Client Alert Archives

Gibson Dunn is closely monitoring regulatory developments and executive orders in this fast-paced environment for administrative law. Our lawyers are available to assist clients as they navigate the challenges and opportunities posed by the current, evolving legal landscape.

In just the first month of the new administration, President Trump has taken several actions to exercise Executive Branch control over “independent” agencies. Agencies generally have been considered “independent” from presidential control if a statute provides that the agency’s leader or leaders may be removed only for cause.[1] These include many powerful and important agencies, including the Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), the Federal Communications Commission (FCC), National Labor Relations Board (NLRB), Federal Energy Regulatory Commission (FERC), Board of Governors of the Federal Reserve System, Equal Employment Opportunity Commission (EEOC), and many more.

In his recent Executive Order titled “Ensuring Accountability For All Agencies,” President Trump ordered all independent agencies to submit their major regulations for White House review and approval in the same manner that traditional Executive Branch agencies do, authorized the Office of Management and Budget (OMB) to review and adjust independent agencies’ use of funds to ensure consistency with the President’s policies, and ordered all Executive Branch officers and employees to adopt as “controlling” the interpretations of law advanced by the President and Attorney General. A number of President Trump’s other executive orders, including the order requiring each agency to establish its own Department of Government Efficiency (DOGE) Team and the order requiring review of all existing regulations, lack carveouts for independent agencies that past administrations have frequently included in similar directives. Separately, the acting Solicitor General has informed Congress that the Department of Justice will no longer defend the constitutionality of for-cause removal protections at certain agencies and will seek to limit or overturn Humphrey’s Executor—the Supreme Court decision upholding the independence of the 1930s version of the FTC. The acting Solicitor General also has stated that multiple layers of for-cause removal protections for administrative law judges are unconstitutional. President Trump has also fired agency leaders at the EEOC, NLRB, the Merit Systems Protection Board, and the Office of Special Counsel, though litigation is ongoing as to whether those terminations were lawful.

I. The President’s Historical Control Over Independent Agencies.

Since the Interstate Commerce Commission was established in the late 1800s and the FTC in 1914, Congress has protected some agency leaders from presidential removal on the theory that nonpolitical experts should be insulated from political pressure. Almost from the start, these limits on the President’s removal powers proved controversial, and in 1926 the Supreme Court ruled that the Constitution requires that the President be able to remove certain Executive Branch officials. Recent Supreme Court decisions have established only “two exceptions to the President’s unrestricted removal power.” The first exception applies to “multimember expert agencies that do not wield substantial executive power.” Notably, this exception tracks the Court’s 1935 decision in Humphrey’s Executor v. United States, which upheld removal protections for FTC commissioners because, as the 1935 Court framed it, the commissioners exercised primarily “quasi-judicial and quasi-legislative” functions. The second exception applies to “inferior officers with limited duties and no policymaking or administrative authority.”

The Court has rejected removal protections beyond these two exceptions, including double layers of protection for certain lower-level agency employees and removal protections for a single-member agency head. Today, independent agencies generally consist of multimember, partisan-balanced boards where statutes provide that leaders may be removed only for cause and not at the President’s pleasure.

The Trump Administration has taken an assertive view of the President’s removal powers and the corresponding power to control the entire Executive Branch, including independent agencies. It has asserted that a number of statutory removal protections for heads of independent agencies are unconstitutional because they wield substantial executive power and the President must be able to supervise all executive power. To the extent Humphrey’s Executor allows such removal protections, the Trump Administration has said that it will ask the Supreme Court to overrule that decision. Likewise, the Trump Administration has concluded that multiple layers of removal protections for administrative law judges (officials who preside over agency adjudications) are unconstitutional.

II. The Implications Of President Trump’s “Ensuring Accountability For All Agencies” Executive Order.

President Trump’s Order on “ensuring accountability” would subject independent agencies to significant political control across activities including rulemaking, legal interpretations, enforcement priorities, and expenditures. This Order has a number of implications that are discussed in turn below.

OIRA Review. The Order requires independent agencies to submit their major regulations to the Office of Information and Regulatory Affairs (OIRA) for review and approval in the same way traditional executive branch agencies have done for decades. OIRA is a division of OMB that reviews agency rules before they are issued to ensure the rules are consistent with principles of administrative law and consistent with the President’s policy priorities. While some independent agencies have informally and voluntarily cooperated with OIRA reviews in the past, this Order for the first time makes compliance with the OIRA process mandatory. The need to clear proposed and final rules through OIRA prior to publication could delay independent agencies’ ability to initiate and finalize rulemakings. As part of the review process, independent agencies will need to conduct a cost-benefit analysis under Executive Order 12866, which OIRA will review. By subjecting independent agencies’ economic analyses to OIRA review, the Order could improve the quality and consistency of the methodology underlying agencies’ estimates of the costs and benefits of their rules. In some instances, OIRA’s review could persuade agencies not to proceed with a planned rulemaking or could result in a White House directive that the rulemaking be halted.

Interpretation of Laws. The Order also provides that “[t]he President and the Attorney General . . . shall provide authoritative interpretations of law for the executive branch” and their “opinions on questions of law are controlling on all employees in the conduct of their official duties.” Further, no employee or officer “may advance an interpretation of the law as the position of the United States that contravenes the President or the Attorney General’s opinion on a matter of law, including but not limited to the issuance of regulations, guidance, and positions advanced in litigation, unless authorized to do so by the President or in writing by the Attorney General.”[2] Accordingly, when the President or Attorney General have provided an opinion or authoritative interpretation of any statute or regulation, the agency official generally may not advance a contrary interpretation of the law.

This is a meaningful limitation for independent agencies. President Trump has already advanced a number of legal interpretations through executive orders and memoranda, and traditionally, the Department of Justice (headed by the Attorney General) offers opinions on many legal issues. Although in the past independent agencies have often advanced their own legal interpretations in regulations and in litigation (at least until a case reached the Supreme Court, where the Solicitor General takes over)—sometimes in opposition to positions put forward by the Department of Justice—the Order requires them to adopt the views of the President and Attorney General moving forward.

Apportionment. The Order authorizes the Director of OMB to “review independent regulatory agencies’ obligations for consistency with the President’s policies and priorities” and to “adjust such agencies’ apportionments by activity, function, project, or object … to advance the President’s policies and priorities” including to “prohibit independent regulatory agencies from expending appropriations on particular activities, functions, projects, or objects, so long as such restrictions are consistent with law.”

This provision grants the Director of OMB control over independent agencies’ budgets, expenditures, and—to a significant extent—discretion. The “obligations,” “apportionments,” and “appropriations” are budgetary terms referring to various ways agencies are authorized to spend and do spend money. Notably, the Director’s authority to prohibit expenditures on certain activities could allow him to order nonenforcement of regulations or defunding programs that are inconsistent with the President’s policy preferences.

Exceptions for Monetary Policy and Other Legal Authorities. The Order exempts the Federal Reserve’s monetary policy from its scope. Accordingly, the Federal Reserve’s interest rate decisions will not be subject to OIRA review, though its banking regulatory functions are covered by the scope of the Order.

The Order also notes that it should not be read to affect “the authority granted by law to an executive department, agency, or the head thereof.”

Indirect Implications. The President’s assertion of Executive Branch control over independent agencies will have additional consequences not mentioned in the Order. As we previously noted, many of President Trump’s other executive orders do not include carve outs for independent agencies. Accordingly, the executive orders requiring cooperation with DOGE appear to apply to independent agencies. These orders include requirements to establish a DOGE team, share information with DOGE, engage in workforce-optimization efforts, and conduct comprehensive reviews of existing regulations and deregulation. In combination with the Order’s requirement that independent agencies follow the President’s interpretation of the law, independent agencies may also be required to adopt the President’s legal views as espoused in executive orders such as those that describe certain DEI and DEIA policies as illegal.[3]

Two of these orders may have particular significance for independent agencies:

“Ensuring Lawful Governance And Implementing The President’s ‘Department Of Government Efficiency’ Deregulatory Initiative.” This order requires agencies to identify all regulations that are potentially unlawful and then develop a plan to rescind or modify them. Specifically, in coordination with OMB, DOGE, and the Attorney General, agencies have sixty days to identify all regulations that: (1) are “unconstitutional” or “raise serious constitutional difficulties;” (2) “are based on unlawful delegations of legislative power;” (3) contravene the “the best reading of the underlying statutory authority or prohibition;” (4) violate the major-questions doctrine; (5) “impose significant costs upon private parties that are not outweighed by public benefits;” (6) “significantly and unjustifiably” impede innovation; or (7) “impose undue burdens on small business and impede private enterprise and entrepreneurship.” The OIRA Administrator (who has not yet been designated) shall then consult with agency heads to develop a Unified Regulatory Agenda to rescind or modify these regulations.

“Unleashing Prosperity Through Deregulation.” As we have previously discussed, this order requires that agencies identify at least ten existing regulations to repeal for every new regulation they promulgate, and it requires the total incremental cost of new regulations be “significantly less than zero.”

Because independent agencies have historically been exempt from similar deregulatory efforts, these orders could materially change the agencies’ longstanding regulatory processes.

III. Pending Litigation Regarding the President’s Control Over Independent Agencies.

The President’s assertion of control over independent agencies has already begun to attract legal challenges. These challenges could affect the practical consequences of the Order and of President Trump’s other actions regarding independent agencies. Currently, some of the most notable litigation has been brought by heads of independent agencies who were fired without an explanation or compliance with statutory notice requirements (e.g., without complying with a “for cause” removal restriction). For example:

Dellinger v. Bessent, 1:25-cv-00385 (D.D.C. filed Feb. 10, 2025), is a case by the Special Counsel leading the Office of Special Counsel (which oversees various whistleblower and government accountability projects), whom President Trump fired without explanation. The District Court issued a temporary restraining order reinstating Dellinger as the Special Counsel, the D.C. Circuit dismissed an appeal/denied mandamus for lack of jurisdiction, and the Supreme Court held the government’s appeal in abeyance until the temporary restraining order expires on February 26.

Wilcox v. Trump, No. 1:25-cv-00334 (D.D.C. filed Feb. 5, 2025), is a suit by a former Democratic member of the National Labor Relations Board whom President Trump fired without explanation. The case is currently before the U.S. District Court for the District of Columbia, and expedited summary judgment briefing is underway.

Harris v. Bessent, No. 1:25-cv-00412 (D.D.C. filed Feb. 11, 2025), is a suit by the former chair of the Merit Systems Protection Board, whom President Trump demoted and subsequently fired without explanation. The U.S. District Court for the District of Columbia issued a temporary restraining order reinstating Harris as the Chair. The Trump Administration has appealed the case to the D.C. Circuit and/or the Supreme Court, where it would likely have the same fate as Dellinger. Meanwhile, the plaintiff moved for a preliminary injunction in the district court.

IV. Conclusion

[1] Congress sometimes labels agencies as “independent” without providing any removal protections. See Collins v. Yellen, 594 U.S. 220, 248–50 (2021).

[2] The Executive Order just refers to “employees,” but defines employees according to 5 U.S.C. § 2105, which includes officers.

[3] A federal district court recently granted a preliminary injunction enjoining some of these orders, so the efficacy of these orders may be subject to change.

The following Gibson Dunn lawyers prepared this update: Michael Bopp, Stuart Delery, Eugene Scalia, Helgi Walker, Matt Gregory, Andrew Kilberg, Tory Lauterbach, Amanda Neely, Noah Delwiche, Maya Jeyendran, and Aaron Gyde.

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 leader or member of the firm’s Public Policy, Administrative Law & Regulatory, Energy Regulation & Litigation, Labor & Employment, or Government Contracts practice groups, or the following in Washington, D.C.:

Michael D. Bopp – Co-Chair, Public Policy Practice Group,
(+1 202.955.8256, mbopp@gibsondunn.com)

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

Eugene Scalia – Co-Chair, Administrative Law & Regulatory Practice Group,
(+1 202.955.8673, dforrester@gibsondunn.com)

Helgi C. Walker – Co-Chair, Administrative Law & Regulatory Practice Group,
(+1 202.887.3599, hwalker@gibsondunn.com)

Matt Gregory – Partner, Administrative Law & Regulatory Practice Group,
(+1 202.887.3635, mgregory@gibsondunn.com)

Andrew G.I. Kilberg – Partner, Administrative Law & Regulatory Practice Group,
(+1 202.887.3759, akilberg@gibsondunn.com)

Tory Lauterbach – Partner, Energy Regulation & Litigation Practice Group,
(+1 202.955.8519, tlauterbach@gibsondunn.com)

Amanda H. Neely – Of Counsel, Public Policy Practice Group,
(+1 202.777.9566, aneely@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 Immigration Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

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

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

Termination of the CHNV Humanitarian Parole Program

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

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

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

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

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

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

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

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

Termination of Temporary Protected Status (TPS) for Venezuelans

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

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

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

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

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

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

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

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

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

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

[5] Id.

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

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

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

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

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

[11] Id.

[12] Id.

[13] Id.

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

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

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

[17] 8 U.S.C. § 1254a(b)(1).

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

[19] 8 U.S.C. § 1254a(b)(3)(B).

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

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

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

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

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] Id.

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

[30] Id.

[31] Id.

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

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

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

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

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

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

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

Laura Raposo – Associate General Counsel,
New York (+1 212.351.5341, lraposo@gibsondunn.com)

Matthew S. Rozen – Partner, Appellate & Constitutional Law Practice Group,
Washington, D.C. (+1 202.887.3596, mrozen@gibsondunn.com)

Ariana Sañudo – Associate, Pro Bono Practice Group,
Los Angeles (+1 213.229.7137, asanudo@gibsondunn.com)

Betty X. Yang – Partner & Co-Chair, Trials Practice Group,
Dallas (+1 214.698.3226, byang@gibsondunn.com)

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

In Brief

On February 21, 2025, the United States District Court for the District of Maryland entered a preliminary injunction enjoining in part President Trump’s Executive Orders titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” (EO 14151) and “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (EO 14173). Nat’l Ass’n of Diversity Officers in Higher Educ., et al., v. Donald J. Trump, et al., No. 1:25-cv-00333-ABA, Dkt. 44–45 (D. Md. 2025). The court opened its opinion by stating that

The term ‘DEI,’ of course, is shorthand for ‘diversity, equity, and inclusion.’ And ensuring equity, diversity, and inclusion has long been a goal, and at least in some contexts arguably a requirement, of federal anti-discrimination law. But the administration has declared ‘DEI’ to be henceforth ‘illegal,’ has announced it will be terminating all ‘“equity-related” grants or contracts’—whatever the administration might decide that means—and has made ‘practitioners’ of what the government considers “DEI” the targets of a “strategic enforcement plan.

Dkt. 45 at 2.

The court enjoined the government defendants from freezing or terminating existing “equity-related” contracts and grants (pursuant to EO 14151). With respect to EO 14173, the court enjoined the government defendants from (1) requiring federal contractors and grant recipients to certify that they do not “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws,” (2) requiring federal contractors and grant recipients “to agree that [their] compliance in all respects with all applicable Federal anti-discrimination laws is material” for purposes of the False Claims Act, and (3) bringing any enforcement action targeting “DEI programs or principles.” However, the court declined to “enjoin the Attorney General from … engaging in investigation” of DEI programs. Dkt. 44 at 62.

The preliminary injunction covers nine Cabinet-level departments, the Office of Management and Budget, and the National Science Foundation, but not President Trump. The Equal Employment Opportunity Commission (EEOC) is not a defendant and is not directly subject to the injunction. However, the injunction does cover “other persons who are in active concert or participation with” the defendant agencies. Dkt. 45 at § 3.

The preliminary injunction is nationwide and not restricted to the plaintiffs in the case. See Dkt. 44 at 60–62.

The government undoubtedly will appeal the decision to the U.S. Court of Appeals for the Fourth Circuit, which could reverse or narrow the injunction. The government also may seek a stay of the district court’s injunction while the appeal is pending. If it does not prevail before the Fourth Circuit (or only prevails in part), the government might seek an emergency stay from the Supreme Court. Accordingly, it is possible that the preliminary injunction will be lifted soon.

Digging Deeper

The plaintiffs—the National Association of Diversity Officers in Higher Education, the American Association of University Professors, Restaurant Opportunities Centers United, and the mayor and city council of Baltimore, Maryland—challenge one portion of EO 14151 and two portions of EO 14173. The plaintiffs sued President Trump and the following agencies: (1) the Department of Health and Human Services; (2) the Department of Education; (3) the Department of Labor; (4) the Department of the Interior; (5) the Department of Commerce; (6) the Department of Agriculture; (7) the Department of Energy; (8) the Department of Transportation; (9) the Department of Justice; (10) the National Science Foundation; and (11) the Office of Management and Budget.

First, the plaintiffs challenge EO 14151’s direction to agencies to “terminate, to the maximum allowed by law, … all [federal] ‘equity-related’ grants or contracts.” Exec. Order No. 14151, § 2(b)(i) (“Termination Provision”). The district court held that the plaintiffs had shown a likelihood of success on their claim that the Termination Provision violates the Due Process Clause of the Fifth Amendment because the term “equity-related” is impermissibly vague.

With respect to the Termination Provision, the court enjoined the agencies from “paus[ing], freez[ing], imped[ing], block[ing], cancel[ing] or terminat[ing] any awards, contracts or obligations …, or chang[ing] the terms of any” awards, contracts or obligations based on the Termination Provision. Dkt. 45 at § 3(a).

Second, the plaintiffs challenge section 3(b)(iv) of EO 14173 (referred to as the “Certification Provision” by the district court), which directs agencies to include two clauses in federal contracts and grants:

(A) A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code; and

(B) A term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.

The court held that the plaintiffs had shown a likelihood of success on their claim that the Certification Provision violates the First Amendment, and enjoined the agencies from “requir[ing] any grantee or contractor to make any ‘certification’ or other representation pursuant to the Certification Provision.” Dkt. 45 at § 3(b). The phrase “other representation” appears to prohibit the agencies from requiring modifications of federal contracts to include the contract clauses described above.

Third, the plaintiffs challenge EO 14173’s instruction to the Attorney General to compile a report identifying, among other things, potential targets for “civil compliance investigations.” Exec. Order 14173, § 4(b)(iii). The district court refers to this as the “Enforcement Threat Provision.”

The court held that the plaintiffs had shown a likelihood of success on their claims that the Enforcement Threat Provision violates the First Amendment and the Due Process Clause of the Fifth Amendment because there is no guidance regarding the DEI programs or practices that the administration considers illegal.

The preliminary injunction prohibits the agencies from “bring[ing] any False Claims Act enforcement action, or other enforcement action, pursuant to the Enforcement Threat Provision, including but not limited to any False Claims Act enforcement action premised on any certification made pursuant to the Certification Provision.” Dkt. 45 at § 3(c). The court specifically declined to “enjoin the Attorney General from … engaging in investigation” of DEI programs or to prohibit the Attorney General from preparing a report identifying investigation targets. Dkt. 44 at 62.

Implications and Next Steps

As noted above, the district court’s preliminary injunction is not party-restricted and applies nationwide. However, the injunction is directed to the “Defendants” in the case. Dkt. 45 at § 3. The government is thus likely to take the position that agencies that are not defendants to the case—including the Departments of State, Defense, and Treasury, and the EEOC, Federal Communications Commission, and the General Services Administration—are not subject to the injunction except to the extent they “are in active concert or participation with” the defendant agencies. Moreover, agencies covered by the injunction might argue that the injunction does not prevent them from bringing actions against companies so long as such actions are not “pursuant to the Enforcement Threat Provision,” although this could be challenging.

As noted above, the Department of Justice is very likely to appeal this decision to the Fourth Circuit immediately, and it is possible that the Fourth Circuit will stay the district court’s order while the appeal is pending and then either reverse or narrow it after review by a merits panel. If it is unsuccessful or partially successful in the Fourth Circuit, the government might seek an emergency stay from the Supreme Court.

A separate challenge to EO 14151 and EO 14173, as well as EO 14168 (“Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government”), is pending in the United States District Court for the District of Columbia. See Nat’l Urban League, et al., v. Donald J. Trump, et al., No. 1:25-cv-00471 (D.D.C. 2025).

Finally, it is worth noting that regardless of the resolution of these cases, the Trump Administration will likely attempt to continue to pursue its policies with respect to DEI programs through other enforcement mechanisms, whether through the EEOC or other agencies.

Gibson Dunn is closely monitoring these challenges to President Trump’s executive orders, and is tracking all of the President’s executive orders here. Gibson Dunn’s DEI Task Force is available to help clients understand what these and other expected policy and litigation developments will mean for them and how to comply with new requirements.

The following Gibson Dunn lawyers prepared this update: Jason Schwartz, Katherine V.A. Smith, Zakiyyah Salim-Williams, Mylan Denerstein, Cynthia Chen McTernan, Molly Senger, Greta Williams, Blaine Evanson, Zoë Klein, and Maya Jeyendran.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s DEI Task Force or Labor and Employment, Government Contracts, or False Claims Act/Qui Tam Defense practice groups:

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)

Lindsay M. Paulin – Partner & Co-Chair, Government Contracts Group,
Washington, D.C. (+1 202.887.3701, lpaulin@gibsondunn.com)

Jonathan M. Phillips – Partner & Co-Chair, False Claims Act/Qui Tam Defense Group,
Washington, D.C. (+1 202.887.3546, jphillips@gibsondunn.com)

Jake M. Shields – Partner, False Claims Act/Qui Tam Defense Group,
Washington, D.C. (+1 202.955.8201, jmshields@gibsondunn.com)

Blaine H. Evanson – Partner, Appellate & Constitutional Law Group,
Orange County (+1 949.451.3805, bevanson@gibsondunn.com)

Molly T. Senger – Partner, Labor & Employment Group,
Washington, D.C. (+1 202.955.8571, msenger@gibsondunn.com)

Greta B. Williams – Partner, Labor & Employment Group,
Washington, D.C. (+1 202.887.3745, gbwilliams@gibsondunn.com)

Zoë Klein – Of Counsel, Labor & Employment Group,
Washington, D.C. (+1 202.887.3740, zklein@gibsondunn.com)

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

I. Introduction

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

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

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

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

a. PJM Consolidated Show Cause Order

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

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

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

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

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

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

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

b. Order Rejecting Exelon TO Tariff Filings

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

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

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

III. Next Steps and FERC-Wide Implications

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

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

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

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

[3] Consolidated Show Cause Order.

