Texas has adopted important amendments to its corporate statute. This reference guide summarizes the key changes and what they mean for directors and officers.
Texas has recently taken meaningful steps to further enhance its appeal as an attractive home for corporations and their operations. Among the most significant recent initiatives were a set of amendments to the Texas Business Organizations Code (TBOC) enacted during the 89th Texas legislature, whose regular session concluded on June 2, 2025. This reference guide examines the four bills passed by the legislature that resulted in the most significant amendments to the TBOC from a corporate governance perspective – Senate Bill 29, Senate Bill 1057, Senate Bill 2411 and Senate Bill 2337 (together, the “2025 TBOC Amendments”). The 2025 TBOC Amendments are aimed at limiting litigation risks and potential liabilities for directors and officers, improving the regulatory framework governing interactions between proxy advisory firms and shareholders, and providing additional certainty in corporate formalities, while balancing the interests of boards of directors, management and shareholders.
This reference guide provides (1) a summary of the four principal impacts on directors and officers of the 2025 TBOC Amendments, (2) an overview of the new proxy advisor firm regulatory law, and (3) a summary chart of the key statutory provisions introduced by the 2025 TBOC Amendments.
It is important to note that certain provisions of the amended TBOC automatically apply and certain other provisions require action by the corporation to opt in. As such, we have provided an application guide in the summary chart at the end of this reference guide.
In addition, it is important to note that several provisions do not go into effect until September 1, 2025. An asterisk (*) denotes that a provision of the amended TBOC takes effect on
September 1, 2025.
I. FOUR KEY IMPLICATIONS FOR DIRECTORS AND OFFICERS
1. Enhanced Protections for Directors and Officers
The 2025 TBOC Amendments provide the following enhanced protections for directors and officers of a Texas corporation:
- Codification of the Business-Judgment Rule (New TBOC Section 21.419): Directors and officers of a Texas corporation that (a) is publicly traded or (b) has opted into new TBOC Section 21.419 (the “BJR Statute”) in its certificate of formation or bylaws are presumed to act (i) in good faith, (ii) on an informed basis, (iii) in furtherance of the interests of the corporation, and (iv) in obedience to applicable law and the corporation’s governing documents. A plaintiff bears the burden of rebutting these presumptions, and must plead with particularity that the alleged breach by the director or officer constitutes fraud, intentional misconduct, an ultra vires act, or a knowing violation of law. This protection is in addition to any existing statutory or common law defenses.
- Protection for Conflicts of Interest (Amended TBOC Section 21.418): The 2025 TBOC Amendments provide additional protections for certain activities involving conflicts of interest. Under amended TBOC Section 21.418(f), directors and officers of a corporation that (a) is publicly traded or (b) opts into the BJR Statute are shielded from any cause of action brought by the corporation or shareholders for a breach of duty with respect to the making, authorizing or performing of a contract or transaction because the director or officer had an interest in the transaction unless the cause of action is permitted by the BJR Statute; meaning the act or omission was a breach of the person’s duties and the breach involved fraud, intentional misconduct, ultra vires acts, or knowing violations of law. This new provision is complementary to the statutory protection already provided under Section 21.418(b) of the TBOC for transactions involving conflicts of interests that were approved by an independent committee, by shareholders, or conducted on fair terms, in accordance with the requirements of the statute.
- Expanded Exculpation (Amended TBOC Section 7.001):* The 2025 TBOC Amendments permit a corporation to exculpate officers from liability for money damages for acts or omissions taken in their capacity as officers to the same extent already permitted for directors. To adopt this protection for its officers, the corporation must make an affirmative election in its certificate of formation to provide for exculpation. Exculpation cannot be provided for breaches of the duty of loyalty, intentional misconduct or a knowing violation of applicable law, transactions from which the officer received an improper benefit, or statutory violations.
- Court Opinions on Director Independence (Amended TBOC Sections 21.416 and 4161): A board of a Texas corporation that (a) is publicly traded or (b) opts into the BJR Statute may petition the Texas Business Court (or other district court with proper jurisdiction if not a Business Court) for a binding determination on the independence of the directors on a committee formed to review and approve transactions involving directors, officers or controlling shareholders. The corporation must notify shareholders that it has filed the petition (e.g., by filing a Form 8-K with the SEC). The court may not hold the preliminary hearing until at least 10 days after the date notice is given. Following expedited proceedings to determine appropriate legal counsel to represent the corporation and its shareholders (excluding the controlling shareholder), the court will conduct an evidentiary hearing and render a binding determination regarding the independence of the directors on the committee. The finding of the court regarding the committee members’ independence is “dispositive” absent facts not presented to the court.
- Texas Law Governs, No Obligation to Follow Other States’ Practices (New TBOC Section 1.057): New Section 1.057 of the TBOC affirms that directors and officers of a Texas corporation may, but are not required to, consider the laws, judicial decisions, or business practices of other states in exercising their powers. The statute further clarifies that a failure to consider or conform to such out-of-state authorities does not constitute or imply a breach of the TBOC or any duty under Texas law. The statute also provides that the provisions of the TBOC may not be supplanted, contravened, or modified by the laws or judicial decisions of another state. This provision underscores Texas’ intent to establish and preserve a distinct and self-governing body of corporate law, independent of other jurisdictions.
2. Limitations on Litigation-Related Matters
The 2025 TBOC Amendments create several new limitations on certain litigation-related matters involving a Texas corporation:
- Minimum Share Ownership Requirements for Derivative Claims (Amended TBOC Section 21.552): A Texas corporation that (a) is publicly traded or (b) has at least 500 shareholders and has elected to opt into the BJR Statute may impose a requirement that shareholders must own up to 3% of the corporation’s outstanding shares before they can initiate a derivative claim. This ownership threshold may be set forth in the certificate of formation or the bylaws.
- Waiver of Jury Trial (Amended TBOC Section 2.116): A Texas corporation may include in its certificate of formation or bylaws a waiver of the right to a jury trial for any “internal entity claims.” Internal entity claims include, for example, derivative claims alleging the directors of a corporation breached their fiduciary duties. Such waivers are enforceable even if not individually signed by owners, officers, or governing persons. A person is considered to have knowingly waived the right to a jury trial if they voted for or ratified the document containing the waiver, acquired stock at, or continued to hold stock in a corporation with a class of its equity securities listed on a national securities exchange after, a time in which the waiver was included in the certificate of formation or bylaws.
- Elimination of Plaintiff’s Attorney’s Fees for Disclosure Suits (Amended TBOC Section 21.561): Under Texas law, upon conclusion of a derivative proceeding, the court may order that a Texas corporation pay the plaintiff’s attorney’s fees if the derivative action resulted in a “substantial benefit to the corporation.” Under the amendments, a substantial benefit to a corporation does not include additional or amended disclosures made to shareholders (e.g., supplements to a proxy statement for a merger), regardless of materiality.
- Limitations on Shareholder Inspection Rights (Amended Section 21.218): The amendments clarify and, in some respects, limit, the ability of shareholders to inspect corporate records of a Texas corporation. Emails, text messages and social media communications are excluded from corporate records to which shareholders can access under the statute’s provisions, unless those records effectuate an action by the corporation. Furthermore, a Texas corporation that (a) is publicly traded or (b) opts in to the BJR Statute may deny inspection demands from shareholders with ongoing or expected litigation involving the corporation or derivative proceedings involving the shareholders or its affiliates. These changes do not impair the shareholders’ right to obtain discovery of records from the corporation in an active or pending lawsuit.
3. Limitations on Shareholder Proposals (New TBOC Section 21.373)*
Under a new provision, “nationally listed corporations” may elect to adopt limitations on shareholder proposals. A “nationally listed corporation” is defined as a Texas corporation (a) with equity securities registered under Section 12(b) of the Securities Exchange Act of 1934, (b) that is listed on a national securities exchange, and (c) that has either (i) a principal office in Texas or (ii) a listing on a Texas-headquartered stock exchange approved by the Texas Securities Commissioner. Under Texas case law, a corporation’s “principal office” is where its officers direct, control, and coordinate activities.
If a corporation opts in to this provision, then, subject to the corporation’s governing documents, a shareholder or group seeking to submit a proposal must meet the following heightened requirements:
- beneficially own at least $1 million in shares or 3% of the company’s voting shares;
- hold such shares for at least six months prior to the shareholder meeting;
- continue holding such shares through the duration of the meeting; and
- solicit holders representing at least 67% of the voting power of shares entitled to vote.
These heightened requirements apply to proposals on any matter to be submitted to shareholders for approval at a meeting of shareholders, including proposals submitted under Exchange Act Rule 14a-8 and floor proposals under advance notice bylaws, other than director nominations and procedural resolutions that are “ancillary to the conduct of the meeting.”
A Texas corporation may implement these limitations in its certificate of formation or bylaws. Although the new provision does not require shareholder approval for such an amendment, it requires that any proxy statement issued before the amendment is adopted include a description of the amendment. Once adopted, all proxy statements must include instructions regarding how shareholders may submit proposals and contact other shareholders to satisfy ownership thresholds.
4. Technical Transaction Execution Improvements for Approval of Mergers, Major Transactions and Related Actions (Amended TBOC Sections 3.106, 10.002, 10.004 and 10.104)*
The 2025 TBOC Amendments streamline the approval and administration of major business transactions, as summarized below:
- authorizes the board of directors to approve corporate documents, including plans of merger, in final or “substantially final” form;
- clarifies that disclosure letters, schedules, and similar documents delivered in connection with a plan of merger are not deemed part of a plan of merger unless expressly included, but still have the effect provided in the plan of merger;
- allows plans of merger to designate representatives to act on behalf of owners or members with exclusive authority to enforce or settle post-closing rights, with such designations becoming irrevocable upon plan approval; and
- allows plans of conversion to authorize additional post-conversion actions without further approvals beyond the plan’s adoption.
II. PROXY ADVISOR DISCLOSURE REQUIREMENTS (TBOC New Chapter 6A)*
The 2025 TBOC Amendments add new Chapter 6A, titled “Proxy Advisory Services,” which will require proxy advisory firms to make new public disclosures when advising on votes involving certain companies with connections to Texas. Chapter 6A applies to any “proxy advisor,” which is defined as a person who, for compensation, provides a proxy advisory service to shareholders of a company or to other persons with authority to vote on behalf of shareholders of a company. For this purpose, a “company” includes any publicly traded corporation that (i) is incorporated in Texas, (ii) has its principal place of business in Texas, or (iii) is incorporated in another state and has made a proposal to redomesticate to Texas. “Proxy advisory services” are broadly defined and include, among other things, advice or recommendations on how to vote on proposals, proxy statement research or analysis, ratings or research regarding corporate governance, and development of voting recommendations or policies. The scope of proposals covered by the law includes all proposals that are included in the company’s proxy statement, whether made by the company or by shareholders, including director elections and executive compensation.
Disclosure obligations are triggered when a proxy advisory firm provides advice that:
- is based in whole or in part on non-financial factors like ESG, DEI, sustainability, or social credit scores;
- recommends a vote against the board’s position on shareholder proposals without a detailed financial analysis;
- prioritizes non-financial goals over the financial interests of shareholders; and
- recommends voting against a company-backed director nominee, unless the firm explicitly confirms it is based only on financial interests.
When these conditions apply, the proxy advisory firm must:
- notify each client receiving the conflicting advice and the company that is the subject of the proposal;
- disclose the reasoning behind each recommendation that is not solely based on shareholders’ financial interests, including “sacrificing investment returns or undertaking additional investment risk to promote one or more nonfinancial factors;” and
- include a clear, publicly accessible statement on its website disclosing that its services include advice that is not based solely on the financial interests of shareholders.
“Materially Different” advice triggers additional disclosures. If a firm gives conflicting advice—such as (a) telling one client to vote for a proposal and another to vote against the same proposal or (b) advising a vote for or against a proposal in opposition to the recommendation of the company’s management when the client did not expressly request advice for a non-financial purpose, the advisor must, in addition to complying with the requirements above:
- disclose that conflict to all clients, the company involved, and the Attorney General; and
- clearly identify which advice is based solely on financial interests and which is not.
Chapter 6A provides that a violation of these new provisions would be a deceptive trade practice under the Texas Deceptive Trade Practices-Consumer Protection Act, which allows for broad-sweeping private and public rights of action. The statute also provides that the recipient of the proxy advisory services, the company subject to the proxy proposal, and any shareholder of the subject company can bring actions seeking injunctive relief or a declaratory judgment against the proxy advisor. The plaintiff is then required to give notice to the Attorney General, who may intervene in the action.
III. 2025 TBOC AMENDMENTS: SUMMARY OF KEY CHANGES
PROVISION |
KEY CHANGES |
APPLICATION / SCOPE |
Senate Bill 29 (Amendments Effective May 14, 2025) |
||
§ 21.419 – Business Judgment Rule (BJR)
|
Codifies BJR: acts of directors/officers are presumed (i) in good faith, (ii) informed, (iii) in the corporation’s best interests, and (iv) lawful. Rebuttal requires proof of (a) breach of duty and (b) fraud, intentional misconduct, ultra vires acts, or knowing violations of law. Does not limit monetary liability-limiting provisions in governing documents. |
Automatically applies to any publicly traded Texas corporation; a non-publicly traded Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by this section. Applies in addition to any presumption under common law or the TBOC. |
§ 21.418(f) – Related Party Transaction Approval
|
Shields directors/officers from shareholder breach of duty claims regarding interested transactions, unless the cause of action is permitted under § 21.419. |
Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute. Does not shield controlling stockholders. |
§§ 21.416 & 21.4161 – Committees and Related Party Transactions
|
Allows Texas corporations to petition Texas Business Court (or in certain cases a district court) to determine if committee members reviewing related party transactions are “independent and disinterested.” The court’s determination is binding unless new facts arise. Requires notice of the petition to shareholders. |
Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute. |
§ 21.552 – Limitations on Derivative Actions
|
Permits Texas corporations to impose a minimum ownership threshold (up to 3% of outstanding shares) to bring derivative actions. Must be in certificate of formation or bylaws. |
Automatically applies to any publicly traded Texas corporation; any other Texas corporation with at least 500 shareholders may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute. |
§§ 2.115 & 2.116 – Jury Trial Waivers and Forum Selection
|
May (i) include waivers of jury trial for internal entity claims in certificate of formation or bylaws; and (ii) select an exclusive Texas forum and venue for internal entity claims. |
A Texas corporation may Opt In by including such waiver in its certificate of formation or bylaws. Includes derivative actions. |
§ 21.218 – Inspection Rights
|
Publicly traded Texas corporations and Texas corporations that opt in to § 21.419 may deny inspection to shareholders involved in active/pending derivative proceedings or civil lawsuits. Excludes emails, texts, and social media from all corporate records subject to inspection rights unless they effectuate corporate action. Discovery rights remain intact. |
Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute. |
Senate Bill 1057 (Amendments Effective September 1, 2025) |
||
§ 21.373 – Requirements for Shareholder Proposals
|
To submit a proposal, a shareholder/group must hold $1 million in market value or 3% of voting shares as of the date proposal is submitted, must have held the shares for at least six months and through the shareholder meeting, and must solicit at least 67% of voting power with respect to the proposal. |
A “nationally listed corporation” may Opt In by affirmatively electing to include such requirements in its certificate of formation or bylaws and disclosed in proxy, together with certain instructional information. No shareholder approval required (unless added as an amendment to the certificate of formation). |
Senate Bill 2411 (Amendments Effective September 1, 2025) |
||
§ 7.001 – Officer Exculpation
|
Permits exculpation of officers for monetary damages to same extent as statutorily permitted for directors. Exclusions: breaches of loyalty, intentional misconduct, improper benefit, statutory violations. |
A Texas corporation may Opt In by including such provision in its certificate of formation. |
§§ 3.106, 10.002, 10.004, 10.104 – Approval of Forms, Plan of Merger, and Additional Administrative Changes
|
Authorizes approval of corporate documents (e.g., plan of merger) in final or substantially final form. Disclosure schedules are not part of the plan unless expressly included. Permits irrevocable appointment of representatives to enforce post-transaction rights. |
Applies Automatically. |
§ 1.057 – Texas Law Controls |
Establishes that the TBOC’s plain meaning governs; the TBOC cannot be supplemented, contravened or modified by the case law or statutes from other states. Directors and officers of a Texas corporation may, but are not required to, consider the laws and practices of other states in exercising their powers. A failure to consider or conform to such out-of-state authorities does not constitute or imply a breach of the TBOC or any duty under Texas law. |
Applies Automatically. |
§ 21.561(c)– Excluding Attorney Fee Awards for Enhanced Disclosure |
Prohibits the recovery of attorneys’ fees for “disclosure only” settlements in a derivative proceeding, regardless of materiality. Under Section 21.561(b), a shareholder plaintiff may not recover attorneys’ fees unless the court finds the proceeding has resulted in a substantial benefit to the corporation. New Section 21.561(c) provides that a substantial benefit does not include “additional or amended disclosures made to shareholders, regardless of materiality.” |
Applies Automatically. |
Senate Bill 2337 (Amendments Effective September 1, 2025) |
||
(New Chapter) 6A.001, 6A.201-202 – Proxy Advisory Firm Regulation
|
Requires proxy advisors to provide certain disclosures to shareholders and the company if the proxy advisor makes recommendation or provides voting advice, where the advice/recommendation is based on non-financial factors or where the proxy advisor provides conflicting advice/recommendations to clients. |
Applies Automatically to any publicly traded entity that (i) is organized or created in Texas, (ii) has its principal place of business in Texas or (iii) has made a proposal in its proxy statement to become a Texas entity. |
Gibson Dunn’s Texas lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Regulation & Corporate Governance practice group, or the authors:
Hillary H. Holmes – Houston (+1 346.718.6602, hholmes@gibsondunn.com)
Gerry Spedale – Houston (+1 346.718.6888, gspedale@gibsondunn.com)
Jonathan Whalen – Dallas (+1 214.698.3196, jwhalen@gibsondunn.com)
Patrick Cowherd – Houston (+1 346.718.6607, pcowherd@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
This update summarizes significant amendments made to the Internal Revenue Code by the Act that, among other changes, extend certain material tax provisions enacted in the Tax Cuts and Jobs Act of 2017 and limit provisions enacted in the Inflation Reduction Act of 2022.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (the OBBBA or the Act),[1] which enacts sweeping changes to numerous areas of U.S. federal income tax law. The text of the Act can be found here.
This alert summarizes certain significant amendments made to the Internal Revenue Code by the OBBBA that, among other changes, extend and modify certain material tax provisions enacted in the Tax Cuts and Jobs Act of 2017 (the TCJA) and introduce new limitations on certain energy-related tax incentives enacted in the Inflation Reduction Act of 2022 (the IRA).[2]
GENERAL BUSINESS TAX PROVISIONS
1. Full Expensing of Eligible Property (Section 168(k))
The OBBBA permanently reinstates elective expensing (i.e., 100-percent bonus depreciation) for eligible business property acquired after January 19, 2025. Full expensing had been added by the TCJA, subject to a phase down that started in 2023 and expiration after 2026.[3]
2. Full Expensing of Domestic Research and Experimental Expenditures (Section 174A)
The Act also permanently reinstates elective expensing for qualifying domestic research and experimental expenditures with respect to amounts paid or incurred after December 31, 2024.
The TCJA had required any such expenditures to be capitalized and amortized over a five-year period for taxable years beginning after December 31, 2021. For certain small businesses, the Act makes the above amendment retroactive (by taxpayer election) to amounts paid or incurred after December 31, 2021, and, for other taxpayers, the Act provides an election to deduct amounts capitalized in 2022-2024 (and unamortized) either in the first taxable year beginning after December 31, 2024 or ratably over the first two taxable years beginning after December 31, 2024.
3. Relaxed Limitation on Deductibility of Business Interest (Section 163(j))
The OBBBA relaxes the limitation on the deductibility of business interest by reverting to the limitation that was in effect between 2017 and 2022 (generally, 30 percent of EBITDA). The change is effective taxable years beginning after 2024. Unlike the TCJA, which introduced the cap (and its scheduled reduction to an EBIT-based cap in 2022), the OBBBA makes the more generous pre-2022 EBTIDA-based limit permanent.
However, the OBBBA also introduces rules that extend the application of the deductibility cap to business interest that is required to be capitalized (among other changes that reduce the cap in certain circumstances).
4. “Disguised Sales” of Property or Services (Section 707(a)(2))
Section 707(a)(2) has been in the Code since 1984 and provides for the recharacterization of certain transactions between one or more partners and a partnership (including recharacterization of certain transactions as so-called “disguised sales of partnership interests”). As enacted in 1984, the provision applied “under regulations prescribed by the Secretary.” Treasury and IRS have never issued final regulations contemplated by the 1984 statute. The OBBBA “clarifies” that section 707(a)(2) is self-executing upon enactment of the OBBBA and thus applies even in the absence of regulations.[4]
5. Deduction for Qualified Business Income (Section 199A)
The Act permanently extends the 20-percent deduction for qualified business income available to noncorporate taxpayers. Subject to limitations, the deduction generally is available with respect to business income (other than employee income or income from specified services) and certain passive income. The deduction was introduced in the TCJA and was scheduled to expire after 2025. The Act also relaxes the income-based phaseout of the deduction and includes other taxpayer-favorable changes.
6. Excess Business Loss Limitation (Section 461(l))
The OBBBA makes permanent the limitation on excess business losses of noncorporate taxpayers. The provision was first introduced in the TCJA, under which it was to expire after 2028. The Act retains the “one and done” rule, which provides that the limitation applies only in the year in which the loss arises, with any disallowed loss becoming a net operating loss available in future years.
7. Income Exclusion for Qualified Small Business Stock (QSBS) (Section 1202)
The Act increases the gross asset value cap for QSBS issuers from $50 million to $75 million and introduces an inflation adjustment. In addition, the Act amends the formula for the per-issuer cap on the QSBS exclusion by increasing the dollar-based limit on excluded gain to $15 million (also now adjusted for inflation), up from $10 million under current law.[5]
Finally, the Act shortens the holding period required to qualify for QSBS benefits by introducing a 50-percent exclusion for gain recognized if the stock is held for three years, and a 75-percent exclusion for gain recognized if the stock is held for four years. (The Act retains the 100-percent exclusion under current law if the stock is held for five years or more.)
The changes to the gross asset value cap apply to QSBS issued after July 4, 2025, and the other changes apply to taxable years beginning after July 4, 2025.
8. Semiconductor Manufacturing Investment Tax Credit (Section 48D)
The OBBBA increases to 35 percent (from 25 percent) the investment tax credit for eligible investments in facilities the primary purpose of which is the manufacturing of semiconductors or semiconductor manufacturing equipment, effective for property placed in service after December 31, 2025.
INTERNATIONAL TAXATION
1. Changes to Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) Regimes (Sections 904, 951A, 960, and 250)
The Act makes several adjustments to the TCJA’s GILTI regime for the taxation of controlled foreign corporations (CFCs), including revising its moniker (to “net CFC tested income” or NCTI) and raising the effective tax rate to 14 percent (up from 13.125 percent).[6] The Act also raises the effective tax rate under the TCJA’s parallel FDII regime (restyled as “foreign-derived deduction eligible income” or FDDEI) to 14 percent (up from 13.125 percent).[7]
The OBBBA also eliminates the GILTI deduction for a deemed 10-percent return on qualifying business assets and limits the allocation and apportionment of certain deductions (including all interest and research and experimental expenditures) to NCTI for foreign tax credit limitation purposes, alleviating an onerous feature of the former GILTI regime.
The GILTI and FDII amendments are applicable to taxable years beginning after December 31, 2025.
2. Other CFC-Related Provisions (Sections 951, 951B, 954, and 958)
The Act restores a taxpayer-favorable rule repealed by TCJA that had triggered burdensome (and likely unintended) U.S. tax compliance obligations for foreign-controlled enterprises with U.S. subsidiaries.[8] The Act also modifies the rules that determine which U.S. shareholder includes a CFC’s subpart F income and NCTI upon a mid-year transfer of the CFC’s shares and makes permanent the oft-reenacted “CFC look-through” rule of section 954(c)(6).
3. Base Erosion Anti-Abuse Tax (BEAT) Rate Modification (Section 59A)
The OBBBA permanently sets the BEAT rate at 10.5 percent for taxable years beginning after December 31, 2025. The rate for the BEAT was 10 percent for 2025 and, under the TCJA, was slated to increase to 12.5 percent in 2026.
4. Non-Enactment of Revenge Tax (Proposed Section 899)
In recognition of the understanding reached by the U.S. and the Group of Seven, the Trump Administration and Congress did not enact proposed section 899, which would have imposed higher tax rates on persons and entities associated with countries that impose “unfair foreign taxes.” See our prior alert on proposed section 899 here.
ENERGY
1. Wind and Solar Energy (Sections 45Y and 48E)
Under the OBBBA, qualifying wind and solar projects that begin construction after July 4, 2026[9] must be placed in service by December 31, 2027 to qualify for investment tax credits (ITCs) or production tax credits (PTCs).
Wind and solar projects that begin construction before July 4, 2026 presumably will be subject to the completion deadlines under current IRS guidance, under which a wind or solar project that begins construction in January 2026 could qualify for ITCs or PTCs if it is placed in service before December 31, 2030.
The OBBBA also introduces a raft of new ITC and PTC eligibility requirements that target Chinese ownership or influence with respect to benefited projects and Chinese participation in supply chains.[10] Rules targeting Chinese ownership of or influence over ITC and PTC claimants (collectively, “Foreign Restrictions”) apply to credits claimed for taxable years beginning after July 4, 2025, and rules targeting Chinese participation in supply chains apply to projects that begin construction in 2026 and after.[11] In addition, the new foreign-targeted restrictions are backed up by a new 10-year ITC recapture regime and increased penalties on claimants and suppliers.[12]
2. Fuel Cell Energy and Hydrogen Production (Sections 48E and 45V)
Qualifying fuel cell projects that begin construction after December 31, 2025 are now eligible for a new 30-percent ITC that exempts the projects from the IRA’s prevailing wage and apprenticeship requirements and greenhouse gas emission requirements (but provides none of the bonus amounts made available under the IRA).[13]
The Act also moves up the commencement-of-construction deadline for the IRA’s 10-year credit for the production of clean hydrogen (a fuel cell feedstock) from January 1, 2033 to January 1, 2028.
3. Nuclear Energy (Section 45Y)
Nuclear facilities claiming the 10-year PTC are eligible for a new location-based “nuclear energy community” bonus credit starting in 2026, based on the facility site’s satisfying a threshold amount of local employment in the nuclear industry.[14]
4. Clean Fuels (Section 45Z)
The OBBBA extends the clean fuel PTC by two years (from December 31, 2027 to December 31, 2029). The Act also partially relaxes the greenhouse gas emissions requirements under the clean fuel PTC for fuel produced and sold after 2025 and directs Treasury to confirm that (contrary to prior proposed guidance previewed by Treasury and the IRS) certain fuel sales to intermediaries qualify for the PTC.[15]
In addition, for fuel produced after 2025, the Act eliminates the enhanced PTC rate for sustainable aviation fuel and introduces feedstock source requirements and a new cap on the credit.[16]
5. Carbon Capture, Utilization, and Sequestration (Section 45Q)
For equipment placed in service after July 4, 2025, the OBBBA increases the carbon capture, utilization, and sequestration credit for qualified carbon oxide that is “utilized” (e.g., used in a commercial process) or used in enhanced oil or natural gas recovery to equal the credit rate for qualified carbon oxide that is stored in secure geological formations.[17]
6. New Publicly Traded Partnerships (Section 7704)
The Act expands the industries that can operate in publicly traded partnerships (without the partnership’s being automatically classified as a corporation for tax purposes) by expanding the definition of “qualifying income” to include income derived from qualifying hydrogen storage and transportation; electricity production from qualifying nuclear, hydropower, and geothermal facilities; carbon capture facilities, including electricity production from qualifying facilities with sufficient carbon capture; and thermal energy from hydropower and geothermal facilities. The amendment is effective for taxable years beginning after December 31, 2025.
REAL ESTATE
1. Restoration of Taxable REIT Subsidiary Asset Test (Section 856)
For purposes of the real estate investment trust (REIT) asset test, the Act restores the taxable REIT subsidiary threshold to 25 percent (from 20 percent) of a REIT’s assets for taxable years beginning after December 31, 2025. The threshold was previously 25 percent for taxable years beginning before 2018.
2. Opportunity Zones (OZs) (Sections 1400Z-1 and 1400Z-2)
The OBBBA also permanently renews the TCJA’s OZ regime, which provides for deferral and potential elimination of taxable gain recognized through 2026 to the extent proceeds are timely reinvested in designated OZs. As part of the permanent renewal of the program, the OBBBA provides for a re-identification of qualifying OZs every 10 years and modifies other requirements for OZ designation.
