The Federal Trade Commission (“FTC”) announced on July 13, 2026, that it imposed penalties, totaling $12 million, in a failure-to-file settlement with Edwards Lifesciences Corp. (“Edwards”) and Genesis MedTech Group Limited (“Genesis MedTech”). The FTC complaint alleges that the companies violated the Hart-Scott-Rodino Act (“HSR Act”) when they closed an acquisition in July 2024 without submission of the required premerger notification and observation of the required waiting period. This enforcement action shows the FTC’s continued commitment to HSR Act compliance and its belief that substantial penalties are needed to deter parties seeking to avoid the HSR Act’s requirements.
The HSR Act requires parties of a certain size, contemplating transactions of a certain size, to notify both the FTC and the Department of Justice, Antitrust Division, and observe a waiting period (typically thirty days) before consummation. Relevant here, acquisitions of nonvoting securities are generally not reportable, and the value of nonvoting securities would not be included in the size-of-transaction threshold under the HSR Act. Advance notification of significant transactions, and adherence to the waiting period, provide the federal antitrust agencies with an opportunity to review and, when necessary, to seek an injunction to prevent the consummation of acquisitions that may substantially lessen competition. Currently, failure to make a filing carries penalties of up to $53,088 per day.
The regulations promulgated under the HSR Act make clear that the FTC will disregard “devices . . . employed to avoid” the obligation to make a filing. The FTC’s complaint alleges that the companies intentionally structured Genesis MedTech’s sale of its subsidiary to Edwards to avoid triggering a filing. Specifically, the FTC claims that Genesis MedTech would not accept a valuation below the then-applicable HSR threshold of $119.5 million, and alleges that Edwards did not want agency review to delay the transaction. The FTC alleges that the buyer contemporaneously purchased $25 million of Genesis nonvoting securities in order to reduce the valuation of the voting securities to below the HSR Act’s threshold.
Another factor in the instant case is the FTC’s successful challenge in January 2026 to Edwards’ attempted acquisition of another company in the same business as the Genesis MedTech subsidiary acquired by Edwards. The FTC alleges that this earlier unsuccessful acquisition was under consideration when Edwards proposed to Genesis MedTech its purchase of the nonvoting stock. The complaint also states that documents and testimony “show that . . . Edwards wanted to avoid filing under HSR.”
The parties settled for a combined $12 million. As part of the settlement, Edwards will also be subject to additional requirements, including prior notice for certain U.S. acquisitions for five years and maintenance of an antitrust compliance program.
FTC Chairman Andrew Ferguson warned, in the FTC’s press release announcing the settlement, that “[t]he FTC will be vigilant in enforcing the requirements of the Hart-Scott-Rodino Act and we will not hesitate to seek penalties for its violation.” Although allocation of purchase price to nonvoting securities can be entirely legitimate, doing so solely for the purpose of avoiding an HSR filing is not permitted under the regulations.
Noncompliance with the HSR Act continues to carry serious penalties, as fines continue to mount for each day that a party is in violation of the act. Even though the regulations task buyers with the responsibility for valuation, sellers should take great care when agreeing to structures or artifices that appear to avoid an HSR filing, particularly when the selling company will continue to exist post-closing and when the transaction could present substantive antitrust concerns. Importantly, some state “mini-HSR” statutes laws, including those in California (effective January 1, 2027), Colorado, and Washington also provide for their own “failure-to-file” penalties, up to $25,000 per day in California and up to $10,000 per day in Washington and Colorado. Consultation with experienced counsel early in a transaction and well in advance of any purchase agreement can assist with mitigating such risks.
The Department of Justice (“DOJ”), Antitrust Division, and the attorney general of Ohio notched a win with a recent settlement (Exhibit B: [Proposed] Final Judgment: U.S. and State of Ohio v. OhioHealth Corporation) barring an Ohio health care system from attempting to obtain any insurance contract provisions that prohibit, deter, prevent, or penalize steering.
