Denver (+1 303.298.5784, mloseman@gibsondunn.com)
Brian M. Lutz – San Francisco (+1 415.393.8379, blutz@gibsondunn.com)
Mary Beth Maloney – New York (+1 212.351.2315, mmaloney@gibsondunn.com)
Mark H. Mixon, Jr. – New York (+1 212.351.2394, mmixon@gibsondunn.com)
Craig Varnen – Los Angeles (+1 213.229.7922, cvarnen@gibsondunn.com)

Mergers and Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)
George Sampas – New York (+1 212.351.6300, gsampas@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Wim De Vlieger – London (+44 20 7071 4279, wdevlieger@gibsondunn.com)
Federico Fruhbeck Jr. – London (+44 20 7071 4230, ffruhbeck@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

Securities Regulation and Corporate Governance:
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)
James J. Moloney – Orange County (+1 949.451.4343, jmoloney@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Please join us for a comprehensive guide to preparing Private Equity sponsor-backed portfolio companies for an Initial Public Offering. We cover key considerations for IPO planning throughout the entire life cycle of a portfolio company, from the initial acquisition by the sponsor to the IPO process and life with a public portfolio company.

This presentation is ideal for private equity sponsors, in-house lawyers and executives involved in preparing sponsor-backed portfolio companies for the IPO process. We provide practical guidance on navigating the legal and other complexities of going public and ensuring long-term compliance and success in the public markets.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General Category.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

PANELISTS:

Michelle M. Gourley is a Partner in the Orange County office of Gibson, Dunn & Crutcher and is a member of the firm’s Mergers and Acquisitions and Private Equity Practice Groups.

Ms. Gourley is a corporate transactional lawyer whose experience includes advising both strategic companies and private equity clients (including their portfolio companies) in connection with public and private merger transactions, stock and asset sales, joint ventures, strategic partnerships, and other complex corporate transactions. Ms. Gourley works with clients across a wide range of industries, and has extensive experience working with life sciences companies (pharma and medical device) and media, technology and entertainment companies.

Julia Lapitskaya is a partner in the New York office of Gibson, Dunn & Crutcher. She is a member of the firm’s Securities Regulation and Corporate Governance and its ESG (Environmental, Social & Governance) practices. Ms. Lapitskaya’s practice focuses on SEC, NYSE/Nasdaq and Securities Exchange Act of 1934 compliance, securities and corporate governance disclosure issues, corporate governance best practices, state corporate laws, the Dodd-Frank Act of 2010, SEC regulations, shareholder activism matters, ESG and sustainability matters and executive compensation disclosure issues, including as part of initial public offerings and spin-off transactions.

Peter W. Wardle is a partner in the Los Angeles office of Gibson, Dunn & Crutcher. He is a member of the firm’s Corporate Transactions Department and co-chair of its Capital Markets Practice Group, and previously served as partner in charge of the Los Angeles office.

Peter’s practice includes representation of issuers and underwriters in equity and debt offerings, including IPOs and secondary public offerings, and representation of both public and private companies in mergers and acquisitions, including private equity, cross border, leveraged buy-out and going private transactions. He has led the execution of IPOs across industries on both the issuer side and underwriter side, including some of the largest transactions in the year they were completed. He also advises clients on a wide variety of general corporate and securities law matters, including corporate governance and disclosure issues.

Jonathan Whalen is a partner in the Dallas office of Gibson, Dunn & Crutcher LLP. He is a member of the firm’s Mergers and Acquisitions, Capital Markets, Energy and Infrastructure, and Securities Regulation and Corporate Governance practice groups. Mr. Whalen also serves on the Gibson Dunn Hiring Committee.

Mr. Whalen’s practice focuses on a wide range of corporate and securities transactions, including mergers and acquisitions, private equity investments, and public and private capital markets transactions. Chambers USA named Mr. Whalen an Up and Coming Corporate/M&A attorney in their 2022 publication. In 2018, D CEO magazine and the Association of Corporate Growth named Mr. Whalen a finalist for the 2018 Dallas Dealmaker of the Year.