The OBBBA also revises the deferral period to five years and caps the exclusion for future gains from the sale or exchange of an OZ investment held for at least 10 years to the gain that has accrued after 30 years.[18] In addition, the OBBBA introduces a rural OZ program that provides a larger permanent exclusion (30 percent for investments held for at least five years) than the regular OZ program (10 percent for such investments). The Act also adds new OZ reporting requirements and related penalties.
The renewed OZ program (and related amendments) applies to investments made after December 31, 2026.
OTHER PROVISIONS
1. State and Local Tax Deduction (Section 164)
The OBBBA raises the TCJA’s cap on the deduction for state and local taxes from $10,000 to $40,000 for taxable years 2025 through 2029 (with that cap increasing by 1 percent each year),[19] then reverts to $10,000 in 2030. The OBBBA’s increase in the cap over $10,000 for years 2025-2029 is subject to a phasedown for higher income households.
Previous versions of the legislation included rules intended to eliminate state and local workarounds of the deductibility limit (including state and local passthrough entity tax, or “PTET,” regimes), but these were not included in the final bill.
2. Endowment Tax (Section 4968)
The OBBBA adds two new graduated rates (4 percent and 8 percent) to the TCJA’s 1.4-percent university endowment excise tax, with the graduated rates based on the size of the endowment (measured on a per student basis). The Act exempts institutions with fewer than 3,000 students from the tax (the TCJA threshold was 500) and expands the net investment income base of the tax but does not include an exemption for certain religiously affiliated institutions that appeared in earlier versions of the Act. The Act authorizes Treasury to promulgate guidance to prevent avoidance of the tax through the restructuring of endowment funds or other arrangements designed to reduce or eliminate the amount of net investment income or assets subject to the tax.
The amendment is effective for taxable years beginning after December 31, 2025.
3. No Excise Tax on or Special Rule for Litigation Financing
Previous versions of the legislation included rules intended to tax income from litigation financing arrangement as ordinary income or subject that income to a meaningful excise tax. Those rules were not included in the Act.
[1] The actual name for the Act is “an Act to provide for reconciliation pursuant to title II of H. Con. Res. 14.”
[2] Unless indicated otherwise, all “section” references are to the Internal Revenue Code of 1986, as amended (the “Code”), and all “Treas. Reg. §” are to the regulations promulgated by the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) under the Code, in each case as in effect as of the date of this alert. The actual name for the Tax Cuts and Jobs Act of 2017 is “an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” and the actual name for the Inflation Reduction Act of 2022 is “an Act to provide for reconciliation pursuant to title II of S. Con. Res. 14.”
[3] Absent the Act, only 40-percent bonus depreciation would have been available for property placed in service in 2025.
[4] The Act states that the amendment is not intended to create any inference about the application of section 707(a)(2) in pre-OBBBA periods.
[5] The per-issuer cap is the greater of the dollar-based limit (reduced for certain prior gains recognized) and 10 times the aggregate adjusted bases (at issuance) of QSBS issued by the corporation and disposed of by the taxpayer during the taxable year.
[6] The Act permanently reduces the NCTI (f/k/a GILTI) deduction to 40 percent (from 50 percent) and increases the deemed-paid foreign tax for the NCTI inclusion to 90 percent (from 80 percent).
[7] The Act permanently reduces the deduction for FDDEI (f/k/a FDII) to 33.3 percent (from 37.5 percent).
[8] The restoration is accompanied by a new rule (section 951B) that more narrowly addresses Congress’s concerns with foreign-controlled U.S. shareholders of CFCs.
[9] The effective date is “the date which is 12 months after” July 4, 2025.
[10] The rules also apply to Russia, Iran, and North Korea, but we understand that China is their principal focus.
[11] The OBBBA did not include a controversial proposed excise tax included in prior versions of the legislation that would have applied to wind and solar facilities (regardless of whether ITCs or PTCs were claimed) that incorporated certain components sourced from prohibited foreign sources.
[12] For other ITC recapture events, the five-year recapture period under current law continues to apply.
[13] The Foreign Restrictions (discussed above) also apply to ITCs or PTCs for fuel cell projects on the same timeline as wind and solar projects. For descriptions of certain of those bonus amounts made available under the IRA, please see our prior client alerts here, here and here.
[14] The Foreign Restrictions (discussed above) also apply to ITCs or PTCs for new nuclear projects on the same timeline as wind and solar projects. For nuclear facilities placed in service before the IRA and claiming the section 45U PTC, the ownership prohibition applies to taxable years beginning after July 4, 2025, and the influence prohibition applies to taxable years beginning after July 4, 2027.
[15] Treasury and the IRS published a notice in January 2025 previewing proposed regulations that would not have allowed the clean fuel PTC for certain common intermediary sales.
[16] The Foreign Restrictions (discussed above) also apply to clean fuel PTCs. The ownership prohibition applies to taxable years beginning after July 4, 2025, and the influence prohibition applies to taxable years beginning after July 4, 2027.
[17] The Foreign Restrictions (discussed above) apply to carbon capture projects for taxable years beginning after July 4, 2025.
[18] Under the TCJA, gain reinvested in an OZ could be deferred until December 31, 2026. A conforming amendment eliminates the incremental permanent exclusion for gain from OZ investments held for seven years.
[19] $40,400 in 2026, $40,804 in 2027, $41,212 in 2028, and $41,624 in 2029.
Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding this proposed legislation. To learn more about these issues or discuss how they might impact your business, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member of the firm’s Tax and Tax Controversy and Litigation practice groups:
Tax:
Dora Arash – Los Angeles (+1 213.229.7134, darash@gibsondunn.com)
Sandy Bhogal – Co-Chair, London (+44 20 7071 4266, sbhogal@gibsondunn.com)
Michael Q. Cannon – Dallas (+1 214.698.3232, mcannon@gibsondunn.com)
Jérôme Delaurière – Paris (+33 (0) 1 56 43 13 00, jdelauriere@gibsondunn.com)
Anne Devereaux* – Los Angeles (+1 213.229.7616, adevereaux@gibsondunn.com)
Matt Donnelly – New York/Washington, D.C. (+1 212.351.5303, mjdonnelly@gibsondunn.com)
Benjamin Fryer – London (+44 20 7071 4232, bfryer@gibsondunn.com)
Evan M. Gusler – New York (+1 212.351.2445, egusler@gibsondunn.com)
James Jennings – New York (+1 212.351.3967, jjennings@gibsondunn.com)
Kathryn A. Kelly – New York (+1 212.351.3876, kkelly@gibsondunn.com)
Brian W. Kniesly – New York (+1 212.351.2379, bkniesly@gibsondunn.com)
Pamela Lawrence Endreny – Co-Chair, New York (+1 212.351.2474, pendreny@gibsondunn.com)
Kate Long – New York (+1 212.351.3813, klong@gibsondunn.com)
Gregory V. Nelson – Houston (+1 346.718.6750, gnelson@gibsondunn.com)
Benjamin Rapp – Munich/Frankfurt (+49 89 189 33-290, brapp@gibsondunn.com)
Jennifer Sabin – New York (+1 212.351.5208, jsabin@gibsondunn.com)
Eric B. Sloan – Co-Chair, New York/Washington, D.C. (+1 212.351.2340, esloan@gibsondunn.com)
Edward S. Wei – New York (+1 212.351.3925, ewei@gibsondunn.com)
Lorna Wilson – Los Angeles (+1 213.229.7547, lwilson@gibsondunn.com)
Daniel A. Zygielbaum – Washington, D.C. (+1 202.887.3768, dzygielbaum@gibsondunn.com)
Tax Controversy and Litigation:
Saul Mezei – Washington, D.C. (+1 202.955.8693, smezei@gibsondunn.com)
Sanford W. Stark – Chair, Washington, D.C. (+1 202.887.3650, sstark@gibsondunn.com)
C. Terrell Ussing – Washington, D.C. (+1 202.887.3612, tussing@gibsondunn.com)
*Anne Devereaux, of counsel in the firm’s Los Angeles office, is admitted to practice in Washington, D.C. Jason Zhang, an associate in New York, is not yet admitted to practice.
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
The consultation processes for both Consultation Papers will close on 29 August 2025. Interested parties are encouraged to respond to the proposals before the close of the consultation period.
On June 27, 2025, the Hong Kong Government’s Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) jointly published two consultation papers to consult on legislative proposals to regulate virtual asset (VA) dealing and VA custody services respectively (VA Dealing Consultation Paper and VA Custody Consultation Paper, collectively the Consultation Papers).[1] Given that Hong Kong’s crypto regulatory regime is currently limited to the regulation of virtual asset trading platforms (VATPs)[2] and the issue and offering of stablecoins under the soon to be enacted Stablecoins Ordinance,[3] the proposed regulation of VA dealing and custody represent a significant expansion in the regulatory perimeter in relation to VA in Hong Kong.
This update provides an overview of the key proposals outlined in the Consultation Papers.
I. Background to the Consultation Papers
Earlier this year, the SFC published its SFC’s “ASPIRe” roadmap for VA which set out the SFC’s key initiatives for developing Hong Kong as a global cryptocurrency hub (Roadmap).[4] The first of the initiatives set out in the Roadmap was the regulation of VA dealing and VA custody – signalling the SFC’s understanding of the importance of OTC trading and custody in the broader crypto ecosystem.
By way of background, the VA Dealing Consultation Paper represents the Hong Kong Government’s second proposal with regards to the regulation of OTC VA trading, following an earlier consultation in February 2024 (the First Consultation).[5] Notably, the First Consultation proposed that:
- persons who conduct a business in providing VA spot trading services in Hong Kong (including physical outlets and/or other platforms) would be licensed by the Commissioner of Customs and Excise (CCE), but that VA spot trading would be limited to VA-to-fiat or fiat-to-VA trading. Instead, the First Consultation proposed that firms seeking to provide VA-to-VA trading services should consider applying for a VATP licence;
- where a license applicant is also involved in the remittance of fiat money, the license applicant would need to apply for a money service operator license in addition to a VA OTC license; and
- there would be a six-month transitional period to allow pre-existing VA OTC service providers to continue their operations, provided that they submit a licence application to the licensing authority within the first three months of the transitional period.
As noted in the VA Dealing Consultation Paper, a significant volume of industry feedback was received in relation to the First Consultation. In particular:
- The SFC and FSTB noted that the original proposal under the First Consultation was intended to address VA dealing activities in a physical setting (e.g., ATM networks and coin shops) servicing individual investors, with these businesses having limited online presence. However, the industry feedback received from the First Consultation revealed that the nature and scope of VA OTC activities are more diverse and complex in practice than originally contemplated, and includes not only physical shops but also digital only platforms, broker-dealer-type businesses, payment service providers and VA card networks, as well as firms engaged in OTC trading in the course of asset management-related activities, block trading and conversions for trade settlement purposes.
- While the First Consultation envisaged that the customers of VA dealing firms would be primarily individual investors, the feedback received reflected a more complex reality, with a number of firms primarily servicing institutional investors, small-and-medium enterprises and market makers, whose needs differ from those of individual investors.
- The First Consultation did not address custody/escrow services involving clients’ VA. However, the VA Dealing Consultation Paper has noted that custody of client assets appears to be a prerequisite for more complex activities, particularly in the context of VA broker-dealer operations – leading to the parallel consultation on VA custodian services.
As a result of the feedback received during the First Consultation, there are some substantial differences between the approach taken in the First Consultation to the regulation of VA OTC dealing and that outlined in the VA Dealing Consultation Paper. Most significantly (and as explained below), the scope of the proposed regime now relies on a definition of “dealing in VAs” which is closely modelled on the definition of “dealing in securities” under the Securities and Futures Ordinance (SFO). Given that the definition of “dealing in securities” is a well-established concept within the Hong Kong regulatory regime, we believe that the shift to using a similar definition in the VA space is a welcome development and is in keeping with the SFC’s desire to apply the principle of “same activity, same risks, same regulation” to its regulation of VA. Additionally, given the industry feedback regarding the nature of VA dealing in Hong Kong, we welcome the shift of responsibility from the CCE to the SFC (as well as the HKMA as frontline regulator of VA dealing by banks and stored value facilities (SVFs)). Further, given the SFC and HKMA’s respective roles in regulating VATPs and stablecoins, this proposed reallocation of responsibility to the SFC and HKMA should help avoid regulatory fragmentation in this space through the involvement of another regulator (i.e. the CCE) in this space.
II. Summary of the FSTB and SFC’s Proposals under the Consultation Papers
We have set out a detailed summary of the key proposals under the Consultation Papers below:
VA Dealing Services |
VA Custodian Services |
|
Proposed scope of regulation | A person will require a licence (VA Dealing Licence) if they, by way of business, make or offer to make an agreement with another person, or induce or attempt to induce another person to enter into or offer to enter into an agreement:
(a) for or with a view to acquiring, disposing of, subscribing for or underwriting VAs; or (b) the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of VAs or by reference to fluctuations in the value of VAs (collectively, VA Dealing Services). The proposed scope is almost identical to the definition of “dealing in securities” under the Securities and Futures Ordinance (except substituting VA for securities) and thus is very broad. The VA Dealing Consultation Paper explained that this definition is intended to cover:
As noted above, this proposed definition is a significant departure from the First Consultation (which only covered fiat-to-VA and vice versa). Persons who do not hold a VA Dealing License will also be prohibited from “actively marketing” the provision of (or holding out as providing in Hong Kong) VA Dealing Services to the public of Hong Kong – regardless of whether that active marketing takes place in or outside of Hong Kong. |
A person will require a licence (VA Custodian Licence) if they, by way of business:
(a) safekeep VAs on behalf of clients; or (b) safekeep, on behalf of clients, instruments enabling the transfer of VAs of clients (e.g. private keys and instruments such as smart cards / authentication credentials used to access private keys) (collectively, VA Custodian Services). Persons who do not hold a VA Custodian License will also be prohibited from “actively marketing” the provision of (or holding out as providing in Hong Kong) VA Custodian Services to the public of Hong Kong – regardless of whether that active marketing takes place in or outside of Hong Kong. |
Responsible regulator(s) | Firms providing VA Dealing or VA Custodian Services will generally be licensed and supervised by the SFC. This is with the exception of VA Dealing or VA Custodian Services offered by banks and SVFs regulated by the HKMA. Banks and SVFs wishing to offer VA Dealing or Custodian Services will need to be registered with the SFC but the HKMA will be their frontline regulator (similar to the existing approach to the regulation of the securities business of banks). | |
Persons who will require a licence under the current proposals | The VA Dealing Consultation Paper indicated that following persons will require a VA Dealing Licence:
(a) SFC-licensed virtual asset trading platforms (VATPs) (irrespective of whether they engage in off-platform transactions); (b) SFC-licensed corporations that already provide VA Dealing Services; and (c) currently unregulated (i.e. non-SFC licensed) persons that provide VA Dealing Services. This is likely to include VA brokers, VA market makers and liquidity providers, VA asset managers, etc. The VA Dealing Consultation Paper flagged that there will be an expedited approval process for persons in categories (a) and (b) above as they are already licensed by the SFC to provide VA Dealing Services. |
The VA Custody Consultation Paper set out a non-exhaustive list of persons that will be required to obtain a VA Custodian Licence based on the current proposed scope:
(a) associated entities of SFC-licensed VATPs (which are currently required to provide VA custodian services under the current VATP licensing regime); (b) banks, subsidiaries of locally incorporated banks and SVFs if they provide VA Custodian Services themselves by way of safekeeping the private keys (or similar instruments) which enable transfer of client VAs – even if such safekeeping is provided in the course of providing VA dealing services or acting as depositaries of SFC-authorised funds with VA in the funds’ portfolios; and (c) SFC-licensed fund managers, if they provide self-custody to the funds under their management which invest in VAs by way of safekeeping the private keys (or similar instruments) which enable the transfer of fund VAs. Based on the current proposed scope, the VA Custody Consultation Paper noted that technology service providers that support the provision of a VA Custodian Service but who do not themselves safekeep the private keys (or similar instruments) for transfer of VAs will not require a licence. However, the FSTB and SFC have invited feedback from the industry on the various business models, involvement of third parties and technology infrastructure setups currently utilized in this space in order to assist in refining the above definition and identify firms which should be exempt from this licensing regime – therefore this may be subject to change. There will also likely be incidental exemptions for SFC regulated entities whose safekeeping of VAs on behalf of its clients is wholly incidental to the principal business for which such entities are licensed. |
Proposed eligibility requirements for a licence | An applicant for a VA Dealing Licence will need to:
(a) either be (i) a company incorporated in Hong Kong with a permanent place of business in Hong Kong, or (ii) a company incorporated outside Hong Kong but registered in Hong Kong; (b) be fit and proper. The fit and proper requirement will extend to the applicant’s substantial shareholders and to individuals carrying out VA dealing functions for the applicant; (c) appoint at least two responsible officers (ROs) approved by the SFC who will be responsible for ensuring compliance with the AML/CFT and other SFC regulatory requirements; (d) meet capital requirements, including minimum paid-up share capital of HK$5 million and minimum liquid capital of up to HK$3 million (depending on business model) and excess liquid capital equivalent to at least 12 months of actual operating expenses; and (e) implement systems and controls that are adequate to comply with all AML/CFT and other SFC regulatory requirements (see below). |
An applicant for a VA Custodian Licence will need to:
(a) either be (i) a company incorporated in Hong Kong with a permanent place of business in Hong Kong, or (ii) a company incorporated outside Hong Kong but registered in Hong Kong; (b) be fit and proper. The fit and proper requirement will extend to the applicant’s substantial shareholders and to individuals carrying out VA custody functions for the applicant; (c) appoint at least two ROs approved by the SFC who will be responsible for ensuring compliance with AML/CFT and other SFC regulatory requirements; (d) meet capital requirements, including minimum paid-up share capital of HK$10 million, and minimum liquid capital of up to HK$3 million (depending on business model) as well as any other additional financial resources requirements ultimately imposed by the SFC; (e) ensure that staff members who perform more than a clerical role in a business function directly relating to the VA Custodian Licensee’s discharge of its regulatory obligations under the new regime are licensed by the SFC or registered as relevant individuals with the HKMA; and (f) implement systems and controls that are adequate to comply with all AML/CFT and other SFC regulatory requirements (see below). |
Proposed restrictions on types of VA offered | The SFC and FSTB have flagged that VA Dealing Licensees will be expected to align their approach to token offerings with those of SFC-licensed VATPs. As such, a VA Dealing Licensee will be expected to set up a token admission and review committee and perform reasonable due diligence on all VAs prior to offering them.
The desire to align token offering requirements with SFC-licensed VATPs will mean that VA Dealing Licensees are likely to be restricted to offering only “high liquidity” tokens (e.g. BTC and ETH) to retail investors, as well as stablecoins issued by issuers licensed by the HKMA. However, professional investors should be able to be offered a broader range of VA, subject to reasonable due diligence being completed on the tokens being offered. |
There will be no restrictions on the types of VAs that a VA Custodian Licensee can provide custodian services, provided that the licensee has performed robust due diligence on the token to ensure that money-laundering and terrorist-financing (ML/TF) risks are adequately managed. Additionally, a VA Custodian Licensee which safekeeps the private keys (or similar instruments) must have custody infrastructure that can support taking the token into custody. |
Proposed regulatory requirements | The SFC intends to adopt the “same activity, same risks, same regulation” principle to VA Dealing Licensees. Given this, the relevant regulatory requirements that are currently applicable to SFC-licensed VATPs and SFC-licensed corporations that offer VA Dealing Services are likely to also apply to VA Dealing Licensees. This includes requirements across a broad range of areas such as AML/CFT, risk management, financial reporting, conduct of business, record keeping, protection of client assets and investor protection safeguards. The SFC has flagged that it will conduct a separate consultation on the detailed regulatory requirements.
Notably, the SFC flagged that it is considering allowing VA Dealing Licensees to acquire or dispose of VAs for clients via non-SFC-licensed VATPs that are subject to regulation in other jurisdictions (and provided that there are sufficient investor protection safeguards in place). This is in contrast with the current restrictions on SFC-licensed corporations that provide VA Dealing Services which only permits them to trade VAs for their clients through an omnibus account maintained with SFC-licensed VATPs. |
The VA Custody Consultation Paper highlighted that the regulatory requirements applicable to a VA custodian service provider will depend on the scope of the licensing regime, as well as whether firms safekeep private keys themselves or instead appoint other VA Custodian Licensees or other licensed firms in other jurisdictions to do so.
For VA Custodian Licensees that safekeep private keys themselves, the SFC has indicated that the applicable regulatory requirements will likely be comparable to the custody requirements currently imposed on SFC-licensed VATPs. This will include requirements across a broad range of areas such as AML/CFT, conduct of business, risk management, record keeping and financial reporting. Firms will also be required to engage an external assessor to perform an external assessment on its policies, procedures, systems and controls as part of the licensing process. The SFC will conduct a separate consultation on the detailed regulatory requirements. |
No transitional period proposed | The FSTB and SFC have noted in the Consultation Papers that no transitional period is proposed for the VA Dealing or VA Custodian Services regimes. This means that the regimes would take effect from the commencement date of the relevant statutory provisions and unlicensed firms would need to cease business as of that date. This is in contrast to the VATP licensing regime which had a transitional period for pre-existing unregulated VATP operators to apply for an SFC licence.
Given this, the Consultation Papers suggest that firms already engaged in providing VA Dealing Services or VA Custodian Services to reach out to the SFC and/or HKMA ASAP to initiate pre-application processes and to provide feedback on the commencement date of the licensing regimes. |
.
III. Key Takeaways and Conclusion
While the Consultation Papers represent a significant and welcome step forward in the regulation of the crypto ecosystem in Hong Kong, there are a number of aspects of the Consultation Papers that we anticipate will be the subject of considerable industry feedback, including:
- The scope of the proposed definitions and the availability of exemptions from the requirement to hold a VA Dealing Licence or a VA Custodian Licence: The SFC and FSTB have specifically sought feedback on the scope of the proposed definitions of VA Dealing Services and VA Custodian Services, as well as whether there are any potential exemptions that would be appropriate. For VA dealing, we anticipate industry feedback to focus on whether any (or all) of the exemptions from the definition of “dealing in securities” should be incorporated into the definition of “dealing in VAs”. For VA custody, the SFC and FSTB have identified a number of specific questions on which they are seeking industry feedback, including whether (i) entities that do not safekeep private keys but instead arrange a third party to custody client VAs, and (ii) group entities involved in safekeeping private keys and/or signing a VA transaction should be required to be licensed.
- The proposal to allow VA Dealing Licensees to acquire or dispose of VAs for clients via non-SFC-licensed VATPs: As noted above, the SFC and FSTB are specifically consulting on whether VA Dealing Licensees should be allowed to transact with non-SFC-licensed VATPs that are subject to regulation in other jurisdictions, provided that there are sufficient investor protection safeguards in place. We anticipate that there will be significant industry feedback in favour of providing flexibility for VA Dealing Licensees, particularly given that this proposal is consistent with the SFC’s stated focus in the Roadmap on integrating “Hong Kong with global liquidity”.
- The proposed lack of transitional period: As noted above, the SFC and FSTB have flagged that their present intention is for there to be no transitional period for either the VA Dealing or VA Custodian regimes. This is likely intended to avoid a situation in which applicants are deemed to be licensed while the SFC reviews their licence applications, as this type of deeming arrangement can lead to firms whose licence applications are ultimately rejected being allowed to operate under a deeming arrangement for an extended period of time. However, we anticipate that this proposal will be the subject of significant industry feedback as it does expose firms to the risk of being forced to cease operating if their licence applications are still being reviewed by the SFC at the time that the regimes come into effect.
The consultation processes for both Consultation Papers will close on 29 August 2025. Interested parties are encouraged to respond to the proposals before the close of the consultation period.
[1] “Public Consultation on Legislative Proposal to Regulate Dealing in Virtual Assets”, jointly published by the FSTB and SFC on June 27, 2025, available at: https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=25CP6; and “Public Consultation on Legislative Proposal to Regulate Virtual Assets Custodian Services”, jointly published by the FSTB and SFC on June 27, 2025, available at: https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=25CP7
[2] “New Hong Kong Regulatory Requirements and Licensing Regime for Virtual Asset Trading Platforms Finalised as Legislation Takes Effect”, published by Gibson, Dunn & Crutcher on June 7, 2023, available at: https://www.gibsondunn.com/new-hong-kong-regulatory-requirements-and-licensing-regime-for-virtual-asset-trading-platforms-finalised-as-legislation-takes-effect/
[3] “Hong Kong Gets Ready for Stablecoin Regulation: HKMA Prepares for Enactment of the Regime”, published by Gibson, Dunn & Crutcher on June 4, 2025, available at: https://www.gibsondunn.com/hong-kong-gets-ready-for-stablecoin-regulation-hkma-prepares-for-enactment-of-the-regime/
[4] “A-S-P-I-Re for a brighter future SFC’s regulatory roadmap for Hong Kong’s virtual asset market”, published by the Securities and Futures Commission on February 19, 2025, available here.
[5] “Public Consultation on Legislative Proposals to Regulate Over-the-Counter Trading of Virtual Assets”, published by FSTB on February 8, 2024, available at: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/VAOTC_consultation_paper_en.pdf
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact any member of Gibson Dunn’s Financial Regulatory team, including the following members in Hong Kong:
William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)
Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)
Becky Chung (+852 2214 3837, bchung@gibsondunn.com)
Arnold Pun (+852 2214 3838, apun@gibsondunn.com)
Jane Lu (+852 2214 3735, jlu@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
Gibson Dunn is monitoring regulatory developments and executive orders closely. Our attorneys are available to assist clients as they navigate the challenges and opportunities posed by the current, evolving legal landscape.
Overview
On June 25, 2025, the Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network (FinCEN) issued three orders identifying three Mexico-based financial institutions—CIBanco S.A., Insitución de Banca Multiple (CIBanco), Intercam Banco S.A., Institución de Banca Multiple (Intercam), and Vector Casa de Bolsa S.A. de C.V. (Vector)—as being of primary money laundering concern in connection with illicit opioid trafficking. The three orders (the “2313a Orders”) prohibit U.S. financial institutions from engaging in financial transactions with CIBanco, Intercam, and Vector.[1]
As a result of the 2313a Orders, domestic financial institutions will need to update their compliance programs and controls to ensure they do not engage in transmittals of funds involving CIBanco, Intercam, or Vector. U.S. financial institutions will be well-served by reviewing their compliance programs, calibrating their compliance-related risk assessments, and ensuring they implement controls to prevent doing business with the designated financial institutions. Non-financial institutions should be aware of these orders; though the 2313a Orders do not apply to them, the orders will affect their banking and other financial institution partners.
This alert begins with an overview of the relevant statutory background to provide insight into 21 U.S.C. § 2313a, the recently passed statute that FinCEN employed to issue these first-of-their-kind orders. It then summarizes the substance of the 2313a Orders, and concludes with a discussion of the potential implications of the 2313a Orders for domestic financial institutions.
Statutory Background
In 2024, Congress enacted the FEND Off Fentanyl Act as part of Public Law 118-50, which, inter alia, created 21 U.S.C. § 2313a to provide the Secretary of the Treasury with the authority to designate certain foreign financial institutions, classes of foreign transactions, and types of foreign accounts as of “primary money laundering concern in connection with illicit opioid trafficking.”[2]
Similar to Section 311 of the USA PATRIOT Act,[3] Section 2313a empowers Treasury to sanction foreign financial institutions which the Secretary believes to be facilitating money laundering.[4] However, Section 2313a is focused on illicit opioid trafficking,[5] which is defined in federal law as “any illicit activity…to produce, manufacture, distribute, sell, or knowingly finance or transport synthetic opioids, including controlled substances that are synthetic opioids and listed chemicals that are synthetic opioids, or active pharmaceutical ingredients or chemicals that are used in the production of controlled substances that are synthetic opioids,” or any attempt, conspiracy or aiding and abetting, other persons to do the same.[6] Under Section 2313a, upon determining that there are “reasonable grounds” for concluding that any foreign financial institution, class of transactions, or accounts have been involved in money laundering in connection with illicit opioid trafficking, the Secretary of the Treasury may require domestic financial institutions, as defined by the Bank Secrecy Act, to take certain special measures as described in Section 311, or to entirely prohibit or otherwise condition transmission of funds by domestic financial institutions involving the designated institutions, classes, or accounts.[7]
While Sections 2313a and 311 provide the Secretary of the Treasury authority to combat money laundering by designating institutions of primary money laundering concern, there are notable differences. First, Section 2313a is limited to money laundering concerns connected specifically to opioid trafficking. Second, Section 2313a provides more expansive authority, because in addition to authorizing the Secretary of Treasury to implement any of the special measures provided for in Section 311, it also authorizes the Secretary of the Treasury to entirely prohibit or condition certain transmittals of funds by domestic financial institutions if they involve a designated institution. Third, Section 2313a permits special measures to be imposed by an agency order alone and does not require notice and comment rulemaking.
