Imagine a fintech startup that deploys an artificial intelligence (“AI”) model to underwrite small-business loans—only to face a demand letter alleging “intentional discrimination” under Texas law. On June 22, 2025, Governor Greg Abbott signed the Texas Responsible Artificial Intelligence Governance Act (“TRAIGA”), placing Texas at the vanguard of state-level AI regulation. As the fourth state to enact a comprehensive AI statute—after Colorado, Utah, and California—Texas now offers both a clear roadmap for developers and heightened risks for those whose AI decisions cause harm.

With the passage of TRAIGA, business trial lawyers are entering an era where AI regulation is no longer a theoretical concern but a live, litigable issue. For trial attorneys handling commercial disputes, TRAIGA’s unique blend of intent-based liability and centralized enforcement reshapes the evidentiary landscape, requiring more rigorous documentation and strategic foresight. Business lawyers must now anticipate how a client’s AI-related decisions prone to allegations of bias—especially in areas such as lending, hiring, and marketing—might be scrutinized under a standard that demands proof of knowing and intentional misuse.

TRAIGA, which takes effect January 1, 2026, introduces a suite of targeted prohibitions, regulatory mechanisms, and compliance frameworks that will shape not only the development and deployment of AI systems in Texas but also the broader landscape of business litigation and regulatory strategy. For business trial lawyers, understanding the contours of this new law is essential, as it will influence litigation strategy, evidentiary standards, and the future of AI-driven business operations.

The version of TRAIGA that was passed and signed into law represents a pared-down evolution from earlier, more expansive drafts that mirrored the risk-based frameworks of the EU AI Act and the Colorado AI Act. The final version, however, reflects a pragmatic shift toward outcome-focused regulation, emphasizing specific prohibited uses of AI while scaling back broad compliance mandates for the private sector. This approach has direct and nuanced implications for business litigation in Texas and potentially beyond.

Intent-Based Evidentiary Standard for Liability

Under Section 4 of TRIAGA, civil liability attaches only where a developer or deployer “intentionally” uses AI to

1. promote self-harm or suicide;
2. promote harming another person;
3. facilitate criminal activity;
4. engage in unlawful discrimination;
5. produce unlawful deepfakes or child-exploitation content; or
6. infringe, restrict, or impair constitutional rights.

The elevated burden of proof placed on plaintiffs is one of TRAIGA’s most consequential implications for business trial attorneys. This intent-based standard departs from risk-only frameworks (e.g., the EU AI Act), requiring claimants to adduce evidence of purposeful misconduct—not merely disparate outcomes. Traditional arguments relying on disparate outcomes or statistical disparities will no longer suffice without evidence of deliberate intent; claimants must now demonstrate that the developer or deployer acted to discriminate or cause harm intentionally.

This heightened standard may reduce the volume of AI-related business litigation premised on algorithmic bias, particularly in employment, lending, and other regulated sectors. It also makes early discovery strategy and internal documentation absolutely pivotal, placing a premium on robust documentation and internal controls. TRAIGA’s safe harbor provisions—such as affirmative defenses for parties that discover violations through internal review, adversarial testing, or compliance with recognized risk management frameworks (e.g., the National Institute of Standards and Technology (“NIST”) AI Risk Management Framework)—may encourage businesses to adopt proactive compliance measures and self-audit protocols. Attorneys representing businesses should proactively advise clients to develop and maintain records showing compliance with these recognized frameworks to activate the safe harbor protections and blunt any allegation of purposeful harm. Further, businesses should strengthen internal controls and preserve audit trails demonstrating their AI systems’ legitimate aims and operational safeguards. These records can become powerful tools during motions to dismiss or summary judgment.

TRAIGA vests exclusive enforcement authority in the Texas attorney general, precluding private rights of action. The attorney general is empowered to investigate alleged violations, issue civil investigative demands, and seek injunctive relief and civil penalties ranging from $10,000 to $200,000 per violation, with additional penalties for continuing violations. TRAIGA also provides for a sixty-day cure period following notice of a violation, incentivizing prompt remediation. This centralized enforcement model may streamline the adjudication of AI-related disputes, reduce the risk of inconsistent outcomes, and provide greater predictability for businesses.

Impact on Discovery and Pretrial Practice

TRAIGA’s focus on intent and its explicit exclusion of liability for unintended third-party misuse of AI systems may limit the scope of discovery into downstream uses. In traditional business litigation, especially in cases involving products or technologies with broad downstream applications, plaintiffs often seek extensive discovery into how a product was used by third parties, the range of possible outcomes, and the foreseeability of misuse. Such discovery can be costly, time-consuming, and burdensome, as it may require the production and analysis of voluminous data regarding end-user behavior, system outputs in varied contexts, and communications with customers or partners.

AI tools like Technology-Assisted Review (“TAR”) can bring order to an overwhelming amount of complex data that in recent years had complicated discovery and pretrial motion practice while creating a massive litigation expense burden. TRAIGA clarified the lines as to what behavior is culpable, which reduces disputes over the adequacy of internal controls and the potentially limitless downstream effects of AI systems in the hands of third parties. And because TRAIGA excluded TAR from its scope, it implicitly affirms continued use of TAR to streamline discovery of just the relevant evidence.

Potential Benefits and Drawbacks of TRAIGA’s Sandbox Regulatory Model

One of TRAIGA’s most innovative features is the establishment of a regulatory sandbox program, administered by the Texas Department of Information Resources in consultation with the Texas Artificial Intelligence Council established by the legislation. The sandbox allows approved participants to develop and test AI systems in a controlled environment, temporarily exempt from certain state licensing and regulatory requirements, for up to thirty-six months.

The sandbox model offers regulatory flexibility and innovation by providing a structured pathway for businesses to experiment with novel AI applications without the immediate risk of regulatory penalties, which is particularly valuable in areas of legal uncertainty where traditional regulatory frameworks may lag behind technological advances. Additionally, by requiring quarterly reports on system performance, risk mitigation, and stakeholder feedback, the sandbox generates empirical data that can inform future legislative and regulatory reforms, enhancing the capacity of regulators and lawmakers to craft targeted, effective policies. Moreover, the Texas sandbox positions the state as a leader in AI regulation, potentially serving as a model for other jurisdictions and facilitating cross-jurisdictional data analysis, which may lay the groundwork for future reciprocity agreements, enabling businesses to scale innovative AI solutions across state lines with greater legal certainty. For business law practitioners, the sandbox offers a clear, time-limited framework for managing regulatory risk during the development and deployment of cutting-edge AI systems, and participation in the sandbox may also serve as a mitigating factor in enforcement actions, further incentivizing compliance.

However, the sandbox model also presents potential drawbacks. While it promotes innovation, it might contribute to a fragmented regulatory landscape if other states adopt divergent models or standards, creating challenges to harmonizing compliance across jurisdictions for businesses operating nationally. Effective oversight of the sandbox requires significant administrative resources, including technical expertise and ongoing monitoring, potentially creating barriers to entry for smaller businesses and limiting the program’s inclusivity. While the future of state-level AI sandboxes is safe for the moment, it remains uncertain due to the prospect of federal preemption. Though one had been proposed, there was no state AI law moratorium in the recently signed federal budget bill; it was stripped out of the U.S. House version by the U.S. Senate. Still, the political forces that had it included in the first place may try again. This could suspend or nullify the Texas sandbox and similar programs, making it essential for business law professionals to closely monitor federal developments, as the regulatory environment may shift.

Practical Advice for Business Law Practitioners

Ultimately, TRAIGA isn’t just a compliance statute—it’s a blueprint for how AI liability will be litigated. For business trial lawyers, this signals a shift in how risk is assessed, evidence is preserved, and cases are pled. Those who understand TRAIGA’s enforcement structure, sandbox incentives, and documentation expectations will not only better defend their clients but also shape emerging jurisprudence on AI accountability. In this evolving landscape, the ability to speak the language of both law and machine will become a key differentiator in the courtroom.

TRAIGA marks a watershed moment in the evolution of AI regulation. By focusing on specific, outcome-based prohibitions and embracing innovative regulatory mechanisms such as the sandbox model, Texas has crafted a framework that attempts to balance the imperatives of innovation, consumer protection, and legal certainty.

