Germany remains one of the most attractive European markets for U.S. companies seeking international expansion. Its central location, strong industrial base, sophisticated customer markets, and access to the wider European Union make it a natural choice for businesses looking to establish a European presence. At the same time, a successful entry strategy involves more than commercial planning. Legal structure, company formation, liability allocation, tax coordination, employment compliance, data protection, and corporate governance should be addressed at an early stage.
For U.S. companies, the key question is often not whether Germany is an attractive market, but how the German presence should be structured. A business may begin with sales activities, local employees, a distribution arrangement, a branch office, or a German subsidiary. Each option has different legal, operational, and governance implications.
Why Germany remains a key market entry destination for U.S. companies
Germany offers U.S. companies access to one of Europe’s largest economies and to a highly developed business environment. For technology providers, industrial suppliers, healthcare businesses, professional service providers, and consumer brands, the German market can serve both as a stand-alone target market and as a gateway for broader EU expansion. The choice of a Germany market entry structure is often driven by practical considerations: proximity to customers, regulatory requirements, local contracting expectations, employment plans, distribution channels, and the need to demonstrate a long-term commitment to European business partners. In many sectors, German customers and public-sector clients also expect a reliable local presence, clear points of contact, and a legally robust contractual setup.
From a legal perspective, market entry in Germany should therefore be planned as a structured process. The right vehicle depends on the business model, expected revenue, risk exposure, staffing plans, and regulatory environment, and the relationship between the U.S. parent company and the German operation.
Choosing the right structure for market entry in Germany
U.S. companies typically consider several options when entering the German market. These include direct cross-border sales, commercial agents or distributors, a representative office, a registered branch office, or a German subsidiary. For U.S. readers, the terminology can be important: a representative office is generally limited to preparatory or auxiliary activities and should not operate as a full trading business; a branch office is an extension of the U.S. company registered for German business activity; and a subsidiary, such as a GmbH, is a separate German legal entity.
Direct sales may be sufficient for a first market test, particularly where the business does not require local personnel, warehousing, or regulated activities. However, once the company establishes a more permanent presence, hires employees, signs local contracts, or assumes operational obligations in Germany, a more formal structure is often advisable. These developments may also raise permanent establishment or taxable presence questions and should be coordinated with German and U.S. tax advisers before operations expand.
For many businesses, planning for company formation in Germany focuses on whether to establish a German subsidiary or register a branch office with the German commercial register (Handelsregister). A subsidiary creates a separate German legal entity, while a branch remains legally part of the foreign company. This distinction is important for liability, contracting, accounting, governance, tax, and market perception.
There is no single structure that fits every U.S. business; the decision should be based on the intended market role of the German operation. A sales office with limited functions may require a different setup than a production site, a regulated service provider, or a European headquarters.
When a GmbH is the most practical entry vehicle
The most common corporate form for foreign investors in Germany is the Gesellschaft mit beschränkter Haftung, or GmbH. For many U.S. companies, a GmbH is the most practical vehicle because it is familiar to German customers, banks, suppliers, and authorities. It also provides a clear liability structure and can be operated as a wholly owned subsidiary of the U.S. parent company.
A GmbH structure is commonly used for sales operations, service delivery, holding functions, product distribution, software businesses, manufacturing support, and local management structures. The statutory minimum share capital of a GmbH is EUR 25,000, with at least EUR 12,500 generally required to be paid in before registration.
Forming a GmbH usually requires notarized articles of association, the appointment of one or more managing directors, the opening of a German bank account, payment of the share capital, and registration with the commercial register. Depending on the ownership structure, U.S. corporate documents may need to be provided in suitable form, potentially with notarization, apostille, and certified translation.
For U.S. parent companies, it is important to define early who will act as managing director of the German GmbH. German managing directors have their own statutory duties and responsibilities, so they are not merely local representatives of the U.S. parent company. In certain circumstances, they can face personal liability exposure, particularly in relation to insolvency filing obligations, tax compliance, and social security contributions. This can create practical governance questions where decision-making is intended to remain centralized with the U.S. entity.
Branch office or subsidiary: What matters in practice
A registered branch office can be attractive where a U.S. company wants to establish a German presence without incorporating a separate legal entity. It may conduct business locally and enter into contracts, but it is not legally independent from the U.S. parent company. By contrast, a representative office should generally be understood as a limited local presence for preparatory or liaison activities rather than a vehicle for full commercial operations.
That distinction has practical consequences. Because the branch is part of the foreign company, liabilities arising from the German branch generally remain liabilities of the U.S. company. The branch must also be registered with the German commercial register if it qualifies as an independent branch. In addition, local trade registration, tax registration, permanent establishment analysis, and business correspondence requirements may apply.
A branch office may be suitable for certain market-entry scenarios, particularly where the German activity is closely integrated into the foreign company and the business does not require a separate German liability shield. However, many U.S. companies prefer a subsidiary when they want clearer separation between the German business and the U.S. parent, or when German customers, investors, or contractual partners expect a local company.
The choice between branch office and subsidiary should therefore not be made solely on perceived setup speed or cost. Liability, tax, and accounting issues, regulatory requirements, customer expectations, and future exit options should all be considered.
Company formation in Germany: Issues U.S. businesses should address early
Foreign investors can establish German companies, including a GmbH, but the formal requirements should be prepared carefully in advance. A U.S. corporation or limited liability company may act as shareholder of a German GmbH, and foreign individuals may also hold shares. The required documentation, proof of representation authority, and any notarization or legalization steps should be coordinated before the German notary appointment.
U.S. companies should address the following points early in the formation process:
The ownership structure of the German company must be clear. If the shareholder is a U.S. corporation or LLC, German notaries and the commercial register will usually require evidence of existence and representation authority. This can involve business registry extracts, certificates of good standing, secretary certificates, notarized documents, apostilles, and translations.
The managing director structure should be planned carefully. A German GmbH may have one or more managing directors. They do not necessarily have to be German citizens or German residents, but practical issues such as bank onboarding, tax communication, immigration status, and operational availability should be considered when deciding whether to appoint a German citizen or resident.
When completing the formation paperwork in Germany, the company name and business purpose should be reviewed before notarization. The name must generally be distinguishable and suitable for entry in the commercial register. The business purpose should be broad enough to support the intended activities, but sufficiently clear for commercial register and licensing purposes.
Opening a bank account for the German company can pose timing issues: German banks may conduct detailed know-your-customer checks, especially where foreign shareholders are involved. Delays in bank onboarding can affect the payment of share capital and therefore the registration timeline.
Tax registration, Value Added Tax (“VAT”) treatment, permanent establishment questions, payroll setup, and accounting processes should not be treated as afterthoughts. For many U.S. businesses, German tax and employment compliance begins shortly after incorporation or even before active trading starts.
Corporate governance in Germany: What U.S. parent companies should keep in mind
Corporate governance considerations are particularly important where the German entity is part of a U.S.-led group. German law distinguishes between shareholder control and management responsibility. In a GmbH, the shareholders may issue instructions to the managing directors, but the managing directors remain subject to their own legal duties.
This can differ from the way some U.S. businesses manage subsidiaries internally. A German managing director must consider German corporate law, capital maintenance rules, insolvency filing obligations, tax duties, accounting obligations, social security matters, and employment-related responsibilities. Internal group reporting lines do not override these statutory obligations, and failures in these areas may create personal liability risks for managing directors.
For German listed stock corporations, the German Corporate Governance Code sets out principles, recommendations, and suggestions for management and supervision. A typical GmbH subsidiary or German branch is not a listed company and is not the primary target of the Code. However, its broader concepts—transparent management, effective supervision, conflict management, and reliable reporting—can still be useful reference points for larger private groups.
For a U.S. parent company, corporate governance in Germany should be translated into practical internal rules. These may include approval thresholds, reserved matters, reporting duties, signing authorities, escalation procedures, compliance policies, and documentation standards. The goal is to allow the U.S. parent to maintain strategic oversight while ensuring that the German management can meet its local legal obligations.
A robust German corporate governance structure is especially important where the German company hires employees, enters into long-term contracts, handles regulated products, processes personal data, or assumes financial risk. For U.S. companies that process customer, employee, or marketing data in Germany, the EU General Data Protection Regulation (“GDPR”) and German data protection rules may require a local compliance concept for notices, lawful bases, processor agreements, data transfers, retention, and incident response.
Common mistakes in planning Germany market entry
Many market entry projects face difficulties not because the commercial strategy is flawed, but because legal and governance issues are addressed too late.
A common mistake is choosing the legal structure based only on initial setup costs. A branch office may appear simpler, but it may not provide the liability separation, customer confidence, or governance clarity that a subsidiary can offer. Conversely, a GmbH may be more than is needed for a limited market test.
Another recurring issue is underestimating formation timelines. Notarization, document legalization, bank onboarding, commercial register review, and tax registration can take time, especially where U.S. entities are involved in the ownership chain.
U.S. companies also sometimes appoint managing directors without clearly defining their authority, reporting lines, and internal approval requirements. This can create uncertainty in day-to-day operations and may expose the German management to avoidable risks.
Tax and employment issues are also frequently considered too late. Hiring employees in Germany, creating a local sales function, or signing German customer contracts can trigger compliance obligations that should be coordinated before those operations begin. German employee protection rules, notice periods, payroll withholding, social security registration, and, depending on the size and structure of the workforce, works council considerations can become relevant practical issues for U.S. businesses.
Finally, some businesses assume that U.S. templates can simply be rolled out in Germany. In practice, group policies and contract standards often need to be adapted to German law and local market practice, including employment rules, data protection requirements, corporate formalities, consumer protection rules where relevant, and mandatory German-language or disclosure requirements.
For U.S. companies, entering the German market is both a commercial opportunity and a legal structuring exercise. Whether a business begins with direct sales, a representative office, a branch office, or a German subsidiary, the decision should be based on a clear understanding of liability, governance, tax, employment, data protection, and operational requirements.
In many cases, a GmbH offers the most practical and credible structure for a long-term presence in Germany. That said, the right approach will always depend on the company’s entry strategy, risk profile, and growth plans. Planning these issues early can help avoid delays, governance gaps, and unnecessary restructuring. Businesses that address company formation, management duties, and corporate governance from the outset are usually in a much stronger position to build a stable and scalable presence in Germany.
FAQ: Germany market entry, GmbH formation, and corporate governance
What is a GmbH in Germany?
A GmbH is a German limited liability company. It is one of the most widely used corporate forms for foreign investors and is commonly chosen by U.S. companies establishing a German subsidiary. The GmbH has its own legal entity status, separate from its shareholders.
Can a foreigner create a GmbH in Germany?
Yes. Foreign individuals and foreign companies can establish a GmbH in Germany. A U.S. company can be the sole shareholder of a German GmbH. However, foreign corporate documents must usually be prepared in a form acceptable to the German notary and the commercial register.
How much does it cost to set up a GmbH in Germany?
The statutory minimum share capital of a GmbH is EUR 25,000. In addition to share capital, formation costs usually include notary fees, commercial register fees, translation or legalization costs where required, tax and accounting setup costs, and legal support if the structure is more complex.
What is the corporate governance code in Germany?
The German Corporate Governance Code sets out principles, recommendations, and suggestions for the management and supervision of German listed stock corporations. For listed companies, certain statutory disclosure obligations relate to the Code. A typical GmbH subsidiary is not itself a listed company, but the Code can still provide useful guidance on broader governance standards.
What is the corporate governance structure in Germany?
German corporate governance depends on the legal form. In a GmbH, shareholders exercise control through shareholder resolutions, while managing directors conduct the business and are subject to statutory duties. Larger companies or stock corporations may involve supervisory boards and more formal governance structures.
Pharmaceutical and medical device companies increasingly collect gender identity data in clinical trials, patient support programs, and direct-to-patient (“DTP”) marketing. The aim is usually positive: increase representation, improve inclusion, or meet regulatory expectations. But mishandling this data carries real risks.
Under modern privacy frameworks, gender identity is treated as a form of sensitive data. Improper collection, storage, or use can trigger regulatory fines, lawsuits, reputational harm, and even investor scrutiny. For companies regulated by the Food and Drug Administration (“FDA”), those risks overlap with advertising, research integrity, and fraud/abuse oversight requirements. This means that what begins as a privacy misstep can quickly escalate into a full-blown business risk.