Summary of the 2313a Orders
The 2313a Orders entirely prohibit U.S. financial institutions from engaging in certain transmittals of funds with CIBanco, Intercam, and Vector. Transmittals of funds is defined by the Orders “as the sending and receiving of funds, including convertible virtual currency.” According to Secretary of the Treasury Scott Bessent, CIBanco, Intercam, and Vector “are enabling the poisoning of countless Americans by moving money on behalf of cartels, making them vital cogs in the fentanyl supply chain.”[8] The three institutions allegedly “played a longstanding and vital role in laundering millions of dollars on behalf of Mexico-based cartels” and “facilitat[ed] payments for the procurement of precusor chemicals needed to produce fentanyl.”[9]
Secretary Bessent delegated authority to administer Section 2313a to the Director of FinCEN, Andrea Gacki.[10] The Director of FinCEN stated that while she was under “no obligation” “to consider any particular factor or set of factors” to determine that a financial institution was of primary money laundering concern, she stated that she considered the factors listed in Section 311 as “instructive.”[11] As to each of CIBanco, Intercam, and Vector, the Director announced there was evidence that the institutions played vital roles in facilitating money laundering activities of Mexico-based cartels engaging in illicit opioid trafficking, including facilitating payments for the procurement of precursor chemicals essential for the production of illicit opioids by drug trafficking. The Director then determined that the appropriate sanction was a total prohibition by U.S. financial institutions, citing the effect on U.S. national security and foreign policy, the minimal burdens on legitimate activities, and the fact that the other potential special measures under Section 311 were inadequate.[12]
The 2313a Orders prohibit domestic financial institutions and agencies from engaging in transmittals of funds to or from CIBanco’s, Intercam’s, and Vector’s Mexican entities, including their Mexico-based branches, subsidiaries, and offices.[13] As noted above, “transmittals of funds” is defined by the 2313a Orders as “as the sending and receiving of funds, including convertible virtual currency.” The 2313a Orders will go into effect on July 21, 2025, 21 days after their publication in the Federal Register on July 21, 2025.[14] If a U.S. financial institution continues to transact with CIBanco, Intercam, or Vector, after that date, the financial institution could face civil monetary penalties[15] or, in the event of willful violations, criminal penalties, under the Bank Secrecy Act.[16]
Implications of the 2313a Orders
The 2313a Orders are the first time FinCEN has employed Section 2313a to sanction foreign financial institutions for opioid trafficking-related money laundering.[17]
In addition to demonstrating that FinCEN will continue to aggressively designate primary money laundering concerns,[18] the 2313a Orders demonstrate that the Trump Administration will use many different tools to attack what the Attorney General has stated is the goal of the “Total Elimination of Cartels and Transnational Criminal Organizations.”[19]
Finally, as stated at the outset of this Client Alert, as a result of the prohibitions promulgated in the 2313a Orders, domestic financial institutions will need to update their compliance programs and controls to ensure they do not engage in transmittals of funds involving the designated financial institutions. U.S. financial institutions therefore will be well-served by reviewing their compliance programs and calibrating their compliance-related risk assessments to mitigate against changing risk and enforcement realities reflected in the 2313a Orders, as well as to ensure they implement controls to prevent doing business with the designated financial institutions.
While the 2313 Orders only apply to domestic financial institutions, other types of companies should also be aware of these orders. Compliance by domestic financial institutions will likely affect banking and other relationships connected to the sanctioned Mexican institutions.
[1] See Press Release, U.S. Dep’t of Treasury, Treasury Issues Historic Order Under Powerful New Authority to Counter Fentanyl (June 25, 2025), https://home.treasury.gov/news/press-releases/sb0179.
[2] See 21 U.S.C. § 2313a(a).
[3] See generally 31 U.S.C. § 5318A. Section 311 confers Treasury with the authority to “require domestic financial institutions and domestic financial agencies to take 1 or more of the special measures described [in Section 311] if the Secretary finds that reasonable grounds exist for concluding” that foreign financial institutions, transactions, or accounts are “of primarily money laundering concern.” Id. § 5318A(a)(1). These “special measures” are restrictions that require U.S. financial institutions take certain cautionary measures with respect to the restricted foreign financial institutions, to protect the United States from foreign money laundering efforts. See id. §§ 5318A(b)(1)-(5).
[4] See 21 U.S.C. § 2313a.
[5] 21 U.S.C. § 2313a(a).
[6] 21 U.S.C. § 2302(8).
[7] 21 U.S.C. § 2313a(1)
[8] See Press Release, U.S. Dep’t of Treasury, supra note 1.
[9] Id.
[10] See Imposition of Special Measure Prohibiting Certain Transmittals of Funds Involving CIBanco S.A., Institución De Banca Multiple, 90 Fed. Reg. 27770, 27770 n.4 (June 30, 2025) (hereinafter “CIBanco Order”).
[11] Id. at 27772 & n.17. Section 311 lists potentially relevant factors as: (1) the extent to which such financial institutions, transactions, or types of accounts are used to facilitate or promote money laundering in or through the jurisdiction, including any money laundering activity by organized criminal groups, international terrorists, or entities involved in the proliferation of weapons of mass destruction or missiles; (2) the extent to which such institutions, transactions, or types of accounts are used for legitimate business purposes in the jurisdiction; and (3) the extent to which such action is sufficient to ensure, with respect to transactions involving the jurisdiction and institutions operating in the jurisdiction, that the purposes of this subchapter continue to be fulfilled, and to guard against international money laundering and other financial crimes. 31 U.S.C. § 5318A(c)(2)(B).
[12] See CIBanco Order at 27772-76; Imposition of Special Measure Prohibiting Certain Transmittals of Funds Involving Intercam Banco S.A., Institución de Banca Multiple, 90 Fed. Reg. 27777, 27778-83 (June 30, 2025); Imposition of Special Measure Prohibiting Certain Transmittals of Funds Involving Vector Casa de Bolsa, S.A. de C.V., 90 Fed. Reg. 27764, 27765-70 (June 30, 2025).
[13] The orders do not apply to these companies’ branches, subsidiaries, or offices located outside of Mexico.
[14] See, e.g., CIBanco Order at 27776.
[15] 31 U.S.C. § 5321(a)(7).
[16] 31 U.S.C. § 5322(d).
[17] See Press Release, U.S. Dep’t of Treasury, FinCEN, Treasury Issues Unprecedented Orders under Powerful New Authority to Counter Fentanyl, https://www.fincen.gov/news/news-releases/treasury-issues-unprecedented-orders-under-powerful-new-authority-counter.
[18] Under a different statute, in 2023 and 2024 FinCEN designated two alleged Russian cybercrime services as of primary money laundering concern. See https://home.treasury.gov/news/press-releases/jy2616; https://www.fincen.gov/news/news-releases/fincen-identifies-virtual-currency-exchange-bitzlato-primary-money-laundering.
[19] https://www.justice.gov/ag/media/1388546/dl.
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 Anti-Money Laundering/Financial Institutions, International Trade Advisory & Enforcement, National Security, Sanctions & Export Enforcement, or White Collar Defense & Investigations practice groups.
Anti-Money Laundering / Financial Institutions:
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M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
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Adam M. Smith – Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
National Security:
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David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Sanctions & Export Enforcement:
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White Collar Defense & Investigations:
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© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
Werner Enters., Inc. v. Blake, No, 23-0493 – Decided June 27, 2025
In an opinion issued on June 27, the Texas Supreme Court explained that proximate cause requires proof that a defendant’s negligence was a substantial factor in causing the plaintiff’s injury.
“[T]he substantial-factor requirement means that liability falls only on a party whose substantial role in bringing about the injury is such that he is ‘actually responsible for the ultimate harm.’”
Chief Justice Blacklock, writing for the Court
Background:
The driver of a pickup truck traveling in icy conditions lost control of his vehicle on the interstate, crossed the median, and crashed into an 18-wheeler driven by a trainee driver with Werner Enterprises. One of the four passengers in the pickup truck—a child—was killed, and the other three passengers suffered serious injuries. The 18-wheeler was traveling around 50 miles per hour just before the collision, and the pickup truck was going between 50 and 60 miles per hour before losing control. The trainee driver pressed the brake as soon as he saw the pickup truck, but evidence at trial showed both vehicles were traveling too fast for the icy conditions.
After a passenger sued on behalf of herself and her children, a jury found Werner 70% responsible and the trainee driver 14% responsible for the crash. The Fourteenth Court of Appeals affirmed en banc over two dissents.
Issue:
Whether the trainee driver’s negligence, if any, proximately caused the accident such that he and Werner could be held responsible.
Court’s Holding:
No. Plaintiffs failed to establish proximate cause because “the sole substantial factor in bringing about this accident . . . was [the pickup truck driver’s] losing control of his F-350 and crossing a 42-foot grassy median into oncoming highway traffic before” the trainee driver “had time to react.”
What It Means:
- The Court explained that determining “[p]roximate cause” requires “application of ‘a practical test, the test of common experience, to human conduct when determining legal rights and legal liability.’” Proximate cause is divided into two elements—“(1) cause in fact, and (2) foreseeability.” In turn, cause in fact has two components—“but for” causation and ”substantial factor” causation.
- The Court reaffirmed that “[w]here the initial act of negligence was not the active and efficient cause of plaintiffs’ injuries, but merely created the conditions by which the second act of negligence could occur, the resulting harm is too attenuated from the defendants’ conduct to constitute the cause in fact of plaintiffs’ injuries.”
- The Court emphasized the trainee driver’s conduct wasn’t the proximate cause of the plaintiffs’ injuries because nothing he “did or didn’t do” contributed to the pickup truck “hitting ice, losing control, veering into the median, and entering oncoming traffic on an interstate highway.” Instead, “the presence of his 18-wheeler in its proper lane of traffic on the other side of I-20 at the precise moment” the pickup truck driver “lost control” was “just the kind of ‘happenstance of place and time’ that cannot reasonably be considered a substantial factor in causing these injuries.”
- The Court explained that while “similar considerations will often bear on” substantial-factor causation and foreseeability, the “two are nevertheless distinct.” So cases addressing foreseeability may be “legally distinguishable” when addressing whether conduct was a substantial factor in causing an injury.
- And the Court made clear that it has not “recognized negligent training or supervision as an independent theory of tort liability.” Assuming that such claims have “independent viability,” the Court suggested they should be treated like “negligent hiring claims.” Three justices suggested in a concurrence and a partial dissent that the Court should adopt the “admission rule” and treat employer liability claims as direct claims when an employer admits an employee was acting within the scope of his employment, as some courts of appeals have done.
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
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 |
This alert was prepared by Texas of counsel Ben Wilson and Texas associates Elizabeth Kiernan and Stephen Hammer.
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
This decision is likely to promote the continued – and possibly expanded – use of arbitration clauses in commercial contracts.
1. Introduction
In its landmark decision of January 9, 2025, the Federal Court of Justice (BGH) provides clarity regarding the applicable regime governing the interaction of arbitration clauses and statutory provisions on general terms and conditions (GTC)s[1].
With its long-awaited ruling, the court confirms that arbitration clauses in commercial contracts are valid even if the choice-of-law provision governing the arbitration proceedings excludes the statutory law controlling GTC. The decision significantly strengthens contractual practice, although uncertainties remain with respect to the public policy proviso (ordre public).
a) Outline of Legal Issue
German statutory laws controlling GTC have long been subject to controversial debate in the context of commercial transactions.
Originally introduced to address the use of pre-formulated contractual clauses in mass transactions and their interference with the principle of private autonomy – a purpose later extended by the European regulator to include consumer protection – these laws are often perceived as too strict, formalistic, and inflexible, particularly in the B2B sector.
The crux of the matter lies in the catch-all provision of Section 307 BGB, which applies even to commercial transactions. This provision mandates a substantive court review of pre-formulated contractual terms, particularly guided by the principles laid out in Sections 308 and 309 BGB. Such review may, inter alios, affect – and potentially render invalid – clauses on liability limitations, price adjustments in long-term supply or construction contracts, standard M&A provisions, and fee arrangements in financing agreements.
In cross-border transactions, these uncertainties are increasingly perceived as a significant drawback of German law.
b) Practical Response
Practitioners have long sought to provide businesses with greater flexibility in structuring their contracts, while preserving legal certainty.
One increasingly common solution is to move disputes from state courts to arbitration proceedings. In such cases, parties typically agree to apply German substantive law, while expressly excluding Sections 305–310 BGB. This practice is grounded in Section 1051 para. 1 of the German Code of Civil Procedure (ZPO), which allows parties broad discretion in selecting the legal framework for arbitration proceedings.
Despite strong arguments in favor of this approach,[2] courts had previously not taken a clear position on its permissibility. In particular, it was unclear whether such exclusion might constitute an unlawful circumvention of statutory GTC provisions. As a result, parties faced the risk that the arbitration clause or the related choice-of-law clause could be invalidated in court.
2. Key Holdings of the BGH ruling of January 9, 2025 (I ZB 48/24)
Against this backdrop, the BGH’s recent decision is especially important, as it provides fundamental guidance for the validity of arbitration clauses that exclude statutory GTC provisions in commercial contracts. This significantly enhances legal certainty for such arrangements.
a) Separability of Arbitration Clause and Choice-of-Law
The court held that the validity of an arbitration clause must be assessed independently of other contractual terms. Even if the choice-of-law clause or the exclusion of GTC provisions is ineffective, the arbitration clause remains valid –provided there is no substantive dependency between the arbitration clause and the contested provision.
Such dependency is generally precluded by the inclusion of severability clauses in commercial contracts, as the BGH correctly observed.
b) Exclusion of statutory GTC provisions in Arbitration Proceedings
Regarding the choice-of-law clause, the BGH refrained from making a substantive ruling and instead deferred to the jurisdiction of the arbitral tribunal. In doing so, the BGH relied on Section 1051(1) ZPO, according to which it is for the tribunal to decide on the applicable legal regime, including the permissibility of excluding German GTC provisions.
As a result, the role of state courts is limited to examining whether recognition or enforcement of an arbitral award must be denied under the public policy proviso (Section 1059(2) No. 2(b) ZPO). This standard sets a high bar and applies only where essential principles of German law or justice are violated[3] – for example, where a clause can no longer be seen as a valid expression of contractual autonomy or would lead to intolerable outcomes.[4]
Lastly, the BGH clarified that a violation of the public policy proviso depends exclusively on the outcome of arbitration, rather than on the procedural or substantive law applied. Accordingly, the mere exclusion of statutory GTC rules does not, in itself, qualify as a breach of public policy.
3. Assessment of Court Ruling
The BGH’s decision is a welcome clarification that reinforces legal certainty and the principle of party autonomy.
Crucially, the Court confirmed that the exclusion of statutory GTC provisions in a choice-of-law clause does not invalidate an arbitration agreement. This ensures that an arbitration clause remains enforceable regardless of the choice-of-law provision. As a result, if a claimant nevertheless initiates proceedings before a state court, the court must uphold the arbitration defense and refer the matter to arbitration—without needing to assess the validity of the choice-of-law clause.
Furthermore, the ruling rightly confirms that the arbitral tribunal – not the state court – as the appropriate body to evaluate the permissibility of excluding Sections 305–310 BGB.
From a practical perspective, this deference aligns with the broad latitude granted by Section 1051 (1) ZPO, which permits parties to choose even non-state legal systems, such as the lex mercatoria, to govern their arbitral proceedings. The decision thus reinforces the viability of excluding statutory GTC provisions in arbitration settings.
Nonetheless, a residual risk remains: In the context of recognizing or enforcing an arbitral award, state courts may still review compliance with the public policy proviso. While this ruling clarifies that exclusion of statutory GTC provisions does not automatically trigger such a violation, absolute legal certainty cannot be guaranteed in all scenarios.
Ultimately, the ruling marks a turning point for drafters of cross-border contracts by significantly reducing legal ambiguity around the exclusion of GTC law in arbitration contexts.
4. Outlook
This decision will likely promote the continued – and possibly expanded – use of arbitration clauses in commercial contracts.
More broadly, the ruling underscores the urgency for legislative reform: German GTC law, particularly in the B2B context, remains overdue for modernization. The long-promised liberalization, most recently referenced in the new coalition agreement, should be advanced to give businesses the flexibility they require.
Such reform is not only in the interest of private actors, but also in the interest of the state itself. As arbitration increasingly becomes the preferred forum for resolving commercial disputes, state courts risk being progressively sidelined from shaping the development of key areas of commercial law.
[1] BGH, decision of 09.01.2025 – I ZB 48/24, IWRZ 2025, 151; detailed review in Pfeiffer NJW 2025, 866, 869 et seq.
[2] Cf. Pfeiffer NJW 2012, 1169.
[3] BGH, decision of 11.10.2018 – I ZB 9/18, SchiedsVZ 2019, 150 para. 5.
[4] BGH, decision of 09.01.2025 – I ZB 48/24, IWRZ 2025, 151 para. 42.
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, any leader or member of the firm’s International Arbitration or Judgment and Arbitral Award Enforcement practice groups, or the authors in Frankfurt:
Dirk Oberbracht (+49 69 247 411 510, doberbracht@gibsondunn.com)
Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com)
Annekathrin Schmoll (+49 69 247 411 533, aschmoll@gibsondunn.com)
Fabiana Obermeier (+49 69 247 411 518, fobermeier@gibsondunn.com)
Simon Stöhlker (+49 69 247 411 517, sstoehlker@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center.
Starting in July 2025, we will be moving to a once-per-month publishing schedule. We appreciate your continued readership and remain available to answer any questions about developments or your own DEI programs. Please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).
Key Developments:
On June 27, Catherine Eschbach, the Director of the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”), published a letter encouraging federal contractors to voluntarily submit information to the agency detailing their efforts to unwind their affirmative action programs. In the letter, Eschbach cites to President Trump’s Executive Order 14173, which, among other things, rescinded prior Executive Order 11246, which established race and sex-based affirmative action obligations for federal contractors. Eschbach asserts that these affirmative action obligations “may have led contractors to engage in unlawful disparate treatment based on race and sex in hiring and employment decisions” and through “unlawful, unfair, and unsafe discriminatory practices, including those labeled as Diversity, Equity, and Inclusion (DEI).” The letter notes that, pursuant to Executive Order 14173, federal contractors were required to wind down their affirmative action programs by April 21, 2025. The letter invites federal contractors “to volunteer information in narrative form about what actions they have taken in response to EO 14173,” including by “confirming: (1) that they have reviewed their EO 11246 affirmative action efforts; (2) whether they believe any modifications to employment and recruitment practices are necessary; and (3) if so, what those changes are and steps the federal contractor has taken to modify those practices.” The letter provides a long list of examples of practices that federal contractors may choose to report on, including:
- “making trainings, sponsorship programs, leadership development programs, educational funding, or other privileges of employment available only to employees of a certain race or sex;”
- “placement goals that were based on race or sex;”
- “ratings by diversity organizations that graded employers on factors that included the provision of resources designed to promote the rise of non-white, non-male employees;”
- “using applicants’ or employees’ participation in race- or sex-related (internal or external) groups or organizations as a “plus factor” or proxy for race or sex in employment and hiring decisions;”
- “tying executive compensation to meeting race- or sex-based hiring, promotion, retention, representation, or other employee-demographic-related goals;”
- “mandating courses, orientation programs, or trainings that are designed to emphasize and focus on racial stereotypes;”
- “encouraging employees to make recruitment efforts to or employment referrals of certain candidates based on race or sex.”
The letter states clearly the “decision to provide any information is completely up to the contractor,” and offers no safe harbor to federal contractors in exchange for disclosures.
On June 27, the Supreme Court held 6-3 that federal courts lack authority to issue “universal injunctions.” The case is Trump v. Casa, Inc., in which Plaintiffs (comprising individuals, organizations, and States) challenged Executive Order 14160, which identifies circumstances in which a person born in the United States is not recognized as an American citizen. In three different cases, district courts issued “universal injunctions” which barred the implementation and enforcement of the Executive Order nationwide. The Courts of Appeals upheld the injunctions. The Supreme Court held that federal courts do not have such authority unless doing so is necessary to afford the parties complete relief. The Supreme Court reasoned that the federal courts’ power to issue remedies stems from the Judiciary Act of 1789, which conferred on courts the authority to issue equitable remedies analogous to those “traditionally accorded by courts of equity” at the time of the founding. The Supreme Court reasoned that universal injunctions are not sufficiently analogous to any relief available in the courts of equity at the time of the founding, at which time equitable remedies were typically party-specific. Accordingly, the Supreme Court held that federal courts do not have the power to provide relief to nonparties. Justice Sotomayor, joined by Justice Kagan and Justice Jackson, dissented. The dissent disputed the majority’s historical analysis, writing that courts have historically issued broad equitable relief intended to benefit parties and nonparties, emphasized that the Executive Order’s repudiation of birthright citizenship is unconstitutional, and raised practical concerns in allowing the government to execute illegal policies against nonparties. This decision will have significant implications for future litigants, and will substantially curtail their ability to obtain broad relief in challenging executive orders, including as they relate to DEI. For more information, please see our client alert here.
On June 27, Judge Loren AliKhan of the U.S. District Court for the District of Columbia permanently enjoined enforcement of Executive Order 14263, an order targeting the law firm Susman Godfrey LLP (“Susman”). Like the executive orders targeting law firms Jenner & Block LLP, Perkins Coie LLP, and Wilmer Cutler Pickering Hale and Dorr LLP, EO 14263 ordered federal agencies to suspend security clearances for Susman employees and terminate government contracts with the law firm; required government contractors to disclose business they do with Susman; restricted access to federal buildings for Susman employees; and restricted Susman employees from future federal employment. Section 1 of the EO accused the firm of “engag[ing] in unlawful discrimination, including discrimination on the basis of race.” Specifically, the order identified an alleged Susman program that “offers financial awards and employment opportunities only to ‘students of color.’”
In a 53-page opinion, the court granted Susman’s motion for summary judgment and permanently enjoined enforcement of the executive order. As the courts did in the Jenner, Perkins, and WilmerHale cases, the court concluded that the executive order “constitutes unlawful retaliation against Susman for activities that are protected by the First Amendment,” including among other things, “its expression of its beliefs regarding diversity.” The court also held the order violated the firm’s clients’ First Amendment rights to association and the firm’s right to petition, as well as the Fifth Amendment rights to due process and equal protection. The court also held the order was unconstitutionally vague and violated the separation of powers “because it improperly seizes authority that the Constitution grants to the judiciary.”
On June 26, 2025, the Department of Justice’s Civil Rights Division (“DOJ”) opened an investigation into the University of California’s hiring practices. In a letter to Dr. Michael Drake, the President of the University of California, Assistant Attorney General Harmeet Dhillon wrote that the “investigation is based on information suggesting that the University of California may be engaged in certain employment practices that discriminate against employees, job applicants, and training program participants based on race and sex in violation of Title VII” and that there is “reason to believe” that the “‘UC 2030 Capacity Plan’ precipitated unlawful action by the University of California and some or all its constituent campuses.” The UC 2030 Capacity Plan “describes how the University plans to support California through enrollment strategies and addressing the state’s needs,” among other things. A spokesperson for the University of California stated that the “University of California is committed to fair and lawful processes in all of [its] programs and activities, consistent with federal and state anti-discrimination laws” and that University will “work in good faith with the Department of Justice as it conducts its investigation.”
On June 18, the Senate Committee on Health, Education, Labor and Pensions held a confirmation hearing for Andrea Lucas, Acting Chair of the EEOC. Lucas is currently finishing her first five-year term as an EEOC Commissioner and has been nominated for a second term. Lucas stated during the hearing: “As head of the EEOC, I’m committed to dismantling the identity politics that have plagued our civil rights laws. . . . President Trump has given the agency the most ambitious civil rights agenda in decades. If I have the honor of being reconfirmed, I am passionate about achieving that agenda.” During the hearing, the committee also heard from nominees for three positions in the Department of Labor: Jonathan Berry for Solicitor of Labor, current EEOC Acting General Counsel Andrew Rogers for Administrator of the Wage and Hour Division, and former U.S. House Representative Anthony D’Esposito for Inspector General. A video of the hearing is available here.
On June 18, several unions and educational associations, including the American Association of Physics Teachers, the American Association of Colleges and Universities, the American Association of Professors, and the American Educational Research Association, filed a complaint against the National Science Foundation (“NSF”) and its Chief of Staff Brian Stone in the U.S. District Court for the District of Columbia, alleging that the NSF “terminated over $1 billion of previously awarded scientific grants, cooperative agreements, and other financial awards” in violation of the Administrative Procedure Act, the Spending and Appropriations clauses of the Constitution, and principles of separation of powers. Specifically, the plaintiffs allege that NSF announced new grant priorities and terminated previously awarded grants following President Trump’s Executive Order 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing,” and seek a declaration that the change in priorities and grant terminations were unlawful, as well as injunctive relief barring Defendants and their agents “from continuing to carry out the termination of awards based on a change in agency priorities.”
On June 16, Judge William G. Young of the U.S. District Court for the District of Massachusetts invalidated the Trump administration’s termination of over $1 billion in National Institute of Health-funded research grants due to their perceived connection to DEI. The ruling came after a lengthy June 16 hearing in two consolidated cases challenging the grant termination decisions: American Public Health Association et al. v. National Institutes of Health et al, No. 1:25-cv-10814 (D. Mass. 2025) and Commonwealth of Massachusetts et al v. Kennedy, Jr. et al., No. 1:25-cv-10787 (D. Mass. 2025). The plaintiffs asserted in their respective complaints that the grant recissions violated the Administrative Procedure Act because they were arbitrary and capricious, not in accordance with law, in excess of statutory authority, in violation of the grantees’ constitutional rights, and an unreasonable delay of agency action. They also argued the government’s directive to cancel the grants was void for vagueness and violated the separation of powers and the Spending Clause. Ruling from the bench, Judge Young stated that the government’s action represented unlawful “racial discrimination and discrimination against America’s LGBTQ community,” adding that he had “never seen a record where racial discrimination was so palpable.” Judge Young ordered that the funding be restored pending appeal. On June 23, Judge Young entered a written order granting judgment for plaintiffs for “all the reasons stated on the record on June 16, 2025.” That same day, the Trump administration filed a notice of appeal.
On June 10, Republicans on the U.S. House of Representatives’ Committee on Education and the Workforce sent a letter to Alan Garber, President of Harvard University, announcing an investigation into the University’s hiring practices. The letter states that the Committee “is concerned about recent reports” that Harvard “may be discriminating in hiring and employment” on the basis of race, color, religion, sex, and national origin in violation of Title VII. The letter also states that “publicly available documents produced or published” by the University suggest the University “may have been and may still be unlawfully discriminating.” In particular, the Committee cites the University’s “Best Practices for Conducting Faculty Searches” document, which recommends that job applicant lists “include women and minorities,” and directs individuals responsible for hiring to “encourage diversity” and “bring forward women or minority applicants.” The Committee also highlights that interviewers at the University were given “Diversity-Related Sample Interview Questions” to assess candidates’ “understanding and commitment to diversity, inclusion, and belonging.” The Committee further references a Commissioner’s Charge filed in April 2025 by Andrea Lucas, Acting Chair of the EEOC, alleging that the University violated Title VII in its hiring practices with respect to tenured and tenure-track faculty. The Committee requests that the University provide its written policies regarding the consideration of race, color, religion, sex, or national origin in hiring, as well as an explanation of “whether and how” the University or its employees consider these factors in hiring and employment.
On June 9, the U.S. District Court for the Northern District of California granted in part a motion to preliminarily enjoin nine provisions of the President’s recent executive orders regarding DEI (Executive Orders 14151, 14168, and 14173). The court’s order is limited in scope, applying only to the plaintiffs, nine nonprofit organizations. The case is San Francisco AIDS Foundation et al. v. Donald J. Trump et al., No. 4:25-cv-01824 (N.D. Cal. 2025). The plaintiffs filed suit on February 20 against President Trump and several other government agencies and actors. The complaint challenges the executive orders on several grounds, including the Equal Protection Clause of the Fifth Amendment, the Due Process Clause of the Fifth Amendment, and the Free Speech Clause of the First Amendment. Plaintiffs also argue the executive orders are ultra vires and exceed the authority of the President. The plaintiffs seek preliminary and permanent injunctive relief. Of the nine challenged provisions, the court granted plaintiffs’ motion to preliminarily enjoin (1) a provision requiring the plaintiffs to certify that they do not operate any programs promoting DEI (the “Certification Provision”), (2) a provision directing agencies to terminate funding for all “equity-related grants or contracts” (the “Equity Termination Provision”), and (3) two provisions requiring agencies to terminate funding for any program that promotes “gender ideology” (the “Gender Termination Provision” and “Gender Promotion Provision”). The court found that the plaintiffs “likely have standing” to challenge these four provisions, that the plaintiffs demonstrated a likelihood of success on the merits that these provisions violate Separation of Powers principles and the plaintiffs’ rights under the First and Fifth Amendments, and that the plaintiffs demonstrated they face “imminent loss of federal funding critical to their ability to provide lifesaving healthcare and support services to marginalized LGBTQ populations.”