For business law practitioners, TRAIGA’s intent-based liability standard and robust safe harbor provisions offer both challenges and opportunities. Practitioners should consider advising clients to do the following:

• Maintain clear records of the intended uses and operational controls of AI systems to support defenses against claims of intentional misconduct.
• Implement and document compliance with frameworks such as the NIST AI Risk Management Framework to avail themselves of statutory safe harbors.
• Stay abreast of federal and state legislative activity, particularly regarding potential preemption and the evolution of sandbox programs.
• Evaluate whether to join the regulatory sandbox for innovative AI projects, balancing the opportunities for experimentation against the administrative requirements and potential for regulatory change.

This is the seventh installment in the Year in Governance Series from the In-House Subcommittee of the ABA Business Law Section’s Corporate Governance Committee. Each month, the series will share key tips on a different corporate governance topic. To get involved in the Corporate Governance Committee, please visit the committee’s webpage.

A message from Kathy Jaffari: “As Chair of the Corporate Governance Committee, I would like to extend my sincere appreciation to the authors for this publication. The Corporate Governance Committee has ongoing opportunities for writing and volunteering with various projects, whether it’s an article you want to publish or a CLE that you want to present. Our Committee is dedicated to helping you promote informative resources for corporate governance practitioners. You may contact me at [email protected] to get involved.”

The form and substance of board materials, aligned to a well-developed board agenda, are critical in enabling board members to effectively oversee the management of the company’s business, meaningfully engage in strategy and risk discussions, and satisfy their fiduciary duties, especially the duty of care. Well-organized and timely provided board materials are essential to ensure that directors are knowledgeable, prepared, and focused on the most significant issues, and to evidence the satisfaction of applicable corporate governance requirements.

1. Focus on the objectives. Board decks and memoranda, particularly those that discuss key strategies, should be aligned to the overall objectives for the particular board session or committee meeting for which they are prepared. Consideration should be given as to whether the matter being presented is for board approval, for discussion, or for informational purposes, and materials should clearly indicate why they are being included.
2. Implement a consistent format. A uniform, consistent format should be used for all board materials, including using clear and concise language, executive summaries, tables of contents, headings, graphics and visual aids, bold and/or underlined type to highlight key information, and appendices or glossaries. Utilizing a consistent format will enable directors to more easily navigate board materials and prioritize important information in preparation for key decision points and discussions.
3. Include necessary information while avoiding overload. Board materials should include the key information required to inform and prepare board members, including financial data and other important information and metrics regarding key strategies and risks. However, because overloading directors with too much information can be as counterproductive as providing too little information, board materials should not include excessive or irrelevant information or repetitive data that would be better presented in a summarized format or as a read-only item.
4. Provide context and use plain English. Because board members are not involved in the day-to-day management of the company, it can be helpful to provide context on the topic presented or a reminder that ties back to a discussion from a prior board meeting. Consider using one-slide summaries or executive summaries to provide directors with basic background on the topic presented and how it connects to the overall objectives of the meeting and, if applicable, to prior board discussions. In addition, avoid using industry jargon or acronyms without explanation. When dealing with complex topics, consider using a glossary that defines key terms, phrases, and concepts.
5. Confirm accuracy—especially if using AI. Management should take steps to confirm that board materials contain accurate information and present a complete picture, including information that is both positive and negative for the company. With the increased use of artificial intelligence (“AI”), it is even more important to confirm accuracy, given that some AI platforms are known to generate inaccurate, incomplete, or out-of-date content.
6. Provide adequate time for review. Board materials should be circulated pursuant to an established practice that provides adequate lead time for directors to carefully review the materials, form opinions prior to board meetings, and raise questions that may be answered or discussed in advance of meetings. Providing complex materials relating to financial or technical topics without adequate notice could give rise to allegations that decisions were made without full understanding or consideration of the relevant factors. While companies may take different approaches, distributing board materials at least one week in advance of board meetings would be consistent with applicable best practices.
7. Distribute materials securely. If possible, leverage a secure board management platform for distributing board materials in advance of meetings. Many vendors offer board management solutions that offer cybersecurity controls, access controls, and integration with company record storage and collaboration platforms. Additional best practices include providing instructions that directors may follow to access board materials and confirming with directors that they have been able to access board materials after they have been posted and made available.
8. Consider access and searchability. Another advantage of using a board management platform is that most vendors offer a way for directors to quickly access board materials from past meetings and search past board materials for specific documents or issues. This saves directors time when preparing for board meetings, as many board and committee topics will constitute regular agenda items or updates from a prior board meeting.
9. Destroy drafts. Drafts of board decks and memoranda can potentially be discoverable in subsequent litigation focusing on the actions or decisions of the board. Thus, it’s best to put in place a process for the destruction of draft decks, memoranda, and other materials other than the final versions that were shared with the board or a board committee. If drafts are available and are subsequently produced, changes to the content of the materials can be taken out of context and misconstrued.
10. Seek feedback and adjust. Following board meetings, management should seek feedback from directors (and should share feedback internally) regarding the form and substance of board materials, including which materials were effective and where there could be opportunities for improvement going forward. Feedback on board materials can also be requested through the annual board evaluation process. As new directors join the board and new issues are presented at meetings, ensuring that board materials hit the mark will always be an iterative process.

The views expressed in this article are solely those of the authors and not their respective employers, firms, or clients.

The corporate alternative minimum tax (“CAMT”) requires noncorporate taxpayers—e.g., partnerships, limited liability companies, and S corporations (“noncorporate entities”)—to compile unique accounting books (“CAMT books”) for high-income corporate interest holders (“CAMT corporations”) for CAMT purposes. This process is time-intensive and expensive, and it requires backdating to years before the CAMT corporation obtained an ownership interest in the noncorporate entity. This requirement may even be triggered regardless of how many other entities are in the ownership chain between the noncorporate entity and eventual CAMT corporation.

Under model governance documents, the cost burden of this process is on the noncorporate entity. Drafters of governance documents should consider the potential tax liability of all interest holders and potential interest holders when drafting governance documents. Failure to consider CAMT issues when preparing governance documents could cost founders in the long run.

CAMT: A Primer

CAMT came into effect under the Inflation Reduction Act of 2022. CAMT, generally speaking, is a 15 percent minimum tax on large corporations. CAMT applies to corporations making an average of $1 billion a year over a three-year span or $100 million a year over a three-year span for certain U.S. subsidiaries of foreign-parented groups (i.e., CAMT corporations). This amount is calculated using adjusted financial statement income (“AFSI”)—that is, accounting book income with certain adjustments. AFSI requires a third set of accounting books (i.e., CAMT books) to be prepared and maintained (in addition to regular accounting books and tax books). Thus, if a corporation, based on its AFSI, makes $1 billion a year, then the corporation must pay at least $150 million in federal income tax and compile CAMT books. If the standard federal corporate tax system does not require a payment of at least $150 million, CAMT requires a true-up tax bringing the total amount paid to $150 million.

At first glance, the CAMT framework appears narrow and irrelevant to most businesses, but there are a few crucial considerations that drastically expand CAMT’s impact. First, the $1 billion and $100 million thresholds are not inflation indexed, so the scope will expand over time. Second, the CAMT books must be maintained for any entity that may eventually be captured by CAMT because the preparation of the books would otherwise require backdating. Third, and most expansive, in order for a large corporation to fully prepare its own CAMT books, it must receive accurate income information from its pass-through subsidiaries prepared as CAMT books. This information must be provided even if the pass-through subsidiary itself is not subject to CAMT. Further, the requirement for the pass-through subsidiaries to prepare the books applies all the way up the chain to the CAMT corporation. In other words, every pass-through subsidiary controlled by a CAMT corporation (no matter how small the subsidiary, how attenuated the relationship, or whether the CAMT corporation is a minority owner) must prepare its own CAMT books.