In February, the DOJ and Ohio sued OhioHealth Corporation (“OhioHealth”), claiming that the health care system abused its market power by negotiating for contract provisions frequently referred to as “anti-steering” and “gag rules.” The complaint also alleges that OhioHealth requires an insurer that wants any of OhioHealth’s providers in its network to include all of OhioHealth’s providers in the network. The DOJ further claims that OhioHealth is the largest hospital system in Columbus, Ohio, and that the contracts it holds with commercial health insurers account for at least 85 percent of the commercial health insurance business in the Columbus area.
OhioHealth’s contracts allegedly “insulate it from price competition and help to maintain its extremely high prices” and violate Section 1 of the Sherman Act and Ohio’s Valentine Act, the state’s primary antitrust law, by blocking insurers from offering “health insurance plans that feature lower-cost hospitals and other providers and even from informing patients that lower-cost options are available.” The DOJ contends that patients are harmed by OhioHealth’s conduct because it “deprive[s] patients of a choice among a full spectrum of competitive health insurance plans, where patients could decide for themselves whether going to OhioHealth for care is worth the high prices it charges.”
While the complaint does not quote the contractual provisions at issue, it claims that they restrict several key features needed for budget-conscious health plans, including the following:
“Narrow network plans” that “include a relatively limited set of cost-effective providers”
“Tiered network plans” that allow members “to secure healthcare from the lower-priced favored tier of providers or to pay more for care from the more expensive tier of providers”
“Centers for excellence,” which payors can create by identifying “specific high-quality, cost-effective programs—such as orthopedic surgery or oncology programs—at specific providers and encourage their members to choose care at those facilities by reducing or waiving the fees that the patient must pay”
“Site of service steering,” which can save patients money by incentivizing them “to have procedures done in a lower-cost site of service”
“Reference-based pricing” that fixes reimbursement rates for certain procedures, “often pegged to some reference point like a market average price”
“Active transparency” by which payors share pricing information to help inform a patient’s choice of health care provider
The complaint pegged OhioHealth’s market share at only approximately 35 percent, despite the fact that courts typically require a market share of at least 40–50 percent in similar cases.
Though denied by OhioHealth, the DOJ claims that commercial health insurers attempted to negotiate with OhioHealth to remove these restrictive contract provisions, but OhioHealth consistently refused. The health system’s response to the agencies’ challenge was that it competes with two other hospital systems for patient volume by competing for favorable insurance contracts and that this “competition for the contract” occurs regularly when contracts expire or are rebid and results in lower prices and other benefits to consumers. OhioHealth also countered that, to the extent it negotiated favorable contracts, it did so by being a better health system with better prices and better services.
The DOJ has obtained much of its requested relief through the settlement, which:
Voids and prohibits the health system from seeking contract provisions that prohibit or deter steering or transparency, including:
Requirements of prior approval for the introduction of new plans; or
Requirements that OhioHealth be included in the most-preferred tier of plans, though it may seek to participate in the most-preferred tier of a plan.
Bars conduct that penalizes, or threatens to penalize, an insurer for steering members to other providers or providing rate transparency to its members.
Prohibits any contract provision that prohibits or deters steering or transparency, including by requiring inclusion in the most-preferred tier.
The settlement permits OhioHealth to participate in the most-preferred tier of a plan, but it must do so under the same terms and conditions as its competitors. If OhioHealth declines participation in the most-preferred tier, it must still participate in that plan on terms and conditions that are substantially the same as the terms and conditions of then-existing broad networks.
Two days after the settlement, the White House Council of Economic Advisers issued a report on health care pricing (Effects of Banning Anti-Competitive Hospital Contracts). The report concludes that prohibiting all-or-nothing, anti-steering, and anti-tiering contracting practices would save on health care costs by reducing “hospital and affiliated-physician prices by 18 percent (with a plausible range of 11 to 26 percent), averaging ~$4,100 per inpatient admission.” The report also estimates that employer plan premiums could likewise fall by roughly 6.5 percent in markets affected by such contracting provisions, which could yield national savings of roughly $45 billion per year.