Media Coverage and Commentary:
Below is a selection of recent media coverage and commentary on these issues:
- Law 360, “Indiana’s AG Targets DEI At Butler, DePauw Universities” (June 4): Law 360’s Grace Elletson reports that Indiana’s Attorney General, Todd Rokita, sent letters to Butler University and DePauw University, seeking information on their DEI initiatives. She reports that Rokita suggested in a press release that the universities’ practices could run afoul of the U.S. Supreme Court decision in SFFA v. Harvard. Rokita specifically noted Butler’s $200,000 DEI Innovation Fund and a statement by DePauw leadership that SFFA did not require a change in its current practices. In a statement to Law 360, Butler University said it will respond and “takes seriously its commitment to compliance with all state and federal laws.” Elletson reports that DePauw stated it does not discriminate in hiring or admissions.
- Law 360, “OPM Memos Push Changes In Federal Hiring Based on ‘Merit’” (May 29): Law 360’s Lauren Berg reports that, on May 29, the Office of Personnel Management released two memos outlining changes to federal workforce hiring. One memo lays out a “merit hiring plan,” which emphasizes “skills-based hiring” and requires, among other things, that certain federal job applicants draft essays related to their commitment to the Constitution and the President’s policy priorities. A second memo, titled “Hiring and Talent Development for the Senior Executive Service,” provides new executive core qualifications. Berg reports that the Office of Personnel Management instructed agencies to conduct hiring in line with EEOC guidance from March 2025, which Berg notes is not currently binding but that this could change if the EEOC re-establishes a voting quorum following President Trump’s nomination of an additional commissioner.
- Boston Globe, “MIT Announces Plans to Close DEI Office” (May 29): Camilo Fonseca of the Boston Globe reports that the Massachusetts Institute of Technology announced that it would “wind down” its DEI office, the Institute Community and Equity Office, and eliminate the “vice president for equity and inclusion” position. Fonseca reports that this follows an announcement in February 2025 that Karl Reid, MIT’s “first-ever vice president for equity and inclusion,” was leaving his role. An MIT spokesperson said the university had an “unwavering” commitment to attracting diverse talent and that the Institute Community and Equity Office would be replaced by a standing committee of students, staff, and faculty intended to promote community building and support.
- Forbes, “Corporate Mentions of ‘Diversity’ And ‘DEI’ Dropped 72% in 2025, Analysis Finds” (May 29): Conor Murray of Forbes reports that the use of the acronym “DEI” in corporate reports decreased by 98% from 2024 to 2025. Murray reports that Gravity Research, a firm that studies how companies respond to social pressure, reviewed over 1,300 financial filings, proxy statements, earnings calls, and other documents and found that the use of the word “diversity” dropped by 62%, “equity” by 48%, and “inclusion” by 43%. Murray reports that the firm found use of more neutral terms, like “belonging,” had increased between 2023 and 2024 but declined between 2024 and 2025. He also reports that the firm found that two in five companies intended to decrease engagement with LGBTQ Pride Month this year. Murray reports that these changes follow pressure from the federal government and anti-DEI activists.
- The Atlantic, “The Era of DEI for Conservatives Has Begun” (May 27): Rose Horowitch of The Atlantic writes that universities are rolling out new initiatives to attract conservative professors. She writes that, as of the last “comprehensive study” in 2014, one in ten professors in academia identified as “conservative.” Horowitch writes that Johns Hopkins recently announced a partnership with a “center-right” think tank, the American Enterprise Institute, designed to increase and retain conservative faculty. She notes this is part of a trend, reporting that state legislatures have provided funds to state-funded schools to establish “schools of civic thought,” including at Arizona State University, the University of Texas at Austin, the University of North Carolina at Chapel Hill, and the University of Tennessee at Knoxville. She writes that the Trump administration made clear in its demands of Harvard University its position that universities should hire more conservative faculty members.
- NPR, “Corporate America’s retreat from DEI has eliminated thousands of jobs” (May 27): NPR correspondent Maria Aspan reports that the number of people employed in DEI-related roles has declined, with 270 positions eliminated since January 2025. She writes that companies increased the number of people employed in those roles after 2020, with more than 20,000 people employed to focus on DEI by early 2023. She writes that since the Supreme Court’s decision in SFFA v. Harvard, companies have faced increasing backlash for DEI initiatives and that the number of new job postings related to belonging, social impact, and culture peaked in 2022 and 2023. The number of new and existing DEI-related positions has continued to fall following the Trump Administration’s executive orders directed at DEI. Aspan reports that executive recruiters indicate a slowdown in companies seeking to hire chief diversity officer and other top executives, and that a decrease in DEI-related positions disproportionately impacts women and people of color, who tend to hold those roles in higher numbers.
Case Updates:
Below is a list of updates in new and pending cases:
1. Contracting claims under Section 1981, the U.S. Constitution, and other statutes:
- Desai v. PayPal, No. 1:25-cv-00033-AT (S.D.N.Y. 2025): On January 2, 2025, Andav Capital and its founder Nisha Desai sued PayPal, alleging that PayPal unlawfully discriminates by administering its investment program for minority-owned businesses in a way that favors Black and Latino applicants. Desai, an Asian-American woman, alleges PayPal violated Section 1981, Title VI, and New York anti-discrimination law by failing to fully consider her funding application and announcing first-round investments only in companies with “at least one general partner who was black or Latino.” She seeks a declaratory judgment that the investment program is unlawful, an injunction barring PayPal from “knowing or considering race or ethnicity” in administering the program, and damages. On May 7, 2025, Andav Capital and Nisha Desai filed an amended complaint against PayPal Holdings, Inc. and PayPal Ventures, adding a claim under the Equal Credit Opportunity Act, which prohibits any creditor from discriminating in “any aspect of a credit transaction.” PayPal is represented by Gibson Dunn in this matter.
- Latest update: On May 28, 2025, PayPal moved to dismiss the amended complaint for failure to state a claim under Fed. R. Civ. P. 12(b)(6). PayPal argued, among other things, that plaintiffs’ claims are untimely under Section 1981 and New York state law, that her credit discrimination claims are inapplicable because fund investments were not credit, and that fund investments were not public accommodations under New York City law.
- Landscape Consultants of Texas, Inc. et al. v. City of Houston, Texas et al., No. 4:23-cv-03516 (S.D. Tex. 2023), No. 1:25-cv-00033-AT (S.D.N.Y. 2025): White-owned landscaping companies challenged the City of Houston’s government contracting set-aside program for “minority business enterprises” under the Fourteenth Amendment and Section 1981. On November 29, 2024, plaintiffs and defendant Midtown Management District filed cross-motions for summary judgment. Midtown Management argued that the plaintiffs failed to show the unconstitutionality of the programs. The City of Houston filed its own motion for summary judgment on November 30, 2024, contending that the plaintiffs lack standing and that the programs satisfy the requirements of the Equal Protection Clause. On February 11, 2025, the court denied all motions for summary judgment in a single page order. On March 11, 2025, the court entered an order delaying setting a briefing schedule until after Houston votes on a new ordinance related to the program. On March 31, 2025, Houston notified the court that the City Council tabled consideration of the ordinance, which would adopt a relevant disparity study, for up to 30 days. On April 9, 2025, the plaintiffs responded that they are “prepared to move forward with trial” and that the delay deprived them of “their day in court.” The plaintiffs also contended that, even if Houston adopted the new ordinance, their constitutional and statutory claims would be unaffected. On May 5, 2025, Houston submitted a notice to the court stating that the City Council discussed the ordinance at its April 30, 2025 meeting and unanimously voted to refer the ordinance back to the administration to permit business owners and stakeholders to comment. On May 8, Houston submitted a “final notice” to the court, stating that the City Council voted to, among other things, “amend[] various provisions of Chapter 15 of the Code of Ordinances, Houston Texas, relating to Minority, Women, and Small Business participation in City contracting; add[] Article XII establishing a Veteran-Owned Business Enterprise Program; [and] adopt[] City-Wide Goals for the City’s Minority, Women, and Small Business Enterprise Program.”
- Latest update: On May 23, 2025, the City of Houston moved to dismiss the case under Fed. R. Civ. P. 12(b)(1) for lack of jurisdiction. The City argued that, because the new ordinance “effectively rescinded and replaced the earlier version of the [Minority, Women, and Small Business Enterprise] program,” and because the plaintiffs’ claims seek only prospective injunctive relief, their claims are now moot. On June 13, 2025, the plaintiffs filed an opposition to the motion to dismiss, asserting that their claims are not moot because the revised ordinance retains the allegedly unconstitutional and race-based contract goals from the initial ordinance and “continue[s] the unlawful conduct.” The plaintiffs argue that the revised ordinance has caused them a cognizable injury because they received an email a day after the new ordinance was implemented, informing them that their contract would be subject to suspension if they did not comply with the goals set out by the revised ordinance.
2. Employment discrimination and related claims:
- Bobowicz v. Powell et al., 5:24-cv-00246 (W.D.N.C. 2024): On November 18, a former employee of the Federal Reserve Board sued the Chair of the Federal Reserve, the Chief Operating Officer, and four Federal Reserve supervision officials, alleging he faced discrimination on the basis of his religion, race, gender, and sexual orientation in violation of his rights under Title VII of the Civil Rights Act and under the Age Discrimination in Employment Act. The plaintiff claims he was discriminated against due to his religious beliefs, which precluded him from receiving the COVID-19 vaccination. He further alleges he became “a target for termination” because he was “a heterosexual, white, male who was the oldest employee in both his local and national [teams].” In addition to damages, reinstatement, and front and back pay, the plaintiff seeks a declaration that the Federal Reserve’s diversity initiatives violate the Fourteenth Amendment’s equal protection clause. On January 6, 2025, the plaintiff filed an amended complaint, adding allegations that “the Federal Reserve Board’s DEI policies were part of a more comprehensive federal effort to incorporate” protected characteristics into hiring and employment practices.
- Latest update: On June 6, 2025, the plaintiff filed a second amended complaint, adding the Federal Reserve Bank of New York and two of its employees as defendants. He contends he was employed by the Federal Reserve and constructively employed by the Federal Reserve Bank of New York, and that both are liable for the alleged discrimination and retaliation.
- Cifarelli v. Nexstar Media Group, Inc. et al., No. 2:25-cv-05656-MCA-SDA (D.N.J. 2025): On May 27, 2025, a white male plaintiff sued his former employer, Nexstar Media Group, Inc., alleging that the company unlawfully terminated him on the basis of his race, gender, and age, in violation of Title VII, Section 1981, the New Jersey Law Against Discrimination Act, and the Age Discrimination in Employment Act. The plaintiff claims that Nexstar’s DEI policy “directly tied” managers’ performance reviews to “illegal diversity objectives” and condoned “making hiring, retention, bonus, and promotional decisions” based on protected characteristics, including “race, sex, and age.” The “purposeful outcome” of that policy, the plaintiff alleges, was to decrease “the number of white male sales workers.”
- Latest update: The defendants’ answer is due July 28, 2025.
- Do No Harm v. Lee II, No. 3:24-cv-1334 (M.D. Tenn. 2024): On November 7, 2024, Do No Harm sued Tennessee Governor Bill Lee, seeking to enjoin Tennessee laws that require the governor to consider racial minorities for appointment to the Board of Chiropractic Examiners and the Board of Medical Examiners. Do No Harm alleges that this racial consideration requirement violates the Equal Protection Clause. This case mirrors Do No Harm v. Lee, currently on appeal in the Sixth Circuit, which seeks to enjoin a law requiring consideration of racial minority candidates for the Board of Podiatric Medical Examiners (No. 3:23-cv-01175-WLC (M.D. Tenn. 2023)). On December 5, 2024, Do No Harm moved for a preliminary injunction. On December 19, 2024, the parties filed a joint motion to stay proceedings. The parties explained that on December 18, 2024, Tennessee Attorney General Jonathan Skrmetti certified to the Speakers of the Tennessee House of Representatives and the Tennessee Senate that Tennessee could not defend the constitutionality of the laws at issue in this dispute. The parties sought to stay proceedings during the statutory 30-day period Tennessee law provides for certifying indefensible laws to the legislature. On December 20, 2024, the court granted the motion to stay proceedings.
- Latest update: On May 29, 2025, Do No Harm filed a notice of voluntary dismissal on the basis that the Tennessee legislature had repealed the challenged language. On May 30, 2025, the court dismissed the case.
- Spitalnick v. King & Spalding, LLP, No. 24-cv-01367-J (D. Md. 2024): On May 9, 2024, Sarah Spitalnick, a white, heterosexual female, sued King & Spalding, alleging that the firm violated Title VII and Section 1981 by deterring her from applying to its Leadership Counsel Legal Diversity internship program. Spitalnick alleged that she believed she could not apply after seeing an advertisement that stated that candidates “must have an ethnically or culturally diverse background or be a member of the LGBT community.” On September 19, 2024, King & Spalding moved to dismiss, arguing that Spitalnick failed to state a claim, her claims were time-barred, and she lacked standing because she never applied to the program. On November 8, 2024, Spitalnick responded to the firm’s motion to dismiss, arguing that her claim was not time-barred and that being deterred from applying was sufficient to confer standing. On February 25, 2025, the court granted the defendant’s motion to dismiss for lack of standing, holding that the plaintiff had not adequately pled that that she was “able and ready” to apply to the position she claims she was denied. On March 24, 2025, the plaintiff filed a motion for reconsideration, arguing that the court committed “legal error” by failing to defer to the findings of the EEOC, and by misapplying standing doctrine.
- Latest update: On May 29, 2025, the court denied the plaintiff’s motion for reconsideration, holding that the plaintiff failed to identify any error of law. The court reasoned that, even if the defendant had violated Title VII, it would not have given her standing, because the alleged violation “did not affect the plaintiff in an individualized way.” The court cited other cases finding that a potential applicant is not harmed by a discriminatory job criterion unless the prospective applicant shows she was “able and ready” to apply. Finally, the court held that it was not bound to defer to the EEOC’s factual findings and noted that the EEOC made no findings about standing.
3. Challenges to statutes, agency rules, executive orders, and regulatory decisions:
- American Alliance for Equal Rights v. City of Chicago, et al., No. 1:25-cv-01017 (N.D. Ill. 2025): On January 29, 2025, AAER and two white male individuals filed a complaint against the City of Chicago and the City’s new casino, Bally’s Chicago, alleging that the City precluded them from investing in the new casino based on their race, in violation of Sections 1981, 1982, 1983, and 1985. Under the Illinois Gambling Act, an application for a casino owner’s license must contain “evidence the applicant used its best efforts to reach a goal of 25% ownership representation by minority persons and 5% ownership representation by women.” The plaintiffs alleged that the casino precluded them from participating in the casino’s initial public offering by limiting certain shares to members of specified racial minority groups. On April 4, 2025, the City of Chicago moved to dismiss the complaint for failure to state a claim. That same day, defendants Bally’s Chicago and Bally’s Chicago Operating Company moved to dismiss as well. On May 20, 2025, the parties filed a joint status report indicated they had agreed on the principal terms of a settlement that would resolve the action.
- Latest update: On June 6, 2025, the parties filed a joint stipulation of dismissal. On June 9, 2025, the court terminated the case pursuant to the joint stipulation of dismissal.
- American Alliance for Equal Rights v. Ivey,, No. 4:23-cv-03516 (S.D. Tex. 2023), No. 2:24-cv-00104 (M.D. Ala. 2024): On February 13, 2024, AAER filed a complaint against Alabama Governor Kay Ivey, challenging a state law that requires the governor to ensure there are no fewer than two individuals “of a minority race” on the Alabama Real Estate Appraisers Board. The Board has nine seats, including one for a member of the public with no real estate background, which has been unfilled for years. Because there was only one minority member among the Board at the time of filing, AAER asserts that state law requires that the open seat go to a person with a minority background. AAER states that one of its members applied for this final seat, but was denied on the basis of race, in violation of the Equal Protection Clause of the Fourteenth Amendment. On March 29, 2024, Governor Ivey answered the complaint, admitting that the Board quota is unconstitutional and will not be enforced. On March 19, 2025, AAER moved to substitute Laura Clark, whom AAER had referred to as “Member A” in its complaint, as the plaintiff. On April 2, 2025, Governor Ivey responded to the motion to substitute, arguing that AAER lacked good cause for the substitution, and that the motion was merely an attempt by AAER to “resist discovery.” On April 17, 2025, the court denied AAER’s motion to substitute because AAER failed to show “good cause” for the substitution and could have substituted Ms. Clark as named plaintiff before the deadline to amend the pleadings, but chose not to do so.
- Latest update: On June 5, 2025, AAER, Governor Ivey, and the intervenor-defendant Alabama Association of Real Estate Brokers filed a stipulation of dismissal. On June 6, 2025, in a one-page order, the court dismissed the case with prejudice.
- American Federation of Teachers, et al. v. U.S. Department of Education, et al., No. 1:25-cv-00628 (D. Md. 2025): On February 25, 2025, the American Federation of Teachers, the American Federation of Teachers – Maryland, and the American Sociological Association sued the U.S. Department of Education (“DOE”), challenging the DOE’s “Dear Colleague Letter” issued on February 14, 2025. The plaintiffs allege that the letter—which purported to “clarify and reaffirm the nondiscrimination obligations of schools and other entities that receive federal financial assistance”— violated the First and Fifth Amendments and the Administrative Procedure Act. The letter had instructed educational institutions to ensure that their policies and actions “comply with federal civil rights laws,” and to cease efforts to circumvent prohibitions on the use of race through “relying on proxies,” “third-party contractors, clearinghouses, or aggregators.” On March 5, 2025, the plaintiffs amended their complaint to add the Eugene School District as a plaintiff and to add factual allegations about a subsequent DOE FAQ document published on February 28, 2025. Specifically, the plaintiffs alleged that the February 28, 2025 FAQ document did not “cure the Letter’s defects,” including that it did not “dispel” the impression that the February 14 letter broadly forbade voluntary associations “even if such groups are open to all.” After that point, on April 3, 2025, the DOE advised state education agencies that they would be required to certify compliance with the Administration’s interpretation of Title VI and the Supreme Court’s decision in SFFA. On April 9, 2025, the plaintiffs filed an expedited motion to preliminarily enjoin the certification requirement. On April 24, 2025, the court granted in part the plaintiffs’ motion for a preliminary injunction, finding the Plaintiffs likely to succeed on their APA and First Amendment claims. The court did not address the Fifth Amendment claim. The court declined to enjoin the certification requirement because the plaintiffs moved to enjoin it without raising any facts about it in their amended complaint, which they had filed prior to the DOE’s certification requirement announcement.
- Latest update: On June 5, 2025, the plaintiffs filed a motion for summary judgment, arguing the letter and later certification requirement violate the APA, First Amendment, and Fifth Amendment.
- Doe 1 v. EEOC,, No. 1:25-cv-01124 (D.D.C.), No. 2:24-cv-00104 (M.D. Ala. 2024): On April 15, 2025, three current law students sued the EEOC in the U.S. District Court for the District of Columbia, seeking to enjoin the EEOC’s efforts to collect workplace demographic information from 20 law firms. The plaintiffs state that they have applied to work at one or more of the 20 targeted firms and that they are “deeply worried that their data will be divulged [to the EEOC], and that they may be targeted as a result.” The plaintiffs assert that the EEOC engaged in ultra vires action by informally investigating the law firms without a charge being filed with the agency. They ask the court to enjoin the EEOC from “investigating any law firm through means that do not satisfy the requirements of conducting an investigation under Title VII’s EEOC charge process,” to order the EEOC to withdraw the letters it sent to the 20 law firms, and to order the EEOC to return any information already collected from those firms.
- Latest update: On June 5, 2025, the plaintiffs filed a motion for summary judgment and moved for class certification. The plaintiffs seek to certify a class defined as: “individuals whose names and other personal information are requested in EEOC’s investigative letters.” In their motion for summary judgment, the plaintiffs argue that the investigation exceeds the EEOC’s authority and violates the Paperwork Reduction Act. They seek declaratory and injunctive relief and argue that they will suffer irreparable harm from retention of their personal information. On June 16, 2025, the defendants filed a motion to stay consideration of the plaintiffs’ motions for summary judgment. The defendants argued that the plaintiffs “prematurely” filed their motions for summary judgment and class certification before the defendants’ deadline to respond to the initial complaint. The defendants asserted that they intend to file a motion to dismiss, and previewed the substantive arguments they intend to make, including that the court lacks subject matter jurisdiction over these actions by the Executive, the plaintiffs lack standing because the EEOC’s requests are directed at law firms and not the plaintiffs, and that there is no private right of action under the Paper Reduction Act. The defendants also intend to argue that ultra vires claims rarely succeed and are a “Hail Mary.” The defendants also requested that their window to respond to the amended complaint be extended to July 31, 2025. On June 26, 2025, the Court granted the EEOC’s motion in part, granting the EEOC an extension of time to respond to the plaintiffs’ Amended Complaint and an extension of time to respond to the Plaintiffs’ Motion for Summary Judgment, and denying without prejudice the Plaintiffs’ Motion for Class Certification.
- King County v. Turner, 2:25-cv-00814 (W.D. Wa. 2025): On May 2, 2025, eight cities and counties in Washington, California, Massachusetts, Ohio, and New York filed claims against the U.S. Department of Housing and Urban Development, the U.S. Department of Transportation, the Federal Transit Administration, and respective agency heads, challenging the conditioning of government grants upon compliance with executive orders relating to immigration, gender identity, and DEI programs. On May 5, 2025, the plaintiffs sought a temporary restraining order preventing the government from imposing or enforcing the challenged grant conditions, and to maintain the status quo, until the court could rule on the plaintiffs’ motion for preliminary injunction. On May 6, 2025, the defendants opposed plaintiffs’ motion for a temporary restraining order (“TRO”), arguing the court lacked jurisdiction because the “Tucker Act vests exclusive jurisdiction over such disputes with the Court of Federal Claims.” On May 7, 2025, the court granted the plaintiffs’ TRO for 14 days. On May 14, 2025, the defendants filed an opposition to the plaintiffs’ motion for a preliminary injunction, again arguing, inter alia, that the plaintiffs lacked subject matter jurisdiction. On May 21, 2025, the plaintiffs filed an amended complaint adding new jurisdictions to the litigation, and filed a second motion for a TRO and preliminary injunction. On May 23, 2025, the defendants opposed this second TRO and preliminary injunction with similar arguments. On May 23, 2025, the court granted the plaintiffs’ second motion for a temporary restraining order, observing “that the Second Motion for TRO raises questions of law and fact that are materially identical to the First Motion for TRO.”
- Latest update: On June 3, 2025, the court granted the plaintiffs’ second motion for a preliminary injunction. The court first held it had jurisdiction because the Tucker Act was inapplicable, given the “[p]laintiffs seek injunctive and declaratory relief only,” and “do not seek money damages based on a breach of contract claim.” The court also held that the defendants “have failed to demonstrate that the contested conditions fall within” a “limited category of unreviewable actions” under the APA. After establishing jurisdiction, the court found the plaintiffs were likely to succeed on the merits of their claim because, “in attempting to condition disbursement of funds in part on grounds not authorized by Congress, but rather on Executive Branch policy, Defendants are acting in violation of the Separation of Powers principle.” The court also found the plaintiffs to have established several forms of irreparable harm, as they are “in the position of having to choose between accepting conditions that they believe are unconstitutional, and risking the loss of hundreds of millions of dollars in federal grant funding.” On June 9, 2025, the defendants filed a notice of appeal to the Ninth Circuit.
- Rhode Island Latino Arts v. National Endowment for the Arts, 1:25-cv-00079 (D. R.I. 2025): On March 6, 2025, four arts non-profits filed a complaint in the United States District Court for the District of Rhode Island against the National Endowment for the Arts (“NEA”) and its acting chair, seeking to enjoin the NEA from incorporating Executive Order 14168, titled “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government” (“the EO”), into its application criteria for NEA grants. Specifically, on February 6, 2025, the NEA amended its grant application to say, “The applicant understands that federal funds shall not be used to promote gender ideology, pursuant to Executive Order No. 14168.” The plaintiffs alleged that, because their art involves themes that could be considered “gender ideology,” the application of the EO “effectively bar[s] [them] from receiving NEA grants.” The NEA’s actions, the plaintiffs alleged, are thus contrary to the NEA’s governing statute, arbitrary and capricious under the Administrative Procedure Act, and in violation of the First and Fifth Amendments. On March 6, 2025, the Plaintiffs filed a motion for a preliminary injunction and expedited hearing, or in the alternative, a temporary restraining order, enjoining the application of the EO to the NEA funding criteria. On March 7, 2025, the NEA rescinded the language about “gender ideology” in its funding criteria pending further review and extended the application deadline for the grants in question. On April 3, 2025, the court denied the Plaintiffs’ motion for a preliminary injunction in light of the NEA’s rescission of the contested application criteria, but noted nevertheless that, should the language be restored, the plaintiffs were likely to succeed on the merits of their APA and First Amendment claims. On May 12, 2025, the plaintiffs filed an amended complaint to account for the NEA’s rescission of the EO language from its funding criteria, alleging that the perception that a project “promotes gender ideology” may still impact the grantmaking process, even if the NEA did not formally apply the EO to grantmaking decisions.
- Latest update: On May 27, 2025, the defendants answered the amended complaint and presented five affirmative defenses, including that the court lacked subject matter jurisdiction, that the complaint failed to state a claim upon which relief may be granted, and that the NEA “was acting in good faith, with justification, and pursuant to authority.”
- San Francisco AIDS Foundation et al. v. Donald J. Trump et al., No. 3:25-cv-01824 (N.D. Cal. 2025): On February 20, several LGBTQ+ groups filed suit against President Trump, Attorney General Pam Bondi, and several other government agencies and actors, challenging the President’s recent executive orders regarding DEI (EO 14151, EO 14168, and EO 14173). The complaint alleges that these EOs are unconstitutional on several grounds, including the Equal Protection Clause of the Fifth Amendment, the Due Process Clause of the Fifth Amendment, and the Free Speech Clause of the First Amendment. It also argues the EOs are ultra vires and exceed the authority of the President. The plaintiffs seek preliminary and permanent injunctive relief. On March 3, the plaintiffs filed a motion for preliminary injunction.
- Latest update: On June 9, 2025, the Court granted in part the plaintiffs’ motion for a preliminary injunction. For more information, see above.
- State of California et al v. U.S. Department of Education et al., No. 1:25-cv-10548 (D. Mass. 2025): On March 6, 2025, the states of California, Massachusetts, New Jersey, Colorado, Illinois, Maryland, New York, and Wisconsin (collectively, “the Plaintiff States”) sued the U.S. Department of Education, alleging that it arbitrarily terminated previously awarded grants under the Teacher Quality Partnership (“TQP”) and Supporting Effective Educator Development (“SEED”) programs in violation of the APA. On March 6, 2025, the Plaintiff States filed a motion for a temporary restraining order to prevent the Department of Education from “implementing, giving effect to, maintaining, or reinstating under a different name the termination of any previously-awarded TQP and SEED grants.” The Plaintiff States argued that the “abrupt and immediate” termination of the TQP and SEED programs threatened imminent and irreparable harm. The court issued a TRO on March 10, 2025, concluding that the Plaintiff States were likely to succeed on the merits of their APA claim, that they adequately demonstrated irreparable harm absent temporary relief, and that the balance of the equities weighed in their favor. The government appealed the order the next day, arguing, among other things, that the district court lacked jurisdiction to review the Department of Education’s decisions on how to allocate funds because the APA does not permit judicial review of “agency action” that “is committed to agency discretion by law.” On April 4, 2025, the United States Supreme Court stayed the TRO, concluding that the government was likely to succeed in showing the district court lacked jurisdiction to grant the TRO under the Administrative Procedure Act. On April 15, 2025, the parties filed a joint status report. The government indicated it intends to move to dismiss the complaint on jurisdictional grounds by May 12, its deadline to answer the complaint. The plaintiffs asked the court to order “expedited production of the administrative record to assist the court in resolving the jurisdictional arguments that the government is expected to make in its motion to dismiss.” The government opposed expedited discovery and instead contended “that the proper and most efficient approach” would be for it to file the administrative record in conjunction with its answer, should the court deny the forthcoming motion to dismiss. On April 16, the court issued an order stating that it would assess the request for expedited production of the administrative record after reviewing the forthcoming motion to dismiss.
