The Delaware Chancery Court has issued a notable opinion that confirms Delaware’s position as a pro-sandbagging jurisdiction and clarifies when damages may be computed using a transaction multiple. These are important points for parties to take into account when negotiating and drafting acquisition agreements.

In re Dura Medic Holdings, Inc. Consolidated Litigation^[1] involved a private equity firm’s acquisition of a medical equipment supplier through a reverse triangular merger. As explained in more detail below, the buyer sought indemnification from the sellers for breaches of certain representations and warranties in the merger agreement.

Sandbagging

Background

The sellers represented and warranted that the target company had been in compliance with applicable healthcare laws and, except as otherwise disclosed, had not received written notice of alleged noncompliance from any government authority in the three years prior to closing. The disclosure schedules described one such notice, but soon after closing, the buyer discovered others, one of which resulted in further government review and significant expense to the buyer. The buyer sued the sellers for breach of the representation. In response, the sellers contended that the buyer’s claim failed because the sellers had informed the buyer about the relevant notices in a conference call during pre-closing due diligence.

Sandbagging Jurisprudence in Delaware

In M&A transactions, the term “sandbagging” refers to circumstances in which a buyer asserts a claim after the closing based on a breach of a representation or warranty despite having had reason to suspect it was inaccurate as of the closing. The term has a negative connotation,^[2] suggesting that the buyer is seeking to entrap the seller by concealing what the buyer knows and feigning reliance on the representation.

Delaware courts will enforce provisions in M&A agreements that expressly allow sandbagging (“pro-sandbagging” provisions) or expressly prohibit it (“anti-sandbagging” provisions, which effectively require the buyer to prove that it did not have knowledge of the inaccuracy of a representation or warranty in order to bring a claim). In cases where the acquisition agreement is silent, Delaware’s default position was widely thought to be pro-sandbagging, based in part on Chancery Court holdings by then–Vice Chancellor Leo E. Strine, Jr. However, the Delaware Supreme Court’s 2018 opinion in Eagle Force Holdings, LLC v. Campbell included dicta that muddied the waters. In a footnote, the majority opinion seemed to support a pro-sandbagging position (citing a New York line of cases)^[3] while a concurring opinion by then–Chief Justice Strine cited to a 1913 opinion for the proposition that “[v]enerable Delaware law casts doubt” on a buyer’s ability to engage in sandbagging.^[4]

Since Eagle Force, Delaware courts have consistently adopted a pro-sandbagging default position. Two post-trial Chancery Court opinions held that a buyer could terminate an acquisition agreement when the seller’s representations were incorrect even though the buyer was aware of the inaccuracy at an earlier stage of the transaction.^[5] In another post-trial opinion, the Chancery Court held that sandbagging was not implicated because the buyer lacked actual knowledge that the seller’s representations were false; however, then–Vice Chancellor Joseph R. Slights III wrote: “In my view, Delaware is, or should be, a pro-sandbagging jurisdiction.”^[6] Despite this general pro-sandbagging trend, none of these opinions squarely addressed the question of whether a buyer’s pre-closing knowledge of the inaccuracy of a seller’s representation or warranty would prevent the buyer from bringing a post-closing contractual indemnification claim for breach of that representation or warranty. In re Dura Medic addresses this issue.

The Court’s Holdings

In his opinion, Vice Chancellor J. Travis Laster noted that representations and warranties in an acquisition agreement serve to allocate risk between the parties and, unlike fraud claims, do not require a buyer to prove that it justifiably relied on the representations. He reiterated his pro-sandbagging holding in Akorn, Inc. v. Fresenius Kabi AG, which in turn quoted extensively from a pre–Eagle Force Vice Chancellor Strine opinion:

A breach of contract claim is not dependent on a showing of justifiable reliance. . . . [R]epresentations like the ones made in the agreement serve an important risk allocation function. By obtaining the representations it did, the buyer placed the risk [of inaccuracies] on the seller. Its need then, as a practical business matter, to independently verify those things was lessened because it had the assurance of legal recourse against the seller in the event the representations turned out to be false. . . . Having contractually promised the buyer that it could rely on certain representations, the seller is in no position to contend that the buyer was unreasonable in relying on the seller’s own binding words.^[7]

Vice Chancellor Laster emphasized that, by making a representation and warranty, a seller agrees to assume the risk that the facts and circumstances as represented are or may become incorrect, regardless of the foreknowledge of either the buyer or the seller. This approach not only holds the parties to the plain terms of their acquisition agreement, but it serves to reduce due diligence costs, especially when a buyer is confronted with circumstances that may be subject to change or otherwise difficult to determine at the time of contracting.

Vice Chancellor Laster made the additional point that, for breach of contract claims (as opposed to fraud claims), a standard integration clause prevents information outside of the four corners of the agreement from operating to modify the agreement.^[8] In the case of In re Dura Medic, this meant that, even if the sellers had disclosed other governmental notices to the buyer during the pre-closing due diligence process (the court ultimately found that they had not), such disclosures would only modify the representation if they appeared in the transaction documents.

Key Points for Buyers

As the latest installment in Delaware’s pro-sandbagging jurisprudence, In re Dura Medic should give buyers greater assurance that, unless sellers include an express anti-sandbagging provision in an acquisition agreement, their representations and warranties will be interpreted as they are written to shift risk to the sellers. While buyers can further strengthen their position through an express pro-sandbagging provision (at least perhaps until the Delaware Supreme Court speaks to the issue), In re Dura Medic holds that a standard integration clause will function essentially as a pro-sandbagging provision. As interpreted by Vice Chancellor Laster, such a clause will prevent sellers from claiming that information provided to buyers outside of the transaction documents (whether through due diligence, site visits, employee interviews, emails, or otherwise) operates to modify the sellers’ representations.

Key Points for Sellers

If sellers want anti-sandbagging protection, they should include an express anti-sandbagging provision in the acquisition agreement and, in a transaction that contemplates a bifurcated sign and close, a mechanism to update the disclosure schedules. In the absence of these protections, information provided to a buyer during pre-closing due diligence that does not appear in the transaction documents likely will not modify the sellers’ representations and warranties. Accordingly, sellers should take care to ensure that their representations and warranties are accurate and appropriately qualified and that disclosure schedules are complete.

Use of a Transaction Multiple to Calculate Damages

Background

In the merger at issue in In re Dura Medic, the purchase price for the target company was calculated using its EBITDA for the twelve months ending April 30, 2018, multiplied by 6.7797. The merger agreement provided that the sellers would indemnify the buyer for “Losses” resulting from inaccurate representations, with “Losses” defined as “any and all damages,” including “damages based on a multiple of earnings, revenue or other metric.”^[9] Despite expressly allowing for damages to be calculated using a transaction multiple, the agreement was silent as to when a multiple should or should not be used.

The sellers represented and warranted in the agreement that no significant customer had notified the target company of an intent to terminate or reduce its business. This representation proved to be false with respect to two customers. Vice Chancellor Laster calculated damages based on the loss of earnings that would have been received from those customers during the same twelve-month period used to calculate the purchase price. At issue was whether the Losses over this twelve-month period should be multiplied by 6.7797 to mirror the purchase price calculation. The sellers argued that no multiple should apply because the target company was not permanently impaired by the loss of the two customers and because the buyer had failed to mitigate the losses.

The Court’s Holdings

Vice Chancellor Laster applied the 6.7797 multiple to calculate damages. He held that when an acquisition agreement is silent as to when a multiple should be applied, the court must look to the common law, which allows a party to “recover reasonable expectation damages based on a multiple where the price was established with a market approach using a multiple.”^[10] He cited evidence—namely, the buyer’s pre-closing investment committee memorandum and expert testimony—that proved that the buyer had derived the purchase price using a 6.7797 multiple of EBITDA during the applicable twelve-month period. He also rejected an argument by the sellers that losses must permanently affect a business in order for a transaction multiple to apply to the calculation of damages.^[11] Instead, he found that “[w]hether a misrepresentation diminishes the value of the business sufficiently to warrant applying a multiple turns on the extent to which the misrepresentation affects future earning periods.”^[12] Using that standard, he found that the undisclosed customer losses resulted in recurring declines in the target company’s revenue, which resulted in the buyer paying an inflated purchase price and caused damages that the buyer could not mitigate due to the sellers’ breach of its significant customer representation.

Key Points

Many acquisition agreements are silent as to whether and when a transaction multiple will be applied to calculate damages. In re Dura Medic stands for the proposition that, when the purchase price is calculated using a transaction multiple and the suffered loss would have impacted that price, the court may interpret such silence by looking to the common law, which allows the buyer to seek multiple-based damages. This holding may encourage some buyers to leave the acquisition agreement silent on multiple-based damages, but sellers should be aware of the risk this presents and consider drafting the agreement to expressly exclude multiple-based damages or otherwise limit the circumstances under which such damages may apply.

Buyers that wish to ensure that a transaction multiple is used to calculate damages for breaches of the sellers’ representations and warranties should expressly state in the acquisition agreement that multiple-based damages may be recovered. Buyers should also be prepared to support their position with evidence (e.g., pre-closing deal models, investment committee memoranda, or fact or expert witness testimony) that demonstrates that the purchase price was calculated using a transaction multiple and that a lower purchase price would have been paid (or that the buyer would not have closed on the transaction) if the seller made accurate representations and disclosures in the transaction documents.

The authors would like to thank Andrew J. Spadafora for his contributions to this article.

1. ___ A.3d ___, Cons. C.A. No. 2019-0474-JTL (Del. Ch. Feb. 20, 2025) (Laster, V.C.). ↑

2. The term “sandbagging” has a criminal derivation: “In the 19th century, ruffians roamed the streets armed with cotton socks. These ostensibly harmless socks were filled with sand and used as weapons to rob innocent, unsuspecting victims. Sandbaggers, as they came to be known, were reviled for their deceitful treachery: representing themselves as harmless, until they have you where they want you. Then, revealing their true intentions, they spring their trap on the unwitting.” Arwood v. AW Site Servs., LLC, C.A. No. 2019-0904-JRS, slip op. at 71–72 (Del. Ch. Mar. 9, 2022) (Slights, V.C.) (quotations and citations omitted). ↑

3. Eagle Force Holdings, LLC v. Campbell, 187 A.3d 1209, 1236 n.185 (Del. 2018) (Valihura, J., majority opinion). ↑

4. Id. at 1247 (Strine, C.J., concurring in part and dissenting in part). ↑

5. Restanca, LLC v. House of Lithium, Ltd., C.A. No. 2022-0690-PAF (Del. Ch. June 30, 2023) (Fioravanti, V.C.), aff’d, 328 A.3d 328 (Del. 2024); Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (Del Ch. Oct. 1, 2018) (Laster, V.C.), aff’d 198 A.3d 724 (Del. 2018). ↑

6. Arwood, slip op. at 6. ↑

7. In re Dura Medic Holdings, Inc. Consol. Litig., Cons. C.A. No. 2019-0474-JTL, slip op. at 32 (Del. Ch. Feb. 20, 2025) (Laster, V.C.) (quoting then–Vice Chancellor Strine’s holding in Cobalt Operating, LLC v. James Crystal Enters., LLC, C.A. 714-VCS (Del. Ch. July 20, 2007); textual revisions in the original not shown). ↑

8. An integration clause is a provision by which the parties agree that the transaction documents constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter. ↑

9. In re Dura Medic, slip op. at 17 (emphasis added). ↑

10. Id. at 47 (quotations and citations omitted). ↑

11. To support this argument, the sellers cited Zayo Group, LLC v. Latisys Holdings, LLC, C.A. No. 12874-VCS (Del. Ch. Nov. 26, 2018). However, Vice Chancellor Laster found Zayo Group to be factually distinguishable and held that it did not create a test for future cases requiring a permanent loss or diminution in business value for a transaction multiple to be applied. See In re Dura Medic, slip op. at 48–49. ↑

12. Id. at 49. ↑

The typical chapter 11 sale process is well-developed: A debtor markets substantially all of its assets and sells its business, ideally as a going concern, in accordance with a court-approved marketing and sale process.

While this structure is well-known, bankruptcy also offers mechanisms for the sale of discrete or unique assets—such as litigation, leftover assets at properties where leases have been or will be rejected, remnant assets, and many others. This flexibility provides unique opportunities to create value or acquire assets.

Chapter 11 Sale Process, Generally

A debtor or a trustee can “use, sell, or lease” property outside of the ordinary course of business, subject to bankruptcy court approval.^[1] While there are nuances in each case, a chapter 11 sale process generally falls into five stages.