Takeaways
The OhioHealth litigation, the White House Council’s report, and the DOJ’s recent lawsuit challenging some similar contracting practices of a New York hospital system all signal to health care providers with market shares as low as 30–35 percent that historically lawful negotiation strategies need to be reviewed. Neither the litigation nor the settlement appears to take into consideration the lower rates that providers often offer in exchange for the increased volume that these types of restrictions can generate.
The settlement does make clear that regardless of the purported market power of a health care system, it is still permitted to negotiate to participate in a most-preferred tier as long as it does so under the same terms and conditions as any other provider, and it is able to restrict steering within a narrow network where it is the most prominently featured provider. In addition, the settlement allows a provider to protect disclosure of its negotiated rates to competitors or the public and to challenge the dissemination of inaccurate information.
On February 20, 2026, the U.S. Supreme Court ruled that the tariffs implemented by executive order in early 2025 under the International Emergency Economic Powers Act (“IEEPA”) were illegal.[1] Shortly after, the U.S. Court of International Trade ordered the collected IEEPA tariff revenue to be reimbursed to the importers of record, who statutorily were responsible for paying the tariff duties.[2]
Even though the importers of record paid the tariff duties to U.S. Customs and Border Protection, depending on various factors, the cost of tariff duties may or may not have been passed on to others in the supply chain or to ultimate customers. The decision to reimburse importers of record for the tariff duties that they paid has triggered litigation by downstream purchasers of imported goods against importers of record seeking reimbursement for price increases allegedly tied to the now-defunct tariffs.
Pass-through of tariff duties will likely emerge as a key issue within this new wave of litigation. Did tariff-imposed cost increases lead to price increases down the supply chain to distributors and downstream customers and, if they did, does the variation in pass-through patterns require “mini-trials” instead of a class-wide approach?
Although the IEEPA context raises novel economic issues, economists have long analyzed these types of pass-through questions, including in the context of indirect purchaser claims and class certification in antitrust matters.
Litigation Pass-Through Considerations
Across diverse contexts—such as tariffs, exchange-rate movements, input-cost shocks, tax changes, and antitrust analysis—the economic literature consistently demonstrates that pass-through is a highly product-specific phenomenon that varies significantly across industries, products, and regions.[3] Studies find a wide range of pass-through rates,[4] indicating that quantification in IEEPA-related litigation is likely to be challenging and may show a high degree of variance.
Courts have closely reviewed the robustness of economic methodologies, including their handling of the relevant market structure, in reaching a variety of conclusions in cases involving pass-through. For example, in the antitrust context, courts have sometimes rejected pass-through models and denied indirect purchaser class certification, as seen in In re Graphics Processing Units Antitrust Litigation and In re Flash Memory Antitrust Litigation,[5] while in other cases courts have granted indirect purchaser class certification, such as in In re TFT-LCD (Flat Panel) Antitrust Litigation.[6] Pass-through rates are also contested in international trade proceedings: World Trade Organization (“WTO”) disputes and International Trade Commission (“ITC”) investigations often need to reach pass-through estimates when evaluating how tariffs, antidumping duties, or countervailing measures impact downstream domestic market prices.[7]
Purchaser Dynamics and Cost Pass-Through
Determining pass-through, if any, is fundamentally an empirical question. The actual scope of pass-through is dictated by the specifics of demand/supply conditions, market competition, and the mechanics of how a market operates. The extent of seller/buyer bargaining power, demand/supply elasticities throughout a product’s supply chain, and availability of substitutes can be critical determinants of cost pass-through. For example, in markets where consumer demand is relatively inelastic (i.e., low sensitivity to price increases) and there are no close substitutes, pass-through can be relatively high.[8] Conversely, if large downstream purchasers have high elasticity of demand and there are many substitutes (or many firms selling similar products), upstream suppliers may be forced to absorb the tariff costs into their own margins rather than passing them on.[9]
The extent of cost pass-through can often depend on the negotiating leverage of the buyer. For instance, direct purchasers or large institutional indirect purchasers—such as national retail chains or corporate distributors—may possess significant bargaining power.[10] This may allow them to push back on price increases, negotiate favorable rebates, or pressure suppliers into absorbing the increased costs. In contrast, individual retail consumers generally lack this bargaining power and usually must take prices as given. However, because these individual consumers can be highly price-sensitive, attempting to pass 100 percent of the cost increase down to the retail level might result in a sharp drop in consumer demand.[11] Consequently, retailers may be forced to absorb a portion of the margin hit rather than risk alienating their customer base.