The Legal Regime: Data Privacy and Gender Identity
European Data Protection: The GDPR
The European Union’s General Data Protection Regulation (“GDPR”) applies to some activities originating within the United States, and U.S. life sciences companies need to pay attention to how it may affect their handling of gender identity data. The GDPR explicitly protects “special categories” of personal data, including health, sexual orientation, and biometric data. The EU generally legally recognizes that an individual can express a gender identity different from the one assigned to them at birth. Failure to accurately record a person’s chosen gender identity or not processing it where assigned sex at birth is not relevant would generally be seen as inconsistent with the GDPR principle of data accuracy.
U.S. State Laws: CCPA/CPRA and Beyond
A growing number of U.S. states have enacted privacy laws that may apply to gender identity data. In California, for example, the California Privacy Rights Act (“CPRA”) expanded the California Consumer Privacy Act (“CCPA”) to cover “sensitive personal information.” This includes traits such as sexual orientation and other markers tied to identity. Consumers can limit use of sensitive information to only what is “necessary” to deliver expected services.
The California attorney general has pursued California privacy law enforcement aggressively. Virginia, Colorado, and more than a dozen other states have adopted similarly comprehensive privacy laws. Depending on the jurisdictions they operate in, companies that mishandle identity data may risk scrutiny from multiple regulators simultaneously.
Data Mishandling and Discrimination Claims
As discussed, company policies for handling gender identity data should consider privacy law risks. However, they should also consider potential antidiscrimination law risks. Common pitfalls in the life sciences context include those below:
Scope Creep and Reuse
Clinical trial sponsors may initially collect gender identity for inclusion tracking but later reuse it for targeted marketing without consent. Vendors may repurpose identity data for unrelated analytics. Such actions are increasingly framed not as privacy errors but as profiling and discrimination.
Tokenism in Clinical Research
Claiming that a clinical trial is inclusive of transgender people without conducting meaningful subgroup analysis or including related endpoints can also lead to reputational and legal risk. Plaintiffs may argue that data was collected under false pretenses, creating exposure for deceptive or discriminatory practices.
Business Consequences of Mishandling Gender Identity Data
Corrective actions: regulators may require ongoing audits or data protection impact assessments (“DPIAs”).
Litigation Exposure
Privacy claims are increasingly bundled with discrimination and emotional distress allegations. Class actions can demand wide discovery, exposing vendor contracts and internal emails, and settlements often result simply to avoid reputational damage.
Reputational Fallout
Stories about companies and even government agencies allegedly mishandling or not adequately protecting gender identity data attract significant media coverage. Environmental, social, and governance (“ESG”) investors track governance issues related to marginalized groups closely, and activist campaigns can magnify even small missteps. Additionally, in the context of clinical research, subjects are supposed to be anonymized, and sponsors who turn over data to governmental authorities in response to a subpoena without mounting a significant challenge, or otherwise mounting a loud retreat, may discover that passive turnover of data constitutes a loss of trust and could result in reputational damage not only with targeted subjects, but also with patients as a whole.
Investor and Board Scrutiny
In M&A or private equity due diligence, weak gender identity data governance may be flagged as a material risk. Whistleblowers or employee advocates can raise red flags that disrupt deals or trigger post-closing disputes.
Best Practices for Life Sciences Companies
Data Mapping and Classification: Treat gender identity data as high-risk data, similar to medical or biometric information.
Purpose Limitation and Consent: Obtain explicit consent for collection and secondary use, especially in marketing.
Access Controls: Compartmentalize data access and log usage. Consider anonymization or encryption.
Vendor Oversight: Require contracts to limit use, enforce deletion in accordance with legal and policy requirements, and permit audits. Flow obligations down to subcontractors.
Correction and Inclusion: Allow participants to update their gender identity data and offer options that enable them to indicate their gender identity accurately, including nonbinary or self-describe options.
Transparency: Update privacy notices with clear language on why gender identity data is collected and how it is shared.
Audits and Data Protection Impact Assessments (“DPIAs”): Conduct regular privacy impact assessments that specifically evaluate gender identity data risks.
Training and Governance: Educate clinical, marketing, and IT teams on sensitive data risks. Establish a privacy governance committee with oversight over gender identity data.
Conclusion
For companies working in life sciences and adjacent sectors, mishandling gender identity data is more than a privacy problem and can escalate to become a trust problem. With regulators, plaintiffs’ attorneys, and investors watching closely, the business consequences are steep.
On May 19, 2026, the Superior Court of California, County of Los Angeles, granted summary judgment in favor of Opportunity Financial, LLC (“OppFi”) in its dispute with Clothilde Hewlett, in her official capacity as Commissioner of the Department of Financial Protection and Innovation for the state of California (“DFPI”) at the time of filing. Opportunity Fin., LLC v. Hewlett, No. 22STCV08163 (L.A. Cnty. Sup. Ct. May 19, 2026). This finalized ruling comes shortly after the tentative decision granting summary judgment in favor of OppFi on February 24, 2026.
Dating back to 2022, the litigation focused on whether OppFi violated California’s interest rate caps under the Fair Access to Credit Act (AB 539), which capped interest rates at 36 percent on consumer loans between $2,500 and $9,999 made by “finance lenders” under the California Financing Law. The DFPI filed a cross-complaint alleging that OppFi was the “true lender” on loans originated through its partnership with FinWise Bank, a Utah state-chartered bank. It further described the arrangement as a “rent-a-bank” scheme to evade California’s rate cap, noting that Utah does not impose an interest rate cap. The DFPI sought penalties of at least $100 million and restitution for approximately 38,000 California borrowers. OppFi filed its own cross-complaint in response, arguing that the DFPI’s adoption of the true lender doctrine without notice-and-comment rulemaking constituted an invalid “underground regulation” under California’s Administrative Procedure Act (“APA”).
In what will be a precedent-setting decision respective to the treatment of bank partner programs, the court granted summary judgment that rejected the DFPI’s true lender claims on the grounds that the DFPI could not demonstrate FinWise was “merely a dummy” lender. Applying the framework of Janisse v. Winston Investment Co. (154 Cal. App. 2d 580 (1957)), the court found the undisputed evidence showed that FinWise controls the application and underwriting process, funds loans with its own money, retains title and ownership, bears 100 percent of the risk of loss at origination, retains a 2 percent to 5 percent interest in receivables, controls marketing, and oversees legal and regulatory compliance.
The court found that the DFPI failed to raise a triable issue of material fact. On receivables, the court held that FinWise’s post-origination sale of loan receivables could not render the loans usurious because under California law, “a contract, not usurious in its inception, does not become usurious by subsequent events.” The court relied upon Section 27 of the Federal Deposit Insurance Act and the FDIC’s “valid when made” rule, 12 C.F.R. § 331.4(e), which provides that the sale, assignment, or transfer of a loan does not affect the permissibility of interest, and such interest is determined when the loan is made. On the issue of underwriting, the court rejected the argument that OppFi’s ownership of the intellectual property to its credit model made it the lender, noting that banks routinely use third-party models such as FICO scores without making the model owner the lender. On funding, the court found no evidence that OppFi’s collateral account was ever used to fund loans, observing that OppFi provided unrebutted evidence that the account was “almost always insufficient” to cover FinWise’s funding obligations. The court also noted that the collateral account merely secured OppFi’s obligation to purchase receivables and was not used to fund the program loans.
Due to the primary ruling, OppFi’s cross-complaint challenging the true lender doctrine as an underground regulation was dismissed, without prejudice, as being moot. Even so, the claim remains significant because it leaves a broader question undetermined: whether the DFPI’s asserted “true lender” doctrine is even lawful under the APA. As Scott Hyman, Justin Bradley, and Paul Soter have observed, California’s APA prohibits state agencies from enforcing rules not adopted through notice-and-comment rulemaking, and courts afford “no deference at all” to noncompliant regulations. As federal deregulation reduces enforcement at the national level, states are expected to pursue more aggressive theories, making the underground regulation doctrine “more critical for regulated companies.” Further, “application of a ‘regulation-by-enforcement’ philosophy similar to that of the former [Consumer Financial Protection Bureau] Chairman’s famous ‘compliance malpractice’ statement would run afoul of California’s prohibition against underground regulation.” The court’s treatment of the underground regulation issue may signal a warning to the DFPI against pursuing the industry under unwritten rules.
This decision is significant to financial services companies and fintech programs involving contractual partnerships with depository institutions, as it upheld the validity of these programs against “true lender” claims. OppFi illustrates the importance of well-developed programs and specified key indicators of the requisite bank involvement, including independent underwriting authority, funding with the bank’s own capital, economic risk retention, and marketing and regulatory compliance oversight. These key indicators, coupled with evaluating for usury at inception, are instructive criteria for bank partner programs operating in California. While this ruling would make it more difficult for the DFPI to pursue true lender actions in the future, we would expect the DFPI to appeal the ruling, and it has sixty days to do so.
In recent years, the topic of artificial intelligence (“AI”) has quickly dominated conversations across various industries, institutions, and sectors. The legal profession is no exception; AI usage is embedded in nearly every aspect of modern legal practice.
At the ABA Business Law Section’s Spring Meeting in Atlanta, GA, Monika McCarthy, Managing Director & General Counsel at CrossCheck Compliance LLC, moderated a CLE program offering actionable insights for this era, titled “AI, Esq.? Legal Ethics and Practical Considerations for Business Lawyers.” The panel included speakers César Escovar, Senior Manager of Compliance Advisory at Capital One; Sarah Gatti, Head of Legal at Zappi; Tammy Malvin, Partner at Akerman LLP; and Drédeir Roberts, Founding Member at Drédeir Law. Drawing on their combined experience from governance, regulatory, litigation, and transactional practice, the panel explored how lawyers can responsibly integrate AI into their practices in compliance with legal ethics obligations, while also emphasizing certain nondelegable aspects and limitations of AI.
As background, ABA Formal Opinion 512 provides that “to ensure clients are protected, lawyers using generative [AI] tools must fully consider their applicable ethical obligations, including their duties to provide competent legal representation, to protect client information, to communicate with clients, to supervise their employees and agents, to advance only meritorious claims and contentions, to ensure candor toward the tribunal, and to charge reasonable fees.” Formal Opinion 512’s guidance confirms that lawyers’ use of generative AI does not relieve them of existing ethical rules and that there is no “AI exception” to professional responsibility.
The panel presented examples and key takeaways drawn from ABA Model Rules of Professional Conduct to demonstrate the various instances where lawyers, as well as judges, have professional responsibilities to ensure accuracy, informed judgment, and supervision of AI-generated content.
As the panel’s slides noted, “AI tools are increasingly used for legal research, drafting, discovery, litigation strategy, transactional work, and enterprise governance.” While Model Rule 1.1 (competence) means it is crucial for lawyers to know how generative AI works conceptually, it is not necessary for lawyers to understand the technical aspects of it, such as coding. By having a working knowledge of AI tools, lawyers can show that they are continuously staying abreast of how technological advancements are impacting the way they serve their clients and their ability to provide effective representation. However, consulting or relying solely on AI experts is not enough; the panel encouraged lawyers to also consult with information security and privacy experts as part of their AI literacy training in order to draw on new perspectives and establish greater competency to meet enterprise or client needs.
From a compliance standpoint, the panel noted that while AI is not considered a legal entity, courts have a tendency to treat it as an operational agency acting on behalf of the company. When inputting data into generative AI, lawyers are bound by strict confidentiality (Model Rule 1.6) and must protect against third-party data usage. They should be able to map the data flow and understand how pass-through data are being handled, including aggregate or anonymized data. To ensure proper handling of AI data, lawyers must establish vetting protocols to ensure the third-party vendor’s management processes and data policies do not pose risks to the enterprise and client.
When communicating with clients (Model Rule 1.4) or submitting legal documents to the courts (Model Rule 3.3), it is important to note that AI “amplifies both good and bad lawyering,” the panel noted. Presenters highlighted two AI-assisted litigation cases, Warner vs. Gilbarco, Inc. and U.S. vs. Heppner, to demonstrate that courts are still grappling with how traditional privilege and work-product doctrines apply to AI-generated materials. One thing that has been clear is that AI is viewed as a nonlawyer assistant, and if a lawyer or judge directed the AI use, then their supervisory obligations (Model Rules 5.1 and 5.3) apply. Otherwise, lawyers and judges run the risk of letting inadvertent citation or reliance on bad law to result in cascading effects if they are not vigilant about their AI use.