- Latest update: On June 2, 2025, the Plaintiff States filed an amended complaint, newly alleging that the Department of Education violated the Constitution’s Separation of Powers mandates and acted ultra vires by terminating the TQP and SEED grants against the intent of Congress, and that the Department of Education’s actions violated the Spending Clause because the terminations “amount to a new and retroactive condition on TQP and SEED funding,” without fair notice or reasonable relation to the federal interest. On June 30, the Department of Education filed a motion to dismiss for lack of jurisdiction or, in the alternative, to transfer the case to the Court of Federal Claims. In its motion, the Department argued that the APA’s waiver of sovereign immunity does not extend to claims sounding in contract, like the Plaintiff States’ claim. In the alternative, the Department argues that “the Tucker Act grants the Court of Federal Claims jurisdiction over suits based on ‘any express or implied contract with the United States.”
- State of Tennessee et al. v. U.S. Department of Education et al., No. 3:25-cv-00270 (E.D. Tenn. 2025): On June 11, 2025, the State of Tennessee and the group behind the Supreme Court’s SFFA decision, Students for Fair Admissions, sued the DOE, alleging that the DOE’s Hispanic-Serving Institutions (HSI) program violates the Spending Clause of the U.S. Constitution and the Due Process Clause of the Fifth Amendment. The plaintiffs allege that the program is unlawfully discriminatory because only schools whose student body populations are at least 25% Hispanic are eligible to receive HSI funding.
- Latest update: The docket reflects that the defendants were served on June 16, 2025. Their deadline to answer the complaint is July 7, 2025.
4. Actions against educational institutions:
- Kleinschmit v. University of Illinois Chicago, No. 1:25-cv-01400 (N.D. Ill. 2025): On February 10, 2025, a former professor at the University of Illinois Chicago sued the university, alleging that it unlawfully discriminated against white male faculty candidates and discriminated and retaliated against the plaintiff by firing him after he objected to the school’s “racial hiring programs.” The plaintiff raises claims under Sections 1981 and 1983. On May 6, 2025, the university filed a motion to dismiss. The motion contends, among other things, that (1) the plaintiff lacks standing because the harms he claims to have experienced, including not having his contract renewed, are not redressable through the injunctive remedies he seeks, (2) the plaintiff cannot maintain his action because the Board of Directors of the University of Illinois enjoys sovereign immunity under the Eleventh Amendment, (3) Sections 1981 and 1983 do not apply to the university, as it is an alter ego of the state and not a “person” under the meaning of the statutes, (4) the Eleventh Amendment bars monetary damages against the individual defendants in their official capacities as employees of the university, and (5) the individual defendants lacked involvement in the alleged adverse employment actions.
- Latest update: On May 27, 2025, the plaintiff filed an amended complaint, adding new defendants from the University’s administration and adding allegations that the University, a recipient of federal funds, violated Title VI of the Civil Rights Act of 1964 by intentionally discriminating against the plaintiff on the basis of his race, color, and ethnicity. On June 6, 2025, the court found that the amended complaint rendered the defendant’s motion to dismiss moot. On the same day, the plaintiff filed a second amended complaint, adding to his “Prayer for Relief” that the court declare the university’s actions violated 42 U.S.C. § 2000d.
Legislative Updates:
On May 13, 2025, Senator Tom Cotton (R-AR), along with Senators Marsha Blackburn (R-TN) and Pete Ricketts (R-NE), introduced S. 1745, the “Dismantling Ideological Policies for Semiconductors and Science Act.” The bill’s purpose is to “repeal[] or amend[] programs and requirements related to DEI” that were passed as part of the CHIPS and Science Act of 2022, which “provide[d] funds to support the domestic production of semiconductors and authorize[d] various programs and activities of the federal science agencies” and mandated research and funding to support DEI in scientific and technological fields. Pub. L. No. 117-167; 136 Stat. 1372, 1399 (2022). This new bill proposes amending the CHIPS and Science Act by repealing its DEI-related provisions, including the “[r]epeal of [the] requirement to recruit STEM educators that advance DEI for National STEM Teacher Corps… [r]epeal of [the] program to award funds for research to support DEI in STEM… [and] [r]epeal of DEI best practices in the academic and Federal STEM workforce.” The bill asserts that STEM research and funding should be awarded “without regard to race, color, ethnicity, sex, or sexual orientation.”
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, any member of the firm’s Labor and Employment practice group, or the following practice leaders and authors:
Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)
Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, mdenerstein@gibsondunn.com)
Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, zswilliams@gibsondunn.com)
Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, msenger@gibsondunn.com)
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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.
We are pleased to provide you with the June edition of Gibson Dunn’s monthly U.S. bank regulatory update. Please feel free to reach out to us to discuss any of the below topics further.
KEY TAKEAWAYS
- The Board of Governors of the Federal Reserve System (Federal Reserve), Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) issued a proposal to modify the enhanced supplementary leverage ratio applicable to U.S. GSIBs and their bank subsidiaries. The proposal aims to reduce the likelihood that the supplementary leverage ratio would be a “regularly binding or near-binding constraint.”
- During his testimony before the Senate Banking Committee, Chair Powell again indicated the agencies will take action on Basel III “in the relatively near future.” The Federal Reserve also published its agenda for its July 22, 2025 Integrated Review of the Capital Framework for Large Banks Conference.
- Michelle Bowman was sworn in as Vice Chair for Supervision of the Federal Reserve Board. In her first remarks as Vice Chair for Supervision, Bowman previewed an agenda consistent with her past remarks and speeches – pragmatism in supervisory approach, the role of guidance in supervision, supervision focused on material financial risks, tailoring, supervisory ratings, capital, and de novo charter and bank M&A application processing timelines.
- In those same remarks, Vice Chair for Supervision Bowman also identified the ongoing challenges presented to banks, particularly small banks, of check fraud. Days later, the Federal Reserve, OCC and FDIC released a request for information on potential actions to address payments and check fraud.
- Annual bank stress test results were released with all 22 banks tested remaining well capitalized during the stress scenario. The release acknowledges the smaller 1.8 percentage point decline in the CET1 ratio than in past years reflects the “unintended volatility” in the models used for the stress tests, which the Federal Reserve will disclose for public comment later this year. Vice Chair for Supervision Bowman urged that finalizing the April 2025 proposal to average two consecutive years of stress test results would “address the excess volatility in the stress tests results and corresponding capital requirements.”
- The Federal Reserve joined the OCC and FDIC in removing reputational risk from bank supervision.
- The OCC issued guidance describing its plan to address criminally liable regulatory offenses consistent with Executive Order (EO) 14294 titled, “Fighting Overcriminalization in Federal Regulations.”
- The GENIUS Act passed the Senate with a 68-30 vote.
DEEPER DIVES
Federal Banking Agencies Proposed Changes to Enhanced Supplementary Leverage Ratio. The Federal Reserve, OCC and FDIC issued a proposal to modify the enhanced supplementary leverage ratio (eSLR) applicable to U.S. GSIBs and their bank subsidiaries. The proposal aims to reduce the likelihood that the supplementary leverage ratio would be a “regularly binding or near-binding constraint,” with a principal aim of “reducing potential disincentives for GSIBs and their depository institution subsidiaries to participate in low-risk, low-return businesses, including U.S. Treasury market intermediation.” To do so, the proposal would modify the eSLR standard applicable to GSIBs by recalibrating the fixed 2% eSLR buffer standard for GSIBs to equal 50% of a GSIB’s method 1 surcharge as determined under the Federal Reserve’s risk-based GSIB surcharge framework. The proposal would also align the calibration of the eSLR standard applicable to depository institution subsidiaries of GSIBs with that applicable to their GSIB parent bank holding companies by removing the eSLR threshold for a depository institution subsidiary of a GSIB to be considered “well capitalized” under the prompt corrective action framework and instead implementing the eSLR as a buffer standard equal to 50% of the parent GSIB’s method 1 surcharge calculation. In addition, the proposal invites comment on a potential additional modification that would exclude from the denominator of the supplementary leverage ratio held-for-trading Treasuries of certain broker-dealer subsidiaries of GSIBs.
- Insights. The proposal is consistent with the stated intention of the federal banking agencies to be pragmatic in their approach to tailoring regulatory requirements and in considering risk within the financial system. We note that the dissenting statements by Governors Barr and Kugler acknowledge the need for resilience of the U.S. Treasury market, but note that more modest changes would be preferred, particularly, as Governor Barr noted, if considered in conjunction with other Basel III implementation.
Vice Chair for Supervision Michelle Bowman Previews Agenda as Vice Chair for Supervision. On June 9, 2024, Federal Reserve Board Governor Michelle Bowman was sworn in as the third Vice Chair for Supervision, for a four-year term ending June 9, 2029 (her term as a member of the Federal Reserve Board ends on January 31, 2034).
- Insights. In her first remarks as Vice Chair for Supervision, Bowman was consistent in setting out her principles for a “pragmatic” approach to bank supervision and regulation, arranged by the following topics, which we expect to see implemented in a variety of manners by the federal banking agencies in their regulation and supervision of regulated institutions of all sizes:
Topic | Summary |
Financial Risk | As she has discussed in the past, Vice Chair for Supervision Bowman is a proponent of supervision “focused on material financial risks” rather than supervision that tends to “overemphasize or become distracted by relatively less important procedural and documentation shortcomings.” As she has consistently noted, “our goal should be to prioritize the identification of material financial risks and encourage prompt action to mitigate risks that threaten safety and soundness.” |
Improving Prioritization | In that same vein, Bowman also stresses the need for “improving prioritization” of activities in the supervisory process, stating: “A random sample of examination reports demonstrates that supervisory focus has shifted away from core financial risks (credit risk, interest rate risk, and liquidity risk, for example), to process-related concerns. While process is important for effective management, there is a risk that overemphasis on process and supervisory box-checking can be a distraction from the core purpose of supervision, which is to probe financial condition and financial risk.” |
Tailoring | Bowman aptly describes herself as a “long-time proponent of tailoring banking regulations.” Her approach will include extending the application of tailoring to the Federal Reserve’s supervisory approach to financial institutions both among bank categories and within a particular category. She, like others, has voiced concerns with the current $10 billion threshold defining the upper bounds of a community bank. |
Ratings | Citing to the Federal Reserve’s most recent Supervision and Regulation Report, Bowman addresses what many, including Bowman, have perceived as “gradual changes in supervisory approaches that have eroded the link between ratings and financial condition” and resulted in “a disparity between well-managed status and financial condition.” In that connection, she notes that the Federal Reserve will begin by proposing changes to the Large Financial Institution ratings framework. She also suggests the Federal Reserve will consider the ratings framework for smaller institutions, including the CAMELS framework. |
Banking Applications | Bowman has consistently discussed the need for change to the Federal Reserve’s review of applications and echoes that again in her remarks: “recent experience with banking applications suggests that revisions would be helpful in this space.” She regularly promotes a consistent application review process that aims for both “(1) transparency as to the information required in the application itself, and the standards of approval being applied, and (2) clear timelines for action.” This includes considering whether many of the additional requests for information can be addressed through changes to the agencies’ application forms or relying more on information that is available from examinations and ongoing supervision. |
Guidance on Referrals for Potential Criminal Enforcement. On June 23, 2025, the OCC issued guidance describing its plan to address criminally liable regulatory offenses. The OCC identified four considerations relevant when deciding whether to refer alleged violations of criminal regulatory offenses to the Department of Justice: (1) the harm or risk of harm, pecuniary or otherwise, caused by the alleged offense; (2) the potential gain to the putative defendant that could result from the offense; (3) whether the putative defendant held specialized knowledge, expertise, or was licensed in an industry related to the rule or regulation at issue; and (4) evidence, if any is available, of the putative defendant’s general awareness of the unlawfulness of his conduct as well as his knowledge or lack thereof of the regulation at issue.
- Insights. The OCC guidance flows from and is consistent with policies identified by the administration generally, and specifically in EO 14294 titled, “Fighting Overcriminalization in Federal Regulations,” which broadly pronounced that “criminal enforcement of criminal regulatory offenses is disfavored.” The OCC’s focus on harm caused by the offense and potential gain to the alleged offender could foreshadow fewer referrals for technical violations without victims or beneficiaries, and the remaining two factors focus on knowledge, which could further shape future referrals. However, as directed by the EO, the OCC stated that it will publish a list of criminal regulatory offenses, and the range of potential criminal penalties and applicable state of mind required for each offense by May 2026. This future guidance will further illuminate criminal enforcement priorities, particularly as many of the administration’s general enforcement priorities focus on financial institutions as gatekeepers to the U.S. financial system.
OTHER NOTABLE ITEMS
Federal Banking Agencies Issue Request for Information on Payments and Check Fraud. On June 16, 2025, the Federal Reserve, OCC and FDIC released a request for information (RFI) on potential actions to address payments and check fraud. The RFI requests comment on five specific areas that could help mitigate payments fraud: (1) external collaboration; (2) consumer, business and industry education; (3) regulation and supervision; (4) payments fraud data collection and information sharing; and (5) Federal Reserve Banks’ operator tools and services.
Federal Banking Agencies and NCUA Issue Order Granting Exemption to CIP Rule. The federal banking agencies and National Credit Union Administration, with the concurrence of FinCEN, issued an order granting an exemption from the Customer Identification Program (CIP) rule requirement that a bank or credit union obtain taxpayer identification number (TIN) information from its customer before opening an account. The exemption permits a bank or credit union to use an alternative collection method to obtain TIN information from a third-party rather than from the customer.
Federal Reserve Moves on Reputational Risk. Following Chair Powell’s commitment to the Senate Banking Committee during his February testimony, on June 23, 2025, the Federal Reserve announced that reputational risk will no longer be a component of examination programs in its supervision of banks. With the announcement, the Federal Reserve joins the OCC and FDIC in removing reputational risk from bank supervision.
Speech by Vice Chair for Supervision Bowman on Economic Shifts Producing Unintended Consequences in Supervision and Regulation. On June 23, 2025, Vice Chair for Supervision Bowman gave a speech titled “Unintended Policy Shifts and Unexpected Consequences.” In her speech, Bowman discussed how leverage ratio requirements applicable to banks have had unintended consequences in Treasury market intermediation activities, a principal aim of the agencies’ eSLR proposal.
Federal Reserve Publishes Agenda for Conference on Large Bank Capital Requirements. On June 26, 2025, the Federal Reserve published its agenda for its July 22, 2025 Integrated Review of the Capital Framework for Large Banks Conference. The conference aims to examine the interaction between the key pillars of the regulatory capital framework – Basel III Endgame, stress testing, the capital surcharge for the largest banks and leverage requirements.
OCC Releases Letter on Preemption. On June 9, 2025, Acting Comptroller Hood released a letter in response to correspondence from the Conference of State Bank Supervisors requesting the OCC rescind its preemption regulations. In the letter, Acting Comptroller Hood reaffirmed the OCC would “not rescind its regulations and will continue to vigorously support and defend federal preemption” on the grounds those regulations “are consistent with federal law, Supreme Court precedent, and [Executive Orders 14219—Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative and 14267—Reducing Anti-Competitive Regulatory Barriers].”
Acting Comptroller Hood Discusses OCC Regulatory Agenda. On June 3, 2025, Acting Comptroller Hood discussed the OCC’s regulatory agenda before the U.S. Chamber of Commerce Capital Markets Forum. Acting Comptroller Hood’s remarks were consistent with prior speeches and highlighted four key areas of strategic focus for the OCC: (1) accelerating bank-fintech partnerships; (2) expanding responsible engagement with digital assets; (3) advancing financial inclusion; and (4) modernizing regulation. In his remarks, Acting Comptroller Hood also highlighted that beyond digital assets, the OCC also is “monitoring emerging technologies like generative AI, agentic AI, and quantum computing.”
OCC Releases Semiannual Risk Perspective. On June 30, 2025, the OCC released its Semiannual Risk Perspective for Spring 2025. Closely following the agencies’ RFI on potential actions to address payments and check fraud, the OCC’s report includes a similar discussion to past reports on consumer compliance risks associated with increased levels and sophistication of fraud. The report highlights the OCC’s concerns that instances of fraud, suspected fraud or other suspicious activities be “promptly” investigated, resolved and, as appropriate, funds credited in accordance with the Expedited Funds Availability Act (Regulation CC), Electronic Fund Transfer Act (Regulation E) and Federal Trade Commission Act. The report also highlights that although increases in fraud cases and their sophistication “may necessitate reasonable delays as allowed by law or regulation,” such delays “may also exacerbate compliance risk when banks take prolonged timeframes to complete investigations or implement broad account access limitations, preventing customers, including those who are not victims of fraud, from accessing their funds.”
NYDFS Issues Cybersecurity Guidance Regarding Impact of Ongoing Global Conflicts. On June 23, 2025, the New York State Department of Financial Services (NYDFS) issued guidance to all NYDFS-regulated entities highlighting steps “regulated entities should take to prepare for an increased threat of cybersecurity attacks, in light of ongoing global conflict.” The three areas of focus of the bulletin were cybersecurity, sanctions and virtual currency.
Michael E. Horowitz Appointed Inspector General for Federal Reserve Board and CFPB. On June 6, 2025, the Federal Reserve announced Michael E. Horowitz’s appointment to lead the Federal Reserve Board’s Office of Inspector General effective June 30, 2025. Mr. Horowitz will serve in that same role for the CFPB.
FDIC Updates List of PPE. On June 4, 2025, the FDIC updated the list of companies that have submitted notices for a Primary Purpose Exception under the 25% or Enabling Transactions test.
The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Ro Spaziani, and Rachel Jackson.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work or any of the member of the Financial Institutions practice group:
Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)
Ro Spaziani, New York (212.351.6255, rspaziani@gibsondunn.com)
Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)
M. Kendall Day, Washington, D.C. (202.955.8220, kday@gibsondunn.com)
Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)
Sara K. Weed, Washington, D.C. (202.955.8507, sweed@gibsondunn.com)
Ella Capone, Washington, D.C. (202.887.3511, ecapone@gibsondunn.com)
Sam Raymond, New York (212.351.2499, sraymond@gibsondunn.com)
Rachel Jackson, New York (212.351.6260, rjackson@gibsondunn.com)
Zack Silvers, Washington, D.C. (202.887.3774, zsilvers@gibsondunn.com)
Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)
Nathan Marak, Washington, D.C. (202.777.9428, nmarak@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
Trump v. CASA, Inc., No. 24A884 – Decided June 27, 2025
Today, the Supreme Court held 6-3 that district courts were wrong to grant “universal” preliminary injunctions against the government’s enforcement of a presidential executive order, and that any injunctive relief should be limited to the parties in those cases.
“‘[U]niversal injunctions’ . . . likely exceed the equitable authority that Congress has granted to federal courts.”
Justice Barrett, writing for the Court
Background:
On January 20, 2025, President Trump issued an Executive Order titled “Protecting the Meaning and Value of American Citizenship.” The order identifies two groups of persons whom the government should not recognize as United States citizens, even though they were born in the United States. The order directs federal officials not to issue documents recognizing U.S. citizenship for those individuals, to reject documents issued by state or local governments recognizing their citizenship, and to develop and issue public guidance on how to carry out the order within 30 days.
Shortly after the order’s issuance, three federal district courts granted universal preliminary injunctions, which forbade the government from taking steps to carry out the order’s directives against any person, anywhere in the country. The government defendants asked each district court (and later, the First, Fourth, and Ninth Circuits) for a partial stay of the preliminary injunctions. Their requests were denied. The government defendants then asked the Supreme Court for a partial stay. They argued that the Court should narrow the preliminary injunctions’ scope to protect only the individuals and identified members of the organizations who challenged the order, which would allow the order to go into effect against nonparties.
Issue:
May federal courts issue universal preliminary injunctions in favor of nonparties against the government?
Court’s Holding:
No. Universal injunctions likely exceed the equitable authority that Congress granted to federal courts under the Judiciary Act of 1789.
What It Means:
- Today’s decision confirms that federal district courts likely do not have the power to grant universal preliminary injunctions, which temporarily forbid the government from enforcing a challenged federal action against anyone affected by the action, anywhere in the United States (even against nonparties to the lawsuit). The Court explained that while Congress endowed federal courts with jurisdiction over “all suits . . . in equity” in the Judiciary Act of 1789, courts’ power to fashion equitable remedies only encompasses those remedies “traditionally accorded by courts of equity” at the nation’s Founding.
- The Court noted that it was not deciding whether the Administrative Procedure Act authorizes federal courts to vacate federal agency action under the provision allowing courts to “hold unlawful and set aside agency action.” 5 U.S.C. § 706(2). The Court’s decision therefore does not affect plaintiffs’ ability to ask courts to “set aside” an agency action, even when some affected individuals are not parties to the APA suit.
- The Court’s ruling signals to plaintiffs that they must consider alternative avenues to expedite their challenges to executive or legislative actions. These avenues may include Rule 23 class actions, lawsuits under civil rights legislation such as 42 U.S.C. § 1983, and actions to enjoin officials under Ex parte Young.
- One consequence of today’s decision may be a reduction in the number of emergency applications to the United States Supreme Court. In recent years, a rise in the number of universal injunctions granted by district courts resulted in a sharp increase in emergency applications to the Supreme Court and a corresponding increase in decisions on the so-called “shadow docket”—the name that critics gave to the Court’s emergency docket. Today’s decision could result in a decrease in these applications going forward.
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 U.S. Supreme Court. Please feel free to contact the following practice group leaders:
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 |
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com |
Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com |
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com |
Related Practice: Administrative Law and Regulatory
Stuart F. Delery |
Eugene Scalia |
Helgi C. Walker |
This alert was prepared by associates Stephen Hammer and Audrey Payne.
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
FCC v. Consumers’ Research, Nos. 24-354 and 24-422 – Decided June 27, 2025
Today, the Supreme Court held 6-3 that the statute authorizing the FCC to collect universal service contributions from telecommunications companies does not violate the nondelegation doctrine.
“The question in this case is whether the universal-service scheme . . . violates the Constitution’s nondelegation doctrine, either because Congress has given away its power to the FCC or because the FCC has given away its power to a private company. We hold that no impermissible transfer of authority has occurred.”
Justice Kagan, writing for the Court
Background:
The Telecommunications Act of 1996 directed the FCC to establish a Universal Service Fund to subsidize telecommunications services in rural and low-income areas, schools, and libraries. See 47 U.S.C. § 254. The Act instructs that “universal service” should be available at “just, reasonable, and affordable” rates. Id. § 254(i). Telecommunications carriers must make contributions to the fund that are “sufficient” to “advance universal service.” See id § 254(d)–(e). In defining universal service, the Commission must consider “the extent to which” telecommunications services “are essential to education, public health, or public safety”; are “subscribed to by a substantial majority of residential customers”; and “are consistent with the public interest, convenience, and necessity.” Id. § 254(c)(1). The FCC’s policies to “preserv[e] and advance[]” universal service must be based on six specific principles and any additional principles the FCC determines are “necessary and appropriate for the protection of the public interest, convenience, and necessity and are consistent with this chapter.” Id. § 254(b).
In 1997, the FCC directed a private not-for-profit corporation, the Universal Service Administrative Company (USAC), to help the FCC administer the fund. Among other things, USAC helps the FCC determine the size of carriers’ contributions by providing financial projections to the Commission.
A carrier and others challenged the FCC’s 2022 contribution rate in the U.S. Court of Appeals for the Fifth Circuit. They argued that the Universal Service Fund is unconstitutional because Congress delegated legislative power to the FCC and the Commission then redelegated power to USAC. A Fifth Circuit panel rejected the challenge. Sitting en banc, the full Fifth Circuit held 9-7 that the combination of Congress’s delegation to the FCC and the FCC’s delegation to USAC violates the Constitution’s vesting of legislative power in Congress.
Issues:
Did Congress violate the nondelegation doctrine when it authorized the FCC to determine the amounts that telecommunications carriers must contribute to the Universal Service Fund; did the FCC violate the nondelegation doctrine by using USAC projections to determine contribution rates; or did the combination of these delegations violate the nondelegation doctrine?
Court’s Holding:
Neither Congress nor the FCC violated the nondelegation doctrine. Section 254 provides an intelligible principle to constrain the FCC’s discretion in determining the amount of money to collect to support universal service and in defining universal service. The FCC did not improperly delegate to USAC because the FCC maintained the final say as to contribution rates. Those two lawful delegations do not become unconstitutional when combined.
What It Means:
- The Court’s decision upholds the Universal Service Fund’s contribution mechanism, applying the traditional intelligible-principle test. The Court reiterated that exercises of Congress’s tax power are evaluated under “the usual nondelegation standard.” It also refused to draw a distinction for nondelegation purposes between statutes authorizing fees and statutes authorizing taxes.
- The Court nonetheless emphasized that the intelligible-principle test is not toothless: Congress must make “clear both the general policy that the agency must pursue and the boundaries of its delegated authority”; those standards must “enable both the courts and the public to ascertain whether the agency has followed the law”; and the acceptable degree of discretion “varies according to the scope of the power congressionally conferred.” That leaves open the possibility that some statutes might still be successfully challenged on nondelegation grounds.
- On the private nondelegation question, the Court held that the FCC did not unconstitutionally delegate authority to USAC because the FCC retained ultimate “decision-making power,” even if USAC gave “recommendations.” The Court was not willing to scrutinize whether the FCC was practically functioning merely as a rubber stamp.
- The Court rejected the Fifth Circuit’s “combination theory” of unconstitutionality as novel and unsound. Because the public and private nondelegation doctrines “do not operate on the same axis,” measures implicating one do not “compound” measures implicating the other. The Court distinguished Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), where both measures at issue “limited the same thing—the President’s power to remove executive officers.”
- Justice Gorsuch, joined by Justice Thomas and Justice Alito, dissented. He would have held that the funding mechanism is novel and violates the intelligible-principle test. In the end, however, he expressed “some optimism” because the Court did not address two provisions that allow the FCC to provide more “advanced” and “additional” services for schools, libraries, and healthcare providers—§ 254(c)(3) and (h)(2). Those provisions remain open to challenge.
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 U.S. Supreme Court. Please feel free to contact the following practice group leaders:
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 |
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com |
Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com |
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com |
Related Practice: Administrative Law and Regulatory
Stuart F. Delery |
Eugene Scalia |
Helgi C. Walker |
This alert was prepared by associates Zachary Tyree and Connor P. Mui.
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
Kennedy v. Braidwood Management, Inc., No. 24-316 – Decided June 27, 2025
Today, the Supreme Court held 6-3 that the members of the U.S. Preventive Task Force are inferior officers whose appointment by the HHS Secretary is consistent with the Appointments Clause.
“Task Force members remain subject to the Secretary of HHS’s supervision and direction, and the Secretary remains subject to the President’s supervision and direction. So under Article II and this Court’s precedents, Task Force members are inferior officers, and Congress may vest the power to appoint them in the Secretary of HHS.’”
Justice Kavanaugh, writing for the Court
Background:
The U.S. Preventive Services Task Force is a 16-member volunteer body within the Public Health Service of the Department of Health and Human Services (“HHS”). Task Force members are experts in prevention, evidence-based medicine, and primary care who develop recommendations about preventive health services. They serve four-year terms, and there are no statutory restrictions on their removal. The current Task Force members were appointed by the Director of the Agency for Healthcare Research and Quality; their appointments were later ratified by the HHS Secretary in June 2023.
In codifying the Task Force, Congress directed that “[a]ll members of the Task Force . . . and any recommendations made by such members, shall be independent and, to the extent practicable, not subject to political pressure.” 42 U.S.C. § 299b-4(a)(6). Although the Task Force originally made only voluntary recommendations, in the Affordable Care Act of 2010, Congress determined that some of the Task Force’s recommendations would create binding obligations for health-insurance issuers and group health plans to cover certain preventive health services, unless rejected by the HHS Secretary. 42 U.S.C. § 300gg-13(a)-(b).
Several small businesses and individuals objected to the requirement—recommended by the Task Force—that health-insurance issuers and group plans cover certain HIV-prevention medications. Plaintiffs argued that the structure of the Task Force violated the Appointments Clause because Task Force members are “principal officers” and must therefore be nominated by the President and confirmed by the Senate. The HHS Secretary disagreed, arguing that Task Force members are “inferior officers” who may be appointed by the HHS Secretary.
The district court ruled for Plaintiffs, agreeing that the Task Force members’ appointments violated the Constitution because they were principal officers. The Fifth Circuit affirmed on the ground that “the Task Force cannot be ‘independent’ and free from ‘political pressure’ on the one hand, and at the same time be supervised by the HHS Secretary, a political appointee, on the other.”
Issue:
Whether appointment of the U.S. Preventive Services Task Force members by the HHS Secretary is consistent with the Appointments Clause.