Noncorporate Entity Burden

Generally, noncorporate entity operating agreements require the noncorporate entity to bear the cost burden of preparing tax information for its owners. For example, section 8.4 of the LexisNexis form operating agreement provides thus: “The Company shall send or cause to be sent to each Member within ninety (90) days after the end of each taxable year (i) such information as is necessary to complete the Member’[s] federal and state income tax returns.”^[1]

There are two approaches that the noncorporate entity could take in response to standard tax information operating agreement language: (1) bear the cost of preparing CAMT books for the CAMT corporation or (2) give all documents necessary for preparing CAMT books to the CAMT corporation, no matter how minor or attenuated the CAMT corporation’s interest.

First, if the noncorporate entity bears the cost burden of preparing CAMT books, this disproportionately harms the interest holders who do not have to comply with CAMT. These noncorporate entity interest holders must share, through their ownership interest, in the cost of CAMT compliance without receiving any benefit in return.

On the surface, this looks like an issue only for larger entities with corporate parent groups, but failing to consider CAMT expenses at the formation stage could cost founders in the long run. Further, there are many ways that a CAMT corporation could eventually become involved in a closely held business: (i) the founders could sell a portion of their ownership interest, (ii) a bankruptcy proceeding could result in the forced sale of an economic interest, or (iii) a founder could transfer their economic interest. Economic interests may generally be freely transferred. This can easily, sometimes over the objection of other owners, give a CAMT corporation (or any subsidiary of the CAMT corporation, no matter how distant) a taxable interest in the closely held business.

Second, under most standard governance documents, the noncorporate entity’s obligation can be satisfied by providing the CAMT corporation with sufficient information to complete the CAMT corporation’s federal tax returns. In most cases, however, simply giving the CAMT corporation enough information to compile the CAMT books itself is not an acceptable solution because that would transmit all, or nearly all, of the noncorporate entity’s financial documents to the CAMT corporation, even if the CAMT corporation is a minority owner.

Other Alternative Minimum Taxes

This tax information issue is not unique to CAMT: Organisation for Economic Co-operation and Development (“OECD”) Pillar II also requires the creation of separate accounting books and imposes a minimum tax on certain businesses. In the case of OECD Pillar II, those businesses are large multinational businesses. The same CAMT tax information and compliance cost issues arise for OECD Pillar II—that is, when a small company that does not need to comply with OECD Pillar II is owned in some part by a company that must comply with OECD Pillar II, the small company faces issues similar to being owned by a CAMT corporation.

CAMT followed in the footsteps of OECD Pillar II; these alternative minimum taxes are becoming more popular as the potential to exploit traditional corporate tax structures becomes more common. With this popularity, the issue of preparing entirely separate books for the different accounting structures of all entities in an ownership structure will only continue to proliferate. Further, there is nothing to prevent these alternative minimum tax structures from applying to smaller companies in the future.

Risk Mitigation for Alternative Entities

Going forward, governance documents should carve out CAMT-related expenses from a noncorporate entity’s obligation to provide tax information. If a company only engages with certain tax regimes (e.g., CAMT or OECD Pillar II) because of the status of one or more of its members, the cost of engaging with those tax regimes should be on those members. If the noncorporate entity, as a whole, bears the cost of engaging with those tax regimes, then this cost unrightfully diminishes the earnings of the interest holders of the noncorporate entity who have no obligation to engage with CAMT or other similar tax regimes.

Furthermore, those responsible for the maintenance of governance documents should consider amendments that address CAMT and other similar tax regimes.

1. Operating Agreement (Member-Managed, Multiple Members) (DE LLC), LexisNexis, (emphasis added). ↑

From a European perspective, last year’s U.S. presidential election may have led to a big change, but we recognize another shift coming—one from this side of the world that will bring massive transformation to global commerce and planetary health, and for which corporate leaders are already embracing the long view.

The 2024 Forbes Sustainability Report affirms that environmental responsibility is a key factor for investment decisions, bowing to the demands and preferences of modern consumers. Close to 65 percent of C-suite respondents named sustainability a top-three priority, and leaders of companies with a chief sustainability officer reported 25 percent more confidence that their environmental and sustainability initiatives positively impact shareholder value. A new European regulation will add fuel to that perspective.

The European Ecodesign for Sustainable Products Regulation: A Continental Shift

July 18, 2024, quietly marked the beginning of a new era in global environmental policy. While the moment passed with little notice in the U.S., it introduced a landmark change in Europe: the formal adoption of the European Union’s Ecodesign for Sustainable Products Regulation (“ESPR”), a foundational component of the EU Green Deal. In April 2025, the first working plan to implement the regulation was adopted.

Ten years in development, ESPR represents a profound regulatory shift. For the first time, it introduces a binding and scientifically rigorous framework for defining and measuring the environmental impact of consumer products. At the heart of this framework is the Product Environmental Footprint (“PEF”) method. Unlike traditional measures that focus solely on carbon emissions, PEF takes a broader, scientific view—incorporating metrics like land use, water consumption, and resource depletion. The goal is to establish a common, objective standard across industries and member states, replacing greenwashing with verifiable data.

The scope of ESPR is sweeping. Most consumer products sold in the EU—spanning a significant portion of the global manufacturing economy—will soon be required to carry a “digital product passport.” This passport will contain detailed information about a product’s composition, environmental footprint, recyclability, and traceability. The aim is transparency: to make environmental impact as visible and measurable as price or performance.

But ESPR goes further. In addition to transparency, it will impose category-specific ecodesign requirements. These may include mandatory thresholds, such as a minimum percentage of recycled content or maximum allowable water usage. These performance-based rules will compel manufacturers to redesign products with sustainability at the forefront and transform how entire industries operate.

Implementation will roll out by product category, beginning with textiles, iron and steel, aluminum, furniture, mattresses, and tires. The first requirements are expected to take effect between 2026 and 2027.

A New Form of Environmental Leadership

ESPR is not simply another regulatory update—it signals a systemic shift in how markets will operate. For the first time, a major political institution has declared that access to its economy depends not on political alignment or trade preferences, but on compliance with scientifically defined environmental standards. With twenty-seven member countries and nearly 450 million consumers, the EU’s purchasing power commands global attention. This especially applies to the U.S., the world’s second-largest manufacturer, whose manufacturing exports amounted to more than $1.6 trillion in 2024, representing nearly 6 percent of U.S. gross domestic product.

ESPR can be understood as a form of environmental sovereignty—not grounded in protectionism, but in evidence-based policy that recognizes that manufacturing supply chains are global. It creates a universal benchmark that other nations and regions can adopt. In the United States, where federal climate policy remains fractured, states are taking similar steps. California’s SB 219, passed in 2024, requires both public and private companies to report climate-related risks, with a particular focus on Scope 1, 2, and 3 greenhouse gas emissions. Other states, including New York, Illinois, and Washington, are considering comparable measures.

Sustainability as Strategy, Not Compliance

While the ESPR rollout will be gradual, starting with high-impact industries such as fashion, steel, and furniture, the timeline is short—and the stakes are high. Companies that delay preparation risk losing access to the EU market. Those that act now may find themselves with a long-term strategic advantage.

The most immediate benefit of compliance is market access. But there’s a deeper opportunity: to gain a systemic understanding of a company’s environmental impact. Carbon footprint alone is no longer a sufficient measure. The PEF method provides a holistic, scientific framework for evaluating total environmental performance. This allows businesses to identify the most effective levers for improvement, rather than defaulting to narrow carbon-reduction strategies that may shift impacts elsewhere and create unintended consequences.

This more complete understanding can drive meaningful innovation. Because the PEF method is publicly available and free to use, companies can self-assess and act independently. The data gathered through this process can also be shared with consumers in a clear and credible way, offering a path to brand differentiation rooted in real environmental performance.

Such is the case for major European brands like Lacoste, Chantelle, and Decathlon, who have adopted the PEF method to understand the reality of their products’ environmental footprint, and to initiate ambitious strategies to reduce their footprint by acting on the right leverage. The goal of these pioneering players is to achieve a level of environmental performance that will allow them to meet the ecodesign requirements of ESPR and leverage their environmental performance as a competitive advantage.