1. Prepetition marketing and selection of a stalking horse. Prior to filing for bankruptcy, a chapter 11 debtor markets the assets to potential strategic and financial buyers. The goal is to identify a stalking horse bidder that would provide the baseline bid against which all other interested parties would compete. In exchange, the stalking horse bidder receives certain bid protections, like a break-up fee of 1–3 percent of the purchase price and reasonable expense reimbursement.
2. Commencement of chapter 11 case and approval of bidding procedures. Next, the debtor files its chapter 11 bankruptcy case and, shortly thereafter, seeks approval of bidding procedures that establish the process for selling its business.
3. Additional marketing, auction, and selection of successful bidder. After the bankruptcy court approves the bidding procedures, the debtor continues marketing the assets. The duration of the postpetition marketing period depends upon the extent of the prepetition marketing effort. The postpetition outreach includes those who were contacted prior to the bankruptcy filing. If there is sufficient interest, the debtor holds an auction, and the “highest or otherwise best” offer is selected as the successful bid, with the second-best offer often selected as the binding back-up bid.
4. Approval of the successful bid and the back-up bid by the bankruptcy court. Following the auction, the sale to the successful bidder and the back-up bidder is presented to and approved by the bankruptcy court.
5. Closing. Upon satisfaction of all conditions precedent, the sale closes.

One of the primary benefits of a chapter 11 sale process is the ability of the buyer to “cherry pick” specific assets (and liabilities) it wishes to acquire. The bankruptcy court authorizes the sale “free and clear” of liens, claims, and encumbrances that attach to the proceeds of the sale.^[2] The ability to make a “free and clear” sale can be reason enough to justify a chapter 11 filing.

Sales of Discrete Assets

Bankruptcy also offers additional, flexible sale structures that allow for liquidation and maximizing the value of individual, discrete, or intangible assets.

• Going out of business sales. Debtors, particularly those in retail, often file with the goal of right-sizing their lease portfolio. What to do with the inventory and other assets located at stores that will be closed? Going out of business sales allow the debtor, through a liquidation agent, to sell remaining inventory and fixtures at a discount. A debtor can generally conduct these sales notwithstanding applicable state law or lease provisions to the contrary. This process allows debtors to recover some value, instead of abandoning residual assets and deriving no value from them.
• Sales of wholly owned nondebtor entities. Rather than an “asset” sale, a debtor can sell the equity of a wholly owned subsidiary even if the subsidiary is not itself a debtor in bankruptcy. Since these are structured as equity sales, there are some limitations: The subsidiary is sold wholesale, and a buyer does not acquire the assets of the subsidiary free and clear of liens, claims, and encumbrances. Nevertheless, a sale of nondebtor subsidiary equity interests allows a debtor to effectively sell an entire, sometimes profitable, business unit through bankruptcy without directly involving that subsidiary in the chapter 11 process.
• Sales of litigation. Discrete litigation can be sold through chapter 11, even if it would not generally be assignable under state law. The sale can be structured as a contingency fee structure or a true sale, with complete control and risk passing to the purchaser. In some instances, a sale of litigation can occur through an auction process.
• Remnant asset sales. Remnant assets include intangible assets and payment rights not tied to the debtor’s core business. The sale of remnant assets allows a debtor to generate some value for assets that may be contingent, unknown, or otherwise abandoned.
• Intellectual property sales. A debtor can sell its intellectual property, such as brands, software, trademarks, patent portfolios, and digital assets, among others. There are some limitations on the assignability of intellectual property over a licensor’s objection.

Conclusion

Going concern sales in chapter 11 are common, but they are not the only means of monetizing a debtor’s diverse assets. There are creative solutions available for the sale and maximization of value of even unique asset portfolios and nontraditional assets. This flexibility offers opportunities for distressed companies to generate value as well as for interested parties to acquire discrete assets.

1. 11 U.S.C. § 363(b). ↑

2. 11 U.S.C. § 363(f). ↑

Liability management transactions (“LMTs”), at their core, are maneuvers whereby a favored (or “winning”) group of lenders to a given borrower extract value from an unfavored (or “losing”) group of lenders to the same borrower. LMTs have recently gained significant momentum and—from the perspective of unfavored lenders—notoriety.

Although structures continue to evolve, LMTs generally fall into three primary buckets.

• Drop-Down Transactions: Sometimes referred to as “trap door” transactions, drop-downs involve the borrower moving assets outside of the reach of the borrower’s primary lenders. The borrower then uses those same assets to raise new debt from existing or third-party lenders, typically on more favorable terms than previously provided by the primary lenders.
• Uptier Transactions: Substantially all credit agreements are rooted in the understanding that lenders in a given tranche of debt receive pro rata treatment. Uptier transactions upend this notion, whereby a subset of existing (and similarly situated) lenders to a given borrower move their loans into a new tranche featuring more senior payment and lien priority terms (sometimes alongside a new money component)—leaving the remaining (unfavored) lenders with subordinated payment terms and lien priority.
• Double-Dip Transactions: A more recent market innovation, the double-dip transaction is structured to use available secured debt capacity to provide a single new money loan with two separate claims against the assets of the borrower credit group. The proceeds of the new loan are used to fund an intercompany loan to an affiliate of the same borrower. The lenders’ new loan is then secured by both (i) the borrower’s repayment obligations and assets and (ii) the intercompany loan (and related guarantees and security) issued by the affiliate of the borrower.

The Administrative Agent

In a customary credit agreement, the administrative agent serves as a liaison between the borrower and the syndicate lenders, coordinating communications and facilitating operational efficiencies. In addition to routine matters involving the collection and disbursement of payments and providing access to financial reporting, agents play a pivotal role in assessing the necessary lender approval thresholds for proposed borrower actions. This latter function is of paramount importance in a contested LMT where, for example, a group of unfavored lenders may seek to block an uptier transaction by asserting that unanimous or affected lender consent is required to alter the pro rata treatment of lenders.

In this capacity, the duties of the administrative agent are delineated strictly as mechanical and administrative in nature. Separately, customary credit agreements typically provide that the administrative agent is not a trustee or fiduciary for either the borrower or the syndicate lenders. Unless granted the specific authority to take a unilateral action under the credit agreement or unless a given action requires unanimous or supermajority consent, the administrative agent must act at the direction of the “Required Lenders” (typically, lenders with more than 50 percent of outstanding loans and/or commitments under the credit agreement). In addition, when matters exceed the administrative agent’s explicit authority under the credit agreement (including matters of judgment), it is prudent for the administrative agent to consult with (and, ultimately, take direction from) the Required Lenders.

As LMTs have continued to proliferate and clear the lending market, administrative agents would be well served to take a measured and calibrated approach when evaluating requests from sponsors (and their related portfolio company borrowers) to consider, and sanction, LMTs.

Key Considerations in Drop-Down Transactions

The investment and restricted payments covenants in the credit agreement are central to drop-down transactions. A borrower utilizes negotiated baskets embedded in these covenants to transfer assets from a restricted subsidiary (that is, a subsidiary subject to the constraints of the credit agreement) to an unrestricted subsidiary (that is, one that is not).

While variations of this structure have existed for many years, J.Crew, Envision, and other drop-down transactions that have ensued highlight the types of determinations that administrative agents must undertake when analyzing the borrower’s use of covenant baskets.

As a preliminary matter, the administrative agent should evaluate whether the credit agreement contains protective terms (often referred to as a “J.Crew blocker”) that serve to prevent the borrower’s transfer of material assets in a specified asset category without the consent of the lenders. While intellectual property is commonly designated as the asset class subject to a J.Crew blocker, when negotiating the credit agreement, the administrative agent should confirm which asset classes are genuinely material for that particular borrower. For instance, the crown jewel of a mining company might be its leasehold rights—making those rights the appropriate asset class to designate as “material” for purposes of the J.Crew blocker.

If a J.Crew blocker is not contained in the credit agreement, the administrative agent must then confirm that the subsidiary that will receive the asset has been appropriately designated as an unrestricted subsidiary. Designation of an unrestricted subsidiary is generally construed as an investment (and typically utilizes the investment basket) under a credit agreement. In addition to calculating basket capacity under the investment covenant, when confirming the classification of a subsidiary as unrestricted, the administrative agent must determine if any other requirements that apply—such as pro forma financial covenant compliance, or the absence of any defaults or events of defaults—have been satisfied.

Given that basket capacity is a key feature when assessing the permissibility of a drop-down transaction, in addition to analyzing the investment basket, administrative agents should also consider the permitted indebtedness and asset disposition covenants (and related baskets). Furthermore, they should analyze whether any cumulative credit basket is available (sometimes referred to as “stacking”) and if the unallocated portion of a debt, investment, or restricted payments basket can be reallocated to another basket (sometimes referred to as “reclassifying”). An additional provision to consider is the “transactions with affiliates” covenant and whether it may be breached by the proposed drop-down.

Given that borrowers consistently seek to obtain operational flexibility, while lenders regularly endeavor to impose guardrails to mitigate collateral leakage, basket calculations are routinely subject to intense negotiations. As administrative agents analyze LMTs, there are a number of techniques that can be employed to provide additional lender protections. Administrative agents can, for example, require a borrower to certify its basket calculations (and provide the lenders with related supporting materials). Another useful approach is to require that the borrower provide a generally unqualified factual statement that the proposed transaction is permitted by the terms of the credit agreement. With respect to investments made by the borrower (using the investment basket), the lenders can insist on a borrower officer’s certificate that specifies the valuation mechanics of the proposed investment. For example, the lenders can require that the value of the transferred asset (in excess of a certain threshold) be validated by a third-party appraisal or valuation statement.

In the drop-down context, the operational mechanics of releasing a guarantor or lien on a transferred asset should also be considered. Administrative agents should evaluate whether liens and guarantees are automatically released in a proposed LMT. Careful scrutiny of the administrative agent’s ability to facilitate these releases is warranted. In practice, administrative agents need to consider whether they are required to provide the syndicate lenders with notice of a borrower-requested lien release. As a further step, some administrative agents now require the borrower to certify that the administrative agent is authorized to release its lien on designated collateral under the terms of the credit agreement.

Key Considerations in Uptier Transactions

In an uptier transaction, the administrative agent must first determine the consent threshold for the proposed credit agreement amendment intended to authorize the non–pro rata treatment of lenders. Does taking this step require an affected lender vote or a more permissive Required Lender vote?

In further analyzing whether an uptiering amendment is permissible, regardless of whether some level of syndicate lender approval is required, the administrative agent should evaluate whether the proposed amendment functionally modifies a sacred right (such as the maturity date of the facility—which modification would require an affected lender vote).

With respect to the required intercreditor agreement that will delineate the rights and remedies of the existing “unfavored” lenders vis-a-vis the “favored” lenders, the administrative agent should evaluate whether the credit agreement simply “authorizes” the administrative agent to enter into the intercreditor or “authorizes and instructs” the agent to do so, as this latter formulation is more protective of the administrative agent. An attendant consideration is whether the credit agreement requires unanimous syndicate lender consent to subordinate existing liens. Unlike drop-down transactions, a borrower’s certification with respect to the analytical issues associated with uptier transactions is less prevalent in the market.

In addition to voting rights, the debt repurchase mechanics are another area of focus in uptier transactions. Many credit agreements restrict a borrower (and its related sponsor and affiliates) from repurchasing debt under the credit agreement (subject to carefully negotiated thresholds and exceptions). The market has not reached a consensus standard as to whether a privately negotiated purchase of debt constitutes an open market purchase (which is a common exception to the non–pro rata treatment of lenders under a credit agreement). Agents must also consider if there are other mechanisms to facilitate the non–pro rata treatment of the “favored lenders.”

Key Considerations in Double-Dip Transactions

In the ever-evolving world of LMTs, the double-dip transaction represents a market development that poses a unique set of challenges for administrative agents, made more so by the fact that the structure has not been fully adjudicated in a bankruptcy court. A borrower’s ability to implement a double-dip stems from secured debt capacity under the credit agreement and the interpretation of how pari passu debt capacity can be applied. Since the double-dip primarily relies on pari passu baskets, administrative agents can carve out intercompany loans from those baskets in an attempt to limit their adoption in the market. Another alternative is to restrict a borrower’s ability to incur intercompany loans exclusively to the intercompany debt basket, which requires subordination and other protections. As a practical matter, these nuances are still being refined, and effective LMT blockers for double-dips are not yet pervasive in loan documentation.