The extent of cost pass-through also depends on the time horizon. In the short run, pass-through tends to be mostly incomplete.[12] At longer time horizons, other determinants of price can further complicate an analysis of pass-through: In response to sustained cost increases, suppliers can readjust supply chains, retailers can readjust purchasing plans, and consumers can adjust spending habits if prices increase.
To evaluate pass-through dynamics, economists rely on a variety of methods:
Regression models can estimate the relationship between upstream costs and downstream prices while controlling for other supply and demand factors that could influence the relationship. While flexible and generalized to multiple questions with moderate data requirements, these models are sensitive to specification choices and can be limited to estimating average effects rather than isolating effects for a single firm within an industry. They can also be limited in capturing detailed market structures, complex supply chains, and multiproduct firms.
Quasi-experimental designs, such as difference-in-differences, can estimate pass-through by comparing price changes of affected downstream products relative to price changes of similar but unaffected products. This approach requires that the product markets used as benchmarks are sufficiently similar to the market being evaluated in terms of demand, supply, and competitive conditions. In the context of IEEPA tariffs, finding an appropriate control group may be challenging given the economy-wide effects of tariffs.
Structural models, commonly used in merger reviews,[13] can be used to simulate the effects of a policy change such as tariffs on an industry or firm. These models allow economists to capture complex international supply chains and market structures, although this approach has high data requirements and can be sensitive to model parameters like elasticities and assumptions by the researcher. Structural models are also frequently employed to assess the impact of trade policies, including tariffs. For example, in WTO arbitration, economists use industry-specific structural models to quantify the effects of antidumping and countervailing duties, aggregated to the industry level.[14]
Tariff Pass-Through Complexities: Border Versus Retail
The context of international trade introduces distinct issues in pass-through estimation. The unprecedented scale of the IEEPA tariffs introduced rapid, exogenous shocks that may have caused shifts in supply chain bargaining power and dynamic adjustments in sourcing. Understanding how to adapt traditional empirical frameworks to account for these shifts can be critical for measuring downstream impact accurately. At a high level, tariff pass-through can be broken down into two main components: border pass-through and retail pass-through.
Border pass-through refers to the pass-through of costs imposed by tariffs to the importers of record. Depending on the product, market dynamics, and competitive pressure, foreign exporters might absorb a portion of the tariff costs by lowering their pre-tariff export prices, meaning that a portion of the economic cost of the tariff may be borne by exporters.[15]
Retail pass-through refers to the pass-through of the costs imposed by the tariffs from the importers of record to downstream purchasers of intermediate and final goods. Determining exactly which products are impacted by IEEPA tariffs at the consumer level is further complicated by inventory lag: Because retailers may hold stock that was imported prior to the tariff’s implementation date, there may be a significant delay before the cost of the tariff actually materializes in the broader market. The research into retail pass-through has shown high variability in rates between products and industries. There is little consensus on exact rates other than that retail pass-through appears to be mostly incomplete, with estimated pass-through rates covering a wide range.[16]
Other Empirical Challenges in Estimating Pass-Through of IEEPA Tariff Duties
Empirically estimating the pass-through of IEEPA tariffs poses even more unique complexities for economists, including other changes in tariff policy, tariff avoidance, and confounding macroeconomic factors.