With the increased use of AI tools in the modern legal practice comes the lawyers’ responsibility to also adopt new billing practices that reflect their obligation under Model Rule 1.5 to charge reasonable fees. Although lawyers are not required to describe hourly work done with granular specificity, the panel encouraged lawyers to develop a standard practice of including an AI section in the client engagement letter, describing the scope of AI use and providing full disclosure regarding their handling of client data generated by AI.
In summary, generative AI is a powerful tool that has spread through modern legal practice, but when using it to build efficiency, lawyers and courts must be vigilant in complying with the ABA Model Rules of Professional Conduct. Lawyers must adhere to their ethical responsibilities when using AI by exercising informed judgement, establishing rigorous verification processes, adopting clear AI governance, and ensuring continuous human oversight over AI-generated content.
Business lawyers advising the high-velocity mergers and acquisitions landscape of aesthetic medicine often find themselves peeling back the “retail” veneer of a target asset to expose the underlying medical reality. Medical spa (“medspa”) owners and investors are frequently lulled into a false sense of security by the industry’s luxury atmosphere, erroneously believing they operate in a regulatory gray area.
However, a Utah grand jury’s indictment of a licensed physician on April 1, 2026, demonstrates that this is a fiction that speaks to enforcement priorities and not legal differences. The jury indicted the physician for the alleged introduction of peptides that were not Food and Drug Administration (“FDA”) approved, including Semaglutide and Tirzepatide, Retatrutide, Cagrilintide, BPC-157, TB500, Ipamorelin, CJC-1295, GHK, GHK-Cu, and NAD+, into interstate commerce. The jury found probable cause that these products were sourced from China and sold to unwitting patients. This action, coupled with the referral of telehealth company Hims and Hers to the Department of Justice in February for potential violations of the Federal Food, Drug, and Cosmetic Act, signals a paradigm shift in how federal agencies view the medspa supply chain and the rising interest in unapproved peptides.
For counsel performing due diligence or providing corporate governance advice to medspas, understanding these four commonly overlooked areas of regulatory compliance is essential to mitigating client risk.
The Sterile Compounding Trap
Counsel advising along the medspa value chain, or conducting due diligence in this space, should actively review the “backroom” preparation of intravenous (“IV”) hydration therapies and peptides. Such preparations may inadvertently render the doctor’s office an unlicensed pharmacy.
Sterile Compounding Definition: Pharmacy boards in California, Ohio, and Kentucky have specifically called out that the mixing of IV bags constitutes “sterile compounding” and must adhere to appropriate sterility and stability practices. Such practices include strict pharmacy permits and adherence to USP Chapter <797> standards, including ISO-certified air environments.
Supply Chain Integrity: Facilities should source premixed products from authorized 503A pharmacies or 503B outsourcing facilities. This ensure the longer term sterile and stable products are not adulterated or misbranded, rather than mixing in-house outside of a sterile hood, which would have a higher risk of products being adulterated or misbranded.
Scope of Practice and the “Standing Order” Fallacy
Medspa owners may confuse their facilities to be the equivalent of luxury spas, where treatments may be chosen by the individual entering the facility from a menu of options. This is compounded by the fact that some prescribers have been known to leave “standing orders,” which allow for nonprescribers to simply dispense a drug consistent with said standard order without any additional oversight. Such standing orders bypass critical medical-legal requirements. To protect investments into medspas, it therefore benefits investors to confirm the following:
The Good Faith Exam: Every patient must receive a documented, individualized examination by an appropriately licensed prescriber (MD, DO, NP, or PA) before prescription drugs or fluids are administered.
Nursing Limitations: It is important that clinicians act within the scope of their practice. Accordingly, registered nurses must execute valid provider orders, cannot independently diagnose or prescribe, and cannot allow patients to self-diagnose. Boards in states such as Arizona and Mississippi are increasingly targeting “scope creep.”
“Sham” Directorships and Corporate Practice of Medicine
Consistent with state law, medications must be provided subject a prescription from an appropriately licensed prescriber. Some prescribers may take on a role as a “Medical Director” and then effectively “rent” their license by providing a “blanket” authorization to enable nonprescribers to dispense medication consistent with a standing order and without appropriate oversight. This makes the medical directors figureheads, and corporate counsel must look beyond the existence of a medical director agreement to evaluate its functional substance. As previously discussed, nursing boards have expressed a continuing concern around scope creep by nursing professionals who take on a prescribing function without the appropriate license.
Jurisdictions such as Oregon and Iowa pointedly call out such behavior and caution that physicians must provide active, documented supervision to a business entity. In the event of nonphysician investors, and consistent with state corporate practice of medicine regulations, states such as Washington caution that nonphysician owners are prohibited from overriding a clinician’s judgment.
Failure to follow these rules such that the physician has no actual role in clinical decision-making may render the facility, physician, and/or related management services agreement fraudulent vehicles for unauthorized practice.
Marketing Fraud
Aggressive marketing of compounded GLP-1 weight-loss drugs has cultivated a high-risk environment for consumer fraud litigation. Clinics selling such drugs by associating them with the brand names of approved GLP-1 drugs have already caught the attention of branded drug companies who are actively policing their trademarks. State attorneys general in Ohio and Connecticut are investigating medspas that falsely claim to provide “generic Ozempic” or imply that their products are FDA-approved.
Heightened Legal Scrutiny
While regulators in the past did not see this as a high enforcement priority, the FDA, FBI, and FTC are now unified in directing greater attention to the legal obligations of medspas and weight-loss clinics as medical practices.
This multi-agency heightened scrutiny coincides with a strategic pivot at the Department of Justice, emphasizing its treatment of compliance as a nonnegotiable seat at the M&A table.
In March 2026, the DOJ announced a department-wide Corporate Enforcement Policy. This policy, consistent with the DOJ’s “Evaluation of Corporate Compliance Programs” guidance, underscores the expectation that acquiring entities perform rigorous, proactive due diligence to identify and remediate misconduct within target assets. Acquiring entities that perform such due diligence may be offered a specific “Safe Harbor” if they voluntarily self-disclose criminal conduct discovered during the M&A process within six months of closing. This is a clear signal that the government expects “compliance-first” deal-making in the highly regulated healthcare and aesthetics sectors.
Business counsel must therefore integrate robust regulatory vetting into the deal cycle to avoid the full weight of a unified federal enforcement apparatus that now leverages interagency data analytics and a record-setting $6.8 billion False Claims Act recovery pipeline to root out fraud.
Conclusion
The recent federal indictment in Utah and the tightening grip of state boards should serve as a definitive market correction. Business lawyers advising medspas or potential acquirers must recognize that the perceived “regulatory gray area” inhabited by many medspas was always part of enforcement discretion and not a different regulatory mechanism. Failure to follow state and federal requirements, such as avoiding backroom IV mixing or nurse-led “menu” selections, carries risks of prosecution as felony misbranding and the unauthorized practice of medicine.
Over the span of a single week in June 2026, the Canadian government advanced significant new legislation to regulate online harms and modernize its national privacy regime. Coupled together, the changes brought forward by Bills C-34 and C-36 represent a significant modernization of Canada’s regulation of the internet and artificial intelligence (“AI”).
Neither Bill C-34 or Bill C-36 is law, yet. Each has cleared only the first reading in the House of Commons and must still move through the House and the Senate, and receive Royal Assent. For U.S. attorneys with clients that operate in Canada, collect data from Canadians, or otherwise run digital platforms that are accessible north of the border, the time to scope exposure is now.
Bill C-34: Regulating the Internet
Bill C-34 would enact two statutes: the Digital Safety Act (“DSA”) and the Digital Safety Commission of Canada Act (“DSCCA”). Together, they would create a framework of binding duties, new enforcement mechanisms, and significant financial penalties for noncompliance. The bill is a revamped version of Bill C-63, the Online Harms Act, which was introduced in 2024 but never became law.
The proposed Bill C-34 regime reaches well beyond conventional social media. The DSA would apply to three categories of regulated services accessible in Canada: social media services, AI chatbot services, and other online services. The third category is engaged only where the government is satisfied the service in question poses a significant risk of harm to children.
The DSA will primarily target seven types of harmful content, specifically the following:
intimate content communicated without consent (including deepfakes)
content that sexually victimizes a child or revictimizes a survivor
content that induces a child to harm themselves
content used to bully a child
content that foments hatred
content that incites violence
terrorism or violent extremism content
Further, the DSA imposes four primary duties. First, the DSA introduces the duty to protect children, which applies to every regulated service. Operators must implement design features for a safer minor experience, apply age verification or estimation to limit children’s exposure to pornographic content, and keep compliance records. Social media faces the most stringent version: a minimum account age of sixteen absent an exemption based on sufficient safeguards. Secondly, the DSA imposes a duty to act responsibly, which requires social media and AI chatbot operators to reduce users’ exposure to harmful content. Online platforms must label synthetically generated material, including AI audio or video that could be mistaken for real recordings, and give users tools to flag content and block other users. AI chatbots are additionally prohibited from four behaviors, including pretending to be human, impersonating licensed professionals, using manipulative techniques to foster unhealthy emotional dependencies, and encouraging self-harm or suicide. Thirdly, the DSA establishes a duty to make content inaccessible, which requires social media services to remove child sexual abuse material and nonconsensual intimate images (deepfakes included) within twenty-four hours. And finally, the DSA creates a duty of transparency, which requires every regulated service to publish a digital safety plan, a public-facing disclosure the regulator will assess.
Enforcement of the DSA under Bill C-34 will fall to the new DSCCA. The DSCCA is authorized to set standards and issue guidance, audit safety plans, hold hearings, compel testimony and documents, issue compliance orders enforceable as Canadian Federal Court judgements, and administer user complaints. The financial risk of noncompliance with the new DSA is substantial: maximum offense fines on conviction are the greater of $20 million or 5 percent of gross global revenue, and administrative monetary penalties levied by the DSCCA are the greater of $10 million or 3 percent of gross global revenue. Operational detail will follow in regulations, which are to be prepublished in the Canada Gazette with an opportunity for public commentary.
Bill C-36: The Privacy Reset
Bill C-36 seeks to enact the Protecting Privacy and Consumer Data Act (“PPCDA”), replacing key provisions of the existing federal Personal Information Protection and Electronic Documents Act (“PIPEDA”). The PPCDA is designed to strengthen protection of Canadians’ personal information in a data-driven economy shaped by AI and automated decision-making and follows two earlier failed efforts: Bill C-11 (2020) and Bill C-27 (2022). Bill C-27 (2022) was designed to replace PIPEDA with the new Consumer Privacy Protection Act (“CPPA”) and regulate AI—but died on the Order Paper when Canada’s Parliament was prorogued in January 2025.
Bill C-36 expressly recognizes privacy as a “fundamental right” and expands individual control over personal information, including rights of access, correction, deletion, and data mobility—each backed by a structured compliance process that organizations must follow when responding to a request. It imposes more rules-based governance obligations, requiring businesses to maintain mandatory privacy management programs with documented policies, safeguards, complaint processes, and assigned compliance responsibility. In short, it creates auditable structures capable of demonstrating compliance on demand.
Two features of Bill C-36 warrant particular attention. First, the proposed bill heightens transparency around automated decision-making such that organizations would have to disclose their use of such systems, provide individuals with explanations, and offer a means to challenge decisions. Secondly, Bill C-36 also designates children’s personal information as sensitive by default, triggering heightened safeguards and stricter limits on its collection, use, retention, and disclosure.
Notably, Bill C-36 departs from its predecessor Bill C-27 by dropping the proposed AI-specific framework and focusing exclusively on privacy modernization. Enforcement is consolidated in a new regulator, the DSCCA, armed with the binding order-making power and administrative penalties for noncompliance with either PPCDA or PIPEDA reaching the greater of $10 million or 3 percent of gross annual global revenue. The cumulative effect of the changes proposed by Bill C-36 is movement towards a rights-based framework backed by stronger enforcement, with particular attention to automated decision-making, cross-border data transfer, and children’s data.
Why U.S. Counsel Should Be Paying Attention (Now)
For U.S. practitioners, what matters most is not the mechanics of either bill but what the two signal together and how far their reach extends.
The penalties follow global revenue, not a Canadian footprint. Consistent with certain global trends, both Bills C-34 and C-36 size their maximum penalties against a percentage of gross global revenue. A company’s exposure is therefore not bounded by the scale of its Canadian operations. Even a small Canadian presence can expose a company to a penalty measured against its worldwide revenue. For any client with meaningful global revenue coupled with a limited Canadian nexus, that asymmetry is the central risk to flag to clients.
