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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.

On April 23, President Trump issued an Executive Order entitled Restoring Equality of Opportunity and Meritocracy. The order seeks to “eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.”

Disparate impact is a theory of discrimination applied when a facially neutral practice has a statistically significant impact on a protected group. According to the Executive Order, “disparate-impact liability” creates “a near insurmountable presumption of unlawful discrimination … where there are any differences in outcomes in certain circumstances among different races, sexes, or similar groups, even if there is no facially discriminatory policy or practice or discriminatory intent involved, and even if everyone has an equal opportunity to succeed.” The order criticizes disparate-impact liability as “all but requir[ing] individuals and businesses to consider race and engage in racial balancing to avoid potentially crippling legal liability.” Thus, according to President Trump, disparate-impact liability prevents employers from “act[ing] in the best interests of the job applicant, the employer, and the American public” and undermines “meritocracy,” “a colorblind society,” and “the American Dream.”[*]

A. Regulatory Changes

Section 3 and Section 5 of the Executive Order direct the repeal or amendment of certain regulations that impose disparate-impact liability on, and require affirmative action by, recipients of federal funding under Title VI, such as universities, nonprofits, and certain contractors. Section 3 states that it is revoking the “Presidential approval” of these regulations. (Title VI provides that no “rule, regulation, or order” implementing the statute “shall become effective unless and until approved by the President.” 42 U.S.C. § 2000d-1.) And Section 5(a) directs the Attorney General to “initiate appropriate action to repeal or amend” those regulations.

The Title VI regulations identified by the Executive Order for repeal prohibit recipients of federal funding from “utiliz[ing] criteria or methods of administration which have the effect of subjecting individuals to discrimination,” selecting “the site or location of facilities” in a manner that has “the purpose or effect of defeating or substantially impairing the accomplishment of the objectives” of Title VI, or engaging in “employment practices” that “tend[]” to discriminate. 28 C.F.R. § 42.104(b)(2), (b)(3), (c)(2). The regulations also allow recipients to “take affirmative action to overcome the effects of conditions which resulted in [discrimination],” even if there were no prior discrimination by the recipient. § 42.104(b)(6)(ii).

Section 5(b) also directs the Attorney General, “in coordination with the heads of all other agencies,” to review “all existing regulations, guidance, rules, or orders that impose disparate-impact liability or similar requirements,” and to “detail agency steps for their amendment or repeal, as appropriate under applicable law.” Unlike Section 5(a), this portion of the Executive Order is not limited to Title VI, and likely contemplates Title VII, the Fair Housing Act, the Age Discrimination in Employment Act, the Affordable Care Act, and the Equal Credit Opportunity Act, several of which are mentioned in other sections of the order.

Section 7 of the Executive Order further instructs the Attorney General to “determine whether any Federal authorities preempt State laws, regulations, policies, or practices that impose-disparate-impact liability,” and to “take appropriate measures consistent with the policy of this order.” Section 7 also directs the Attorney General and Chair of the Equal Employment Opportunity Commission (EEOC) to “issue guidance or technical assistance to employers regarding appropriate methods to promote equal access to employment regardless of whether an applicant has a college education.”

B. Enforcement Actions

Section 4 of the Executive Order directs all federal agencies to “deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability.” Consistent with that direction, Section 6 instructs all heads of federal agencies, including “the Attorney General,” “the Chair of the Equal Employment Opportunity Commission,” “the Secretary of Housing and Urban Development, the Director of the Consumer Financial Protection Bureau, the Chair of the Federal Trade Commission, and the heads of other agencies responsible for enforcement of the Equal Credit Opportunity Act (Public Law 93-495), Title VIII of the Civil Rights Act of 1964 (the Fair Housing Act (Public Law 90-284, as amended)),” to “assess” or “evaluate” all pending proceedings relying on disparate-impact theories, including under Title VII, and “take appropriate action” within 45 days. Agencies must conduct a similar review of “consent judgments and permanent injunctions” within 90 days.

C. Analysis

As a result of this Executive Order, federal agencies are unlikely to initiate investigations or enforcement actions relying on disparate-impact theories. They might also close, dismiss, or narrow existing investigations, enforcement actions, and ongoing monitorships pursuant to consent decrees or other agreements where the underlying legal theory relied on disparate-impact liability. Companies facing such investigations, actions, and monitorships might wish to ask for their closure in light of the order.

Agencies also may move to repeal or amend regulations and guidance documents imposing or recognizing disparate-impact liability, such as the EEOC’s guidelines concerning affirmative action that address disparate-impact liability. See 29 C.F.R. Part 1608. Among other things, the current EEOC guidance opines that affirmative action plans are allowed to remedy “employment practices” that “[r]esult in disparate treatment,” even if there is no “violation of Title VII.” 29 C.F.R. § 1608.4(b). The EEOC may repeal or amend these guidelines, including because it is consistent with President Trump’s prior repeal of Executive Order 11246 and Acting Chair Lucas’s view that such plans may be used in “very limited circumstances.” And given that Title VII provides that “good faith” compliance with a written EEOC “interpretation or opinion” is a defense to liability, 42 U.S.C. § 2000e-12(b), rescission of the affirmative action plan guidelines could eliminate a safe harbor if the guidelines are formally rescinded. Employers with affirmative action plans should review their plans and consider whether to make changes in light of forthcoming EEOC action.

Litigation challenging the actions directed by the order is possible. Title VI is silent, for example, on whether the President may unilaterally revoke approval of regulations without a full notice-and-comment rulemaking process. Democratic state attorneys general might also litigate if the Trump Administration takes the position that federal laws preempt state laws or regulations that impose or recognize disparate-impact liability.

Meanwhile, the order does not directly impact private plaintiff litigation invoking disparate impact. The order also has no immediate impact on existing disparate-impact case law. However, litigation catalyzed by the order could lead to reconsideration of precedents upholding disparate-impact theories of liability, such as the Supreme Court’s decision interpreting Title VII in Griggs v. Duke Power Co., 401 U.S. 424 (1971).

[*] This order is consistent with other Administration actions regarding disparate-impact liability. On April 23, for example, President Trump issued an executive order rejecting the use of disparate-impact analysis to evaluate the lawfulness of school discipline. And earlier this year, Attorney General Bondi ordered the Department of Justice to issue updated guidance that “narrow[s] the use of ‘disparate impact’ theories that effectively require use of race- or sex-based preference” and “emphasize that statistical disparities alone do not automatically constitute unlawful discrimination.” Moreover, these actions were proposed in the Project 2025 policy document.

The following Gibson Dunn lawyers prepared this update: Jason Schwartz, Ryan Stewart, Cynthia Chen McTernan, and Josh Zuckerman.

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 practice group:

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)

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

Cynthia Chen McTernan – Partner, Labor & Employment Group,
Los Angeles (+1 213.229.7633, cmcternan@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)

Anna M. McKenzie – Of Counsel, Labor & Employment Group,
Washington, D.C. (+1 202.955.8205, amckenzie@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.

While questions about the overall level of white collar enforcement in the new administration persist, the direction at the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) is clear, according to Gibson Dunn partner Matthew Axelrod, who told Export Compliance Daily that all signs indicate “BIS is going to be aggressive in going after companies that violate their rules.”

Matt also said “the BIS view is that they would rather educate industry so that industry complies with the rules on the front end rather than having violations that get enforced on the back end” and that, because of funding cuts and staff turnover, “the bigger question mark than the policy direction is whether BIS will have the resources it needs to deliver on the policy direction.”

After serving as BIS Assistant Secretary for Export Enforcement under the Biden administration, Matt joined Gibson Dunn in early 2025 to co-chair our newly launched Sanctions and Export Enforcement Practice Group, where he works closely with clients to conduct internal investigations, evaluate compliance programs, advise on voluntary self-disclosures, and defend against government-facing investigations.

Read the full article in Export Compliance Daily (subscription required).

The French Ministry of Justice has unveiled the first draft of the reform of French arbitration law, a major step in modernizing the country’s arbitration framework. This draft reform builds on the 2011 overhaul, aiming to consolidate France’s position as a leading place of international arbitration.

A Reform Rooted in Continuity, Aimed at Autonomy

The reform is built on the foundation of France’s established arbitration tradition but proposes a dedicated Arbitration Code to enhance clarity and coherence, and strengthen the autonomy of arbitration law while improving its integration with French judicial procedures.

Three Main Pillars of the Reform:

1. A More Flexible Arbitration Framework

Trend towards unification of the rules governing domestic and international arbitration, favoring the more liberal international standards.
Reduced formalism: No mandatory form for arbitration clauses, electronic awards explicitly recognized.
Practice-driven updates: Simplified signing requirements, streamlined communication of awards.

2. A More Protective Legal Environment

Impartiality and independence of arbitrators reaffirmed.
Financial hardship mechanism introduced: Courts may provide assistance in case of proven inability to pay arbitration costs to avoid denial of justice.
Strengthened guarantees for weaker parties (e.g., consumers, employees, financially constrained parties).
Protection of third-party rights: Provisions allowing third-party intervention in court proceedings relating to the award (annulment / exequatur) and possibility for third-party opposition against court decisions.

3. A More Efficient System

Reinforced “juge d’appui”: Enhanced powers to support arbitration proceedings, prevent denial of justice, and enforce interim measures issued by the arbitral tribunal.
Enhanced tribunal tools: Consolidation of related claims into a single arbitral proceeding, liquidation of penalty payments (astreintes), obligation for parties to raise all claims and objections concurrently under penalty of subsequent inadmissibility, and issuance of binding preliminary determinations on jurisdiction or admissibility.
Streamlined enforcement and recourse: Revised procedural rules on recognition, exequatur, and appeal proceedings before French courts; stay of annulment no longer automatic in domestic cases.

A Strategic Move for Arbitration in France:

This initiative reflects France’s commitment to arbitration-friendly policies and to the continuing reinforcement of its position in the global dispute resolution landscape.

A consultation is now open to refine the draft, collect the industry feedback and clarify outstanding issues.

We are closely monitoring the legislative process and will continue to provide insights as it evolves.

The following Gibson Dunn lawyers prepared this update: Eric Bouffard, Martin Guermonprez, and Imane Choukir.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s International Arbitration practice group, or the authors in Paris at +33 1 56 43 13 00:

Eric Bouffard – ebouffard@gibsondunn.com

Martin Guermonprez – mguermonprez@gibsondunn.com

Imane Choukir – ichoukir@gibsondunn.com

As companies prepare to go public, the need for strong enterprise risk management (ERM) and financial reporting systems becomes critical for long-term success. Please join us for a presentation that provides a comprehensive guide to navigating the IPO process with an emphasis on establishing effective risk management strategies and robust financial systems. Attendees will gain insights into key considerations for planning and implementing enterprise risk management (ERM) frameworks and financial reporting systems that align with public company requirements.

This presentation is ideal for general counsel, legal professionals, corporate executives, and legal teams involved in the IPO process. It offers practical, legally focused strategies to ensure regulatory compliance and reduce risk exposure as companies transition to public markets.

MCLE CREDIT INFORMATION:

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

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

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

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

PANELISTS:

Andrew Fabens is a partner in the New York office of Gibson, Dunn & Crutcher. Mr. Fabens serves as co-partner in charge of the New York office, co-chair of Gibson Dunn’s Capital Markets Practice Group and is a member of Gibson Dunn’s Securities Regulation and Corporate Governance Practice Group.

Mr. Fabens advises companies on long-term and strategic capital planning, disclosure and reporting obligations under U.S. federal securities laws, corporate governance issues and stock exchange listing obligations. He represents issuers and underwriters in public and private corporate finance transactions, both in the United States and internationally. His experience encompasses initial public offerings, follow-on equity offerings, investment grade, high-yield and convertible debt offerings and offerings of preferred, hybrid and derivative securities. In addition, he regularly advises companies and investment banks on corporate and securities law issues, including M&A financing, spinoff transactions and liability management programs.

Michael J. Scanlon is a partner in the Washington, D.C. office of Gibson Dunn. He is a member of the firm’s Securities Regulation and Corporate Governance, Securities Enforcement, and Corporate Transactions Practice Groups, and has an extensive practice representing U.S. and foreign public company and audit firm clients on regulatory, corporate governance, and enforcement matters.

Michael advises corporate clients on SEC compliance and disclosure issues, the Sarbanes-Oxley Act of 2002, and corporate governance best practices, with a particular focus on financial reporting matters. He frequently represents both accounting firms and public company clients on SEC and PCAOB accounting and auditing matters, including financial statement materiality and restatement issues, internal control issues, auditor independence, and other accounting-related disclosure issues. Michael has represented large accounting firms in enforcement investigations conducted by the SEC, PCAOB, and state accountancy boards. He also is experienced in conducting internal investigations involving accounting irregularities for management, audit committees, and other Board committees, and represents clients on these matters before the SEC. Michael also represents several public company boards of directors and audit committees, as well as not-for-profit organizations, with respect to corporate governance and other compliance matters.

Patty Holman is a partner in the Orange county office of Deloitte in the Accounting & Reporting Advisory services practice.

Patty has extensive experience working with public and private companies of all sizes, serving as a trusted business advisor to leaders in the accounting and finance departments. She primarily focuses IPO readiness gap assessments and IPO execution services, mergers & acquisitions-related accounting and reporting, technical accounting, and SOX (internal controls) readiness and co-sourcing. Her experience covers a variety of industries, including technology, consumer products, manufacturing, real estate and aerospace and defense.

Patty is a Certified Public Accountant and holds a bachelor’s degree in business administration from the Haas School of Business at the University of California, Berkeley and a M.S. in Accountancy from the University of Notre Dame.

We are pleased to provide you with Gibson Dunn’s Accounting Firm Quarterly Update for Q1 2025. The Update is available in .pdf format at the below link, and addresses news on the following topics that we hope are of interest to you:

Presidential and SEC Transitions Continue
SEC Abandons Defense of Climate Rule
Ninth Circuit Considers First Amendment Challenge to SEC’s Gag Rule
AICPA Seeks Comment on Alternative Practice Structures
CPAB Amends Rules to Increase Disclosure of Inspection Results
Supreme Court Distinguishes Between False and Misleading Statements
Second Circuit Applies Crime-Fraud Exception to Overcome Attorney-Client Privilege
Texas Supreme Court Adopts Anti-Fracturing Rule
EU Proposes Simplified Rules Regarding Sustainability Reporting
Other Recent PCAOB Regulatory and Enforcement Developments

Please let us know if there are topics that you would be interested in seeing covered in future editions of the Update.

Download Full Newsletter

Warmest regards,
Jim Farrell
Monica Loseman
Michael Scanlon

Chairs, Accounting Firm Advisory and Defense Practice Group, Gibson, Dunn & Crutcher LLP

In addition to the practice group chairs, this update was prepared by David Ware, Benjamin Belair, Monica Limeng Woolley, Bryan Clegg, Hayden McGovern, John Harrison, Nicholas Whetstone, and Ty Shockley.

Accounting Firm Advisory and Defense Group Chairs:

Jim Farrell – Co-Chair, New York (+1 212-351-5326, jfarrell@gibsondunn.com)

Monica K. Loseman – Co-Chair, Denver (+1 303-298-5784, mloseman@gibsondunn.com)

Michael Scanlon – Co-Chair, Washington, D.C.(+1 202-887-3668, mscanlon@gibsondunn.com)

In an article for the Harvard Law School Forum on Corporate Governance, partners Krista Hanvey, Kate Napalkova, Sean Feller, Michael Collins, and Gina Hancock have outlined the considerations that compensation decision-makers must bear in mind as they navigate periods of macroeconomic uncertainty.

While executive management teams and human resources leaders may feel pressure to act quickly, the authors suggest that plotting a successful course relies on employing policies that are systematic and consistent with an organization’s broader philosophy and mission.

Read the full article [PDF]

Los Angeles partner Drew Flowers shared his perspectives on disruptions and uncertainties in the marketplace, when to take a pause, and multifamily units as a secure asset class, regardless of market conditions, with Law360 Real Estate Authority. “In reality, multifamily for real estate has been the safest investment for a long time, not just now, because guess what? People need places to live,” Drew said.

Read the article, “Real Estate Lawyers Chart Dealmaking Under Tariffs,” in Law360 Real Estate Authority [PDF].

Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments 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 April 15, three current law students sued the Equal Employment Opportunity Commission (EEOC) in the U.S. District Court for the District of Columbia, seeking to enjoin the EEOC’s efforts to collect workplace demographic information from twenty law firms. The plaintiffs, who are proceeding pseudonymously, state that they have applied to work at one or more of the twenty targeted firms and that they are “deeply worried that their data will be divulged [to the EEOC], and that they may be targeted as a result.” The plaintiffs assert that the EEOC engaged in ultra vires action by informally investigating the law firms without a charge being filed with the agency. They ask the court to enjoin the EEOC from “investigating any law firm through means that do not satisfy the requirements of conducting an investigation under Title VII’s EEOC charge process,” to order the EEOC to withdraw the letters it sent to the twenty law firms, and to order the EEOC to return any information already collected from those firms.

As reported in our April 8 Task Force Update, on March 27, Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois granted a nationwide temporary restraining order (TRO) blocking the Department of Labor from enforcing the Certification Provision of Executive Order (EO) 14173, which requires federal contractors and grantees to certify that they do not operate any unlawful DEI programs. The TRO also prohibited enforcement of the Termination Provision of EO 14151, which requires termination of all “equity-related” federal grants, against the plaintiff, the non-profit organization Chicago Women in Trade (CWIT). On April 14, the court issued an opinion preliminarily enjoining enforcement of these EOs to the same extent and for the same reasons articulated in its prior opinion. Accordingly, the Department of Labor remains prohibited from enforcing the Certification Provision nationwide. It is also enjoined from enforcing the Termination Provision against CWIT. The court’s order leaves the remainder of the EOs’ provisions in effect, and it does not impede other agencies’ ability to enforce the Certification or Termination Provisions, nor does it hinder the Department of Labor’s ability to enforce the Termination Provision against other federal grantees. The court’s entry of a preliminary injunction clears the path for the government to appeal to the Seventh Circuit and seek a stay of the court’s order pending the outcome of the appeal.

In an April 3 letter to state leaders, the U.S. Department of Education stated that it will withdraw Title I funding from public schools that maintain DEI-related programs. The letter stated that “the use of [DEI] programs to advantage one’s race over another” violates civil rights laws and is thus “impermissible.” The letter directed schools and state officials to return an attached certification within 10 days, confirming compliance with the directive. Craig Trainor, the Department’s Acting Assistant Secretary for Civil Rights, said in a statement that “[f]ederal financial assistance is a privilege, not a right . . . [and that] [w]hen state education commissioners accept federal funds, they agree to abide by federal antidiscrimination requirements. Unfortunately, we have seen too many schools flout or outright violate these obligations, including by using DEI programs to discriminate against one group of Americans to favor another based on identity characteristics.” Following an emergency motion by the National Educational Association for a temporary restraining order blocking this certification requirement, the Department agreed to extend the deadline to April 24. As Jonaki Mehta of NPR reports, the threat to withdraw funding could have sizable effects on schools nationwide. While the federal government only provides around 10% of public-school funding, Title I funding benefits nearly 90% of school districts nationwide. To date, the Department has already allocated $18.38 billion under Title I in the current fiscal year.

Media Coverage and Commentary:

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

Reuters, “Former US Labor Officials Urge Contractors to Stand Firm on DEI” (April 15): Simon Jessop and Richa Naidu of Reuters report on an open letter sent from ten former U.S. Department of Labor officials to federal contractors, urging them to maintain their corporate diversity policies despite legal threats from the Trump Administration. The letter reads: “Although the federal government has chosen to dismantle diversity, equity, inclusion, and accessibility programs in its own workplaces at its own peril, the government cannot prohibit private employers from engaging in fully lawful strategies to advance equal opportunity for all.” The letter explains why, in the authors’ view, President Trump may not retroactively impose liability for complying with prior federal requirements or change legal standards through executive order. The letter also extolls the benefits of “proactive barrier analysis,” including collecting and analyzing workforce data and setting demographic benchmarks, which the letter asserts do not violate federal anti-discrimination law.
New York Times, “Harvard Says It Will Not Comply With Trump Administration’s Demands” (April 14): Vimal Patel of the New York Times reports on Harvard University’s decision to reject the policy changes requested of it by the Trump Administration, making it “the first university to directly refuse to comply with the administration’s demands and setting up a showdown between the federal government and the nation’s wealthiest university.” In an April 11 letter, the Administration requested that Harvard engage in a series of changes to its hiring, admissions, student discipline, and DEI policies and practices. In a statement following the letter, Harvard’s president Alan Garber said: “No government—regardless of which party is in power—should dictate what private universities can teach, whom they can admit and hire, and which areas of study and inquiry they can pursue.” Patel reports that, shortly thereafter, the Administration announced it would freeze $2.2 billion in multiyear grants to Harvard along with a $60 million contract.
Law360, “Florida Won’t Hire Law Firms With DEI Initiatives, AG Says” (April 9): Madison Arnold of Law360 reports that the Attorney General of Florida, James Uthmeier, has issued a memorandum stating that the state will no longer engage law firms with DEI programs or environmental, social, and governance (ESG) initiatives. The memorandum also provided that Uthmeier will cease approving engagements between firms with these programs and other Florida agencies. The Attorney General’s office will also conduct a review of existing outside counsel engagements to assess compliance with the memorandum’s requirements. Uthmeier identified several initiatives he views as problematic, such as the Mansfield Certification Program and diversity mentorship programs. Uthmeier stated, “Like the EEOC, I am deeply troubled that these discriminatory practices have been embraced and amplified by many of our nation’s law firms. If we are truly committed to the rule of law, then we must be truly committed to equal justice under law. DEI and ESG practices flout those bedrock principles.”
LA Times, “California Signals Possible Defiance of Trump Anti-DEI Order that Threatens School Funding” (April 8): Howard Blume of the LA Times reports that California is resisting the Trump administration’s threat to cut federal funding for public schools that maintain DEI programs. The state’s education officials argue that DEI initiatives are essential for creating inclusive and equitable learning environments. California Governor Gavin Newsom and other state leaders have vowed to fight the administration’s directive, which they view as an attempt to undermine civil rights protections.
The New York Times, “When It Comes to D.E.I. and ICE, Trump Is Using Federal Grants as Leverage” (April 7): Benjamin Oreskes, Zolan Kanno-Youngs, and Hamed Aleaziz of The New York Times report that the Department of Homeland Security (DHS) is updating its grant funding contracts to require city and state grantees—many of which receive money from DHS for public safety services, such as police, fire, and emergency response—to “honor requests for cooperation, such as participation in joint operations, sharing of information or requests for short-term detention of an alien pursuant to a valid detainer.”

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:

American Alliance for Equal Rights v. American Bar Association, No. 1:25-cv-03980 (N.D. Ill. 2025): On April 12, 2025, the American Alliance for Equal Rights (AAER) sued the American Bar Association (ABA) in relation to its Legal Opportunity Scholarship, which AAER asserts violates Section 1981. According to the complaint, the scholarship awards $15,000 to 20-25 first year law students per year. To qualify, an applicant must be a “member of an underrepresented racial and/or ethnic minority.” The complaint alleges that “White students are not eligible to apply, be selected, or equally compete for the ABA’s scholarship.” AAER seeks a TRO and preliminary injunction barring the ABA from selecting winners for this year’s scholarship, as well as a permanent injunction barring the ABA from knowing or considering applicants’ race or ethnicity when administering the scholarship.
- Latest update: The docket does not yet reflect that the ABA has been served.
American Alliance for Equal Rights v. Southwest Airlines Co., No. 24-cv-01209 (N.D. Tex. 2024): On May 20, 2024, AAER filed a complaint against Southwest Airlines, alleging that the company’s ¡Lánzate! 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 March 3, 2025, AAER filed a motion for summary judgment, arguing that there was no genuine dispute of material fact on three relevant questions: (1) whether ¡Lánzate! involved contracts; (2) whether ¡Lánzate! intentionally discriminated against non-Hispanics; and (3) whether that ethnic discrimination harmed one of AAER’s members by preventing them from competing for ¡Lánzate! in 2024.
- Latest update: On April 10, 2025, the United States filed an unopposed motion for Leave to File Statement of Interest in support of AAER’s Motion for Summary Judgment. In a three-page motion, the United States argued that it had a strong interest in protecting the civil rights of all Americans, including the right to be free from discrimination on the basis of protected characteristics. On April 9, 2025, Southwest filed a Motion for Entry of Judgment of $0.01 in nominal damages for AAER. Southwest argued the following: (i) it previously moved to dismiss AAER’s complaint in its entirety on the basis of mootness, as Southwest has already ceased operating the challenged Award Program, (ii) it is willing to accept judgment against it for $0.01 in nominal damages, without an admission of liability, (iii) its request to accept judgment for $0.01 follows a straightforward path to end this litigation, (iv) Justice Kavanaugh’s concurrence in Uzuegbunam v. Preczerski supports the conclusion that this path is available in a case like this one, (v) the proposed judgment would resolve AAER’s allegation that Southwest was resisting judgment and, therefore, had not obtained mootness, and (vi) the proposed judgment would also address the Court’s earlier conclusion that an offer to settle does not render the nominal damages claim moot.
National Association of Diversity Officers in Higher Educ., et al., v. Donald J. Trump, et al., No. 1:25-cv-00333-ABA (D. Md. 2025): On February 3, 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 brought suit against the Trump Administration challenging EOs 14151 and 14173. The plaintiffs contend that the executive orders exceed presidential authority, violate the separation of powers and the First Amendment, and are unconstitutionally vague. On February 13, the plaintiffs moved for a temporary restraining order and a preliminary injunction to prevent the Trump Administration from enforcing the executive orders. On February 21, the Court granted in part the preliminary injunction. The Fourth Circuit Court of Appeals stayed the injunction on March 14.
- Latest update: On March 21, the plaintiffs filed a motion in the district court to vacate the preliminary injunction without prejudice, asserting that they “intend to seek additional relief based on developments that have occurred since the motion for preliminary injunction was filed on February 13, 2025.” The defendants opposed the motion on the ground that the district court lost jurisdiction when the defendants appealed the preliminary injunction order to the Fourth Circuit. The court heard argument on the motion on April 10.
Desai v. PayPal, No. 1:25-cv-00033-AT (S.D.N.Y. 2025): On January 2, 2025, Andav Capital and its founder Nisha Desai sued PayPal, alleging that PayPal unlawfully discriminates by administering its investment program for minority-owned businesses in a way that favors Black and Latino applicants. Desai, an Asian-American woman, alleges PayPal violated Section 1981, Title VI, and New York state anti-discrimination law (NYSHRL) by failing to fully consider her funding application and announcing first-round investments only in companies with “at least one general partner who was black or Latino.” She seeks a declaratory judgment that the investment program is unlawful, an injunction barring PayPal from “knowing or considering race or ethnicity” in administering the program, and damages. PayPal is represented by Gibson Dunn in this matter.
- Latest update: On April 16, 2025, PayPal moved to dismiss the complaint, asserting that the plaintiffs lack standing because they never applied for funding under the challenged program. PayPal also argued that the plaintiffs’ claims are untimely because the challenged conduct occurred outside the three-year limitations period and that the plaintiffs engaged in improper “group pleading” by failing to make allegations against each defendant. Lastly, PayPal argued that complaint fails to state a claim on the merits because the plaintiffs allege no contractual relationship (Section 1981), do not allege PayPal received federal financial assistance (Title VI), and do not allege PayPal extended “credit” (NYSHRL).
National Association of Scholars v. U.S. Dep’t of Energy, et al., No. 25-cv-00077 (W.D. Tex. 2025): On January 16, 2025, the National Association of Scholars—a group of professors, faculty, and researchers at colleges and universities across the United States—sued the United States Department of Energy, alleging that the Department’s Office of Science unlawfully requires research grant applicants to show how they would “promote diversity, equity, and inclusion in research projects” through its Promoting Inclusive and Equitable Research (PIER) plan. The Association alleges that requiring grant applicants to show how they would promote DEI in their projects violates applicants’ First Amendment rights by requiring them to express ideas with which they disagree, that the Department lacked statutory authority to adopt the plan, and that the plan violates the procedural requirements of the Administrative Procedure Act. The Association seeks declaratory and injunctive relief. On March 31, 2025, the defendants filed a motion to dismiss. The defendants argue that the Association’s claims are moot, as the Department of Energy has rescinded the PIER plan requirement after President Trump issued EO 14151.
- Latest update: On April 14, 2025, the Association filed an opposition to the motion to dismiss, arguing that the recission of the PIER plan requirement does not sufficiently moot the controversy because the requirement was “suspended,” and not “rescinded,” making the change temporary. The Association also argues that EO 14151 is currently being challenged in multiple lawsuits, and it is likely that the PIER plan requirement, or something similar, could be reimposed.
San Francisco AIDS Foundation et al. v. Donald J. Trump et al., No. 3:25-cv-01824 (N.D. Cal. 2025): On February 20, several LGBTQ+ groups filed suit against President Trump, Attorney General Pam Bondi, and several other government agencies and actors, challenging the President’s recent executive orders regarding DEI (EO 14151, EO 14168, and EO 14173). The complaint alleges that these EOs are unconstitutional on several grounds, including the Equal Protection Clause of the Fifth Amendment, the Due Process Clause of the Fifth Amendment, and the Free Speech Clause of the First Amendment. It also argues the EOs are ultra vires and exceed the authority of the President. The plaintiffs seek preliminary and permanent injunctive relief. On March 3, the plaintiffs filed a motion for preliminary injunction.
- Latest update: On April 11, 2025, the defendants filed an opposition to the plaintiff’s motion for preliminary injunction. The defendants argued that the plaintiffs are not likely to establish the Court’s jurisdiction, the plaintiffs’ Due Process, First Amendment, separation-of-powers, statutory, and Equal Protection Clause claims will likely fail on the merits, the plaintiffs have not shown irreparable injury, and the balance of inequities and public interest weigh against relief. The defendants also argued that “to the extent the Court intends to grant Plaintiffs’ request for a preliminary injunction, such relief should be narrowly tailored to apply only to [the] defendant agencies, Plaintiffs, and the provisions that affect them” and that any injunctive relief should be stayed pending an appeal and bond.
Strickland et al. v. United States Department of Agriculture et al., No. 2:24-cv-00060 (N.D. Tex. 2024): On March 3, 2024, plaintiff farm owners sued the USDA over the administration of financial relief programs that allegedly allocated funds based on race or sex. The plaintiffs alleged that only a limited class of socially disadvantaged farmers, including certain races and women, qualify for funds under these programs. On June 7, 2024, the court granted in part the plaintiff’s motion for a preliminary injunction. The court enjoined the defendants from making payment decisions based directly on race or sex. However, the court allowed defendants to continue to apply their method of appropriating money, if done without regard to the race or sex of the relief recipient. On February 10, 2025, the parties requested a 30-day stay of proceedings to discuss a resolution following the USDA’s determination to “no longer employ the race- and sex-based ‘socially disadvantaged’ designation” in light of recent executive orders. The court granted the request on February 11, 2025. On March 27, 2025, the parties filed a joint status report requesting additional time to discuss “the possibility of a resolution.” On March 31, 2025, the court granted the parties’ request to stay all proceedings until April 10, 2025.
- Latest update: On April 10, 2025, the parties filed a joint status report. The defendants stated they would be open to a voluntary remand to “take any available and necessary administrative steps to no longer use the race- and sex-based ‘socially disadvantaged’ designation[s] in the challenged programs,” and to financially compensate the plaintiffs, but aver they are unable to compensate non-parties affected by the program, either by clawing back funds paid to disadvantaged farmers under the challenged program or by providing compensation to non-disadvantaged farmers previously denied funds under the program. The plaintiffs argued that USDA’s objection “misses the point,” because “[t]he only way to cure Plaintiffs’ injuries is to rework the challenged programs to be lawful.”