Blockers: Not Created Equally

While the efficacy of LMT blockers has been the subject of much commentary, it is critical to note that not all LMT blockers are the same. Debtor-in-possession exceptions can cut a wide swath into intended protections. While what is referred to as a “Chewy blocker” is intended to prevent a subsidiary guarantor from being released from its guarantee obligations, borrowers do attempt to negotiate baskets around these release mechanics. Additionally, in response to borrowers using a drop-down transaction to remove assets from the collateral base and then, instead of raising debt, raising preferred equity and issuing a dividend to the borrower, some lenders have adopted what is referred to as a “Pluralsight blocker,” which restricts or otherwise imposes limitations with respect to any contemplated preferred equity issuance of an obligor. However, this blocker is not prevalent in the current market.

Conclusion

As administrative agents navigate drop-down, uptiering, and double-dip LMTs and their various permutations, considerations with respect to voting rights, basket capacity, and borrower certification will remain key areas of focus. Subtle changes in language, such as an agent “acting on the instruction” of the lenders, can provide incremental protections that further mitigate administrative agent risks. Finally, agents should bear in mind that for any LMT blocker that offers purported protections, there is likely an impending workaround being crafted. As such, facilitating thorough diligence and transparent communications between the borrower and the lenders will be key to balancing the various competing interests in LMTs.

David Ebroon is an Assistant General Counsel at J.P. Morgan Chase, and serves on the Commercial and Investment Banking Legal Team. He is the Head of Legal for each of Mid-Corporate and Capital & Advisory Solutions.

Arleen Nand is a shareholder at Greenberg Traurig, LLP.

The opinions expressed are those of the authors and do not necessarily reflect the views of their employer, its or their clients or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Antitrust law helps ensure fair competition and innovation. Under the Biden administration, the FTC had expressed an interest in ensuring that health care markets are competitive to improve costs, care, and innovation. The Trump administration has similarly expressed its intent to protect competition in health care markets. While antitrust enforcement has often been applied to monopolistic practices in industries like pharmaceuticals and technology, recently it has increasingly focused on the clinical trial site landscape, where exclusive agreements, site consolidations, and unfair pricing strategies can limit competition and patient access to trials.

This article introduces the fundamentals of antitrust law as applied to clinical trial sites, including key risks for sponsors, contract research organizations (“CROs”), and sites themselves, as well as compliance strategies to mitigate legal exposure.

Understanding Antitrust Law

Antitrust laws are designed to prevent unfair competition that could harm businesses, consumers, or innovation. In the U.S., the three primary federal antitrust statutes include:

1. The Sherman Act (1890), which prohibits monopolization and anticompetitive agreements. In the clinical research sector, this could include the use of exclusive contracting.
2. The Clayton Act (1914), which restricts mergers and acquisitions that may reduce competition or tend to create a monopoly, including excessive consolidation of clinical trial sites by private equity.
3. The Federal Trade Commission (“FTC”) Act (1914), which prohibits unfair business practices that hinder competition—for example, some kinds of clinical trial site access restrictions.

How Antitrust Law Applies to Clinical Trial Sites

Only 3 percent of the nation’s physicians and patients participate in clinical research. However, these sites are often where patients with no further standard of care options turn to for lifesaving therapy. Accordingly, clinical trial sites function as critical access points for research and patient recruitment. Lack of availability of clinical trial sites can hence present a bottleneck to clinical research sponsors and CROs. The lack of availability of such sites can significantly impact trial costs, innovation, and market competition, as well as access for patient care. Antitrust concerns may arise when trial site networks, CROs, or sponsors engage in behavior that limits reasonable access to trials.

1. Exclusive Contracts and Site Lockout

Sponsors and their representatives such as CROs generally avoid signing exclusive contracts with sites. CROs act on the sponsor’s behalf and therefore, like sponsors, have significant negotiation power. They help sponsors recruit clinical trial sites and manage clinical research projects. Accordingly, clinical trial sites are often beholden to CROs and sponsors and therefore have a power differential with them. However, both sponsors and CROs may have preferred arrangements with clinical trial sites and may hence sign them before other sites. While such preferred site arrangements may not be inherently problematic, if such an arrangement escalates to sponsors or CROs signing exclusive contracts with large site networks or hospital systems, it can rachet up the risk profile of the transaction and may be seen as anticompetitive. This could lead to FTC scrutiny.

For example, if a major CRO only allows trials to take place at sites it owns and it prevents or otherwise blocks the use of independent hospitals or research centers, it could trigger a claim of unfair competition. Similarly, steering by CROs to their wholly owned sites could have similar implications.

2. Price-Fixing Among Clinical Trial Sites

Sites routinely complain about the inadequacy of payment terms, and they routinely address the inadequacy of direct payments by requiring an additional indirect payments fee, which can be as high as 70 percent of the direct payments. This is especially true with large academic institutions that participate in publicly and privately funded research.

The Trump administration recently announced a 15 percent cap on indirect costs as applicable to National Institutes of Health (NIH) grants. Though this policy is currently being challenged and is blocked for the time being, it would represent a direct impact on large academic institutions and also worries smaller commercial clinical trial sites, which are concerned that private sponsors may impose similar limits on them. To battle these downward pricing pressures, trial sites and site networks may feel pressure to discuss sharing pricing strategies, or even discuss minimum site fees. Sites must be cautious that this could be interpreted as improper coordination of collusive price-fixing and a violation of the Sherman Act and FTC Act, since it could be seen to artificially maintain, stabilize, or inflate trial costs.

3. Mergers & Acquisitions in Site Networks

There has recently been an uptick in clinical trial site mergers and acquisitions. As clinical trial site consolidation increases, the FTC and Department of Justice may scrutinize mergers to prevent market dominance that reduces competition, especially if it eliminates regional or treatment-area-related competition or raises clinical trial costs. In such cases, regulators could block or reverse the merger.

4. Site Approval Delays as a Competitive Tactic

There has been significant vertical integration in the clinical trial space, with large private equity companies owning CROs, sites, institutional review boards (“IRBs”), and more. Accordingly, it is possible for such a private equity company to favor its own CROs, sites, and IRBs over independent ones. While some CROs may choose to outright favor an individual site, others could simply slow the approval process for independent sites, including site initiation visits, to effectively render them noncompetitive. If a dominant trial network or a CRO with its own clinical trial site slows approvals for independent sites to gain market advantage, it may be considered an anticompetitive tactic.

Best Practices for Compliance

To avoid antitrust violations, clinical trial stakeholders must proactively implement compliance safeguards, such as the following practices.

1. Practice Transparent Site Selection: Develop objective, data-driven site selection criteria and disclose why certain sites are chosen to avoid misunderstandings and exclusionary claims. At a practical level, this must be balanced against the risk of unnecessary liability risk from private malfeasant actors.
2. Avoid Exclusive Agreements: Exclusive arrangements can harm competition unless justified by efficiency, and such contracts must not substantially foreclose access for independent sites.
3. Prohibit Price Coordination: Sites must be able to independently negotiate fees. Standardized pricing agreements can lead to assertions of anticompetitive behavior.
4. Monitor Mergers & Acquisitions: Site acquisitions generally afford greater multiples for larger site networks. Excessive market concentration can significantly impact pricing for a specific disease state or local area. Such an impact may have antitrust risks. To avoid such risks, it is recommended to conduct antitrust impact assessments before acquiring competing sites. It may, in some circumstances, be prudent to offer contractual commitments to maintain market competition.
5. Avoid Self-Preferencing: CROs should ensure reasonable access to trials for independent sites. Sponsors and CROs should audit CRO site selection processes to avoid allegations of unfair competition or market favoritism. While sometimes difficult to achieve, granting equal access to independent sites is often a preferred, but not required, option to consider.

Conclusion

Regulators, including the FTC, Department of Justice, and Food and Drug Administration, are monitoring how trial sites, CROs, and sponsors interact in ways that affect market access, pricing, and competition. As clinical trial operations evolve, the intersection of antitrust law and research site competition is becoming increasingly important. To mitigate legal risks, stakeholders should adopt transparent, fair business practices and proactively assess contracts, mergers, and trial site selection processes for antitrust compliance.

For policyholders, insurance is meant to provide peace of mind—a promise that when disaster strikes, they’ll have financial support to rebuild and recover. But as two recent cases show, the question of what qualifies as covered “direct physical loss or damage” can lead to drastically different outcomes in court.

In two recent California cases, policyholders sought coverage after wildfire smoke and debris affected their properties. One court, in Bottega, LLC v. National Surety Corporation, ruled in favor of coverage.^[1]. The other, in Gharibian v. Wawanesa General Insurance Co., sided with the insurer.^[2] These contrasting decisions highlight issues policyholders may encounter in securing coverage for smoke-related damage and the ongoing debate over what constitutes “direct physical loss or damage,” a key phrase in most property insurance policies.

This article explores these cases, the influence of COVID-19 coverage litigation on the interpretation of “direct physical loss or damage,” and what policyholders can learn to better protect their rights.

The Importance of “Direct Physical Loss or Damage” in Insurance Disputes

At the heart of both cases is a fundamental question: What does it mean for a property to suffer “direct physical loss or damage” under an insurance policy?

Insurance companies often take a narrow view, arguing that physical loss requires structural damage, like a collapsed roof. Policyholders, on the other hand, argue that contamination—such as smoke infiltration or toxic debris—permeates property and cannot simply be dusted off or ventilated, rendering property unusable for its intended use and qualifying as a covered physical loss.

Courts struggled with this question in the wake of the COVID-19 pandemic, which sparked thousands of lawsuits over business closures and contamination claims. Some courts have ruled that lasting, tangible physical alteration of property is required, while others have found that loss of use due to the presence of the virus in air or on surfaces is enough.

This debate played out in Bottega and Gharibian, with strikingly different results.

Bottega, LLC v. National Surety Corporation: A Win for the Policyholder

In Bottega, a Napa Valley restaurant faced significant disruptions after the 2017 North Bay Fires. Although the fires did not burn the restaurant itself, thick smoke, soot, and ash inundated the premises, forcing it to close for one day after the fire and for a week shortly thereafter. When the restaurant did reopen, for the next few months, it was temporarily limited to less than one-third of its seating because of the smell of the smoke, soot, and ash. Throughout this period, employees routinely cleaned the walls and upholstery to remove the smell and ultimately replaced the upholstery. The smell of fire remained for two years. The restaurant sought coverage under its commercial property insurance policy, which covered losses due to “direct physical loss of or damage to property.”

The insurer, National Surety, initially made some payments under the policy’s civil authority provision but later denied broader coverage. The insurer argued that because the restaurant was still physically intact, it had not suffered a “physical loss” as required by the policy.

The U.S. District Court for the Northern District of California rejected National Surety’s narrow interpretation, ruling in favor of Bottega. The key findings were:

• Smoke and soot contamination rendered the property unfit for normal use, meeting the standard for “direct physical loss.”
• The restaurant had to suspend operations, triggering business income coverage under the policy.
• The insurer’s own admissions confirmed that the premises had suffered smoke damage, undermining its argument against coverage.

Unlike many COVID-19 coverage cases that relied on the issuance of stay-at-home orders to conclude that the virus did not cause loss or damage, the Bottega court found that the insured reopened during the state of emergency declared for the fire. It also described, in some depth, the nature and extent of the damage caused by the smoke. This decision aligns with prior rulings recognizing that contamination impairing the usability of a property—whether from smoke, chemicals, or other pollutants—can meet the threshold for physical loss. Courts have previously found that asbestos contamination, toxic fumes, and harmful mold all permeated property and constituted physical damage, even if the structure itself remained intact.

In Bottega, the policyholder’s success was largely due to strong evidence showing that smoke infiltration impacted business operations and required extensive remediation, causing the policyholder’s loss.

Gharibian v. Wawanesa General Insurance Co.: A Win for the Insurer

While Bottega marked a win for policyholders, Gharibian v. Wawanesa shows how courts can take a different approach, often to the detriment of policyholders.

Homeowners in Granada Hills sought coverage after the 2019 Saddle Ridge Fire deposited wildfire debris around their home. Although the flames did not reach their property, their property was covered in soot and ash, and plaintiffs asserted that smoke odors lingered within the home.

Their insurer, Wawanesa, paid $23,000 for professional cleaning services that plaintiffs never used, but later denied additional coverage, arguing that there was no “direct physical loss to property” because the home was structurally intact and that removable debris did not qualify.