Court’s Holding:
Yes. Task Force members are inferior officers: they are removable at will by the HHS Secretary and their recommendations can be rejected by the HHS Secretary before having any legal effect.
What It Means:
- Today’s decision reiterates the Court’s commitment to enforcing the Appointments Clause and the chain of political accountability that is central to its design. See, e.g., Edmond v. United States, 520 U.S. 651 (1997); Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010); Lucia v. SEC, 585 U.S. 237 (2018).
- In making the principal versus inferior officer determination, the Court emphasized that at-will removal by a principal officer is strong evidence of inferiority. At-will removal is a “powerful tool for control” and historical practice supports treating officers who can be removed at will by principal officers as inferior.
- The Court also emphasized that the default presumption is that all officers are removable at will, and unless Congress clearly and explicitly states otherwise, the Court will not presume or imply restrictions on officers’ removal.
- The Court clarified that the inability of a principal officer to compel a subordinate officer’s actions does not mean the subordinate officer is not inferior. The superior officer’s ability to overrule or reject a subordinate’s decision is sufficient supervisory authority.
- The Court’s decision provides guidance to the potential avenues available to businesses seeking to challenge actions by federal government actors who may not have been validly appointed. Important considerations include assessing whether the actors’ decision may be overruled or rejected by senior government personnel and whether statutory language about independence is sufficient to overcome the presumption of at-will removal.
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 U.S. Supreme Court. Please feel free to contact the following practice group leaders:
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 |
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com |
Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com |
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com |
Related Practice: Administrative Law and Regulatory
Stuart F. Delery |
Eugene Scalia |
Helgi C. Walker |
Matt Gregory +1 202.887.3635 mgregory@gibsondunn.com |
This alert was prepared by associates Salah Hawkins and Aly Cox.
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
From the Derivatives Practice Group: This week, ESMA was active with a number of releases while the CFTC’s Division of Market Oversight extended its no action position to certain non-U.S. swap dealers concerning certain swap reporting requirements Part 45 and Part 46 of the CFTC’s regulations.
New Developments
CFTC Staff Issues No-Action Letter to MIAX Futures Exchange, LLC. On June 25, the Division of Market Oversight (“DMO”) of the CFTC issued a no-action letter stating that it will not recommend enforcement action against MIAX Futures Exchange, LLC (“MIAX”) for temporarily providing for the trading of MIAX’s Minneapolis Hard Red Spring Wheat options on futures exclusively through block trades due to the lack of availability of an electronic trading system, subject to certain conditions set forth in the letter. The DMO stated that it believes the temporary no-action positions are warranted to provide participants in the market with a means to trade out of or offset their open positions in certain expirations when electronic trading is no longer available [NEW]
CFTC Staff Issues No-Action Letter Extension Regarding Non-U.S. Swap Dealers. On June 23, the DMO of the CFTC issued a no-action letter extending the no-action position of CFTC Letter No. 22-14 concerning certain swap reporting requirements of Part 45 and Part 46 of the CFTC’s regulations (the “Amended SDR Reporting Rules”). The letter applies to non-U.S. swap dealers (“SDs”) and non-U.S. major swap participants (“MSPs”) established under the laws of Australia, Canada, the European Union, Japan, Switzerland or the United Kingdom, that are not part of an affiliated group in which the ultimate parent entity is a U.S. swap dealer, U.S. major swap participant, U.S. bank, U.S. financial holding company or U.S. bank holding company. According to the letter, the DMO will not recommend enforcement action against such an entity for failure to comply with the Amended SDR Reporting Rules with respect to its swaps with non-U.S. counterparties that are not guaranteed affiliates, or conduit affiliates, of a U.S. person, until the earlier of: (a) 30 days following the issuance of a comparability determination by the CFTC with respect to the Amended SDR Reporting Rules for the jurisdiction in which the non-U.S. SD or non-U.S. MSP is established, and (b) the applicable compliance date of a CFTC action addressing such obligations. [NEW]
U.S. Senate Passes GENIUS Act. On June 16, the Senate passed the bipartisan Guiding and Establishing National Innovation for US Stablecoins Act, or GENIUS Act, in a 68-30 vote. If passed in the House, the GENIUS Act would establish the first federal rules for regulating stablecoins, a type of digital asset pegged to the value of another asset, oftentimes the U.S. dollar. The GENIUS Act now heads for a vote in the House.
Former CFTC Chairman William Bagley Dies at 96. On June 16, CFTC acting Chairman Caroline D. Pham released a statement on the passing of the Hon. William T. Bagley, the CFTC’s first chairman. Appointed to the position by President Gerald Ford, William Bagley served as the Chairman of the CFTC from 1975 to 1978. He passed away on June 9, 2025 at his home in San Rafael, California.
New Developments Outside the U.S.
ESMA Narrows Down Scope of CSDR Cash Penalties Trading. On June 26, ESMA published a final report that specifies the scope of Central Securities Depositories Regulation (“CSDR”) cash penalties which the agency describes asin an effort to support its simplification and burden reduction initiative in post-trading. ESMA provided technical advice to the European Commission on the scope of settlement discipline that it said is in line with the revised settlement discipline framework set out in CSDR Refit, identifying (1) the causes of settlement fails that are considered as not attributable to the participants in the transaction, and (2) the circumstances in which operations are not considered as trading. ESMA also identified a broad range of scenarios that would not trigger CSDR cash penalties. [NEW]
ESMA Provides Advice on Eligible Assets for UCITS. On June 26, ESMA published its advice to the European Commission on the review of the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Eligible Assets Directive (“EAD”). The EAD is an implementing directive providing clarification on the assets a UCITS can invest in. ESMA said that it provided in the Technical Advice a comprehensive assessment of the EAD’s implementation across Members States and made proposals to ensure regulatory clarity and uniformity across jurisdictions. [NEW]
ESMA Suggests Amendments to the DLT Pilot Regime to Make It Permanent. On June 25, ESMA published a report on the Distributed Ledger Technology (“DLT”) Pilot Regime. ESMA also provided an overview of the EU market for authorized DLT market infrastructures and recommendations on how to expand participation in the DLT Pilot Regime. ESMA indicated that the report contained information about business models, types of DLT financial instruments offered, and technical or legal issues encountered by supervisors to date. ESMA also said that it analysed exemptions requested by DLT market infrastructures and the conditions under which National Competent Authorities have granted those exemptions. [NEW]
ESMA Provides Guidance on Key Tool for CCP Resolution. On June 25, ESMA published its first central counterparties (“CCPs”) resolution briefing, which it said aims to support National Resolution Authorities (“NRAs”) on the operationalization of the cash call mechanism. The briefing, developed by ESMA’s CCP Resolution Committee, provides a methodology to be considered by NRAs when including the resolution cash call in CCP resolution plans. [NEW]
ESMA Consults on Margin Transparency and Cost of Clearing. On June 24, ESMA launched two public consultations following the review of the European Market Infrastructure Regulation (“EMIR 3”). ESMA encouraged stakeholders to share their views about (1) the type of information to be disclosed by clearing service providers (“CSPs”) to their clients, and (2) the requirements regarding CCPs’ margin simulation tool and CSPs’ margin simulations, as well as the type of information to be provided by CCPs and CSPs regarding their margin models. [NEW]
ESMA Invites Feedback on How to Simplify Funds’ Data Reporting. On June 23, ESMA launched a discussion paper to gather feedback and inputs on how to integrate funds reporting, aiming to reduce the burden for market participants. The discussion paper outlines options for improving different aspects of reporting, such as the scope of data, reporting processes and systems to ensure more efficient reporting and sharing of data between the authorities. [NEW]
ESMA Calls for Input on Streamlining Financial Transaction Reporting. On June 23, ESMA launched a call for evidence to gather feedback on opportunities to simplify, better integrate and streamline supervisory reporting. ESMA said that it aims to identify how best to enhance efficiency and reduce the costs associated with supervisory reporting while maintaining a strong level of transparency and ensuring effective oversight from the authorities. [NEW]
ESMA Puts Forward Q&A on Shared Order Book Model Under MiCA. On June 20, ESMA published a new Q&A on the non-compliance of the shared order book model with the Markets in Crypto-Assets Regulation (“MiCA”). The Q&A addressed the model where two or more crypto-asset platforms merge their individual order books into a single, unified order book from which orders are matched. ESMA clarified that where such a model involves non-EU trading platforms, it breaches the authorization requirements under MiCA. [NEW]
ESMA Publishes Final Report on Active Account Requirement Under EMIR 3. On June 19, ESMA published its final report on the Regulatory Technical Standards specifying the conditions under which the active account requirement should be met, as mandated under EMIR 3. ESMA has streamlined the operational conditions and the stress-testing in response to feedback to its public consultation.
ESMA Consults on Methodology for Computing EU Member States’ Market Capitalization and Market Capitalization Ratios. On June 19, ESMA announced that it is consulting on the methodology for calculating market capitalization and market capitalization ratios, as mandated by the Directive on faster and safer relief of excess withholding taxes. The proposed methodology is aligned with existing transparency frameworks and uses transaction data reported under the Regulation on markets in financial instruments.
ESMA Appoints Ante Žigman to Management Board and Appoints New Chairs to Two Standing Committees. On June 18, ESMA appointed Ante Žigman as a new member of its Management Board. The election took place at the Board of Supervisors meeting in Warsaw on June 17, and he will take up his position on 6 July 2025.
New Industry-Led Developments
ISDA Publishes Paper on Developments in Interest Rate Derivatives Markets in Mainland China and Hong Kong. On June 24, ISDA published a research paper that analyzes interest rate derivatives (“IRD”) trading activity reported in mainland China and Hong Kong. Key highlights from the report include that (1) China’s renminbi (“RMB”)-denominated IRD market has expanded significantly since 2022 and that (2) the share of RMB-denominated IRD traded notional in Hong Kong overall grew to 10.2% in 2024. [NEW]
ISDA, SIFMA Comments on Stress Capital Buffer Requirement Proposal. On June 23, ISDA and the Securities Industry and Financial Markets Association (“SIFMA”) submitted a comment letter on a proposal by the Federal Reserve Board of Governors to revise its capital plan rule and stress capital buffer requirement (“SCB”). In the letter, ISDA and SIFMA commended the Board for initiating efforts to address longstanding and unwarranted volatility of the SCB, primarily by averaging SCB results over a two-year period. However, the letter notes the proposal fails to address more fundamental drivers of SCB volatility, including the implausibility of the supervisory stress scenarios and the overlap with the risk-based capital framework. [NEW]
ISDA Publishes Position Paper on SFDR Review. On June 23, ISDA and the Association for Financial Markets in Europe published a position paper on the review of the Sustainable Finance Disclosure Regulation (“SFDR”). ISDA said that the paper acknowledges that the SFDR needs to be revised in line with the objectives of the sustainability omnibus to streamline the EU sustainable finance framework and address the implementation challenges experienced by market participants. The paper sets out several priorities, including streamlining disclosure requirements to focus on information most essential for investors and transitioning to a product categorization system while minimizing market disruption. [NEW]
ISDA Publishes Research Note on Interest Rate Derivatives Trading in the US, EU and UK. On June 18, ISDA published a research note that analyzes changes in interest rate derivatives trading activity in the US, EU and UK from 2021 to 2024. It examines how central bank interest rate policies influenced IRD trading volumes and how the composition of interest rate derivatives products has evolved due to the transition to alternative reference rates.
ISDA Responds to ESMA on Clearing Threshold Regime. On June 16, ISDA responded to ESMA’s consultation on the new clearing threshold regime. The new regime, based on uncleared positions, was introduced in the context of EMIR 3. In the response, ISDA comments on the data analysis provided by ESMA, the interaction with the active account requirements, in particular condition 2 of EMIR 3 Article 7a(1), and proposes an implementation approach suitable for financial and non-financial counterparties, in line with the European Union’s broader simplification and burden reduction agenda.
ISDA Launches Pre-adherence Period for Notices Hub. On June 12, ISDA began a pre-adherence process for the ISDA Notices Hub. The new protocol will change all agreements between adhering firms to allow them to use the ISDA Notices Hub – a secure online platform managed by S&P Global Market Intelligence that will enable the instantaneous delivery and receipt of termination notices and waivers ISDA has begun a pre-adherence process for the ISDA Notices Hub, enabling firms to sign up to a free protocol that will allow them to use the new platform when it launches on July 15.
The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, Karin Thrasher, and Alice Wang.
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, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:
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)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
The Ninth Circuit’s ruling against the importer defendant further opens the door for the government and private relators to police customs and tariff compliance through the FCA.
Overview
In April, Gibson Dunn published a Client Alert forecasting increased False Claims Act (FCA) enforcement of customs violations in the wake of President Trump’s new tariff regime. That alert previewed a pending case in the Ninth Circuit with jurisdictional implications for such uses of the FCA. The Ninth Circuit recently ruled against the importer defendant, further opening the door for the government and private relators to police customs and tariff compliance through the FCA and raising the stakes for importers and others in the import chain.
Case Summary
On June 23, 2025, the Ninth Circuit upheld an almost $26 million jury verdict against a pipe importer in a case alleging customs duty evasion under the FCA. In the case, Island Industries, Inc. (Island) alleged that its competitor Sigma Corporation (Sigma) made two types of false statements on customs forms to avoid antidumping duties. Island alleged that Sigma: (1) declared that antidumping duties did not apply to its imported products; and (2) described its products as “steel couplings” to customs officials but marketed them to customers as “welded outlets.”[1] The United States declined to intervene. At trial, a jury sided with Island and awarded an over $8 million verdict. The trial judge tripled the verdict and awarded penalties, as mandated by the FCA, resulting in almost $26 million in damages and civil penalties.[2]
On appeal, Sigma argued that the civil penalties provision of the Tariff Act, 19 U.S.C. § 1952, “displaces the FCA” as the sole mechanism for recovering antidumping duties an importer has fraudulently avoided paying.[3] Sigma also argued that it could not be liable under the FCA because it “had no obligation to pay antidumping duties” under the statute.[4] Sigma also challenged, in the Court of International Trade (CIT), a Department of Commerce ruling that its “welded outlets” fell within the scope of the relevant antidumping order. As a result, on appeal the Ninth Circuit was confronted not only with a question about whether a key element of the FCA was satisfied, but also with whether it had jurisdiction over the case at all—or whether, alternatively, the case “needed to be initiated in the CIT and then appealed (if at all) to the Federal Circuit.”[5]
The Ninth Circuit held as follows:
- Relators can bring FCA actions for customs duties violations in federal district court. Although under long-standing Ninth Circuit precedent[6] an FCA suit filed by the United States to recover damages for the improper avoidance of customs duties must be brought in the CIT, “a relator is not the United States” for purposes of that requirement—meaning there is “no jurisdictional obstacle” to such FCA actions brought by relators in federal district court.[7]
- The civil penalties provision of the Tariff Act is not the sole mechanism for recovering fraudulently avoided customs duties. Importers who improperly avoid customs duties are also subject to FCA liability. Neither statute’s text identifies it as the exclusive remedy for such conduct, and the statutes’ statutory and legislative histories suggest Congress “specifically intended the two statutes to coexist.”[8]
- An “obligation” to pay money to the government is an essential element of a reverse false claims action to recover customs duties, and the obligation begins at the time of import.[9] Sigma argued it had no obligation to pay antidumping duties because the amount owed had yet to be fixed and was thus contingent. The Court found that Sigma “became liable for antidumping duties when it imported its welded outlets . . . even though the amount due was not yet fixed through liquidation.”[10] This holding tracks the text of the FCA and prior caselaw interpreting the definition of “obligation.”[11]
- Consistent with the Supreme Court’s SuperValu decision, courts evaluating evasion of customs duties claims should evaluate the FCA’s scienter element from the defendant’s subjective point of view. The Court thus rejected Sigma’s argument that it lacked scienter because it would have been objectively reasonable for Sigma to believe that it did not owe antidumping duties.[12] The Court clarified that Sigma could not “escape liability by arguing that an objectively reasonable person could have believed that the statements [Sigma] submitted to the government were true.[13]
Implications
The Ninth Circuit’s ruling likely will encourage FCA enforcement of customs violations—by both the federal government and private relators. Particularly in the Ninth Circuit, which has jurisdiction over a number of the largest ports of entry in the United States, private relators may be further emboldened to pursue FCA cases against importers and others in the import chain, including in declined cases. Moreover, the Ninth Circuit’s decision highlights that importers accused of improperly avoiding customs duties face the twin risks of an enforcement action under the FCA and a separate one for civil penalties under the Tariff Act––which, in cases of fraud or gross negligence, can result in civil fines that are four times the value of the imported merchandise or the amount of the avoided duties.[14] Finally, the relator in the Sigma case was the defendant’s competitor—highlighting the risk that competitors may be incentivized to file qui tam suits against each other where they perceive (accurately or not) that they are being disadvantaged by violations of customs rules by others.
Given the sheer size of the import market in this country and the current elevated levels of custom duties, the risks for importers are enormous. Thus, as we wrote in April, companies should ensure they have robust compliance mechanisms to prevent, detect, and remedy customs violations—not only their own violations, but those of their upstream and downstream business partners.
[1] Island Indus., Inc. v. Sigma Corp., No. 22-55063, 2025 WL 1730271 (9th Cir. June 23, 2025).
[2] 31 U.S.C. § 3729(a)(1).
[3] Sigma Corp., at *18.
[4] Id. at *22.
[5] Id. at *16.
[6] See United States v. Universal Fruits & Vegetables Corp., 370 F.3d 829, 836 & n.13 (9th Cir. 2004) (holding that proper “venue” for a FCA case based on customs duties brought by the United States is the CIT); but see United States v. Universal Fruits & Vegetables Corp., 30 C.I.T. 706, 711 (2006) (the CIT is “not vested with the authority to grant Plaintiff’s claim for damages and penalties pursuant to the FCA”).
[7] Sigma Corp., at *16-17.
[8] Id. at *20-21.
[9] 31 U.S.C. § 3729(a)(1)(g).
[10] Sigma Corp., at *23.
[11] See 31 U.S.C. 3729(b)(3) (“obligation” means “established duty, whether or not fixed”); United States ex rel. Lesnik v. ISM Vuzem d.o.o., 112 F.4th 816, 821 (9th Cir. 2024) (“‘fixed’ referred to the amount of an obligation, not whether any obligation existed”).
[12] Sigma Corp., at *25.
[13] Id.
[14] 19 U.S.C. § 1592(c)(1).
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 or International Trade Advisory & Enforcement practice groups:
False Claims Act/Qui Tam Defense:
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© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
A recent declination of prosecution for a private equity firm provides a first look at how timely voluntary self-disclosure, extensive cooperation, and proactive remediation can mitigate the risk of criminal and civil penalties for acquirors when discovering violations of national security-related laws by acquirees, including those related to economic sanctions and export controls.
Executive Summary
On June 16, 2025, the Department of Justice’s (DOJ) National Security Division (NSD) Counterintelligence and Export Control Section and the U.S. Attorney’s Office for the Southern District of Texas (SDTX) announced the first-ever declination against an acquirer and its affiliates under NSD’s Voluntary Self Disclosures in Connection with Acquisitions Policy (the “M&A Policy”). The current version of the M&A Policy, promulgated in March 2024 as part of revisions to NSD’s Enforcement Policy for Business Organizations (the “NSD Enforcement Policy”), is aimed at incentivizing acquiring companies to make timely disclosures of misconduct uncovered during the M&A process, cooperate with subsequent investigations, and quickly remediate the behavior at issue.
The declination was part of a broader set of resolutions, including a non-prosecution agreement (NPA) with the acquired company and a plea agreement with the acquired company’s former chief executive officer (CEO), that was coordinated between DOJ and other agencies, including the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Commerce Department’s Bureau of Industry and Security (BIS).
These resolutions follow the DOJ Criminal Division’s May 12, 2025 announcement of its new approach to white collar and corporate enforcement, as discussed in our prior client alert. The Criminal Division’s announced priorities highlight national security-related offenses, including sanctions evasion, as a key area of focus. These resolutions, reached during the Biden Administration but announced during the Trump Administration, offer an example of how DOJ, in coordination with other federal agencies, enforces such priorities in the M&A context. The resolutions also demonstrate the substantial benefits that can be obtained by acquirors, and potentially acquirees, if they promptly discover potential wrongdoing, make timely voluntary self-disclosures, carry out swift remedial action, and cooperate with subsequent action by authorities.
Background
According to the resolution documents, after acquiring Texas-based Unicat Catalyst Technologies LLC (Unicat), private equity firm White Deer Management LLC (White Deer) discovered that Unicat’s co-founder and former CEO Mani Efran had conspired to violate U.S. economic sanctions by directing the company to offer bids and conduct sales to customers in Iran, Syria, Venezuela, and Cuba over the course of roughly seven years. This directive resulted in 23 illegal sales of chemical catalysts used in oil refining and steel production.
In addition to the illicit sales, some of which also violated export control laws, Efran and others made false statements in export documents and financial records regarding the locations and identities of customers, deceived some Unicat employees regarding the legality of conducting business with customers subject to sanctions, and falsified invoices to reduce tariffs on catalysts imported from China. In total, Unicat generated about $3.33 million in revenue from unlawful sales and caused a loss to the United States of nearly $1.66 million in taxes, duties, and fees. Under Efran’s leadership, Unicat made representations and warranties that the company was following U.S. sanctions and export control laws during acquisition negotiations. In June 2021, after Unicat had been acquired by White Deer, Unicat’s new leadership discovered dealings with a customer based in Iran, a comprehensively sanctioned jurisdiction. The company immediately cancelled the pending transaction, and, over the next month, directed outside counsel to launch an investigation. After determining there were possible criminal violations by Unicat employees related to multiple transactions, both companies made multiple voluntary self-disclosures to the U.S. government, including DOJ, OFAC, and BIS. A total of approximately ten months had passed between Unicat’s September 2020 acquisition and the voluntary self-disclosures of the misconduct.
Declination of Prosecution Pursuant to the M&A Policy
DOJ’s declination was made pursuant to NSD’s M&A Policy, a part of its NSD Enforcement Policy. The policy, most recently updated in March 2024, offers protections for acquiring companies against criminal prosecution for misconduct they uncover during, or shortly after, an acquisition. Specifically, these protections apply when an acquiror 1) concludes a “lawful, bona fide acquisition of another company;” 2) makes a timely and voluntary self-disclosure to NSD of potential violations of criminal laws by the acquired entity that bear on the national security of the United States; 3) unreservedly cooperates with any NSD investigation; and 4) “timely and appropriately remediates the misconduct.” When an acquiror qualifies for protections, NSD “generally” will not seek a guilty plea while there will be a presumption that it will decline to prosecute. Furthermore, the M&A Policy indicates that while NSD will not automatically extend a similar presumption to the acquired company, it will ascribe credit for self-disclosure by the acquiror, and it will separately examine whether the acquiree meets any of the requirements to be given benefits under the NSD Enforcement Policy.
According to the declination letter, several factors in this case influenced DOJ’s determination that White Deer’s voluntary self-disclosure warranted a declination. Specifically, DOJ highlighted that:
- the acquisition of Unicat was lawful and bona fide;
- there was no legal requirement for the acquirors to divulge any discovered misconduct;
- the disclosure was still timely despite occurring ten months after the Unicat acquisition due to a number of factors, including an investment strategy where White Deer sought to merge Unicat with another company it didn’t purchase until months later, delays to post-acquisition integration efforts stemming from the COVID-19 pandemic, the immediate cancellation of a deal with an Iranian customer by new leadership after learning of it (thereby reducing the potential for additional national security harm), and the rapid disclosure to NSD, which occurred only one month after White Deer became aware of potential violations and before their full extent was understood;
- the provision of “exceptional and proactive” cooperation to the government, characterized by quickly finding and disclosing all relevant facts, identifying relevant electronic records on employee and agent personal devices and messaging accounts, providing foreign records in accordance with applicable law, and agreeing to ongoing assistance with government investigations and prosecutions; and
- the redress of the misconduct within a year of becoming aware of it, including by firing and disciplining employees involved in it and creating and deploying a compliance and internal controls regime effective at preempting analogous future issues.
The declination letter also noted that prosecution was declined in spite of “aggravating factors at the acquired entity,” such as the involvement of senior management in the wrongdoing, since the source of those aggravating factors had since been removed.
In DOJ’s announcement of the resolution, Assistant Attorney General for National Security John A. Eisenberg highlighted that the decision to “decline prosecution of the acquiror and extend a non-prosecution agreement to the acquired entity…reflects the National Security Division’s strong commitment to rewarding responsible corporate leadership.”
Multiple Resolutions Involving Coordination Among Agencies
While DOJ declined to prosecute acquiror White Deer, DOJ did require that acquiree Unicat enter a Non-Prosecution Agreement (NPA) and forfeit $3,325,052.10, the value of the company’s revenue earned in connection with the violations of sanctions and export control laws. In the NPA, DOJ emphasized certain facts that made the agreement appropriate despite the existence of aggravating factors, including Unicat receiving credit for White Deer’s timely voluntary self-disclosure under the M&A Policy, Unicat’s extensive and proactive cooperation with DOJ’s investigation, including a thorough internal investigation, and its wide-ranging remediation efforts, including creation of a new compliance program.
Notably, DOJ coordinated this resolution with OFAC and BIS, with Unicat agreeing to pay $3,882,797 in administrative penalties to OFAC as part of a corresponding settlement for violations of sanctions laws, and $391,183 in administrative penalties to BIS as part of a similar settlement for violations of export control laws. OFAC allowed for the entire NPA forfeiture payment to count towards its penalty, requiring payment of a residual sum of $557,745, while BIS allowed for the payment to OFAC to be put towards the balance owed to it. OFAC noted that while the maximum statutory civil penalty for the matter was $8,035,626, the settlement amount reflected credit for actions including, but not limited to, voluntary self-disclosure, cooperation with investigations, and remedial measures after discovery of the misconduct, and was the appropriate penalty despite “egregious” violations by former Unicat leadership, employees, and representatives.
Unicat also agreed to pay $1,655,189.57 in restitution to the Department of Homeland Security, Customs and Border Protection (CBP) for tariff avoidance violations, while the former CEO, Mani Erfan, consented to a money judgement of $1,600,000 as part of a guilty plea to charges of conspiring to violate sanctions and conspiring to commit money laundering.
Key Takeaways
Acquirors Have New Guidance to Help Mitigate Criminal Risks
This first-ever declination under the M&A Policy provides important guidance to businesses that frequently acquire other entities on steps to take to mitigate the risk of government enforcement associated with criminal violations of national security laws by acquirees. By uncovering and making a timely voluntary self-disclosure of any misconduct, offering proactive and extensive cooperation to the government, and undertaking prompt effective remediation, acquirors may be able to secure favorable outcomes, such as the declination of prosecution, even where aggravating factors are present. In addition, credit for meeting the requirements of the M&A Policy by the acquiror can extend to the company it acquired, another potentially significant benefit of taking advantage of the policy.
Coordinated Multi-Agency Resolutions
The varied resolutions reached in this case provide an illustrative example of how various government agencies are coordinating their efforts to enforce national security-related laws. DOJ reached distinct resolutions, including a declination, an NPA, and a plea agreement, not only with the companies involved, but also with at least one culpable employee. In addition, DOJ coordinated with OFAC and BIS to reach parallel administrative settlements, with OFAC citing similar factors as DOJ when justifying the penalties it imposed. This case demonstrates that companies can expect violations of national security laws, especially those related to economic sanctions and exports controls, to prompt enforcement action by multiple government stakeholders.
Navigating the Administration’s Enforcement Priorities
Enforcement of national security laws has been announced as a key area of focus for the DOJ. In the context of this enforcement environment, these resolutions provide a roadmap for steps acquiring companies can take to mitigate enforcement risk during the M&A process, including maintaining robust diligence throughout the process, and, in cases where wrongdoing is discovered, being prepared to respond swiftly and transparently.
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 Sanctions & Export Enforcement, National Security, and International Trade Advisory & Enforcement practice groups:
United States:
Matthew S. Axelrod – Co-Chair, Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
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© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
This update provides a summary of the key features of the regime as currently set out in the Draft Regulations.
The Dubai International Financial Centre Authority (DIFCA) has published a draft of the Variable Capital Company Regulations (the Draft Regulations) for public consultation, proposing a novel corporate structure aimed at enhancing the DIFC’s attractiveness as a jurisdiction for structuring investment platforms, including for family offices, asset holding, and private investment purposes.
The new regime introduces the Variable Capital Company (VCC), which offers a flexible framework for segregating assets and liabilities through the creation of “Cells” within a single legal entity.
The consultation process remains ongoing, and the final form of the regulations may change depending on feedback received. This update provides a summary of the key features of the regime as currently set out in the Draft Regulations.