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

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

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

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

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

[9] Id. at P 74.

[10] Id. at P 76.

[11] Id. at P 81.

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

[13] Id. at P 74.

[14] Id. at P 82.

[15] Id. at P 83.

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

[17] PJM Exelon Order at P 33.

[18] Id. at P 39.

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

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

[21] Id. at P 87.

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

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

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

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

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

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

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

New Developments

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

New Developments Outside the U.S.

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

New Industry-Led Developments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table of Contents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary

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

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

The Regeneron Decision

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

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

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

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

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

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

Other Relevant Jurisprudence

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

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

Potential Ramifications

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

In the meantime, we expect to see:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

View the Round-Up Here

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

* * * *

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

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

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

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

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

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

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

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

Proposed Amendments to Section 144

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

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

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

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

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

Proposed Amendments to Section 220

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

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

More to Come

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

Gibson Dunn will continue monitoring these developments as they progress.

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

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

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

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

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

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

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

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

On February 18, 2025, the U.S. District Court for the Eastern District of Texas entered a stay of its January 7, 2025 order that had paused the “Reporting Rule” implementing the Corporate Transparency Act (CTA). On February 19, 2025, the Financial Crimes Enforcement Network (FinCEN) issued guidance that extends the reporting deadline for all reporting companies until at least March 21, 2025. In its guidance, FinCEN also noted that it may further modify this deadline.

Entities that may be subject to the CTA and its associated Reporting Rule that have not filed Beneficial Ownership Information (BOI) reports should consult with their CTA advisors as necessary to understand their obligations now that the CTA and the Reporting Rule are enforceable again, and BOI reports for the vast majority of entities will now be due by March 21, 2025.

On December 3, Judge Mazzant of the U.S. District Court for the Eastern District of Texas ruled that the CTA was likely unconstitutional, issued a nationwide preliminary injunction against enforcement of the law, and postponed the effective date of the Reporting Rule that set filing deadlines for compliance, in Texas Top Cop Shop, Inc. et al. v. Garland et al. (“Texas Top Cop Shop”).[1] After substantial litigation, that order was ultimately stayed by the Supreme Court on January 23, 2025.[2] The Court’s decision was 8–1.

In a separate case decided in early January, but prior to the Supreme Court’s decision to stay the Texas Top Cop Shop order, Judge Kernodle of the U.S. District Court for the Eastern District of Texas also ruled that the CTA was likely unconstitutional, in Smith v. U.S. Department of the Treasury (“Smith”).[3] Judge Kernodle enjoined enforcement of the CTA with respect to the plaintiffs in that case and stayed the effective date of the Reporting Rule nationwide.[4]

On February 5, 2025, the Department of the Treasury asked Judge Kernodle to stay the order in Smith and filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit.[5] Additionally, on February 7, 2025, the Department of Justice filed appellate briefs defending the constitutionality of the CTA in separate cases pending in the Fourth and Fifth Circuits.[6]

On February 18, 2025, Judge Kernodle issued a stay of his January decision in Smith.[7]

On February 19, 2025, FinCEN issued guidance regarding the applicable deadlines now that no court orders bar enforcement of the CTA nationwide.[8] In its guidance, FinCEN extended the reporting deadline for reporting companies to March 21, 2025, except for reporting entities previously granted extensions even beyond March 21, 2025 (for example, because of natural disasters).[9] FinCEN added that during the period between February 19 and March 21, 2025, FinCEN “will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.”[10] FinCEN also stated it intends to revise the Reporting Rule to reduce the burden for lower-risk entities, including many U.S. small businesses.[11]

The government’s request for a stay in Smith, its merits briefs in the Fourth and Fifth Circuits, and FinCEN’s recent guidance, all indicate that the Trump Administration’s Departments of Justice and the Treasury will likely continue defending the constitutionality of the CTA and Reporting Rule going forward. At the same time, FinCEN has indicated openness to revising the Reporting Rule to reduce the burden for some businesses.

While the Reporting Rule is enforceable again now that no judicial stays remain in effect, litigation remains ongoing, and it is still theoretically possible that another court could enjoin enforcement of the law against particular plaintiffs or nationwide. Moreover, Congress could intervene by enacting new legislation: the House of Representatives recently passed a bill seeking to extend the deadline to file BOI reports until January 1, 2026.[12] The Senate has yet to act on the bill.

Entities that believe they may be subject to the CTA and its associated Reporting Rule should closely monitor this matter, and consult with their CTA advisors as necessary, to understand their obligations now that the CTA is enforceable again and BOI reports for most entities are due by March 21, 2025.

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

[1] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkt. 30 (E.D. Tex. Dec. 3, 2024).

[2] Order, McHenry v. Top Cop Shop, Inc., No. 24A653 (U.S. Supreme Court Jan. 23, 2025).

[3] Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336-JDK, Dkt. 30 at 33–34 (E.D. Tex. Jan. 7, 2025).

[4] Id.

[5] Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336-JDK, Dkts. 32, 33 (E.D. Tex. Feb. 5, 2025).

[6] See Community Assocs. Institute v. U.S. Dep’t of the Treasury, No. 24-2118, Dkt. 40 (4th Cir. Feb. 7, 2025); Texas Top Cop Shop, Inc. et al. v. Bondi et al., No. 24-40792, Dkt. 212 (5th Cir. Feb. 7, 2025). Additionally, we note that another district court has now held that the CTA is constitutional. Boyle v. Bessent, No. 2:23-cv-00081, Dkt. 51 (D. Me. Feb. 14, 2025).

[7] Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336-JDK, Dkt. 39 (E.D. Tex. Feb. 17, 2025).

[8] https://fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Deadline-Extension-508FINAL.pdf. Additionally, nothing in FinCEN’s guidance disturbs the Reporting Rule’s requirements that companies created or registered in 2024 have 90 days to file their BOI reports and companies created or registered in 2025 have 30 days to file their BOI reports. Therefore, any entity created in 2024 whose reporting deadline had not yet passed should have until March 21, 2025 or 90 days after creation or registration to file their BOI reports, whichever is later. Companies created or registered on or after January 1, 2025 will have until March 21, 2025 or 30 days after creation or registration to file their BOI reports, whichever is later.

[9] Id.

[10] Id.

[11] Id.

[12] Protect Small Businesses from Excessive Paperwork Act, H.R. 736 (119th Cong. 2025).

The following Gibson Dunn lawyers assisted in preparing this update: Kevin Bettsteller, Stephanie Brooker, Matt Gregory, Justin Newman, Dave Ware, Shannon Errico, Sam Raymond, and Connor Mui.

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

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

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

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

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

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

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

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

Gibson Dunn’s Workplace DEI Task Force aims to help our clients develop creative, practical, and lawful approaches to accomplish their DEI objectives following 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. Should you have questions about developments in this space or about 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 February 5, the United States Office of Personnel Management (OPM) issued a memo to the heads and acting heads of federal departments and agencies entitled “Further Guidance Regarding Ending DEIA Offices, Programs and Initiatives.” The memo provides guidance related to the federal government’s implementation of President Trump’s recent DEI-related executive orders (EO 14151, EO 14168, and EO 14173). The memo directs agencies to “terminate all illegal DEIA initiatives” and eliminate DEIA “offices, policies, programs, and practices” that unlawfully discriminate in any employment action, including “recruiting, interviewing, hiring, training or other professional development, internships, fellowships, promotion, retention, discipline, and separation.” It also prohibits employee resource groups to the extent that they “promote unlawful DEIA initiatives,” though agency heads “retain discretion” to allow affinity group, cultural, mentoring, and social activities and programs that are not limited in any way based on protected characteristics. The memo further provides that agencies should retain “personnel, offices, and procedures required by statute or regulation to counsel employees allegedly subjected to discrimination, receive discrimination complaints, collect demographic data, and process accommodation requests.” For a more detailed analysis of the memo, see our February 12 client alert.

On February 14, the Attorneys General of 16 states issued joint guidance reaffirming their position on the continued legality of certain DEI initiatives. The guidance states, “diversity, equity, inclusion, and accessibility best practices are not illegal, and the federal government does not have the legal authority to issue an executive order that prohibits otherwise lawful activities in the private sector or mandates the wholesale removal of these policies and practices within private organizations, including those that receive federal contracts and grants.” The guidance also warns that failure to implement adequate non-discrimination and fair employment policies, procedures, and trainings may be used by those states to establish violation of those states’ anti-discrimination laws. Finally, the guidance provides a list of DEI best practices, which, in the AGs’ views, include (among other things): (1) prioritizing widescale recruitment efforts to attract a larger pool of applicants from a variety of backgrounds, (2) setting standardized criteria for evaluating candidates, (3) monitoring the success of policies and practices in attracting and retaining qualified talent, (4) conducting training on topics such as unconscious bias, inclusive leadership, and disability awareness, and (5) creating clear protocols for reporting discrimination or harassment.

On February 13, 2025, the National Association of Diversity Officers in Higher Education, the American Association of University Professors, the Restaurant Opportunities Centers United and the mayor and city council of Baltimore, Maryland moved for a temporary restraining order and a preliminary injunction to prevent the Trump Administration from enforcing two executive orders, EO 14151 and EO 14173. The plaintiffs contend that the executive orders exceed presidential authority, violate the separation of powers and the First Amendment, and are unconstitutionally vague. The plaintiffs contend that they are suffering irreparable harm from the termination of “equity-related grants” and the suppression of speech relating to DEI. The plaintiffs argue that preventing “constitutional, existential, and reputational harm” is in the public’s interest. The government’s response is due February 18, and a hearing is set for February 19.

On February 11, the State of Missouri filed a lawsuit against Starbucks in the Eastern District of Missouri, alleging that Starbucks is violating state and federal anti-discrimination laws. Specifically, the complaint alleges that Starbucks unlawfully ties executive compensation to diversity-and-inclusion-related quotas and metrics; provides discriminatory advancement opportunities through race- and gender-based mentoring programs, training programs, and employee “networks”; and discriminates on the basis of race and sex with respect to its board membership. The complaint raises four claims under Title VII, including (1) unlawful hiring and firing practices, (2) unlawful training programs, (3) unlawful segregation or classification of employees, and (4) unlawful printing or circulation of discriminatory employment and training materials. The complaint also alleges discriminatory contract impairment under Section 1981 and related state-law claims. Missouri argues that it has standing to sue Starbucks in relation to these practices because Starbucks’s practices harm some Missouri residents by discriminating against them, and Missouri could otherwise address this harm through its sovereign lawmaking power. Missouri seeks a declaratory judgment, monetary damages, and injunctive relief, including an injunction prohibiting Starbucks from “unlawfully misrepresenting to job applicants and customers that it does not engage in unlawful discrimination on the bases of race, color, sex, national origin, or ancestry.”

In a February 14 article, CNN’s Nathaniel Meyerson quotes Gibson Dunn’s Jason Schwartz, who described the lawsuit as “one of the first broadside attacks against the full menu of corporate DEI programs.” Meyerson reports that although legal experts agree that “[p]rograms that are not open to all employees because of race or other criteria, any numerical goals or targets, and executive compensation tied to diversity targets” are vulnerable to legal challenge, the lawsuit goes beyond that. Schwartz described some of Missouri’s claims as a “stretch,” noting that the lawsuit “bites off more than it can chew.” Schwartz explained that the suit “paints with a broad brush, arguing that virtually every diversity program is illegal even if open to all.  This is not the law.”

On February 14, 2025, Craig Trainor, Acting Assistant Secretary for Civil Rights in the Department of Education, issued a “Dear Colleague” letter “to clarify and reaffirm the nondiscrimination obligations of schools and other entities that receive federal financial assistance from the United States Department of Education (Department).” The letter explains “the Department’s existing interpretation of federal law,” including that the SFFA decision “applies more broadly” than in the context of admissions decisions, and that federal law “prohibits covered entities from using race in decisions pertaining to admissions, hiring, promotion, compensation, financial aid, scholarships, prizes, administrative support, discipline, housing, graduation ceremonies, and all other aspects of student, academic, and campus life.” The letter states that the Department will take “appropriate measures to assess compliance” and advises “all educational institutions” to ensure compliance with existing law, to “cease all efforts to circumvent prohibitions on the use of race by relying on proxies or other indirect means to accomplish such ends,” and to cease reliance on third-party contractors, clearinghouses, or aggregators used to “circumvent prohibited uses of race.” The letter threatens a “potential loss of federal funding” for noncompliant entities.

Media Coverage and Commentary:

Below is a selection of recent media coverage and commentary on these issues:

The New York Times, “Fearing Trump, Wall Street Sounds a Retreat on Diversity Efforts” (February 11): Rob Copeland of The New York Times reports that Wall Street firms are retreating from their diversity initiatives. Copeland also discusses last month’s letter from 11 Republican state attorneys general to BlackRock, Goldman Sachs, JPMorgan Chase, Bank of America, Citi, and Morgan Stanley.
Wall Street Journal, “Big Banks Are Scrubbing Their Public Mentions of DEI Efforts” (February 17): WSJ’s AnnaMaria Andriotis and Gina Heeb report that U.S. banks are reducing their public support for DEI, following a trend among other large corporations scaling back their DEI efforts. Andriotis and Heep note that among certain major banks, concerns regarding DEI initiatives have intensified after President Trump’s executive order directing federal departments and agencies to investigate these programs. They report that programs exclusively serving or giving preferential treatment to certain racial groups have faced increased scrutiny and are being modified to include broader audiences. For example, the authors predict that college scholarship and recruiting programs, previously for groups historically underrepresented in the financial services industry, will likely be modified to be tied more closely to economic need and other non-demographic factors. The authors report that major banks were slower to scale back DEI initiatives compared to other industries because they have long been criticized for lack of diversity at the executive level.
Reuters, “FCC To Open Probe Into NBC-Parent Comcast Over Promotion of DEI Programs” (February 12): Reuters’ David Shepardson reports that Federal Communications Commission (FCC) chair Brendan Carr sent a letter to Comcast stating that the FCC is opening an investigation into the company’s promotion of diversity, equity, and inclusion programs. According to Shepardson, the FCC’s letter states that it will “shut[] down any programs that promote invidious forms of DEI discrimination.” The letter asserts that there is “substantial evidence” that Comcast is “engaging in the promotion of DEI” and says that the FCC is focusing on Comcast because it covers numerous sectors regulated by the FCC including cable, high-speed internet, broadcast TV stations and wireless offerings. Shepardson reports that Comcast confirmed it had received an FCC inquiry and will cooperate and answer questions. “For decades, our company has been built on a foundation of integrity and respect for all of our employees and customers,” the company said in a statement.
Bloomberg, “Steer Clear of ‘Illegal DEI’ With Leveling—Not Lifting—Programs” (February 10): Writing for Bloomberg, Kenji Yoshino and David Glasgow—professors at NYU School of Law—propose a way to distinguish between illegal and legal DEI under EO 14173. Highlighting that the administration has not defined “illegal DEI,” the professors propose that a line exists between “lifting” DEI and “leveling” DEI. They define the former as programs and policies that provide a “bump” or benefit based on group membership while defining the latter as programs that emphasize merit. To illustrate the difference between the two, the professors give the example of a symphony that wishes to increase the number of women musicians in its ranks: “lifting” efforts involved actively preferencing women in the audition process, while “leveling” efforts included requiring that all musicians audition behind a screen to prevent consideration of gender in the first place. Yoshino and Glasgow characterize “[h]iring set-asides, tiebreaker practices, and tying manager compensation to meeting diversity goals” as “lifting” programs, and say that companies engaged in these kinds of practices “risk being targeted by the new administration.”
The New York Times, “Alarmed, Employers Ask: ‘What is Illegal D.E.I.?’” (February 10): Emma Goldberg of The New York Times reports on how companies are responding to changes in DEI-related law and policy. Goldberg writes that, at least for private companies that are not federal contractors, the law on DEI has not fundamentally changed, but the “spirit of how it is interpreted” and “expected to be enforced” has. She reports that employers are trying to balance in a “grey area” requiring them to retain sufficient diversity efforts to avoid discrimination lawsuits while also avoiding investigation and litigation from opponents of DEI. In another New York Times article also published on February 10, Goldberg buckets companies’ responses to the “multilayered pressure campaign” against DEI as (a) retreating, (b) holding steady, or (c) fighting for DEI programs. She writes that for companies retreating from DEI, the “retreat began before Trump took office” but “ballooned” in the days around President Trump’s inauguration.
Law.com, “With DEI Top of Mind, Black Judges Discuss Growing Up During Segregation, Efforts to Diversify the Profession” (February 10): Ross Todd of Law.com reports on remarks by Ninth Circuit Judge Johnnie Rawlinson and U.S. District Judge Richard Jones at a Black History Month event sponsored by the Ninth Circuit Judicial Historical Society and Federal Bar Association. Judge Rawlinson relayed her experiences growing up in a segregated town and attending segregated schools until high school, when, despite graduating fourth in her class, she was offered jobs as a maid or a sweeper. Judge Rawlinson described how these experiences motivated her to attend college and law school. At the event, she said she wanted to make clear that “DEI does not mean lack of merit. That’s a false narrative.” Judge Rawlinson stated that “DEI has been mischaracterized because all it is is making sure that opportunities are available to all qualified people, and not stemming the pool.” Judge Jones, who grew up in Chicago but moved to Seattle after his father experienced hiring discrimination, was rejected from a large law firm because “the senior partners in the firm [were not] sure how [their] white clients [were] going to react to having a Black lawyer represent them.” At the event, Judge Jones encouraged lawyers to think about “pipeline opportunities” that encourage young people to “inspire and create a dream.”
NPR, “Exclusive: GM, Pepsi, Disney, Others Scrub Some DEI References from Investor Reports” (February 7): NPR’s Maria Aspan reports that a least a dozen large U.S. companies eliminated references to “diversity” and “inclusion” in their most recent annual investor reports.

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:

Landscape Consultants of Texas, Inc. v. Harris County, Texas et al., No. 4:25-cv-00479 (S.D. Tex.): On February 5, 2025, Landscape Consultants of Texas, Inc. sued Harris County, Texas and the Harris County Commissioners Court, challenging Harris County’s Minority and Woman-Owned Business Enterprise (MWBE) Program. The plaintiff, a non-MWBE landscaping company, claims it “has been at a significant disadvantage when bidding on landscaping contracts” with the County, because a Harris County ordinance requires that the government grant a certain percentage of contracts to MWBEs. The plaintiff alleges that the MWBE Program is racially discriminatory in violation of Section 1981 and the Fourteenth Amendment because it treats companies bidding for public contracts differently based on the race of the company’s owners.
- Latest update: Defendants’ answer is due on February 27, 2025.
Mid-America Milling Company v. U.S. Department of Transportation, No. 3:23-cv-00072-GFVT (E.D. Ky. 2023): On October 26, 2023, two plaintiff construction companies sued the Department of Transportation (DOT), asking the court to enjoin the DOT’s Disadvantaged Business Enterprise Program, an affirmative action program that awards contracts to minority- and women-owned small businesses in DOT-funded construction projects, with the statutory aim of granting 10% of certain DOT-funded contracts to these businesses nationally. The plaintiffs alleged that the program constitutes unconstitutional race discrimination in violation of the Fifth Amendment. On September 23, 2024, the court granted the plaintiffs’ motion for a preliminary injunction, holding that the plaintiffs were likely to succeed on the merits because the program is not sufficiently tailored to the government’s purported interest and lacks a “logical end point.” The court also held that the plaintiffs have standing based on their allegations that they are “able and ready” to bid on a government contract in the near future. The court denied the defendants’ motion to dismiss pending the resolution of any interlocutory appeal of the injunction order.
- Latest update: The parties filed a joint motion to stay the proceedings on February 10, 2025, due to the change in the presidential administration.
American Alliance for Equal Rights v. American Airlines, No. 25-125 (N.D. Tex. 2025): On February 11, 2025, the American Alliance for Equal Rights (AAER) sued American Airlines, alleging that the company’s suppler diversity program violates Section 1981. AAER alleges that eligibility for American’s supplier diversity program unlawfully depends on race, requiring that businesses “be at least 51% owned, operated and controlled by” minorities, women, veterans, service-disabled veterans, disabled individuals, or members of the LGBTQ community. AAER claims that it has members who are ready and able to apply to the program, but do not meet the diversity eligibility requirements.
- Latest update: On February 12, 2025, American Airlines waived service of summons.

American Alliance for Equal Rights v. Southwest Airlines Co.,No. 24-cv-01209 (N.D. Tex. 2024): On May 20, 2024, American Alliance for Equal Rights (AAER) filed a complaint against Southwest Airlines, alleging that the company’s ¡Latanzé! Travel Award Program, which awards free flights to students who “identify direct or parental ties to a specific country” of Hispanic origin, unlawfully discriminates based on race. AAER seeks a declaratory judgment that the program violates Section 1981 and Title VI, a temporary restraining order barring Southwest from closing the next application period (set to open in March 2025), and a permanent injunction barring enforcement of the program’s ethnic eligibility criteria. On August 22, 2024, Southwest moved to dismiss, arguing that the case was moot because the company had signed a covenant with AAER that eliminated the challenged provisions from future program application cycles. On December 6, 2024, the court granted in part and denied in part Southwest’s motion to dismiss. The court concluded that Southwest’s covenant to eliminate the program rendered moot any claims for declaratory or injunctive relief. However, the court held that it had jurisdiction over the plaintiff’s claims for one cent in nominal damages and allowed those claims to proceed. The court rejected Southwest’s argument that Southwest mooted those claims through an “unsuccessful tender of one cent to [AAER].”
- Latest update: On February 7, 2025, Southwest Airlines answered the complaint, denying allegations of discrimination.