In the US, where no such binding regulatory framework exists, ESPR presents a real opportunity for American companies whether they operate in Europe or not. Sustainability metrics and standards are currently unclear and inconsistent, meaning truly virtuous actors cannot distinguish themselves from their competitors by simply touting environmental claims. For US companies, especially those viewed as leaders in sustainability such as Patagonia or Ralph Lauren, adopting the scientific framework of ESPR can not only open real opportunities for them to understand their impact and concretely reduce it through ecodesign, but also enable them to distinguish themselves and promote environmental leadership in a rigorous and transparent manner, which is becoming increasingly correlated with shareholder value.

As climate-related disasters grow more visible—wildfires, droughts, floods—the demand for environmental accountability is no longer abstract. For younger generations in particular, sustainability is a core expectation. Companies unable to demonstrate credibility in this area risk losing not just customers, but talent. Conversely, those that lead with transparency and science-backed action have an opportunity to future-proof their operations and deepen trust with both consumers and employees.

A Roadmap for a Global Transition

By grounding environmental policy in science rather than politics, the PEF method offers a globally applicable roadmap. Any government, business, or institution can adopt its principles, regardless of local political context. That universality is part of what makes ESPR so powerful. It offers a level playing field where sustainability is measured by shared standards and driven by common goals.

The European Union has done more than pass a regulation. It has opened the door to a global ecological transition—one that aligns environmental ambition with systemic clarity. In doing so, it offers businesses not just a mandate to comply, but a framework to lead.

As a general rule, governments, sovereign wealth funds, national oil companies, and the like are immune from suit unless one of the Foreign Sovereign Immunities Act (“FSIA”) exceptions to immunity applies. The FSIA details the rules governing when it is permissible to sue a foreign government or an instrumentality of a foreign government in federal court.

Until June, the rule in the Ninth Circuit was that a sovereign could be subject to suit in federal court, even under one of the listed exceptions, only if the foreign govern­ment was also subject to personal jurisdiction in the trial court, based on a “minimum contacts” ana­lysis. The U.S. Supreme Court in CC/Devas (Mauritius) Ltd. v. Antrix Corp., No. 23-1201, 605 U.S. ___ (2025), decided on June 5, reversed the Ninth Circuit, holding that a foreign sovereign can be sued if one of the FSIA exceptions applies and process is properly served, without the need for an additional personal jurisdiction showing.

Antrix arose from a satellite communications deal between a satellite company (Devas) and an arm of the Indian government (Antrix). After Antrix backed out of performance under the parties’ agreements, Devas commenced an arbitration to recover damages for breach of contract. The arbitrators ruled in Devas’s favor and rejected Antrix’s defense that the force majeure provision in the contract excused Antrix from performing. (The facts are a lot more complex than that, but for present purposes that suffices.)

Devas sued in federal court in Seattle to confirm the arbitration award. The FSIA has an immunity exception for arbitration awards in 28 U.S.C. § 1605(a)(6)—the idea is that if a sovereign agreed to go to arbi­tration, it has to also be subject to a judgment confirming the award. But under Ninth Circuit precedent, the case against Antrix was dismissed for lack of jurisdiction because Devas did not show that Antrix had mini­mum contacts with the trial court.

The Supreme Court reversed that holding 9–0. The reasoning was very straightforward. The FSIA in 28 U.S.C. § 1330(a) provides district courts with jurisdiction to hear cases against sovereigns that come within one of the exceptions in §§ 1605–1607, and it provides in § 1330(b) for personal jurisdiction over that sovereign in cases where an exception applies and the sovereign is served with process. There is no basis for adding in an additional requirement beyond what the statute requires.

As a legal opinion, this one is unsurprising. The Supreme Court in recent years has generally applied statutes at face value, enforcing what the statute says and not imposing additional glosses beyond what Congress included in the language of the statute. That the decision was unanimous bears this out.

It’s also worth noting that each of the FSIA exceptions has provisions for contacts with the United States. For example, the commercial activity exception is the one most commonly invoked. That exception is in 28 U.S.C. § 1605(a)(2); it permits suits against foreign sovereigns based on (among other things) “a commercial activity carried on in the United States by the foreign state.” Similar provisions for United States contacts of one kind or another appear in other FSIA exceptions, such as property rights (§ 1605(a)(3)), tortious activity (§ 1605(a)(5)), or terrorism (§ 1605A). So personal jurisdiction concerns may actually be addressed in the provisions of the exceptions—insofar as there has to be some kind of minimum con­tact with the United States, the exceptions define the scope of the necessary contact.

All that said, this result is significant for litigation against sovereigns. The FSIA exceptions are complicated enough as it is. After all, it is no small thing to sue a foreign country, so it makes sense that the set of permissible claims would be carefully defined and cabined. Because of that, there is no reason to add yet more requirements on top of those already defined in the statute. At least now there is a bit more certainty: a litigant who wants to sue a foreign government can know that if its claim is within an exception, it should be able to proceed.

Courts have shown a growing skepticism toward plaintiffs’ use of short-seller reports to plead loss causation for securities claims. Recent decisions have increasingly dissected when a short-seller report will fail to survive attacks from a motion to dismiss. This article will address recent case developments across various circuits before addressing the key takeaways from this narrowing trend.

Short-Seller Reports: A Primer

Short selling is a stock-trading method in which traders make money from stock prices declining. A trader is considered “short” on stock when it borrows stock to sell on the market with the goal of buying that stock back once it decreases—the difference between the initial sale price and the subsequent purchase price is the profit that the trader makes. Short selling is both an asset to the market and a potential tool for manipulation because it encourages greater market research by investors who stand to make a profit from stock prices declining.

Short sellers can publish reports (“short-seller reports”) detailing information on a company, including reasons that the company’s stock may decline, which can negatively affect the confidence in, reputation of, and overall stock price of the company. If a short-seller report has negative information about a company that impacts market opinion, short sellers profit from the declining stock price. Therefore, short sellers have a financial incentive to detect and publish fraud in the market, a potential bias when facing profit-making opportunities.

Shareholder-plaintiffs filing federal securities claims have used short-seller reports to plead loss causation, an element of securities claims referring to a causal connection between the alleged material misrepresentation and the actual loss to the company’s shareholders. Loss causation allegations are reviewed “for ‘sufficient specificity,’ a standard ‘largely consonant with Fed. R. Civ. P. 9(b)’s particularity requirement.”^[1]

Until recently, courts have generally permitted using short-seller reports to plead a “corrective disclosure” to allege loss causation when a report provides new information to the market that purportedly reveals a company’s fraudulent behaviors or misrepresentations. However, federal courts nationwide are increasingly limiting the use of short-seller reports to plead loss causation where the reports use confidential or anonymous informers, disclaim editorial creativity, or fail to add new information to the market.

Recent Case Developments in the Use of Short-Seller Reports

Recently, courts have been highlighting concerns over the content of short-seller reports, impacting their use by plaintiffs to plead securities claims.

For example, in Defeo v. IonQ, Inc., shareholders of IonQ, Inc. (“IonQ”) brought a federal securities putative class action against IonQ, dMY Technology Group, Inc., and related officers from both entities in the U.S. District Court for the District of Maryland, alleging violations of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 for materially false or misleading statements in connection with a merger.^[2] The suit followed an online short-seller report published one year after the merger agreement, claiming that IonQ was a scam based on its misstatements concerning the capabilities of IonQ’s technology, which the plaintiffs argued caused the stock price to drop 6.7 percent. However, the report quoted from an anonymous alleged ex-employee and disclaimed that parts “may be paraphrased, truncated, and/or summarized solely at [the short seller’s] discretion, and do not always represent a precise transcript of those conversations.”^[3]

The defendants moved to dismiss for failure to state a claim, which the district court granted, finding that an anonymously sourced report disclaiming its own accuracy cannot support loss causation. On appeal, the U.S. Court of Appeals for the Fourth Circuit affirmed the district court’s ruling on the motion to dismiss, stating that “the Shareholders here fail[ed] to clear the high bar of showing that the [short-seller report] revealed the truth of IonQ’s alleged fraud to the market” because the short-seller report relied on anonymous sources for nonpublic information and disclaimed that the source material was subject to creative input.^[4]

The Fourth Circuit was persuaded by the Ninth Circuit’s recent decision, In re BofI Holding, Inc. Securities Litigation, expressing concerns about anonymous and biased interests of short sellers.^[5] In re BofI addressed whether blog posts published online by anonymous short sellers that disclaimed the post’s accuracy would qualify as a corrective disclosure for loss causation.^[6] The Ninth Circuit held that anonymous blog posts cannot plead a corrective disclosure where the authors disclaimed potential inaccuracies and stood to financially gain from declining stock prices.