2. Employment discrimination and related claims:

Dill v. International Business Machines, Corp., No. 1:24-cv-00852 (W.D. Mich. 2024): On August 20, 2024, America First Legal filed a discrimination suit against IBM on behalf of a former IBM employee, alleging violations of Title VII and Section 1981. The plaintiff claims that IBM placed him on a performance improvement plan as a “pretext to force him out of [IBM] due to [its] stated quotas related to sex and race.” The complaint cites to a leaked video in which IBM’s Chief Executive Officer and Board Chairman, Arvind Krishna, allegedly states that all executives must increase representation of underrepresented minorities on their teams by 1% each year to receive a “plus” on their bonuses. On March 26, 2025, the court denied a motion to dismiss, concluding that the plaintiff alleged sufficient facts to support a discrimination claim.
- Latest update: On April 9, 2025, IBM answered the complaint, denying that the plaintiff consistently received high scores on the internal employee performance metric. IBM also denied having “executive compensation metrics that include a diversity modifier.” IBM raised seventeen affirmative defenses, including (1) failure to state a claim, (2) failure to show the irreparable harm required for injunctive relief, (3) failure to show the plaintiff was treated less well or materially different from other similarly situated employees, and (4) failure to mitigate damages.
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. On February 13, the court issued an order to show cause for failure to file proof of service. On March 17, 2025, the plaintiff filed a proof of personal service.
- Latest update: On April 9, 2025, Disney answered the complaint, “generally den[ying] each and every material allegation set forth in the complaint,” and the amount or manner in which the plaintiff has been injured. Disney also asserted twenty-two affirmative defenses, including (1) failure to state a claim, (2) failure to file within the applicable statute of limitations period, (3) failure to exhaust administrative remedies, and (4) failure to mitigate damages.

3. Challenges to statutes, agency rules, executive orders, and regulatory decisions:

American Alliance for Equal Rights v. City of Chicago, et al., No. 1:25-cv-01017 (N.D. Ill. 2025): On January 29, 2025, AAER and two white male individuals filed a complaint against the City of Chicago and the City’s new casino, Bally’s Chicago, alleging that the City precluded them from investing in the new casino based on their race, in violation of Sections 1981, 1982, 1983, and 1985. Under the Illinois Gambling Act, an application for a casino owner’s license must contain “evidence the applicant used its best efforts to reach a goal of 25% ownership representation by minority persons and 5% ownership representation by women.” The plaintiffs alleged that the casino precluded them from participating in the casino’s initial public offering by limiting certain shares to members of specified racial minority groups.
- Latest update: On April 4, 2025, the City of Chicago moved to dismiss the complaint for failure to state a claim on the following grounds: (1) AAER lacks both organizational and associational standing; (2) the plaintiffs’ Sections 1981, 1982, and 1983 claims fail because the complained of action was undertaken by a private company, not a state actor; and (3) the plaintiffs’ Section 1985 claim fails because the alleged harm was not caused by a City policy. Also an April 4, 2025, the individual named defendants—all members of the Illinois Gaming Board—also moved to dismiss, contending that (1) the plaintiffs lack Article III standing; (2) Section 1981 does not create a private right of action against state actors; (3) in any event, the Eleventh Amendment bars the plaintiffs’ claim for damages; and (4) the plaintiffs fail to allege any action by the Board that caused any injury. That same day, defendants Bally’s Chicago and Bally’s Chicago Operating Company moved to dismiss for failure to state a claim under Sections 1981, 1982, and 1985.
American Alliance for Equal Rights v. Walz, 24-cv-1748 (D. Minn. 2024): On May 15, 2024, AAER filed a complaint against Minnesota Governor Tim Walz, challenging a state law that requires Governor Walz to ensure that five members of the Minnesota Board of Social Work are from a “community of color” or “an underrepresented community.” AAER claimed that two of its white female members were “qualified, ready, willing and able to be appointed to the board,” but that they would not be given equal consideration. AAER sought a permanent injunction and a declaration that the law violates the Equal Protection Clause of the Fourteenth Amendment. On January 3, 2025, AAER filed an amended complaint to reflect the fact that they no longer rely on one of their original white female members. On January 17, 2025, Governor Walz answered the amended complaint, denying the allegations of unlawful discrimination and asserting that the plaintiffs lacked standing and failed to state a claim upon which relief can be granted. He specifically denied that the law required him to consider the race of potential appointees to the Board or otherwise limits the pool of candidates based on race or ethnicity.
- Latest update: On April 3, 2025, the parties filed a joint stipulation of dismissal, in which Governor Walz denied any wrongdoing. On April 4, 2025, the court dismissed the case.
Doe 1 v. Office of the Director of Nat’l Intel., No. 1:25-cv-00300 (E.D. Va. 2025): On February 17, 2025, 11 unnamed employees of the Office of the Director of National Intelligence and the Central Intelligence Agency sued their employers after they were placed on administrative leave from their DEI-related positions. They assert that the decision to place them on administrative leave violates the Administrative Leave Act, the Administrative Procedure Act, and the First and Fifth Amendments of the U.S. Constitution. On February 17, 2025, the plaintiffs moved for a temporary restraining order. The court entered an administrative stay to allow additional briefing on the motion. On February 24, 2025, the plaintiffs filed an amended complaint adding eight unnamed plaintiffs to the case. The court held a hearing on the plaintiffs’ motion for a temporary restraining order on February 27, 2025. That same day, the court denied the motion in a single page order and lifted the administrative stay.
- Latest update: On March 27, 2025, the plaintiffs moved for a preliminary injunction preventing the defendants from terminating their employment, as well as the employment of similarly situated individuals. The plaintiffs argued that they are likely to succeed on their Fifth Amendment Due Process claim, they will suffer irreparable economic and reputational harm absent an injunction, the balance of hardships weigh in their favor, and an injunction will serve the public interest. They asked the court to (1) order the CIA Director to “personally review and reconsider his termination decisions”; (2) order the CIA Director and the Director of National Intelligence “to state why each individual termination somehow serves the national interest”; and/or (3) allow the plaintiffs and other similarly situated individuals to be considered for reassignment to positions in the Intelligence Community. On March 31, 2025, the court enjoined the defendants from “effectuating or implementing any decision to terminate the Plaintiffs without further Court authorization.” The court ordered the defendants to “provide Plaintiffs a requested appeal from any decision to terminate him or her” and to “consider any Plaintiffs’ request for reassignment for open or available positions in accordance with their qualifications and skills.”

4. Actions against educational institutions:

Students for Fair Admissions v. Air Force Academy, No. 1:24-cv-03430 (D. Co. 2024): On December 10, 2024, Students for Fair Admissions (SFFA) filed a complaint against the United States Air Force Academy alleging that the Academy considers race in admissions decisions in violation of the equal protection component of the Fifth Amendment. SFFA alleges that the Academy impermissibly considers the race of applicants to achieve explicit statistical goals for the racial makeup of each incoming class. SFFA claims that the Academy’s admissions decisions “treat race as a ‘plus factor,’” in violation of Students for Fair Admissions v. President & Fellows of Harvard College. SFFA also alleges that the Academy’s justifications for considering race in admissions—that prioritizing diversity assists with recruiting and retaining top talent and preserves unit cohesion and the Air Force’s legitimacy—are flawed and not meaningfully furthered by the Academy’s admissions policies. SFFA seeks both declaratory relief and a permanent injunction preventing the Academy from considering race in admissions.
- Latest update: On April 11, 2025, the defendants filed a motion to hold the case in abeyance while the parties consider a recent change in the United States Air Force Academy’s admissions policy. On January 27, 2025, Acting Secretary of the Air Force Gary A. Ashworth issued a memorandum directing “cessation of all Diversity, Equity, and Inclusion (DEI) considerations regarding the Department of the Air Force (DAF) officer applicant pools.” And on February 6, 2025, Acting Assistant Secretary of the Air Force for Manpower and Reserve Affairs Gwendolyn R. DeFilippi eliminated “quotas, objectives, and goals based on sex, race or ethnicity for organizational composition, academic admission, career fields, or class composition.” The defendants asked the court to hold the case in abeyance to provide the parties an opportunity to determine how to proceed in light of these recent developments. In a minute order issued on April 14, 2025, the court, construing the consent motion to hold the case in abeyance as a motion to stay the case, granted the motion to stay.
Students for Fair Admissions v. United States Naval Academy et al., No. 1:23-cv-02699 (D. Md. 2023), on appeal at No. 24-02214 (4th Cir. 2024): On October 5, 2023, SFFA filed suit against the Naval Academy, claiming that the Academy’s consideration of race in its admissions process violates equal protection guarantees. After a year of discovery, the dispute proceeded to a nine-day trial in September 2024, during which SFFA argued that the Academy’s consideration of race in its admissions process violated the Constitution because it was not narrowly tailored to achieve a compelling government interest. The Academy countered that its consideration of race is necessary to achieve a diverse officer corps, which furthers a compelling government interest in national security. On December 6, 2024, the court issued a decision finding that the Academy’s admissions process withstands strict scrutiny mandated by Students for Fair Admissions v. President & Fellows of Harvard College, 600 U.S. 181 (2023), and entered judgment in favor of the Academy. SFFA appealed the decision to the Fourth Circuit. On March 28, 2025, the parties filed an unopposed motion to hold briefing in abeyance while the parties “consider a recent change in the United States Naval Academy’s admissions policy.”
- Latest update: On April 1, 2025, the court held the “case in abeyance to allow the parties a reasonable amount of time to discuss the details of the Academy’s new policy and to consider the appropriate next steps for this litigation.” The court directed the parties to file a status report on June 2, 2025.

Legislative Updates

On March 20, 2025, West Virginia State Senator Tom Willis introduced Senate Bill 850. The bill provides that a corporate director’s or officer’s “prioritiz[ation of] any element of environmental, social, and governance interest over pecuniary interests” serves as “prima facie evidence” that the corporation at which the director or officer works breached its fiduciary duty to its shareholders. SB 850 would define “environmental, social, and governance” to include “considering diversity, equity, and inclusion” in corporate decision-making.

On March 26, 2025, the Ohio legislature passed and sent to the Governor Senate Bill 1, the Advance Ohio Higher Education Act. The Act would direct the boards of trustees of state public institutions of higher education to adopt and enforce policies that prohibit the following: (1) “any orientation or training course regarding [DEI]” absent permission from the state chancellor of higher education; (2) operation of DEI offices and departments; (3) “[u]sing [DEI] in job descriptions”; (4) the “establishment of any new institutional scholarships that use diversity, equity, and inclusion in any manner”; and (5) contracting with consultants or third parties whose role is to promote racial, gender, religious, or sexual orientation diversity in admissions and hiring. The Act would also require these institutions to publicly declare alongside their mission statements—as well as in any offer of admission or employment—that their “duty is to treat all faculty, staff, and students as individuals, to hold them to equal standards, and to provide them equality of opportunity, with regard to those individuals’ race, ethnicity, religion, sex, sexual orientation, gender identity, or gender expression.”

On April 9, 2025, Texas Senate Bill 1006, was referred to the Texas House Insurance Committee. The bill had been approved by the Texas Senate on March 26, 2025. The bill would amend the Texas Insurance Code to require that insurers provide a quarterly report to the Texas Department of Insurance “summarizing the insurer’s written statements of reasons for declination, cancellation, or nonrenewal provided to applicants for insurance or policyholders.” The report must disclose if any decision to decline, cancel, or fail to renew a policy was based on “a score that is based on measuring exposure to long-term environmental, social, or governance risks” or “diversity, equity, and inclusion factors.”

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Zakiyyah Salim-Williams, Cynthia Chen McTernan, Zoë Klein, Cate McCaffrey, José Madrid, Jenna Voronov, Emma Eisendrath, Kristen Durkan, Simon Moskovitz, Teddy Okechukwu, Beshoy Shokralla, Heather Skrabak, Maryam Asenuga, Angelle Henderson, Kameron Mitchell, Lauren Meyer, Chelsea Clayton, Maya Jeyendran, Albert Le, Allonna Nordhavn, Felicia Reyes, Godard Solomon, Laura Wang, and Ashley Wilson.

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

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, zswilliams@gibsondunn.com)

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, msenger@gibsondunn.com)

From the Derivatives Practice Group: This week, the CFTC issued a staff advisory that provides additional guidance on the criteria used to determine whether to refer self-reported violations or supervision or non-compliance issues to the Division of Enforcement.

New Developments

CFTC Staff Issues Advisory on Referrals to the Division of Enforcement. On April 17, the CFTC’s Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (“Operating Divisions”) and the Division of Enforcement (“DOE”) issued a staff advisory providing guidance on the materiality or other criteria that the Operating Divisions will use to determine whether to make a referral to DOE for self-reported violations, or supervision or non-compliance issues. According to the CFTC, this advisory furthers the implementation of DOE’s recent advisory, issued February 25, 2025, addressing its updated policy on self-reporting, cooperation, and remediation. [NEW]
CFTC Staff Issues No-Action Letter Regarding the Merger of UBS Group and Credit Suisse Group. On April 15, the CFTC’s Market Participants Division (“MPD”) and Division of Clearing and Risk (“DCR”) issued a no-action letter in response to a request from UBS AG regarding the CFTC’s swap clearing and uncleared swap margin requirements. The CFTC said that the letter is in connection with a court-supervised transfer, consistent with United Kingdom laws, of certain swaps from Credit Suisse International to UBS AG London Branch following the merger of UBS Group AG and Credit Suisse Group AG. The no-action letter states, in connection with such transfer and subject to certain specified conditions: (1) MPD will not recommend the Commission take an enforcement action against certain of UBS AG London Branch’s swap dealer counterparties for their failure to comply with the CFTC’s uncleared swap margin requirements for such transferred swaps; and (2) DCR will not recommend the Commission take an enforcement action against UBS AG or certain of its counterparties for their failure to comply with the CFTC’s swap clearing requirement for such transferred swaps. [NEW]
CFTC Staff Issues Interpretation Regarding U.S. Treasury Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps. On April 14, MPD issued an interpretation intended to clarify the types of assets that qualify as eligible margin collateral for certain uncleared swap transactions under CFTC regulations. CFTC Regulation 23.156 lists the types of collateral that covered swaps entities can post or collect as initial margin (“IM”) and variation margin (“VM”) for uncleared swap transactions. The CFTC indicated that the regulation, which includes “redeemable securities in a pooled investment fund” as eligible IM collateral, aims to identify assets that are liquid and will hold their value in times of financial stress. Additionally, MPD noted that the interpretation clarifies its view that shares of certain U.S. Treasury exchange-traded funds may be considered redeemable securities in a pooled investment fund and may qualify as eligible IM and VM collateral subject to the conditions in CFTC Regulation 23.156. According to MPD, swap dealers, therefore, (1) may post and collect shares of certain UST ETFs as IM collateral for uncleared swap transactions with any covered counterparty and (2) may also post and collect such UST ETF shares as VM for uncleared swap transactions with financial end users. [NEW]
Senate confirms Atkins as SEC chair. On April 9, the Senate voted 52-44 to confirm Paul Atkins as the next chair of the SEC. Atkins, a former SEC commissioner and a longtime financial industry consultant, was tapped in December by Donald Trump for the position. In his March 27 confirmation hearing before the Senate Banking Committee, Atkins indicated he would streamline the agency’s regulatory activity. Atkins is expected to be friendlier toward the financial industry than the previous SEC chair, Gary Gensler.
CFTC Releases Staff Letter Relating to Certain Foreign Exchange Transactions. On April 9, MPD and DMO issued an interpretative letter providing the divisions’ views on the characterization of certain foreign exchange (“FX”) transactions as being “swaps,” “foreign exchange forwards,” or “foreign exchange swaps,” in each case, as defined in the Commodity Exchange Act. Specifically, the interpretative letter states: Window FX Forwards, as described in the letter, should be considered to be “foreign exchange forwards;” and Package FX Spot Transactions, as described in the letter, should not be considered to be “foreign exchange swaps” or “swaps.”
Acting Chairman Pham Lauds DOJ Policy Ending Regulation by Prosecution of Digital Assets Industry and Directs CFTC Staff to Comply with Executive Orders. On April 8, CFTC Acting Chairman Caroline D. Pham praised a recently-announced Justice Department policy ending the practice of regulation by prosecution that has targeted the digital asset industry in recent years, and directed CFTC staff to comply with the President’s executive orders and Administration policy, consistent with DOJ’s digital assets enforcement priorities and charging considerations. The DOJ policy comes as Acting Chairman Pham has similarly refocused the CFTC’s enforcement resources on cases involving fraud and manipulation.
CFTC Staff Issues No-Action Letter Regarding Pre-Trade Mid-Market Mark. On April 4, MPD issued a no-action letter in relation to the Pre-Trade Mid-Market Mark (“PTMMM”) requirement in Regulation 23.431 for swap dealers and major swap participants. The CFTC first issued a no-action letter regarding the PTMMM requirement in 2012, shortly after the PTMMM compliance date, because it did not provide significant informational value and created costly operational challenges. Unlike prior no-action letters which provided relief nofor certain specified types of swaps, this relief under this no-action letter applies to all swaps and does not require advanced counterparty consent.
Rahul Varma Named Acting Director of CFTC Division of Market Oversight. On April 2, CFTC Acting Chairman Caroline D. Pham announced Rahul Varma will serve as the Acting Director of DMO. Varma joined the CFTC in 2013 as an Associate Director for Market Surveillance in DMO, with responsibility for energy, metals, agricultural, and softs markets. In 2017, he helped start the Market Intelligence Branch in DMO and served as its Acting Deputy Director. In 2024, he took on the role of Deputy Director for the combined Market Intelligence and Product Review branches.