The California Second District Court of Appeal sided with the insurer, emphasizing:

• The smoke and soot did not cause structural damage or permanently alter the property.
• The debris did not “alter the property itself in a lasting and persistent manner” and was “easily cleaned or removed from the property.”
• The plaintiffs’ own expert concluded that “soot by itself does not physically damage a structure” and that ash only creates physical damage when left on the structure and exposed to water, which did not appear to have happened. He also acknowledged that “the home could be fully cleaned by wiping the surfaces, HEPA vacuuming, and power washing the outside.” It followed that he could not establish that the property suffered lasting harm from the smoke.

The Long Shadow of COVID-19 Litigation: Raising the Bar for “Physical Loss or Damage”

Given the large volume of COVID-19 coverage cases, the courts’ experience doubtless has shaped how they interpret “physical loss or damage” in insurance policies, particularly concerning business interruption claims. Many businesses sought coverage for losses incurred due to (1) government-mandated shutdowns, arguing that the inability to use their properties constituted a direct physical loss, or (2) the presence of COVID-19 in the air or on surfaces, arguing it made properties unsafe for normal use. In the COVID-19 context, courts have largely rejected both arguments.

These decisions effectively raised the threshold for what constitutes “physical loss or damage,” making it more challenging for policyholders to claim coverage for intangible or nonstructural impairments. This heightened standard has significant implications for claims involving smoke contamination from wildfires. The differing rulings in Bottega and Gharibian show the inconsistencies the standard yields.

In Gharibian, a case in which there was no evidence that the insured undertook any remediation yet the insurer still paid considerable monies, the court cited California Supreme Court precedent that held COVID-19 did not cause physical loss because (1) the virus did not physically alter property and (2) it was a temporary condition that could be remedied by cleaning.^[3] Applying this logic, the Gharibian court determined that in that particular case, the evidence was (1) soot and char debris did not alter the property in a lasting and persistent manner and (2) the debris was easily cleaned or removed from the property. Therefore, fire debris does not constitute “direct physical loss to property.”

Meanwhile, the Bottega court, with the benefit of a robust showing of how smoke permeated the property of a sympathetic plaintiff, cited another COVID-19 business interruption case, Inns-by-the-Sea v. California Mutual Ins. Co.,^[4] to reach the opposite conclusion. The court found that, whereas a virus like COVID-19 can be removed through cleaning and disinfecting, smoke is more like noxious substances and fumes that physically alter property.

To reconcile these results in their favor, policyholders must now provide compelling evidence that such contamination has caused tangible, physical alterations to their property to meet this elevated threshold. This development underscores the importance of thorough documentation and expert testimony in substantiating claims for damage that is not visible.

Policies That Expressly Cover Smoke Damage

Many policies do not specifically address smoke damage, leaving the parties to argue about whether the particular smoke contamination constitutes “direct physical loss or damage.” However, some policies explicitly provide coverage for smoke-related harm. For example, certain property insurance policies specifically list “smoke damage” as a covered peril, which can simplify claims for businesses and homeowners affected by wildfires.

When evaluating coverage, policyholders should:

• Review their policy language to determine if smoke damage is explicitly covered.
• Consider endorsements or additional riders that may enhance coverage.
• Be aware that even with explicit smoke coverage, insurers may still challenge claims by arguing the damage is superficial or remediable. To assess the scope of the insurer remediation proposal, policyholders are encouraged to retain their own remediation consultants to provide their own proposals, which can then serve as the basis for ensuring an apples-to-apples comparison and negotiation.

Having a policy that expressly includes smoke damage can reduce the likelihood of disputes and prolonged litigation.

Key Takeaways

These cases illustrate the fine line courts draw when assessing whether contamination rises to the level of a physical loss.

1. The nature of the damage matters: In Bottega, the insured proved that smoke infiltration rendered the property temporarily unfit for use. In Gharibian, the court saw the debris as a removable nuisance rather than a physical loss.
2. Policy wording can be decisive: Policies that explicitly cover smoke damage may provide a simpler path to coverage without protracted legal battles.
3. Burden of proof is critical: The Bottega plaintiffs provided stronger evidence linking their loss to physical damage, while Gharibian plaintiffs could not show a lasting impact on their property (much less one the insured felt required remediation).
4. Challenge denials with expert testimony: Some insurers may argue that smoke and soot are “removable” and do not qualify as damage. Policyholders should counter this with expert evidence demonstrating how smoke contamination affects long-term usability and air quality.
5. Consider the forum for litigation: As seen in Bottega and Gharibian, which court hears the case can significantly affect the outcome. When possible, policyholders should seek a jurisdiction with favorable precedents or challenge insurers’ attempts to move cases to less policyholder-friendly forums.

Final Thoughts

Wildfires raise critical questions about insurance coverage for smoke and debris damage. The rulings in Bottega and Gharibian show the ongoing battle over what counts as “direct physical loss,” with courts reaching different conclusions.

While Bottega is a win for policyholders, Gharibian suggests that insurers will continue to push for restrictive interpretations and to analogize losses to COVID-19. Policyholders must be proactive—documenting their losses, seeking expert opinions and being prepared to challenge denials.

Ultimately, courts and policymakers must recognize that insurance should protect against real-world risks, not just total destruction. Until then, policyholders must be prepared to fight for the coverage they deserve.

1. No. 21-cv-03614-JSC, 2025 WL 71989 (N.D. Cal. Jan. 10, 2025). ↑

2. No. B325859, 2025 WL 426092 (Cal. Ct. App. Feb. 7, 2025). ↑

3. Another Planet Ent., LLC v. Vigilant Ins. Co., 548 P.3d 303 (Cal. 2024). ↑

4. 286 Cal. Rptr. 3d 576 (Cal. Ct. App. 2021). ↑

Since the new Hart-Scott-Rodino (“HSR”) Rule was finalized in October 2024, there have been dozens of articles summarizing the changes and new requirements. While these articles are helpful and understanding the changes is necessary, for in-house counsel some of the logistical challenges presented by the new HSR regime are as important as the legal ones. This article’s goal is to identify practical solutions for the efficient and compliant collection, review, and production of some of the new categories of documents and information required by the HSR changes.^[1]

The changes discussed below fall into two categories: deal-agnostic changes (i.e., those that apply to every deal) and deal-specific changes (i.e., those that only apply when there is an overlapping product or service between the parties). 

Deal-agnostic changes include the requirements to provide certain

• final documents sent to or from the supervisory deal team lead and
• draft documents that are sent to any board member. 

Deal-specific changes include the requirements to provide

• regularly prepared CEO reports containing relevant information,
• board reports containing relevant information,
• information about overlapping directorates,
• detailed customer information, and
• detailed supply relationships information. 

Deal-Agnostic Changes

Previously, only “Competition Documents”^[2] sent to a director or officer had to be produced with an HSR filing. The new HSR Rule changes that in two significant ways: (1) all final Competition Documents sent to or from the supervisory deal team lead (“SDTL”) are producible, and (2) draft Competition Documents sent to any individual board member are producible.

Final Competition Documents Sent to SDTL

As an initial matter, in-house counsel will want to carefully consider whom to designate as the SDTL for a deal (or for all deals). The new rule defines supervisory deal team lead as “the individual who has primary responsibility for supervising the strategic assessment of the deal, and who would not otherwise qualify as a director or officer.”^[3] The rule appears to envision the SDTL as the person who makes the yes/no call on whether to send the deal to the board (or similar entity) for final approval. In some companies, this may also be the person overseeing the deal on a day-to-day basis. As you move into larger companies with more complex corporate development teams, those roles may be separated. For companies that do not have dedicated corporate development teams, potential SDTLs could include a business stakeholder assessing whether the target would be a strategic fit or someone in the Finance Department. 

After identifying the SDTL, in-house counsel should orient that person to the new requirements immediately, and together they should design a workable process for collecting and reviewing relevant documents. The goal, of course, is not to significantly disrupt the ongoing work evaluating strategic acquisitions. Some useful practices include the following:

Create a deal-specific mailbox, and put all emails relating to the deal in that mailbox. This will reduce the need for email searches, and the SDTL can simply provide antitrust counsel access to the mailbox so that the SDTL will not have to waste time or energy assessing what is producible. 

Inform the SDTL that documents accessed through collaborative platforms/channels will be produced. All final Competition Documents, including communications, housed in collaborative platforms/channels such as Teams, Slack, Google Chat, etc., likely must be produced if accessed by the SDTL. In-house counsel should introduce the SDTL to this requirement proactively so the SDTL can be mindful regarding if and how to use such channels throughout the deal. 

Communicate to deal stakeholders that emails sent to the SDTL will be produced. All final Competition Documents sent from or received by the SDTL must be produced. It is therefore important that in-house counsel inform all deal stakeholders of this requirement and remind them to be thoughtful in their email practices. This may include reminders to always use accurate language in emails, to not speculate, and to avoid unnecessarily cc’ing the SDTL on every correspondence. 

Separate substantive discussions from drafting discussions in emails. All final Competition Documents sent to the SDTL must be produced. As a general matter, the new rule defines a final document to include an email. An important exception is that emails discussing draft documents are not considered final. For example, an email identifying and explaining the redline edits made in a document is considered a draft and not producible. However, an email that explains redline edits and discusses the competitive dynamics of the deal is likely producible. Separating drafting emails from substantive discussions will avoid this confusion. 

These processes and practices work best in conjunction. But even implementing one or two of these practices will make life easier for both the SDTL and in-house counsel.

Draft Competition Documents Sent to Any Single Board Member

Previously, draft Competition Documents were only producible if they went to the entire Board of Directors or subcommittee thereof. Under the new rule, a draft Competition Document is producible if it is sent to any individual member of the board.

In-house counsel will therefore want to investigate the processes the corporate development team uses for document creation to determine if individual board members ever receive documents outside of official channels. For example, does a senior member of the corporate development team bounce ideas off an individual board member before finalizing a document to send to the whole board? To the extent that any such processes exist, in-house counsel will want to inform all stakeholders that these types of draft documents must now be produced to regulators. Similarly, if board members have a day-to-day role on a transaction and are expected to receive documents outside their role, this should also be flagged to help inform production decisions.

Deal-Specific Changes

Many of the changes in the new HSR Rule only apply when there is a competitive overlap between the acquirer and the target. These deal-specific requirements are sufficiently numerous that it is fair to say there are effectively now two different HSR forms: one for deals with overlaps and one for deals without them. Because the HSR submission for deals with overlaps is considerably more onerous, parties should now make the overlap assessment much earlier in the deal process—indeed, it will be difficult to accurately gauge either the timeline or budget for an HSR filing without first making this determination.

After concluding the deal involves an overlap, in-house counsel must begin the process of collecting new categories of information and documents. This section addresses five of the most burdensome and/or tricky of those categories:

1. Regularly prepared CEO reports that contain information on the competitive dynamics of the overlapping product market or service line
2. Board reports that contain information on the competitive dynamics of the overlapping product market or service line
3. Information on individual board members who also serve on the boards of other companies that operate in the same industry
4. Detailed information about each party’s customers of the overlapping product market or service line
5. Detailed information about the parties’ supply relationships with regard to the overlapping product market or service line 

Regularly Prepared CEO Reports Discussing Competition in the Overlapping Market

The new rule requires parties to produce regularly prepared CEO reports if they (1) discuss competition-related issues involving the overlapping market implicated by the deal and (2) were prepared within one year of filing. Regularly prepared reports are specifically defined as quarterly, biannual, or annual reports. The challenge, therefore, is determining when a report contains information making it responsive, which is amplified by the one-year lookback window. It will not usually be apparent when the report is prepared whether it will be responsive later. The following processes may help mitigate these challenges:

Work with the CEO’s staff ahead of time to understand the full universe of regularly prepared reports the CEO receives, and inform the CEO of the need to collect these documents. The CEO undoubtedly receives reports that do not contain producible information, e.g., a report outlining insurer and benefits administrator options for employees. The CEO is also likely to receive reports that contain information on the competitive dynamics of markets. Understanding ahead of time the full corpus of regularly prepared reports that the CEO receives—and the content of those reports—will allow in-house counsel to more efficiently allocate their attention when reviewing materials for responsiveness for a specific deal. 

Determine whether a preemptive review of the regularly prepared CEO reports is necessary. As discussed, it will not be clear in real time whether a CEO report will have to be produced. And parties cannot extract only the responsive information/pages from a report. Thus, in-house counsel should assess whether there are ways to balance the HSR requirements against the burden of producing nonresponsive information. To use the prior example, simply issuing two different reports—one on benefits and one on competitive dynamics—will prevent the company from having to produce totally irrelevant (but highly sensitive) benefits information because it is included in a competitive intelligence overview. 