Other district courts have expressed similar concerns regarding anonymous or confidential informants because shareholder-plaintiffs have difficulty pleading the truth with the requisite specificity necessary to survive a motion to dismiss.

In MacPhee v. MiMedx Group, Inc., the Eleventh Circuit similarly emphasized that short-seller reports cannot be used as a basis for corrective disclosures where the reports utilize public information—that is, the court found that the information has to be new to the market to be considered “corrective.”^[7] In MacPhee, multiple reports were published addressing MiMedx’s fraudulent scheme to artificially inflate its sales to provide “revenue injections.”^[8] The court held that repackaging public information is not enough to qualify a short-seller report as a corrective disclosure where it disclaims that it “only repeated information already in the public domain,” despite the stock potentially dropping in response to the negative reports.^[9]

This reasoning was the basis for the U.S. District Court for the Central District of California’s decision in In re Genius Brands International, Inc. Securities Litigation.^[10] There, the court partially granted dismissal on the defendants’ motion to dismiss where one of the plaintiff’s claims was based on an alleged misstatement that the company had never hired anyone to solicit its securities, which a short-seller report refuted and the hired third party confirmed. However, the court held that the short-seller report was insufficient to plead loss causation because it only contained easily accessible public information and directly touched on the misstatement at issue.

The U.S. District Court for the Southern District of New York held similarly in In re Ideanomics, Inc. Securities Litigation. In In re Ideanomics, the lead shareholder-plaintiff brought claims under sections 10(b) and 20(a) of the Securities Exchange Act alongside Rule 10b-5(b) against defendants Ideanomics, Inc., and its relevant officers and director.^[11] Two short sellers issued a report and tweets regarding Ideanomics, which the plaintiff alleged revealed multiple misstatements in Ideanomics’s public press releases, earnings calls, and interviews with the individual defendants. The defendants moved to dismiss the securities claims for failure to state a claim, arguing in part that loss causation was not adequately alleged where the two short-seller reports were not corrective disclosures. The two short-seller reports failed to disclose any actual undisclosed facts. The court further elaborated that a photograph of the company’s site published by one short seller, the only part of the report that could potentially qualify as an undisclosed fact, was too attenuated from the stock price decline. The complaint failed to allege any reliance on the photograph to cause the drop in stock price and provided no explanation for why the stock price increased in the days following its initial decline after the short-seller reports were published. The court subsequently granted the motion to dismiss, in part because of the plaintiff’s failure to adequately plead loss causation where the short-seller reports did not publish undisclosed facts.

However, some courts still find the reliability of short-seller reports to be a “question of fact” and not to be decided on a motion to dismiss.^[12]

For example, in Saskatchewan Healthcare Employee’s Pension Plan v. KE Holdings Inc., the Southern District of New York found that the short-seller report pled to support loss causation was sufficiently reliable to deny the motion to dismiss.^[13] The district court stated that courts in the Southern District of New York frequently accepted short-seller reports at the pleading stage, where the issue is whether “there is a basis to view the short seller’s factual allegations as reliable as opposed to fabricated on self-interest,” which is “[ultimately] a question of fact.”^[14]

However, the short seller at issue not only created a program to analyze data published by the company but also provided a step-by-step analysis of its findings. The report also did not utilize confidential sources for information. The court found that because “the Report cites facts that ‘tend to substantiate these allegations or reveal the basis for the short-seller’s factual assertions,’” it provided “sufficiently reliable support” for the shareholder-plaintiff’s claims.^[15] This impliedly supports the current narrowing trend regarding short-seller reports, requiring plaintiffs to use new, reliable, and accurate short-seller reports to survive a motion to dismiss.

Key Takeaways

Generally, courts express greater skepticism toward short-seller reports used to allege loss causation where the reports are not pled with specificity to determine the veracity of their sources, and courts will grant motions to dismiss on this basis. This is particularly true when the information in the report is (1) not “new” to the market, (2) stems from an anonymous or confidential source, and (3) disclaims the editorial freedom taken with its drafting. Short-seller reports will likely continue to be permitted to support loss causation allegations at the motion to dismiss stage in circumstances where the report is adequately pled to allege its accuracy and provides new information to the market that could verify alleged wrongdoing by the company.

This trend requires shareholder-plaintiffs to exercise caution using short-seller reports to plead loss causation for securities claims, encouraging the use of more established and well-detailed short-seller reports. Defendants should analyze short-seller reports used to plead loss causation for discrepancies, including analyzing the report’s utilization of information in the public domain, the reliability of the report’s sources for information, and disclaimers provided by the short seller as potential avenues to seek early dismissal of such claims.

1. Defeo v. IonQ, Inc., 134 F.4th 153 (4th Cir. 2025). ↑

2. Id. ↑

3. Id. at 159. ↑

4. Id. at 163. ↑

5. In re BofI Holding, Inc. Sec. Litig., 977 F.3d 781 (9th Cir. 2020). ↑

6. Id. at 797. ↑

7. MacPhee v. MiMedx Grp., Inc., 73 F.4th 1220, 1246 (11th Cir. 2023) (reaffirming Meyer v. Greene, 710 F.3d 1189, 1199 (11th Cir. 2013)). ↑

8. Id. at 1230. ↑

9. Id. at 1246. ↑

10. In re Genius Brands Int’l, Inc. Sec. Litig., 763 F. Supp. 3d 1027, 1039–41, 1046 (C.D. Cal. 2025). ↑

11. In re Ideanomics, Inc., Sec. Litig., No. 20 Civ. 4944 (GBD), 2022 WL 784812, at *1 (S.D.N.Y. Mar. 15, 2022). ↑

12. Saskatchewan Healthcare Emp.’s Pension Plan v. KE Holdings Inc., 718 F. Supp. 3d 344, 382 (S.D.N.Y. 2024). ↑

13. 718 F. Supp. 3d 344. ↑

14. Id. at 382. ↑

15. Id. (quoting In re Hebron Tech. Co., Ltd. Sec. Litig., 2021 WL 4341500, at *13 (S.D.N.Y. Sept. 22, 2021)). ↑

In the wake of substantial budget reductions across federal and state agencies, a growing number of government attorneys are contemplating transitions into private practice or corporate legal departments. This shift is part of a broader reevaluation of legal careers as the profession adapts to changes driven by technology, regulation, economics, and generational shifts.

How should an attorney make this transition? The foundation is business skills. Traditional skills associated with business development—such as the ability to build credibility, visibility, and relationships—can provide attorneys at all levels with the clarity, options, and greater control that they desire in this rapidly shifting landscape. In other words, these skills not only enhance professional growth but also provide strategic advantages in navigating career transitions and organizational dynamics, and in creating opportunities to proactively shape career paths.

Building Your Career with Strategic Engagement—Now

Whether a lawyer is exploring new roles or trying to grow within their current one, the same truth applies: career-defining opportunities rarely appear out of nowhere. Many lawyers, especially senior associates and junior partners, are told to focus on their business development plan. But often, they are not sure where they are headed.

However, you do not need certainty to begin to prepare for the next phase of your career. Lawyers who feel uncertain about what they want in the future often assume they need clarity before they can act. In fact, the sooner you start to engage and to build credibility, the more momentum you can create in building a fulfilling, intentional career.

Action to Create Direction

Direction often comes from engagement, not introspection.

Instead of waiting, a better approach is to take small, strategic steps that bring clarity through action. Talk to people you admire. Say yes to opportunities that spark interest. Share what you are focused on and interested in. The more you engage, the more you will learn about what energizes you, what you’re great at, and where you want to focus.

For example, a senior associate trying to decide between pursuing partnership or going in-house is smart to develop a strategic plan to build credibility. Activities that generate ideal client work often create visibility with future employers as well. The same approach benefits in-house and government lawyers who are shaping their current role or exploring what is next.