New Developments Outside the U.S.

EC Publishes Consultation on the Integration of EU Capital Markets. On April 15, the European Commission (“EC”) published a targeted consultation on the integration of EU capital markets. This forms part of the EC’s plan to progress the Savings and Investment Union (“SIU”) strategy, published in March. According to the EC, the objective of the consultation is to identify legal, regulatory, technological and operational barriers hindering the development of integrated capital markets. Its focus includes barriers related to trading, post-trading infrastructures and the cross-border distribution of funds, as well as barriers specifically linked to supervision. The deadline for responses is June 10, 2025. [NEW]
JFSA Publishes Explanatory Document on Counterparty Credit Risk Management. On April 14, Japan’s Financial Services Agency published an explanatory document on the Basel Committee on Banking Supervision’s Guidelines for Counterparty Credit Risk Management. The document, co-authored with the Bank of Japan, indicates that it was published to facilitate better understanding of the Basel Committee’s guidelines and is available in Japanese only. [NEW]
ESMA Publishes Consultation on Clearing Thresholds. On April 8, ESMA published a consultation on a revised approach to clearing thresholds under the European Market Infrastructure Regulation (“EMIR”) 3. The consultation covers the following topics: proposals for a revised set of clearing thresholds; considerations for hedging exemptions for non-financial counterparties; and a trigger mechanism for reviewing the clearing thresholds.
FCA Publishes Policy Statement on the Derivatives Trading Obligation and Post-trade Risk Reduction Services. On April 3, the UK Financial Conduct Authority (“FCA”) published policy statement PS25/2 on changes to the scope of the UK derivatives trading obligation (“DTO”) and an extension of exemptions from certain obligations under the UK Markets in Financial Instruments Directive (“MIFID”) and MIFIR.
ESMA Consults on Transparency Requirements for Derivatives Under MiFIR Review. On April 3, ESMA asked for input on proposals for Regulatory Technical Standards (“RTS”) on transparency requirements for derivatives, amendments to RTS on package orders, and RTS on input/output data for the over-the-counter (“OTC”) derivatives consolidated tape. ESMA said that it is developing various technical standards further specifying certain provisions set out in the Market in Financial Instruments Regulation Review. The consultation paper covers the following three areas: transparency requirements for derivatives, RTS on package orders, and RTS on input/output data for the OTC derivatives consolidated tape. The consultation will remain open until 3 July 2025.
ESMA Publishes Annual Peer Review of EU CCP Supervision CCP Supervisory Convergence. On April 2, ESMA published its annual peer review report on the supervision of European Union (“EU”) Central Counterparties (“CCPs”) by National Competent Authorities (“NCAs”). The peer review measures the effectiveness of NCA supervisory practices in assessing CCP compliance with the European Market Infrastructure Regulation (“EMIR”) requirements on outsourcing and intragroup governance arrangements. ESMA indicated, for this exercise, the review of the functioning of CCP colleges remains overall positive. ESMA also said that the peer review identified the need to promote further supervisory convergence in respect of the definition of major activities linked to risk management.
The European Supervisory Authorities Publish Evaluation Report on the Securitization Regulation. On March 31, the Joint Committee of the European Supervisory Authorities published its evaluation report on the functioning of the EU Securitization Regulation. The report purports to put forward recommendations to strengthen the overall effectiveness of Europe’s securitization framework through simplification, while ensuring a high level of protection for investors and safeguarding financial stability. This report identifies areas where the regulatory and supervisory framework can be enhanced, supporting the growth of robust and sound securitization markets in Europe.

New Industry-Led Developments

ISDA Submits Letter on Environmental Credits. On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. ISDA said that the response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but highlights that clarification is needed in certain areas, including those related to recognition, derecognition, impairment and hedge accounting impacts. [NEW]
ISDA CEO Testifies Before House Financial Services Committee Task Force. On April 8, ISDA CEO Scott O’Malia testified on the implementation of mandatory US Treasury clearing before the House Committee on Financial Services Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity. The testimony highlighted several key issues that need to be resolved before the clearing mandate comes into effect, including recalibration of the supplementary leverage ratio to ensure banks have the balance sheet capacity to provide intermediation and client clearing services in the US Treasury market, making changes to the proposed Basel III endgame and surcharge for global systemically important banks to avoid a disproportionate capital charge for client clearing businesses, and ensuring the margining and capital treatment of client exposures reflects the actual risk of a client’s overall portfolio.
ISDA Responds to ESMA Consultation on CCP Model Validation. On April 7, ISDA responded to ESMA’s consultation on the draft RTS under article 49(5) of the EMIR, on the conditions for an application for validation of model changes and parameters under Articles 49 and 49a of EMIR, which have been revised as part of EMIR 3. In the consultation paper, ESMA sets out proposed quantitative thresholds and qualitative elements to be considered when determining whether a model change is significant. In the response, ISDA noted that more information would be necessary to understand the rationale behind the thresholds that are proposed. ISDA provided comments on ESMA’s interpretation of ‘concentration risk’ and on the proposed lookback period for assessing whether a change in significant.
Cross-product Netting Under the US Regulatory Capital Framework. On April 4, ISDA, the Futures Industry Association (“FIA”) and the Securities Industry and Financial Markets Association (“SIFMA”) developed a discussion paper to: (i) provide an overview of cross-margining programs developed by clearing organizations and their importance in the context of implementing recent market reforms with respect to US Treasury securities clearing; (ii) describe cross-product netting arrangements with customers as a means to effectively reduce risk and their relation to cross-margining programs; (iii) describe the treatment of cross-product netting arrangements under the current US regulatory capital framework; and (iv) propose potential targeted changes to US regulatory capital rules to more appropriately reflect the economics of, and facilitate firms’ use of, cross-product netting arrangements with customers, particularly with respect to transactions based on US Treasury securities.
ISDA/IIB/SIFMA Request to Extend 22-14. On April 3, a joint ISDA/IIB/SIFMA letter requested reporting relief for certain non-US swap dealers in Australia, Canada, the European Union, Japan, Switzerland or the United Kingdom with respect to their swaps with non-US persons. The joint trade association letter, submitted to CFTC on 26 March 2025, requests an extension of the no-action relief in Letter 22-14 until the adoption and effectiveness of final rules addressing the cross-border application of Part 45/46.
IOSCO Issues Final Report on Standards Implementation Monitoring for Regulator Principle. On April 2, IOSCO published a Final Report following its review of IOSCO Standards Implementation Monitoring (ISIM) for Regulator Principles 6 and 7, which address systemic risk and perimeter of regulation. IOSCO’s Objectives and Principles of Securities Regulation 6 and 7 stipulate that regulators should have or contribute to processes to identify, monitor, mitigate and manage systemic risk, as well as have or contribute to a process to review the perimeter of regulation regularly. This ISIM Review by IOSCO’s Assessment Committee found a high level of implementation across the 55 jurisdictions from both emerging and advanced markets. According to IOSCO, the report highlights some good practices and also identifies a few areas where there is room for improvement, observed primarily in some emerging markets. For example, the Report notes that some jurisdictions do not have clear responsibilities, definitions and regulatory processes with respect to systemic risk.
ISDA Sends Letter on Changes to the French General Tax Code. On March 31, ISDA, the Association for Financial Markets in Europe and the International Securities Lending Association sent a letter to the French tax authority about changes being made to Articles 119 bis A and 119 bis 2 of the general French tax code in the Loi des Finances pour 2025. In February, the French parliament passed budget legislation that broadened the application of withholding tax for both cleared and non-cleared derivatives involving payments related to manufactured dividends. In the letter, the associations request that detailed administrative guidelines are issued as soon as possible. The lack of guidelines makes it more difficult for the associations’ member firms to accurately determine the scope of the new legislation and calculation of the withholding tax when due.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This update provides a brief overview of ERISA pension risk transfer litigation, a summary of the recent Camire and Konya decisions, and an update on what may be next for ERISA plan sponsors and fiduciaries in light of these court orders.

On March 28, 2025, two federal district courts issued divergent decisions on whether plaintiffs had Article III standing to bring class action lawsuits challenging pension risk transfer transactions under the Employee Retirement Income Security Act (ERISA). The cases—Camire v. Alcoa USA Corp. and Konya v. Lockheed Martin Corp.—are two of ten class action lawsuits filed over the past 12 months targeting employers with substantial pension plans that have executed pension risk transactions with Athene Annuity & Life Assurance Company.[1] Plaintiffs rely for standing not on any reduction in their current benefits, but on allegations of an increased risk that, if Athene fails, they will not receive the benefits their pension plans guarantee them. These two decisions provide the earliest indications of how courts might rule on plaintiffs’ standing to bring this new wave of ERISA litigation. The court in Camire granted defendants’ motion to dismiss, holding that plaintiffs lacked standing because they had received all benefits owed to them and were not at substantial risk of failing to receive future benefits. In contrast, the Konya court denied a similar motion to dismiss, finding that it was a “close call” but plaintiffs had stated sufficient facts to nudge that case into discovery.

Background on Pension Risk Transfers

Pension risk transfers, also known as de-risking transactions, are a mechanism used by employers to help reduce pension liabilities.[2] In a pension risk transfer, an employer causes its defined benefit pension plan to transfer some or all of its pension benefit obligations to an insurance company that in turn assumes responsibility for making payments to impacted pensioners.[3] The transfer reduces the plan’s liabilities to the pensioners (and thus the employer’s future funding risks), and the pensioners continue to receive benefits pursuant to the terms of their benefit plans (albeit from a different source).[4] These transfer transactions can be very large, extending into the hundreds of millions—or even billions—of dollars.[5]

Recent Litigation

Beginning in March 2024, pension recipients have brought a series of class action lawsuits against employers that engaged in pension risk transfers.[6] Many of the cases involve a private equity-backed insurance provider (Athene), which is not named as a defendant.[7] The plaintiffs in the cases argue that Athene is a particularly high risk annuity provider, and that plaintiffs’ employers, motivated by a desire for cost savings that was not in pensioners’ best interests, breached their fiduciary duties by failing to choose the safest annuity provider available.[8] The plaintiffs argue that the transfer puts their savings at risk by stripping them of federal protection available to them under ERISA and by instead placing them in the state-regulated insurance market, which, according to the plaintiffs, provides inferior protections in the case of insolvency compared to those available to them from the federal Pension Benefit Guaranty Corporation.[9]

These pension risk transfer lawsuits recount the 1991 bankruptcy of California-based Executive Life Insurance Company, which resulted in financial losses to pension annuitants.[10] As a result of the incident, Congress passed the Pension Annuitants Protection Act of 1994, which created a right of action to obtain appropriate relief for ERISA violations involving the “purchase of an insurance contract or insurance annuity.”[11]

The plaintiffs also argue that the U.S. Department of Labor’s Interpretive Bulletin 95-1 requires employers to find the “safest annuity available” in the case of a de-risking transaction, unless doing otherwise would be in the interest of participants and the plan.[12] The complaints involving Athene allege that Athene’s private equity backing and structure demonstrate that the employer’s choice is out of alignment with this DOL guidance and ERISA.[13]

This new wave of lawsuits is not the first time that employers have been sued over pension de-risking. In 2012, a group of Verizon retirees sued Verizon in an attempt to prevent it from transferring $7.4 billion in pension obligations in exchange for a group annuity contract from Prudential.[14] After the pensioners lost their bid to enjoin the transfer, the Fifth Circuit Court of Appeals ultimately dismissed the case because the plaintiffs lacked Article III standing and the transfer did not breach Verizon’s ERISA obligations.[15]

In the present cases, the employers’ motions to dismiss argue that plaintiffs lack standing because, as in the 2012 Verizon case, plaintiffs cannot point to any concrete, imminent injury that they have suffered as a result of the pension risk transfers.[16] In other words, there is no evidence that any plaintiff is in imminent risk of not receiving a pension payment. And even if the plaintiffs did have standing, the motions argue, the decision whether to terminate an ERISA plan is a settlor function exempt from ERISA’s fiduciary obligations.[17]

The Recent Decisions

On March 28, 2025, two federal district courts ruled on employers’ motions to dismiss two of the pending pension risk transfer cases. Despite substantially similar allegations, the courts reached divergent conclusions, with one court granting a motion to dismiss on standing grounds and the other denying it (including a standing argument).

Camire v. Alcoa USA Corp.

On March 28, 2025, the U.S. District Court for the District of Columbia granted Alcoa’s motion to dismiss on standing grounds.[18] The court held that the plaintiffs had not established Article III standing because they had suffered neither actual harm nor was there a risk of future harm.[19] The plaintiffs had not suffered actual harm from the pension risk transfer to Athene because they continued to receive their benefit payments.[20] And the plaintiffs had not established future harm because they had not shown a sufficiently substantial risk of Athene being unable to fulfill its obligations under the annuity contract; instead, they merely alleged that Athene was “at a greater risk of failure than its competitors.”[21] The court relied heavily on the constitutional requirement that an injury be “imminent” for standing to exist.[22] A risk is not sufficiently “imminent” unless there is a “substantial probability of harm” to the plaintiff.[23] Because the court dismissed the lawsuit on standing grounds, it did not reach Alcoa’s arguments that the plaintiffs had failed to state a claim.[24]

Konya v. Lockheed Martin Corp.

Conversely, on March 28, 2025, the U.S. District Court for the District of Maryland denied Lockheed Martin Corp.’s motion to dismiss.[25] The court held that the plaintiffs had standing and had stated a plausible claim that Lockheed Martin had violated ERISA by selecting Athene as its annuity provider.[26] The court explained that the plaintiffs had established Article III standing (albeit “barely”) because they “provided plausible allegations that the transfer to Athene put their pensions at serious risk” and that the Pension Benefit Guaranty Corporation would not “provide a requisite backstop to protect their retirement,” thus potentially causing the plaintiffs harm.[27] The court added that the plaintiffs’ requested remedy, the posting of security and disgorgement, “would serve to protect their ability to receive their vested retirement benefits.”[28] The court went on to reject Lockheed Martin’s argument that the plaintiffs’ claims were unripe, explaining that, because the pension risk transfers had already occurred, the evidence needed to adjudicate the decision already existed and was not contingent on future events.[29] The court also explained that the plaintiffs had statutory standing because, although they were no longer participants in the plans at the time of the lawsuit (by virtue of being part of the pension risk transfer to Athene), they were participants at the time of the alleged breach of fiduciary duty.[30]

Because the court denied the motion to dismiss for lack of standing, it proceeded to address the merits of the ERISA claim. The court rejected Lockheed Martin’s arguments that the plaintiffs had failed to state an ERISA claim. With regard to the plaintiffs’ claims for breach of fiduciary duties and failure to monitor fiduciaries (which are not identified in the Complaint), the court held that the plaintiffs had plausibly alleged that Lockheed Martin was acting as a fiduciary and had “breached its fiduciary duty when it transacted with Athene to increase its own profits,” explaining that the plaintiffs need not show harm to state a claim for breach of fiduciary duty.[31] The court also declined to dismiss the plaintiffs’ claim that Lockheed Martin had engaged in a prohibited transaction with Athene because “it is plausible enough that Lockheed acted for its own benefit in selecting Athene if, in fact, it proves true that the decision to choose Athene placed Lockheed’s interests, even if only in the short run, over those of participants in the Plans.”[32]

What’s Next for Plan Sponsors and Fiduciaries

It remains to be seen whether other courts will follow the lead of the courts in Camire or Konya or will forge a new path. The plaintiffs’ mixed record in these early cases may well be enough to suggest that plan sponsors and fiduciaries can expect to see more suits alleging claims related to pension risk transfers. Over the next year, the prognosis for these cases will no doubt become clearer as motions to dismiss that are currently pending in the remaining cases are decided. Additionally, the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overruled Chevron deference to administrative agencies’ interpretations of statutes, may impact whether and how much courts weigh the Department of Labor’s Interpretive Bulletin 95-1 when evaluating the merits of plaintiffs’ claims.[33] But for now, and absent further guidance from the courts or the Department of Labor, Interpretive Bulletin 95-1 remains in place and provides guidance to plan sponsors and fiduciaries when selecting an annuity provider as part of a de-risking transaction for an ERISA-governed pension plan.[34] Plan sponsors and fiduciaries evaluating de-risking transactions should review this guidance in connection with implementing any pension de-risking transaction.