This is not exclusively a social media or “tech company” issue. Bill C-34 turns on whether a service is accessible in Canada. This is a threshold that can capture platforms with no Canadian establishment and no deliberate Canadian targeting. If a U.S. client operates an online service through which Canadians interact, share, or create content, it could fall within the scope of Bill C-34. In turn, Bill C-36 governs the handling of Canadians’ personal information across the data life cycle, with express attention to cross-border transfers. U.S.-based entities that may not be traditionally seen as “operating in Canada” may nonetheless be within scope.
The exposure clusters where clients are already concentrated. U.S. companies that own, host and operate AI chatbots should be on particular alert given this new prospective legislation. Canadian law has rarely regulated chatbots head-on, and the DSA would be among the first statutes to place binding safety duties directly on their operators. Automated decision-making draws new Bill C-36 duties to disclose its use and let individuals challenge the resulting decisions. Children’s data attracts heightened treatment under both bills, bringing Canada closer in line to other counties, including the United States and Australia, that have previously focused more on the protection of children. Organizations with AI-facing products, consumer platforms, or services used by minors run the risk of the most acute exposure.
Next steps. Internet businesses with any Canadian dimension—ranging from operations, users, data, or platforms accessible to Canadians—should assess their risk exposure under both bills in parallel, consider necessary compliance measures as recommended by Canadian legal counsel, and keep a watchful eye as Bill C-34 and Bill C-36 move through the legislative process. Canada’s digital rulebook is being rewritten, and attention by U.S. attorneys is critical to ensure ongoing success for U.S. business.
When your opposing counsel cites a fake case fabricated by a generative artificial intelligence tool in a court filing—a so-called “hallucination”—should you snitch? At least two courts sayyes.
As generative AI increasingly permeates our personal and professional lives, practitioners, courts, and creators face challenges such as hallucinated citations, privilege concerns, and regulatory uncertainty. Yet a single theme emerged during a well-attended Showcase Program at the Business Law Section’s Spring Meeting titled “AI in the Trenches and on the Bench: A Business Law Toolkit for In-House, Firm, and Courtroom”: When using AI, the human element remains indispensable.
The panel discussion, moderated by Paulette Rodríguez López of Crowell & Moring LLP, and featuring Jeffrey Huang of Pilot Company, Alina Lee of Aspire Law, Bradford Newman of Eversheds Sutherland, and the Honorable Richard Platkin of the Commercial Division of the Supreme Court of New York State, explored trends in and actionable guidance on AI’s evolving role in business law practice.
1. Of Humans: Context Matters
Human context and intent are the linchpins of proper AI use in legal practice. “Bad jury instructions, like bad prompt engineering, produce results that we don’t want,” said Judge Platkin.
Huang explained that context is central because generative AI outputs are products of iterative prediction and designed to be sycophantic; they are biased to appear helpful, even if the substance is inaccurate. Unlike human law clerks, Judge Platkin noted, AI models rarely respond “I don’t know,” nor do they systemically apply “learned legal doctrines or review of primary sources.”
Those design features of generative AI can result in hallucinations, including fake cases, inaccurate facts and quotes, and incorrect holdings. According to a 2024 study by researchers at Stanford discussed during the panel, even premium legal AI tools hallucinated between 17 and 33% of the time. Therefore, the panelists suggested that making the user’s goals, constraints, and contexts explicit in the prompts can help reduce hallucination risks and stressed that human-in-the-loop procedural design is essential.
2. By Humans: Building Scaffolding for AI Use
The panel’s discussion of the latest updates in AI jurisprudence offered concrete guideposts for incorporating AI tools in our professional work safely and ethically.
Know AI, Review AI, Disclose AI
Newman explained that lawyers do not need an entirely new ethical framework to begin governing AI use because existing professional responsibility rules already apply. ABA Model Rule of Professional Conduct 1.1 (competence) requires attorneys to understand how the AI tools they use function. Rules 5.1 and 5.3 (supervision) require attorneys to review generative AI outputs as competent attorneys would supervise and review the work of junior lawyers and paralegals. Rule 3.3 (duty of candor) obligates attorneys to disclose their use of AI tools when the applicable court rules require such disclosure and when the clients would reasonably expect to know about such use and the disclosure is necessary for the clients to provide informed consent.
Courts Are Split on Attorney-Client Privilege and Work Product (For Now)
Newman also discussed a court split on whether attorney-client privilege and work-product protections apply to communications involving AI tools. In U.S. v. Heppner, the U.S. District Court for the Southern District of New York reasoned that the AI outputs involved in the case were not protected attorney work products because the client had independently retrieved those outputs without the counsel’s direction, nor were the clients’ prompts privileged because they effectively amounted to disclosure to third parties. In contrast, the U.S. District Court for the Eastern District of Michigan in Warner v. Gilbarco, Inc. ruled that the AI outputs in the case qualified as protected attorney work products because the AI platforms used were better seen as mere tools. However, Newman predicted that this divergence will be short-lived, given that AI use by legal practitioners and pro se litigants is already widespread.
Toward a Federal AI Regulatory Framework?
The patchwork of state AI laws will likely be harmonized under a federalized AI regulatory framework with a federal regulator, Newman argued. Certain foreign jurisdictions such as the European Union, Canada, and Brazil have adopted more comprehensive frameworks. The state-by-state approach the U.S. has taken thus far, he warned, creates uncertainty and significant compliance burdens for businesses.
3. For Humans: More Capability, More Questions
The panel also discussed AI’s potential to expand an individual’s capability, whether a creator or pro se litigant, and novel questions that arise as a result.
Copyright: Human Creativity
“What AI produces on its own is not ownable and not copyrightable,” Lee explained, just as “monkey selfies” were not copyrightable. But while the U.S. Copyright Office concluded in a January 2025 report that current generative AI tools do not “allow humans to have sufficient control, the [Office] specifically [said] that this could change,” Lee said.
She offered illustrative examples of when work involving generative AI is and is not copyrightable.
Movies and comics with AI parts: The AI-created parts are not copyrightable, but the whole movie or arrangement of AI-created images is copyrightable.
AI-assisted brainstorming: The output is copyrightable because the human author still creates the output with the AI tool helping the author to generate ideas.
Visual art modified by AI: An artist who made a drawing and used AI to modify it was able to copyright the product by “specifically disclaiming what AI did” and submitting “the original input and the AI modification,” Lee said.
Prompts themselves: It may depend on “how creative [the applicant’s] prompt is. If [the applicant’s] prompt is very detailed and includes creativity rather than generic questions, it is more likely the prompt is also copyrightable,” Lee said.
Lee pointed out that despite the U.S. Copyright Office guidance, many questions related to generative AI and intellectual property remain. For example, as AI-assisted coding becomes a mainstay, how will it affect the valuation of codes in M&A?
AI and Pro Se Litigants: Tool or Trap?
Judge Platkin noted that as more pro se litigants submit AI-generated court filings without consulting an attorney, courts and the legal profession face novel challenges as a result. Courts must review mounting volumes of cases without the filter of trained counsel. While AI tools may give nonlawyers better chances to argue on the merits, the self-represented litigants also lack the legal training necessary to identify hallucinations or assess the merits of their argument. Though courts may be lenient toward pro se litigants who submit court filings with hallucinated claims and citations, more courts are imposing sanctions on vexatious pro se litigants, Judge Platkin said.
* * *
Judge Platkin’s statement toward the end of the session captured the spirit of the conversation: “I would not trust AI to make important decisions, but I would trust my decision more if I used AI,” he said. AI may reshape legal practice, but lawyers, judges, and clients will continue to bear responsibility for how AI tools are used. As adoption of AI accelerates across the profession, the discussion suggested that the future of AI in law will depend less on the technology itself than on the human judgment guiding it.
“Process is your friend”: A simple yet powerful reminder from panelist Mary A. Francis captured the central message of the ABA Business Law Section’s Spring Meeting CLE program “A Practical Toolkit for Board Governance.” As boards face heightened litigation risk, increased regulatory scrutiny, and rapidly evolving technological challenges, strong board governance is no longer just a best practice but has become a strategic necessity. The panel focused on practical, real-world guidance for lawyers and corporate leaders seeking to strengthen board oversight, protect privilege, and foster effective boardroom culture.
The panel was moderated by Paul T. Chryssikos (SVP and Chief Counsel, Lincoln Financial) and featured insights from Mary A. Francis (Corporate Secretary and Chief Governance Officer, Chevron Corporation), Tina V. John (VP, Deputy General Counsel, and Global Head of Corporate Law, Unisys Corporation), and Alex G. Romain (Partner, Jenner & Block LLP). Together, they categorized board governance into four key themes: (1) process discipline, (2) board effectiveness, (3) managing risk, and (4) boardroom culture.
Process Discipline (Begins with the Record)
Process discipline is foundational to effective governance and begins with the record: board minutes. Minute-taking is critical in evidencing proper board governance. Minutes serve as both the legal and evidentiary record of board deliberations and fiduciary oversight, and they often become central in litigation matters. Consistency in drafting is also a fundamental necessity. The minutes should use careful language that avoids ambiguity or confusion. For example, if a company uses the word “unanimous,” it should use that term consistently every meeting. Minutes should remain objective, avoid emotional language, and limit jargon or coded terms that could be misinterpreted. John emphasized that many motions to dismiss are granted solely due to the minutes properly reflecting informed board oversight. At the same time, minutes should not become transcripts. They must reflect that directors were informed and engaged and should avoid unnecessary detail about tense exchanges or distractions during meetings. When there is a dissenting opinion, identifying director(s) by name may be inappropriate, unless specifically requested. Romain reinforced that point from a litigator’s perspective, noting that while minutes are not intended to be transcripts, litigators often treat them as such and question whether something happened based on whether it is clearly described in the minutes.
Draft control is also critical. Access should be limited to only relevant stakeholders, and older versions should be deleted to reduce discoverability risk. Furthermore, the use of voice/video recording is strongly discouraged. The use of artificial intelligence tools for note-taking is deeply problematic due to the sensitive information being captured. AI tools should be completely avoided unless the tool is closed source and contains tight controls that delete the old records once the official minutes are produced.
Board Effectiveness (Requires Intentional Design)
Governance does not stop at documentation. Director orientation and onboarding are critical to foster good culture and overall board effectiveness. During orientation, directors should receive a broad overview of the business and all governance documents such as bylaws, policies, and organizational/structural charts. When possible, directors should also receive deeper exposure to the company’s operations and leadership team. “This is the first time leadership can really build their relationship with the board,” John said, emphasizing that onboarding also helps identify where directors may need additional education or support. The purpose of orientation and onboarding is simple—maximize a director’s ability to contribute and provide value.
Committee assignments and leadership positions also require a strategic approach. Each member should be evaluated based on their experience and subject matter expertise, which will help determine what committee(s) they are appointed to. Rotating committee chairs/members can also be valuable for development and accountability, although it may be unnecessary when effective leadership is already present.
The importance of manageable board materials cannot be overstated. In-house lawyers should constantly question the purpose of certain materials being presented to the board and ensure they are concise, consistent in style, and written in plain English. The consensus from the panel was clear: The board should not be overloaded with content. Doing so limits the ability of the board to focus on issues that are critical to the success of the company. This may also encourage less engagement and the use of external tools for synthesizing (e.g., AI), creating additional risk.
Managing Risk (Means Managing the Record)
Board risk management is most critical in areas such as conflicts of interest, privilege protection, and technology controls. Conflicts of interest can undermine the duty of loyalty, erode trust, and create significant litigation exposure. Companies should maintain comprehensive conflicts policies with clear disclosure protocols and should never assume directors intuitively understand where conflicts may arise. “Don’t assume that smart, sophisticated people know these things,” Romain said. When conflicts arise, directors should be immediately recused from discussions and denied access to relevant materials, and those actions should be documented in the minutes. It is imperative to uncover conflicts early to avoid significant problems in the future. When the issue is not clear cut, companies should err on the side of caution. As John explained, “The record is always examined in hindsight, and you will not receive the benefit of the doubt.”
Privilege protection is also an area of significant risk. There is a common misconception that labeling a document “attorney-client privileged” automatically protects it. However, privilege depends on the actual legal purpose of the communication. Legal advice should be clearly separated from business advice, and board minutes should never provide detailed summaries of privileged discussions. Third-party involvement further complicates issues and presents emerging challenges, particularly with AI tools. Most AI platforms function as third parties for privilege purposes, making careful platform selection essential to protecting the company’s privileged information.