Californians for Equal Rights Foundation v. City of San Diego, No. 3:24-cv-00484 (S.D. Cal. 2024): On March 12, 2024, the Californians for Equal Rights Foundation filed a complaint on behalf of members who are “ready, willing and able” to purchase a home in San Diego, but are ineligible for grants or loans under the City’s Black, Indigenous and other People of Color First-Time Homebuyer Program. Plaintiffs allege that the program discriminates on the basis of race in violation of the Fourteenth Amendment. On June 18, 2024, the City of San Diego and the Housing Authority of the City of San Diego filed a motion for judgment on the pleadings, arguing that the complaint does not include any allegations against it, and instead alleges a “fictitious [agency] relationship” with the other defendants, the Housing Authority of the City of San Diego and the San Diego Housing Commission.
- Latest update: On February 6, 2025, the parties filed a joint stipulation of dismissal, stating that the city had removed the race-based condition from the First-Time Homebuyer Program. On February 7, 2025, the court dismissed the case with prejudice.
American Alliance for Equal Rights v. McDonald’s Corporation et al., No. 3:25-cv-00050 (M.D. Tenn. 2025): On January 12, 2025, the American Alliance for Equal Rights (AAER) filed a complaint against McDonald’s and International Scholarship & Tuition Services, Inc. (ISTS), alleging that defendants operate a college scholarship program that “discriminates against high-schoolers based on their ethnicity” in violation of Section 1981. AAER alleged that the HACER scholarship program, which ISTS administers on McDonald’s behalf, “is open only to Hispanics.” AAER claimed that the program “flatly” bars non-Hispanic students from applying “based on their ethnic heritage” and is therefore unlawful. AAER sought declaratory and injunctive relief barring consideration of race, ethnicity, ancestry, or nationality in consideration of scholarship applications, as well as a preliminary injunction to stop the program from closing the application window for current applicants on February 6, 2025. Gibson Dunn represented McDonald’s in this action.
- Latest update: On January 31, 2025, the parties submitted a joint stipulation of dismissal, stating that McDonald’s will no longer consider applicants’ race and will extend the application deadline until at least March 6, 2025. On February 3, 2025, the court dismissed AAER’s claim with prejudice.

2. Employment discrimination and related claims:

Diemert v. City of Seattle, No. 2:22-cv-1640 (W.D. Wash. 2022): On November 16, 2022, Joshua Diemert, a white man and former employee of the City of Seattle, sued the City, challenging its Race and Social Justice Initiative (RSJI) under the Fourteenth Amendment, Section 1983, and Title VII. He contended that trainings and programs under the RSJI created a hostile work environment with a “pervasive” focus on race. He alleged that he was discriminated against and denied opportunities for advancement as a white man. On August 16, 2024, Seattle moved for summary judgment, arguing that the plaintiff experienced no “negative personnel actions” and that RSJI programing is nondiscriminatory. Seattle also argued that it investigated concerns raised by the plaintiff.
- Latest update: On February 10, 2025, the district court granted Seattle’s motion for summary judgment, holding that a “reasonable juror could not find that the RSJI created an objectively hostile work environment.”

Missouri v. Int’l Bus. Machs. Corp., No. 24SL-CC02837 (Cir. Ct. of St. Louis Cty. 2024): On June 20, 2024, the State of Missouri filed a complaint against IBM in Missouri state court, alleging that the company violated the Missouri Human Rights Act by using race and gender quotas in its hiring and by basing employee compensation on participation in allegedly discriminatory DEI practices. The complaint cited a leaked video in which IBM’s Chief Executive Officer and Board Chairman, Arvind Krishna, allegedly stated that all executives must increase representation of ethnic minorities in their teams by 1% each year to receive a “plus” on their bonus. The complaint also alleged that employees at IBM have been fired or otherwise suffered adverse employment actions because they failed to meet or exceed these targets. The Missouri Attorney General sought to permanently enjoin IBM and its officers from utilizing quotas in hiring and compensation decisions. On September 13, 2024, IBM moved to dismiss the suit, arguing that the “plus” bonus is not a “rigid racial quota,” but a lawful means of encouraging “permissible diversity goals.” IBM also argued that Missouri failed to assert sufficient facts to show that the “plus” bonus influenced any employment decisions in the state. On November 8, 2024, the State of Missouri filed “Suggestions in Opposition” to IBM’s motion to dismiss. Missouri first argued that IBM’s arguments are merits questions that cannot yet be addressed at the motion to dismiss stage. Missouri then argued that if the court considers the merits questions, it should hold that IBM’s racial quotas are unlawful in light of the Missouri Human Rights Act and the Supreme Court decision in Students for Fair Admissions.
- Latest update: On February 10, 2025, the court granted IBM’s motion to dismiss in a one-sentence order without any explanation or reasoning. The court gave Missouri thirty days to amend its complaint.

Grande v. Hartford Board of Education et al., 3:24-cv-00010-JAM (D. Ct. 2024): On January 3, 2024, John Grande, a white male physical education teacher in the Hartford school district, filed suit against the Hartford School Board after allegedly being forced to attend mandatory DEI trainings. He claimed that he objected to the content of a mandatory professional development session focused on race and privilege, stating that he felt “white-shamed” after expressing his political disagreement with the training’s purposes and goals, and that he was thereafter subjected to a retaliatory investigation and was wrongfully threatened with termination. He claimed the school’s actions constitute retaliation and compelled speech in violation of the First Amendment.
- Latest update: On February 5, 2025, the defendants filed a motion for summary judgment, arguing that the plaintiff’s objections to the trainings were made in the course of his official duties as a District employee and therefore were not protected by the First Amendment. They further argued that the District’s interest in effectively administering its professional development sessions outweighed the plaintiff’s speech interests.
Steffens v. Walt Disney Co., No. 25NNCV00944 (Cal. Super. Ct. Los Angeles Cnty. 2025): On February 11, 2025, a white former executive for Marvel Entertainment sued Disney, alleging the company discriminated against him on the basis of race, sex, and age. He alleged he was denied a promotion because of his race and age, and that the Company failed to promote him as retaliation for his objection to “effort[s] to promote presidents to senior vice presidents based on their race and a memorandum that would have referred to employees with the racial signifier ‘BIPOC.’” He brought claims under California state antidiscrimination and unfair business practices laws.
- Latest update: On February 13, the court issued an order to show cause for failure to file proof of service.

3. Actions against educational institutions:

Students Against Racial Discrimination v. Regents of the University of California et al., No. 8:25-cv-00192 (C.D. Cal 2025): On February 3, 2025, Students Against Racial Discrimination (SARD) sued the Regents of the University of California, alleging that University of California schools discriminate against Asian American and white applicants by using “racial preferences” in admissions at all campuses in the UC system in violation of Title VI and the Fourteenth Amendment. SARD alleged it has student members who are ready and able to apply to UC schools but “unable to compete on an equal basis” because of their race.
- Latest update: The docket does not yet reflect that the defendant has been served.
Hooley v. Regents of the University of California et al., No. 3:25-cv-01399 (N.D. Cal. 2025): On February 11, 2025, the mother of a minor high school student sued the Regents of the University of California, alleging that UC San Francisco Benioff Children’s Hospital Oakland discriminates against white students by offering its Community Health and Adolescent Mentoring Program for Success (CHAMPS) internship only to “underrepresented minority students.” The plaintiff alleges that her daughter applied for CHAMPS and was rejected based on her race. The plaintiff challenges the CHAMPS program as violating the Fourteenth Amendment, Title VI, Section 1981, and the California Constitution.
- Latest update: The docket does not yet reflect that the defendant has been served.

4. 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.” 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.
- Latest update: The defendants waived service on February 3, 2025. An answer is due on March 31, 2025.
Do No Harm v. Gianforte, No. 6:24-cv-00024-BMM-KLD (D. Mont. 2024): On March 12, 2024, Do No Harm filed a complaint on behalf of “Member A,” a white female dermatologist in Montana, alleging that a Montana law requiring the governor to “take positive action to attain gender balance and proportional representation of minorities resident in Montana to the greatest extent possible” when making appointments to the twelve-member Medical Board violates the Fourteenth Amendment. Do No Harm alleged that since ten seats are currently held by six women and four men, Montana law requires that the remaining two seats be filled by men, which would preclude Member A from holding the seat. Following Governor Gianforte’s motion to dismiss, Magistrate Judge De Soto recommended that the case be dismissed for lack of subject matter jurisdiction. Magistrate Judge De Soto found Do No Harm lacked standing because it did not allege “facts demonstrating that at least one Member is both ‘able and ready’ to apply for a Board seat in the reasonably foreseeable future.” For the same reasons, the Magistrate Judge found the case unripe.
- Latest update: On February 5, 2025, the court adopted the Magistrate Judge’s findings and recommendations and dismissed the complaint without prejudice.
National Association of Diversity Officers in Higher Education, et al., v. Donald J. Trump, et al., 25-cv-333 (D. Md. 2025): On February 3, the Mayor and City Council of Baltimore, the National Association of Diversity Officers in Higher Education, the American Association of University Professors, and the Restaurant Opportunities Centers United filed a complaint in the District of Maryland challenging two recent anti-DEI executive orders. The complaint raises six constitutional claims, including claims alleging that the orders violate the First Amendment, Fourteenth Amendment, Spending Clause, and separation of powers. The complaint seeks a declaratory judgment that EO 14151 and EO 14173 are unconstitutional, as well as a preliminary injunction enjoining enforcement of these executive orders.
- Latest update: On February 13, plaintiffs filed a motion for a temporary restraining order (TRO) or, in the alternative, a preliminary injunction to prevent the administration from enforcing the two executive orders, as well as any other memoranda or policy implementing the executive orders. On February 18, the government filed its opposition, arguing: (1) plaintiffs lack standing to challenge the executive orders because they fail to identify any members of their organizations who have been injured and fail to allege a non-speculative injury, (2) plaintiffs’ claims are not ripe for review because they depend on a series of future Executive actions which may not occur as anticipated or at all, (3) plaintiffs are not likely to succeed on the merits of their claim because the executive orders do not violate separation of powers, the First Amendment, or the Fourteenth Amendment since courts have long recognized the President’s authority to regulate contracts and federal funds, and the challenged provisions are tied to federal antidiscrimination law, (4) plaintiffs failed to show irreparable injury attributable to the executive orders, and (5) the public interest weighs against granting plaintiffs’ relief because eradicating discrimination is in the interest of the public. On February 19, plaintiffs filed a reply brief, emphasizing that the President lacks authority to direct federal agencies to terminate grants and contracts simply because they are “equity-related” or to chill plaintiffs’ speech with threats of investigation.

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Blaine Evanson, Zakiyyah Salim-Williams, Cynthia Chen McTernan, Zoë Klein, Cate McCaffrey, Jenna Voronov, Emma Eisendrath, Felicia Reyes, Allonna Nordhavn, Laura Wang, Maya Jeyendran, Kristen Durkan, Ashley Wilson, Lauren Meyer, Kameron Mitchell, Chelsea Clayton, Albert Le, Emma Wexler, Heather Skrabak, and Godard Solomon.

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)

Blaine H. Evanson – Partner, Appellate & Constitutional Law Group
Orange County (+1 949-451-3805, bevanson@gibsondunn.com)

New Guidance Likely to Alter the Landscape for Shareholder Engagement

On February 11, 2025, the Staff in the Division of Corporation Finance (“Staff”) of the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) issued updated and new Compliance and Disclosure Interpretations (“C&DIs”)[1] that are likely to significantly impact how investors engage with public companies. These interpretations address beneficial ownership reporting on Schedule 13G vs. Schedule 13D (“13G” and “13D,” respectively), expand the nature and scope of activities the Staff views as “influencing control of the issuer” (which could deter otherwise passive investors who own more than 5% of a company’s voting securities from certain forms of engagement to avoid becoming ineligible to rely on 13G reporting), and could require groups of smaller social activist shareholders to become subject to 13D reporting. The Staff’s recent guidance underscores the agency’s increasing scrutiny of institutional investors’ corporate governance stewardship activities, particularly in the context of environmental, social, and governance (“ESG”) matters.

Key Changes to 13G Filing Eligibility Standards

Shareholders, including those acting as a group, that beneficially own more than 5% of a class of registered voting securities must report their ownership on either a 13G or a 13D. To maintain eligibility to report on 13G instead of 13D,[2] a shareholder must certify that the subject securities “were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of the issuer.” A 13D requires more detailed information on a shareholder’s beneficial ownership of and transactions in a subject company’s shares, as well as its plans and proposals with respect to the company and requires prompt amendments for any material changes in the reported information.

13G Filing Eligibility and Shareholder Engagement.

In revised C&DI 103.11, the Staff reaffirmed that a shareholder’s inability to rely on the Hart-Scott-Rodino Act’s exemption from notification and waiting period requirements for an acquisition made “solely for the purpose of investment” would not affect a shareholder’s ability to report on 13G. The Staff emphasized that a shareholder’s ability to report on 13G instead depends on whether its activities suggest an intent to influence control of the company. The guidance reminds investors that such determination necessarily entails a factual analysis of the shareholder’s actions and intentions in relation to “control” as defined under Exchange Act Rule 12b-2.[3] Notably, as shown by the redline that the Staff now provides when it revises its C&DIs, the Staff withdrew its prior guidance that engagement with a company on executive compensation, environmental, social, or other public interest issues, or on corporate governance topics unrelated to a specific change of control, without more, would generally not cause a loss of 13G eligibility.

Actions Constituting a “Purpose or Effect of Influencing Control”.

In new C&DI 103.12, the Staff addresses circumstances that in its view would preclude an investor from reporting on 13G because it held securities with a disqualifying “purpose or effect of changing or influencing control of the issuer.” The interpretation makes clear that a shareholder exerting “pressure” to adopt governance measures, particularly tied to ESG or political policy matters, may be viewed as an attempt to influence control over the company.

When Does Engagement with Management Cross the Line?

The new and revised C&DIs state that engaging with a company’s management on corporate governance or other policy matters could, depending on all the relevant facts and circumstances, result in a disqualification from reporting on 13G. This is particularly relevant for investors whose activities, though intended to push for governance changes or ESG-driven policies, may be interpreted as attempts to influence control. The Staff’s recent interpretation aligns with comments made by SEC Acting Chairman Mark Uyeda, who previously stated that asset managers’ voting policies on ESG matters may qualify as attempts to exert control over management.[4] According to the Staff, investors exerting pressure on management to implement specific measures or changes to a policy would be influencing control over the company. Such examples of exerting pressure over the company include the following:

Subject Matter Engagement: Shareholders engaging with management to specifically call for control-related actions – such as a sale of the company or a significant amount of assets, restructuring, or the election of director nominees other than the company’s nominees – would be disqualified from 13G eligibility solely due to the subject matter of the discussion or communications.
Context of Engagement: Under C&DI 103.12, a “shareholder who discusses with management its views on a particular topic and how its views may inform its voting decisions, without more, would not be disqualified from reporting on a Schedule 13G.” However, “pressuring” management to adopt specific measures or tying support for directors to the adoption of certain proposals (e.g., removal of staggered boards, changes to executive compensation practices, eliminating poison pill rights plans, undertaking specific actions relating to an environmental, social, or political policy, and stating or implying during any such discussions that it will not support one or more of the company’s director nominees at the next annual meeting as a means of “pressuring” a company to adopt a particular recommendation) may also risk the loss of 13G eligibility. “Pressure” can be direct or indirect, express or implied.

SEC Guidance on 13D Group Formation

The Staff’s guidance should be read in conjunction with the SEC’s October 2023 Release,[5] which described examples of activities and/or communications that would not give rise to formation of a Section 13(d) group. According to the Commission, the following scenarios would not give rise to group formation:

Discussions in private or public forums: Meetings between two parties or an independent, free exchange of ideas among shareholders at a conference, without the intent to engage in concerted actions or agreements related to securities acquisition, holding, or disposition, are not considered group activity.
Discussions with company management: Engaging with company management and other shareholders to jointly recommend board structure and composition, without discussing individual directors, expanding the board, or pressuring the board to take specific actions, does not form a group.
Non-binding shareholder proposals: Having conversations about or submitting a non-binding shareholder proposal jointly with others does not constitute group activity.
Conversations with activist investors: Conversations, emails, phone calls, or meetings between a shareholder and an activist investor seeking support for proposals, without further coordinated actions, are not considered group activity.
Announcement of voting intentions: Announcing an intention to vote in favor of an unaffiliated activist investor’s director nominees, without further coordinated activity, does not form a group.

In contrast, a substantial shareholder sharing information with the intent of inducing others to purchase the same stock, where those purchases directly result from the information shared, could raise the possibility of group formation.

These scenarios provided by the Commission offer useful guidance for investors that may communicate with a public company and its shareholders, but do not want to inadvertently become a member of a group.

Implications and Possible Impact of the Staff’s Interpretations

The Staff’s views expressed in the C&DIs foreshadow stricter scrutiny on passive investors’ 13G status and create new risks for investors (or groups of investors) when communicating with management and boards at public companies. The new C&DI introduces the concept of “pressure,” which will be difficult to administer in practice and is, ultimately, a subjective standard. Investors should be mindful of the risk that, if a company believes the investor has crossed the line to “pressure” the company, it may contact the Staff to question whether the investor should be filing on a 13D and provide more details on its beneficial ownership and related transactions, as well as its intentions, including any plans or proposals, with respect to the company. The only example of “pressure” that is provided in the C&DIs is conditioning support for the company’s director nominees at the next election of directors.

While these interpretations should rein in the minority of 13G filers who campaign on various ESG issues subject to a threat of voting against directors, they will likely influence the actions of large institutional investors who in recent years have sought to address ESG matters through their own “board accountability” voting policy standards (which those institutions have in recent years increasingly relied on in lieu of supporting shareholder proposals on such issues). The interpretations also raise the possibility that groups of investors that collectively own more than 5% of a company’s stock, including smaller social activist investors that individually hold less than 5% of a company’s stock, could be viewed as forming a 13D group if they coordinate to urge companies to adopt specific climate-change, diversity, equity and inclusion, or other ESG policies, particularly if backed by pressure through a “vote no” campaign.

The updated C&DIs should prompt investors who are reporting on 13G, as well as smaller activist investors who are not 13D or 13G filers but have signed on to various ESG letter-writing and other campaigns, to reassess their strategies. Passive investors who have traditionally filed on 13G despite pushing for governance or ESG-related changes should now assess whether their actions could be seen as attempts to exert “pressure” and may need to change their approach to protect their 13G eligibility. While it is theoretically possible for investors reporting on 13G to temporarily opt to report on 13D, many mutual funds and other investors face institutional or practical restrictions that make 13D reporting unrealistic. As a result, those investors may seek to avoid or minimize any communications that could be viewed as exerting “pressure” or attempts to exert control. Passive investors who chose to migrate from 13G to 13D in situations where communications relate to control-related issues or rise to the level of “pressure” may be able to revert back to 13G reporting once the shareholder engagement is completed and a vote taken on the matter at hand.

There are other notable collateral, and possibly unintended, consequences of the Staff’s revised interpretations. For example, companies engaged in a proxy contest may find it more difficult to engage with their largest institutional investors, as those investors may be concerned that expressing views on issues arising in the contest could be viewed as pressuring company management and, therefore, triggering 13D reporting. Ironically, if faced with less transparency from their large institutional shareholders, companies may become more reliant on engaging with and attempting to sway the major proxy advisory firms. Even outside of the context of an actual proxy contest, another unintended consequence may be a stifling of dialogue between large institutional investors and companies, a decrease in transparency on how these investors intend to vote, and possibly an increase in abstentions.

Practical Considerations for Investors and Companies

The Staff’s updated guidance on 13G eligibility risks chilling the type of routine engagement that many companies have sought to foster and believe better positions them with their investors to help ward off proxy contests and other forms of traditional activism. With respect to the upcoming proxy season, we understand that some investors have already begun canceling or delaying long-scheduled engagements with companies as they assess the implications of the Staff’s guidance. As a result, companies may need to consider enhancing their disclosures and considering alternative additional solicitation strategies to ensure they are effectively communicating their key messages to investors.

Nevertheless, while the determination of whether an investor is acting with a control purpose or intent will depend on all the relevant facts and circumstances, there are some guideposts that investors and companies should bear in mind:

The C&DI expressly states that a shareholder who discusses with management its views on a particular topic and how its views may inform its voting decisions, without more, generally would not be disqualified from reporting on a 13G.
Discussions around non-binding proposals, such as votes on management’s say-on-pay proposals and discussions with non-proponents regarding shareholder proposals, should present less risk of being viewed as applying pressure on management or attempting to influence control of the company.
Investor responses to company-initiated inquiries regarding the investor’s views on a particular issue, and investor references to other companies’ practices or disclosures that the investor views as favorable, without more, should present less risk of being viewed as applying pressure on management or attempting to influence control of the company. As a result, companies will need to be more proactive in requesting engagement with investors and asking questions about key topics during those engagements.
Companies and investors may explore additional steps to foster productive discussions that avoid creating a mis-impression that an investor is seeking to apply pressure when that is not the investor’s intent. For example, when applicable, some investors might seek to clarify with a company that voting decisions are made on a case-by-case basis, by a committee, or by individual portfolio managers, and therefore that the investor’s engagement team should not be viewed as representing how the investor will vote on a particular matter.
The C&DI notes the context in which an engagement occurs is highly relevant in determining whether a shareholder is holding securities with a disqualifying purpose or effect of “influencing” control of the company and, as such, off-season engagements may present less risk of losing 13G eligibility.

Ultimately, the latest C&DIs are likely to chill institutional investors’ willingness to engage with companies as candidly as in recent years and could lead to unexpected negative votes on director elections, say on pay, or other matters. As a result, companies and boards will need to stay highly attuned to investor sentiment as expressed through other means, such as voting policies and public statements, and seek to maintain open channels of communication year-round to avoid these risks and ensure alignment on key governance and ESG matters. Companies and boards are encouraged to review their shareholder engagement activities, and consult with outside counsel as needed, on specific situations considering the Staff’s new guidance.