[1] See Camire v. Alcoa USA Corp., No. 1:24-cv-01062, 2025 WL 947526 (D.D.C. Mar. 28, 2025); Konya v. Lockheed Martin Corp., No. 8:24-cv-00750, 2025 WL 962066 (D. Md. Mar. 28, 2025).

[2] See Dept. of Labor Rpt. to Congress on Employee Benefits Security Administration’s Interpretive Bulletin 95-1 2–3, 5 (June 2024), available at https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/secure-2.0/report-to-congress-on-interpretive-bulletin-95-1.pdf (last accessed Apr. 11, 2025).

[3] See id. at 3.

[4] See id.

[5] See id. at 5.

[6] See, e.g., Konya, No. 8:24-cv-00750 (D. Md. 2024); Camire, No. 1:24-cv-01062 (D.D.C. 2024); Doherty v. Bristol-Myers Squibb Co., No. 1:24-cv-06628 (S.D.N.Y. 2024).

[7] See, e.g., Complaint, Konya, No. 8:24-cv-00750, at ¶ 3 (D. Md. Mar. 13, 2024), ECF 1; Amended Complaint, Camire, No. 1:24-cv-01062, at ¶ 3 (D.D.C. July 2, 2024), ECF 28; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶ 3 (S.D.N.Y. Nov. 4, 2024), ECF 45.

[8] See Complaint, Konya, No. 8:24-cv-00750, at ¶¶ 3–4; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 29–30.

[9] See Complaint, Konya, No. 8:24-cv-00750, at ¶¶ 30–32; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 68–69.

[10] See Complaint, Konya, No. 8:24-cv-00750, at ¶ 33; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 75–76.

[11] See 29 U.S.C. § 1132(a)(9); see also Complaint, Konya, No. 8:24-cv-00750, at ¶ 39; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶¶ 80–82.

[12] See 29 C.F.R. § 2509.95-1(d); see also Complaint, Konya, No. 8:24-cv-00750, at ¶ 21; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶ 86.

[13] See Complaint, Konya, No. 8:24-cv-00750, at ¶ 60; Consolidated Class Action Complaint, Doherty, No. 1:24-cv-06628, at ¶ 149.

[14] See Lee v. Verizon Commc’ns, Inc., 837 F.3d 523, 532 (5th Cir. 2016).

[15] Id. at 529–31.

[16] See, e.g., Memorandum of Law in Support of Defendant’s Motion to Dismiss, Konya, No. 8:24-cv-00750, at 2 (D. Md. May 3, 2024), ECF 26-1; Memorandum of Law in Support of the Bristol-Myers Squibb Defendants’ Motion to Dismiss Plaintiffs’ Consolidated Complaint, Doherty, No. 1:24-cv-06628, at 2 (S.D.N.Y. Jan. 15, 2025), ECF 51.

[17] See, e.g., Memorandum of Law in Support of Defendant’s Motion to Dismiss, Konya, No. 8:24-cv-00750, at 2; Memorandum of Law in Support of the Bristol-Myers Squibb Defendants’ Motion to Dismiss Plaintiffs’ Consolidated Complaint, Doherty, No. 1:24-cv-06628, at 2.

[18] See Camire v. Alcoa USA Corp., No. 1:24-cv-01062, 2025 WL 947526 (D.D.C. Mar. 28, 2025).

[19] Id. at *4, *7.

[20] Id. at *4.

[21] Id. at *7.

[22] Id.

[23] Id.

[24] See id. at *8.

[25] See Konya v. Lockheed Martin Corp., No. 8:24-cv-00750, 2025 WL 962066 (D. Md. Mar. 28, 2025).

[26] Id. at *13, *17–18.

[27] Id. at *10.

[28] Id. at *9.

[29] Id. at *15.

[30] Id. at *14.

[31] Id. at *16–17.

[32] Id. at *18.

[33] See Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024).

[34] Dept. of Labor, News Release, UPDATED: US Department of Labor issues report to Congress on considerations for defined benefit pension plan fiduciaries choosing an annuity provider, available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20240624 (last accessed Apr. 11, 2025); see also Dept. of Labor Rpt. to Congress on Employee Benefits Security Administration’s Interpretive Bulletin 95-1 (June 2024), available at https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/secure-2.0/report-to-congress-on-interpretive-bulletin-95-1.pdf (last accessed Apr. 11, 2025).

The following Gibson Dunn lawyers prepared this update: Michael Collins, Ashley Johnson, Jennafer Tryck, and Rachel K. Nardone.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Labor & Employment or Executive Compensation & Employee Benefits practice groups, or the authors:

Labor & Employment:

Karl G. Nelson – Dallas (+1 214.698.3203, knelson@gibsondunn.com)
Geoffrey Sigler – Washington, D.C. (+1 202.887.3752, gsigler@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213.229.7107, ksmith@gibsondunn.com)
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Executive Compensation & Employee Benefits:

Michael J. Collins – Washington, D.C. (+1 202-887-3551, mcollins@gibsondunn.com)
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Cunningham v. Cornell University, No. 23-1007 – Decided April 17, 2025

Today, the Supreme Court unanimously held that plaintiffs bringing a prohibited-transaction claim under ERISA Section 406(a)(1)(C) need only allege, in their complaints, the elements set forth in that provision—they need not negate the affirmative defenses set forth in ERISA Section 408. The Court also emphasized that district courts have a variety of other means to screen out insubstantial claims at the pleading stage.

“[P]laintiffs seeking to state a [Section 406(a)(1)(C)] claim must plausibly allege that a plan fiduciary engaged in a transaction proscribed therein, no more, no less. … To the extent future plaintiffs do bring barebones [Section 406] suits, district courts can use existing tools at their disposal to screen out meritless claims before discovery.”

Justice SOTOMAYOR, writing for the Court

Background:

Health and retirement plans governed by the Employee Retirement Income Security Act (ERISA) commonly transact with third-party entities for various services that benefit plan participants, such as recordkeeping and investment advising. But Section 406(a)(1)(C) of ERISA prohibits a plan fiduciary from “caus[ing] the plan to engage in a transaction” that the fiduciary “knows or should know … constitutes a direct or indirect … furnishing of goods, services, or facilities between the plan and” a service provider for the plan, 29 U.S.C. § 1106(a)(1)(C); see id. § 1002(a)(14)(B), subject to exemptions listed in Section 408 (29 U.S.C. § 1108). Among other things, Section 408 exempts “reasonable arrangements with” a plan service provider “for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.” Id. § 1108(b)(2)(A).

The Eighth and Ninth Circuits held that merely alleging the elements set forth in Section 406(a)(1)(C)—that a plan fiduciary caused a plan to enter into a service transaction with a third-party service provider—is sufficient to plead a prohibited-transaction claim and proceed to discovery. But the Second Circuit held that a plaintiff also must plausibly allege that the Section 408(b)(2)(A) exemption does not apply—i.e., that the services were unnecessary or the compensation was unreasonable. The Supreme Court granted review to resolve the conflict.

Issue:

Whether a plaintiff can state a prohibited-transaction claim under Section 406(a)(1)(C) of ERISA solely by alleging that a plan fiduciary engaged in a service transaction with a plan service provider.

Court’s Holding:

Yes. The only elements of a prohibited-transaction claim under Section 406(a)(1)(C) are the elements set forth in that provision. To state a claim, the plaintiff need not allege facts negating Section 408’s exemptions, such as the exemption for necessary service transactions that are compensated reasonably. But district courts have several other tools at their disposal to weed out unmeritorious claims at the pleading stage.

What It Means:

The Court’s decision clarifies that, under ERISA’s text and structure, Section 408’s exemptions are affirmative defenses that defendants must plead—not elements of a prohibited-transaction claim under Section 406. So ERISA plaintiffs need not allege, in their complaints, facts that negate the necessity or reasonableness of a service transaction with a plan service provider.
The Court acknowledged, however, that this scheme raises “serious concerns” for ERISA plans and fiduciaries given the ubiquity of service transactions in the plan-administration context. The Court thus highlighted several tools that district courts can deploy to prevent meritless prohibited-transaction claims from reaching full-blown discovery. For example, the Court suggested that, once a defendant pleads a Section 408 exemption as an affirmative defense in its answer, the district court could order the plaintiff to file a reply setting forth “specific, nonconclusory factual allegations” showing that the exemption does not apply. The plaintiff’s inability to do so could result in dismissal.
The Court also highlighted four other mechanisms of protecting ERISA plans and fiduciaries from onerous and costly discovery: (1) Article III standing principles require dismissal of suits that fail to allege a concrete injury; (2) district courts retain discretion to expedite or limit discovery; (3) district courts can impose Rule 11 sanctions if a Section 408 exemption “obviously applies,” and “a plaintiff and his counsel lack a good-faith basis to believe otherwise”; and (4) ERISA authorizes district courts to shift attorneys’ fees and costs to plaintiffs.
In a concurring opinion, Justice Alito, joined by Justices Thomas and Kavanaugh, likewise acknowledged that the Court’s decision could cause “untoward practical results.” They urged district courts to “strongly consider” using the various mechanisms outlined by the majority opinion—especially the option of requiring plaintiffs to file post-answer replies—to ensure “the prompt disposition of insubstantial claims.”

The Court’s opinion is available HERE.

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

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
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Related Practice: Insurance and Reinsurance

Geoffrey M. Sigler
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Related Practice: Labor and Employment

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Katherine V.A. Smith
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ksmith@gibsondunn.com

This alert was prepared by associates Robert Batista and Maya Jeyendran.

This edition of Gibson Dunn’s Federal Circuit Update for March summarizes the current status of petitions pending before the Supreme Court and recent Federal Circuit decisions concerning forfeiture, obviousness, patent term extensions, whether separately recited components in a claim must refer to distinct components in the patented invention, and 35 U.S.C. § 102(e).

Federal Circuit News

Noteworthy Petitions for a Writ of Certiorari:

There were no new potentially impactful petitions filed before the Supreme Court in March 2025. We provide an update below of the petitions pending before the Supreme Court, which were summarized in our February 2025 update:

In Converter Manufacturing, LLC v. Tekni-Plex, Inc. (US No. 24-866), a response was filed April 16, 2025.

The Court will consider the petitions filed in Brumfield v. IBG LLC, et al. (US No. 24-764) and Celanese International Corp. v. International Trade Commission (US No. 24-635) at its April 17, 2025 and April 25, 2025 conferences, respectively.

The Court denied the petitions in Koss Corp. v. Bose Corp. (US No. 24-916), Lighting Defense Group LLC v. SnapRays, LLC (US No. 24-524), and Parker Vision, Inc. v. TCL Industries Holdings Co., et al. (US No. 24-518).

Upcoming Oral Argument Calendar

The list of upcoming arguments at the Federal Circuit is available on the court’s website. .

Key Case Summaries (March 2025)

Odyssey Logistics & Technology Corp. v. Stewart, No. 23-2077 (Fed. Cir. Mar. 6, 2025): Odyssey appealed an examiner’s rejection of its patent application, which was affirmed by the Federal Circuit in 2020. Over a year later, the Supreme Court issued its decision in United States v. Arthrex, Inc., 594 U.S. 1 (2021), which held that administrative patent judges’ unreviewable authority in inter partes review proceedings violated the Appointments Clause. Odyssey petitioned for review by the Director of the United States Patent and Trademark Office (USPTO) based on that decision. The Director denied the request. Odyssey then filed a complaint in district court to compel Director review, but the district court dismissed Odyssey’s complaint for lack of subject matter jurisdiction, reasoning that whether the Director decides to review Odyssey’s request was committed to the agency’s discretion and judicial review of that decision is improper.

The Federal Circuit (Dyk, J., joined by Reyna and Stoll, JJ.) affirmed. The Court held that Odyssey had forfeited its Appointments Clause challenge by not raising it in its first appeal despite its knowledge of the Appointments Clause challenge addressed by the Federal Circuit in Arthrex in 2019. Considering the standard set forth in Fed. R. Civ. P. 60(b), the Federal Circuit found no extraordinary circumstances existed that would excuse Odyssey’s failure to raise its stated ground for relief earlier and decided that the USPTO did not abuse its discretion in denying Odyssey’s request for review. Therefore, the Court concluded that Odyssey’s complaint failed to state a claim for relief and affirmed the district court’s decision on that basis, rather than for lack of subject matter jurisdiction.

ImmunoGen, Inc. v. Stewart, No. 23-1762 (Fed. Cir. March 6, 2025): ImmunoGen’s patent application is directed to a dosing regimen for administering IMGN853, an antibody drug conjugate (ADC) for treating certain ovarian and peritoneal cancers. While a promising cancer therapy, the drug was known to cause ocular toxicity, including keratitis and blurred vision. ImmunoGen developed an effective dosing regimen that resulted in minimal adverse effects and sought to patent its solution, which included limitations reciting the administration of IMGN853 at a dose of 6 mg/kg based on an adjusted ideal body weight (AIBW) of the patient (the “dosing limitation”). The examiner rejected the claims as obvious primarily relying on ImmunoGen’s own prior patent publication related to IMGN853, which disclosed the 6mg/kg AIBW dosage. ImmunoGen brought an action under 35 U.S.C. § 145, and the district court determined that the claims are unpatentable as obvious.

The Federal Circuit (Lourie, J., joined by Dyk and Prost, JJ.) affirmed. ImmunoGen argued that the prior art did not disclose that IMGN853 caused ocular toxicity in humans and therefore did not render the dosing limitation obvious. However, the Federal Circuit held that a solution to “an unknown problem is not necessarily non-obvious.” Instead, “any need or problem known in the field of endeavor at the time of invention can provide a reason for combining the elements in the manner claimed.” Accordingly, the Court determined that it would have been obvious to a skilled artisan to experiment with changing the dosage to reduce toxicity, and AIBW was a known dosing methodology for anticancer drugs. Furthermore, the Court found that ImmunoGen’s own prior patent publication disclosed the 6mg/kg AIBW dosing regimen for ADCs. Thus, the Court concluded that a person of ordinary skill in the art would have been motivated to try an AIBW dosing methodology with IMGN853 at the 6 mg/kg AIBW dosage.

Merck Sharp & Dohme B.V. et al v. Aurobindo Pharma USA, Inc., No. 23-2254 (Fed. Cir. Mar. 13, 2025): Merck owns a patent directed to sugammadex, which is the active ingredient in BRIDION®, a drug that reverses neuromuscular blockade, which is a certain form of paralysis induced by certain types of surgery. While regulatory review for sugammadex was pending, Merck filed an application to reissue the patent. After both the patent reissued and the regulatory process concluded, Merck sought and received a five-year patent term extension (PTE) under 35 U.S.C. § 156(c), which provides limited extensions of patent terms due to regulatory review delay. Merck sued Aurobindo for infringement of its reissued patent based on Aurobindo’s filing of an abbreviated new drug application (ANDA) for approval to sell generic versions of BRIDION®. Aurobindo challenged the length of the reissued patent’s PTE and argued that 35 U.S.C. § 156(c) requires calculating the extension for “the patent,” as recited in the statute, from the date of issuance of the reissued patent, not the original patent. The district court disagreed, concluding that the amount of delay should be calculated from the date of issuance of the original patent.

The Federal Circuit (Dyk, J., joined by Mayer and Reyna, JJ.) affirmed. The Court held that, when calculating a patent term extension for reissued patents that include “the same claims directed to a drug product subject to FDA review” as the original patent, the statutory language of “the patent” in 35 U.S.C. § 156(c) refers to the original patent. The Court reasoned that the purpose of the Hatch-Waxman Act, in providing patent term extensions to recover a portion of market exclusivity lost during regulatory review, required interpreting “the patent” as the original patent in the context of reissued patents to fully compensate patent owners for the period of exclusivity lost due to regulatory delay.