Boardroom Culture (Shapes Governance Outcomes)
Even the best governance structures can fail without trust, professionalism, and decorum inside the boardroom. Directors should avoid scope creep into management roles, monopolizing conversations, or creating side discussions that distract from strategic board discussions. Board confidentiality is equally important because trust can quickly collapse if information leaks. Boards should also design meetings for meaningful discussion rather than management presentations. Presentations should consume no more than half of the meeting time, leaving ample time for directors to engage, challenge, and deliberate on strategic business decisions.
Board evolution and director turnover can also be healthy and effective, particularly as strategy changes. Directors should regularly assess whether they remain the right fit for the company’s future needs. Deeply entrenched boards that lack new skills can create stagnation and activism risk. Regular board evaluations help support board evolution, whether conducted internally or with outside assistance; evaluations help prevent complacency and improve overall board effectiveness. “If you don’t do it, an activist will,” Francis warned.
Conclusion
Across all four themes, the panel returned to one consistent principle: Governance succeeds when process is deliberate, disciplined, and aligned with purpose. From minutes and agendas to privilege protection and board culture, small procedural decisions often determine major legal outcomes. The strongest boards are not simply compliant, they are intentional. They create records that withstand scrutiny, cultivate directors who contribute meaningfully, and build cultures rooted in trust and accountability.
As governance challenges continue to evolve, particularly with the advent of AI and rising shareholder activism, one lesson remains clear: Process is not bureaucracy; process is protection (and your “friend”).
Previously, federal agencies treated disparate-impact liability as a legitimate tool by which to combat employment discrimination, allowing them to pursue claims where facially neutral practices produced statistically disproportionate outcomes for protected classes. That posture shifted abruptly in April 2025. President Trump’s executive order instituting a pullback on federal enforcement of disparate-impact claims has created a widespread impression that AI hiring risk is, for now, manageable.[1] That impression is wrong in two important ways, and the lawyers who help their clients understand both will be doing them a genuine service.
First, federal enforcement pullback does not touch private litigation. Second, executive order priorities reverse with administrations, even those of the same party. The conduct happening now generates liability that does not disappear when enforcement resumes. A new administration in 2029 will inherit accrued liability that it could suddenly decide to prioritize. This is a particularly large risk given the high level of public skepticism toward AI being used in the hiring process.
The Litigation Pipeline Is Already Building
The most prominent test case in this space is Mobley v. Workday, Inc., currently being litigated in the U.S. District Court for the Northern District of California.[2] The plaintiff, an African American man over forty, applied through Workday’s AI-powered screening platform to more than one hundred positions and was rejected from all of them, often within hours of applying. He sued Workday directly. The court has allowed the claims to proceed on an agent-liability theory, holding that drawing a legal distinction between human and software decision-makers would gut antidiscrimination law in the modern era. A nationwide collective action covering applicants over forty was conditionally certified in May 2025. In March 2026, the court rejected Workday’s argument that the Age Discrimination in Employment Act (“ADEA”) does not even cover job applicants. As of this writing, the case remains in discovery.
Mobley is not alone. In Baker v. CVS Health Corp., an applicant alleged that CVS’s AI video-interviewing platform violated Massachusetts law by functioning as a de facto lie detector test. That claim survived a motion to dismiss and later settled.[3] In March 2025, the American Civil Liberties Union filed a complaint against Hirevue and Intuit, alleging that an AI video-interview tool discriminated against a deaf Indigenous applicant by providing AI-generated feedback recommending that she “practice active listening.” The first AI hiring discrimination lawsuit brought by the Equal Employment Opportunity Commission (“EEOC”), against iTutorGroup, alleged that the company’s screening tool automatically rejected applicants based on age.[4]It settled.
The pattern across these cases is consistent. Plaintiffs’ firms have identified AI hiring discrimination as a viable basis on which to sue, courts have shown an increased willingness to let claims proceed past the pleading stage, and settlements are happening before verdicts. That last point matters. The cases that settle quietly do not produce the public precedent that would deter future filings. They produce the opposite: They serve as a signal to plaintiffs’ counsel that these cases have value.
The trend extends beyond employment law. On May 7, 2026, in American Council of Learned Societies v. National Endowment for the Humanities, Judge Colleen McMahon of the U.S. District Court for the Southern District of New York rejected the federal government’s argument that ChatGPT, rather than the government itself, was responsible for viewpoint-discriminatory grant terminations.[5] Judge McMahon pointedly compared the government’s defense to comedian Flip Wilson’s “the devil made me do it” catchphrase, often used to excuse his character’s wild behavior. While the ruling is a constitutional law case, not an employment law one, the rhetorical posture that employers will adopt at trial is the same and could easily meet the same fate.
The Jury Problem Nobody Is Talking About
For clients whose cases survive to trial, the liability picture looks worse than most employment lawyers have internalized. The reason is the jury pool.
AI hiring claims proceed on two tracks. Disparate-impact claims, the more common framing in cases like Mobley, turn on statistical showings and the business-necessity defense. This is territory where jury perception of AI matters less than expert testimony and the four-fifths rule. Disparate-treatment claims, by contrast, turn on whether the finder of fact believes the employer’s stated reason for the adverse action.
It is on this second track where the jury pool’s hostility to AI hiring tools creates the sharpest exposure, and where the doctrinal mechanics deserve closer attention. However, even on the disparate-impact track, juror skepticism affects how business necessity arguments rooted in AI’s claimed objectivity will land, illustrating the importance of understanding the public’s views of AI regardless of the legal theory being defended against.
Recent Pew Research Center data show that more than eight in ten American adults express concern about bias in AI-based decision-making in the hiring context, with over half describing themselves as very or extremely concerned about it. Roughly two-thirds of Americans say they would not want to apply for a job with an employer that uses AI to make hiring decisions. Most concerning for companies using AI in the hiring context is that these numbers are not driven by the demographics that typically skew concern about discrimination. They cut across partisan lines. They cut across income levels. And they cut across race and age in ways that should give defense counsel particular pause.
White non-Hispanic respondents express concern about AI bias at rates comparable to or exceeding those of minority respondents. Older Americans, those most likely to show up in a jury pool, are the most concerned of any age group, with concern among adults sixty-five and older running well above 90 percent. High-income, white-collar professionals, the jurors that defense counsel in discrimination cases typically count on to be skeptical of plaintiffs, are deeply worried about algorithmic bias in hiring.
This matters doctrinally, not just atmospherically. In disparate-treatment cases proceeding under the McDonnell Douglas burden-shifting framework,[6] once a plaintiff establishes a prima facie case, the employer must offer a legitimate, nondiscriminatory reason for the adverse action. The standard defense in AI hiring cases is some version of good-faith reliance. For example, employers can assert that they didn’t know the AI tool was biased and therefore had no reason to suspect a problem. However, under Reeves v. Sanderson Plumbing Products, Inc., a finder of fact who disbelieves the employer’s stated reason, combined with the prima facie case, may infer intentional discrimination without any additional evidence of discriminatory motive.[7]
Put the doctrinal picture together with the public opinion figures and it becomes clear why this is so dangerous for employers. A jury that overwhelmingly believes AI hiring tools are biased will be asked to evaluate the credibility of an employer’s claim that it had no reason to suspect bias in its AI systems. This illustrates the need for employers utilizing AI in the hiring process to take steps that will give them a more credible basis on which to assert nondiscriminatory intent.
Deferred Liability Is Still Liability
The Trump administration’s executive order directing federal agencies to deprioritize disparate-impact enforcement does not create a safe harbor. It simply removes one enforcement mechanism for a fixed period. Private rights of action under Title VII, the ADEA, and the Americans with Disabilities Act are unaffected. Meanwhile, multiple states, such as California, Colorado, Illinois, and Texas, are filling the enforcement gap.
What’s more, executive order priorities often reverse with changes in administrations. A new president taking office in January 2029 does not need new violations to pursue an aggressive AI hiring enforcement agenda. The next administration will inherit an actionable record of what employers are doing in the final months of the current administration.[8]
What to Do About It
The practical steps that follow can meaningfully mitigate the risk structure employers face when using AI in the hiring process.
Audit what is deployed. Clients should know, at minimum, which AI tools are being used at which stage of the hiring process and whether those tools have ever been independently tested for disparate impact. Tools that make or heavily influence accept/reject decisions carry the highest exposure.
Fix the vendor contracts. Indemnification clauses drafted before the agent-liability theory emerged in Mobley almost certainly do not address it. Representations about bias testing, audit rights, and data provisions should be standard negotiating points, not special asks. A vendor unwilling to provide any transparency into its testing methodology is itself a risk signal worth communicating to the client.
Build the documentation record now. The paper trail is the defense. Clients should be maintaining records of why each tool was selected, what due diligence was conducted, what the vendor represented about bias testing, and what any subsequent review found. If an internal concern about a tool was raised and not acted on, that document will surface in discovery. The time to address it is before litigation, not during.
The Window Is Narrower Than It Looks
The current enforcement environment is not a green light for employers to proceed without caution. It is a grace period with an uncertain expiration date. Meanwhile, private litigation is proceeding regardless, the jury pool is already unfavorable, and the liability being generated today will still be there when the next administration’s EEOC decides what to prioritize. The clients who will be best positioned when the next enforcement shift comes are the ones whose lawyers helped them understand the risk now—while there is still time to do something about it.
Exec. Order No. 14281, 90 Fed. Reg. 17,537 (Apr. 23, 2025) (directing federal agencies to deprioritize enforcement based on disparate-impact liability). ↑
Mobley v. Workday, Inc., 740 F. Supp. 3d 796 (N.D. Cal. 2024) (denying motion to dismiss on agent theory); Mobley, No. 23-cv-00770-RFL, 2025 WL 1424347 (N.D. Cal. May 16, 2025) (granting preliminary collective certification under ADEA); Mobley, No. 23-cv-00770-RFL, 2026 WL 636719 (N.D. Cal. Mar. 6, 2026) (denying motion to dismiss ADEA claims). ↑
Baker v. CVS Health Corp., 717 F. Supp. 3d 188 (D. Mass. 2024). ↑
Am. Council of Learned Soc’ys v. Nat’l Endowment for the Humans., Nos. 25-cv-3657 (CM), 25-cv-3923 (CM), slip op. (S.D.N.Y. May 7, 2026) (consolidated). ↑
McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). ↑
Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 147 (2000). ↑
See 42 U.S.C. § 2000e-5(e)(1) (Title VII charges must be filed within 180 days, extended to 300 in deferral states); 29 U.S.C. § 626(d) (parallel ADEA filing requirement). ↑
This article is Part XII of the Musings on Contracts series by Glenn D. West, which explores the unique contract law issues the author has been contemplating, some focused on the specifics of M&A practice, and some just random.
New York courts have a justifiable reputation for enforcing sophisticated commercial agreements in accordance with their terms. As stated clearly by the New York Court of Appeals in 2019: “In keeping with New York’s status as the preeminent commercial center in the United States, if not the world, our courts have long deemed the enforcement of commercial contracts according to the terms adopted by the parties to be a pillar of the common law.”[1] And as stated more recently by another New York court:
Freedom of contract, particularly between sophisticated commercial actors, dealing at arm’s length, is an important right, and, “[a]bsent some violation of law or transgression of a strong public policy, the parties to a [commercial] contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party.” . . . Where a contract was negotiated and relied upon by experienced, sophisticated business actors represented by counsel, the parties are entitled to the commercial certainty that flows from enforcing the plain meaning of their unambiguous agreement.[2]
New York has also long recognized, however, that “in every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing.”[3]
But the implied covenant “is not without limits”; it operates solely “in aid and furtherance of other terms of the agreement,” and “it cannot be used to ‘imply obligations inconsistent with other terms of the contractual relationship.’”[4] Equally importantly, a breach of the implied covenant is simply a breach of the underlying contract, not an independent tort claim.[5]
Nevertheless, has a recent decision from the New York Court of Appeals (decided by a 4–3 majority), 111 West 57th Investment LLC v. 111 W57 Mezz Investor LLC,[6] “reimagined” the implied covenant and cast doubt on New York’s historically reliable contractarian bent?
A Crack in New York’s Contractarianism?