Conclusion

The Staff’s latest guidance signals a more stringent approach to shareholder activism, with a new emphasis on engagement as a factor that may cause a shareholder to lose its 13G eligibility. Shareholders who have traditionally been viewed as passive should be more mindful of how their actions (overt or implicit) and communications with management and boards may be seen as constituting “pressure,” particularly with respect to governance, environmental, social, and political policy matters. In many instances, views as to what amounts to “pressure” may be in the eye of the beholder. As a result, we recommend training, clarifying ground rules between parties, and avoiding one-on-one communications between companies and shareholders.

[1] Specifically, the Staff revised Question 103.11 and issued a new Question 103.12 under “Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting.”

[2] Rule 13d-1(b) and Rule 13d-1(c) require the shareholder to certify that the securities were not acquired and are not held with a disqualifying purpose or effect. Any person who acquired beneficial ownership before a company’s voting securities were registered under the Exchange Act can report on 13G pursuant to Rule 13d-1(d) regardless of control over the company.

[3] Exchange Act Rule 12b-2 defines “control” (including the terms “controlling,” “controlled by” and “under common control with”) as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.”

[4] U.S. Securities & Exchange Comm., Nov. 17, 2022, https://www.sec.gov/news/speech/uyeda-remarks-cato-summit-financial-regulation-111722 (remarks of Comm. Uyeda at Cato Summit on Financial Regulation).

[5] See SEC Release Nos. 33-11253; 34-98704 (Oct. 10, 2023).

The following Gibson Dunn lawyers prepared this update: Ron Mueller, Jim Moloney, Aaron Briggs, Beth Ising, Tom Kim, Brian Lane, Lori Zyskowski, Mickal Haile, and Matt Staugaard.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following lawyers in the firm’s Securities Regulation and Corporate Governance, Capital Markets, Mergers and Acquisitions, or Private Equity practice groups:

Securities Regulation and Corporate Governance:
Aaron Briggs – San Francisco (+1 415.393.8297, abriggs@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)
James J. Moloney – Orange County (+1 949.451.4343, jmoloney@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Michael A. Titera – Orange County (+1 949.451.4365, mtitera@gibsondunn.com)
Geoffrey E. Walter – Washington, D.C. (+1 202.887.3749, gwalter@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Capital Markets:
Andrew L. Fabens – New York (+1 212.351.4034, afabens@gibsondunn.com)
Hillary H. Holmes – Houston (+1 346.718.6602, hholmes@gibsondunn.com)
Stewart L. McDowell – San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)
Peter W. Wardle – Los Angeles (+1 213.229.7242, pwardle@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

The Court of Appeal judgment means that States can be prevented by the doctrine of issue estoppel from relitigating state immunity issues before the English courts if those issues have already been decided in another forum. As such, the judgment provides a potential shortcut through otherwise lengthy and expensive proceedings on questions of state immunity.

Executive Summary

On 12 February 2025, the UK’s Court of Appeal issued an important ruling in the area of judgment and arbitral award enforcement: Hulley Enterprises Ltd & Ors v The Russian Federation [2025] EWCA 108 (the CA Judgment).

The CA Judgment affirms the High Court’s earlier decision (the HC Judgment)[1] that the doctrine of issue estoppel can apply to arguments on state immunity. The decision is especially important in the field of judgment and award enforcement because, according to the CA Judgment, those seeking to enforce against a State can rely upon prior decisions—including those of foreign courts—in deciding issues that underpin a claim for state immunity. That is subject to establishing (i) the standard common law requirements for an issue estoppel,[2] and (ii) the requirements for recognition of a foreign judgment issued against a foreign State set out in s. 31 of the Civil Jurisdiction and Judgments Act 1982 (the CJJA).[3]

The CA Judgment means States will be prevented from relitigating certain state immunity issues before the English courts so that an English court can base its decision as to the existence of state immunity on an issue estoppel arising from the decision of a foreign court. As such, it provides a potential shortcut through otherwise lengthy and expensive proceedings on questions of state immunity.

Relevant Background

The claimants in the case (the Hulley Claimants) obtained three materially identical arbitral awards (the Awards) against Russia in 2014. The Awards ordered Russia to pay damages exceeding USD 50 billion (plus interest) for Russia’s violations of the Energy Charter Treaty stemming from Russia’s unlawful expropriation of Yukos Oil Company in which the Hulley Claimants were majority shareholders. Following the issuance of the Awards, a sprawling set of set-aside and enforcement proceedings has unfolded across multiple jurisdictions.

As to the set-aside proceedings: in 2014, Russia applied to set the Awards aside in the courts of the arbitral seat, the Netherlands. The Awards were set aside at first instance by the Hague District Court in 2016 on jurisdictional grounds because it found that there was no binding arbitration agreement between the Hulley Claimants and Russia.[4] However, the Hulley Claimants successfully appealed that decision, and the Awards were re-instated by the Hague Court of Appeal in 2020.[5] Russia then appealed that decision to the Dutch Supreme Court,[6] which, in 2021, upheld most of the Hague Court of Appeal’s findings but remitted one issue to the Amsterdam Court of Appeal for further consideration.[7] According to the CA Judgment, while the Amsterdam Court of Appeal has ruled in the Hulley Claimants’ favour on the outstanding issue, a further appeal to the Dutch Supreme Court remained pending as of the date of the CA Judgment.[8]

Meanwhile, in 2015, before the Hague District Court had set the Awards aside, the Hulley Claimants had applied for recognition and enforcement of the Awards in the UK. Those proceedings were then stayed by consent following the set-aside decision of the Hague District Court in 2016.[9] After the Dutch Supreme Court judgment was handed down in 2021, the stay was lifted partially and solely for the purpose of resolving Russia’s state immunity defence (emanating from jurisdictional issues). Directions were given by Mr Justice Butcher for determination of certain preliminary issues centred around whether Russia was precluded, by reason of an issue estoppel arising out of the Dutch courts’ judgments, from arguing that the arbitral tribunal did not have jurisdiction.

The core of the Dutch courts’ jurisdictional finding was that, contrary to Russia’s submissions, there was a binding arbitration agreement between the Hulley Claimants and Russia. Consequently, in the English proceedings considering these preliminary jurisdictional issues, the Hulley Claimants argued that the Dutch courts’ determination on jurisdiction also resolved the question of whether the arbitration exception under s. 9 of the UK State Immunity Act 1978 (the SIA)[10] applied; Russia counterargued that that question had to be the subject of further consideration de novo by the English courts.[11]

The High Court Judgment

The preliminary jurisdictional issues were the subject of a two-day hearing before Mrs Justice Cockerill DBE on 4–5 October 2023, and the HC Judgment was handed down on 1 November 2023.

Cockerill J ruled in favour of the Hulley Claimants in reliance of the Dutch courts’ jurisdictional determinations. She held that the SIA is subject to procedural and substantive common law rules, including issue estoppel, and there was no principle of law that issue estoppel could not arise in the context of public international law (such as in relation to the interpretation of an international treaty).[12] She also held that, in order for an issue estoppel to arise from a foreign judgment issued against a foreign State, the requirements for recognition of such judgments, contained in s. 31 of the CJJA, must also be satisfied.[13]

Applying those principles, Cockerill J found that the Dutch Supreme Court’s 2021 decision—dismissing Russia’s challenge to the Awards and finding a binding agreement to arbitrate—created an issue estoppel. Russia was therefore estopped from re-arguing before the English courts the question of whether it had agreed to submit the dispute to arbitration. Consequently, Cockerill J dismissed Russia’s challenge to the jurisdiction of the English courts on the grounds of state immunity.

The Court of Appeal Judgment

Russia appealed the HC Judgment to the Court of Appeal on five grounds,[14] which were distilled down to a single primary issue: when a foreign court has decided that a State has agreed in writing to submit a dispute to arbitration, and the usual conditions for the application of issue estoppel are satisfied, can: (a) the English court treat that decision as giving rise to an issue estoppel, or (b) must it determine the issue for itself (i.e., de novo) without regard to the decision of the foreign court?

The appeal was heard on 15 January 2025 and the CA Judgment was handed down on 12 February 2025. Lord Males, Lord Lewison, and Lord Zacaroli unanimously dismissed Russia’s appeal, with Lord Males delivering the lead judgment.

The Court of Appeal noted that, while the SIA sets out comprehensively the exceptions to state immunity (in ss. 2 to 11 of the SIA), it does not prescribe how the English court should decide whether any of the exceptions applies in any given case.[15] That question must be decided by applying the ordinary principles of English law—both substantive and procedural—and those principles include the principle of issue estoppel.[16]

Thus, when Cockerill J had decided to give effect to an issue estoppel arising from the Dutch Supreme Court’s 2021 judgment, she had not (as Russia had maintained) declined to determine whether Russia had agreed to submit the underlying dispute to arbitration. Instead, the Judge had determined that Russia had so agreed, applying the substantive principle of issue estoppel. In short: the relevant question had been determined by the previous decision of a court of competent jurisdiction (i.e., the Dutch Supreme Court in 2021), which the Court of Appeal confirmed to be conclusive on the issue in question.[17]

The Court of Appeal also rejected Russia’s arguments that issues of state immunity and/or treaty interpretation constituted “special circumstances” militating against the application of issue estoppel in any event. In doing so, the Court of Appeal noted that to give effect to the issue estoppel arising from such a judgment would be in the interests of justice as it would: (i) avoid putting the Hulley Claimants to the trouble and expense of litigating the relevant issue again, and (ii) be in accordance with the important public policy that arbitral awards, even against sovereign States, “should be honoured without delay and without the kind of trench warfare seen in the present case”.[18]

Comment

The CA Judgment is significant. It confirms that determinations of foreign courts—in particular, of the courts of the arbitral seat—can give rise to an issue estoppel when English courts are deciding the same issues within the context of a sovereign immunity defence. In practice, it is often the case that the set-aside proceedings at the seat of the arbitration will settle the question of whether the tribunal in question had jurisdiction (i.e., effectively the very same question that arises under s. 9 of the SIA as to whether the arbitration exception applies). The CA Judgment, thus, paves the way for award creditors to rely upon such final determinations of foreign courts to cut short a State’s assertion of adjudicative immunity in enforcement proceedings before the English courts.

Accordingly, the CA Judgment means that: (i) the timeline for obtaining an enforceable recognition and enforcement order against a State (entitling the award creditor to start the execution process against the State’s assets) can be much shorter, and (ii) the additional costs and expenses of re-running complex and already-decided jurisdictional arguments before the English courts can be avoided.

On the whole, the CA Judgment is positive news for parties looking to enforce awards against foreign States in the UK and re-affirms the UK’s pro-enforcement stance in accordance with other recent decisions.[19]

We note that the CA Judgment may be subject to a further appeal to the UK Supreme Court.

[1] Hulley Enterprises Ltd & Ors v The Russian Federation [2023] EWHC 2704 (Comm).

[2] Being that (i) the judgment (which is alleged to form the basis of the issue estoppel) must have been given by a foreign court of competent jurisdiction; (ii) the judgment (which is alleged to form the basis of the issue estoppel) must be final and conclusive and on the merits; (iii) there must be identity of parties; (iv) there must be identity of subject matter (i.e., the issue decided by the foreign court must be the same as the one arising in the English proceedings); and (v) “special circumstances”, militating against the application of issue estoppel, must not exist (see CA Judgment, paras. 36, 41).

[3] Being that (i) the judgment (which is alleged to form the basis of the issue estoppel) would be recognised and enforced if it had not been given against a State; and (ii) that the foreign court would have had jurisdiction in the matter if it had applied rules corresponding to those applicable to such matters in the UK in accordance with ss. 2–11 of the State Immunity Act 1978 (see CA Judgment, paras. 23, 72–76).

[4] CA Judgment, para. 8.

[5] CA Judgment, para. 9.

[6] Raising challenges as to the conduct of the arbitration alongside its jurisdictional objections.

[7] CA Judgment, para. 11. The one issue that had been remitted to the Amsterdam Court of Appeal was whether the Awards were vitiated by fraud as a result of the Hulley Claimants having (allegedly) effectively bribed a witness to give evidence in their favour and failed to disclose key documents.

[8] CA Judgment, para. 15.

[9] CA Judgment, paras. 7–8.

[10] Section 9(1) of the SIA provides that “[w]here a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration”.

[11] CA Judgment, para. 12.

[12] HC Judgment, paras. 19–40, 53–55.

[13] HC Judgment, paras. 41–48.

[14] The five grounds of appeal advanced by Russia were: (1) issue estoppel is not applicable in respect of a foreign judgment against a state, not least on an issue of state immunity; (2) there is no scope for issue estoppel to apply when determining whether state immunity is available under the SIA; (3) s. 31 of the CJJA is not available as an “overlay” for a common law issue estoppel determination; (4) special circumstances militate against the application of issue estoppel in any event because of (i) the extant fraud challenge wherein the Awards are liable to be set aside; (ii) the existence of a potential reference to, and determination by, the Court of Justice of the European Union that there was no jurisdictional basis for the Awards; and (iii) the primacy which ought to be given to the exceptional nature of state immunity; and (5) the requirement for an English court to identify the true and proper construction of a treaty itself militates against the application of issue estoppel on such a matter (see CA Judgment, para. 49).

[15] CA Judgment, paras. 3, 57.

[16] CA Judgment, paras. 3, 57.

[17] CA Judgment, para. 56.

[18] CA Judgment, paras. 77–84.

[19] See further our client alerts on the decisions in Infrastructure Services Luxembourg SARL & Anor v Kingdom of Spain and Border Timbers Ltd & Anor v Republic of Zimbabwe [2024] EWCA Civ 1257 (here); Infrastructure Services Luxembourg SARL & Anor v Kingdom of Spain [2023] EWHC 1226 (Comm) (here); and Micula & Ors v Romania [2020] UKSC 5 (here).

The following Gibson Dunn lawyers prepared this update: Piers Plumptre, Ceyda Knoebel, Theo Tyrrell, and Dimitar Arabov.

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

Piers Plumptre (+44 20 7071 4271, pplumptre@gibsondunn.com)
Ceyda Knoebel (+44 20 7071 4243, cknoebel@gibsondunn.com)
Theo Tyrrell (+44 20 7071 4016, ttyrrell@gibsondunn.com)
Dimitar Arabov ( +44 20 7071 4063, darabov@gibsondunn.com)

From the Derivatives Practice Group: The CFTC under the Trump administration is taking shape, and ESMA launched consultations on (i) revising the disclosure framework for private securitizations (ii) settlement discipline and (iii) the European Market Infrastructure Regulation.

New Developments

Trump Plans to Pick Brian Quintenz to Lead CFTC. On February 11, several mainstream news sources began to report that U.S. President Donald Trump plans to nominate Brian Quintenz, the head of policy at Andreessen Horowitz’s a16z crypto arm, as Chairman of the CFTC. Quintenz previously served as a commissioner for the CFTC during the first Trump administration. [NEW]
Acting Chairman Pham Announces Brian Young as Director of Enforcement. On February 14, the CFTC Acting Chairman Caroline D. Pham today announced Brian Young will serve as the agency’s Director of Enforcement. Young has been serving in an acting capacity since January 22, and previously was the Director of the Whistleblower Office. He is a distinguished federal prosecutor with nearly 20 years of service at the Department of Justice, including Acting Director of Litigation for the Antitrust Division and Chief of the Litigation Unit for the Fraud Section of the Criminal Division, and has successfully tried some of the most high-profile criminal fraud and manipulation cases in the CFTC’s markets. [NEW]
CFTC Announces Crypto CEO Forum to Launch Digital Asset Markets Pilot. On February 7, the CFTC announced that it will hold a CEO Forum of industry-leading firms to discuss the launch of the CFTC’s digital asset markets pilot program for tokenized non-cash collateral such as stablecoins. Participants will include Circle, Coinbase, Crypto.com, MoonPay and Ripple.
CFTC Statement on Allegations Targeting Acting Chairman. On February 6, the CFTC released a statement regarding allegations targeting Acting Chairman Pham.
David Gillers to Step Down as Chief of Staff. On February 6, the CFTC announced that David Gillers will step down as Chief of Staff to Commissioner Behnam on February 7.
CFTC Announces Prediction Markets Roundtable. On February 5, the CFTC announced that it will hold a public roundtable in approximately 45 days at the conclusion of its requests for information on certain sports-related event contracts. The CFTC said that the goal of the roundtable is to develop a robust administrative record with studies, data, expert reports, and public input from a wide variety of stakeholder groups to inform the Commission’s approach to regulation and oversight of prediction markets, including sports-related event contracts. According to the CFTC, the roundtable will include discussion of key obstacles to the balanced regulation of prediction markets, retail binary options fraud and customer protection, potential revisions to Part 38 and Part 40 of CFTC regulations to address prediction markets, and other improvements to the regulation of event contracts to facilitate innovation. The roundtable will be held at the CFTC’s headquarters in Washington, D.C.
CFTC Division of Enforcement to Refocus on Fraud and Helping Victims, Stop Regulation by Enforcement. On February 4, CFTC Acting Chairman Caroline D. Pham announced a reorganization of the Division of Enforcement’s task forces to combat fraud and help victims while ending the practice of regulation by enforcement. According to the CFTC, previous task forces will be simplified into two new Division of Enforcement task forces: the Complex Fraud Task Force and the Retail Fraud and General Enforcement Task Force. The Complex Fraud Task Force will be responsible for all preliminary inquiries, investigations, and litigations relating to complex fraud and manipulation across all asset classes. The Acting Chief will be Deputy Director Paul Hayeck. The Retail Fraud and General Enforcement Task Force will focus on retail fraud and handle general enforcement matters involving other violations of the Commodity Exchange Act. The Acting Chief will be Deputy Director Charles Marvine.
CFTC Staff Issues No-Action Letter to Korea Exchange Concerning the Offer or Sale of KOSPI and Mini KOSPI 200 Futures Contracts. On February 4, the CFTC’s Division of Market Oversight issued a no-action letter stating it will not recommend the CFTC take enforcement action against Korea Exchange (“KRX”) for the offer or sale of Korea Composite Stock Price Index (“KOSPI”) 200 Futures Contracts and Mini KOSPI 200 Futures Contracts to persons located within the United State while the Commission’s review of KRX’s forthcoming request for certification of the contracts under CFTC Regulation 30.13 is pending. DMO issued similar letters when the KOSPI 200 became a broad-based security index in 2021 and 2022. See CFTC Press Release Nos. 8464-21 and 8610-22. The KOSPI 200 became a narrow-based security index in February 2024. The KOSPI 200 is set to become a broad-based security index on February 6, 2025, and the no-action position in DMO’s letter will be effective on that date.
CFTC Staff Issues Supplemental Letter Regarding No-Action Position on Reporting, Recordkeeping Requirements. On January 31, the CFTC’s Division of Market Oversight and the Division of Clearing and Risk announced they have taken a no-action position regarding swap data reporting and recordkeeping regulations. The CFTC said this position is in response to a request from KalshiEX LLC, a designated contract market, and Kalshi Klear LLC, a derivatives clearing organization, to modify CFTC Letter No. 24-15 to remove the condition prohibiting third-party clearing by participants and to cover fully-collateralized variable payout contracts. The Divisions indicated that they will not recommend the CFTC initiate an enforcement action against KalshiEX LLC, Kalshi Klear LLC, or their participants for failure to comply with certain swap-related recordkeeping requirements and for failure to report to swap data repositories data associated with binary option transactions and variable payout contract transactions executed on or subject to the rules of KalshiEX LLC and cleared through Kalshi Klear LLC, subject to the terms of the no-action letter. The supplemental letter also removes the condition in CFTC Letter No. 24-15 that prohibits Kalshi participants from clearing contracts through a third-party clearing member.

New Developments Outside the U.S.