Determine who will review the CEO reports, and train that person. Regardless of whether there is a preemptive review, in-house counsel will have to work with the CEO’s staff to determine who should review the CEO reports when you must file an HSR form. Ideally, this would be in-house or external antitrust counsel. However, given the highly sensitive nature of the reports, the CEO’s office may prefer someone else. This may be a senior staff member, the general counsel, or other trusted adviser. In any event, it will be in-house counsel’s responsibility to thoroughly train the reviewer so that the reviewer can identify the types of competitive information that make a report responsive. This training should include clear instructions to err on the side of flagging for production, and if a nonlawyer conducts the preliminary review, it will have to be confirmed by counsel before filing.

Keep a checklist of regularly prepared reports, and check it before filing. Failing to include a producible document in an HSR filing may lead to, at a minimum, a costly delay in closing. This type of mistake can be avoided by creating and maintaining an up-to-date list of all quarterly, biannual, and annual reports the CEO receives and then checking off each one during the review process. 

Organize all regularly prepared CEO reports in real time. The easiest way to miss a CEO report (especially without a checklist) is to scramble to collect them every time you file an HSR form. Even with the soundest of efforts and intentions, if in-house counsel are furiously searching inboxes, platforms, and other storage solutions on an ad hoc basis for each deal, eventually something will be missed. Instead, in-house counsel should work with the CEO’s staff to create separate folders for quarterly, biannual, and annual reports and ensure they are updated in real time. In addition to reducing the risk of missing a report, this will save both in-house counsel and the CEO’s office time when a filing is required by eliminating the need for last-minute searches. 

Any Board Report Discussing Competition in the Overlapping Market

The new HSR Rule imposes the same requirements on board reports as CEO reports, with one notable expansion: instead of only requiring regularly prepared reports, the rule requires production of any board report discussing competition in the overlapping market. This requirement also has a one-year lookback window, so companies will not know at the time a board report is created whether it is producible.

The challenges presented by this requirement are akin to CEO reports but may be amplified if processes are not followed because the requirement is not limited to regularly prepared reports. Fortunately, implementing the same process for board reports as for CEO reports may reduce both burden and risk:

• Work early with whoever prepares board materials to understand the full universe, and introduce that person to the new requirements.
• Determine whether a preemptive review will occur and, if so, who will conduct it.
• Determine who will review board reports when an HSR filing is required.
• Train the reviewers if they are not dedicated antitrust counsel.
• Organize board files in an easily accessible and navigable manner in real time. 
• Conduct periodic audits of the board’s documentation to ensure compliance with the new rule and identify any gaps.

There are two additional practices that may help with collecting and reviewing board reports and minimize the risk of missing a responsive document:

Consolidate board reports. If one hundred reports are sent to the board every year, it will be exponentially easier to collect and review those reports if twenty-five are bundled at the end of every quarter than if they are sent individually on an ad hoc basis. And although the requirement still applies that if any part of a report is responsive the whole report must be produced, administratively bundling twenty-five independent reports into a zip drive does not magically transform them into one report for HSR purposes. There is, therefore, little downside and significant upside to sending board reports in a routine, standardized, and consolidated manner. 

Organize the board’s documents in a workstream or platform. Rather than sending board reports, upload them to a specified platform or portal, ideally at a specific, standard time such as before meetings. Do not send any board reports to the board (or individual members) outside of this platform. If the only way the board can access its reports is by logging onto the platform, in-house counsel can be assured of a single, easily accessible source of truth when an HSR filing occurs. 

Providing Information About Overlapping Directorates

Another new category of information required by the new HSR Rule relates to overlapping directorates. Specifically, the acquirer must determine if any of its board members serve on the board of a different company (i.e., not the target) that reports revenue in the same North American Industry Classification System (“NAICS”) codes as the target. For example, if Company A provides cybersecurity services and is acquiring Company B, which provides software, in-house counsel for Company A will have to determine whether any members of its board also sit on the board of any other company that provides software. If so, Company A must disclose the name of the director(s) and the other board(s) on which they sit as part of the HSR filing. Several processes can help with collecting and producing this information:

Implement policies to review board affiliation. There are good legal reasons—beyond just HSR requirements—to enact policies that review not only the number of external board affiliations each director can have but also the types of companies with which they may be affiliated. To explain why, it may be helpful to take a step back. 

Many acquirers target companies that operate in the same industry/ecosystem. These companies are likely to report revenues in a limited number of NAICS codes relevant to that ecosystem. Conversely, it is less common for an acquirer to target a company in an unaffiliated industry. Companies in unaffiliated industries are unlikely to report revenues in NAICS codes common to the ecosystem. Accordingly, the more directors a company has who sit on the board of other ecosystem companies, the more likely any individual target hits on a NAICS code that requires disclosure. One way to minimize the need to identify overlapping directors is to enact a policy that curtails the number of board members who can join other for-profit boards in the same ecosystem.

Even outside of HSR, Section 8 of the Clayton Act prohibits directors from sitting on the boards of competing companies. Therefore, having policies in place that prevent overlapping directorates and having mechanisms in place to monitor and track external board membership to ensure compliance serve two goals. 

Monitor board memberships in real time. Because NAICS codes can be defined so broadly, some degree of disclosure is likely inevitable even with the above policy. Absent proactive processes, this could impose a substantial burden on in-house counsel and delay the HSR filing (and, consequently, the closing). Imagine having a large board of twenty directors. If board affiliation information is not already available, in-house counsel will first have to determine whether any of the twenty directors are on other for-profit boards, and which ones. If, for example, each is on two additional boards, in-house counsel will then have to research the products and services that all forty of those companies offer and compare them to the target.

 To prevent this, the overlapping directorate assessment should be part of the real-time approval process, both for any new member of the company’s board and for any existing member who wants to join an external board. If the company is considering adding someone to the board, in-house counsel should review the candidate’s current board and officer affiliations to determine whether any are with competitors or ecosystem players. Again, this will also help ensure compliance with Section 8. In-house counsel can track this analysis in real time so that when they make an HSR filing, they not only will have a current list of all directors and corresponding affiliations but also will already have done some of the industry analysis.

Customer Information for Overlapping Products/Services

In all deals, both parties now must describe the categories of products and services they offer. Where there is a current or planned overlap, the parties must provide (1) total revenue for each overlapping product/service from the prior fiscal year, (2) the top ten customers by category for each overlapping product/service, and (3) the top ten overall customers for each overlapping product/service. 

Figure 1. Customers by Category. See note 4 for a discussion of this chart’s example.

The time needed to respond to this requirement will largely depend on the number of “customer categories” involved^[4] and the extent to which in-house counsel have proactively developed processes to collect this information.

The term customer categories is not defined in the rule or guidelines. Unfortunately, neither the rule nor any guidelines published thus far define what customer category means in this context. Some possibilities include categories by industry; by distribution level (retailers, wholesalers, distributors, direct to consumer, etc.); and by geography (local customers, regional customers, national customers, international customers, etc.). Therefore, it will likely be up to in-house counsel to make this determination.

There are various approaches companies can take to define customer categories. As a first step, in-house counsel should consult with business stakeholders in the overlapping products/services to determine whether there is an internal ordinary-course definition of customer categories. If the company has a preestablished definition, in-house counsel should likely use that. If not, in-house counsel may have to look to other sources in defining customer categories for HSR purposes, such as the business’s informal understanding (“we tend to view customers this way”) or external industry standards.

Proactively socialize stakeholders in financial roles, including understanding how these requirements do (or do not) comport with how revenue is tracked in the ordinary course. In-house counsel will likely depend on Finance to collect the above information, so, as with other stakeholders, they will want to orient Finance to these changes beforehand. In particular, in-house counsel will want to determine how long it will take Finance to pull these reports, which is largely a function of whether it tracks revenue data in the manner specified by the reporting requirements. For example, Finance may not track customers “by category,” much less track the top customers in each (nonexistent) category. In this example, Finance would not be pulling a report but creating one, which could take significantly longer. Knowing this at the outset will help in-house counsel manage expectations.

Supply Relationships Information for Overlapping Products/Services

The new HSR Rule requires both parties to identify (1) any products or services it sells to or purchases from the other party and (2) any products or services it sells to or purchases from competitors of the other party.^[5] For each such input, the parties must provide detailed sales information and a list of the top ten customers that use each party’s products as an input to compete with the other party. Identifying supply overlaps and producing the requisite information may be particularly laborious. In addition to socializing Finance stakeholders to this requirement (see above), the following actions may help with this task:

Enlist the help of those performing due diligence on the acquisition to help identify overlaps. Unlike with competitive overlaps, it may not be apparent whether the parties have any type of vertical relationship with each other, much less with one of the other party’s competitors. However, the due diligence team should already be reviewing supply relationships/contracts in strategically assessing and valuing the deal. In-house counsel may be able to leverage that work so due diligence can flag any relevant supply relationships in real time. 

Use a reasonable definition of input. The new rule requires the above information when either party (1) purchases from or supplies to the other party an input or (2) purchases from or supplies to the other party’s competitors an input that helps them compete. Although in-house counsel will want to err on the side of caution in determining which inputs qualify for the latter, overhead products and services that every company uses likely would not count. Imagine the acquirer is a children’s toy manufacturer and purchases plastic from the target’s competitor for use in its products—that would qualify. Imagine now that the target’s competitor also manufactures and sells bottled water that the acquirer purchases and stocks in its offices. Although this is a “product” supplied by the target’s competitor to the acquirer, it would likely fall outside the scope of this requirement because it is unrelated to competition in the toy manufacturing market. Again, in-house counsel should not take an overly restrictive approach but instead take a good-faith, commonsense approach using their professional judgment, which recognizes that some inputs (food, water, electricity, basic equipment, structures, etc.) are so weakly connected to competition (unless the acquirer operates in that industry) that they are not meant to be subject to this requirement. 

Conclusion

The new HSR Rule will add time and expense to filings. However, it will impact deals with overlaps significantly more than deals without overlaps. As a result, in-house counsel must endeavor to make the overlap determination much earlier than under the old regime so they can start the collection-and-review process early and accurately set budget and timing expectations.

Regardless, the amount of additional time and burden the new HSR Rule imposes will be proportional to the number of processes, practices, and socializations in place at the time of filing. The way in-house counsel can most effectively support the business’s acquisition strategy, therefore, is by proactively enacting processes that minimize cost, time, and disruption when an HSR filing is required.

Matt Bester and Paul Covaleski talk about their tips on Our Curious Amalgam, the podcast of the ABA Antitrust Law Section. Listen to Episode #320, “What Can In-House Counsel Do To Tame the Premerger Notification Beast? Practical Suggestions For Complying With the New HSR Rules” (April 7, 2025), available at www.ourcuriousamalgam.com.

1. As the Federal Trade Commission (“FTC”) releases additional guidance on the new HSR form, some of the below practices may have to be altered, eliminated, or expanded upon. In-house counsel will therefore want to track any such guidance closely and adjust their practices accordingly. ↑

2. The new HSR Rule also changed the nomenclature: documents previously referred to as 4(c) documents are now referred to as Competition Documents, while documents previously referred to as 4(d) documents are now referred to as Transaction-Related Documents. For the sake of clarity, and because it is not relevant here, this article refers to all items previously referred to as 4(c) or 4(d) documents as Competition Documents. ↑

3. Premerger Notification; Reporting and Waiting Period Requirements, 89 Fed. Reg. 89,216, 89,279 (Nov. 12, 2024) (emphasis added). ↑

4. In the chart above, the company would have to disclose thirty customers to comply with this requirement: twenty for overlap 1 because there are two categories of customers, and ten for overlap 2 because there is one category of customer. This illustrates how the definition of customer category will directly and substantially impact the burden associated with this requirement—if each overlap had ten customer categories, the company would have to disclose two hundred customers. ↑

5. The rule contains an exception for inputs with less than $10 million in sales. ↑

In my frequent exposures to different federal judicial proceedings as a law student judicial intern in the U.S. District Court for the Southern District of New York, I have witnessed several high-profile proceedings garner heightened interest from the public and the press. During these proceedings, I sit in the courtroom gallery alongside anyone else fortunate enough to get a seat in the room. In most courtrooms, that includes around twenty members of the public and court staff, as well as twenty to thirty members of the press. All of us are barked at by court marshals and given a multitude of instructions for how to properly exist in the courtroom. Instructions including “no hats,” “no phones,” “no food,” and “no chewing gum” remind me of being a child in church. While the hearing is underway, I watch a sketch artist work quickly and tirelessly to complete as much of her sketch as possible in such a short time, capturing as many details as she can, all to have some record of what happened so it can be shared with the rest of the world. The day after the hearing ends, I see her sketches plastered all over newspapers’ websites to give a brief snapshot of what has occurred inside the courtroom.