For early-career lawyers, this work is essential. Reputation and relationships drive access to assignments, mentorship, and leadership. Doing good work is not enough if no one knows about it. Early credibility creates long-term opportunity.

Self-Assessment as a Road to Action

Lawyers do not have to be in a period of active career transition to benefit from taking stock. A few key questions can reveal where to focus:

• What kind of work do I want more of?
• Who sees that I’m good at it and passionate about it?
• What would need to be true for me to do more of the work that energizes me?

Answering these questions can spark a shift. For example, a finance partner feeling burned out by an unsupported practice at her firm might decide to pivot toward fund formation, an area that is better resourced at her firm and a better fit. From there, she can begin to position herself accordingly, drawing on her current experience and building relationships in that space. You do not need a perfect plan—you need movement that supports your desired direction.

Building Visibility for the Right Things

If people were asked to describe your expertise, what would they say? Would it match what you want to be known for?

Visibility starts with the basics. When people look you up, what do they find? Do your profiles and public activity reflect the areas in which you want to grow? How you show up in searches is shaped by how you engage, so be thoughtful about the reputation you are building through the articles you write, the panels you participate in, the associations and industry groups you align with, and the leadership roles you take on.

This is not about self-promotion; it is about alignment. If you want more of a certain kind of work, help others connect you to it. That might mean sharing an insight at a team meeting, writing a short post about a current issue, or asking to be staffed on a project that matches your goals. Visibility makes your value easier to recognize and easier to act on.

Build Relationships That Move You Forward

Most career turning points begin with a relationship. A colleague makes a recommendation. A client refers a friend. A former classmate makes an invitation into an opportunity.

As you consider your professional network, do not forget your nonattorney contacts and people you know outside of your immediate workplace. These relationships often span internal legal connections, such as colleagues in other departments or practice groups; internal nonlegal contacts, like business partners or operational leaders; external legal peers, including former colleagues and outside counsel; and external nonlegal allies, such as industry professionals, alumni, or connectors. Once you see where your network is strong and where it is thin, you can be more intentional about where to invest.

Relationships do not need to be deep to be useful. Start small. Be consistent. Approach people with curiosity and generosity. Over time, meaningful relationships will be built on mutual respect and a shared willingness to help.

Build Before You Need It

If you are satisfied in your current role and not thinking much about visibility or relationships, consider yourself fortunate. You are likely doing work you enjoy, with people you respect, in a role that remains viable and valued. But nothing stays unchanged for too long. Priorities shift. Leaders leave. Budgets change.

When things inevitably shift, the lawyers with strong reputations and broad relationships are the ones who land on their feet. Consistently investing in credibility, visibility, and connection gives you leverage, access, and options. It puts you in control of your career trajectory—not just when things are going well, but in every season of your professional life.

A Starting Point

Lawyers do not need to know their destination to make progress. What they need is intention, momentum, and a willingness to show up for their future even before it is clear what that future will look like.

So, stay in motion. Develop credibility and invest in visibility. Grow relationships.

Your future self will thank you.

In the fight to become the new home of incorporation for corporations, both Delaware and Texas recently amended their statutes governing corporations: the Delaware General Corporation Law^[1] (“DGCL”) and the Texas Business Organizations Code^[2] (“TBOC”), respectively. Both states recently amended their statutes to specifically narrow the scope of permissible “books and records” requests, with Texas narrowing the scope of such permissible requests even more than Delaware.^[3]

These changes are particularly limiting for shareholders and investors and their counsel in Texas. But all is not lost. Those involved in Texas business disputes still have a potential fallback: Rule 202 of the Texas Rules of Civil Procedure.

The “Books and Records” Crackdown

Delaware

Prior to its 2025 revision, section 220 of the DGCL expressly provided that a corporation’s stock ledger and its list of stockholders were subject to inspection, concluding with a broad, catchall category: “other books and records.”^[4] Stockholders used the catchall category to demand a broader scope of documents and communications in their pre-litigation inspection requests.^[5] Books and records demands could be wide-ranging and expansive, allowing them to be used as an alternative to post-complaint discovery in suits against businesses.^[6] In recent years, books and records demands had reached such a volume that the Delaware Court of Chancery assigned magistrate judges to adjudicate an increasing number of the requests.^[7]

In March of this year, Delaware enacted significant amendments to DGCL section 220, which overhauled stockholder inspection rights to a company’s books and records.^[8] The amendments now narrowly define the “books and records” that stockholders may inspect and impose additional procedural hurdles.^[9] In essence, only formal corporate documents may be inspected by stockholders pursuant to a books and records request.^[10] Informal communications like internal emails, text messages, and similar electronic correspondence are omitted from the statutory list.^[11] Absent extraordinary circumstances, stockholders can no longer demand broad collections of officers’ or directors’ emails or chats as “books and records” under Delaware law.^[12]

This is a sharp contraction from prior Delaware court decisions that had allowed inspections of emails when formal documents were insufficient.^[13] These changes to DGCL section 220 aim to curb the expansive use of section 220 that Delaware courts had come to tolerate, therein reducing the burden on companies from broad pre-suit discovery requests.^[14]

Texas

Like Delaware, Texas, prior to its 2025 revision, had allowed for broader inspection of “books and records.” Following Delaware, Texas wanted to incentivize more businesses to incorporate or reincorporate to Texas, so it quickly followed suit by passing Senate Bill 29, which, among other things, limits what constitutes a “record,” who can inspect it, and when it can be inspected.^[15] Similar to Delaware’s amendment for books and records, the new law now categorically excludes emails, texts, and social media communications unless they formally effectuate corporate action.^[16]

A critical difference is that Texas blocks the use of books and records demands as a pre-litigation discovery device if litigation is expected, whereas Delaware still permits pre-suit inspections as a valuable stockholder right, subject to the new narrowed scope and heightened proof requirements.^[17] TBOC section 21.218(b-2) curtails the ability of shareholders to use inspection rights when a lawsuit is on the horizon. Under this provision (applicable to corporations with publicly traded stock, or any corporation that opts in), a shareholder’s demand “shall not be for a proper purpose” if the corporation reasonably determines that the demand is connected to certain litigation proceedings.^[18]

Specifically, if the request is made in connection with (1) an active or pending derivative proceeding on behalf of the corporation (whether already filed or “expected to be instituted or maintained” by the demanding shareholder) or (2) an active or pending nonderivative civil lawsuit in which the demanding shareholder (or its affiliate) and the corporation are adversarial parties, then the corporation can refuse inspection on the ground that no proper purpose exists.^[19] In essence, Texas has declared that a shareholder cannot use a books and records demand as a substitute for discovery in ongoing or imminent litigation—those matters must proceed through the normal litigation discovery process.^[20] This codifies a strict rule that if a shareholder is already suing (or preparing to sue) the company, inspection rights are suspended as to that subject matter.^[21]

Comparison of Delaware and Texas

In summary, Delaware and Texas have both limited books and records requests to protect corporations from onerous fishing expeditions. Delaware’s approach seeks to maintain the balance between stockholder rights and protection of corporations by giving its chancery court some discretion in exceptional cases, whereas Texas’s approach is more categorical and restrictive (especially with the litigation bar and ownership thresholds). Delaware still affords stockholders a (constrained) investigative tool as a prelude to litigation, whereas Texas has largely confined stockholders to formal disclosures and traditional discovery once a suit is filed.

Texas Rule 202 as an Alternative

However, Texas shareholders and their counsel, compared to their Delaware counterparts, may not be as limited by the changes to the “books and records” section of the TBOC as one might think. In fact, the Texas Rules of Civil Procedure provide another path for stockholders and investors to police businesses and management—even more expansively than Delaware.

Texas offers one of the most permissive pre-suit discovery mechanisms in the country through Texas Rule of Civil Procedure 202 (“Rule 202”), enabling litigants to seek depositions and evidence before filing suit—an option rarely available in other states. In Texas, Rule 202 allows for pre-suit depositions along with the potential to compel some document production relevant to the investigation.^[22] Because the rule allows a person to petition a court for authorization to take a deposition before a lawsuit is filed, it may become a significantly more valuable tool for Texas shareholders and their counsel in light of the 2025 amendments to the TBOC that restrict shareholder access to corporate books and records.