ESMA Launches a Common Supervisory Action with NCAs on Compliance and Internal Audit Functions. On February 14, ESMA launched a Common Supervisory Action (“CSA”) with National Competent Authorities (“NCAs”) on compliance and internal audit functions of undertaking for collective investment in transferable securities (“UCITS”) management companies and Alternative Investment Fund Managers (“AIFMs”) across the EU. The CSA will be conducted throughout 2025 and aims to assess to what extent UCITS management companies and AIFMs have established effective compliance and internal audit functions with the adequate staffing, authority, knowledge, and expertise to perform their duties under the AIFM and UCITS Directives. [NEW]
ESMA Consults on Amendments to Settlement Discipline. On February 13, ESMA launched a consultation on settlement discipline, with the objective of improving settlement efficiency across various areas. ESMA is consulting on a set of proposals to amend the technical standards on settlement discipline that include: reduced timeframes for allocations and confirmations, the use of electronic, machine-readable allocations and confirmations according to international standards, and the implementation of hold & release and partial settlement by all central securities depositories. [NEW]
ESMA Consults on Revised Disclosure Requirements for Private Securitizations. On February 13, ESMA launched a consultation on revising the disclosure framework for private securitizations under the Securitization Regulation (“SECR”). The consultation proposes a simplified disclosure template for private securitizations designed to improve proportionality in information-sharing processes while ensuring that supervisory authorities retain access to the essential data for effective oversight. The new template introduces aggregate-level reporting and streamlined requirements for transaction-specific data, reflecting the operational realities of private securitizations. [NEW]
Geopolitical and Macroeconomic Developments Driving Market Uncertainty. On February 13, ESMA published its first risk monitoring report of 2025, setting out the key risk drivers currently facing EU financial markets. ESMA finds that overall risks in EU securities markets are high, and market participants should be wary of potential market corrections. [NEW]
ESMA Appoints Birgit Puck as new Chair of the Markets Standing Committee. On February 11, ESMA appointed Birgit Puck, Finanzmarktaufsicht, as a new Chair of the Markets Standing Committee.
ESMA consults on CCP Authorizations, Extensions and Validations. On February 7, ESMA launched two public consultations following the review of the European Market Infrastructure Regulation (“EMIR 3”). ESMA is encouraging stakeholders to share their views on: (i) the conditions for extensions of authorization and the list of required documents and information for applications by central counterparties (“CCPs”) for initial authorizations and extensions, and (ii) the conditions for validations of changes to CCP’s models and parameters and the list of required documents and information for applications for validations of such changes. EMIR 3 introduces several measures to make EU clearing services and EU CCPs more efficient and competitive, notably by streamlining and shortening supervisory procedures for initial authorizations, extensions of authorization and validations of changes to models and parameters. [NEW]
DPE Regime for Post-Trade Transparency Becomes Operational. On February 3, the public register listing designated publishing entities (“DPEs”) that now bear the reporting obligation for post-trade transparency under MIFIR went live, bringing the DPE regime into full operational effect. The public register can be found here. The post-trade reporting obligation for systematic internalizers (“SIs”) has been replaced by an analogous obligation on investment firms that have chosen to register as DPEs. As a further consequence of the DPE regime launch, ESMA has decided to discontinue the voluntary publication of quarterly SI calculations data early, ahead of the scheduled removal of the obligation on ESMA to perform SI calculations from September 2025. As of February 1, the mandatory SI regime will no longer apply and investment firms will not need to perform the SI test. However, investment firms can continue to opt into the SI regime. ESMA’s press release on these measures can be found here.
ECB Publishes Guidance on Initial Margin Model Approval Under EMIR 3. On January 31, the European Central Bank (“ECB”) published guidance on the initial margin validation process for entities under its supervision under the European Market Infrastructure Regulation (EMIR 3). Following the European Banking Authority’s (“EBA”) no-action letter on December 17, the guidance addresses implementation issues such as what the ECB approach will be until the EBA’s relevant regulatory technical standards and guidelines are applicable, the initial application process and model changes.
Equivalence Extension for UK CCPs Published in EU Official Journal. On January 31, the European Commission’s (“EC’s”) implementing decision extending the equivalence decision for UK CCPs until June 30, 2028 was published in the Official Journal of the EU. ESMA will now need to formally extend the temporary recognition decisions and tiering determinations for UK CCPs.
ESMA Provides Guidance on MiCA Best Practices. On January 31, ESMA published a new supervisory briefing aiming to align practices across the EU member states. The briefing, developed in close cooperation with NCAs, promotes convergence and prevents regulatory arbitrage, providing concrete guidance about the expectations on applicant Crypto Asset Service Providers, and on NCAs when they are processing the authorization requests.

New Industry-Led Developments

ISDA and IIF Respond on Counterparty Credit Risk Hedging. On January 31, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the Basel Committee on Banking Supervision’s proposed technical amendment on counterparty credit risk (“CCR”) hedging exposures. In the response, the associations explain that they believe the proposed changes to the treatment of CCR hedges are unnecessary, as the current substitution method is already very conservative and the new calculation would be complex and burdensome. [NEW]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Gibson Dunn previously highlighted the executive and congressional tools that President Trump may use to halt or reverse Biden administration policies and implement his own agenda. During his first four weeks in office, Trump has employed several of these tools to advance his agenda. Here, we discuss three of them: (1) a regulatory moratorium and postponement; (2) recission of Biden Administration executive orders; and (3) new procedures for regulatory and funding review.

For additional insights, please visit our resource center, Presidential Transition: Legal Perspectives and Industry Trends.

1. Regulatory Moratorium and Postponement

On January 20, 2025, consistent with the start of prior administrations,[1] Trump issued a memorandum directing executive branch agencies to (1) refrain from proposing, issuing, or publishing any rules, regulations, or guidance documents until a department or agency head appointed by Trump reviews and approves it; (2) immediately withdraw any rules that have been sent to the Office of the Federal Register but not yet published pending review and approval; and (3) consider postponing for 60 days from January 20 the effective date for rules that have been published in the Federal Register or rules that have been issued but not taken effect.

Similar to the directive Trump and other presidents previously issued at the beginning of their terms, this memorandum authorizes the director or acting director of the Office of Management and Budget (OMB) to oversee the implementation of the memorandum and to exempt any rules the director deems necessary to address “emergency situations or other urgent circumstances,” including statutory and judicial deadlines.

The memorandum does not expressly address whether independent agencies are expected to comply with the freeze pending Trump’s designation of a new chair or appointment of new members, but independent agencies generally appear to be complying thus far and in the past have complied with similar memoranda. The President’s recent decisions to fire agency officials at three independent agencies—the Equal Employment Opportunity Commission, National Labor Relations Board, and the Merit Systems Protection Board—and Acting Solicitor General Harris’s statements that the Department of Justice will not defend the constitutionality of for-cause removal protections at certain independent agencies, strongly suggest that the Trump administration is prepared to take aggressive action to bring independent agencies under White House control.

2. Initial Rescissions of Executive Orders

It is standard practice for new administrations to rapidly rescind a number of the prior administration’s executive orders. Consistent with prior administrations, on January 20, 2025, Trump issued an executive order titled Initial Rescissions of Harmful Executive Orders and Actions, which rescinded dozens of Biden administration executive orders and memoranda regarding a variety of topics.[2] On Biden’s first day in office, he similarly issued executive orders rescinding multiple of Trump’s first-term executive orders.[3] Trump’s initial rescissions cover a variety of topics such as climate, clean energy, and the environment; gender; diversity, equity, and inclusion (DEI); worker health and safety; immigration; and healthcare. A list of noteworthy rescissions by category is below:

Climate, Energy, and Environment
- Executive Order 13990 of January 20, 2021 (Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis)
- Executive Order 14008 of January 27, 2021 (Tackling the Climate Crisis at Home and Abroad)
- Executive Order 14030 of May 20, 2021 (Climate-Related Financial Risk)
- Executive Order 14037 of August 5, 2021 (Strengthening American Leadership in Clean Cars and Trucks)
- Executive Order 14057 of December 8, 2021 (Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability)
Gender
- Executive Order 13988 of January 20, 2021 (Preventing and Combating Discrimination on the Basis of Gender Identity or Sexual Orientation)
- Executive Order 14020 of March 8, 2021 (Establishment of the White House Gender Policy Council)
- Executive Order 14021 of March 8, 2021 (Guaranteeing an Educational Environment Free From Discrimination on the Basis of Sex, Including Sexual Orientation or Gender Identity)
Diversity, Equity & Inclusion
- Executive Order 14035 of June 25, 2021 (Diversity, Equity, Inclusion, and Accessibility in the Federal Workforce)
- Executive Order 14091 of February 16, 2023 (Further Advancing Racial Equity and Support for Underserved Communities Through the Federal Government)
Federal Contracting
- Executive Order 14069 of March 15, 2022 (Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency)
Labor and Employment
- Executive Order 13999 of January 21, 2021 (Protecting Worker Health and Safety)

3. Regulatory Reviews and Funding Freezes

In addition to freezing new regulations and rescinding dozens of executive orders, Trump has taken steps to ensure that agencies follow his new policies.

A. Regulatory Reviews

Trump’s initial rescissions include a rescission of Biden’s Executive Order 14094, which modified the way agencies analyze regulatory actions. Under Executive Order 12866—which was not rescinded—administrations of both parties have sent significant regulatory actions to the Office of Information and Regulatory Affairs (OIRA), a division of OMB, for pre-issuance review and cost-benefit analysis. Executive Order 14094 required OIRA review for those rules with an economic impact of $200 million, adjusted for GDP. It appears that Trump’s revocation will revert the threshold for OIRA review to economic impacts of $100 million not pegged to GDP, which will result in greater centralization of regulatory review. Executive Order 14094 also imposed equity-related obligations on agencies, such as requiring agencies to affirmatively seek input from affected and underserved communities and to “recognize distributive impacts and equity” in all rulemakings. Now, agencies will be required only to engage in such practices to the extent required by law.

Trump also expanded a deregulatory executive order from his first administration. The new order imposes two key requirements. First, agencies must identify at least ten existing regulations to repeal for every new regulation they promulgate. Trump’s first administration required agencies to identify two existing regulations to repeal for every new regulation (although agencies ultimately eliminated over five regulations for every new one). The order counts “rules, regulations, or guidance documents” similarly, meaning that agencies might promulgate expansive rules while rescinding several smaller rules and guidance documents. Second, the total incremental cost of new regulations in fiscal year 2025 must “be significantly less than zero”—which is less than the net zero requirement during Trump’s first administration. The order also directs the OMB director to revoke a 2023 version of OMB Circular A-4 and associated regulations and reinstate the prior 2003 version. The 2023 version had lowered the discount rates for calculating the value of a regulation’s future benefit, making it easier to justify new regulations under cost-benefit analyses. The 2023 version also encouraged agencies to weigh regulations’ benefits to lower income individuals more heavily and sometimes consider effects on noncitizens living outside the United States. To satisfy a cost-benefit analysis under the 2003 guidance document, regulations must provide more near-term benefits across a narrower geographic scope and with less weighting for distributional benefits.

In addition, several of Trump’s executive orders require agency heads to review and rescind all regulations, guidelines, and policy documents that are inconsistent with new policies relating to energy, national security, immigration, gender identity, and other topics. Those executive orders require that:

The Directors of the Domestic Policy Council and National Economic Council “submit to the President an additional list of orders, memoranda, and proclamations issued by the prior administration that should be rescinded, as well as a list of replacement orders, memoranda, or proclamations, to increase American prosperity.” The National Security Advisor must also review National Security Memoranda issued during the Biden Administration “for harm to national security, domestic resilience, and American values.”
Agency heads identify and take steps toward rescinding any agency actions “that impose an undue burden on the identification, development, or use of domestic energy resources” or are inconsistent with Trump’s energy policies.
All agencies identify and rescind or revise actions inconsistent with an executive order to promote energy projects in Alaska.
The Attorney General “investigate the activities of the Federal Government over the last 4 years that are inconsistent with the purposes and policies” of an executive order regarding free speech.
Agencies update their documents to reflect an executive order on biological sex.
The Secretary of Homeland Security “[a]lign all policies and operations at the southern border of the United States to be consistent with” executive order policies of securing the border.
Agencies “identify all regulations, guidance documents, orders, or other items that affect the digital asset sector” and recommend whether they should be rescinded or modified.
The Assistant to the President for Science and Technology, the Special Advisor for AI and Crypto, and the Assistant to the President for National Security Affairs, and relevant agencies review any policies inconsistent with an executive order on artificial intelligence.

B. Freezing Federal Grants and Funds

President Trump also issued executive orders pausing various disbursements of funds and requiring reviews of federal grants and funds for foreign aid, certain sustainability-related infrastructure projects, and NGOs providing services to removable or illegal aliens, among others. Several days later, OMB issued, clarified, and two days later, rescinded, a memorandum that many had read as ordering a freeze on a broad swath or even all federal grants and funds.

In OMB’s memorandum regarding a potential freeze of federal funds, Acting OMB Director Matthew Vaeth instructed agencies to “complete a comprehensive analysis of all of their Federal financial assistance programs to identify programs, projects, and activities that may be implicated by any of the President’s executive orders.” The memorandum also provided that “to the extent permissible under applicable law, [f]ederal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by the executive orders, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.” The memorandum clarified that “[n]othing in this memo should be construed to impact Medicare or Social Security benefits.”

The memorandum quickly sparked responses from federal fund recipients and lawmakers who struggled to determine its breadth and to identify affected programs. Nonprofit groups sued to enjoin the measure in the U.S. District Court for the District of Columbia, arguing that it was arbitrary and capricious, violated the First Amendment, and exceeded OMB’s statutory authority. A group of 22 States and the District of Columbia also challenged the freeze in the U.S. District Court for the District of Rhode Island, arguing that it violated the Spending and Appropriations Clauses and other separation of powers principles. The administration clarified that the pause did not apply across the board, but only to the programs “implicated by the President’s Executive Orders, such as ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.”[4]

The District of Columbia district court temporarily stayed the freeze shortly before it went into effect. The next day, OMB withdrew the memorandum, but the White House reiterated Trump’s commitment to “end the egregious waste of federal funding” and the White House Press Secretary asserted that “[t]he President’s EO’s on federal funding remain in full force and effect, and will be rigorously implemented.” This appears to include the pauses required directly by the executive orders. Referencing “the Press Secretary’s unequivocal statement and the continued actions of Executive agencies,” the Rhode Island district court granted and later extended a temporary restraining order blocking the freeze. The order does not appear to apply to separate freezes that the General Services Administration and other agencies have imposed on federal contracting. The nonprofit groups also received a temporary restraining order on February 3. The District of Columbia district court further instructed OMB to notify affected agencies that “they may not take any steps to implement, give effect to, or reinstate under a different name the directives in OMB Memorandum M-25-13 with respect to the disbursement of Federal Funds under all open awards.”

On February 10, 2025, the Rhode Island district court granted the States’ emergency motion to enforce their temporary restraining order after they “presented evidence . . . that the Trump Administration continued to improperly freeze federal funds and refused to resume disbursement of appropriated federal funds.” Trump has appealed that decision and the prior order extending the temporary restraining order, but the First Circuit declined an immediate stay pending the district court’s further clarification of its orders.

The challenging States and the nonprofit groups have moved for preliminary injunctions in their respective lawsuits.

A handful of suits, motions, and orders are also being made on an agency-by-agency basis, such as a suit seeking broad relief for employees and contractors at the Consumer Financial Protection Bureau and a recent order requiring the resumption of payments to USAID contractors and grant recipients. Notably, the USAID order ruled that the administration’s “blanket suspension of foreign aid funding” is unlawful, but the court allowed the administration to “enforce the terms of particular contracts [or grants], including with respect to expirations, modifications, or terminations pursuant to contractual provisions.” For over a century, courts have read into government contracts an implicit provision allowing the government to cancel a contract for “convenience” when the government concludes it is no longer in the public’s best interest.[5] It is unclear whether the order allows for such terminations on a case-by-case basis.

4. Conclusion

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.

[1] See, e.g., Memorandum from Ronald A. Klain to the Heads and Acting Heads of Executive Departments and Agencies, 86 Fed. Reg. 7424 (Jan. 20, 2021, published Jan. 28, 2021); Memorandum from Reince Preibus to the Heads and Acting Heads of Executive Departments and Agencies, 82 Fed. Reg. 8346 (Jan. 20, 2017, published Jan. 24, 2017).

[2] A number of President Trump’s other executive orders also revoked prior orders on a topic-by-topic basis. These revocations partially overlap with the revocations in the Initial Rescissions order. E.g., Executive Order 14154, 90 Fed. Reg. 8353 (Jan. 20, 2025) (entitled “Unleashing American Energy” and revoking 12 Biden-era Executive Orders related to climate change, air pollution, and environmental justice, 11 of which were also revoked by the Initial Rescissions order).

[3] E.g., Executive Order No. 13992, 86 Fed. Reg. 7049 (Jan. 25, 2021) (Revocation of Certain Executive Order Concerning Federal Regulation); Executive Order No. 13985, 86 Fed. Reg. 7009 (Jan. 20, 2021) (Advancing Racial Equity and Support for Underserved Communities Through the Federal Government); Executive Order No. 13990, 86 Fed. Reg. 7037 (Jan. 20, 2021) (Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis).

[4] Fact Sheet, OMB Q&A Regarding Memorandum M-25-13 (Jan. 28, 2025), available at https://www.presidency.ucsb.edu/documents/white-house-fact-sheet-omb-qa-regarding-memorandum-m-25-13.

[5] United States v. Corliss Steam Engine Co., 91 U.S. 321 (1876); White Buffalo Constr., Inc. v. United States, 2013 WL 5859688 (Fed. Cir. Nov. 1, 2023).

The following Gibson Dunn lawyers prepared this update: Michael Bopp, Stuart Delery, Matt Gregory, Andrew Kilberg, Tory Lauterbach, Amanda Neely, Noah Delwiche, Maya Jeyendran, and Aaron Gyde.

Michael D. Bopp – Co-Chair, Public Policy Practice Group,
(+1 202.955.8256, mbopp@gibsondunn.com)

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

Matt Gregory – Partner, Administrative Law & Regulatory Practice Group,
(+1 202.887.3635, mgregory@gibsondunn.com)

Andrew G.I. Kilberg – Partner, Administrative Law & Regulatory Practice Group,
(+1 202.887.3759, akilberg@gibsondunn.com)

Tory Lauterbach – Partner, Energy Regulation & Litigation Practice Group,
(+1 202.955.8519, tlauterbach@gibsondunn.com)

Amanda H. Neely – Of Counsel, Public Policy Practice Group,
Washington, D.C. (+1 202.777.9566, aneely@gibsondunn.com)

New Guidance Rescinds SLB 14L

On February 12, 2025, the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) published Staff Legal Bulletin No. 14M (“SLB 14M”), which sets forth Staff guidance on shareholder proposals submitted to publicly traded companies under Exchange Act Rule 14a-8. SLB 14M rescinds Staff Legal Bulletin No. 14L (“SLB 14L”) (which was issued in November 2021) and addresses a number of interpretive issues in a manner that draws heavily from prior statements by the Commission interpreting Rule 14a-8.

SLB 14L was widely viewed as creating an “open season” for shareholder proposals.[1] During the 2022 proxy season following the issuance of SLB 14L, the number of shareholder proposals submitted to companies surged, with those addressing environmental topics up over 50% and proposals addressing social policy issues increasing by 20%. At the same time, the overall success rate for no-action requests plummeted to an all-time low of 38%, a drastic decline from success rates of 71% in 2021 and 70% in 2020. As a result, many institutional shareholders, who typically do not submit Rule 14a-8 proposals but must devote time and resources to review and vote on shareholder proposals submitted by others to companies in which they have invested, have commented that the quality and utility of shareholder proposals have declined.

SLB 14M heralds a return to a more traditional administration of the shareholder proposal rule, particularly as it relates to interpreting the “ordinary business” exception under Rule 14a-8(i)(7), reinvigorates the economic relevance exclusion under Rule 14a-8(i)(5), and reinstates in part interpretive positions discussed in Staff Legal Bulletins issued by the Staff during the tenure of Commission Chair Jay Clayton. SLB 14M states that companies may supplement previously filed no-action requests to exclude shareholder proposals, or submit new no-action requests, based on the standards set forth in SLB 14M, and that the Staff will apply the standards outlined in SLB 14M when responding to pending or subsequently filed no-action requests.

Summary of the New Staff Guidance

As discussed in greater detail below, SLB 14M:

Applies a company-specific approach to evaluating whether the subject matter of a proposal is “not otherwise significantly related to the company” under the economic relevance standard under Rule 14a-8(i)(5) and when determining the significance of a policy issue raised by a shareholder proposal for purposes of the ordinary business exclusion under Rule 14a-8(i)(7) (thereby moving away from SLB 14L’s approach of considering only whether a proposal raised significant social policy issues, and reinstating the “nexus” standard under the ordinary business standard);
Reinvigorates the economic relevance exclusion under Rule 14a-8(i)(5) by stating that the Staff will base its administration of the rule on the objectives announced by the Commission when it adopted the current rule’s language, thereby opening the possibility to exclude proposals that may relate to a company’s operations but that are not economically or otherwise significant to the company;
Reaffirms that the Staff will continue to apply the micromanagement standard of exclusion under Rule 14a-8(i)(7) in line with past Commission statements and prior Staff Legal Bulletins that SLB 14L had rescinded (specifically, the interpretive positions summarized in Staff Legal Bulletin No. 14I (Nov. 1, 2017) (“SLB 14I”), Staff Legal Bulletin No. 14J (Oct. 23, 2018), and Staff Legal Bulletin 14K No. (Oct. 16, 2019) (“SLB 14K”) (collectively, the “Prior SLBs”));
Advises that company no-action requests under Rules 14a-8(i)(5) and 14a-8(i)(7) need not include a discussion reflecting the board of directors’ analysis of whether and how the particular policy issue raised in a shareholder proposal is not significant to the company, although a company may submit a board analysis if it believes the analysis will be helpful.
Confirms that the Staff will apply its traditional interpretive standards for purposes of assessing no-action requests under Rules 14a-8(i)(10) (the “substantial implementation standard”), 14a-8(i)(11) (the “duplication standard”), and 14a-8(i)(12) (the “resubmission standard”) and not the standards in the rule amendments proposed by the Commission in 2022, which have not been adopted;
Eliminates the novel position set forth in SLB 14L under which companies were at times expected to provide a second deficiency letter to specifically identify proof of ownership defects that had already been addressed in an initial deficiency letter;
Restates prior Staff guidance on the use of email for submission of proposals, delivery of deficiency notices, and responses (encouraging a bilateral use of email confirmation receipts by companies and shareholder proponents alike); and
Advises that the interpretive positions set forth in SLB 14M will apply to pending no-action requests that are decided after SLB 14M’s issuance, and that companies may timely supplement previously filed no-action requests, and submit new no-action requests, based on the positions set forth in SLB 14M.

Key Takeaways from SLB 14M

In light of the guidance set forth in SLB 14M, we urge public companies to keep the following in mind.