All of these theatrics, rules, and limitations make the courtroom experience feel like Manhattan’s most secret club that prioritizes exclusivity above all. The implication of these procedures is that in courtrooms, things happen that we want to keep out of the public eye and hide away from any firsthand observers. However, I argue that a judicial system that theoretically values transparency and accountability should not function outside public observation and instead, should put resources toward creating a more accessible, public-facing court system.

A simple but impactful way that federal courts can make hearings and trials more accessible is to allow limited video camera recording in court proceedings. With the feed from court-installed cameras, courts could livestream all hearings, and news outlets could disseminate footage they deem to be of public importance after the hearings conclude. The footage could then be archived, allowing anyone to view the full recording for any reason. Removing unnecessary barriers to access in this way would build more public trust between the courts and members of the public, educate the public about what goes on in courtrooms outside of what they see on television or the internet, and give litigants greater assurance that there are people watching who are not a part of the system, providing a greater sense of accountability.

From the court’s perspective, increased accessibility would allow the public to bear witness to what occurs inside the courtroom, fostering a sense of trust from the public since the proceedings would no longer seem secretive. Although the nature of what occurs in courtrooms is potentially sensitive in nature, there is already an understanding among judges and court staff that anyone is capable of sitting in on nearly any hearing. Therefore, a video recording would hardly be any greater intrusion on the proceedings than is already possible. Further, because viewership would be less exclusive, high-profile proceedings would invite less of a circus of individuals hoping to watch the proceeding in real time, since they would be able to livestream it from anywhere. This would alleviate some of the strain on court marshals who need to control crowds for these proceedings.

From the public’s perspective, this access would offer educational, civically engaging content that is important to hear and observe. Students could watch from classrooms to gain an understanding of courtroom procedure, how lawyers work, and the day-to-day functions of the justice system. Friends and families of the parties could observe from afar and keep up with case progress. Lawyers could observe how specific judges run their courtrooms to prepare for future arguments in front of those judges. When elected officials or government entities are parties to a proceeding, members of the electorate could observe how those officials conduct themselves and what kinds of issues are at stake. If those officials are acting in a way that is unethical or unprofessional during the proceedings, people who vote for them should have the opportunity to observe that conduct.

Finally, from the parties’ perspective, this level of access would add a layer of accountability from the public to ensure that the parties’ day in court is respected. This concern is especially significant for criminal defendants who face systemic challenges to fair treatment throughout the legal process. Although hopefully it is not common, abuses of power do occur inside the courtroom. If court staff, judges, and law enforcement personnel are aware that the public and the press can observe their actions even if observers are not physically present, potential abuses of power may be prevented.

Although court proceedings are technically open to the public, there still remains a great feeling of secrecy and exclusivity. This perception is harmful to the public opinion of the judicial system, makes education and understanding of court proceedings more difficult, and can make litigants, especially criminal defendants, feel isolated and powerless. Increasing access to court proceedings would help mitigate these harmful effects, and I believe procedures to further that goal should be implemented in federal courtrooms in the future. In the meantime, I plan to inform and remind the people around me, both those who are interested in the legal field and those who are not, that they can attend court proceedings whenever they want, as long as there is room.

This article is Part VII 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.

The adjective material is ubiquitous in business acquisition agreements. Designed to ensure that whatever is being represented or covenanted will not be deemed breached unless the impact of any inaccuracy or failure to perform is actually significant (which is itself a word that fails to convey a clear-cut standard), the word material is fraught with an uncertain meaning as applied to a particular set of circumstances.

One of my faithful readers recently asked me whether I had ever written anything about the use of the term material as a qualifier in a purchase agreement. The answer was, “Of course I have.”^[1] But perhaps a reminder is necessary. Conveniently, Vice Chancellor Laster, in a recent Delaware Court of Chancery decision, In re Dura Medic Holdings, Inc. Consolidated Litigation,^[2] had occasion to reiterate Delaware’s approach to determining the meaning of the word material when it is used as an adjective qualifying a covenant or representation.

It is tempting to view the word material standing alone (or as used in the phrase “in all material respects”) as having a similar meaning to the term material when used in the phrase “material adverse effect.” But legally the two have nothing to do with one another. Caselaw has declared that material when used in the phrase “material adverse effect” requires not only a truly significant (in the sense of really, really bad) negative impact, but also a negative impact that is “durationally significant.”^[3] The word material standing alone or as used in the phrase “in all material respects,” however, has a different meaning. In Dura Medic Holdings, Vice Chancellor Laster reminds us:

When used to qualify a representation, the adjective “material” “seeks to exclude small, de minimis, and nitpicky issues that should not derail an acquisition.” For the breach of a representation to be material, there need only be a “substantial likelihood that the . . . fact [of breach] would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information.” That interpretation “strives to limit [a contract term with a materiality qualifier] to issues that are significant in the context of the parties’ contract, even if the breaches are not severe enough to excuse a counterparty’s performance under a common law analysis.”^[4]

In other words, a “materiality” qualifier imposes a much lower standard for measuring the significance of a breach than does the term “material adverse effect.” And it specifically serves to lessen the high bar that the common law imposes for permitting a counterparty to treat the other party’s breach as significant enough to excuse that counterparty’s own performance.

But it is far from clear how material, on the one hand, simply means more than de minimis, but on the other, means important enough to have “significantly altered the ‘total mix’ of information” upon which a counterparty relied in entering into the purchase and sale agreement. One could well wonder when a breach would not be deemed “material” as a practical matter.^[5] Indeed, according to Ken Adams, one of the foremost authorities on syntactic ambiguity and contract drafting clarity generally, the word “material is not only vague but also ambiguous.”^[6]

This is particularly true given the fact that the “significantly altered the ‘total mix’ of information” standard for determining materiality appears to have been borrowed from the U.S. Supreme Court decision of TSC Industries, Inc. v. Northway, Inc.^[7] TSC Industries involved the determination of what was material in the context of securities fraud, specifically allegations that a proxy statement “was materially misleading.”^[8] In that context, the Court held:

The general standard of materiality that we think best comports with the policies of Rule 14a-9 is as follows: an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. This standard is fully consistent with Mills’ general description of materiality as a requirement that “the defect have a significant propensity to affect the voting process.” It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.^[9]

So—important enough to have been significant in the “deliberations” being made by the recipient of the information, but not important enough to have actually affected the decision that was made. Huh?

Adams has suggested that the “significantly altered the ‘total mix’ of information” standard is just another way of saying nontrivial, with the other understanding of material (the common-law definition) being equated to his term dealbreaker—i.e., significant enough to have actually made the counterparty not want to do the deal at all.^[10] After all, the whole point of a materiality threshold is to lessen the “dealbreaker” requirement that the common law imposes for a counterparty’s contract breach to excuse the other party’s performance.^[11] But that stark dichotomy between material meaning simply “nontrivial” and its common-law meaning of an actual “dealbreaker” is not what most transactional lawyers are seeking to convey with the word material. Instead, it’s something a little more than the merely “nontrivial” meaning and a lot less than the “dealbreaker” meaning.

Another faithful reader of my contract musings pointed out that “[i]n the securities fraud context, courts in [the Second] Circuit have ‘typically’ used five percent as ‘the numerical threshold . . . for quantitative materiality.’”^[12] Setting aside that materiality in the securities law context also requires a qualitative analysis,^[13] courts have applied the quantitative five percent rule alone in cases not involving securities fraud. Indeed, in Stone Key Partners LLC v. Monster Worldwide, Inc.,^[14] the court applied that rule to determine, in a dispute over whether a financial adviser was entitled to a fee, that a sale of less than four percent of a company’s “total assets” did not constitute a “sale of a material portion of the assets or operations of the Company and its subsidiaries taken as a whole.”^[15]

Five percent seems intuitively to be well past nontrivial, but well below dealbreaker status. And recall that Vice Chancellor Laster, in Akorn, Inc. v. Fresenius Kabi, AG, used a decline of more than 20 percent of the target’s equity value as sufficient to declare a material adverse effect, for purposes of a bring down condition.^[16] And the material required for a material adverse effect seems closer aligned to Adams’s dealbreaker concept.^[17] But is 1 percent still trivial and 2 percent nontrivial? Who knows.

So, to repeat what I have in fact said before on this subject:

If a matter will matter it may be best to recast a material liability, a material contract or a material litigation as a liability, contract or litigation involving (or that potentially could involve) [an impact of] more than a specified dollar amount [or specified percentage of equity value, net income, or assets] (below which dollar [or percentage] threshold any such liability, contract or litigation would be considered insignificant [or immaterial]). But, . . . [s]ometimes the vague, if not ambiguous, “material” is all you can get and is perhaps good enough (but at least know that the term is fraught with uncertainty).^[18]

Keep on musing.

1. Glenn D. West, Defining “Material”—What Matter Will Matter?, Weil’s Glob. Priv. Equity Watch (Jan. 13, 2020). ↑

2. In re Dura Medic Holdings, Inc. Consol. Litig., 2025 WL 559233, at *17 (Del. Ch. Feb. 20, 2025). ↑

3. Glenn D. West, What Constitutes a Material Adverse Effect: The Latest Judicial Pronouncement, Bus. L. Today (Dec. 4, 2024). ↑

4. Dura Medic Holdings, 2025 WL 559233, at *17. ↑

5. In my prior article, Defining “Material”—What Matter Will Matter?, supra note 1, I did note one case where such a determination was made. ↑

6. Kenneth A. Adams, The Word Material Is Ambiguous in Contracts, Why That’s a Problem, and How to Fix It, 21 Scribes J. Leg. Writing 83 (2023–24). ↑

7. 426 U.S. 438 (1976); see Adams, supra note 6, at 85–86. ↑

8. 426 U.S. at 441. ↑

9. Id. at 449 (emphasis added). ↑

10. Adams, supra note 6, at 92–93 (“Because the TSC Industries standard treats a fact as material if it would have been worth paying attention to, whether or not it would have caused a reasonable investor to change their vote, it’s reasonable to equate that standard with nontrivial.”). ↑

11. Id. at 85, 93. ↑

12. Stone Key Partners LLC v. Monster Worldwide, Inc., 333 F. Supp. 3d 316, 333 (S.D.N.Y. 2018), aff’d, 788 F. App’x 50 (2d Cir. 2019). ↑

13. See SEC Staff Accounting Bulletin No. 99, 64 Fed. Reg. 45,150 (Aug. 12, 1999). ↑

14. 333 F. Supp. 3d 316, aff’d, 788 F. App’x 50. ↑

15. 333 F. Supp. 3d at 333 (emphasis added). ↑

16. Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *74–76 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018). ↑

17. See Adams, supra note 6, at 95 (“Given what’s required to establish material breach under common law, it’s reasonable to equate that standard with dealbreaker. The same goes for the IBP standard because it requires ‘a strong showing’ to invoke a MAE exception.”). ↑

18. West, supra note 1. ↑

Last year, the U.S. Supreme Court struck down the use of nonconsensual third-party releases in Chapter 11 reorganization plans as not authorized under the Bankruptcy Code.^[1] While the Harrington v. Purdue Pharma decision involved mass tort liability, the broader curtailment of third-party releases in all contexts should cause directors and officers to reevaluate their personal liability exposure when companies enter the zone of insolvency.

Prior to Purdue, Chapter 11 plans routinely featured broad third-party releases in favor of the debtor’s directors and officers, insulating those individuals from any and all claims associated with the conduct of the business prior to and during the bankruptcy proceeding. The new Purdue prohibition on nonconsensual third-party releases underscores the need for robust risk-management strategies, including comprehensive directors’ and officers’ (“D&O”) liability insurance coverage, to effectively protect boards and executives from personal exposure.

This article explores common claims against directors and officers, including claims likely to arise in the event of corporate insolvency, and addresses best practices for mitigating liability risk in insolvency situations, particularly key D&O policy provisions.

Common Claims Arising from Insolvency

Companies and the people who run them are always subject to new and emerging risks. When a company approaches insolvency or seeks formal court protection from creditors, the actions of the directors and officers before and during such period become subject to even closer scrutiny by the company’s stakeholders. Claims can come from shareholders, lenders, court-appointed trustees or receivers, and individual creditors or creditor committees, to name just a few. It is common for such stakeholders to investigate the conduct of the company’s directors and officers—and to attempt to have the company incur the cost of such investigation—and to pursue a variety of claims if warranted by the results of the investigation. Such claims can take many forms.