According to New York Court of Appeals Judge Garcia, in his dissent in 111 West 57th Investment, the answer is decidedly yes:
Prior to today’s decision, a party in plaintiff’s situation seeking to invoke the implied covenant of good faith and fair dealing had a high bar to clear, as New York courts interfered with the freedom of contract between well-represented parties in complex commercial transactions only in the most extraordinary circumstances. No longer. Instead, the majority, analogizing the parties to the junior mezzanine financing agreement at issue here to a city agency hiring a painting company and a student signing up to take a standardized test, holds that the covenant may be used to rewrite the specific terms of a multi-million-dollar construction loan agreement contract based on a court’s notion of fair play. . .
This majority’s reimagining of New York law will disrupt the expectations of contracting commercial parties, making uncertain the rights and liabilities in billions of dollars of outstanding loan agreements, and may well affect whether similarly situated parties will choose to subject themselves to New York law.[7]
Whoa! And two other judges joined in this dissent.
The majority opinion (written by Chief Judge Wilson and joined by three other judges) disagrees and suggests that its holding is in the mainstream of implied covenant jurisprudence when applied to discretionary acts—in this case, a lender’s decision to assign a portion of its outstanding loan to a third party, in circumstances alleged to have been in bad faith and designed to deprive one of the borrower’s major investors of its equity by inducing the borrower’s manager to acquiesce in a strict foreclosure. According to the majority, “[e]ven if [the lender] had the sole discretion to assign the junior mezzanine loan, doing so as part of an alleged backdoor deal to appropriate the value of plaintiff’s equity by conspiring with others to facilitate the scheme states a legally cognizable claim for breach of the implied covenant.”[8]
It is important to note, however, that the alleged scheme here was not an alleged civil conspiracy, which requires an underlying tort claim;[9] an alleged aiding and abetting of a breach of fiduciary duty (here, the applicable fiduciary duties appear to have been waived);[10] or a tortious interference with contract, which had been dismissed because both the assigning lender and the assignee “had ‘a right to protect [their] own legal and financial stake in the breaching party’s business’ and plaintiff failed to alleged that either [the lender or the assignee] took actions that ‘were motivated by malice, fraud, or illegal means.’”[11]
But let’s get into the alleged facts, or at least attempt to do so (the alleged facts in this matter are complex, have been the subject of several lawsuits against various defendants, and involve numerous claims).
Case Facts
Steinway Tower Ownership and Financing
The plaintiff in this case was 111 West 57th Investment LLC. The plaintiff was one of the principal equity investors in the development of 111 West 57th Street (also known as “Steinway Tower”), an ultra-luxury residential condominium in New York City (“Project”) and the skinniest skyscraper in the world. There were two other investors; one of the other investors (“Sponsor”) was “a special purpose vehicle by which the Project’s developers invested in and managed the Project.”[12] The three investors formed a Delaware limited liability company, 111 West 57th Partners LLC (which the court referred to as the “Joint Venture”), and entered into an LLC agreement (which the court referred to as the “JVA”).[13] Importantly, in the JVA, “Sponsor was designated the manager and was vested with ‘day-to-day authority to act for the Company,’ subject to certain ‘Major Decisions’ requiring plaintiff’s prior written consent, including ‘any financing or refinancing.’”[14] And, “[t]he JVA also contained an expansive ‘Waiver of Fiduciary Duties’ clause.”[15]
The Joint Venture borrowed $725 million to finance the Project, $325 million of which was provided as a nonrecourse junior mezzanine loan (“Mezz Loan”) by entities affiliated with Apollo (“Mezz Lenders”). The Mezz Loan was secured by a pledge of the equity interests in the entity owning the Project. The remaining $400 million was a traditional nonrecourse mortgage loan provided by a group of mortgage lenders (“Mortgage Lenders”) secured by the Project itself (“Mortgage Loan”).[16]
To have some appreciation of what happened next, it is important to understand the ownership structure: The Joint Venture wholly owned a subsidiary called 111 West 57th Mezz 1 LLC (“Junior Mezz Borrower”),[17] which in turn wholly owned 111 West 57th Holdings, LLC (“Senior Mezz Borrower”), which in turn wholly owned 111 West 57th Property Owner LLC (“Mortgage Borrower”). It appears that the Senior Mezz Borrower was the sole borrower on the original Mezz Loan, which was secured by a pledge of its equity in the Mortgage Borrower.
The Forbearance Agreement
As is common in construction projects, there were “budget overruns,” and the Mezz Loan apparently went into “technical default” by being “out of balance.”[18] To get back into balance required an additional infusion of capital. What happened next is a bit fuzzy and will ultimately be the subject of a trial.
At some point, given the ongoing default resulting from the failure to contribute the additional funds needed to bring the Mezz Loan back into balance, the Sponsor, apparently exercising its authority as manager of the Joint Venture, entered into a forbearance agreement with the Mezz Lenders.[19] Importantly, the default on the Mezz Loan was also a default under the Mortgage Loan—meaning the Mezz Lenders were at risk of the Mortgage Lenders foreclosing upon the Mortgage Loan, which, being senior to the Mezz Loan, could negatively affect the Mezz Lenders’ ultimate recovery on the Mezz Loan.[20] And the sole means for the Mezz Lenders to recover the loan proceeds appears to have been the equity in the Project.
At the same time the forbearance agreement was being entered into, the Mezz Lenders appear to have “exercised [their] contractual right under the operative loan agreement to ‘modify, split and/or sever any portion of the Loan,’” by requiring that the Mezz Loan be split into two pieces: a $300 senior mezzanine loan (“Senior Mezz Loan”) and a $25 million junior mezzanine loan (“Junior Mezz Loan”).[21]
The borrower of the Junior Mezz Loan then became the Junior Mezz Borrower, but the security for the Junior Mezz Loan now became a pledge of the Junior Mezz Borrower’s equity in the Senior Mezz Borrower (which, of course, structurally subordinated the Junior Mezz Loan to the Senior Mezz Loan). The borrower of the Senior Mezz Loan remained the Senior Mezz Borrower, and the Senior Mezz Loan continued to be secured by the Senior Mezz Borrower’s equity in the Mortgage Borrower.[22] The individual owners of the Sponsor also entered into a guaranty “under which they would become personally liable to repay the Junior Mezzanine Loan if any of them attempted ‘in bad faith . . . to materially delay any foreclosure against the Collateral, or any other exercise by Lender of its remedies under the Loan Document.’”[23]
Apparently, the Mortgage Loan and the intercreditor agreement between the Mortgage Lender and the Mezz Lenders were also amended in connection with the forbearance agreement. The amended intercreditor agreement restricted the Mezz Lenders’ ability to foreclose on their equity pledges unless they could “locate a new developer within sixty days of a foreclosure, and [] recommence construction under a new construction manager within thirty days of foreclosure.”[24]
The amended intercreditor agreement also required the Mortgage Lender’s approval of the identities of the developers and construction managers and provided a list of those likely acceptable to the Mortgage Lenders, but that list did not include the Sponsor or its individual owners.[25] But ultimately, the original developer did apparently come back into the deal.[26]
The Alleged “Backroom Deal”
The plaintiff alleged that “during the forbearance period,” the Mezz Lenders, the Mortgage Lender, and the Sponsor “negotiated a secretive ‘backroom deal’” to bring in additional equity investors and “extinguish [p]laintiff’s equity.”[27] The alleged plan was for new investors to invest in a new entity (“New Junior Mezz Lender”) that would acquire the Junior Mezz Loan from the Mezz Lenders (for its face amount of $25 million), which would then be strictly foreclosed upon and result in the New Junior Mezz Lender owning the Junior Mezz Borrower. As a result, all of the existing investors’ equity would be wiped out (which obviously included not only the plaintiff’s equity, but the Sponsor’s and all other existing investors’ equity as well), while the Senior Mezz Loan and the Mortgage Loan would remain in place.[28] Apparently, the new investors were then expected to invest some additional capital beyond the amount required to purchase the Junior Mezz Loan. And there were allegedly projections provided by the Mezz Lenders indicating that the return on the new investors’ capital infusion would be significant.[29] Presumably, these projections were based on a completed building and sales of the condominiums in that completed building, which apparently required additional capital to complete.
Shortly before the end of the forbearance period, the Mezz Lenders assigned the Junior Mezz Loan to the New Junior Mezz Lender, with the Mortgage Lender’s approval. Favorable amendments to the intercreditor agreement were also made. Within a short time after that, the New Junior Mezz Lender sent a notice of default and a strict foreclosure notice to the Junior Mezz Borrower pursuant to section 9-620 of New York’s Uniform Commercial Code.[30] The Sponsor apparently provided the plaintiff with a copy of the notice. And, “[p]ursuant to UCC 9-620, the Junior Mezz Borrower had twenty days to object to the strict foreclosure.”[31]
The plaintiff objected to the Sponsor acquiescing in the strict foreclosure as the manager of the Joint Venture, which was presumably the sole member of the Junior Mezz Borrower, and wanted the Sponsor to instead insist on a traditional foreclosure—the idea being that in a strict foreclosure, the New Junior Mezz Lender would receive the collateral in satisfaction of the Junior Mezz Loan, whereas in a traditional foreclosure, the New Junior Mezz Lender would conduct an actual foreclosure sale and any excess proceeds over the amount required to satisfy the Junior Mezz Loan might be paid to the Junior Mezz Borrower. The plaintiff claimed that this was a “Major Decision” requiring the plaintiff’s approval and, apparently, that the Sponsor was subject to an implied covenant not to acquiesce in the strict foreclosure in any event.[32]
The Sponsor refused to object to the proposed strict foreclosure on behalf of the Junior Mezz Borrower, and the plaintiff filed an action to prevent it. But the trial court ruled that the plaintiff lacked standing, and the strict foreclosure proceeded, resulting in the New Junior Mezz Lender acquiring, in satisfaction of the $25 million Junior Mezz Loan, all of the equity of the Senior Mezz Borrower, subject to the Senior Mezz Loan and the Mortgage Loan. And sometime thereafter, additional investments were made in the Joint Venture or its subsidiaries, resulting in the original developers who owned the Sponsor once again having an ownership stake in the Project.[33]
The Lawsuits
While the consummation of the strict foreclosure mooted the plaintiff’s effort to prevent it, the plaintiff amended its complaint to assert damage claims against the Sponsor, the Mezz Lenders, and the New Junior Mezz Lender. One of the plaintiff’s claims was that the Mezz Lenders and the New Junior Mezz Lender had tortiously interfered with the plaintiff’s rights under the JVA (by inducing the Sponsor not to object to the strict foreclosure). But the trial court dismissed that claim, apparently concluding that the decision not to object to the strict foreclosure was not a Major Decision and that, even if the Sponsor had an implied good faith obligation to object to the strict foreclosure, the Mezz Lenders and the New Junior Mezz Lender had “a right to protect [their] own legal and financial stake in the breaching party’s business” absent “a showing of either malice on the one hand, or fraudulent or illegal means on the other.”[34] According to the trial court, “malice, fraud or illegal means go beyond allegations of intentional bad faith acts.”[35]
Another of the plaintiff’s claims was that the Sponsor had breached its fiduciary duties to the plaintiff as the manager of the Joint Venture (and presumably that the Mezz Lenders or the New Junior Mezz Lender had participated in that breach). But that claim was dismissed because the JVA was a Delaware LLC, and Delaware law permits broad waivers of fiduciary duties in a limited liability agreement. Apparently, section 8.5 of the JVA did exactly that.[36]
The plaintiff also filed a derivative claim on behalf of the Joint Venture against the New Junior Mezz Lender, asserting that it violated the covenant of good faith and fair dealing under the pledge agreement when exercising its “discretion” to strictly foreclose—allegedly having induced the Sponsor “into giving away the company’s right to a sale by auction, which gutted the value received by the company.”[37] This claim is apparently still pending and was not involved in the Court of Appeals’ decision.[38]
But the plaintiff additionally filed a derivative claim on behalf of the Joint Venture against the Mezz Lenders, asserting that the Mezz Lenders’ exercise of their discretion to assign the Junior Mezz Loan to the New Junior Mezz Lender violated the implied covenant of good faith and fair dealing as applied to the pledge and loan agreement governing the Junior Mezz Loan. Although this claim survived a motion to dismiss at the trial court, the Appellate Division disagreed, holding:
[T]he Apollo Lenders had the right to assign the Junior Mezzanine Loan. The relevant loan agreement and pledge agreement, when read together, conferred considerable discretion to the Apollo Lenders. Because Apollo had the absolute right to assign the Pledge Agreement in its sole discretion under the loan documents, there can be no implied covenant claim against them.[39]
The Court of Appeals’ Approach to the Implied Covenant
The Appellate Division’s holding regarding the nonexistence of an implied covenant claim based on the exercise of the Mezz Lenders’ express contractual right to assign the Junior Mezz Loan was then appealed to the Court of Appeals, and this is where the fireworks occurred.