Companies Should Re-evaluate Proposals Received for Possible Exclusion. Companies should review the Rule 14a-8 shareholder proposals they have received and consider whether any of the interpretive positions reaffirmed in SLB 14M provide a basis for excluding the proposals that should be asserted in a new or supplemental no-action request, particularly under the economic relevance exclusion in Rule 14a-8(i)(5). At the same time, as noted above, we do not believe that companies should feel compelled to supplement pending no-action requests that have already addressed exclusion under Rule 14a-8(i)(7), Rule 14a-8(i)(10), or one of the other provisions addressed in SLB 14M, or to merely to cite SLB 14M or some of the Commission statements it relies on. In this regard, as noted above, SLB 14M confirms that the Staff will apply SLB 14M when reviewing pending no-action requests.
Companies Should Consider Re-engaging with Shareholder Proponents. As we have previously noted, the number of shareholder proposals withdrawn has declined in recent years, representing 15% of all proposals submitted in 2024 and 16% in 2023, compared to over 29% in the 2021 proxy season. In light of the standards that will be applied under SLB 14M, shareholder proponents may be more willing to engage and agree on a basis to withdraw their proposals. Companies as well may find a negotiated withdrawal to be a more favorable approach than waiting for a no-action letter response that may not be issued until the time of, or after, their proxy print deadline.
Think Strategically under Rule 14a-8(i)(12). Rule 14a-8(i)(12) provides a basis for excluding a proposal if it addresses substantially the same subject matter as a proposal, or proposals, included in the company’s proxy materials within the preceding five calendar years and the most recent vote on the proposal was below a specified threshold. In recent years, companies have been concerned that the Staff would narrowly interpret whether a proposal “addresses substantially the same subject matter” as a prior proposal, due to the proposed amendments in 2022, which set forth a narrower and more restrictive analysis. SLB 14M confirms that the Staff will apply traditional standards in assessing whether proposals address substantially the same subject matter as a prior proposal. Accordingly, companies may determine not to seek to exclude a proposal that is expected to obtain a low vote, so that substantially similar proposals can be excluded in future years.
Focus on Legal Arguments Based on Past Commission Statements. Notwithstanding expressions by some that SLB 14M is politically motivated, SLB 14M reiterates that when a company believes that it is entitled to exclude a proposal, the company must make a legal argument that clearly lays out the basis for the exclusion, consistent with the text of the rule itself and language from Commission releases. The Staff has long been policy- and politically-neutral when administering the shareholder proposal rule, and SLB 14M suggests that approach will prevail this year. As now-Acting Chair Mark Uyeda said in 2023, “[s]hareholder meetings were not intended under state corporate laws to be political battlegrounds or debating societies.”[2] Put differently, SLB 14M makes clear that SLB 14L was the outlier.

Detailed Review of SLB 14M

Reinvigorating the Economic Relevance Exclusion in Rule 14a-8(i)(5).

Rule 14a-8(i)(5), the “economic relevance” exception, permits a company to exclude a proposal that “relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” SLB 14M reintroduces an approach to applying the “economic relevance” standard under Rule 14a-8(i)(5) that was described in SLB 14I, which should provide a strong basis to challenge shareholder proposals that raise significant social policy issues that are not economically relevant to a company.

The Commission stated in 1982 that it was adopting the economic tests that now appear in Rule 14-8(i)(5) because previously the Staff would not agree with the exclusion of a proposal “where the proposal has reflected social or ethical issues, rather than economic concerns, raised by the issuer’s business, and the issuer conducts any such business, no matter how small.”[3] However, after the Commission adopted the economic tests, a U.S. District Court interpreted the rule as continuing not to allow exclusion when a proposal reflected social or ethical issues raised by a company’s business, even when those issues related to an economically insignificant part of a company’s operations. The Staff subsequently followed the court’s interpretation and, as a result, Rule 14a-8(i)(5) rarely served as a basis for exclusion of a proposal, notwithstanding the Commission’s stated intention in adopting the 1982 amendment. In 2017, the Staff issued SLB 14I to align the Staff’s interpretation with the intention of the 1982 amendment, but in 2021, SLB 14L repealed SLB 14I.

SLB 14M largely repeats the interpretive position set forth in SLB 14I, realigning Rule 14a-8(i)(5) with the Commission’s statements when it adopted the rule. SLB 14M states that, under this framework, proposals that raise issues of social or ethical significance may be excludable, notwithstanding their importance in the abstract, based on the application and analysis of each of the economic factors of Rule 14a-8(i)(5) in determining the proposal’s relevance to the company’s business. While corporate governance proposals will be “otherwise significant” for most companies, the mere possibility of reputational or economic harm alone will not demonstrate that a proposal is “otherwise significantly related to the company’s business.” In addition, SLB 14M clarifies that whether a proposal is “otherwise significantly related” to a company’s business under Rule 14a-8(i)(5) will be a separate analysis from whether a proposal raises a significant social policy issue that transcends a company’s ordinary business under Rule 14a-8(i)(7), which means that proposals may be excluded under Rule 14a-8(i)(5) even when the ordinary business exclusion is not available.

Changes to the Application of the Ordinary Business Exclusion in Rule 14a-8(i)(7).

As SLB 14M notes, the Commission has repeatedly stated that the ordinary business exclusion in Rule 14a-8(i)(7) is based on the concept that “[c]ertain tasks are so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight . . . . However, proposals relating to such matters but focusing on sufficiently significant social policy issues . . . generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.” SLB 14L disregarded the first part of the standard approved by the Commission in 1976, 1997, and 1998 (i.e., whether a proposal related to a company’s ordinary business), and stated that the Staff would decline to concur with the exclusion of proposals that “raise[] issues with a broad societal impact, such that they transcend the ordinary business,” without regard to whether a proposal was relevant to or implicated management’s ability to run the company on a day-to-day basis. SLB 14L singled out proposals “squarely raising human capital management issues with a broad societal impact” as an example of proposals that would not be excludable under its new interpretation. In doing so, SLB 14L rejected the company-specific approach to assessing ordinary business that had been developed through several decades of precedent and allowed the express language of Rule 14a-8(i)(7) to be supplanted by what had traditionally been a narrow interpretive exception to the ordinary business standard.

SLB 14M reverts to the company-specific approach of applying the ordinary business standard, “rather than focusing solely on whether a proposal raises a policy issue with broad societal impact or whether particular issues or categories of issues are universally ‘significant.’” As such, the Staff has indicated it will focus on the “nexus” between a proposal’s subject matter and the company’s business.[4] As a result, proposals addressing particular social policy issues may be excludable at some companies but not at others. For example, a proposal relating to firearm regulation might not be excludable at a company in the business of manufacturing firearms, but has been found to be excludable when submitted to a retail company that sells firearms.[5] Similarly, a proposal asking a company to report on a particular issue is excludable under the “nexus” standard if a company is facing litigation over the same or similar subject matter such that the proposal would interfere with the company’s litigation strategy, since in that context the proposal implicates the company’s day-to-day management of litigation strategy.[6]

Many companies have already submitted no-action requests for 2025 annual meetings in which they set forth an ordinary business argument under SLB 14L’s framework, addressing specifically why a proposal should not be viewed as transcending a company’s ordinary business. Based on SLB 14M’s transition guidance, as addressed below, we do not believe that companies need to supplement these no-action requests, as those arguments asserting that a proposal does not transcend the company’s ordinary business largely focus on how the proposal implicates ordinary business activities. To the extent those arguments are relevant at all under SLB 14M, they may now carry greater weight with the Staff.

Reaffirming Commission-Based Interpretations for Micromanagement Arguments under Rule 14a-8(i)(7).

A second central policy consideration underlying Rule 14a-8(i)(7) relates to the degree to which the proposal “micromanages” the company “by probing too deeply into matters of a complex nature.”[7] This prong of the Rule 14a-8(i)(7) analysis rests on an evaluation of the manner in which a proposal seeks to address the subject matter raised, rather than the subject matter itself, and therefore can support exclusion of a proposal regardless of whether the proposal focuses on a significant social policy.

SLB 14M reinstates interpretive guidance from the Prior SLBs addressing the micromanagement prong of Rule 14a-8(i)(7). SLB 14L took the position that proposals seeking detail or seeking to promote timeframes or methods do not necessarily constitute micromanagement, and in particular that proposals requesting that companies adopt timeframes or targets to address climate change would not be excludable on the basis of micromanagement if they address targets or timelines, so long as the proposals afford discretion to management as to how to achieve such goals. SLB 14M and the Prior SLBs apply a stricter approach in this context, taking the view that some such proposals effectively require the company to adopt a specific method for implementing a complex policy and are therefore excludable because of micromanagement. Importantly, SLB 14M also confirms that the micromanagement standard can apply to proposals addressing executive compensation or corporate governance topics.

Over the past 18 months, the Staff has already increasingly concurred with exclusion of proposals on the grounds of micromanagement, perhaps recognizing that (as many institutional investors have noted)[8] an increasing number of proposals have sought to intrude into or impose specific approaches for addressing complex operational issues. We expect these recent precedents to remain viable, as they align with past Commission statements that are relied on in SLB 14M and the Prior SLBs. As such, we expect pending no-action requests arguing that proposals are excludable due to micromanagement will in many, if not most, cases not need to be supplemented as a result of SLB 14M.

No Requirement for a “Board Analysis.”

The Prior SLBs had encouraged companies seeking to exclude proposals under Rule 14a-8(i)(5) or Rule 14a-8(i)(7) to include a discussion in their no-action requests setting forth an analysis by the company’s board of directors as to whether or not the particular issue raised by a shareholder proposal was significant to the company’s business. Many of these board analyses included in no-action requests took the form of a “gap” analysis, explaining why a proposal was not significant in light of actions the company had already taken. In practice, the board analyses did not contribute significantly to the no-action process; in 2019 (the first year of the board analysis guidance), 25 companies made a board analysis argument and only one succeeded; in 2020, 19 companies made a board analysis argument and only four succeeded; and in 2021, 16 companies made a board analysis argument (representing only 18% of all of the 14a-8(i)(7) and (i)(5) no-action requests submitted that year) of which only five succeeded.

SLB 14M acknowledges that board analyses did not generally have a dispositive effect and states that the Staff will not expect a company’s no-action request to include a discussion that reflects the board’s analysis of the particular policy issue raised by a shareholder and its significance to the company. While a company is permitted to submit such an analysis if it believes the analysis will help the Staff’s review of the no-action request, we do not expect companies to do so.

Reaffirming traditional interpretive standards for purposes of assessing no-action requests under Rules 14a-8(i)(10), 14a-8(i)(11) and 14a-8(i)(12).

In 2022, the Commission proposed amendments to revise the standards applicable pursuant to the substantive bases for exclusion of shareholder proposals provided under Rules 14a-8(i)(10) (the “substantial implementation standard”), 14a-8(i)(11) (the “duplication standard”), and 14a-8(i)(12) (the “resubmission standard”). However, even before these amendments were proposed, the Staff appeared to be applying a non-traditional approach under these rules, a point that now-Acting Chair Uyeda noted in 2023, stating, “[w]hile the amendments have not yet been adopted, some practitioners have noted that . . . Commission staff had already begun to reverse prior no-action positions and narrow the scope of these exclusions.”[9] For example, in the 2022 proxy season, the success rate for excluding proposals under the substantial implementation standard of Rule 14a-8(i)(10) dropped to 13%, compared with 55% in the 2021 proxy season.

In SLB 14M, the Staff confirms that pre-2022 precedents applying these rules remain applicable, noting that the Commission has not adopted the proposed rule amendments and that, accordingly, the Staff will consider no-action requests and supplemental correspondence in accordance with operative Commission rules and prior Staff guidance.

No Second Deficiency Letters under Rule 14a-8(b).

Rule 14a-8(b) provides that a shareholder must prove eligibility to submit a proposal by offering proof that it has satisfied one of the ownership eligibility criteria set forth in Rule 14a-8 (i.e., that the shareholder has “continuously held” a required amount of securities for a required amount of time).[10] If a shareholder fails to provide satisfactory proof of ownership, the company must notify the shareholder within 14 days, and the shareholder must correct the deficiency within 14 days of such notice (if the shareholder does not correct the deficiency, the company may exclude the proposal from its proxy statement). In SLB 14L, the Staff stated that companies should send a second deficiency notice identifying the specific defects in a proof of ownership if those defects had not already been identified in a prior deficiency notice.

Rule 14a-8 does not require a company to send a second deficiency letter, and the Staff’s position in SLB 14L proved problematic for administration of the shareholder proposal process within the timeframes set forth in the rule. Consistent with decades of precedents, SLB 14M affirms that the Staff no longer interprets Rule 14a-8 as requiring a company to send a second deficiency notice to a proponent if the company previously sent an adequate deficiency notice prior to receiving the proponent’s proof of ownership. At the same time, SLB 14M reminds companies that an overly technical reading of proof of ownership letters provided by a shareholder or its broker may not be persuasive.

Frequently Asked Questions on the Transition to SLB 14M.

Recognizing that SLB 14M has been issued during the peak of the shareholder proposal season, SLB 14M addresses a number of questions relevant to evaluating shareholder proposals in the current proxy season. Specifically, SLB 14M states:

The Staff will consider the guidance set forth under SLB 14M when evaluating pending no-action requests that were submitted before, but will be decided after, the issuance of SLB 14M. Previously submitted no-action requests do not need to be resubmitted.
If, after considering the views expressed in SLB 14M, a company believes that it is entitled to exclude a proposal on a basis that the company has not already addressed in a no-action request, it must submit a no-action request, or supplement any pending no-action request, making a legal argument that clearly lays out the basis for the exclusion.
If the deadline prescribed in Rule 14a-8(j) for a company to submit a no-action request has already passed, the company may nevertheless submit a no-action request or supplement an existing no-action request based on the guidance set forth in SLB 14M, and the Staff will consider the publication of SLB 14M to be “good cause” that excuses the Rule 14a-8(j) deadline. SLB 14M states that companies should endeavor to submit any new requests as soon as possible, with consideration for the opportunity for proponents to provide supplemental correspondence in response to the new request.

SLB 14M also acknowledges that the Staff may face a significant number of new or supplemental no-action requests and, therefore, may not be able to respond by a company’s proxy print deadline. Accordingly, SLB 14M encourages companies and proponents to work together to resolve submitted proposals prior to print deadlines.

Other Guidance.

SLB 14M restates guidance from SLB 14K and SLB 14L on the use of email for submission of proposals, delivery of deficiency notices, and responses. The Staff encourages both companies and shareholder proponents to acknowledge receipt of emails when requested, and for companies and proponents to reach out using another method of communication (or emailing another contact, if available) if a requested confirmation of receipt is not provided. Consistent with prior no-action interpretations, SLB 14M confirms that the Staff does not consider screenshots or photos of emails on the sender’s device to be proof of delivery to the recipient. Finally, SLB 14M repeats prior Staff interpretations regarding the use of graphics or images in shareholder proposal submissions.

Continued Divisions within the Commission over Shareholder Proposals.

When SLB 14L was issued, Chair Gary Gensler publicly endorsed the Staff’s new guidance,[11] while Republican Commissioners Hester M. Pierce and Elad L. Roisman released a joint statement expressing a number of concerns, including that SLB 14L created significantly less clarity for companies, would dramatically slow down the Rule 14a-8 no-action request process, and wasted taxpayer dollars on shareholder proposals that “involve issues that are, at best, only tangential to our securities laws.”[12] This time around, Democratic Commissioner Caroline A. Crenshaw issued a statement on SLB 14M,[13] referring to it as “political policy shifting” and lamenting the timing of its issuance. Commissioner Crenshaw also repeats the frequent refrain that shareholder proposals are “merely advisory,” a defense that is undermined by the significance ascribed to them by advocacy groups and by the voting policy of major proxy advisory firms, which penalize boards that are not responsive to “merely advisory” votes, in some cases even if the proposal is supported by less than a majority of the shares voting. Ironically, Commissioner Crenshaw claims that SLB 14M “forsake[s] all consistency” and acknowledges that the Rule 14a-8 no-action process “is fact-intensive, and exactly how a proposal is crafted is often determinative of its exclusion or inclusion”—two points that SLB 14L eschewed. As a result, companies and shareholders—including the relatively few who submit proposals and the many more institutional holders who must devote time and resources evaluating and voting on such proposals—can expect Rule 14a-8 to continue to be a focus of policymakers at the Commission and in Congress.

[1] See Gibson, Dunn & Crutcher LLP, Shareholder Proposal Developments During the 2022 Proxy Season (July 11, 2022), https://www.gibsondunn.com/wp-content/uploads/2022/07/shareholder-proposal-developments-during-the-2022-proxy-season.pdf.

[2] See Comm’r. Mark T. Uyeda, Remarks at the Society for Corporate Governance 2023 National Conference (June 21, 2023), https://www.sec.gov/newsroom/speeches-statements/uyeda-remarks-society-corporate-governance-conference-062123.

[3] Exchange Act Release No. 34-19135 (Oct. 14, 1982).

[4] The “nexus” standard was described by the Staff in Staff Legal Bulletin No. 14E (Oct. 27, 2009) (“[i]n those cases in which a proposal’s underlying subject matter transcends the day-to-day business matters of the company and raises policy issues so significant that it would be appropriate for a shareholder vote, the proposal generally will not be excludable under Rule 14a-8(i)(7) as long as a sufficient nexus exists between the nature of the proposal and the company”).

[5] See, e.g., Staff Legal Bulletin No. 14H (Oct. 22, 2015), in which the Staff’s view was that such a proposal was excludable under Rule 14a-8(i)(7) because it related to the company’s ordinary business operations and did not focus on a significant policy issue.

[6] See Chevron Corp. (Sisters of St. Francis of Philadelphia) (avail. Mar. 30, 2021), in which the company argued that the proposal related to the company’s litigation strategy and the conduct of ongoing litigation to which the company was a party.

[7] Exchange Act Release No. 34-40018 (May 21, 1998).

[8] See Blackrock’s Investment Stewardship Annual Report 2023 (April 30, 2024) at 2 (stating that Blackrock Investment Stewardship’s votes on shareholder proposals during the 2023 proxy season reflected that it “did not support shareholder proposals that were overly prescriptive or unduly constraining on management, that lacked economic merit, or made asks that the company already fulfills”), at https://www.blackrock.com/corporate/literature/publication/annual-stewardship-report-2023-summary.pdf; T. Rowe Price’s 2023 Stewardship Report, (last visited Feb. 13, 2024) at 159 (“we observed a marked increase in the level of prescriptive requests . . . . Our view on these prescriptive proposals is that they usurp management’s responsibility to make operational decisions and the board’s responsibility to guide and oversee such decisions”), at https://www.troweprice.com/content/dam/trowecorp/Pdfs/esg/stewardship-report.pdf.

[9] See Comm’r. Mark T. Uyeda, Remarks at the Society for Corporate Governance 2023 National Conference (June 21, 2023), https://www.sec.gov/newsroom/speeches-statements/uyeda-remarks-society-corporate-governance-conference-062123.

[10] Rule 14a-8(b) requires proponents to have continuously held at least $2,000, $15,000, or $25,000 in market value of the company’s securities entitled to vote on the proposal for at least three years, two years, or one year, respectively.

[11] See Chair Gary Gensler, Statement regarding Shareholder Proposals: Staff Legal Bulletin No. 14L (Nov. 3, 2021), https://www.sec.gov/newsroom/speeches-statements/gensler-statement-shareholder-proposals-14l?.

[12] See Statement on Shareholder Proposals: Staff Legal Bulletin No. 14L (Nov. 3, 2021), https://www.sec.gov/newsroom/speeches-statements/peirce-roisman-statement-shareholder-proposals-staff-legal-bulletin-14l?.

[13] Statement on Staff Legal Bulletin 14M (Feb. 12, 2025), https://www.sec.gov/newsroom/speeches-statements/crenshaw-statement-staff-legal-bulletin-14m-021225

The following Gibson Dunn lawyers prepared this update: Elizabeth Ising, Thomas Kim, Ronald Mueller, Geoffrey Walter, and Lori Zyskowski.

Aaron Briggs – San Francisco (+1 415.393.8297, abriggs@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)
James J. Moloney – Orange County (+1 949.451.4343, jmoloney@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Michael A. Titera – Orange County (+1 949.451.4365, mtitera@gibsondunn.com)
Geoffrey E. Walter – Washington, D.C. (+1 202.887.3749, gwalter@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Activities at the Consumer Financial Protection Bureau are frozen amidst a leadership transition, while the agency’s future looks increasingly uncertain.

After a flurry of activity in December and January, the CFPB’s interim directors have halted staff’s work on rulemaking, investigations, enforcement, litigation, and supervision while the new administration evaluates its priorities for the agency. In this update, we recap the directives issued to agency staff over the past two weeks, assess the potential effects on the agency’s regulatory activity, and consider possible responses to any perceived enforcement or supervisory gaps from other regulators and enforcers.

New Directives

On January 31, President Trump removed Rohit Chopra as CFPB Director, kicking off two weeks of rapid change for agency staff. Treasury Secretary Scott Bessent was named the Acting Director on X,[1] who promptly ordered a halt to most agency activity. Specifically, CFPB staff were instructed that, unless expressly approved by the Acting Director, they were not to issue any proposed or final rules or guidance; commence, investigate, or settle enforcement actions; issue public communications; approve or enter material agreements; or make filings or appearances in litigation, other than to seek a stay.[2] Bessent also suspended the effective date of all final rules that had yet to take effect.[3]

The next week, on February 7, Russell Vought, the newly confirmed head of the Office of Management and Budget, succeeded Bessent as Acting Director.[4] Vought expanded the freeze to cover supervision and examination activities, closed the CFPB’s headquarters in Washington, D.C., and ordered all employees to work remotely and “stand down from performing any work task” without express approval.[5] Enforcement staff are restricted from communicating with current or prospective enforcement targets or their counsel without the express authorization of Mark Paoletta, general counsel at the Office of Management and Budget, who is anticipated to be serving as the new Chief Legal Officer at the CFPB.[6] Vought also cut the agency’s next funding request to the Federal Reserve, the source of the CFPB’s budget, to zero.[7] Vought’s orders came as staff with the Department of Government Efficiency (DOGE) were reported at the CFPB headquarters.[8]

On February 11, President Trump announced Jonathan McKernan, formerly a board member of the Federal Deposit Insurance Corporation, as his nominee for CFPB Director.[9] Industry players have hailed McKernan “as a sober, tried-and-tested pick[] in line with the mainstream financial regulators who staffed Trump’s first administration.”[10]

Potential Effects on Regulatory Activity

In the near term, regulated parties can expect radio silence from the CFPB. After Vought’s “stand-down” directive, few staff are working at all, some probationary employees have been laid off, and those staff who are working, with minimal exceptions, are not engaging in investigative, supervisory, or enforcement activities. Top supervision and enforcement officials have resigned, citing the Trump administration’s broad suspension of key financial industry oversight activities at the agency.[11] Litigation will be stayed, so long as courts accept the CFPB’s requests. And significant rules finalized in the waning days of Chopra’s directorship, such as the overdraft fee cap and the exclusion of medical debt from credit reports,[12] will remain on pause.