Under Rule 202, a person may petition a court for an order authorizing the taking of a deposition (1) to perpetuate testimony for use in an anticipated lawsuit or (2) to investigate a potential claim or suit to determine whether a claim exists and against whom it should be brought.^[23] The petitioner must show that (1) allowing the deposition may prevent a failure or delay of justice and (2) the petition is not filed for harassment or improper purpose.^[24] In addition, Rule 202 depositions may include document requests, and some courts have allowed a limited form of pre-suit discovery as part of the deposition process, which may include emails, texts, and other informal documents not authorized under the new TBOC section 21.218.^[25]

Stockholders historically used TBOC section 21.218 to inspect corporate records before filing derivative lawsuits to obtain board minutes, internal communications, or other evidence supporting a claim. Now, shareholders are prohibited from using section 21.218 if a suit is anticipated, and their access to substantive materials is drastically narrowed.^[26] Rule 202 provides a potential work-around: (1) it is not based on ownership thresholds; (2) it does not depend on the definition of books and records under the TBOC; (3) it can be used to depose directors, officers, and employees; and (4) it may be used to compel document production relevant to the investigation. As a result, a shareholder may use Rule 202 to investigate a claim that they may now be barred from investigating under section 21.218. Corporate counsel should be aware that Rule 202 may now function as the new “books and records” tool in Texas, albeit subject to judicial gatekeeping.

Conclusion

When discussing their proposed changes, both the Delaware and the Texas legislatures cited the need for more business- and management-friendly laws and a reform of books and records requests.^[27] With this goal in mind, both states narrowed the scope of permissible books and records requests. In its zeal to be business- and management-friendly, Texas instituted revisions that not only narrowed the scope during litigation but also narrowed the scope pre-suit.

Nonetheless, those involved in Texas business disputes are not without options. As shareholder litigation strategy adapts to new statutory limitations, Rule 202 may increasingly function as the primary mechanism for pre-suit factual development in Texas in business and shareholder disputes. Though courts retain discretion and impose equitable limitations to prevent harassment or fishing expeditions, Rule 202’s flexibility and broader evidentiary reach, including access to informal communications, render it a more expansive and potentially powerful tool than the narrowed inspection rights codified in the new TBOC.

1. Del. Code Ann. tit. 8 (2025). ↑

2. Tex. Bus. Orgs. Code Ann. (2025); S. 29, 89th Leg., Reg. Sess. (Tex. 2025). ↑

3. Tex. Bus. Orgs. Code Ann.; S. 29; Del. Code Ann. tit. 8, § 220 (Supp. 2025). ↑

4. Del. Code Ann. tit. 8, § 220 (2024). ↑

5. Sean C. Knowles & Joseph E. Bringman, Delaware Significantly Narrows the Scope of Stockholder Inspection of Corporate Books and Records, Perkins Coie (Apr. 5, 2025); Del. Code. Ann. tit. 8, § 220 (2024). ↑

6. See, e.g., KT4 Partners LLC v. Palantir Techs., Inc., 203 A.3d 738, 742 (Del. 2019) (“[I]f a company observes traditional formalities, such as documenting its actions through board minutes, resolutions, and official letters, it will likely be able to satisfy a § 220 petitioner’s needs solely by producing those books and records. But if a company instead decides to conduct formal corporate business largely through informal electronic communications, it cannot use its own choice of medium to keep shareholders in the dark about the substantive information to which § 220 entitles them.”); Hightower v. SharpSpring, Inc., No. 2021-0720-KSJM, 2022 Del. Ch. LEXIS 214 (Del. Ch. Aug. 31, 2022); Nvidia Corp. v. City of Westland Police & Fire Ret. Sys., 282 A.3d 1 (Del. 2022); Nodana Petroleum Corp. v. State ex rel. Brennan, 123 A.2d 243, 246–47 (Del. 1956). ↑

7. Lauren N. Rosenello & Marius Sander, Books and Records Demands 2023 Recap: Courts Continue to Develop the Law Regarding the Scope of Inspection, Skadden (Dec. 2023); Scott A. Barshay & Andre G. Bouchard, Transformative Amendments Proposed to Delaware General Corporation Law, Paul Weiss (Feb. 25, 2025). ↑

8. Del. Code. Ann. tit. 8, § 220 (2025). ↑

9. Id. ↑

10. Id. ↑

11. Id. ↑

12. Id. ↑

13. Highland Select Equity Fund, L.P. v. Motient Corp., 906 A.2d 156, 163–64 (Del. Ch. 2006); KT4 Partners LLC v. Palantir Techs., Inc., 203 A.3d 738, 742 (Del. 2019). ↑

14. See Barshay & Bouchard, supra note 7. ↑

15. Tex. Bus. Orgs. Code Ann. (2025); S. 29, 89th Leg., Reg. Sess. (Tex. 2025). ↑

16. Tex. Bus. Orgs. Code Ann. § 21.218(b); S. 29. ↑

17. Tex. Bus. Orgs. Code Ann. § 21.218(b-2); S. 29. ↑

18. Tex. Bus. Orgs. Code Ann. § 21.218(b-2); S. 29. ↑

19. Tex. Bus. Orgs. Code Ann. § 21.218(b-2); S. 29. ↑

20. Tex. Bus. Orgs. Code Ann. § 21.218(b-2); S. 29. ↑

21. Tex. Bus. Orgs. Code Ann. § 21.218(b-2); S. 29. ↑

22. Tex. R. Civ. P. 202. ↑

23. Id. r. 202.1. ↑

24. Id. r. 202.4(a). ↑

25. See In re Anand, No. 01-12-01106, 2013 Tex. App. LEXIS 4157, 2013 WL 1316436, at *3 (Tex. App.–Houston (1st Dist.) Apr. 2, 2013) (orig. proceeding) (“Nothing in the language of Rule 202 prohibits a petitioner from requesting that documents be produced along with the deposition.”); see also In re Akzo Nobel Chem., Inc., 24 S.W.3d 919, 921 (Tex. App.–Beaumont 2000) (orig. proceeding) (“Neither by its language nor by implication can we construe Rule 202 to authorize a trial court, before suit is filed, to order any form of discovery but deposition.”). ↑

26. Tex. Bus. Orgs. Code Ann. § 21.218. ↑

27. See Barshay & Bouchard, supra note 7; Texas Governor Signs New Business-Friendly Governance Law to Promote In-State Corporate Growth: Senate Bill 29 Analysis, Katten (May 14, 2025); David G. Cabreles et al., Passage of Senate Bill 29 Positions Texas as a Leading State for Incorporations, Foley (May 7, 2025). ↑

On May 16, 2025, the U.S. Court of Appeals for the Fifth Circuit issued a significant ruling in a longstanding dispute between the Texas Commission on Environmental Quality (“TCEQ”) and the U.S. Environmental Protection Agency (“EPA”) over sulfur dioxide emissions compliance.^[1] The court reversed its previous position, siding with the TCEQ and vacating the EPA’s rejection of Texas’s State Implementation Plan (“SIP”) for sulfur dioxide under the Clean Air Act.

Crucially, the court’s updated opinion establishes a new standard for classifying areas as “unclassifiable” regarding air quality. This designation means that if the EPA’s data doesn’t “reliably support” a finding of either meeting or failing to meet air quality standards, the area must be labeled “unclassifiable.” Consequently, these areas would avoid the stricter pollution controls imposed on regions failing to meet standards. This revised definition will now be the benchmark across the Fifth Circuit’s jurisdiction: Texas, Mississippi, and Louisiana.

Court Action

This shift followed a petition for a rehearing by industry groups. Instead of a full court rehearing, the panel opted to replace its original opinion after further legal arguments. Judge Southwick, who initially sided with the EPA, authored the new opinion, now joined by Chief Judge Elrod, who had previously dissented.

In her earlier dissent, Judge Elrod expressed concerns that the court had given too much weight to the EPA’s air quality modeling choices, which led to the classification of two Texas counties as not meeting the 2010 sulfur dioxide standard of 75 parts per billion.^[2] The Trump administration had initially deemed Rusk and Panola Counties as “unclassifiable.” However, the Biden EPA, using computer modeling provided by the Sierra Club based on emissions from the Martin Lake coal plant, concluded these counties were in violation of the standards. Areas failing to meet standards must develop state implementation plans (“SIPs”) to reduce pollution, a requirement not applicable to “unclassifiable” areas.