Securities Claims

Securities claims against directors and officers can arise from alleged violations of federal or state laws that regulate the issuing, trading, and handling of securities. These claims typically involve allegations of fraud related to the sale of securities, insider trading based on nonpublic information, or failure to comply with disclosure requirements.

Modern D&O policies contain a broad range of protections for both the company (under so-called “Side C” or entity, coverage) and individuals (“Side B” or “Side A,” depending on whether the company indemnifies them) in the event of alleged securities violations. This is particularly crucial during insolvency or bankruptcy, as the company’s ability to indemnify may be impaired due to financial constraints or prohibited by bankruptcy law.

Fiduciary Duty Claims

Directors and officers can also face exposure from derivative suits for alleged self-dealing, corporate waste, failure to act in good faith, or failure to protect the interests of creditors or other stakeholders. These types of claims involve allegations that directors and officers breached their fiduciary duties to the company or its stakeholders in a way that financially harmed the company or diminished the value of its assets.

If directors or officers are accused of mismanagement leading to insolvency, Side A coverage could provide protection for individual directors and officers, even if the company cannot indemnify them due to its bankruptcy status. Additionally, fiduciary liability insurance, sometimes included within D&O policies, may protect directors and officers from claims related to the mismanagement of employee benefit plans, such as pension plans.

The above examples are merely illustrative and do not tell the full picture of potential claims, which also include things like mismanagement that deepens insolvency, fraudulent trading and transfers, and a host of other alleged fiduciary, tort, and statutory violations implicating conduct by individuals.

D&O Risk-Mitigation Tips

While the goal of protecting individual directors and officers is straightforward, securing adequate executive protection in a post-Purdue world can be complex. Below are several risk-mitigation considerations that can be implicated before, during, and after bankruptcy proceedings.

Evaluating Policy Exclusions

D&O policies contain several exclusions that could be implicated in insolvency situations.

The most problematic for companies facing insolvency are bankruptcy or insolvency exclusions, which may be added to policies when a company faces financial distress and can bar directors and officers from accessing D&O coverage during bankruptcy. While rare, these exclusions can significantly limit or eliminate coverage. If the exclusion cannot be avoided, insureds should attempt to limit its scope during the underwriting process.

Another exclusion implicated in bankruptcy is the “insured versus insured” exclusion, which bars coverage for claims brought by or on behalf of one insured against another insured. Issues can arise in bankruptcy when a trustee or creditor committee asserts claims against a director or officer on behalf of the debtor. Without appropriate carveouts to this exclusion, claims may be denied because these claimants are acting on behalf of the debtor company—an insured—against directors or officers, who are also insureds. Negotiating appropriate exceptions to this broad exclusion can protect coverage in the event of bankruptcy.

Insolvency-related claims against directors and officers may also implicate so-called conduct exclusions for deliberate criminal, fraudulent, or dishonest acts. Allegations of reckless or intentional conduct, even if baseless, can pose significant obstacles to advancing legal fees if the exclusion does not have appropriate “final adjudication” language, which can preserve coverage until the offending conduct is established by a final, nonappealable adjudication. As with most D&O policy provisions, exclusionary language is not one-size-fits-all and varies materially among insurers, forms, and endorsements, so policyholders must pay close attention to variations in wording that can have an outsize impact on coverage.

Understanding Runoff Coverage

The time to think about D&O insurance is before potential insolvency proceedings. One important aspect to vet in advance of bankruptcy is the availability and scope of a potential extended reporting period that may be available to the company to report claims in the event coverage is terminated during bankruptcy.

Preserving the ability to report claims—via what is often referred to as “tail” or “runoff” coverage—ensures that directors and officers are protected against claims if the company undergoes a change in ownership or management control during bankruptcy. Without runoff coverage, directors and officers would no longer have access to D&O insurance to defend against claims for actions taken during their tenure. This is important because claims might take time to surface as the bankruptcy process unfolds, or stakeholders may file claims even after the company’s operations end.

Securing Dedicated Side A Coverage

Traditional D&O policies include coverage for both the company and its directors and officers, usually subject to the same set of limits. That means that claims against the company may deplete or extinguish limits that otherwise would be available to protect directors and officers.

In most circumstances when the company is solvent, that structure is not problematic because even if the D&O insurance limits are extinguished, directors and officers can still count on the company to advance their legal fees and indemnify them in connection with claims arising from the decisions made on behalf of the company. In insolvency situations, however, that backstop of advancement and indemnity from the company is gone because the company is not able to pay, leaving D&O insurance as the sole protection for directors and officers facing personal exposure.

For that reason, policies should include dedicated Side A coverage, which sets aside separate limits available solely to protect individual directors and officers when an insolvent company is unable or unwilling to do so. Additional Side A limits are often available as part of the traditional “Side ABC” policy but can also be purchased via a stand-alone Side A–only policy, which can provide additional benefits like broader coverage and fewer exclusions. Finally, bankruptcy courts have held that Side A policy proceeds are not the property of the debtor’s estate.^[2] Therefore, the ability of directors and officers to access Side A policy proceeds is not constrained by the automatic stay, providing additional benefits to individuals who need to access that coverage quickly and efficiently to avoid being personally exposed.^[3]

Relying on Subcommittees and Outside Examiners

The formation of subcommittees chaired by independent directors or the hiring of outside examiners to evaluate potential claims is an effective strategy for proactively identifying and addressing directors’ and officers’ exposure. These pre-bankruptcy investigations can include a review of existing insurance policy provisions, decisions of directors and officers leading up to insolvency, and analysis of potential claim exposure.

By assessing the potential existence of claims at an early stage, companies can take steps to implement mitigation measures as necessary to minimize exposure to those claims. And the involvement of an outside examiner or independent board member can enhance the credibility of the investigation given their independent and unbiased position. In the event of subsequent litigation, this proactive approach can lay the groundwork for a successful defense through the documentation of key facts concerning D&O actions leading up to bankruptcy.

Implementing Consensual Release Agreements/Plans and Litigation Trusts

The above-described proactive liability-management strategies are best practices to mitigate D&O liability, but in the event of a bankruptcy, additional measures may be required to address potential D&O claims, which may require companies to navigate the issues in Purdue. For example, consensual third-party releases and litigation trusts are tools available for addressing personal liability in bankruptcy court.

Consensual Third-Party Releases: RSAs and Opt-In/Opt-Out Releases

A restructuring support agreement (“RSA”) is a prepetition agreement that a company reaches with its key stakeholders regarding restructuring terms. In exchange for stipulated economic treatment, RSAs can require the stakeholders to agree to third-party releases as part of a bankruptcy plan. These releases differ from those prohibited by Purdue because they are consensual. As a result, the utility of an RSA release turns largely on the company’s organization and the type of liability that directors and officers face.

For certain companies with a few key constituents with potential claims, an RSA that includes a third-party release provision is an effective liability-management strategy. For other companies with many third parties with potential claims, negotiating consensual releases may be untenable. And regardless of a company’s structure, RSA releases are not usually a realistic strategy for addressing mass tort liability, such as in Purdue, due to the massive number of claimants. In those instances, companies may try to obtain consensual releases through plan voting.

Since Purdue came down, litigation has ensued regarding whether “opt-in” and “opt-out” releases in bankruptcy plans constitute consent as part of the plan voting process. Opt-in releases require the releasing party to affirmatively consent to the release. Opt-out releases assume consent to the release unless the releasing party affirmatively opts out. Some courts have held that opt-out releases are acceptable in limited circumstances, depending on the specific facts and circumstances of the case.^[4] The Bankruptcy Court for the Southern District of Texas has gone further, approving a plan containing an opt-out release because opt-out consent has long been standard practice in the district.^[5] However, the U.S. trustee appealed the confirmation order in In re Container Store Group, Inc., setting the stage for the next potential Supreme Court bankruptcy release battle.

Litigation Trusts

Where consensual releases do not fully address D&O liability, litigation trusts are an additional option. Litigation trusts are created as part of a bankruptcy plan and channel claims of the estate (i.e., derivative claims of shareholders) into the hands of a litigation trustee to pursue on behalf of the estate. While this tactic does not release directors and officers from personal liability, it does make litigation and settlement negotiations efficient given that the trustee has the sole authority to pursue the channeled claims.

Conclusion

As the contours of Purdue continue to unfold, companies should proactively monitor developments in the law to avoid surprise coverage denials, large exposures, and similar issues that arise when a company enters the zone of insolvency. Engaging experienced professionals, such as insurance brokers and outside bankruptcy and coverage counsel, can help establish robust risk-mitigation measures and insulate directors and officers from personal liability.

1. Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024). ↑

2. See, e.g., In re Downey Fin. Corp., 428 B.R. 595 (Bankr. D. Del. 2010); In re Petters Co., 419 B.R. 369 (Bankr. D. Minn. 2009); In re MILA, Inc., 423 B.R. 537 (B.A.P. 9th Cir. 2010). ↑

3. Downey, 428 B.R. at 608. ↑

4. In re Arsenal Intermediate Holdings LLC, No. 23-10097 (Bankr. D. Del. Mar. 27, 2023). ↑

5. In re Container Store Grp. Inc., No. 24-90627 (Bankr. S.D. Tex. Jan. 24, 2025). ↑

This article provides a high-level overview of approaches to ESG disclosures in the United States, European Union, and United Kingdom, noting the implications of these differences for investors and global businesses. Beyond shedding more light on the general ESG regulatory landscape under these regimes, the article explores the emerging ESG regulatory frameworks and policy drivers for ESG on both sides of the Atlantic and delves further into the implications of these differences to investors and multinational corporations, and why companies should care about these regulatory requirements and differences.

What Is ESG and ESG Disclosure?

ESG, which stands for “environmental, social, and governance,” refers to metrics often used by analysts to evaluate and vet the non-financial sustainability impact and social consciousness of companies. These metrics can impact a company’s risk profile and public perception—and, ultimately, the bottom line.

“ESG disclosures” are specific metrics used by organizations to report on their ESG performance and initiatives. ESG disclosures are generally broken into three categories:

1. Environmental: focuses on climate risks, emissions, energy efficiency, use of natural resources, pollution, and biodiversity
2. Social: focuses on human capital; labor regulations; diversity, equity, and inclusion (“ DEI”); safety; human rights; and community engagement
3. Governance: focuses on board diversity, corruption and bribery, corporate ethics and compliance, compensation policies, and risk tolerance

The terms ESG disclosure, sustainability report, and corporate social responsibility report are often used interchangeably.

Overview of the ESG Disclosure Regimes in the US

Federal Government

ESG disclosure in the United States (“US”) remains largely voluntary, except for the state of California’s requirements, discussed below. Governmental agencies and shareholder activists, however, continue to advocate for mandatory ESG disclosure. On March 6, 2024, the US Securities and Exchange Commission (“SEC”) adopted climate-related disclosure rules, two years after publishing the proposed rules.^[1] Shortly thereafter, on April 4, 2024, the SEC stayed its climate disclosure rules following a flurry of lawsuits by many stakeholders challenging both the rules and the SEC’s authority to issue the rules.^[2] A total of forty-three states (twenty-five against and eighteen advocating for the SEC rules as intervenors), as well as interest groups and trade associations, have since filed their petitions for review across different appellate courts, which are now consolidated in a multidistrict litigation in the U.S. Court of Appeals for the Eighth Circuit, dubbed Iowa v. Securities & Exchange Commission.^[3] Many opponents to the SEC’s ESG disclosure rules argue that following the Loper Bright decision^[4] by the US Supreme Court, which overturned the long-standing Chevron deference doctrine,^[5] the SEC lacks authority under federal securities laws to require corporate reporting of greenhouse gas emissions and other climate disclosures. This case remains in litigation and the rules are stayed. In any event, many experts believe that the Trump administration will abandon the rules.^[6]

State of California

In 2023, the state of California enacted Senate Bill 253 (“SB 253”) (“Climate Corporate Data Accountability Act”) and Senate Bill 261 (“SB 261”) (“Greenhouse Gases: Climate‐Related Financial Risk”) as part of the Climate Accountability Package. These laws are applicable to both public and private US companies “doing business” in California.^[7]

Senate Bill 219 (“SB 219”) was proposed and signed into law on September 27, 2024, amending the Climate Accountability Package by granting the California Air Resources Board (“CARB”) time and discretion to adopt implementing regulations and clarify answers to key implementation questions. While SB 219 extended CARB’s implementation date from January 1, 2025, to July 1, 2025, it does not offer an extension of the date of first reportable data under SB 253 for Scope 1 and Scope 2 emissions, which remains January 1, 2025.^[8] This means that US entities required to report under SB 253 may still have to collect Scopes 1 and 2 data for the first half of 2025 and include this in their first report to CARB, due by January 1, 2026.