In the longer term, the agency’s future is uncertain. President Trump recently defended the stop-work order and confirmed his intention to “get rid of” the CFPB, which he called “a woke and weaponized agency against disfavored industries and individuals.”[13] Elon Musk, who is leading DOGE, has posted “Delete CFPB” and “CFPB RIP” on X.[14] And Republicans in the House and Senate have introduced legislation to defund the CFPB by cutting its statutory funding cap to zero.[15] However, Democrats, like Elizabeth Warren, have pledged to defend the CFPB.[16]

Courts might step in to limit an administrative shutdown of the agency. The National Treasury Employees Union, which represents unionized CFPB employees, has sued to block Vought’s “stand-down” directive, arguing that separation-of-powers principles prevent the administration from winding down a congressionally authorized agency.[17]

At a minimum, regulated parties can expect the new administration will critically examine each active initiative—likely withdrawing some rules, settling some litigation, and dropping some enforcement actions. For example, the CFPB recently told a federal court that it “could take action to withdraw or modify” the agency’s supervision order over Google Pay.[18] More rollbacks are very likely to follow.

Other Enforcers

If the CFPB substantially curtails its activities, other regulators could step up their regulatory activity in the same space.

The Federal Trade Commission in particular has concurrent enforcement authority over some statutes, such as the Fair Credit Reporting Act, 15 U.S.C. § 1681, and can police “unfair practices” under the FTC Act, 15 U.S.C. § 45. Since the FTC has insight into the CFPB’s investigations and enforcement under the agencies’ memorandum of understanding,[19] it could pick up some of the CFPB’s initiatives.

State Attorneys General also have broad authority to enforce state consumer protection laws[20] and, under 12 U.S.C. § 5552, may enforce the (federal) Consumer Financial Protection Act against defendants in their respective jurisdictions. State Attorneys General in some states are expected to become more active if federal enforcement wanes. In fact, prior to the leadership transition, the CFPB published a report with a compendium of guidance aimed at states that contained specific recommendations and could serve as the blueprint moving forward.[21] Further, state banking departments have independent supervisory authority over many of the non-bank financial institutions that have been historically subject to additional supervision by the CFPB. These state banking departments may enhance supervisory oversight over non-bank financial institutions in light of any perceived supervisory gap at the federal level.

[1] CFPB, Statement on Designation of Treasury Secretary Scott Bessent as Acting Director of the Consumer Financial Protection Bureau (Feb. 3, 2025), https://www.consumerfinance.gov/about-us/newsroom/statement-on-designation-of-treasury-secretary-scott-bessent-as-acting-director-of-the-consumer-financial-protection-bureau.

[2] Jon Hill, “Treasury’s Bessent Takes CFPB Reins, Halts Agency Actions,” Law360 (Feb. 3, 2025), https://www.law360.com/consumerprotection/articles/2292253.

[3] Id.

[4] Jon Hill & Courtney Bublé, “‘Stand Down’: CFPB’s Acting Chief Pulls Employees Off Job,” Law360 (Feb. 10, 2025), https://www.law360.com/consumerprotection/articles/2295798.

[5] Id.

[6] Id.

[7] Id.

[8] Evan Weinberger, “Musk’s DOGE Descends on CFPB With Eyes on Shutting It Down,” Bloomberg Law (Feb. 7, 2025), https://news.bloomberglaw.com/banking-law/musks-doge-descends-on-consumer-financial-protection-bureau.

[9] Michael Stratford, Declan Harty, & Katy O’Donnell, “Trump steps up overhaul of bank oversight with key picks,” Politico (Feb. 11, 2025), https://www.politico.com/news/2025/02/11/trump-bank-wall-street-regulators-top-posts-00203745.

[10] Jon Hill, “Trump’s Picks For CFPB, OCC Chiefs Hailed By Industry,” Law360 (Feb. 12, 2025), https://www.law360.com/corporate/articles/2297154/trump-s-picks-for-cfpb-occ-chiefs-hailed-by-industry-.

[11] Jon Hill, “CFPB’s Top Supervisor, Enforcer Call It Quits Amid Closure,” Law360 (Feb. 11, 2025), https://www.law360.com/corporate/articles/2296518/cfpb-s-top-supervisor-enforcer-call-it-quits-amid-closure.

[12] See CFPB, Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V) (Jan. 7, 2025), https://www.consumerfinance.gov/rules-policy/final-rules/prohibition-on-creditors-and-consumer-reporting-agencies-concerning-medical-information-regulation-v; CFPB, Overdraft Lending: Very Large Financial Institutions Final Rule (Dec. 12, 2024), https://www.consumerfinance.gov/rules-policy/final-rules/overdraft-lending-very-large-financial-institutions-final-rule.

[13] “Trump confirms goal to shutter CFPB,” ABA Banking Journal (Feb. 11, 2025), https://bankingjournal.aba.com/2025/02/trump-confirms-goal-to-shutter-cfpb.

[14] Weinberger, supra.

[15] Press Release, “Congressman Keith Self Introduces Bill to Eliminate CFPB Funding” (Jan. 30, 2025), https://keithself.house.gov/media/press-releases/congressman-keith-self-introduces-bill-eliminate-cfpb-funding; Press Release, “Sen. Cruz Introduces Legislation to Defund the CFPB and Restore Congressional Oversight” (Jan. 29, 2025), https://www.cruz.senate.gov/newsroom/press-releases/sen-cruz-introduces-legislation-to-defund-the-cfpb-and-restore-congressional-oversight.

[16] Claire Williams, “Warren, Democrats promise to fight for CFPB at rally,” American Banker (Feb. 10, 2025), https://www.americanbanker.com/news/warren-democrats-promise-to-fight-for-cfpb-at-rally.

[17] National Treasury Employees Union v. Vought, No. 1:25-cv-00381 (D.D.C.).

[18] Jon Hill, “CFPB Will Mull Axing Google Payment Oversight Order,” Law360 (Feb. 7, 2025), https://www.law360.com/technology/articles/2294631.

[19] Memorandum of Understanding Between the Consumer Financial Protection Bureau and the Federal Trade Commission (Feb. 25, 2019), https://files.consumerfinance.gov/f/documents/cfpb_ftc_memo-of-understanding_2019-02.pdf.

[20] See Consumer Protection Laws: 50-State Survey, Justia, https://www.justia.com/consumer/consumer-protection-laws-50-state-survey; National Association of Attorneys General, Consumer Protection 101, https://www.naag.org/issues/consumer-protection/consumer-protection-101.

[21] Jon Hill, “CFPB Serves Up Consumer Protection Roadmap For States,” Law360 (Jan. 15, 2025), https://www.law360.com/articles/2284260/cfpb-serves-up-consumer-protection-roadmap-for-states.

The following Gibson Dunn lawyers prepared this update: Gus Eyler, Natalie Hausknecht, Sara Weed, Ashley Rogers, Karin Thrasher, and Sam Whipple.

Gibson Dunn lawyers are closely monitoring developments at the CFPB and are available to discuss these issues as applied to your particular business. If you have questions about CFPB regulation and how best to prepare, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Consumer Protection or Fintech and Digital Assets practice groups, or the following:

Consumer Protection:

Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)

Natalie J. Hausknecht – Denver (+1 303.298.5783, nhausknecht@gibsondunn.com)

Ashley Rogers – Dallas (+1 214.698.3316, arogers@gibsondunn.com)

Fintech and Digital Assets:

M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)

Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Sara K. Weed – Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)

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

On February 5, 2025, the United States Office of Personnel Management (OPM) issued a memo to the heads and acting heads of federal departments and agencies entitled Further Guidance Regarding Ending DEIA Offices, Programs and Initiatives. The memo provides additional guidance on how federal agencies should implement President Trump’s executive orders, including Executive Order 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing”), Executive Order 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”), and Executive Order 14148 (“Initial Rescissions of Harmful Executive Orders and Actions”). While the memo is directed at implementation of the executive orders within the federal government, it provides insight into how the administration is likely to view certain types of DEI programs and how it will interpret similar programs in the private sector.

In alignment with the President’s executive orders, the OPM memo directs agencies to “terminate all illegal DEIA initiatives,” including by eliminating any DEIA “offices, policies, programs, and practices” that unlawfully discriminate in any employment action, including “recruiting, interviewing, hiring, training or other professional development, internships, fellowships, promotion, retention, discipline, and separation.” According to OPM, unlawful discrimination includes “taking action motivated, in whole or in part” by protected characteristics. The memo specifically identifies “diverse slate” policies—which it describes as “unlawful diversity requirements for the composition of hiring panels, as well as for the composition of candidate pools”—as an example of “[u]nlawful discrimination related to DEI.”

OPM does not require elimination of “personnel, offices, and procedures” that receive complaints of discrimination, counsel employees who have allegedly been subject to discrimination, collect demographic data, or process employee accommodation requests. To the extent these functions were previously handled by DEIA personnel, the memo instructs agencies to redistribute these functions among remaining agency personnel and offices. However, the memo warns that agencies must ensure that these functions are “strictly limited to the duties within [the agency’s] statutory authority[.]”

The memo also addresses Employee Resource Groups (ERGs), instructing agencies to prohibit ERGs that “promote unlawful DEIA initiatives.” Although the memo expressly states that agency heads “retain discretion” to “host affinity group lunches, engage in mentorship programs, and otherwise gather for social and cultural events,” it directs that these activities or programs must be consistent with President Trump’s executive orders and the “broader goal of creating a federal workplace focused on individual merit.” Specifically, the memo emphasizes that no affinity group or cultural or social gathering may be restricted, either “explicitly or functionally,” on the basis of a protected characteristic, and that agency heads may not “draw distinctions” based on protected characteristics. For example, OPM says that an agency may not permit the formation of ERGs for certain racial groups but not for others and may not limit attendance to an affinity group event to only members of that ethnic group.

The memo also addresses disability accessibility and accommodations, stating that the Biden Administration “conflated” DEI initiatives with legal obligations related to disability and accessibility. While the memo says that President Trump’s executive orders “require the elimination of discriminatory practices” and calls on agencies to rescind policies that are “contrary” to the Civil Rights Act of 1964 and the Rehabilitation Act of 1973, it states that agencies should not “terminate or prohibit accessibility or disability-related accommodations, assistance, or other programs that are required by” law.

OPM also says that agencies should eliminate Special Emphasis Programs that “promote DEIA based on protected characteristics in any employment action or other term, condition, or privilege of employment, including but not limited to recruiting, interviewing, hiring, training or other professional development, internships, fellowships, promotion, retention, discipline, and separation.” Special Emphasis Programs are employment-related programs in federal agencies that focus special attention on certain groups that are underrepresented in specific occupational categories or grade levels within the agency’s workforce. In lieu of these programs, the memo directs agencies to work to “restore merit-based equal employment opportunity” and “reward[] individual excellence.”

Finally, OPM states the President’s authority to promulgate these policies comes from the Constitution and, therefore, agencies should “adhere to the President’s orders” to “eliminate all unlawful discrimination in the federal workforce,” rather than heeding “non-binding opinions and guidance promoting DEIA” and similar policy efforts. The President’s authority over the federal workforce differs from the legal authority the Administration has over private sector employers and other non-federal workplaces. As noted, however, the OPM Memo is indicative of programs and practices the Administration may view as violating Title VII and other laws that apply outside the federal sector.

The following Gibson Dunn lawyers assisted in preparing this update: Jason Schwartz, Katherine Smith, Stuart Delery, Mylan Denerstein, Zakiyyah Salim-Williams, Zoe Klein, Anna McKenzie, Cate McCaffrey, Claire Piepenburg, and Lauren Meyer.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s DEI Task Force, Labor and Employment practice groups, or the following authors and practice leaders:

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)

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

I. Introduction

With Republicans controlling both chambers of Congress, the majority is planning to use a budget process called reconciliation to implement significant policy measures. Reconciliation allows Congress to pass certain legislation through expedited procedures, including by a simple majority vote in the House and Senate. As their majorities in both chambers are slim, Republicans see reconciliation as their best opportunity for advancing legislative priorities. That opportunity is not unlimited: an arcane Senate requirement known as the Byrd Rule creates a point of order against any “extraneous material” in reconciliation bills. Legislation passed through reconciliation must be budget-related and cannot include provisions without a fiscal impact or with a “merely incidental” fiscal impact. Additionally, committees are asked to adhere strictly to instructions provided by the Budget Committee.

Members of Congress and outside organizations hoping to include policy measures in the upcoming reconciliation bills must ensure that those measures comport with the Byrd Rule, which can be a challenge. If they do not, a senator opposing the provision can object to it on the Senate floor and the provision will be stricken absent a supermajority vote to waive the point of order. Senate Majority Leader John Thune has urged Republicans to retain the supermajority requirement because overturning it would have the same effect as overturning the Senate filibuster.[1]

Current priorities for the reconciliation bills include energy deregulation, border security, defense spending, federal funding cuts, and tax cuts. Congress can pass one reconciliation bill each fiscal year. Usually, this equates to one opportunity per calendar year, but the 118th Congress failed to adopt a budget resolution for fiscal year 2025. As a result, the 119th Congress could pass two reconciliation packages in 2025: one before the fiscal year ends in September, and another once the 2026 fiscal year begins in October. Republicans are currently divided on whether to pass a single reconciliation bill covering all their priorities or to pass one bill in early 2025 and a subsequent bill later in the year.

To date, Congressional Republicans have struggled to align on a single strategy for budget reconciliation. Senator Lindsay Graham (R-SC) has been pushing Congress to pass two reconciliation bills over the course of the year while House Speaker Mike Johnson (R-LA-4) has been a vocal advocate for a single bill.[2] The Senate released a budget reconciliation blueprint on February 7 that would instruct nine committees to make a $11.5 trillion net spending reduction over the next ten years,[3] and Chairman Graham has announced plans to mark up his resolution shortly.[4] The blueprint does not include an extension of the 2017 tax cuts, which will decrease the total savings.[5] House Republican leaders have privately signaled they are looking to cut federal spending by a smaller amount, $2 trillion to $2.5 trillion, though their single bill would include an extension of the tax cuts.[6]

Regardless of how many packages Congress ultimately passes, reconciliation presents clients an opportunity to propose and champion helpful legislation. In addition, reconciliation could change programs that affect clients, including major subsidies in the Inflation Reduction Act.

Below, we explain the reconciliation process and targeted areas for reconciliation in the 119th Congress.

II. Process

a. Statutory Reconciliation Process

Budget reconciliation is an optional procedural tool authorized by the Congressional Budget Act that supplements the annual budget process. To begin, the House and Senate Budget committees draft a concurrent budget resolution.[7] The committees then report the resolution to their respective chambers and provide reconciliation instructions that direct certain committees to develop legislation that will advance the required budgetary outcomes.

When the Budget committees consider the budget resolution, they each determine which committees in their chamber to instruct to develop legislations to meet the determined budgetary outcome. Not all committees receive instructions in each reconciliation package and which committees receive instructions depends on the legislative goals the majority wishes to advance in the reconciliation bill. Notably, the House and Senate do not have the same committees and similar committees do not always have the same jurisdiction, so the same provision may end up in different committees in each chamber. For example, the House Energy and Commerce Committee may have five provisions under its jurisdiction, but those provisions may be divided between the Senate Commerce Committee and Senate Energy and Natural Resources Committee.

The instructions frequently tell the committees how much money they are allowed to spend or how much they must save. The provisions assigned to each committee must comport with those limits. For example, the 117th Congress passed a reconciliation measure with the following instructions:

(a) Committee on Agriculture, Nutrition, and Forestry. — The Committee on Agriculture, Nutrition, and Forestry of the Senate shall report changes in laws within its jurisdiction that increase the deficit by not more than $135,000,000,000 for the period of fiscal years 2022 through 2031.[8]

In this example, the budget resolution instructed the Senate Committee on Agriculture, Nutrition, and Forestry to increase the deficit by not more than $135 billion. In other words, provisions under the committee’s jurisdiction cannot increase the deficit by more than $135 billion.

Armed with instructions, the committees draft legislative proposals and return them to the Budget committees by the deadline specified in the budget resolution. The Budget committees then incorporate those reports into an omnibus reconciliation bill.

The House and Senate consider the resulting reconciliation legislation under expedited procedures. In the House, the Rules Committee typically sets limits on debate and amendments for reconciliation procedures. In the Senate, debate on reconciliation legislation is limited to 20 hours, and any proposed amendments must be germane.[9] The Senate’s 20-hour limit on debate prevents members from filibustering and allows the Senate to pass reconciliation legislation with a simple majority rather than the usual 60 votes required to invoke cloture. Unsurprisingly, these limitations make reconciliation bills attractive vehicles for the majority to advance its legislative priorities.

In the 1980s, to address concerns that Congress had increasingly larded reconciliation bills with policies unrelated to the budget, the Senate implemented, and later codified, the Byrd Rule to focus reconciliation on its budgetary purpose.

b. The Byrd Rule

The Byrd Rule allows a senator to raise a point of order to strike “extraneous material” contained in a reconciliation bill or reconciliation resolution. When a reconciliation measure is considered, the Senate Budget Committee is required to submit for the record a list of potentially extraneous material included therein. The Byrd Rule is not self-executing, meaning a member must affirmatively raise the point of order. If the Senate chair sustains the point of order, the extraneous material is struck from the bill and may not be offered as an amendment. A vote of three-fifths of the Senate (typically 60 senators) is required to waive the rule or to overturn a ruling of the Chair. A provision is extraneous if it falls under one or more of the following six definitions:

it does not produce a change in outlays or revenues or a change in the terms and conditions under which outlays are made or revenues are collected;
it produces an outlay increase or revenue decrease when the instructed committee is not in compliance with its instructions;
it is outside of the jurisdiction of the committee that submitted the title or provision for inclusion in the reconciliation measure;
it produces a change in outlays or revenues which is merely incidental to the non-budgetary components of the provision;
it would increase the deficit for a fiscal year beyond the “budget window” covered by the reconciliation measure; and
it recommends changes in Social Security.[10]

When interpreting the Byrd Rule, the Senate Parliamentarian refers to precedents established by prior decisions. Some precedents are located in the Congressional Record, but many are not publicly available. Although the Byrd Rule allows members to make formal points of order during debate, the Parliamentarian works with instructed committees’ staff prior to the floor debate to determine what provisions would be subject to the Byrd provisions—a process known as a “Byrd bath.” In that process, the minority staff typically scour the reconciliation legislation for potential Byrd Rule violations and raise them with the Senate Parliamentarian. Frequently, minority staff will submit memoranda arguing their points and majority staff will respond with their own memoranda. For more complicated questions, the Parliamentarian may ask the staff to present oral arguments making their case. These discussions happen behind closed doors, so there is no public record of the arguments or outcomes. As a result, it can be “difficult to divine the standard that the Parliamentarian applies to make determinations under the Byrd Rule, and in particular, the ‘merely incidental’ test.”[11]

Two interrelated provisions under the Byrd Rule that are subject to frequent debate are the requirements that reconciliation legislation (1) must “produce a change in outlays or revenues or a change in the terms and conditions under which outlays are made or revenues are collected” and (2) must not produce a budgetary change which is “merely incidental to the non-budgetary components.” These requirements are discussed in turn.

First, each provision of a reconciliation bill must produce a budgetary effect or change the terms of a law that makes outlays or collects revenues. Reconciliation measures often satisfy this requirement by changing eligibility definitions or formulas used to determine federal benefits.[12] A spending-related provision will survive a challenge under this provision if it allocates money for various programs and an amendment will withstand a challenge if it modifies funding allocations in the underlying legislation.[13]

Second, the Byrd Rule creates a point of order against any provision with a budgetary effect that is “merely incidental” to its non-budgetary components. This judgment requires a balancing analysis: whether the provision creates a policy change that would substantially outweigh its budgetary impact.[14] This element does not stand on its own and must be read in conjunction with the requirement that a provision must create a budgetary effect.

Whether a provision increases or decreases the deficit is not dispositive. “[A] Senator can find it easy to defend as budgetary a provision that does nothing but spend a great deal of money. On the other hand, a provision that actually reduces the deficit but does so through the device of an extensive policy change will receive strict scrutiny.”[15]

The outcome of this prong of the analysis can depend on the score a bill receives from the Congressional Budget Office (CBO). The greater the budgetary impact of a provision, the more difficult it will be for opponents to contend that its budgetary effects are “merely incidental.” Reputable tax economics firms can provide cost estimates for proposed legislation.

Although the size of the budgetary impact from a provision is relevant to the Byrd Rule analysis, it is not dispositive. During consideration of the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015, the Parliamentarian considered a provision to repeal the Affordable Care Act’s individual mandate.[16] She advised that “while the dollars associated with repeal are large (a net savings of approximately 147 billion dollars over 10 years if combined with the employer mandate repeal), they are dwarfed by the scope and impact of this mandate on the 270 million Americans who are covered by it.”[17] As the “law constitutes a massive, national policy change[,] the primary purpose of which is not budgetary” it was found to violate the Byrd Rule.[18]

This provision frequently gives rise to staff arguments to the Parliamentarian and Senate floor points of order. There is little public precedent defining the “merely incidental” test, which means it is often difficult to predict how the Parliamentarian will rule on a particular question. Hence, careful thought needs to be given as to whether a provision can pass the “merely incidental” test as well as how to present the provision to the Parliamentarian.

The four remaining Byrd Rule provisions are more straightforward:

Where a Senate Committee is directed to increase or decrease the deficit by a certain amount, it must comply with those instructions in its legislative recommendations to the Budget Committee. If a House-passed reconciliation bill does not align with a Senate Committee reconciliation instruction, the House may offer an amendment to address the disparity.
A committee may only make recommendations to the Budget Committee—in response to reconciliation directions—on matters under the committee’s jurisdiction. If a committee makes recommendations on matters outside of its jurisdiction, those may be stricken as extraneous.
A provision must not increase the deficit for a fiscal year beyond the “budget window” covered by the reconciliation measure. The budget window will be ten years. In some cases, Congress can save a provision that would run afoul of this rule by adding a sunset provision.
No provision may recommend changes in Social Security.