Regeneron Pharmaceuticals, Inc. v. Mylan Pharmaceuticals Inc., No. 24-2351 (Fed. Cir. March 14, 2025): Regeneron owns a patent directed to pharmaceutical formulations for a fusion protein known as aflibercept, claiming “a vascular endothelial growth factor (VEGF) antagonist” and “a buffer,” among other limitations. The patent covers Regeneron’s biologic product EYLEA® (“Eylea”) and is listed in FDA’s Purple Book, which is a searchable online database that lists all FDA-approved biological products. Eylea is used to treat angiogenic eye disorders associated with uncontrolled blood vessel growth in the retina, which can cause vision loss or blindness. Amgen filed an abbreviated Biologics License Application (aBLA) at the FDA, which stated that its formulation differs from Regeneron’s formulation because it does not contain a separate buffer protein. Regeneron sued Amgen alleging infringement of its patent and filed a motion for preliminary injunction. Amgen opposed the preliminary injection arguing that the claims separately require a VEGF antagonist and a buffer, so Amgen’s formulation did not infringe. The district court determined that the claims required that the claimed VEGF antagonist be a separate component from the claimed buffer, concluded that Regeneron had not demonstrated a likelihood of success on the merits, and denied the preliminary injunction.

The Federal Circuit (Lourie, J., joined by Moore, C.J. and Stark, J.) affirmed. The Court held that “where a claim lists elements separately, the clear implication of the claim language is that those elements are distinct components of the patented invention,” citing Becton, Dickinson & Co. v. Tyco Healthcare Grp., LP, 616 F.3d 1249 (Fed. Cir. 2010). The Court further determined that the claims and specification only reinforced the interpretation that the claimed components are distinct, and therefore, the implication of separateness had not been overcome.

In re Riggs et al., No. 22-1945 (Fed. Cir. March 24, 2025): The named inventors (collectively, “Riggs”) filed a patent application directed to an integrated logistics system, which an examiner rejected in part as anticipated by prior art reference, Lettich, under 35 U.S.C. § 102(e). Riggs appealed to the Patent Trial and Appeal Board (Board), and the Board sustained the examiner’s rejections. Applying Dynamic Drinkware, LLC v. National Graphics, Inc., 800 F.3d 1375 (Fed. Cir. 2015), the Board determined that Lettich was entitled to the priority date of its provisional application as at least one claim in the Lettich non-provisional application was supported by the Lettich provisional application, and thus, qualified as prior art.

The Federal Circuit (Stoll, J., joined by Moore, C.J., and Cunningham, J.) vacated and remanded. The Court explained that while Dynamic Drinkware held that a patent “cannot be accorded the benefit of its provisional application’s filing date absent a showing that the provisional application provides support for the claims of the patent or published application,” it did not stand for the conclusion that support for only one claim from the provisional would be sufficient for the other portions of the specification to be afforded the provisional’s filing date. Instead, the Board needed to analyze whether Lettich’s provisional application provided “written description support for the specific disclosures in Lettich that the Examiner identified and relied on in the prior art rejections.”

The following Gibson Dunn lawyers assisted in preparing this update: Blaine Evanson, Audrey Yang, Al Suarez, Hannah Bedard, and Michelle Zhu.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups, or the following authors:

Blaine H. Evanson – Orange County (+1 949.451.3805, bevanson@gibsondunn.com)
Audrey Yang – Dallas (+1 214.698.3215, ayang@gibsondunn.com)

Appellate and Constitutional Law:
Thomas H. Dupree Jr. – Washington, D.C. (+1 202.955.8547, tdupree@gibsondunn.com)
Allyson N. Ho – Dallas (+1 214.698.3233, aho@gibsondunn.com)
Julian W. Poon – Los Angeles (+ 213.229.7758, jpoon@gibsondunn.com)

Intellectual Property:
Kate Dominguez – New York (+1 212.351.2338, kdominguez@gibsondunn.com)
Josh Krevitt – New York (+1 212.351.4000, jkrevitt@gibsondunn.com)
Jane M. Love, Ph.D. – New York (+1 212.351.3922, jlove@gibsondunn.com)

New U.S. Department of Justice regulations are now in effect, imposing significant restrictions on the flow of bulk sensitive personal data and government-related data from the United States to China and other “countries of concern.”

On April 8, 2025, new regulations [1] came into effect to address broad national security risks related to sensitive personal data and U.S. government-related data (the “Rule”). The Rule is the cornerstone of the U.S. Department of Justice’s (DOJ’s) new Data Security Program (DSP). The Rule, in concert with a Compliance Guide,[2] more than 100 Frequently Asked Questions (FAQs),[3] and an Implementation and Enforcement Policy [4] released in connection with a press release [5] on April 11, 2025, launch DOJ into a new role as data regulator—and impose broad-reaching obligations for U.S. and multinational organizations to comply with new restrictions on cross-border transfers of Americans’ sensitive personal data. The DSP marks a significant shift in U.S. policy towards the free cross-border flow of data.

The Rule, implemented by DOJ’s National Security Division pursuant to President Biden’s 2024 Executive Order 14117,[6] addresses national security threats relating to the “weaponization” of sensitive personal data that have been a consistent focus across both the first Trump administration and the recent Biden administration. Indeed, the Rule was finalized in the waning days of the Biden administration but was subject to a 90-day period before becoming effective.[7] In DOJ’s announcement, Deputy Attorney General Todd Blanche made DOJ’s policy goals clear, stating, “If you’re a foreign adversary, why would you go through the trouble of complicated cyber intrusions and theft to get Americans’ data when you can just buy it on the open market or force a company under your jurisdiction to give you access? … The Data Security Program makes getting that data a lot harder.[8]

The Rule will meaningfully alter international data flows—including intracompany transfers—involving Americans’ sensitive personal data and U.S. government-related data. Specifically, it will prohibit or restrict “covered data transactions” that involve the sharing of or access to such data by “covered persons” or a “country of concern” (most importantly, the People’s Republic of China, inclusive of Hong Kong and Macau).

The DSP Compliance Guide and Implementation and Enforcement Policy signal this will be an area of focus for DOJ. These documents outline robust steps that entities must promptly undertake to ensure compliance under the Rule. Notably, the Compliance Guide contains prescriptive requirements that highlight the expectation that entities handling U.S. sensitive personal data and/or U.S. government-related data will have a keen understanding of their data, who has access to such data, whether they engage in covered data transactions, and will develop and implement a tailored compliance program to ensure regulatory requirements are met.

DOJ has noted in the Implementation and Enforcement Policy that it will not prioritize civil enforcement actions for violations occurring between April 8 and July 8, 2025 as long as companies make “good faith efforts to comply with or come into compliance with” the Rule, though DOJ “will pursue penalties and other enforcement actions as appropriate for egregious, willful violations.”[9]

While the Rule is complex and requires careful analysis to assess compliance requirements, below are high-level areas of impact on which companies should focus to assess their obligations under the Rule and to ensure compliance:

Review your data and data flows. Know your data. Understand (i) the nature, volume, geographic location and cybersecurity measures pertaining to covered data and (ii) where you are sending your data – and who has access. This should include review of intracompany transfers and access, as well as access by counterparties and vendors. The Compliance Guide highlights the importance of ascertaining the identity of parties to a covered data transaction and the end-use of the data, as well as the method of transfer.
Assess impact of the regulatory prohibitions and restrictions. Conduct legal analysis of covered data transactions to assess whether such transactions are prohibited or restricted under the Rule, and whether any potential exemptions may apply. While the Rule includes exemptions to facilitate the continued cross-border flow of data, these exemptions are narrow and often complex to apply in practice.
Develop and implement a tailored compliance program. A comprehensive risk assessment may facilitate the development of a compliance approach tailored to the nature and scope of covered data transactions. The compliance program should also address the various auditing, reporting, and recordkeeping requirements required under the Rule. The Compliance Guide and FAQs provide detailed guidance on DOJ’s expectations for compliance programs, including written policies and procedures, due diligence protocols, senior leader and board review of annual attestations, training, and testing of internal controls.
Establish the tone from the top—and resource the compliance team. DOJ is clear that a strong program will have senior management support and buy-in and set forth specific responsibilities for senior leadership. Notably, the CEO and board of directors are expected to review annual attestations and compliance reports—which must include whether the CEO has met with compliance personnel to discuss the DSP implementation, as well as engaged appropriate outside experts to verify the statements made in the annual certification. Companies are also expected to designate an individual with sufficient authority, technical expertise, and resourcing to lead the development and implementation of the data compliance program.
Expect this landscape to evolve. Many open questions remain concerning the implementation of the Rule. DOJ has invited companies to submit informal inquiries about the Rule and related guidance and noted that companies can request new FAQ answers by email, though it recommended companies wait to submit requests for formal licenses or advisory opinions until after July 8, 2025.

Overview of the Rule

At the core, the Rule applies to transactions fulfilling the following three elements:

The transaction must constitute a “covered data transaction”;
The “covered data transaction” must involve (i) “bulk” “U.S. sensitive personal data” or (ii) “government-related data”; and
The transaction must involve providing a “country of concern” or “covered person” with “access” to such controlled data.

Below, we present a high-level overview of the Rule and related guidance and highlight that given the complexities therein and the overall policy objectives the Rule seeks to address, it is important to also consult DOJ’s commentary throughout the rule-making process—and particularly in its final rule notice—and potentially outside counsel.

A. What types of transactions are “covered data transactions”?

“Covered data transactions” are those that involve “any access by a country of concern or covered person to any government-related data or bulk U.S. sensitive personal data and that involve[]” one of the following:[10]

Data brokerage: “the sale of data, licensing of access to data, or similar commercial transactions … where the recipient did not collect or process the data directly from the individuals” linkable to the data;[11]
A Vendor Agreement: “any agreement or arrangement, other than an employment agreement, in which any person provides goods or services to another person” for consideration;[12]
An Employment Agreement: “any agreement or arrangement in which an individual, other than as an independent contractor, performs work or performs job functions directly for a person” for consideration;[13] or
An Investment Agreement: an “arrangement in which any person, in exchange for payment or other consideration, obtains direct or indirect ownership interests in or rights in relation to” U.S. real estate or a U.S. legal entity.[14] There is an exception for certain passive investments.[15]

B. What types of data are covered?

The Rule covers two types of data: (1) “government-related data” and (2) “bulk U.S. sensitive personal data” involved in covered data transactions.

“Government-related data” includes the following types of data regardless of volume:
1. “Any precise geolocation data”[16] for any location on an enumerated list (e.g., military bases and other sensitive government sites)[17]; and
2. “Any sensitive personal data” marketed as linked or linkable to U.S. government employees, contractors, and officials.[18]
“Bulk U.S. sensitive personal data” includes a set of “sensitive personal data relating to U.S. persons,” even if de-identified or encrypted,”[19] exceeding specified thresholds in the preceding 12 months (beginning on April 8, 2025), whether through a single or multiple covered data transactions:[20]

Data Type	Threshold
“Human ’omic data” (i.e., genomic data and similar[21])	1,000 U.S. persons, or 100 persons for genomic data
Biometric identifiers[22]	1,000 U.S. persons
Precise geolocation data[23]	1,000 U.S. devices
Personal health data[24]	10,000 U.S. persons
Personal financial data[25]	10,000 U.S. persons
“Covered personal identifiers” (see below)	100,000 U.S. persons
Combined data	Lowest applicable threshold of U.S. persons or U.S. devices for any controlled data in the data set

“[C]overed personal identifiers” is a broad category that covers many types of commonly circulated personal data. To define this category, the Rule first enumerates a set of “listed identifiers” (discussed below). “Covered personal identifiers” means data containing either (1) any listed identifier combined with another listed identifier; or (2) any listed identifier combined with other data enabling it to be linked to other identifiers or other sensitive personal data.[26]

The “listed identifiers” defined by the Rule include any piece of data in these categories:

Government identification or account numbers (e.g., Social Security numbers);
Full financial account numbers or personal identification numbers;
Device-based or hardware-based identifiers (e.g., “SIM” numbers);
Demographic or contact data (e.g., name, birth date, or mailing address);
Advertising identifiers (e.g., Google Advertising ID, Apple ID for Advertisers);
Account-authentication data (e.g., username or password);
Network-based identifier (e.g., IP address); or
Call-detail data (e.g., Customer Proprietary Network Information).[27]

Thus, for example, the Rule would cover a dataset of first and last names linked to Social Security numbers or mobile advertising IDs linked to email addresses.

The Rule does exclude two categories of common data:

Demographic or contact data that is linked only to other demographic or contact data (such as first and last name linked to an email address); and
A network-based identifier, account-authentication data, or call-detail data linked only to other such data, when necessary to provide telecommunications, networking, or similar services.[28]

Finally, the Rule also covers combinations of multiple covered data types, or data that contains any listed identifier linked to any of the above, if any individual data-type threshold is met.

C. To whom does the Rule apply?

The Rule applies directly to “U.S. persons,” defined to include U.S. citizens, nationals, lawful permanent residents, refugees, and asylees; entities organized solely under the laws of the United States (including foreign branches of U.S. persons); and any persons within the United States.[29]

D. What recipients of information are covered?

The prohibitions and restrictions apply when U.S. persons provide “access”[30] to covered data to a “country of concern” or “covered person.”

“Countries of Concern” currently include China (including Hong Kong and Macau),[31] Cuba, Iran, North Korea, Russia, and Venezuela.[32]

“Covered Persons” include the following:[33]

Non-U.S. entities headquartered in or organized under the laws of a country of concern;
Non-U.S. entities 50% or more owned by a country of concern or covered person;
Non-U.S. individuals primarily resident in a country of concern;
Non-U.S. individuals who are employees or contractors of a covered person entity or a country-of-concern government; and
Any person—including a U.S. person—designated to DOJ’s Covered Persons List[34] (which has not yet been publicly released).

E. What types of transactions are prohibited?

Absent a license granted by DOJ, U.S. persons are prohibited from knowingly engaging in the following types of data brokerage transactions:[35]

Data brokerage transactions involving covered data with a country of concern or covered person;[36]
Covered data transactions with a country of concern or covered person that involves access to bulk human ’omic data or to biospecimens from which such data could be derived;[37]
Any transaction with the purpose of evading the regulations, or that would cause or attempt to cause a violation of the regulations;[38] and
Any transaction in which a U.S. person knowingly directs a transaction by a non-U.S. person that would be prohibited if engaged in by a U.S. person (or that would be restricted, when the requirements for a restricted transaction are not satisfied).[39]

In addition, the Rule affects data brokerage transactions with any foreign persons, even if they are not “covered persons.” A U.S. person may not knowingly engage in any data brokerage transaction involving access to the covered data types unless the U.S. person “[c]ontractually requires that the foreign person refrain from engaging in a subsequent covered data transaction involving data brokerage of the same data with a country of concern or covered person”; and “[r]eports any known or suspected violations of this contractual requirement.”[40] Reports are due to DOJ within 14 days of the U.S. person becoming aware of an actual or potential violation.[41]

Finally, under the data security requirements developed by the Cybersecurity and Infrastructure Agency (CISA) described below, even when a data transaction does not fall within the prohibitions described above, covered persons are functionally prohibited from accessing covered data “that is linkable, identifiable, unencrypted, or decryptable using commonly available technology by covered persons and countries of concern.”[42]

F. What types of transactions are restricted?

The Rule also creates a second category of “restricted transactions”: covered data transactions with a country of concern or covered person involving a (1) vendor agreement, (2) employment agreement, or (3) investment agreement.[43] U.S. persons are prohibited from engaging in such transactions unless they meet specified data security requirements developed by CISA.[44] Yet, even if the CISA security requirements are fulfilled, some covered data transactions that involve a vendor, employment, or investment agreement remain de facto prohibited by the security requirements, namely those which “involve access by countries of concern or covered persons to bulk human genomic data or human biospecimens from which such data can be derived.”[45] The CISA security requirements applicable to restricted transactions include organizational- and system-level requirements (such as cybersecurity policies, access controls, and internal risk assessments) as well as data-level requirements (such as data minimization, data masking, and encryption).[46]

As of October 6, 2025, U.S. persons must also fulfill specific due diligence and audit requirements before engaging in restricted transactions.[47] The Compliance Guide issued by DOJ on April 11, 2025, outlines a framework for compliance.[48] Due diligence programs should include, among other things, procedures for identifying the identity of vendors and written data compliance and cybersecurity policies.[49] The Rule also requires a yearly independent audit to verify compliance with the requirements.[50]

U.S. persons engaged in restricted transactions involving cloud-computing services must file annual reports to DOJ if twenty-five percent or more of the U.S. person’s equity interests are owned, directly or indirectly, by a country of concern or covered person.[51] These annual reports must contain specific components outlined in the Rule.[52]

G. What if it is unclear whether a transaction is prohibited or restricted?

If a party is unsure whether a contemplated transaction is prohibited or restricted, it may request an advisory opinion from DOJ. The agency will attempt to respond within 30 days, and the requestor may rely on the written response,[53] provided its disclosures were accurate and complete and the opinion remains in force.[54]

H. What exemptions exist?

The Rule contains a variety of exemptions, though many are narrow and require careful review to confirm that they apply. At a high level, there are exemptions for:

Transactions involving personal communications (e.g., by telephone) that do not involve the transfer of anything of value[55] or information or informational materials;[56]
Transactions ordinarily incident to international travel;[57]
Official business transactions of the U.S. government;[58]
Transactions ordinarily incident to and part of financial services, including payment processing and regulatory compliance;[59]
Transactions within corporate entities ordinarily incident to and part of administrative or ancillary business operations such as human resources, payroll, business travel, or customer support;[60]
Transactions required or authorized by federal law or international agreements, or necessary for compliance with federal law;[61]
Investment agreements subject to action by the Committee on Foreign Investment in the United States;[62]
Transactions ordinarily incident to and part of the provision of telecommunications services;[63]
Transactions related to drug, biological product, and medical device authorizations and data necessary to obtain those authorizations;[64] and
Transactions ordinarily incident to and part of clinical investigations and post-marketing surveillance data.[65]

The application of the Rule is likely to be especially complex when a U.S. business wishes to share information with a foreign subsidiary, which in turn may wish to share data with its own employees. U.S. businesses in this situation may wish to seek the advice of counsel.