On December 5, 2024, CARB issued an enforcement notice indicating its intent to exercise “discretion” in enforcing SB 253 during the first 2026 reporting cycle to allow companies additional time to implement data collection necessary to comply with the reporting requirements.

Shortly thereafter, on December 16, 2024, CARB issued a feedback solicitation inviting public comments on the implementation of SB 253 and SB 261, due by February 14, 2025.

Overview of the ESG Disclosure Regimes in the EU and the UK

Prior to 2023, only a relatively small number of large companies (referred to as public-interest entities)^[9] within the European Union (“EU”) were required to disclose ESG information under the Non-Financial Reporting Directive (“NFRD”), which came into force in December 2014. Work to substantially expand the scope of the NFRD started in 2017 on the heels of the 2016 COP21 Paris Agreement.^[10] In January 2023, the Corporate Sustainability Reporting Directive (“CSRD”) came into force.^[11] However, please note our commentary below in relation to changes being proposed to the CSRD.

The CSRD is a mandatory ESG disclosure framework that modernizes and strengthens ESG reporting, requiring companies to report on environmental and social impacts, risks, and opportunities. EU member states were required to transpose the CSRD into domestic legislation by July 6, 2024; however, some countries have not yet done so (e.g., Germany, the Netherlands, and Spain).

The CSRD is broad and reaches a much wider group of companies compared to the NFRD, including some listed small and medium-sized enterprises (“SMEs”); certain non-EU issuers; and non-EU parent companies that generate over EUR 150 million in the EU and have at least one large subsidiary, public interest SME (see definition of public-interest entities in note 9), or branch in the EU. It requires businesses to report and disclose information on their societal and environmental impact and external sustainability factors affecting their operations.

A key feature of the CSRD is the double materiality assessment (“DMA”). The materiality of risks is reportable on two fronts: (1) how sustainability issues may affect the company and (2) how the company may impact people and the environment. The concept of DMA is yet to be established, with no proven or approved methodologies. This is causing some confusion in the marketplace and has been a source of criticism.

Implementation of the CSRD is a phased-in approach, with a rolling timeline (see figure 1). Companies already reporting under NFRD and large issuers with more than 500 employees are required to submit their ESG disclosures under CSRD in 2025, covering FY 2024. Other “large” EU companies or corporate groups (which includes those with two of the following three: (a) EUR 50 million+ in net turnover, (b) EUR 25 million+ in assets, and (c) 250+ employees) are required to submit initial ESG disclosures in 2026, covering FY 2025. Finally, all non-EU ultimate parent companies with “large” EU subsidiaries or operative branches are required to submit their initial ESG disclosures in 2029, covering FY 2028.

Figure 1. Timeline of Implementation of the CSRD.

Upstream of reporting, certain companies (including non-EU businesses) will be required to comply with the EU Corporate Sustainability Due Diligence Directive (“CSDDD”). This regulatory framework provides a process for mapping and conducting an in-depth assessment of a company’s operations and its chain of activities in order to (i) identify and prioritize actual and potential impacts based on the severity and likelihood of occurrence, (ii) prevent potential adverse impacts through an action plan with “reasonable and clearly defined” timelines, and (iii) end any actual adverse impacts by minimizing the impact with corrective action plans.^[12] The CSDDD has regulatory enforcement requirements and civil liability for violations.

It is important to note that on February 26, 2025, the European Commission published an “Omnibus package” (“Omnibus”)^[13] that seeks to simplify and streamline the requirements under the CSRD, the CSDDD, and the EU Taxonomy Regulation.

Some of the key proposed changes to CSRD include introducing a two-year delay to the reporting requirements applicable to “large” EU companies (from FY 2025 to FY 2027, with the first reports due in 2028 rather than 2026) and amending the thresholds applicable to in-scope EU companies (the reporting requirements would only apply to entities with more than one thousand employees either at the individual or group level and with either (a) EUR 50 million or more in net turnover or (b) EUR 25 million or more in assets). The Omnibus also proposes changes to the thresholds applicable to non-EU ultimate parent companies with “large” EU subsidiaries or operative branches.

The Omnibus also includes changes to the CSDDD, which affect scope and timeline of reporting, as well as potential removal of the requirement for EU member states to introduce civil liability for violations.

It is still unclear whether the changes proposed by the Omnibus will be adopted and what the timing of that would be, although the European Commission has invited EU institutions to treat this matter as a priority in light of the upcoming compliance deadlines under the CSRD.

In the United Kingdom (“UK”), there are also mandatory ESG reporting requirements that apply to certain in-scope companies. Since 2019, listed companies and large companies have been required to disclose energy use and carbon emissions under the Energy and Carbon Report Regulations 2018^[14] (“Streamlined Energy and Carbon Reporting” (“SECR”)). Listed companies are required to make disclosures aligned with the Task Force on Climate-Related Financial Disclosures framework. For accounting periods starting from April 2022, the Companies Act 2006 has required UK high-turnover companies with more than 500 employees, as well as traded insurance and banking companies, to produce a non-financial and sustainability information statement as part of their strategic report.

Looking ahead, the UK government is considering whether to introduce new sustainability disclosure requirements (“SDR”) on companies under a new reporting regime based on the standards issued by the International Sustainability Standards Board (“ISSB”), as well as a requirement for certain entities to publish climate transition plans. As these new regimes are still being developed, UK and non-UK entities will need to consider the extent to which any changes will affect their reporting obligations. Alongside the new disclosure requirements, the UK is also developing its own UK Taxonomy Framework for determining which activities can be considered “environmentally sustainable.”

Table 1, below, compares the main reporting frameworks in the EU and the UK.

Table 1. Main Reporting Frameworks in the EU and UK

Comparing the Disclosure Regimes in the US and the EU/UK

While the topics addressed by ESG regulations vary across regimes, they all include a focus on greenhouse gas emissions and other climate-related matters. It is important to recognize that reporting beyond climate topics—such as biodiversity, pollution, and certain workforce metrics—is also typically required. The reporting frameworks require a description of how risks are identified and managed, as well as corporate board oversight of identified risks. The identification of the applicable risks is fundamental and is an area where it is particularly essential to create a cross-functional approach.^[16]

The most significant differentiators between the US and EU/UK disclosure approaches are the “scope and scale” of disclosures and the definition of materiality.

First, with respect to scope and scale, the CSRD covers a broad range of topics and applies to a wide group of entities, including large companies, non-EU parents of large EU subsidiaries, and certain listed SMEs operating in the EU (although this may be subject to change if the Omnibus is adopted). On the other hand, the SEC’s disclosure rules focus specifically on climate-related information, particularly climate-related risks and Scope 1 and 2 emissions, and are applicable to both registered US domestic issuers and foreign issuers. Note, however, that California’s ESG reporting requirements also include Scope 3 emissions disclosure.

Second, the meaning of materiality in each regime is critical since it determines reportability. An incorrect interpretation or an invalid assessment of materiality could be very expensive and detrimental, triggering hefty fines and sanctions. The CSRD applies a double materiality approach, which requires companies to report on how sustainability issues affect their business and how their business impacts society and the environment. The SEC rules focus solely on financial materiality, requiring companies to disclose information that is material to investors. California’s laws require extensive emissions reporting irrespective of materiality.^[17]

Conclusion: The Transatlantic Divide and Why Global Companies Should Care

While ESG disclosures in the EU are mandatory, reporting in the US remains voluntary, with the exception of California’s requirements. As such, compliance with evolving ESG disclosure requirements will become more complex for global public companies. In particular, private equity funds and traditional energy players that have an increased interest in energy transition to meet stakeholder demands and regulatory changes will continue to wrestle with varying ESG reporting requirements. These critical interests are coupled with the challenges of addressing escalating climate change risks and supplying the world’s insatiable energy demand. The combination of these factors in a fast-paced business arena presents a ripe environment for ESG-related claims.^[18] With more disclosure requirements and a lack of standardization across global jurisdictions, it is likely that there will be more missteps. Noncompliance with the reporting requirements in the applicable jurisdiction(s) may be fatal to potential ventures, investment opportunities, and the public perception of involved parties.

Companies, advisers, funds, and counsel should carefully curate their reviews, vetting, and setting of ESG targets to ensure alignment with required ESG and sustainability reportable information across regimes, while at the same time ensuring alignment with other investment materials, offering documents, and annual reports. In addition, disclosures should be vetted by external experts and legal counsel to ensure consistent, reliable, and accurate reporting.

1. See Press Release, U.S. Sec. & Exch. Comm’n, SEC Adopts Rules to Enhance and Standardize Climate-Related Disclosures for Investors (Mar. 6, 2024). The SEC disclosure rules—aimed at reducing greenwashing, increasing transparency for investors, and standardizing and harmonizing reporting metrics across all industries—were intended to be effective beginning with the year ending December 31, 2025, and would require disclosure by public companies to include governance issues, risk management strategies, and financial implications of climate-related risks. ↑

2. See U.S. Sec. & Exch. Comm’n Order Issuing Stay, In re Enhancement and Standardization of Climate-Related Disclosures for Investors, File No. S7-10-22 (Apr. 4, 2024). The SEC disclosure rules were stayed in April 2024 following challenges by several states, investors, interest groups, and trade associations. ↑

3. No. 24-1522 (8th Cir. 2024). ↑

4. Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024) (providing that courts should use their own judgment when interpreting ambiguity in laws and not rely on agency interpretations). ↑

5. Chevron U.S.A., Inc. v. Nat. Res. Def. Council, 467 U.S. 837 (1984) (providing that courts were to give deference to agencies where there was ambiguity in the law, as long as the interpretation was reasonable). This case has since been overturned. ↑

6. Tim Quinson, Trump Administration Seen as Likely to Dismantle ESG Rules, Bloomberg (Nov. 7, 2024). ↑

7. See S. 253, 2023 Leg., Reg. Sess. § 1(l) (Cal. 2023); S. 261, 2023 Leg., Reg. Sess. § 1(j) (Cal. 2023). Signed into law in 2023, SB 253 and SB 261 establish greenhouse gas emissions and climate-related financial risk reporting requirements for corporations that meet certain criteria. SB 253 (greenhouse gas emissions disclosure) tasks the California Air Resources Board (“CARB”) with promulgating regulations requiring US-based entities with $1 billion or more in annual revenue to report their greenhouse gas Scope 1 and Scope 2 emissions for 2025 by January 1, 2026, and Scope 3 emissions starting in 2027 for emissions for 2026. SB 261 (climate-related risks reporting) applies to companies with total annual revenues over $500 million and mandates disclosure of climate-related financial risks and measures for risk reduction. ↑

8. See S. 219, 2024 Leg., Reg. Sess. § 1(c) (Cal. 2024). SB 219 gives CARB six additional months to finalize its rules under SB 253, pushing the CARB implementation deadline to July 1, 2025. Additionally, SB 219 eliminates the filing fee requirement for corporations reporting their greenhouse gas emissions, gives CARB the option (but not the requirement) to contract with an outside organization to develop a program by which the required disclosures would be made public, and authorize any corporate disclosures to be consolidated at the parent company level. ↑

9. These are defined as EU entities with transferable securities admitted to trading on an EU-regulated market, certain credit institutions, insurance undertakings, or other entities designated as such by EU member states. ↑

10. The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 parties at the UN Climate Change Conference (COP21) in Paris on December 12, 2015, and entered into force on November 4, 2016. ↑

11. Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 Amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as Regards Corporate Sustainability Reporting, 2022 O.J. (L 322) 15. ↑

12. Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859, arts. 10–11. ↑

13. Proposal for a Directive of the European Parliament and of the Council Amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 as Regards Certain Corporate Sustainability Reporting and Due Diligence Requirements, COM (2025) 81 final (Feb. 26, 2025). ↑

14. The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, SI 2018/1115. ↑

15. Note that the SFDR only applies to certain asset managers and other financial market participants rather than corporate entities more generally. ↑

16. See Europe’s CSRD Is One of the Latest Global Disclosure Regulations Revolutionizing ESG Reporting, PwC (last visited Mar. 1, 2025). ↑

17. Ery Dimitrantzou, How California Rules Shape Global ESG Reporting, Cority (Nov. 15, 2024). ↑

18. Saijel Kishan, ESG Litigation over Social Issues Is Poised to Rise, Bloomberg (Feb. 23, 2022). ↑