III. Targeted Areas for Reconciliation

As Republicans in Congress prepare to implement President Trump’s legislative agenda, priorities for reconciliation include energy deregulation, border security, defense spending, and tax cuts.[19] A top reconciliation priority is extending the tax cuts enacted through reconciliation during the first Trump administration in the 2017 Tax Cuts and Jobs Act.[20] Those tax cuts are set to expire in December 2025.[21] In order to meet their targeted deficit reduction goals while cutting extending tax cuts, Republicans are reportedly considering slashing Medicaid, which may prove politically challenging.[22]

Of the energy policies being considered for reconciliation, the most significant would be repealing parts of the Inflation Reduction Act (IRA),[23] which provides funding for clean energy.[24] The law includes an array of green subsidies—including consumer tax credits, grants, and loans—in exchange for using clean energy.[25] Republicans have not publicly announced specific IRA provisions they will target through reconciliation, although Speaker Johnson mentioned wanting to take a “scalpel” rather than a “sledgehammer” to the green subsidies.[26] Republicans are also reportedly considering using reconciliation to address energy permitting reform and opening the Artic Wildlife Refuge for drilling.[27]

Republicans are also expected to attempt to use reconciliation to increase border security, namely by providing funding for completion of a wall along the country’s southern border and increasing funding for Customs and Border Protection and Immigration and Customs Enforcement.[28] And they are expected to convert a portion of discretionary defense spending into mandatory spending.[29]

Beyond those priorities, members have mentioned using reconciliation to expand child tax credits,[30] require site neutrality for Medicare,[31] reform welfare, and provide for greater scrutiny of “mandatory” spending.[32] The bill also may address the debt ceiling.[33]

IV. Conclusion

Gibson Dunn is monitoring the reconciliation process closely. Our lawyers include former key Capitol Hill staff members, including those who worked on instructed committees during reconciliation processes in the Senate. These lawyers can help clients interested in understanding how reconciliation could help them or assess provisions for compliance with the Byrd Rule. Clients with policy interests related to these bills should be aware that the situation is evolving rapidly and should reach out to the firm with any questions.

[1] Andrew Desiderio, Thune to Senate GOP: Don’t Overrule Parliamentarian on Reconciliation, Punchbowl News (Jan. 6, 2025), https://punchbowl.news/article/senate/thune-tells-gop-not-to-overrule-parliamentarian/.

[2] Jake Sherman, John Bresnahan, The race for reconciliation, Punchbowl News (Feb. 10, 2025), https://punchbowl.news/article/house/republican-leaders-house-look-to-cut-federal-spending-big/.

[3] Paul Krawzak, Graham unveils budget blueprint ahead of markup next week, Roll Call (Feb. 7, 2023), https://rollcall.com/2025/02/07/graham-unveils-budget-blueprint-ahead-of-markup-next-week/.

[4] Melanie Zanona, John Bresnahan & Samantha Handler, AM: The reconciliation race: Can the House get its act together?, Punchbowl News (Feb. 10, 2025).

[5] Id.

[6] Jake Sherman, John Bresnahan, The race for reconciliation, Punchbowl News (Feb. 10, 2025), https://punchbowl.news/article/house/republican-leaders-house-look-to-cut-federal-spending-big/.

[7] Floyd M. Riddick & Alan S. Frumin, Riddick’s Senate Procedure 502 (1992) [hereinafter “Riddick’s”].

[8] S. Cong. Res 14, 117th Cong (2021) (adopted).

[9] See Congressional Budget Act of 1974 § 310(e)(2) (codified as amended at 2 U.S.C. § 641(e)(2)); Congressional Budget Act of 1974 § 305(b)(2) (codified as amended at 2 U.S.C. § 636(b)(2)); Congressional Budget Act of 1974 § 305(c)(4) (codified as amended at 2 U.S.C. § 636(c)(4)).

[10] Congressional Budget Act of 1974 § 313 (codified as amended at 2 U.S.C. § 644).

[11] Budget Process Law Annotated—2022 Edition, by William G. Dauster, 117th Cong., 2d sess., S. Prt. 117–23, December 2022, notes on pp. 622.

[12] Id. at 669.

[13] Id. at 671.

[14] Id. at 690.

[15] Id. at 693.

[16] Id. at 703.

[17] Id. at 704.

[18] Id.

[19] Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[20] Pub. L. 115–97, 131 Stat. 2054.

[21] See Pub. L. 115–97, § 11001(a), 131 Stat. 2054, 2054 (codified at 26 U.S.C. § 1).

[22] Jake Sherman, John Bresnahan, The race for reconciliation, Punchbowl News (Feb. 10, 2025), https://punchbowl.news/article/house/republican-leaders-house-look-to-cut-federal-spending-big/.

[23] Pub. L. 117–169, 136 Stat. 1818 (2022).

[24] Emma Dumain et al., Republicans plot energy-focused reconciliation package, Politico (Dec. 4, 2024), https://www.eenews.net/articles/republicans-plot-energy-focused-reconciliation-package/.

[25] See Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[26] See Emma Dumain et al., Republicans plot energy-focused reconciliation package, Politico (Dec. 4, 2024), https://www.eenews.net/articles/republicans-plot-energy-focused-reconciliation-package/.

[27] Id.; Kelsey Brugger, Republicans cooking up 2025 permitting plan if lame-duck push fails, PoliticoPro (Nov. 20, 2024), https://subscriber.politicopro.com/article/eenews/2024/11/20/republicans-cooking-up-2025-permitting-plan-if-lame-duck-push-fails-00190527.

[28] Alexander Bolton, Thune lays out plan for separate border and tax reconciliation bills, Hill (Dec. 3, 2024), https://thehill.com/homenews/senate/5020333-senate-republicans-reconciliation-tax-cuts-border-security/.

[29] Id.

[30] Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[31] Ben Leonard & Robert King, Cassidy: ‘Premature’ to say if site-neutral is a reconciliation target, PoliticoPro (Dec. 11, 2024), https://subscriber.politicopro.com/article/2024/12/cassidy-premature-to-say-if-site-neutral-is-a-reconciliation-target-00193735?site=pro&prod=alert&prodname=alertmail&linktype=headline&source=email.

[32] Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[33] Gregory Svirnovskiy, Johnson wants budget reconciliation bill on Trump’s desk by end of April, Politico (Jan. 5, 2015), https://www.politico.com/news/2025/01/05/johnson-budget-reconciliation-trump-april-00196504.

The following Gibson Dunn lawyers assisted in preparing this update: Michael Bopp, Amanda Neely, and Alexandria Murphy.

Michael D. Bopp – Chair, Congressional Investigations Practice Group,
Washington, D.C. (+1 202.955.8256, mbopp@gibsondunn.com)

Barry H. Berke – Co-Chair, Litigation Practice Group,
New York (+1 212.351.3860, bberke@gibsondunn.com)

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

Thomas G. Hungar – Partner, Appellate & Constitutional Law Practice Group,
Washington, D.C. (+1 202-887-3784, thungar@gibsondunn.com)

Amanda H. Neely – Of Counsel, Public Policy Practice Group,
Washington, D.C. (+1 202.777.9566, aneely@gibsondunn.com)

The executive order is among the most significant political developments related to the FCPA in years. Gibson Dunn will continue monitoring these developments and reporting to our trusted friends and clients in the days, weeks, and months ahead.

Yesterday evening, President Trump signed an executive order titled Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security (Feb. 10, 2025), directing the Department of Justice (DOJ) to pause new investigations and enforcement actions under the Foreign Corrupt Practices Act of 1977 (FCPA), conduct a review, and issue revised enforcement guidelines for the statute. In its opening lines, the order asserts that the FCPA has been “systematically, and to a steadily increasing degree, stretched beyond proper bounds and abused” such that its “overexpansive and unpredictable” enforcement “against American citizens and businesses . . . for routine practices in other nations” now impedes U.S. foreign policy objectives. The order requires that the newly appointed Attorney General Pamela Bondi, during a 180-day period that may be extended another 180 days at her discretion, cease initiation of new FCPA investigations or enforcement actions, unless she grants an individual exception.

The order mandates that any FCPA investigations or enforcement actions initiated or allowed to continue afterward must be governed by the revised guidelines and be “specifically authorized by the Attorney General.” Finally, the order directs the Attorney General to “determine whether additional actions, including remedial measures with respect to inappropriate past FCPA investigations and enforcement actions” should be taken by DOJ or, if Presidential action is required, recommended to the President.

This development comes on the heels of last week’s memorandum by Attorney General Bondi—discussed further in our recent analysis—instructing DOJ’s FCPA Unit to prioritize cases that relate to cartels and transnational criminal organizations (TCOs) and shift focus away from cases that lack such a connection, to facilitate aggressive prosecutions in service of the total elimination of cartels and TCOs. In keeping with President Trump’s stated priority of “keeping America safe,” that memorandum and others reflected a clear shift in the Administration’s enforcement priorities to human trafficking and smuggling; TCOs, cartels, and gangs; and protecting law enforcement.

Impetus and Context

The executive order and an accompanying “fact sheet” state that “FCPA overenforcement” has “harmed” U.S. companies doing business in international markets by prohibiting them from engaging in practices that are “common among international competitors,” putting them at a disadvantage against their international peers. The order cites “excessive, unpredictable FCPA enforcement” as impeding the President’s constitutional authority to conduct foreign affairs, which is “inextricably linked with the global economic competitiveness of American companies.” By stopping “overenforcement,” President Trump seeks to “level [the] playing field” and provide U.S. companies with “the tools to succeed globally.” This line of rhetoric resonates with comments President Trump made in a 2012 interview with CNBC, wherein he called the FCPA a “horrible law and it should be changed” because it puts U.S. businesses at a “huge disadvantage.”

Yet, as discussed in our 2020 Year-End FCPA Update, despite predictions to the contrary, sweeping changes did not come to pass during President Trump’s first term. Rather, FCPA enforcement actions increased, with 164 total enforcement actions (including non-prosecution agreements and “declinations with disgorgement”) announced by the DOJ or Securities and Exchange Commission (SEC) during President Trump’s first term (2017-2020)—compared to only 126 during President Obama’s second term (2012-2016) and 96 under President Biden (2021-2024). The current Trump administration’s pronouncements resurrect earlier predictions of the FCPA’s demise—and questions around what an appropriate level of FCPA enforcement should be.

Prior administrations used similar rhetoric around ensuring a level playing field and promoting the rule of law in the fight against TCOs and terrorism as rationales for continued or increased FCPA enforcement. Indeed, corruption has been a continuous focal point in national security strategies of administrations since the 1998 amendments to the statute, if not earlier. The George W. Bush administration pronounced in 2002 that “corruption can make weak states vulnerable to terrorist networks and drug cartels within their borders.” In 2010, the Obama administration similarly recognized corruption as a “severe impediment to development and global security” and as one of the primary vehicles through which TCOs and terrorist organizations had been able to accumulate wealth and power. The first Trump administration’s national security strategy noted in 2017 that “[t]errorists and criminals thrive where governments are weak, corruption is rampant, and faith in government institutions is low” and established a priority action to counter foreign corruption by “[u]sing our economic and diplomatic tools . . . to target corrupt foreign officials and work with countries to improve their ability to fight corruption so U.S. companies can compete fairly in transparent business climates.” And in 2022, the Biden administration referred to the fight against corruption as a “core national security interest.”

Metrics relating to FCPA enforcement do not suggest that U.S. companies are being disproportionately punished, although “overenforcement” is a subjective concept. The “fact sheet” cites only limited statistics in support of its premise that U.S. companies are disadvantaged, including that DOJ and SEC filed “26 FCPA-related enforcement actions” last year with 31 companies under investigation and that an average of 36 FCPA-related enforcement actions per year over the last decade “drain[ed] resources from both American businesses and law enforcement.” Although the totals of FCPA-related enforcement actions, as we have tracked them, are actually greater (40 announced in calendar year 2024 and 46 annually on average over the last decade, as discussed in our 2024 Year-End FCPA Update), focusing on those discrepancies misses the forest for the trees.

Beyond the policy point discussed above, it is important to note that the majority of defendants in FCPA enforcement actions over the past decade have been non-U.S. companies and individuals. Specifically, between 2015 and 2024, according to our data, 50% of all corporate defendants and 62% of all individual defendants in FCPA enforcement actions by DOJ or SEC were foreign. And of the top ten largest monetary recoveries by U.S. authorities resulting from corporate FCPA enforcement actions, foreign companies account for eight, with monetary recoveries amounting to $6.1 billion of the $8.3 billion aggregate total from the “FCPA Top 10” enforcement actions.

Finally, in terms of tying up law enforcement resources, DOJ’s 24 corporate FCPA enforcement actions over the past three years (2022-2024) represented less than 10% of DOJ’s at least 244 negotiated corporate criminal resolutions (i.e., guilty pleas, deferred prosecution agreements, non-prosecution agreements, and declinations with disgorgement) during that period. (And that small fraction has not appeared to require a disproportionate outlay of DOJ resources, insofar as FCPA cases have historically—by design—involved a greater degree of cooperation, voluntary disclosure, and non-trial resolutions than other types of criminal prosecution.) FCPA enforcement actions compose an even smaller fraction of overall enforcement when considering the full range of DOJ criminal investigations and prosecutions against individuals. Although the data do not correspond neatly to our other statistics, to provide a sense of magnitude, during President Trump’s first administration between government fiscal years 2017 and 2020, U.S. Attorneys’ Offices investigated a total of 678,949 suspects, and DOJ charged 326,726 defendants in federal courts according to DOJ’s Bureau of Justice Statistics.

The “fact sheet” and the executive order’s call to enhance national security (citing specifically the need for strategic advantages in critical minerals, deepwater ports, and other key infrastructure or assets around the world) is also not novel. We note that the FCPA provides a limited statutory exemption for matters implicating national security. Specifically, the FCPA exempts issuers from liability under the accounting provisions in matters related to national security when acting under the directive of the “the head of any Federal department or agency . . . pursuant to Presidential authority,” who must report such matters on an annual basis to the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate. 15 U.S.C. § 78m(b)(3). The executive order does not address this exemption; whether the omission was intentional, perhaps signaling a desire to circumvent or reduce congressional oversight of such executive directives, or an effort to expand the exemption in practice to the antibribery provisions, remains an open question.

Open Questions

While the executive order gives a clear statement of President Trump’s priorities with respect to the FCPA, its impact remains to be seen. It is possible that the executive order could herald only a brief pause in new FCPA actions while DOJ brings its enforcement efforts in line with the Administration’s priorities and the directives Attorney General Bondi has already issued. For example, the Attorney General’s February 5, 2025 memorandum authorizing U.S. Attorneys’ Offices to initiate FCPA cases connected to cartels or TCOs without approval by DOJ’s Criminal Division requires some reconciliation with the executive order’s mandate that FCPA actions henceforth be specifically authorized by the Attorney General. Alternatively, the order could mark a material shift in FCPA enforcement, significantly impacting the United States’s historical global leadership in anti-corruption efforts.

Operationally, some immediate questions include the following:

How, if at all, does the executive order apply to the FCPA’s other enforcer, the SEC? The SEC shares joint authority with DOJ for enforcing the FCPA against issuers, and while the fact sheet references combined DOJ and SEC statistics, the executive order is addressed solely to the Attorney General and gives no direction to the SEC regarding FCPA enforcement. (Nor does the order address the CFTC, which issued an advisory during the first Trump administration announcing its own foreign corruption-related enforcement program.) It is possible that the FCPA may continue to be enforced civilly by the SEC, even as criminal enforcement declines, though this would seem to be at odds with the executive order’s premise that FCPA enforcement interferes with U.S. companies’ ability to do business abroad.
How will non-U.S. companies fare under the new FCPA enforcement regime? The rhetoric behind the executive order and fact sheet is uniquely protectionist as to U.S. companies. Although FCPA practitioners have long questioned the wisdom of and legal basis for pursuing foreign companies for bribing foreign officials on foreign soil, if the Trump Administration wishes to wield U.S. law as a tool to advantage U.S. companies, one way to do so could be to enhance aggressive prosecutions against foreign companies. This could then lead to serious “selective prosecution” challenges in the U.S. courts, as befell the “China Initiative” in Trump I.
Four Years, or Forever? Even under the broadest projection of deprioritizing FCPA enforcement, Americans will choose a new leader in just under four years. White collar criminal enforcement has long been a stated priority of Democratic regimes and other Republican regimes alike, and if there is an overcorrection to “FCPA overenforcement” under Trump, there very possibly could be an overcorrection in the opposite direction in the next administration. The challenges of rebuilding a dismantled enforcement apparatus would be real and take time, but the statute of limitations for FCPA cases is five years and can be paused for up to an additional three years as DOJ seeks foreign-located evidence—among other scenarios that toll the limitations period. Whether DOJ will continue to pursue tolling orders and tolling agreements during the enforcement review period remains to be seen.
Remedial Measures for Past FCPA Enforcement Actions? If the overall executive order is curious, more curious still is a suggestion that part of DOJ’s review will include the pursuit of “remedial measures” associated with past FCPA enforcement actions that may have crossed the FCPA’s “proper bounds” or were somehow abusive. What this will mean in practice remains to be seen, but one prime target could be ongoing compliance obligations associated with recent resolutions, including monitorships and self-reporting. For resolutions announced in coordination with foreign enforcement authorities, revisiting a U.S. resolution may have collateral effects vis-à-vis parallel resolutions announced by foreign enforcement authorities, such as if monetary penalties or forfeiture to U.S. authorities that were originally credited by foreign authorities are reduced.
How Does this Relate to FCPA-Related Cases? As we frequently note in our enforcement updates, a significant portion of foreign anti-corruption enforcement is actually brought under a myriad of adjacent criminal laws, including money laundering, wire fraud, securities fraud, and other statutes. These actions are not literally covered by the executive order, which is limited to the FCPA, and whether the pause will extend more broadly to “FCPA-related” enforcement remains to be seen. Indeed, one possibility is that international corruption cases initially investigated by DOJ’s FCPA Unit could be redirected to U.S. Attorney’s Offices to charge materially the same conduct under different statutes.
What About Already-Indicted Cases? DOJ has unilateral authority to “pause” ongoing FCPA investigations that have not yet been charged, but cases that already have been indicted and before the courts will involve an Article III decision-maker. Whether DOJ intends to move to dismiss or stay ongoing cases in the courts remains to be seen. We are aware of one case with an upcoming trial where a judge already has ordered DOJ to state its position in response to the executive order.

Whatever the answers to these questions, the perspective reflected in the order represents a shift from the long-held view that international anti-corruption efforts benefit U.S. businesses by creating a level playing field and strengthening the rule of law—including in countries with a strong presence of TCOs and cartels. One of the original purposes of the statute was to address bribery by U.S. companies that undermined American foreign policy in the 1970s and restore public confidence in the integrity of American businesses following evidence of substantial corruption and international bribery uncovered during investigations following the Watergate Scandal under President Nixon. President Clinton’s signing statement to the 1998 amendments to the FCPA also underscored an intent to level the playing field for U.S. companies that were losing international business opportunities to foreign competitors paying bribes and then deducting them from their taxes in their home countries.

As noted above, the order also marks a fundamental break with a longstanding bipartisan consensus on the role of the United States in combatting international corruption. That consensus was not only domestic but international, with the United States advancing multilateral efforts to bring other countries into the fold as partners in anti-corruption efforts. Indeed, in still-available public online materials, the U.S. Mission to the Organization for Economic Cooperation & Development (OECD) declared that “the United States has led the fight against international bribery” and credits the United States in creating a global “race to the top” by encouraging adoption of the 1997 OECD Anti-Bribery Convention, to which the U.S. also acceded in 1999. It is not yet clear whether the Administration’s executive order and stance on FCPA enforcement will be in line with U.S. obligations under the OECD Anti-Bribery Convention and other international treaties such as the United Nations Convention Against Corruption.

Whatever its ultimate implementation, the executive order is among the most significant political developments related to the FCPA in years. We will continue monitoring these developments and reporting to our trusted friends and clients in the days, weeks, and months ahead.

The following Gibson Dunn lawyers prepared this update: F. Joseph Warin, Patrick Stokes, Benno Schwarz, Stephanie Brooker, John Chesley, Michael Diamant, Melissa Farrar, Oleh Vretsona, David Ware, Bryan Parr, Kio Bell, Michael Jaskiw, and Ellie Schwietering.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices. Please contact the Gibson Dunn attorney with whom you work, or any of the following leaders and members of the firm’s Anti-Corruption & FCPA practice group:

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San Francisco
Winston Y. Chan (+1 415.393.8362, wchan@gibsondunn.com)
Thad A. Davis (+1 415.393.8251, tadavis@gibsondunn.com)
Charles J. Stevens (+1 415.393.8391, cstevens@gibsondunn.com)
Zachariah J. Lloyd (+1 415.393.8319, zlloyd@gibsondunn.com)

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

London
Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com)
Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com)
Sacha Harber-Kelly (+44 20 7071 4205, sharber-kelly@gibsondunn.com)
Michelle Kirschner (+44 20 7071 4212, mkirschner@gibsondunn.com)
Allan Neil (+44 20 7071 4296, aneil@gibsondunn.com)
Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com)

Paris
Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com)
Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com

Munich
Katharina Humphrey (+49 89 189 33 155, khumphrey@gibsondunn.com)
Benno Schwarz (+49 89 189 33 110, bschwarz@gibsondunn.com)
Mariam Pathan (+49 89 189 33 228, mpathan@gibsondunn.com)

Hong Kong
Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com)
Becky Chung (+ +852 2214 3837, bchung@gibsondunn.com)
Ning Ning (+852 2214 3763, nning@gibsondunn.com)

Singapore
Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com)
Karthik Ashwin Thiagarajan (+65 6507 3636, kthiagarajan@gibsondunn.com)