Fifth Circuit Reasoning

In the new opinion, Judge Southwick directly addressed the EPA’s reliance on the Sierra Club’s modeling, stating, “We disagree that Sierra Club’s modeling, under these circumstances, provided a sufficient basis for EPA’s nonattainment designation.” He further clarified the court’s interpretation of the Clean Air Act: “[W]e interpret [the Clean Air Act] as requiring EPA to designate an area as ‘unclassifiable’ if the available evidence does not allow for a meaningfully reliable determination of attainment or nonattainment. We also explained that EPA can know an area should be designated ‘unclassifiable’ when there is not much evidence, the competing evidence is too closely balanced, or the evidence is dubious.”

Applying this new test, the court found that “the evidence before EPA implicated all three categories—EPA relied solely on Sierra Club’s modeling that had conceded limitations and that was further called into question by conflicting monitoring data. Given this, EPA should have designated the areas as unclassifiable or rationally explained why an alternative designation was clear and not debatable.” The opinion concluded that “EPA seems to have forced a result on sparse and suspect evidence,” which violates the Administrative Procedure Act (“APA”) and cannot withstand “searching review.”

The Loper Bright Factor

This revised opinion also reflects the impact of the Supreme Court’s 2024 ruling in Loper Bright Enterprises v. Raimondo,^[3] which limited the judicial deference given to federal agencies’ interpretations of ambiguous laws, effectively overturning the Chevron doctrine. Industry groups had argued that the Fifth Circuit’s initial deference to the EPA on technical matters was inconsistent with the Loper Bright ruling, which emphasizes courts’ independent interpretation of statutes.

While acknowledging the Loper Bright decision, Judge Southwick clarified that it does not eliminate all deference to agency fact-finding, noting the Supreme Court’s reliance on the APA’s provisions for reviewing factual findings. However, under its own independent review of the Clean Air Act, the Fifth Circuit concluded that the law requires an “unclassifiable” designation when the available data does not reliably support either attainment or nonattainment.

The court deemed two other arguments from the industry groups as no longer relevant. The first argument claimed the EPA failed to treat similar cases consistently by relying on the Sierra Club’s modeling in this instance but rejecting it in others. The court reasoned that since the EPA must reevaluate the Texas plan, this argument is now moot. The second argument concerned the EPA’s assertion that it lacked the discretion to wait for more monitoring data. Given the time that has passed and the requirement for the EPA to reconsider the available data, the court also found this issue to be moot in the current context.

In her concurring opinion, Chief Judge Elrod indicated ongoing concerns about the EPA’s refusal to consider the plant operator’s alternative computer model. However, she stated that under the circumstances, she would not fully disagree with the majority’s analysis on this point, noting that the EPA will be required to apply the court’s new interpretation of “unclassifiable” upon remand.

Key Takeaways

• Reversal of prior holding: The Fifth Circuit had previously upheld the EPA’s disapproval of Texas’s SIP, citing noncompliance with modeling data standards. The new decision reverses that holding, finding that the EPA acted arbitrarily and capriciously in rejecting Texas’s approach.
• State deference restored: The court emphasized the statutory deference owed to states under the Clean Air Act in designing SIPs. Texas’s alternative modeling approach, although nontraditional, was found to be reasonable within the framework of the law.
• Impacts beyond Texas: This decision could ripple beyond Texas, potentially emboldening other states to challenge EPA SIP rejections. It also sets a precedent limiting federal influence in areas traditionally governed by state environmental agencies.
• Industry implications: Power plants and refineries in sulfur dioxide nonattainment zones may now have a clearer regulatory pathway, potentially reducing compliance costs if states are granted wider latitude.

Next Steps

1. Regulated entities in Texas may want to actively monitor for TCEQ guidance updates reflecting the court’s decision and any revised SIP submissions.
2. Environmental counsel should assess how this decision affects ongoing or pending SIP disputes in other jurisdictions.
3. State regulators may reevaluate their strategies for balancing EPA expectations with localized air quality planning.

The EPA may seek either panel rehearing or en banc review, or appeal to the Supreme Court, though such steps are discretionary. Affected stakeholders should prepare for potential regulatory whiplash depending on further judicial developments.

1. Texas v. U.S. Env’t Prot. Agency, No. 17-60088 (5th Cir. May 16, 2025). ↑

2. Texas v. U.S. Env’t Prot. Agency, 91 F.4th 280 (5th Cir. 2024) (Elrod, J., dissenting). ↑

3. 603 U.S. 369 (2024). ↑

On June 2, the Department of Justice, Antitrust Division, agreed to its first settlement of a merger challenged under the new administration, less than one week after the Federal Trade Commission (“FTC”) entered into its first such settlement. The consent decree will require the divestiture of three businesses and will allow Keysight Technologies, Inc. to complete its proposed $1.5 billion acquisition of Spirent Communications plc.

In February, Assistant Attorney General Abigail Slater previewed that the new administration might “take a different approach than the prior Antitrust Division on settlements in merger cases where effective and robust structural remedies can be implemented without excessively burdening the Antitrust Division’s resources.” The Keysight/Spirent consent decree is consistent with that promised approach and a helpful development for companies interested in transactions involving largely complementary businesses.

The Merger

Keysight is a U.S. company that the Department of Justice press release describes as offering “design, emulation, and test solutions across a range of industries, including commercial communications; aerospace, defense, and government; and electronic industrial.” Spirent is a UK company that offers “automated test and assurance solutions for networks, cybersecurity, and satellite positioning.” The parties are global providers of specialized equipment used to test various components of communications networks and measure and validate network performance.

Network equipment manufacturers, communications network operators, and cloud computing providers purchase and use this testing equipment to ensure their products and networks operate effectively and securely under normal conditions and withstand interruptions, cyberattacks, interference, and high user volume. Lab testing ensures that communications networks can support updated devices, comply with revised industry standards, and maintain data security as the cybersecurity landscape changes.

According to publicly available information, the parties notified the UK’s Competition and Markets Authority, which raised no objections to the transaction.

Theories of Harm

According to the Antitrust Division’s complaint, the combined companies would dominate the U.S. markets for high-speed ethernet testing, network security testing, and radio frequency (“RF”) channel emulators. The parties combined account for 85 percent of the market for high-speed ethernet testing, at least 60 percent of the market for network security testing, and more than 50 percent of the market for RF channel emulators. Allegedly, Keysight and Spirent are each other’s closest competitors in these markets and compete head-to-head to develop and sell the equipment.

Although the proposed transaction was cleared by the UK antitrust authority, the U.S. agency alleged that it would substantially lessen competition for each of those three types of communications testing and measurement equipment. The Antitrust Division contended that the reduced competition would likely result in higher prices, lower quality, and reduced innovation.

The Settlement

With only one exception, the prior administration did not accept divestiture or behavioral remedies in merger challenges, and the agency was vocal about its view that divested assets are not likely to compete as robustly as the premerger firms. In 2023, however, under pressure from the court, the Antitrust Division accepted its one and only merger settlement. That settlement also included a number of unusual requirements aimed at allowing the Antitrust Division to monitor and police the effectiveness of the remedy.

The Keysight/Spirent consent decree will require the divestiture of Spirent’s high-speed ethernet testing business, network security testing business, and RF channel emulation business. According to Slater, the settlement “secures enforceable commitments from the merging parties, provides transparency into the Antitrust Division’s efforts to resolve merger investigations, and gives the public an opportunity to comment as provided by statute.”

The willingness of the FTC and the Antitrust Division to consider structural or divestiture remedies is a meaningful shift in approach. The recent settlements do not signal that “anything goes,” but they do allow companies contemplating transactions of predominantly complementary businesses the opportunity to achieve the benefits of such combinations. Companies will need to assess the extent of any overlaps, the number of meaningful competitors, the nature of the competition among all the competitors, and whether divestiture of one party’s overlapping business could be successful and substantially replace lost competition.