Background and Context
The DIFC currently offers a limited cell regime under its existing Protected Cell Company framework, which is available only to certain types of investment companies. However, this framework does not include features such as segregated cells (described below). The proposed VCC regime introduces a more versatile and commercially attractive vehicle, offering structuring options that go beyond what is currently available under the DIFC’s existing framework.
Similar vehicles are available in only a few other jurisdictions, such as Singapore and Mauritius, which have implemented their own VCC regimes in recent years. By introducing a comparable structure, the DIFC aims to enhance its competitiveness and appeal to global investors, family offices, and asset managers seeking flexible and cost-effective structuring options.
Overview of the VCC Structure
A VCC is a private company that may be established in the DIFC either with one or more Segregated Cells or Incorporated Cells (each, a Cell) but not both, which may hold assets and liabilities separately from those of the VCC and other Cells. A VCC may have any number of Segregated Cells or Incorporated Cells, or none, in each case as provided for in its Articles of Association. This allows for ring-fencing of liabilities and targeted investment structuring.
Notably:
- A Segregated Cell does not have separate legal personality but is treated as segregated for asset and liability purposes.
- An Incorporated Cell is itself a private company with separate legal personality but cannot own shares in other Cells or the VCC.
The VCC structure is modelled to appeal to family offices, private funds, and other investment vehicles seeking to consolidate multiple investments within a single corporate structure, while maintaining legal separation between them.
Qualifying Criteria
Applicants must satisfy one of the following conditions:
- The VCC will be controlled by GCC Persons, Registered Persons or Authorised Firms; or
- It is established, or continued in the DIFC for purposes of holding legal title to, or controlling, one or more GCC Registrable Assets;
- It is established for a Qualifying Purpose, defined to include Aviation Structures (persons having the sole purpose of facilitating the owning, financing, securing, leasing or operating an interest in aircrafts), Crowdfunding Structures (persons established for the purpose of holding the asset(s) invested through a crowdfunding platform), Intellectual Property Structures (persons established for the sole purpose of holding intellectual property for commercial purposes), Maritime Structures (persons having the sole purpose of facilitating the owning, financing, securing, chartering, managing or operating of an interest in maritime vessels or maritime units), Structured Financing (persons having the sole purpose of holding assets to leverage and/or manage risk in financial transactions), or Secondaries Structures (vehicles facilitating the transfer of investment assets to secondary investors); or
- It is established or continued in the DIFC has a Director that is an Employee of a Corporate Service Provider and that Corporate Service Provider has an arrangement with the DIFC Registrar pursuant to the relevant provisions in the Draft Regulations.
Key Features
1. Regulatory Oversight
- VCCs are subject to the DIFC Companies Law and other Relevant Laws, unless otherwise provided.
- The DFSA must authorise any VCC providing financial services.
- The license of the VCC established for a Qualifying Purpose shall be restricted to the activities specific to the Qualifying Purpose stated in its application to incorporate or continue in the VCC in the DIFC, or any other permitted purpose shall be restricted to the activity of Holding Company. A VCC shall not be permitted to employ any employees.
2. Share Capital and Distributions
- VCCs may issue and redeem shares based on the net asset of the company or individual Cells.
- Cellular distributions must relate solely to the assets and liabilities of the relevant Cell, and must not impact other Cells or the VCC’s general assets.
3. Asset Segregation and Liability Protection
- Officers may incur personal liability if they breach their duties regarding segregation and disclosure of cell identity in transactions.
- The regulations include detailed provisions governing the consequences of unlawful inter-Cell transfers and creditor protections.
- Each transaction with third parties must clearly specify the relevant Cell and limit recourse accordingly.
4. Conversions, Mergers, and Transfers
The framework allows for:
- Conversion of existing DIFC companies into VCCs and vice-versa;
- Transfer of incorporated cells between VCCs, subject to Registrar approval and creditor protection mechanisms;
- Merger or consolidation of Segregated Cells, with prior written notice and creditor opt-out rights.
5. Licensing and Naming
- VCCs must end their names with “VCC Limited” or “VCC Ltd.”
- Segregated Cells and Incorporated Cells must have unique identifiers (e.g., “VCC SC” or “VCC IC”).
- Licences are limited to the specific activities of the Qualifying Purpose, though VCCs controlled by Qualifying Applicants may be licensed for broader purposes.
6. Shareholder Transparency and AML Compliance
- VCCs must maintain separate registers of shareholders for each Cell.
- Ultimate beneficial ownership disclosure obligations apply in line with DIFC UBO Regulations.
7. Fees and Incorporation Process
The proposed incorporation and licensing fees are aligned with the DIFC’s broader cost-efficient regime:
- USD 100 for incorporation;
- USD 1,000 for an annual licence;
- USD 300 for lodging a Confirmation Statement.
Key Topics
Some of the key topics included in the consultation paper include questions around:
- the scope and breadth of the proposed qualifying-requirements test, including whether proprietary investment access is too wide or too narrow;
- appropriateness of allowing both Segregated Cells and Incorporated Cells within a single regime, and the implications of prohibiting a VCC from having both types concurrently; and
- adequacy of creditor-protection measures, notice, publication and court-application rights on conversion of a VCC into a standard DIFC company and vice versa.
Practical Implications
The proposed introduction of the VCC regime provides a robust framework for private clients and investment entities to achieve structural and operational flexibility within a regulated DIFC environment. Key advantages include:
- Legal segregation of assets/liabilities for risk mitigation.
- Simplified investment platform management.
- Suitability for private wealth structuring, crowdfunding, and secondary market transactions.
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, any leader or member of the firm’s Mergers & Acquisitions or Private Equity practice groups, or the authors:
Andrew Steele – Abu Dhabi (+971 2 234 2621, asteele@gibsondunn.com)
Omar Morsy – Dubai (+971 4 318 4608, omorsy@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
As discussed below, the Conference concluded with a political declaration in which more than 170 States have called for urgent action to protect the ocean.
The 2025 UN Ocean Conference (UNOC3) took place in Nice, France, between 9 and 13 June, bringing together over 15,000 participants, including more than 60 Heads of State and Government,[1] and generating considerable publicity. The overarching theme of UNOC3—the third conference of its kind—was “[a]ccelerating action and mobilizing all actors to conserve and sustainably use the ocean”, supporting the delivery of the UN’s Sustainable Development Goal 14 (SDG 14).[2] SDG 14, “Life below water”, comprises 10 global targets focused on the conservation and sustainable use of the ocean, seas and marine resources for sustainable development.[3]
As detailed in this alert, UNOC3 concluded with a political declaration in which more than 170 States have called for urgent action to protect the ocean—including the expansion of marine protected areas (MPAs) and the decarbonization of maritime transport.[4] Other key developments included progress towards the entry into force of the “Agreement on the Conservation and Sustainable Use of Marine Biological Diversity of Areas beyond National Jurisdiction” (BBNJ Agreement), as several State Parties ratified the BBNJ Agreement during UNOC3. States also committed to progress negotiations (which began in 2022) of an internationally binding global plastics treaty, as well as joined calls for an outright ban, moratorium or precautionary pause on deep-sea mining.
Several of the international law matters discussed in this alert may impact global commerce and trade. If you would like to learn more about these developments—i.e., how they may relate to doing business and how to prepare—please contact Charline Yim and Stephanie Collins.
1. Background
The UN Ocean Conferences were established to advance SDG 14—part of the UN’s 2030 Agenda for Sustainable Development—as well as to enhance the implementation of international law as reflected in the UN Convention on the Law of the Sea (UNCLOS). The UN Ocean Conferences bring together governments, civil society, the scientific community, and the private sector—similar to the annual Conference of the Parties (COP) in the climate change context, which are held pursuant to the United Nations Framework Convention on Climate Change (UNFCCC). Previous Ocean Conferences have taken place in 2017 (New York) and 2022 (Lisbon).
UNOC3 had three main priorities: (i) work towards the successful completion of ocean-related multilateral processes to raise the level of ambition for ocean protection; (ii) mobilize funding for SDG 14 and support the development of a blue economy; and (iii) strengthen and better disseminate marine science knowledge for better policymaking.
Notably, one week prior to UNOC3, the European Commission (Commission) published the “European Ocean Pact” (Ocean Pact),[5] which was presented at the UNOC3 by Commission President Ursula von der Leyen. The Ocean Pact brings together the EU’s policies and actions related to the ocean and creates a coordinated plan for ocean management. It is built around six priorities: (i) protecting and restoring ocean health; (ii) boosting the competitiveness of the EU sustainable blue economy; (iii) supporting coastal and island communities, and outermost regions; (iv) advancing ocean research, knowledge, skills and innovation; (v) enhancing maritime security and defence; and (vi) strengthening EU ocean diplomacy and international ocean governance.
To achieve the Ocean Pact’s targets, by 2027, the Commission expects to present the “Ocean Act”, building on a revised Maritime Spatial Planning Directive. According to the Commission, the Ocean Act will establish a single framework to facilitate the implementation of the Ocean Pact’s key objectives. To aid implementation, the Commission will also set up a high-level Ocean Board, bringing together representatives from various ocean-related sectors.
2. Nice Ocean Action Plan
UNOC3 culminated in a political declaration, titled “Our ocean, our future: united for urgent action” (Nice Ocean Action Plan or Declaration).[6] Describing the importance of conserving the ocean and its ecosystems, the Declaration recalled the 2024 advisory opinion of the International Tribunal for the Law of the Sea on the request for an advisory opinion submitted by the Commission of Small Island States on Climate Change and International Law (previously reported on here). The tribunal concluded in that advisory opinion that anthropogenic greenhouse gas emissions constitute “pollution of the marine environment” as defined under UNCLOS, triggering certain positive obligations on States under UNCLOS. The Declaration also refers to the UNFCCC and the temperature goals of the Paris Agreement,[7] as well as to the importance of implementing the Convention on Biological Diversity and its Protocols, amongst other international agreements.
Amongst other issues, under the Declaration, States commit to the expansion of MPAs. The Declaration also reiterates the importance of increasing scientific knowledge on deep-sea ecosystems and recognises the work of the International Seabed Authority, created under UNCLOS, to progress rules and regulations in relation to deep-sea mining activities in the “Area” (i.e., the seabed and ocean floor and subsoil thereof, beyond the limits of national jurisdiction).
In addition, the Declaration calls for decisive action to ensure sustainable fisheries—and encourages member states of the World Trade Organization to deposit instruments of acceptance of the Agreement on Fisheries Subsidies 2022, which was designed to curb subsidies contributing to overfishing.
The Declaration also addresses the role of the private sector, referring to the importance of attracting investment to support a sustainable ocean-based economy, including through blue bonds and blue loans. The Declaration encourages the active and meaningful involvement of banks, insurers, and investors.
The Declaration further sets out over 800 voluntary commitments by governments, scientists, UN agencies, and civil society,[8] including the Commission’s announcement of an EUR 1 billion investment to support ocean conservation, science, and sustainable fishing.[9]
3. BBNJ Agreement
One of the principal objectives of UNOC3 was to accelerate progress of the entry into force of the BBNJ Agreement.[10] The BBNJ Agreement was adopted in 2023, with the aim of ensuring the conservation and sustainable use of marine biological diversity of areas “beyond national jurisdiction”, for the present and in the long term, through effective implementation of the relevant provisions of UNCLOS, as well as international cooperation and coordination.[11] It includes provisions addressing marine genetic resources and the fair and equitable sharing of benefits, and measures such as area-based management tools (including MPAs). It also includes an obligation to conduct Environmental Impact Assessments for planned activities before they are authorised, in areas beyond national jurisdiction.
60 States must ratify the BBNJ Agreement for it to enter into force. Over the course of UNOC3, 19 additional States ratified the BBNJ Agreement, bringing the total number to 50 as at Friday, 13 June 2025.[12]
4. Global Plastics Treaty
At UNOC3, there was also progress on the negotiation of a global plastics treaty (which we have previously reported on here). By way of context, the negotiation process for the treaty was launched in 2022, at the request of the UN Environment Assembly, which called for urgent action to end plastic pollution globally. Since then, several negotiation rounds have taken place—with the most recent round in South Korea in December 2024, concluding without a final agreement. The draft treaty[13] includes measures that would target the entire life cycle of plastic—from upstream production to downstream waste—and includes both mandatory and voluntary provisions. Private actors have contributed to the negotiation process.
At UNOC3, representatives from over 95 States[14] signed a declaration reaffirming their common ambition to end plastic pollution. Titled the “Nice call for an ambitious treaty on plastics”, the declaration is structured around five points which the signatories consider “key to reach an agreement”: (i) adoption of a global target to reduce production and consumption of primary plastic polymers; (ii) establishment of a legally binding obligation to phase-out the most problematic plastic products and chemicals of concern, by supporting the development of a global list of these products and substances; (iii) improvement, through a binding obligation, of the design of plastic products and ensure they cause minimal impact to the environment and human health; (iv) inclusion of a financial mechanism that supports its effective implementation; and (v) commitment to an effective and ambitious treaty that can evolve over time.[15]
Commitment towards the achievement of an international legally binding instrument on plastic pollution is also referenced in the Nice Ocean Action Plan, discussed in Section 2 above.[16]
The next round of negotiations for a global plastics treaty will take place in Geneva in August 2025.
5. Deep-Sea Mining
Deep-sea mining was another focus of UNOC3. In addition to the commitments in the Declaration, a number of States at UNOC3 joined calls for an outright ban, moratorium or precautionary pause on deep-sea mining during, bringing the total to 37. The States include Canada, France, Germany, Mexico, Spain and the United Kingdom.[17] In parallel, a number of major financial institutions announced that they would not fund deep-sea mining projects.[18]
This development comes just six weeks after President Trump issued an executive order granting concessions for seabed mining titled “Unleashing America’s Offshore Critical Minerals and Resources”.[19] The executive order states that the US has a “core national security and economic interest” in developing and extracting mineral resources.[20] The US sent non-participating observers to UNOC3 from the President’s Environmental Advisory Task Force.[21]
6. Observations
UNOC3 addressed a wide range of ocean-related issues, including the sustainable blue economy, the environment, climate change, social development and the use of ocean resources. The discussions and resolutions at UNOC3, as reported on above, may evolve into binding international instruments on ocean governance and management in the near future. Further, UNOC3 generated a significant degree of international media attention, which may signal the start of a more high-profile positioning of ocean-related issues on the international political stage. We will continue to monitor and report on developments in this space.
[1] See ‘UN Ocean Summit in Nice closes with wave of commitments’, United Nations News, 13 June 2025, <https://news.un.org/en/story/2025/06/1164381>, last accessed 24 June 2025.
[2] i.e., to “conserve and sustainably use the oceans, seas and marine resources for sustainable development”. See ‘2025 UN Ocean Conference’, United Nations, 9 June 2025, <https://sdgs.un.org/conferences/ocean2025>, last accessed 24 June 2025.
[3] See ‘Life Below Water’, The Global Goals, undated, <https://www.globalgoals.org/goals/14-life-below-water/>, last accessed 24 June 2025.
[4] See ‘UN Ocean Summit in Nice closes with wave of commitments’, United Nations News, 13 June 2025, <https://news.un.org/en/story/2025/06/1164381>, last accessed 24 June 2025.
[5] See Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, The European Ocean Pact, COM(2025) 281 final, 5 June 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=COM:2025:281:FIN, last accessed 24 June 2025.
[6] ‘Our ocean, our future: united for urgent action’, United Nations Ocean Conference 2025 Resolution, 13 June 2025, <https://docs.un.org/en/A/CONF.230/2025/L.1> last accessed 24 June 2025; ‘Nice Conference Adopts Declaration Underscoring Vital Importance of Ocean to Life on Our Planet, Essential Role in Mitigating Climate Change’, United Nations, 13 June 2025, here, last accessed 24 June 2025.
[7] Namely, to limit the temperature increase to well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius. See ‘United Nations Framework Convention on Climate Change’, United Nations, Treaty Series, vol. 1771, No. 30822, 9 May 1992, <https://treaties.un.org/doc/publication/unts/volume%202303/volume-2303-a-30822.pdf> last accessed 24 June 2025; see also ‘Report of the Conference of the Parties on its twenty-first session’, Paris Agreement, Article 2, p. 22 <https://docs.un.org/en/FCCC/CP/2015/10/Add.1>, last accessed 24 June 2025.
[8] See ‘UN Ocean Summit in Nice closes with wave of commitments’, United Nations News, 13 June 2025, <https://news.un.org/en/story/2025/06/1164381>, last accessed 24 June 2025.
[9] See ‘Commission adopts Ocean Pact with €1 billion to protect marine life and strengthen blue economy’, European Commission, 11 June 2025, https://commission.europa.eu/news-and-media/news/commission-adopts-ocean-pact-eu1-billion-protect-marine-life-and-strengthen-blue-economy-2025-06-11_en, last accessed 24 June 2025.
[10]See ‘UN Ocean Summit in Nice closes with wave of commitments’, United Nations News, 13 June 2025, <https://news.un.org/en/story/2025/06/1164381>, last accessed 24 June 2025; see also ‘Beyond borders: Why new ‘high seas’ treaty is critical for the world’, United Nations News, 19 June 2023, <https://news.un.org/en/story/2023/06/1137857>, last accessed 24 June 2025.
[11] See ‘Agreement under the United Nations Convention on the Law of the Sea on the Conservation and Sustainable Use of Marine Biological Diversity of Areas Beyond National Jurisdiction’, United Nations, 2023, <https://www.un.org/bbnjagreement/sites/default/files/2024-08/Text%20of%20the%20Agreement%20in%20English.pdf>, last accessed 24 June 2025.
[12] See ‘UN Ocean Summit in Nice closes with wave of commitments’, United Nations News, 13 June 2025, <https://news.un.org/en/story/2025/06/1164381>, last accessed 24 June 2025.
[13] See ‘Revised draft text of the international legally binding instrument on plastic pollution, including in the marine environment’, United Nations, 28 December 2023, <https://wedocs.unep.org/bitstream/handle/20.500.11822/44526/RevisedZeroDraftText.pdf>, last accessed 24 June 2025.
[14] Antigua and Barbuda, Armenia, Australia, Barbados, Benin, Burundi, Cabo Verde, Cambodia, Canada, Chile, Colombia, Comoros, Congo, Cook Islands, Costa Rica, Côte d’Ivoire, Democratic Republic of the Congo, Djibouti, Dominican Republic, Ecuador, Eswatini, European Union whose Member States are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden; Fiji, Gabon, Gambia, Georgia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Honduras, Iceland, Israel, Jamaica, Liberia, Madagascar, Malawi, Maldives, Marshall Islands, Mauritania, Mauritius, Mexico, Micronesia, Monaco, Mozambique, Namibia, New Zealand, Norway, Panama, Papua New Guinea, Peru, Philippines, Republic of Moldova, Saint Kitts and Nevis, São Tomé and Principe, Senegal, Seychelles, Sierra Leone, Solomon Islands, Sri Lanka, Switzerland, Togo, Tuvalu, Ukraine, United Kingdom, Uruguay, Vanuatu, Zimbabwe.
[15] See ‘The Nice wake up call for an ambitious plastics treaty’, United Nations Ocean Conference, 10 June 2025, here, last accessed 24 June 2025.
[16] See ‘Our ocean, our future: united for urgent action’, United Nations Ocean Conference 2025 Resolution, 13 June 2025, <https://docs.un.org/en/A/CONF.230/2025/L.1> last accessed 24 June 2025, p. 4.
[17] See ‘UN Ocean Conference Shines a Light on the Deep Sea: Now, Time for Action’, Deep Sea Conservation Coalition, 13 June 2025, <https://deep-sea-conservation.org/un-ocean-conference-shines-a-light-on-the-deep-sea-now-time-for-action/>, last accessed 24 June 2025.
[18] BNP Paribas, Crédit Agricole and Groupe Caisse des Dépôts announced their rejection of deep sea mining, which now means that 24 financial institutions exclude deep sea mining in some form. See ‘Three Major French Investors Reject Deep Sea Mining’, Deep Sea Mining Campaign, 17 June 2025, <https://dsm-campaign.org/french-investors-reject-dsm/> , last accessed 24 June 2025.
[19] ‘Unleashing America’s Offshore Critical Minerals and Resources’, The White House, 24 April 2025, <https://www.whitehouse.gov/presidential-actions/2025/04/unleashing-americas-offshore-critical-minerals-and-resources/>, last accessed 24 June 2025.
[20] ‘Unleashing America’s Offshore Critical Minerals and Resources’, The White House, 24 April 2025, <https://www.whitehouse.gov/presidential-actions/2025/04/unleashing-americas-offshore-critical-minerals-and-resources/>, last accessed 24 June 2025.
[21] See ‘US Skips UN Ocean Conference after rejecting Development Goals’, Bloomberg, June 2025, here, last accessed 24 June 2025.
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 the firm’s Geopolitical Strategy & International Law and ESG: Risk, Litigation, & Reporting practice groups:
Charline O. Yim – New York (+1 212.351.2316, cyim@gibsondunn.com)
Stephanie Collins – London (+44 20 7071 4216, scollins@gibsondunn.com)
Robert Spano – Co-Chair, ESG and Geopolitical Strategy & International Law Groups,
London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)
Rahim Moloo – Co-Chair, Geopolitical Strategy & International Law Group,
New York (+1 212.351.2413, rmoloo@gibsondunn.com)
Patrick W. Pearsall – Co-Chair, Geopolitical Strategy & International Law Group,
Washington, D.C. (+1 202.955.8516, ppearsall@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
Join us for a 40-minute briefing covering several M&A practice topics. This program is part of a series of quarterly webcasts designed to provide quick insights into emerging issues and practical advice on how to manage common M&A problems. Partner Rob Little, global Co-Chair of the firm’s M&A Practice Group, will act as moderator.
Topics to be discussed:
- Tariff-related due diligence in M&A transactions
- The impact of the Department of Justice’s new Data Security Program on M&A transactions
- Privilege ownership in purchase agreements
- New developments in case law governing advance notice bylaws
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PANELISTS:
Christopher T. Timura is a partner in the Washington D.C. office of Gibson, Dunn & Crutcher LLP and a member of the firm’s International Trade, White Collar Defense and Investigations, and ESG Practice Groups. Chris helps clients solve problems that arise at the intersection of U.S. national security, foreign policy, and international trade regulation. His clients span sectors and range from start-ups to Global 500 companies. He is regularly ranked in Chambers Global and U.S.A. guides for his work and is a regular speaker and writer on the policy drivers, trends, and impacts of evolving international trade policy and regulation.
Stephenie Gosnell Handler is a partner in Gibson Dunn’s Washington, D.C. office, where she is a member of the International Trade and Privacy, Cybersecurity, and Data Innovation practices. She advises clients on complex legal, regulatory, and compliance issues relating to international trade, cybersecurity, and technology matters. Stephenie ’s legal advice is deeply informed by her operational cybersecurity and in-house legal experience at McKinsey & Company, and also by her active duty service in the U.S. Marine Corps. Stephenie is regularly recognized for her excellence in the field, most recently being named to Financier Worldwide Magazine’s Power Players: Foreign Investment & National Security 2025 – Distinguished Advisers report.
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.
Mark H. Mixon Jr. is Of Counsel in the New York office of Gibson, Dunn & Crutcher and is a member of the firm’s Litigation and Securities Litigation Practice Groups. Mark is a general corporate and commercial litigator who represents individual and corporate clients in complex, high-stakes business and corporate governance disputes, including commercial breach of contract actions, corporate-control litigation, disputes related to directors’ and controlling stockholders’ fiduciary duties, stockholder derivative and securities litigation, M&A-related litigation, and antitrust and competition matters. He frequently litigates in the Delaware Court of Chancery, where he clerked for the Honorable J. Travis Laster, the Honorable Tamika R. Montgomery-Reeves, and the Honorable Donald F. Parsons, Jr. Mark has been recognized in Best Lawyers: Ones to Watch in America™ (2024, 2025).
Robert B. Little is a partner in Gibson, Dunn & Crutcher’s Dallas office. He is a Global Co-Chair of the Mergers and Acquisitions Practice Group and a member of the firm’s Executive Committee. Rob is consistently recognized for his leadership and strategic work with clients, having been named among the nation’s top M&A lawyers by Chambers USA every year for more than a decade. Rob’s practice focuses on corporate transactions, including mergers and acquisitions, securities offerings, joint ventures, investments in public and private entities, and commercial transactions. He also advises business organizations regarding matters such as securities law disclosure, corporate governance, and fiduciary obligations. In addition, he represents investment funds and their sponsors along with investors in such funds. Rob has represented clients in a variety of industries, including energy, retail, technology, infrastructure, transportation, manufacturing, and financial services.
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
We are pleased to provide you with Gibson Dunn’s ESG update covering the following key developments during May 2025. Please click on the links below for further details.
- State Street Global Advisors (SSGA) launches sustainability engagement and voting service
On May 7, 2025, SSGA launched a new opt-in Sustainability Stewardship Service. The Sustainability Stewardship Service was created for clients seeking to prioritize engagement with portfolio companies on sustainability issues. The service incorporates sustainability considerations in proxy voting and engagement in line with SSGA’s 2025 Sustainability Stewardship Service Proxy Voting and Engagement Policy, and across certain key topics, including climate change, nature, human rights, and diversity. The service is available globally to SSGA’s institutional separately managed account clients. The new Sustainability Stewardship Service is in addition to SSGA’s existing proxy voting choice program, which provides eligible clients the option to choose a third-party proxy voting policy (rather than continuing to have SSGA vote in accordance with SSGA’s proxy voting policy).
- The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) publishes its first short-term climate scenarios
The NGFS short-term climate scenarios, released on May 7, 2025, provide the first publicly available framework for central banks and other financial institutions to analyze the potential near-term impact of climate change and climate policies on the economy and the financial sector. The scenarios examine how extreme weather events, climate policies, economic trends, and sectoral shifts may affect economies and financial systems over the next five years.
- EU-UK Summit leads to commitment on Emissions Trading Scheme (ETS)
On May 19, 2025, the UK Prime Minister met with the President of the European Council and the President of the European Commission at the inaugural UK-EU Summit and unveiled a Common Understanding that reframes post-Brexit engagement. The UK and EU committed to negotiate a full link between the UK ETS and the EU ETS, coupled with mutual exemption from each side’s Carbon Border Adjustment Mechanism (CBAM), the carbon tax on imported goods. The sectors that are expected to be covered are electricity generation, industrial heat generation (excluding the individual heating of houses), industry, domestic and international maritime transport, and domestic and international aviation. The parties further agreed to explore UK participation in EU electricity trading platforms and to intensify cooperation on hydrogen, carbon capture, use and storage, and decarbonized gases, bolstering North Sea renewables, energy security and future innovation. The EU Commission will now seek out an EU Council mandate. The UK’s consultation on CBAM closes on July 3, 2025.
- UK Government launches two consultations on biodiversity net gain (BNG)
On May 28, 2025 the Department for Environment, Food & Rural Affairs (DEFRA) launched two parallel consultations on expanding England’s mandatory BNG regime. The first consultation seeks views on applying a minimum 10% BNG requirement to nationally significant infrastructure projects, which is scheduled to commence in May 2026. This is aimed at ensuring that major infrastructure projects improve biodiversity during the course of their development (i.e., a net gain). The second consultation addresses how BNG operates for minor, medium, and brownfield developments. The reforms are intended to reduce costs for builders while delivering the Environment Act 2021’s biodiversity targets. Both consultations close on July 24, 2025.
- UK Government launches Emerging Markets and Developing Economies Investor Taskforce (Taskforce)
On May 15, 2025, the UK government launched its Taskforce, an industry-led forum designed to channel UK private capital into climate-aligned opportunities across Latin America, Asia, Africa and the Caribbean. The Taskforce unites 15 major financial services firms, including insurers, pension funds, asset managers, banks, investment consultants and development finance institutions, with His Majesty’s Treasury and the Foreign, Commonwealth and Development Office. Its mandate is to explore the recommendations of “The UK as a Climate Finance Hub” report into opportunities, such as tailored products, capacity-building, and regulatory reform. The Institutional Investors Group on Climate Change will serve as the Secretariat of the Taskforce.
Other highlights:
- On May 16, 2025, the UK Government published comprehensive guidance on embedding gender equality, disability, and social inclusion (GEDSI) across all UK International Climate Finance (ICF) programmes. The publication establishes mandatory minimum standards such as requirements to conduct a GEDSI analysis to assess and mitigate risks of exacerbating inequalities and comply with UK legal obligations on equality and non-discrimination. It also sets an overarching ambition that every new ICF intervention be, at a minimum, “GEDSI-empowering.”
- On May 16, 2025, the UK Government opened an independent review of greenhouse gas removals (GGRs) and issued a Call for Evidence inviting views from all stakeholders on how engineered and nature-based GGR options can help deliver the UK’s statutory net zero goals. The Call for Evidence closed on June 20, 2025.