The majority opinion described the issue as follows:
[P]laintiff alleges that [the Mezz Lenders] violated the implied covenant under the Pledge Agreement by assigning the junior mezzanine loan to [the New Junior Mezz Lender] as a part of a “backroom deal” intended to push plaintiff out of the Project’s capital structure and benefit from the windfall of equity that would flow to [the New Junior Mezz Lender] (and others, including [the Mezz Lenders]) thereafter. Assuming without deciding that [the Mezz Lenders] had “sole discretion” to assign to the junior mezzanine loan under the terms of the Pledge Agreement and Loan Agreement, we disagree with the Appellate Division’s conclusion that such discretion exculpated [the Mezz Lenders] from the implied covenant. We instead hold that the second amended complaint sufficiently alleged a claim against [the Mezz Lenders] for breach of the implied covenant.[40]
Acknowledging that there was a split in authority among the various Appellate Division departments on the issue of whether there can be a breach of the implied covenant if the contract grants a party “sole discretion,” the majority of the Court of Appeals held that merely using the term sole discretion does not eliminate the implied covenant:
Accordingly, the implied covenant obligates the party with discretion [to] act in good faith, and “not [] arbitrarily or irrationally,” when “exercising that discretion.” A promisor’s discretion may not be used to violate a promise that “a reasonable person in the position of the promisee would be justified in understanding w[as] included.”[41]
The dissent did not disagree with the general principle that merely using the term sole discretion did not necessarily eliminate the possibility of an implied covenant constraining the unfettered exercise of that discretion. But Judge Garcia argued:
The relevant assignment clause permits [the Mezz Lenders], in [their] sole discretion, to assign the loan and reduce or eliminate risk, with certain bargained-for limits on that right. The parties negotiated two schedules of “prohibited transferees”; one effective prior to any default with a list of seven entities and one effective after any default that reduces that number to three.[42]
And those bargained-for limits on the persons to whom the loan can be assigned are the bargained-for constraints on the implied covenant’s operation within the discretion granted to the Mezz Lenders to assign the Junior Mezz Loan.[43] Thus, the Mezz Lenders’ “exercise of its discretion in assigning the loan to the [New Junior Mezz Lender], an entity not specifically prohibited from receiving the loan, did not deprive Borrower of the bargained-for limitations on transfer of the loan.”[44]
The majority countered:
It does not matter if the parties already negotiated certain restrictions with respect to a party’s sole discretion because the implied covenant’s very purpose is to cover that which is not anticipated and yet incompatible with the object of the contract when viewed as a whole, regardless of that sole discretion.[45] . . .
[T]he fact that the parties identified and agreed to certain entities to whom the loan could not be assigned does not suggest that the parties thereby authorized [the Mezz Lenders] to assign the loan to anyone else for a fraudulent purpose or in bad faith, which is what the plaintiff alleges.[46]
The majority also argued that their position on the implied covenant’s application to a discretionary right was consistent with Delaware law.[47]
New York Appears to Have a Broader Concept of the Implied Covenant Than Delaware
It is true that Delaware law similarly suggests that simply modifying the grant of discretionary authority with the word sole does not eliminate the implied covenant’s application to the exercise of that “sole discretion.”[48] Instead, something more is required.[49] “But ‘if the scope of discretion is specified, there is no gap in the contract as to the scope of the discretion, and there is no reason for the Court to look to the implied covenant to determine how discretion should be exercised.’”[50]
And even when the implied covenant applies to a discretionary right, it simply prevents the holder of the right from acting maliciously to destroy the fruits of the bargain for its counterparty without any “contractually grounded” justification.[51] “An obligation to act in the best interests of another party is a fiduciary duty, not a contractual one.”[52] A party can exercise a discretionary contractual right to protect its own contractual interests, even if doing so is detrimental to the other party. But it cannot exercise those discretionary rights solely to harm the other party.[53] In Delaware:
The implied covenant of good faith and fair dealing is the doctrine by which Delaware law cautiously supplies terms to fill gaps in the express provisions of a specific agreement. Despite the appearance in its name of the terms “good faith” and “fair dealing,” the covenant does not establish a free-floating requirement that a party act in some morally commendable sense. Nor does satisfying the implied covenant necessarily require that a party have acted in subjective good faith.[54]
In 111 West 57th Investment, the assignment provision limiting to whom the loan could be assigned was clearly for the borrower’s benefit and set the limits of that restriction. But the general provision stating that an assignment to anyone else was permitted in the lender’s sole discretion was for the lender’s benefit, not the borrower’s benefit. For the borrower, the fruits of the pledge agreement were forbearance from foreclosure for a specified period, subject to bargained-for restrictions on the persons to whom the loan could be assigned. For the lender, the fruits of the pledge agreement were security for the repayment of the Junior Mezz Loan, which, except for the guaranty provided by the Sponsor’s owners, was nonrecourse. That was the bargain.
This assignment provision was not a clause granting the Mezz Lenders discretion over the borrower’s right to assign its obligations to a purchaser of the Project, where the issue of exercising that discretion reasonably would normally arise. Obviously, the Mezz Loan had been split into a smaller Junior Mezz Loan to provide flexibility for the Mezz Lenders in realizing on its sole collateral—the equity interests in the chain of companies that ultimately owned the Mortgage Borrower. And in the absence of the bargained-for restriction in favor of the borrower, the loan would have been freely assignable by the lender in any event.[55] And even without the assignment, the Mezz Lenders had the right to initiate a strict foreclosure on the pledge securing the Junior Mezz Loan and to attempt to accomplish the objective that was in its best interest, given that the Mezz Lenders’ ability to recover on its loans was subject to the Mortgage Loan.
The sole issue on appeal was whether the plaintiff had stated a sufficient claim that the Mezz Lenders had breached the implied covenant in the pledge agreement securing the Junior Mezz Loan when the assignment was made to the New Junior Mezz Lender. It was not a question of whether the plaintiff had stated a sufficient claim against the Sponsor, alleging that the Sponsor had breached its implied covenant in the JVA by failing to object to the strict foreclosure. Nor whether the New Junior Mezz Lender had in fact induced the Sponsor to fail to object to the strict foreclosure in violation of the implied covenant applicable to the Sponsor’s discretionary powers as the manager of the JVA.[56] Nonetheless, the majority stated that “[e]ven leaving the assignment aside, the complaint’s remaining allegations sufficiently allege a scheme to induce the [borrower’s manager] to refuse to object to the strict foreclosure, and sufficiently allege [the Mezz Lenders’] involvement in that scheme.”[57]
But how can an alleged participation in an alleged scheme to induce a breach of an implied covenant (which is a contract claim, not a tort claim) be cognizable if such participation in such a scheme failed to qualify as tortious interference? After all, the majority “affirmed the dismissal of the tortious interference claims against both [the Mezz Lenders and the New Junior Mezz Lender] on the ground that they were insufficiently pleaded.”[58]
And isn’t the induced breach of the implied covenant, as thus described by the majority, an implied covenant in the borrower’s Delaware law–governed LLC agreement, not the pledge agreement? If so, is that not a claim for tortious interference by the Mezz Lenders with the borrower’s LLC agreement (which has apparently been dismissed)? If not, is the majority’s formulation of the plaintiff’s claim a way of invoking the implied covenant as a repackaged version of an aiding and abetting of a breach of fiduciary duty claim (which was effectively waived under Delaware law)? Under Delaware law, “[r]especting the elimination of fiduciary duties requires that courts not bend an alternative and less powerful tool [i.e., the implied covenant] into a fiduciary substitute.”[59]
The fact that New York’s LLC law is more limited in its statutory authority to permit parties to waive fiduciary duties in alternative entities[60] does not change the fact that Delaware, the law under which the Joint Venture was established, broadly permits such waivers, subject only to an ongoing obligation of good faith and fair dealing.[61] And the contours of that ongoing obligation of good faith and fair dealing respecting the “internal affairs” of a Delaware entity should be established based on Delaware’s approach to the implied covenant, not New York’s seemingly now-broader approach.[62]
There appears to be ongoing litigation of other claims against other defendants that do not invoke the implied covenant in the potentially troubling context of a lender’s decision to assign its loan in a manner that did not violate the express terms of the loan and equity pledge agreement.
Let’s Ask Captain Obvious
The majority opinion suggests that its approach to the implied covenant, as applied to the exercise of discretionary rights to assign a pledge agreement, is consistent with Delaware law.[63] But recent Delaware decisions have looked to English law and the “officious bystander test” as a convenient means of assessing whether the implied covenant should supply an implied term to fill a gap in the express terms of an agreement.[64] And that includes gaps created by grants of discretionary rights (to the extent that this particular right of the Mezz Lenders to assign to anyone to whom an assignment was not expressly prohibited can even be categorized as a discretionary right).
While English law has not conceptually embraced the implied covenant of good faith and fair dealing, it does, when necessary, cautiously imply terms in a manner not dissimilar to the limited gap-filling approach that the Delaware courts use in applying the implied covenant. As described by a recent Delaware Chancery Court decision:
[U]nder English law, “a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed [to] it if it had been suggested to them.” The term must also “be so obvious as to go without saying or to be necessary for business efficacy.”[65]
And English law also supplies a convenient approach to determining when a term is “so obvious as to go without saying”—the “officious bystander test.”[66] That test asks whether “if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’”[67]
This officious bystander is the English equivalent of our “Captain Obvious”—i.e., the person who makes those ridiculously obvious statements that prompt those who hear them to reply unanimously with “Thank you, Captain Obvious,” or sometimes with an even more colorful phrase that begins with the word “no,” followed by a scatological reference, and ending with the name “Sherlock.”
So, if an officious bystander had suggested to the parties negotiating the pledge agreement securing the Junior Mezz Loan that there be an express provision prohibiting the Mezz Lenders from assigning the Junior Mezz Loan to a third party “as part of a backdoor deal to appropriate the value of plaintiff’s equity by conspiring with others to facilitate that scheme,” would the parties have unanimously answered “Oh, of course”? I think not.
While the Junior Mezz Borrower, acting through the Sponsor, may have been indifferent, the Mezz Lenders might well have replied:
Wait a minute. What does that even mean? Does a foreclosure constitute a scheme? Isn’t the whole idea behind a foreclosure of an equity pledge to appropriate the value associated with the pledged equity to ensure repayment of our loan? We have even negotiated a personal guaranty to ensure that the Sponsor’s owners are at risk if they interfere with a foreclosure. We are entitled to foreclose right now. The borrower is in default; we are junior to the Mortgage Loan, and they have demanded that we find a new developer to get the Project back on track. We are offering the borrower a forbearance to provide time to get the Project back on track. And we are exercising our rights to split the loan to provide us flexibility in any foreclosure scenario, and we will undoubtedly assign the Junior Mezz Loan to another party as part of using that flexibility to foreclose on only a portion of the Mezz Loan and leave the remaining portion outstanding in our favor, all while fulfilling the obligations we have now had to undertake to the Mortgage Lender. So, “No, of course not!”