I. Are any licenses available?

The Rule adopts a licensing structure reminiscent of sanctions and export controls. These licenses would permit otherwise prohibited or restricted transactions.[66] However, the Federal Register notice accompanying the final rule notes that DOJ anticipates that “licenses will be issued only in rare circumstances” and that their issuance may be contingent on any requirements that DOJ deems appropriate.[67] When issued, general licenses will apply to all U.S. persons unless otherwise specified, while specific licenses will apply only to the parties seeking the license for a particular transaction.[68] To date, no licenses have been released publicly.

J. Are completed transactions affected?

No, the Rule does not apply to transactions completed prior to April 8, 2025.[69] However, DOJ may request information about transactions completed before the effective date.[70]

K. What other recordkeeping requirements exist?

The Rule requires U.S. persons to generate (and save for ten years) a complete record of each non-exempt covered data transaction.[71] For restricted transactions, the Rule prescribes a specific list of documentation that must be maintained, such as annual audit results.[72] The Rule also permits DOJ to request, at any time, reports on any act, transaction, or covered data transaction subject to the Rule.[73]

Additionally, and as noted above, beginning on October 6, 2025, U.S. persons that have received and affirmatively rejected an offer from another person to engage in a prohibited data brokerage transaction must file a report within 14 days.[74]

L. What are the penalties for noncompliance?

Violations of the Rule can result in civil monetary fines of up to $374,474 per violation (an amount adjusted annually for inflation) or twice the value of the transaction, whichever is greater.[75] Criminal penalties of up to US $1,000,000 or 20 years’ imprisonment are available for willful violations.[76] As opposed to most violations under U.S. export controls and economic sanctions, which are subject to a strict liability standard, penalties under the Rule operate under a “knowledge” standard, meaning “with respect to conduct, a circumstance, or a result, that the U.S. person had actual knowledge of, or reasonably should have known about, the conduct, circumstance, or result.”[77] In determining whether an entity knew or had reason to know of the violation, DOJ has stated that it will “take into account the relevant facts and circumstances, including the relative sophistication of the individual or entity at issue, the scale and sensitivity of data involved, and the extent to which the parties to the transaction . . . appear to have been aware of and sought to evade the application of” the Rule.[78] DOJ also noted that it will take into account companies’ voluntary self-disclosures (VSDs) in assessing violations and that failure to implement data compliance programs could be an “aggravating factor in any enforcement action.”[79]

Gibson Dunn lawyers are actively advising in this space and are available to assist in addressing any questions you may have regarding these issues.

[1] See 28 C.F.R. Part 202.

[2] See Dep’t of Just., Nat’l Sec. Div., Data Security Program: Compliance Guide (Apr. 11, 2025) [hereinafter DOJ Compliance Guide], https://www.justice.gov/opa/media/1396356/dl.

[3] See U.S. Dep’t of Just., Nat’l Sec. Div., Data Security Program: Frequently Asked Questions (Apr. 11, 2025) [hereinafter DSP FAQs], https://www.justice.gov/opa/media/1396351/dl.

[4] See U.S. Dep’t of Just., Nat’l Sec. Div., Data Security Program: Implementation and Enforcement Policy Through July 8, 2025 (Apr. 11, 2025) [hereinafter DOJ Enforcement Policy], https://www.justice.gov/opa/media/1396346/dl?inline.

[5] See Press Release, U.S. Dep’t of Just., Nat’l Sec. Div., Justice Department Implements Critical National Security Program to Protect Americans’ Sensitive Data from Foreign Adversaries (Apr. 11, 2025) [hereinafter DOJ Press Release], https://www.justice.gov/opa/pr/justice-department-implements-critical-national-security-program-protect-americans-sensitive.

[6] Exec. Order 14117, 89 Fed. Reg. 15,421 (Mar. 1, 2024).

[7] See Preventing Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern or Covered Persons, 90 Fed. Reg. 1636 (Jan. 8, 2025) [hereinafter DSP Final Rule].

[8] DOJ Press Release, supra note 5.

[9] DOJ Enforcement Policy, supra note at 2.

[10] 28 C.F.R. § 202.210.

[11] Id. § 202.214. The regulations on brokerage transactions overlap significantly with the Protecting Americans’ Data from Foreign Adversaries Act of 2024 (PADFAA), 15 U.S.C. § 9901. Although DOJ has acknowledged that the Final Rule and PADFAA are likely to place overlapping and conflicting obligations on businesses, DOJ declined to modify the rule to harmonize it to the law. It has promised to coordinate closely with the Federal Trade Commission (FTC) to harmonize enforcement. See DSP FAQs, supra note 3, at FAQ 12.

[12] 28 C.F.R. § 202.258.

[13] Id. § 202.217.

[14] Id. § 202.228(a).

[15] See id. § 202.228(b).

[16] See id. § 202.242.

[17] See id. § 202.1401.

[18] See id. § 202.222.

[19] Id. § 202.206.

[20] DSP FAQs, supra note 3, at FAQ 38.

[21] Human genomic data, human epigenomic data, human proteomic data, and human transcriptomic data but excludes pathogen-specific data embedded in human ‘omic data sets. See 28 C.F.R. § 202.224.

[22] “[M]easurable physical characteristics or behaviors used to recognize or verify the identity of an individual.” Id. § 202.204.

[23] “[D]ata, whether real-time or historical, that identifies the physical location of an individual or a device with a precision of within 1,000 meters.” Id. § 202.242.

[24] “[H]ealth information that indicates, reveals, or describes the past, present, or future physical or mental health or condition of an individual; the provision of healthcare to an individual; or the past, present, or future payment for the provision of healthcare to an individual.” Id. § 202.241.

[25] “[D]ata about an individual’s credit, charge, or debit card, or bank account, including purchases and payment history; data in a bank, credit, or other financial statement, including assets, liabilities, debts, or trades in a securities portfolio; or data in a credit report or in a ‘consumer report’ (as defined in 15 U.S.C. 1681a(d)).” Id. § 202.240.

[26] See id. § 202.212.

[27] Id. § 202.234.

[28] Id. § 202.212(b).

[29] See id. § 202.256.

[30] “Access” is a defined term that includes among other things “the ability to obtain, read, copy, decrypt, edit, divert, release, affect, alter the state of, or otherwise view or receive” the information.” Id. § 202.201.

[31] See id. § 202.208.

[32] See id. § 202.601; see also id. § 202.209.

[33] See DSP FAQs, supra note 3, at FAQ 14; see also 28 C.F.R. § 202.211.

[34] See DSP FAQs, supra note 3, FAQs 42, 43, & 52.

[35] See id., supra note 3, at FAQ 16.

[36] 28 C.F.R. § 202.301.

[37] Id. § 202.303.

[38] Id. § 202.304.

[39] Id. § 202.305. DOJ has noted, however, that although U.S. persons must conduct “know your customer” and “know your data” due diligence on foreign persons involved in data transactions, it does not expect or require “second-level due diligence on the employment practices of those foreign persons to determine whether their employees qualify as covered persons.” DSP FAQs, supra note 3, at FAQ 58; see id. at FAQ 79.

[40] 28 C.F.R. § 202.302 (emphasis added); see DSP FAQs, supra note 3, at FAQ 62. For sample contractual language, see DOJ Compliance Guide, supra note 2, at 5–6.

[41] See 28 C.F.R. § 202.302(b).

[42] See DSP FAQs, supra note 3, at FAQ 67.

[43] See 28 C.F.R. § 202.401; see also DSP FAQs, supra note 3, at FAQ 17.

[44] See Cybersecurity & Infrastructure Sec. Agency, Security Requirements for Restricted Transactions (Jan. 3, 2025) [hereinafter CISA Security Requirements], https://www.cisa.gov/sites/default/files/2025-01/Security_Requirements_for_Restricted_Transaction-EO_14117_Implementation508.pdf.

[45] See DSP FAQs, supra note 3, at FAQ 67.

[46] See CISA Security Requirements, supra note 45; see also DSP FAQs, supra note 3, at FAQs 66, 67, & 69.

[47] 28 C.F.R. §§ 202.1001–02.

[48] See DOJ Compliance Guide, supra note 2, at 11–16.

[49] See 28 C.F.R. § 202.1001.

[50] See id. § 202.1002.

[51] See id. § 202.1103.

[52] See id.; see also DSP FAQs, supra note 3, at FAQs 87–88.

[53] See DSP FAQs, supra note 3, at FAQs 98–99.

[54] 28 C.F.R. § 202.901(i).

[55] See id. § 202.501.

[56] See id. § 202.502.

[57] See id. § 202.503.

[58] See id. § 202.504.

[59] See id. § 202.505.

[60] See id. § 202.506.

[61] See id. § 202.507.

[62] See id. § 202.508.

[63] See id. § 202.509.

[64] See id. § 202.510.

[65] See id. § 202.511.

[66] See id. §§ 202.801–202.803; see also DSP FAQs, supra note 3, at FAQs 40–41.

[67] DSP Final Rule, 90 Fed. Reg. at 1,693.

[68] 28 C.F.R. §§ 202.801–02.

[69] DSP Final Rule, 90 Fed. Reg. at 1,645.

[70] See DSP FAQs, supra note 3, at FAQ 104.

[71] See 28 C.F.R. § 202.1101(a); see also DOJ Compliance Guide, supra note 2, at 9.

[72] See 28 C.F.R. § 202.1101(b); see also DSP FAQs, supra note 3, at FAQ 92.

[73] See 28 C.F.R. § 202.1102; see also DOJ Compliance Guide, supra note 2, at 9–10.

[74] See 28 C.F.R. § 202.1104; see also DSP FAQs, supra note 3, at FAQ 64.

[75] See 28 C.F.R. § 202.1301.

[76] See id.

[77] DSP FAQs, supra note 3, at FAQ 107.

[78] Id.

[79] Id.; see DOJ Compliance Guide, supra note 2, at 11. DOJ will also accept tips concerning non-compliance from third parties and notes that individual whistleblowers “may be eligible for substantial financial awards” to incentivize compliance monitoring. DSP FAQs, supra note 3, at FAQ 106.

The following Gibson Dunn lawyers prepared this update: Stephenie Gosnell Handler, Vivek Mohan, Chris Mullen, Eric Brooks, Karsten Ball, Hugh Danilack, and Roxana Akbari.

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

Privacy, Cybersecurity & Data Innovation / Artificial Intelligence:

United States:
Ashlie Beringer – Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)
Keith Enright – Palo Alto (+1 650.849.5386, kenright@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, jhorvath@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)

Asia:
Connell O’Neill – Hong Kong (+852 2214 3812, coneill@gibsondunn.com)

International Trade Advisory & Enforcement:

United States:
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Roxana Akbari – Orange County (+1 949.475.4650, rakbari@gibsondunn.com)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@gibsondunn.com)
Mason Gauch – Houston (+1 346.718.6723, mgauch@gibsondunn.com)
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, cmullen@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)

An overview of environmental, health, and safety (EH&S) considerations in M&A transactions, which can impact risk allocation, valuation and the ability to operate after closing.

EH&S considerations can pose material issues and risks in M&A transactions, and early identification of these critical issues can assist buyers in evaluating problems and structuring solutions. It is therefore important to engage environmental subject matter experts early in the deal process, so they can effectively evaluate compliance with applicable EH&S laws and assess liability risks. Often, if a transaction deals with manufacturing, chemicals, or owned real estate, consultants will be used to visit sites or perform a Phase I Environmental Site Assessment (ESA) or “Phase I-lite” ESA. We are also seeing increased seller-led due diligence, which often includes presentations by consultants or pre-prepared Phase Is upon which buyers can rely. The purpose of seller diligence is to identify issues early so they can be presented in a favorable manner, guide valuations, and avoid surprises which could delay a transaction.

Environmental diligence may include: reviewing a target’s environmental operations, permit obligations and compliance, and permit transfer obligations that may be triggered in a transaction; evaluating non-compliances and remedial measures (including capital expenditures); and reviewing potential litigation risks, including from the current or past use of hazardous materials such as asbestos, solvents, per- and polyfluoroalkyl substances (PFAS), polychlorinated biphenyls (PCBs), or other emerging environmental issues. For both identified and unidentifiable risks, it may be necessary to develop strategies to mitigate future responsibility through indemnities, escrows, or insurance products. For transactions involving non-U.S. target companies, businesses, or assets, local environmental laws and obligations should also be assessed.

Discovery of environmental issues during the due diligence process may lead the parties to modify the agreement to re-allocate costs and/or potential liabilities, including a reduction in the purchase price, contamination indemnities benefiting the buyer, adding escrow to secure the completion of any required environmental cleanup after closing, and/or purchasing a pollution legal liability insurance policy to protect the buyer.

1. Impact of Transaction Structure

Understanding the transaction type and scope, and the associated assets and liabilities, should be a primary EH&S concern for a prospective buyer. The transaction structure will impact the scope of environmental diligence and can affect the range of potential liabilities to be assessed. For example, the type of transaction may impact some state filing requirements, determine permit transfer obligations, and limit the utility of obtaining insurance. A targeted asset purchase which carves out certain high environmental exposure assets may better insulate a buyer from environmental liabilities or obligations. In addition, some environmental permitting or property transfer obligations are not triggered in transactions occurring several corporate levels above the permitted entity. However, permit and/or property transfer obligations may be triggered regardless of the corporate organizational structure in an asset purchase, and will need to be accounted for as part of the transaction.

After evaluating the type and scope of the transaction, the next step is often deciding whether to hire environmental consultants to perform diligence, complete environmental assessment reports (typically a Phase I or Phase II ESA), and assess other technical issues. Understanding the target’s operations, real estate portfolio, and potential intersection with environmental laws is critical to making this determination. Some transactions—for example, those involving software companies that only lease commercial office space—are typically not environmentally intensive, and may not require EH&S consultants or more technical diligence. However, if real estate is owned and/or if a target’s operations are environmentally intensive (such as chemical manufacturing), then more extensive diligence by EH&S consultants may be appropriate.

2. Understanding and Managing Pre-Existing Contamination Liability

While transaction parties often seek to limit future liabilities post-closing, many environmental laws fundamentally attach liability from “cradle-to-grave,” even when an entity is no longer associated with a property. Therefore, understanding and managing potential environmental liabilities is crucial in any contemplated transaction.

a. CERCLA Liability

The federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq., as amended, generally determines liability for addressing the cleanup of hazardous materials released into the environment. Notably, liability under CERCLA can be imposed for the presence of hazardous substances at a site even in the absence of fault or knowledge, and any one potentially responsible party can be held jointly and severally liable for the entire cost of the cleanup. As a result, current owners and operators of a site can be held liable for releases occurring at any time in the past—including before the owner or operator was present at the site. Relatedly, former owners and operators remain liable for releases that occurred during their ownership/occupancy.