- Omnibus Simplification Package (CSRD, CSDDD): New Proposals by European Parliament’s lead rapporteur, Jörgen Warborn, and by the European Council and related discussions; Status update on ESRS revision
The legislative process on the Omnibus Simplification Package is moving further along:
The European Parliament’s lead rapporteur, Jörgen Warborn, published his draft report on June 12, 2025. Inter alia, he suggests deleting the requirement for companies to file mandatory climate transition plans in the Corporate Sustainability Due Diligence Directive (CSDDD) and raising the threshold for both, the CSDDD and the Corporate Sustainability Reporting Directive (CSRD), to companies with more than 3,000 employees and EUR 450 million in net turnover. For a more detailed analysis of the report by the European Parliament’s lead rapporteur, please see our client alert of June 18, 2025. It is expected that the European Parliament will vote on the proposed amendments in October 2025.
On June 23, 2025, the Council of the EU issued a press release briefly outlining its position on the Omnibus Simplification Package. Regarding the CSRD, the Council of the EU introduces a worldwide net turnover threshold of over EUR 450 million, in addition to the European Commission’s proposal to raise the employee threshold to 1,000 employees.
Regarding the CSDDD, the Council of the EU proposes increasing the applicability threshold to more than 5,000 employees and a worldwide net turnover exceeding EUR 1.5 billion. It maintains the proposed limitation of the CSDDD’s due diligence requirements to the company’s own operations, those of its subsidiaries, and those of its direct business partners, but it intends to shift the focus from an entity-based approach to a risk-based one and the companies should now only conduct a more general scoping exercise instead of a comprehensive mapping exercise. The Council of the EU suggests limiting the companies’ obligation to adopt a climate transition plan and postpones this obligation by two years. The Council of the EU also suggests postponing the CSDDD’s transposition deadline by one further year, pushing it back to July 26, 2028 and maintains the European Commission’s proposal to remove the EU harmonised liability regime.
On June 23, 2025, a status report on the revision of the European Sustainability Reporting Standards (“ESRS”) has been published by the European Financial Reporting Advisory Group (EFRAG). According to this report, it is intended to reduce the number of mandatory data points by 50 % or even more. In addition, the ESRS shall, inter alia, be aligned with the International Sustainability Standards Board (ISSB) Standards, there shall be a clear distinction and separation of mandatory and non-mandatory data points and the General Disclosure section (ESRS 2) shall be “drastically reduced” to avoid duplication.
Meanwhile, the EU Ombudsman, Teresa Anjinho, has launched an inquiry into the European Commission’s process for drafting the Omnibus Simplification proposal. While the Commission defends the expedited process as necessary to reduce complexity and implementation costs for companies facing CSRD reporting obligations in 2026, non-governmental organizations have filed complaints alleging insufficient stakeholder engagement and undue influence by fossil fuel interests. The Commission maintains that it used a staff working document—a shorter internal analysis intended to justify urgent proposals in lieu of full impact assessments—based on prior input from CSRD, CSDDD, and EU Taxonomy workstreams. It further cites stakeholder roundtable discussions conducted in February 2025 as a means of collecting targeted feedback on implementation hurdles and points to Directorate-General for Financial Stability, Financial Services, and Capital Markets Union-led outreach, including technical workshops and a stakeholder request mechanism, as evidence of broader engagement across sectors.
Furthermore, the European Central Bank (ECB) issued a statement in which it warned that reducing the scope of the CSRD could lead to systematic and unquantifiable bias due to unverifiable and selective voluntary disclosures. The ECB also opposed excluding financial institutions from the CSDDD, arguing this would weaken risk management and legal clarity. Additionally, it criticized the weakened requirements for implementing climate transition plans, warning that this may lead to increased litigation risks and regulatory fragmentation.
- Discussion on entire elimination of the EU’s CSDDD
German Chancellor Friedrich Merz called for a full elimination of the EU’s CSDDD, arguing that a postponement is insufficient, and that the directive imposes excessive regulatory burdens on businesses. This statement followed the German government’s plans in its coalition agreement to eliminate Germany’s own human rights and environmental supply chain due diligence law, the Supply Chain Act. A spokesperson for the German government later softened Merz’s statement and clarified that the goal should be to “streamline” and “de-bureaucratize” the directive rather than eliminate it entirely.
French President Emmanuel Macron echoed Merz’s original stance, explaining that the directive should be taken “off the table” to improve European competitiveness against the U.S. and China.
Belgium and Denmark strongly rejected the proposal, emphasizing the importance of maintaining and strengthening ethical standards in support of Europe’s green transition and calling for smarter, more digitalized, and manageable requirements that align with a competitive business environment.
In the meantime, also the European Parliament’s lead rapporteur Jörgen Warborn emphasized that while the CSDDD must remain in force to avoid a fragmented regulatory landscape across member states, the European Commission’s current simplification proposals do not go far enough.
- Corporate Climate Risk: German Court Breaks New Ground in decision on lawsuit brought by Peruvian farmer against German Energy Company
On May 28, 2025, the Higher Regional Court of Hamm, Germany, issued a long-awaited decision in the lawsuit brought by a Peruvian farmer against German multinational energy company RWE AG (RWE), marking a milestone in climate litigation.
The plaintiff claimed that RWE’s historical greenhouse gas emissions had significantly contributed to the melting of Andean glaciers, posing a threat of flooding to his property. Although the court dismissed the claim – finding the risk of damage in this specific case too low – it acknowledged in principle that major corporate emitters can be held liable for climate-related harm.
This ruling is significant: For the first time, a German appellate court explicitly recognized the potential for civil liability in transboundary climate claims. While the judgment sets a high bar for causation and imminence of harm, it underscores the evolving legal landscape in ESG and climate-related litigation.
- CSRD / Omnibus “Stop-the-clock” Directive transposition update
Since our last update, Denmark, Estonia, Finland, Hungary, Latvia, Lithuania, Luxembourg, Poland and Sweden have started the legislative process to transpose the Stop-the-Clock Directive into national law. Notably, Luxembourg has started the process even though it has not completed the transposition of the CSRD.
An overview of the current transposition status of CSRD into national laws and the “Stop-the-clock” process under the Omnibus Simplification Package can be found here.
Other highlights:
- On May 22, 2025, the European Parliament agreed to the European Commission’s proposal to introduce a 50-tonne threshold to the CBAM, which would exempt 90% of importers—primarily small and medium-sized enterprises—from the scope of CBAM rules.
- On May 27, 2025, the EU Council approved proposed amendments to a regulation on carbon dioxide (CO2) emissions standards for new passenger cars and vans. The amendments provide that compliance with specific emissions fleet targets of car manufacturers for the three years 2025, 2026, and 2027 will no longer be assessed annually, but on the basis of the average performance of each manufacturer over these three years, giving car manufacturers more time and flexibility to comply with CO2 targets and, thus, avoiding significant penalties.
- Recent developments in the Trump Administration’s litigation of laws and regulations addressing climate change and ESG
Following the Trump Administration’s April 8th Executive Order setting forth limits on certain state climate-related initiatives, on April 30, 2025, the Trump Administration filed lawsuits against Hawaii and Michigan seeking to prevent the states from pursuing climate change lawsuits against fossil fuel companies. The Administration’s complaints indicate that the United States filed the lawsuits to ensure the states do not interfere with the Clean Air Act or the Trump Administration’s interpretation of the federal government’s “exclusive authority over interstate and foreign commerce, greenhouse gas regulation, and national energy policy.” The next day, Hawaii filed suit against oil and gas companies in Hawaii Circuit Court alleging that the state suffered harm as a result of the companies’ misrepresentations regarding the impact of fossil fuel products on the climate and sea levels, asserting various causes of action, including negligence, public nuisance, failure to warn, and civil aiding and abetting.
On May 1, 2025, the Trump Administration filed similar lawsuits against the states of New York and Vermont alleging that their climate Superfund laws are preempted by the Clean Air Act and foreign affairs doctrine, violate the Constitution’s limits on extraterritorial regulation, and violate the Foreign Commerce Clause and Interstate Commerce Clause. The complaints allege that the laws, which were enacted in 2024, force out-of-state fossil fuel companies to fund state climate change adaptation projects and attempt “to usurp the power of the federal government by regulating national and global emissions of greenhouse gases” in violation of federal law. Various other cases have been brought challenging these laws.
As discussed in Gibson Dunn’s Transnational Litigation 2024 Year-End Update, courts disagree on whether federal law preempts these state law climate tort claims. Most state courts have concluded that federal law precludes states from using their own law to resolve claims seeking relief for injuries arising from interstate and global greenhouse gas emissions. However, on May 12, 2025, the Colorado Supreme Court joined the Hawaii Supreme Court in holding that these claims are not preempted by federal law. The Supreme Court has yet to weigh in on the issue, and decided not to hear a challenge to these state-law climate suits in March 2025. Our April 2025 ESG Update provides more information on the April 8, 2025 Executive Order that prompted the Trump Administration’s involvement in such litigation.
Additionally, on May 22, 2025, the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) Antitrust Division filed a joint Statement of Interest in a multistate antitrust case against BlackRock, Vanguard, and State Street. The lawsuit alleges that the asset managers used their management of stock in competing coal companies to drive reductions in output, resulting in higher energy prices for consumers. In their joint statement, the FTC and DOJ state that asset managers and other institutional investors may be liable under the Clayton and Sherman Acts when they use their stock holdings for anticompetitive purposes.
- Takeaways from the Securities and Exchange Commission’s (SEC) 2025 “SEC Speaks” conference
The annual “SEC Speaks” conference, which provides an update on the current initiatives and priorities at the SEC, took place on May 19 and 20, 2025. The program included remarks from SEC Chairman Paul Atkins and SEC Commissioners Mark Uyeda, Hester Peirce, and Caroline Crenshaw. In his remarks, Commissioner Uyeda reiterated his criticism on dedicating resources to “further attempts to use the SEC’s disclosure regime to achieve social or political goals” and emphasized the SEC’s return to its “core mission of regulating the capital markets.” Commissioner Uyeda also criticized the conflict minerals disclosures under Section 1502 of the Dodd-Frank Act as being ineffective and suggested the rule be re-evaluated. As of the date of publication, the SEC has not responded to the Eighth Circuit with an outline of the actions the SEC plans to take on the final climate-risk disclosure rule.
- Texas Governor signs bill increasing ownership thresholds for shareholder proposals under Rule 14a-8 of the Securities Exchange Act of 1934
On May 19, 2025, the Governor of Texas signed into law Senate Bill 1057 (SB 1057), which amends the Texas Business Organizations Code to allow certain publicly traded corporations to implement limitations on shareholder proposals submitted under Rule 14a-8 or the corporation’s advance notice bylaws. The law is set to take effect on September 1, 2025. As discussed in our recent client alert, SB 1057 applies to nationally listed corporations that either (a) have their principal office in Texas or (b) are admitted to a listing stock exchange that has its principal office in Texas or has received approval from the Texas Securities Commissioner. If the listed corporation follows certain requirements (including amending its governing documents and providing notice shareholders in a proxy statement in advance of adopting the amendment), it can require shareholders wishing to submit shareholder proposals to hold at least $1 million or 3% of the corporation’s voting shares and to solicit holders of shares representing at least 67% of the voting power of shares entitled to vote on the proposal. The new legislation, if implemented, would likely impact proponents that historically have advocated for or recommended in favor of ESG-related proposals.
Other highlights:
- On May 29, 2025, the California Air Resources Board held a virtual public workshop on California’s climate disclosure laws (SB 253, or the Corporate Greenhouse Gas Reporting Program, and SB 261, or the Climate-Related Financial Risk Disclosure Program), discussing the rulemaking process and initial reactions to themes in early feedback received.
- On May 22, 2025, the U.S. House of Representatives passed the “One, Big, Beautiful Bill,” which proposes repealing significant renewable energy tax credits.
- On May 28, 2025, DOJ informed the Fifth Circuit that it will engage in new rulemaking regarding the U.S. Department of Labor’s rule allowing fiduciaries to consider ESG and other factors in determining investment options for employee benefit plans, ending its defense of this rule. Our February 2025 ESG Update provides an overview of the Northern District of Texas’ decision to uphold the rule in a related case, Utah v. Micone.
- Senators Sheldon Whitehouse and Elizabeth Warren have launched an investigation into U.S. banks that have rolled back their climate commitments.
- The U.S. Department of Energy announced 47 deregulation actions on May 12, 2025, in accordance with President Trump’s executive order, “Zero-Based Regulatory Budgeting to Unleash American Energy.”
- New York City Comptroller Brad Lander announced that the city’s public pension funds have instructed their asset managers to submit a written plan describing their net zero plans by June 30, 2025.
In case you missed it…
The Gibson Dunn Workplace DEI Task Force has published its updates for May summarizing the latest key developments, media coverage, case updates, and legislation related to diversity, equity, and inclusion.
A collection of our analyses of the legal and industry impacts from the presidential transition is available here.
- State Bank of Vietnam (SBV) launches handbook to strengthen green finance and ESG risk management across Vietnam’s banking sector
On May 21, 2025, the SBV, in collaboration with the International Finance Corporation (IFC), launched the Environmental and Social Risk Management System (ESMS) Handbook to guide credit institutions in managing risks aligned with ESG principles. Deputy Governor Dao Minh Tu emphasized that green growth is now a mandatory requirement, especially for developing countries like Vietnam. The Handbook aims to provide practical and specific guidance for credit institutions to implement ESMS-related processes.
- EnergyAustralia settles with climate advocacy organization over allegations of “greenwashing”
On May 19, 2025, EnergyAustralia, one of Australia’s largest energy companies, confirmed that it has settled a landmark greenwashing lawsuit with climate advocacy group Parents for Climate, over allegations that the company misled over 400,000 customers by falsely marketing its Go Neutral program as carbon neutral. The program relied on carbon offsets while customers continued using fossil-fuel energy, with EnergyAustralia now acknowledging that offsets are not the most effective way to reduce emissions. The company admitted it should have communicated more clearly the limitations of offsetting and has shifted focus to supporting direct emission reductions. This settlement marks the first Australian case challenging “carbon neutral” marketing and is seen as a turning point in greenwashing litigation. EnergyAustralia has stopped offering the Go Neutral program to new customers and is phasing it out for existing ones.
- India consults on draft framework for Climate Finance Taxonomy
On May 7, 2025, the Indian government released a draft Framework of India’s Climate Finance Taxonomy and invited public comments by June 25, 2025. The framework outlines the approach, objectives, and principles that will guide the climate finance taxonomy. The taxonomy aims to facilitate greater resource flow toward sustainable activities that support the country’s 2070 net zero target and its 2030 climate goals and classifies activities into “climate supportive” and “transition supportive” categories to guide investments and prevent greenwashing. It focuses initially on hard-to-abate sectors like iron, steel, and cement, as well as sectors such as power, mobility, buildings, and agriculture.
Other highlights:
- The Shenzhen Stock Exchange revised the methodology for the ChiNext Index to place greater emphasis on ESG.
- The Accounting and Corporate Regulatory Authority of Singapore launched a guidebook for sustainability reporting training providers.
The following Gibson Dunn lawyers prepared this update: Lauren Assaf-Holmes, Carla Baum, Mitasha Chandok, Becky Chung, Mellissa Campbell Duru, Sam Fernandez*, Ferdinand Fromholzer, Saad Khan*, Vanessa Ludwig, Babette Milz, Kiernan Panish, Johannes Reul, Meghan Sherley, and Nicholas Tok.
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)
Perlette M. Jura – Los Angeles (+1 213.229.7121, pjura@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@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)
*Sam Fernandez and Saad Khan are trainee solicitors in London and not admitted to practice law.
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.
Writing in Law360 about how the U.S. Court of Appeals for the Ninth Circuit — the country’s busiest federal appellate circuit — has muddied the waters of the Article III pleading standard, partner Bradley J. Hamburger and associate Matt Aidan Getz note that district courts in the Ninth Circuit for years have applied “a defunct and especially forgiving pleading standard to questions of Article III standing” — a standard that “is out of step with multiple strands of U.S. Supreme Court precedent” and with “the approach taken in every other court of appeals.”
Furthermore, they say, with the Ninth Circuit’s conflicting signals on which pleading standard should apply adding to the confusion in the lower courts, the Ninth Circuit has become an “attractive forum for disputes that have no rightful place in federal court.”
The CLRC staff last week made new or revised proposals for changes to California competition law on mergers, “misuse of market power,” and single-firm conduct.
As summarized in our January 15, 2025 and March 25, 2025 Client Alerts, the California Law Revision Commission (CLRC) has been considering changes to the state’s antitrust law.[1] Over the past week, CLRC staff (1) proposed four options for a new California law to regulate mergers,[2] (2) revised its proposals for new legislation governing single-firm conduct law,[3] and (3) proposed two options for new legislation targeting alleged “misuses of market power.”[4] The staff’s favored proposals would be aggressive and far-reaching changes to existing competition law, making California law significantly broader, and more restrictive on businesses, than federal law.
The CLRC’s commissioners will now consider the staff’s recommendations. The CLRC is meeting on June 26, 2025 and September 18, 2025 to consider these issues, and the public can submit comments during this period. Gibson Dunn attorneys are monitoring these recommendations and are available to discuss the implications for your business or assist in preparing a public comment for submission to the CLRC.
Proposed Merger Language
At the federal level, Section 7 of the Clayton Act prohibits mergers whose effects “may be substantially to lessen competition, or to tend to create a monopoly.”[5] While mergers in certain industries can be challenged under state laws[6] and the California Attorney General can bring challenges to mergers under federal law, California currently lacks a broad state-level merger statute. The staff presented four options for a potential state merger provision. Each of these options are, to varying degrees, broader than federal antitrust law.
- Option 1 “largely mirrors the Clayton Act.”[7] But it would expand on federal law by also expressly prohibiting mergers that tend to create a monopsony[8] while removing analogous federal exemptions, such as those for common carriers.[9] The CLRC staff framed adopting a state analogue to the federal law as having the “downside” of importing existing federal jurisprudence on mergers.[10]
- Option 2 would adopt the modified federal analogue and (1) add a presumption that mergers which would result in a “a firm controlling an undue percentage share of the relevant market”—likely at or around 30%—and “a significant increase in the concentration of firms in that market” are inherently anticompetitive,[11] and (2) recognize the 2023 Federal Merger Guidelines as “persuasive authority” in interpreting the statute.[12]
- Option 3 would go farther than Option 2 and codify presumptions based on changes in the Herfindahl-Hirschman Index (“HHI”),[13] including a presumption of unlawfulness for mergers that result in a market with an HHI score of 1,800 or more, a market share greater than 30%, or a change in HHI of over 100 points.[14]
- Option 4 would create a “break from federal law,”[15] prohibiting mergers whose effect “may be to create an appreciable risk of lessening competition more than a de minimis amount.”[16] The practical effect would be to reduce the burden of proof required to prove the illegality of a merger.[17]
The CLRC did not present a formal recommendation for premerger notification laws, because a proposal addressing premerger notification is already pending in the Legislature.[18]
Revised Single-Firm Conduct Proposals
The CLRC staff also responded to public comments about its single-firm conduct proposals.
The staff has now recommended against adoption of two of its proposals. First, staff disapproved of the least aggressive reform proposal—to create an analogue to Section 2 of the Sherman Act[19]—in response to criticism from certain interest groups and the Single Firm Conduct Working Group, a group of economists appointed by the CLRC, who argued that this proposal would not go far enough.[20] Second, the staff recommended abandoning a proposal for a “clean break” from federal law that the Single Firm Conduct Working Group had championed.[21] Other commenters—from both sides of the antitrust bar—objected that that proposal would cause significant uncertainty and increased litigation.[22]
The staff recommended proposed legislation that would not only prohibit unlawful monopolization (as federal law does) but would also prohibit unilateral “restraints of trade.”[23] Several commenters raised concerns with this approach—noting that it conflates unilateral and joint conduct concepts;[24] that it is broad and vague, which risks creating uncertainty;[25] and that it could be construed to outlaw (and thus chill) many forms of procompetitive conduct.[26] CLRC staff largely dismissed these concerns but agreed the proposal should be limited to “prohibiting unreasonable restraints of trade.”[27]
Consistent with their recommendation for significant reform, CLRC staff had also proposed legislative declarations that California antitrust law should be broader than and not modeled on federal law—with specific language rejecting certain federal court decisions.[28] CLRC staff largely dismissed commenters’ concerns that the draft provisions would increase uncertainty and call into question procompetitive practices, like price-cutting and loyalty programs.[29]
Proposed Misuse of Market Power Language
Staff also proposed additional statutory provisions to address so-called misuses of market power—practices in which a company with more market power allegedly disadvantages its rivals or customers. This would in effect import concepts from European “abuse of dominance,” a standard that has never been adopted in any domestic competition law.
Specifically, the staff recommended that any company with thirty percent or more of the relevant market, or assets, net annual sales, or market capitalization greater than $500 billion be deemed to have significant market power.[30] They then proposed a list of conduct that would be presumed anticompetitive when practiced by a firm with such presumed power:
- Leveraging substantial market power in one market into a separate market;
- Bundling, tying, using loyalty rebates, or refusing to interoperate;
- Denying use of essential facilities or resources;
- Refusing to deal;
- Engaging in predatory pricing tactics such as pricing below costs;
- Imposing exclusivity as a condition of doing business;
- Self-preferencing; or
- Acquiring, directly or indirectly, the whole or any part of the stock, or other share capital of another person.[31]
These provisions are particularly notable because (1) they would allow for a presumption of market power based merely on a company’s size, contrary to general competition theory; (2) they significantly reduce the market share threshold generally required under federal law for unilateral conduct to be deemed anticompetitive; and (3) they presume numerous practices are anticompetitive even when economic theory and experience indicate that the practices are often procompetitive and beneficial to consumers.
Takeaways
The CLRC staff’s proposals continue to represent significant departures from existing law, with the potential to vastly expand antitrust risk, create a larger role for the California Attorney general, encourage litigation in California courts, and create uncertainty and compliance challenges for businesses, particularly those operating in multiple states.
The CLRC staff acknowledged that the mere addition of a state merger statute is itself “a significant change to California’s antitrust law.”[32] And many of the proposals would invite the courts to interpret California law differently than federal law, creating uncertainty and asymmetry where mergers or acquisitions could potentially be lawful under federal law and the laws of almost every state—but held up in California on state-law grounds.
The past week’s memoranda also indicate that the CLRC’s staff is proceeding with aggressive recommendations that, if adopted, would result in unprecedented restrictions on businesses operating in California—restrictions that could effectively bind such businesses across the United States. The CLRC staff appear to have largely dismissed concerns that a wide divergence with federal law is unwarranted and would create uncertainty. And the introduction of a “misuse of market power” prohibition would mark a dramatic change from existing state and federal law: It would deem companies to be dominant at lower levels than in the European Union or in New York’s proposed ‘Twenty-First Century Anti-Trust Act.’[33] And it would condemn a long list of conduct that is ill-defined, potentially sweeping, and often procompetitive.
The CLRC must review the staff’s recommendations, decide whether to adopt them, and then subject their own recommendations to a period of public comment before submitting them to the legislature. Because the CLRC’s final recommendations have historically been adopted into law at a high rate,[34] companies and industry associations should think carefully about how the staff’s proposals may affect their businesses and whether to provide comments for the CLRC before the June 26, 2025 and September 18, 2025 meetings at which the commissioners plan to discuss these options. Attorneys from Gibson Dunn are available to help in preparing a public comment for submission to the CLRC or to the legislature as they consider potential bills, to discuss how these proposed changes may apply to your business, or to address any other questions you may have regarding the issues discussed in this update.
[1] Minutes, Cal. L. Revision Comm’n (Jan. 23, 2025) at 4, https://www.clrc.ca.gov/pub/2025/MM25-12.pdf; Alex Wilts, California Law Revision Commission Advances Antitrust Law Study (Jan. 24, 2025), here.
[2] Memorandum 2025-31, Draft Language for Merger Provisions, Cal. L. Revision Comm’n (June 16, 2025) [henceforth “Merger Options Memo”], https://clrc.ca.gov/pub/2025/MM25-31.pdf.
[3] Memorandum 2025-30, Draft Language for Single Firm Conduct Provision and Public Comment, Cal. L. Revision Comm’n (June 17, 2025) [henceforth “SFC Public Comment Memo”], https://clrc.ca.gov/pub/2025/MM25-30.pdf.
[4] Memorandum 2025-32, Status Update: Draft Language on Misuse of Market Power, Cal. L. Revision Comm’n (June 19, 2025) [henceforth “MMP Options Memo”], https://clrc.ca.gov/pub/2025/MM25-32.pdf.
[5] 15 U.S.C. § 18.
[6] See Corp. Code §§ 5914 – 5926 (nonprofit health facilities), §§ 14700 – 14707 (retail grocery firms and retail drug firms), and Health & Safety Code §§ 127507 – 12507.6 (health care).
[7] Merger Options Memo at 3.
[8] Id. at 3-4.
[9] Id. at 3 n.20.
[10] Id. at 4.
[11] Id. at 5-6.
[12] Id. For additional detail on the 2023 Merger Guidelines, see Gibson Dunn’s December 21, 2023 Client Alert on the release of the Guidelines.
[13] The Herfindahl-Hirschman Index is a method for assessing market concentration; it takes the sum of the squares of the market shares in a given market. The greater the HHI score, the higher the concentration.
[14] Merger Options Memo at 8.
[15] Id. at 10.
[16] Id. at 10-11 (citing Senator Klobuchar’s Competition and Antirust Law Enforcement Reform Act, Sen. No. 130 119th Cong. 1st Sess. (2025)).
[17] Id. at 11.
[18] SB 25 (Umberg, 2025) is sponsored by the Uniform Law Commission (ULC) and requires a person who is
obligated to file a notification pursuant to the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 to file a copy of that form and any additional documentation, as specified, with the California Attorney General (AG), among other provisions under certain circumstances. SB 25 was passed by the Senate and ordered to the Assembly.
[19] Memorandum, Draft Language for Single Firm Conduct Provision, Cal. L. Revision Comm’n (Mar. 24, 2025) at 2-3 [henceforth “SFC Options Memo”], https://www.clrc.ca.gov/pub/2025/MM25-21.pdf.
[20] SFC Public Comment Memo at 5-6.
[21] Id. at 10-13.
[22] Id. at 12-13 (California Chamber of Commerce, California Life Sciences, Civil Justice Association of California, Economic Security California Action and its partners).
[23] SFC Options Memo at 3-5.
[24] SFC Public Comment Memo at 8 (California Life Sciences, Civil Justice Association of California, Motion Pictures Association).
[25] Id. at 8-9 (California Life Sciences, Civil Justice Association of California, Motion Pictures Association, Single Firm Conduct Working Group).
[26] Id. at 7-9 (California Chamber of Commerce, California Life Sciences).
[27] Id. at 8-9.
[28] SFC Options Memo at 9-14.
[29] SFC Public Comment Memo at 14-15.
[30] MMP Options Memo at 4-7.
[31] Id. at 3-4, 7.
[32] Merger Options Memo at 4.
[33] MMP Options Memo at 5 & nn.31-33. The legislature had these laws in mind when it directed the CLRC’s antitrust study. See 2022 Cal. Stat. Res. Ch. 147 (ACR 95).
[34] Cal. L. Revision Comm’n, https://clrc.ca.gov/ (last visited June 18, 2025).
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. 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 Antitrust and Competition, Mergers and Acquisitions, or Private Equity practice groups in California:
Antitrust and Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Christopher P. Dusseault – Los Angeles (+1 213.229.7855, cdusseault@gibsondunn.com)
Caeli A. Higney – San Francisco (+1 415.393.8248, chigney@gibsondunn.com)
Julian W. Kleinbrodt – San Francisco (+1 415.393.8382, jkleinbrodt@gibsondunn.com)
Samuel G. Liversidge – Los Angeles (+1 213.229.7420, sliversidge@gibsondunn.com)
Daniel G. Swanson – Los Angeles (+1 213.229.7430, dswanson@gibsondunn.com)
Jay P. Srinivasan – Los Angeles (+1 213.229.7296, jsrinivasan@gibsondunn.com)
Chris Whittaker – Orange County (+1 949.451.4337, cwhittaker@gibsondunn.com)
Mergers and Acquisitions:
Candice Choh – Century City (+1 310.552.8658, cchoh@gibsondunn.com)
Matthew B. Dubeck – Los Angeles (+1 213.229.7622, mdubeck@gibsondunn.com)
Abtin Jalali – San Francisco (+1 415.393.8307, ajalali@gibsondunn.com)
Ari Lanin – Century City (+1 310.552.8581, alanin@gibsondunn.com)
Stewart L. McDowell – San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)
Ryan A. Murr – San Francisco (+1 415.393.8373, rmurr@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.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.