Or, as one Delaware Court of Chancery decision suggested would be the result of a similar question regarding an implied term that a plaintiff alleged was required by the implied covenant, there would have been no “Oh, of course” response by the parties. Instead, “[a]t best, further negotiation would have ensued. It is therefore not reasonably conceivable that the implied covenant can support the implicit [rights suggested by the plaintiff].”[68]
But the majority did not approach the implied covenant in this manner. Instead of asking what the parties to the pledge agreement (the Junior Mezz Borrower and the Mezz Lenders) would reasonably have understood the agreement might include by way of an implied term, the majority looked to what the plaintiff would have understood. The plaintiff, however, was not a party to the pledge agreement and would not have been there to hear the officious bystander offer the express term and be in a position to answer with the other negotiating parties, “Oh, of course.” Instead, looking to what a nonparty to the pledge agreement would have reasonably concluded, the majority held:
At bottom, accepting the second amended complaint’s allegations as true and making all reasonable inferences from those allegations in plaintiff’s favor, the pleading is sufficient to state a claim that Apollo breached the implied covenant in the Pledge Agreement. The purpose of the Pledge Agreement was to facilitate the forbearance of the original mezzanine loan from Apollo, such that the construction of the Project could continue and that the Joint Venture’s equity investment in the Project, including plaintiff’s $65 million investment, remained unimpaired. The Pledge Agreement and Loan Agreement were intertwined. As such, a reasonable party in plaintiff’s position would have understood that the Pledge Agreement included a promise by Apollo not to use its discretion under the Pledge Agreement to collude in a “backdoor deal” that stripped plaintiff of its position as an equity participant in the Project—the very equity the forbearance agreement was intended to protect. By implying such a promise, we recognize an obligation that was implicit in the Pledge Agreement. Allegations of this kind, which deprive parties of the benefits of the contract, are precisely what the implied covenant is intended to safeguard against.[69]
The facts in this case are so complex and difficult to pin down that it is perhaps understandable that the majority wanted those facts more fully developed at trial and the case not decided simply on the pleadings. But the only claim here, it seems, was the implied covenant claim arising under the pledge agreement against the Mezz Lenders by virtue of the assignment of the Junior Mezz Loan to the New Junior Mezz Lender—not the implied covenant claim that also exists pursuant to Delaware law under the JVA. And the normal purpose of a pledge agreement is to secure a loan made, not to ensure that the pledged equity interests “remain unimpaired.”[70]
Even if something untoward occurred here and the plaintiff suffered harm, it is important that a legally cognizable claim be used to address that harm.[71] It is not clear that the pledge agreement itself is the place to find the implied covenant to address that presumed harm. And the implied covenant cannot be the means of redressing every alleged injury arising out of a contractual relationship that is not addressed by the express terms. To allow the wrong legal theory to address a perceived harm can have “ramifying consequences, like the rippling of the waters, without end.”[72]
Concluding Thoughts
In a prior piece on the implied covenant,[73] I suggested that Texas may have overreacted by rejecting the implied covenant of good faith and fair dealing outright.[74] Specifically, I suggested that when the Texas Supreme Court declared that such a “novel concept . . . would . . . let each case be decided on what might seem ‘fair’ and in ‘good faith’ by each fact finder,”[75] it was describing and rejecting the utopian vision of the implied covenant, not the more practical gap-filling version that simply implies obvious terms necessary to give business effect to the other express terms of an agreement—in other words, the version of the implied covenant that is applied in Delaware and that I believe was also applied in New York. But the dissent in 111 West 57th Investment noted Texas’s position and suggested that Texas’s position had, in fact, been unfounded until the majority decision in this case because the implied covenant had been so cautiously applied.[76] But perhaps no more?[77]
There are legitimate transactions structured every day that adhere to the express terms of written agreements governed by New York law, and, in connection with them, consideration is given to the implied covenant in its limited (and rarely used) role of implying gap-filling terms consistent with those express terms. Does this case add a new dimension to that exercise?[78] And if so, are there discernible guidelines for navigating that new dimension?
Kirk La Shelle Co. v. Paul Armstrong Co., 188 N.E. 163, 167 (N.Y. 1933). ↑
Singh v. City of New York, 217 N.E.3d 1, 5 (N.Y. 2023) (citations omitted). ↑
See Zormati v. Citibank, N.A., 2026 N.Y. slip op. 01821, 2026 WL 849365, at *2 (N.Y. App. Div. 2d Dep’t Mar. 25, 2026); see also Smile Train, Inc. v. Ferris Consulting Corp., 986 N.Y.S.2d 473, 475 (N.Y. App. Div. 1st Dep’t 2014) (“[B]reach of the implied covenant of good faith and fair dealing is not a tort; rather, it ‘is a contract claim.’”); Randall’s Island Aquatic Leisure, LLC v. City of New York, 938 N.Y.S.2d 62, 63 (N.Y. App. Div. 1st Dep’t 2012) (“There can be no claim of breach of the implied covenant of good faith and fair dealing without a contract.”). ↑
111 W. 57th Inv. LLC v. 111 W57 Mezz Inv. LLC, No. 41, 2026 N.Y. slip op. 03376, 2026 WL 1502410 (N.Y. May 28, 2026) (NYCA). ↑
Id. at *9 (Garcia, J., dissenting in part) (emphasis added). ↑
Id. The Joint Venture was an LLC formed under Delaware law, and Delaware law permits broad waivers of fiduciary duties but not waivers of the implied covenant. 6 Del. C. § 18-1101(c) (“To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.”). New York’s LLC statute is a more limited grant of authority to waive fiduciary duties. In New York, the waiver may not “eliminate or limit . . . the liability of any manager if a judgment or other final adjudication adverse to him or her establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled. . . .”). N.Y. Ltd. Liab. Co. Law § 417(a)(1) (McKinney 2026). ↑
See 111 W. 57th Inv. LLC v. 111 W57 Mezz Investor LLC, 2022 N.Y. slip op. 34258(U), 2022 WL 17718682, at *2 (N.Y. Sup. Ct., N.Y. Cty. Dec. 15, 2022) (Trial Court). ↑
It is not clear whether the Junior Mezz Borrower was in the structure originally or only entered the structure as part of the subsequent forbearance agreement. ↑
111 W. 57th Inv. (NYCA), 2026 WL 1502410, at *1. Apparently, the plaintiff alleged that the budget overruns exceeded the approved budget and that the plaintiff was not required to contribute its share of the shortfall and instead was entitled to trigger an equity put requiring that the Sponsor purchase the plaintiff’s equity. See Ambase Corp. v. Acrefi Mortg. Lending, LLC, 2019 N.Y. slip op. 33148(U), 2019 WL 5394498, at *1–3 (N.Y. Sup. Ct., N.Y. Cty. Oct. 22, 2019). The Sponsor disputed that and had apparently covered several capital contributions that the plaintiff had allegedly not funded. Moreover, the Sponsor had proposed a new financing to resolve the funding deficit, but the plaintiff had allegedly refused to approve the financing. See generally Ambase Corp. v. 111 W. 57th Sponsor LLC, 2018 N.Y. slip op. 30160(U), 2018 WL 587136, at *2–3 (N.Y. Sup. Ct., N.Y. Cty. Jan. 29, 2018); Iszo Cap. LLP v. Bianco, 2018 N.Y. slip op. 33384(U), 2018 WL 6809400, at *1 (N.Y. Sup. Ct., N.Y. Cty. Dec. 27, 2018). ↑
111 W. 57th Inv. (Trial Court), 2022 WL 17718682, at *2. ↑
111 W. 57th Inv. (NYCA), 2026 WL 1502410, at *10 (Garcia, J., dissenting in part). ↑
See Calumet Cap. P’rs LLC v. Victory Park Cap. Advisors, LLC, 353 A.3d 88, 126 (Del. Ch. 2026). ↑
See Glenn D. West, Musings on the Exercise of “Sole Discretion,”Weil Glob. Priv. Equity Watch (Aug. 29, 2022) (discussing caselaw that suggests “sole discretion” by itself does not eliminate the implied covenant); Paul M. Altman & Srinivas M. Raju, Delaware Alternative Entities and the Implied Contractual Covenant of Good Faith and Fair Dealing Under Delaware Law, 60 Bus. Law. 1469, 1484 (2005) (suggesting means of limiting the implied covenant in grants of discretion with language in addition to sole discretion). ↑
McKenzie v. BDO USA, P.C., 2026 WL 191010, at *5 (Del. Ch. Jan. 26, 2026) (citations omitted). ↑
See Guilbeau v. Footprint Int’l Holdco, Inc., 2026 WL 1180159, at *22 (Del. Ch. Apr. 30, 2026). ↑
Allen v. El Paso Pipeline GP Co., 113 A.3d 167, 182–83 (Del. Ch. 2014), aff’d, 2015 WL 803053 (Del. Feb. 26, 2015). ↑
See generally 29 Williston on Contracts § 74.10 (4th ed. May 2026 Update) (“Generally, all contract rights may be assigned in the absence of clear language expressly prohibiting the assignment, and unless the assignment would materially change the duty of the obligor or materially increase the obligor’s burden or risk under the contract or the contract involves obligations of a personal nature.”). ↑
See 111 W. 57th Inv. LLC v. 111 W57 Mezz Inv. LLC, 146 N.Y.S.3d 95, 99 (N.Y. App. Div. 1st Dep’t 2021) (“[T]he complaint states a derivative cause of action for breach of the duty of good faith and fair dealing by alleging that [the New Junior Mezz Lender], in which the pledge agreement vested discretion as to the exercise of UCC remedies, suborned insiders to allow it to exercise that discretion to plaintiff’s detriment.”). ↑
111 W. 57th Inv. (NYCA), 2026 WL 1502410, at *10 n.10. ↑
SeeN.Y. Ltd. Liab. Co. Law § 417(a)(1) (McKinney 2026) ( a waiver of fiduciary duties in New York may not “eliminate or limit . . . the liability of any manager if a judgment or other final adjudication adverse to him or her establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled”). ↑
6 Del. C. § 18-1101(c) (“To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.”). ↑
See generally Eccles v. Shamrock Cap. Advisors, LLC, 245 N.E.3d 1110, 1121 (N.Y. 2024) (quoting Hart v. Gen. Motors Corp., 129 A.D.2d 179, 184, 517 N.Y.S.2d 490 (N.Y. App. Div. 1st Dep’t 1987)) (noting that “the internal affairs doctrine . . . protects the interests and expectations of shareholders by giving effect to their choice as to what jurisdiction’s laws will govern the corporation’s affairs”). ↑
111 W. 57th Inv. (NYCA), 2026 WL 1502410, at *5. ↑
See Guilbeau v. Footprint Int’l Holdco, Inc., 2026 WL 1180159, at *14 (Del. Ch. Apr. 30, 2026); Zync, Inc. v. Porshe Inv. Mgmt., S.A., 2026 WL 1507812, at *21 (Del. Ch. May 29, 2026). ↑
Footprint Int’l, 2026 WL 1180159, at *14 (quoting Marks & Spencer PLC v. BNP Paribas Sec. Servs. Tr. Co. (Jersey) Ltd., [2015] UKSC 72, [2016] A.C. 742 [21], [23]). ↑
111 W. 57th Inv. (NYCA), 2026 WL 1502410, at *8 (emphasis added). ↑
Id. It is also not clear that the primary purpose of a forbearance agreement is to ensure that a borrower’s equity interests “remain unimpaired.” ↑
There is a legal maxim that is worth recalling—damnum absque injuria (a “harm without injury in the legal sense, that is, without such breach of duty as is redressable by an action”). Black’s Law Dictionary (5th ed. 1979). ↑
Tobin v. Grossman, 249 N.E.2d 419, 424 (N.Y. 1969). ↑
Texas does recognize the implied covenant in the context of contracts subject to the Uniform Commercial Code and certain “special relationships,” such as an insurance contract. See Tex. Bus. & Com. Code §§ 1.201(b)(20), 1.304, 2.306; see also Natividad v. Alexsis, Inc., 875 S.W.2d 695, 697–98 (Tex. 1994) (“The duty of good faith and fair dealing emanates from the special relationship between the parties and not from the terms of the contract, therefore its breach gives rise to tort damages and not simply to contractual liability. However, the ‘special relationship’ exists only because the insured and the insurer are parties to a contract that is the result of unequal bargaining power, and by its nature allows unscrupulous insurers to take advantage of their insureds. Without such a contract there would be no ‘special relationship’ and hence, no duty of good faith and fair dealing.”). ↑
English v. Fischer, 660 S.W.2d 521, 522 (Tex. 1983). ↑
111 W. 57th Inv. (NYCA), 2026 WL 1502410, at *12 n.2 (Garcia, J., dissenting in part). ↑
Unlike either New York or Delaware, Texas LLC agreements can completely eliminate fiduciary duties without any ongoing implied covenant of good faith and fair dealing overlay. SeeTex. Bus. Orgs. Code § 101.401 (“The company agreement of a limited liability company may expand, restrict, or eliminate any duties, including fiduciary duties, and related liabilities that a member, manager, officer, or other person has to the company or to a member or manager of the company.”). ↑
As noted in my prior piece (West, supra note 66), I am working with coauthors on a more comprehensive law review article with the working title “Making Sense of the Implied Covenant of Good Faith and Fair Dealing.” This case has caused some rethinking, at least with respect to the “sense” of the doctrine in New York. ↑
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