Liable parties can include (1) current owners and operators of a facility from which there has been a “release or threatened release” of hazardous substances; (2) past owners and operators of a facility at the time hazardous substances were disposed; (3) generators and parties that arranged for the disposal or transport of the hazardous substances to or from the site; and (4) transporters of hazardous waste that selected the site to which the hazardous substances were brought.

With this backdrop, it is essential to understand how transaction structure can impact environmental liability under CERCLA and state equivalents.

In an asset acquisition, a buyer can avoid or limit environmental real estate exposure by qualifying for certain defenses to liability under CERCLA (and often state equivalents), including the Innocent Landowner and Bona Fide Prospective Purchaser defenses. These defenses have various elements that must be satisfied both before and after the purchase of real property, including that the buyer has conducted “all appropriate inquiries” (AAI) into the history and condition of the property before acquisition. The AAI standard requires obtaining an up-to-date Phase I ESA that meets the current ASTM standard.

In an equity purchase, prospective purchasers cannot avail themselves of the same defenses to liability, even with the completion of a Phase I ESA. Instead, a purchaser in an acquisition of equity interests indirectly inherits the liability of the acquisition target by purchasing its equity interests, standing in place of the former owner. In this situation, because the AAI standard does not apply, the parties have broader latitude to structure diligence, and a formal Phase I ESA is not required. Therefore, a mix of site visits, desktop reviews, or management calls may be sufficient to provide a buyer with an adequate sense of environmental risk or liability. Representations and Warranties Insurers and lenders also are becoming more flexible and accepting of “Phase I-lite” diligence approaches in the context of an equity purchase.

In either case, completing a Phase I ESA and other typical environmental diligence (including standard review of materials, and more limited environmental surveys or reports such as a desktop review and searches of public records) is common and a best practice, as this diligence may provide a prospective purchaser with valuable information that can inform key deal terms even if it does not provide a defense to liability. Additionally, a third-party lender may condition the funding arrangement on the borrower obtaining and providing Phase I ESAs for any property.

b. State Environmental Protection Act Liabilities

Beyond CERCLA, states may have analogous or unique statutory schemes for the assignment of historic environmental liabilities. For example, in Michigan, the Michigan Natural Resources and Environmental Protection Act (NREPA) impacts transactions involving assets and operations in the state. Under this scheme, a buyer can purchase contaminated property and be shielded from liability for remediation of known, existing contamination caused by others, but only for certain contamination under specific programs regulated by Michigan’s NREPA. To qualify, the buyer must (1) perform a baseline environmental assessment (BEA) and (2) disclose the BEA to the Michigan Department of Environment, Great Lakes, and Energy (EGLE), as well as to subsequent buyers and transferees. A BEA assesses the environmental condition of the property to determine if it is contaminated above Michigan’s unrestricted residential criteria and includes the results of an AAI and sampling analysis of the property. To provide a liability defense, the BEA must be conducted within 45 days of the buyer becoming the owner/operator of a property.

A BEA does not automatically protect the new owner/operator from other state or federal laws. However, EGLE and U.S. EPA have entered into an agreement that EPA will not act against a property owner who has disclosed a BEA, except under certain circumstances.

3. Managing Compliance Obligations Triggered by the Transaction

Because the federal government and state governments concurrently regulate air and water contamination and discharges of pollutants, state and local governments often regulate or require recordkeeping and filings related to transactions involving property transfers and contamination. For example, for the transfer of certain types of industrial properties and/or properties which are known or suspected to have contamination, several states have laws that require pre-closing evaluations and filings that can affect deal timelines. Below, we discuss two examples: Connecticut and New Jersey.

a. Connecticut Transfer Act

The Connecticut Transfer Act (CTA), CGS §§ 22a-134 to 22a-134e (1985), regulates the “transfer” of certain “establishments” in Connecticut. The CTA term “transfer” refers to a change in ownership of the real property or business, and “establishments” are a defined subset of real properties and businesses. Certain transactions are exempted, including transfers of ownership interests of 50 percent or less. In addition, the CTA may not be triggered in a transaction which occurs several levels above the direct ownership level of the property where the direct property owner remains unchanged. Such a transaction would qualify as an exempt “corporate reorganization not substantially affecting the ownership of the establishment.” See Conn. Gen. Stat. §§ 22a-134(1)(H), (22).

Once triggered, the CTA requires disclosure of environmental conditions, investigation, remediation, and liability for transferors and transferees of establishments. The CTA also allows property transferees to recover damages from a transferor who fails to comply with the CTA. Unlike most states, investigation and remediation liabilities under the CTA depend not on whether there has been a documented release of hazardous substances but rather on the volume of hazardous waste generated at the site and whether certain enumerated activities (including dry cleaning operations, furniture stripping, or vehicle body repair) have occurred onsite. As a threshold issue, then, transaction parties need to evaluate the historical and present operations at the site, including any hazardous waste generation.

Next, the parties must decide which entity will be responsible for CTA compliance and to perform a site investigation to determine if prior releases have occurred. Then, the responsible party must enlist a licensed environmental professional to file specific form notices with the Connecticut Department of Energy & Environmental Protection (DEEP) prior to the transfer, informing DEEP either that no action is required, or that some additional investigation/remediation is needed. No approval is necessary.

The CTA regulatory scheme is evolving. In February 2025, DEEP submitted its “Release Based Cleanup Regulations” (RBCRs) to the Connecticut General Assembly for review and approval. The RBCRs are intended to better align Connecticut with other states’ approaches to releases on real property by applying a uniform regulatory scheme to all properties, without requiring different properties and cleanups be approached in different ways. In March 2025, the Connecticut General Assembly’s Legislative Regulation Review Committee rejected the RBCRs without prejudice, and directed DEEP to make certain changes to the proposed regulation.[1] Until the RBCRs are approved and take effect, the CTA will continue to apply.

b. New Jersey Industrial Site Recovery Act

New Jersey’s Industrial Site Recovery Act (ISRA), N.J. Stat. §§ 13:1K-6 to 13:1K-14 (1983), is triggered by the transfer of a qualifying “industrial establishment,” and requires the completion of certain reporting, site evaluation, and potential remediation efforts before the transfer or closure of certain industrial properties that may have been contaminated by hazardous substances. This includes transfers of operations, not just ownership. ISRA only applies to industrial establishments meeting three conditions: (1) the business has a North American Industry Classification System (NAICS) number listed in ISRA’s Appendix C,[2] (2) the business operated in New Jersey on or after December 31, 1983, and (3) the business uses or stores hazardous substances as defined by the New Jersey Spill Compensation and Control Act.

Establishments may be able to qualify for an exemption, obtain a waiver, or meet alternate compliance conditions with the New Jersey Department of Environmental Protection (NJDEP).

The De Minimis Quantity Exemption exempts small quantity generators of hazardous materials, so long as the business/property has not exceeded certain gallon/weight thresholds for use, storage, or disposal of hazardous substances at any one time during the owner or operator’s tenure.
The Remediation in Progress Waiver allows for the transfer of sites already undergoing remediation with oversight by NJDEP or a Licensed Site Remediation Professional (LSRP).
The Regulated Underground Storage Tank Only Waiver allows for the transfer of sites without conducting remediation where the only potential Area of Concern (AOC) or hazardous substance discharge is in connection with a regulated underground storage tank.

If a property or business in a transaction is subject to ISRA and does not qualify for any waivers, exemptions, or alternate compliance processes, then all necessary remediation must be performed pursuant to ISRA. ISRA compliance will result in one of three outcomes: (1) a LSRP issues an Unrestricted Use Response Action Outcome (RAO), (2) a LSRP certifies a Remedial Action Workplan (RAW) prior to the transfer, or (3) the parties execute a Remediation Certificate to allow the transaction to be consummated prior to full ISRA compliance.

ISRA compliance starts with filing a General Information Notice (GIN) with NJDEP within five days of any triggering event, including transaction signing. An environmental investigation follows, and any required remediation must be completed by a LSRP. This includes a Preliminary Assessment (PA) to identify potential AOCs and, if necessary, a Site Investigation (SI) Report to check for contaminants above remediation standards. If the PA identifies no issues, an SI is not needed, and a RAO will be recommended, ending the investigation. If contamination is found, a Remedial Investigation will determine its nature and extent, and a proposed RAW will outline the remediation plan to meet regulatory standards.

As outlined above, compliance with ISRA is a multi-step process that can be costly and time consuming. Determining ISRA’s applicability, and whether any waivers, exemptions, or alternate compliance are feasible, are important steps early in a transaction.

4. Permit Transfer Obligations (Change in Control States v. Change in Ownership)

As with the transfer of real property, some transactions may require filings to transfer an environmental permit. Typically, when there is only a change in control several levels above the permit-holder, it is rare that a permit needs to be transferred. For example, it is common that air permits need not be transferred when the direct entity owning a permitted facility does not change. There are, however, certain state regimes that require an air permit transfer application in the event of a change in control of the permitted facility itself. The same typically applies to wastewater discharge or use permits.

5. Evolving Regulations, Areas of Focus, and Technical Understanding Impacting Risk

Environmental laws, regulations, guidance, and areas of regulatory focus—and thus the resulting liabilities—are ever-changing as a result of scientific advancements, changes in political leadership and policy goals, and public interest. For example, regulation of emerging or newly identified contaminants often changes quickly and requires an up-to-date understanding of technical advancements in both testing and remediation technology. These issues can quickly make “stock”/template environmental deal terms outdated—particularly representations regarding compliance with environmental laws and regulations, and regarding use, storage, and disposal of hazardous substances. As a result of the changing environmental status quo, buyers should consider close engagement with specialists and consultants to understand the current status and potential future risks implicated by a transaction.

One such contaminant of increasing scrutiny is per- and polyfluoroalkyl substances (PFAS), a ubiquitous category of chemicals subject to expanding federal and state regulation. PFAS are of particular concern for manufacturers, waste treatment and/or disposal sites, and sites with a history of fires, but may present a risk in other types of transactions, as well. Other examples of chemicals that have become the focus of recent regulatory scrutiny include 1, 4-dioxane, a chemical used in various industrial processes; glyphosate, a broad-spectrum systemic herbicide that can be of concern for companies involved in landscaping and agricultural operations; and ethylene oxide, a gas often used in chemical manufacturing facilities producing a range of products such as antifreeze, textiles, plastics, detergents, and adhesives. Understanding a target company’s operations and the potential presence of emerging contaminants at the target facilities should be an early focus of any buyer.

6. The Role of Insurance in Managing Unknown Liabilities

During due diligence, a Phase I or Phase II ESA may identify potential environmental liabilities and concerns; or, a lack of deep knowledge on the part of a seller may cause a buyer to worry about the “unknown unknowns.” In such cases, environmental insurance may provide protection from both identified and unexpected pollution not typically covered by standard casualty and property policies. Environmental insurance can also help cover compliance costs which otherwise could lead to significant fines and issues.

Representations and Warranties Insurance (RWI) deals are prevalent, particularly because sellers desire a “clean break” post-closing. Adding environmental provisions to RWI coverage may be more efficient than obtaining a separate policy and can be a useful tool to reduce or eliminate unknown risks. In addition to RWI, there are several potentially useful insurance products available depending on the deal structure and nature of the target business.

Pollution Legal Liability Insurance (PLLI) generally covers third-party claims for property damage, personal injury, and cleanup costs related to environmental contamination.
Contractor’s Pollution Liability Insurance (CPLI) generally covers pollution incidents caused by contractors during their work.
Environmental Site Liability Insurance (ESLI) generally covers environmental risks stemming from owned real estate or operating facilities, whether the source is traceable to conditions on the insured property or a neighboring property.

PLLI can help manage and allocate environmental risks associated with a transaction. In addition to protection for known and unknown historic pollution risks, it can also cover pollution that arises between signing and closing, or post-closing. Unknown site contamination can lead to significant financial losses, and insurance can smooth out such unpredictable costs.

In a deal environment where sellers wish for a clean break, environmental insurance can bridge the gap and help make an offer more attractive. Post-closing, environmental insurance continues to provide protection against covered environmental liabilities that may arise. This can be particularly valuable for competitive bid transactions where the diligence period is truncated and can provide buyers with some comfort that any inherited environmental liabilities will be covered by the known cost of insurance.

[1] https://eregulations.ct.gov/eRegsPortal/Search/RMRView/PR2024-025; https://eregulations.ct.gov/eRegsPortal/Search/getDocument?guid={D071CE95-0000-CA19-89A4-CFC56373AF95}.

[2] https://www.nj.gov/dep/srp/isra/isra_c.htm.

The following Gibson Dunn lawyers prepared this update: Michael Murphy, Rachel Levick, Rob Little, Saee Muzumdar, George Sampas, Taylor Amato, and Phil Washburn.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Mergers & Acquisitions, Private Equity, or Environmental Litigation & Transactions practice groups:

Environmental Litigation & Transactions:
Rachel Levick – Washington, D.C. (+1 202.887.3574, rlevick@gibsondunn.com)
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, mmurphy@gibsondunn.com)

Mergers & 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)
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)

An article in The New York Times describes the findings of a report filed in federal court in Manhattan by partner Mylan Denerstein in her role as court-appointed NYPD Monitor. The report found that NYPD anti-crime units continued to make unlawful stops, frisks, and searches in 2023, and that supervisors failed to rein in the unlawful activity.

Mylan was appointed in 2022 to serve as the independent NYPD Monitor to oversee a court-ordered reform process. She is Co-Chair of the Gibson Dunn Public Policy Practice Group and Co-Partner in Charge of the firm’s New York office.

https://www.nytimes.com/2025/02/04/nyregion/the-persistent-problem-of-stop-and-frisk.html

A report filed in federal court in Manhattan by partner Mylan Denerstein in her capacity as NYPD Monitor is the subject of a New York Times article. The report found that the NYPD made unlawful stop-and-frisk stops at least a quarter of the time in 2023 and that command-level supervisors had regularly failed to address them.

Mylan is Co-Chair of our Public Policy Practice Group and Co-Partner in Charge of the firm’s New York office. She was appointed in 2022 to serve as the independent NYPD Monitor to oversee a court-ordered reform process.

https://www.nytimes.com/2025/02/03/nyregion/nypd-stop-and-frisk-monitor.html

A quarterly update of high-quality education opportunities for Boards of Directors.

Gibson Dunn’s summary of director education opportunities has been updated as of April 2025. A copy is available at this link. Boards of Directors of public and private companies find this a useful resource as they look for high quality education opportunities.

This quarter’s update to the summary of director education opportunities includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates. Some of the new opportunities are available for both public and private companies’ boards.

Read More

The following Gibson Dunn attorneys assisted in preparing this update: Hillary Holmes, Lori Zyskowski, Elizabeth Ising, Ronald Mueller, Jason Ferrari, and To Nhu Huynh.

Please view this and additional information on Gibson Dunn’s Securities Regulation and Corporate Governance Monitor Blog.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Regulation and Corporate Governance practice group, or the following authors:

Hillary H. Holmes – Houston (+1 346.718.6602, hholmes@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Gibson Dunn partners Winston Chan (San Francisco), Patrick Stokes (Washington, D.C.), and Oleh Vretsona (Washington, D.C.) discuss California Attorney General Rob Bonta’s recent reminder to businesses operating in California that, despite President Trump pausing enforcement of the Foreign Corrupt Practices Act, making payments to foreign officials to obtain or retain business remains illegal. The Attorney General added that California may step up corruption-related enforcement if federal authorities’ priorities shift to other areas.

In view of these and other developments, the authors conclude that “companies would be well served by reviewing their compliance programs and calibrating their compliance-related risk assessments to mitigate against changing risk calculi and enforcement realities.”

Read their discussion in Law360 [PDF].

Partner Stephen Glover (Washington, D.C.) spoke extensively with Financier Worldwide Magazine about the challenges and opportunities presented by joint venture governance, including the link to performance. “There is a very strong correlation between JV governance and JV performance,” Stephen told the magazine. “Governance systems should be designed to ensure that the partners have a voice in the decisions that they view as most important, that they are incentivised to resolve disputes, and that JV management has sufficient flexibility to respond to changing business conditions.”

Read the full interview.

Elizabeth Penava is the author of “AI Art Is in Legal Greyscale” [PDF] published by The Regulatory Review.

Reprinted with permission from The Regulatory Review. Originally published on January 24, 2023