Other changes in tariff policy: The IEEPA was not the only mechanism by which tariffs were enacted. For example, other tariffs were imposed around the same time as the IEEPA tariffs, such as Section 232 steel and aluminum tariffs and Section 301 China tariffs.[17] U.S. industries that rely on intermediate inputs subject to these tariffs may have experienced cost increases, which in turn may have influenced their pricing decisions. Economists would have to disentangle cost increases due to IEEPA tariffs from these other tariffs to assess their impact. For example, the U.S. automotive industry relies on imported parts that are subject to Section 232 and 301 tariffs, rules of origin requirements, and IEEPA tariffs, all of which impose separate costs that may be passed on to consumers.[18]
Tariff avoidance: Firms may engage in behavior that mitigates the high costs of IEEPA tariffs but increases costs for other reasons. IEEPA tariffs are country specific and vary widely, which may lead to diversion of sourcing to lower-tariff countries.[19] However, such production shifting may increase production or shipping costs. For example, Apple has started to move its iPhone production from China to India, which has relatively lower tariffs but may have higher labor and production costs.[20] Researchers will need to consider how much of price increases are due to tariffs versus increases in production and sourcing costs.
Confounding macroeconomic factors: Any evaluation of pass-through from IEEPA tariffs must account for shifting macroeconomic conditions to isolate the impact of the tariffs. For example, price changes due to tariffs must be untangled from global inflationary pressures and fluctuating exchange rates. Furthermore, the analysis must appropriately account for any concurrent policy interventions occurring in either the products’ country of origin or the U.S. to ensure an accurate assessment of price dynamics.
Conclusion
Across general academic research, litigation, and trade-specific analyses, the extent of pass-through is not clear and highly depends on specific circumstances. Pass-through issues will likely present a challenge to a class-wide approach in “double recovery” litigation.
The views expressed herein are those of the authors and do not necessarily reflect the views of Cornerstone Research.
Learning Res. Inc. v. Trump, No. 24-1287 (U.S. Feb. 20, 2026); Exec. Order No. 14257 (Apr. 2, 2025) (“Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits”). ↑
Atmus Filtration Inc. v. United States, No. 26-01259 (Ct. Int’l Trade Mar. 4, 2026); Goodyear Tire & Rubber Co. v. U.S. Customs & Border Prot., No. 25-00498 (Ct. Int’l Trade Dec. 10, 2025); Costco Wholesale Corp. v. U.S. Customs & Border Prot., No. 25-00316 (Ct. Int’l Trade Nov. 28, 2025). ↑
Cavallo et al. found mixed evidence of retail pass-through of the 2018 tariffs across countries and products, including brand-level heterogeneity. Alberto Cavallo et al., Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy, 3 Am. Econ. Rev.: Insights 19 (2021). Ganapati et al. found that 70 percent of energy input cost increases in the U.S. manufacturing industry are passed through to consumers. Sharat Ganapati, Joseph Sharpiro & Reed Walker, Energy Cost Pass-Through in U.S. Manufacturing: Estimates and Implications for Carbon Taxes, 12 Am. Econ. J.: Applied Econ. 303 (2020). Lillard and Sfekas found cigarette prices increased by more than the sum of federal and state taxes and escrow payments. Dean R. Lillard & Andrew Sfekas, Just Passing Through: The Effect of the Master Settlement Agreement on Estimated Cigarette Tax Price Pass-Through, 20 Applied Econ. Letters 353 (2013). ↑
Cavallo et al. found pass-through rates of the 2025 tariffs to be between 14 and 20 percent. Alberto Cavallo, Paola Llamas & Franco Vazquez, Tracking the Short-Run Price Impact of U.S. Tariffs (Nat’l Bureau of Econ. Rsch., Working Paper No. 34496, 2025). Flaaen et al. found tariff pass-through to consumers from wine tariffs to be over 100 percent. Aaron Flaaen et al., Who Pays for Tariffs Along the Supply Chain? Evidence from European Wine Tariffs (Nat’l Bureau of Econ. Rsch., Working Paper No. 34392, 2026). ↑
In re Graphics Processing Units Antitrust Litig., 253 F.R.D. 478 (N.D. Cal. 2008); In re Flash Memory Antitrust Litig., No. C 07-0086 SBA (N.D. Cal. June 9, 2010); see also Rachel Slajda, 9th Circ. Nixes Cert. Appeal in Toshiba Antitrust Action, Law360 (June 30, 2011). ↑
In re TFT-LCD (Flat Panel) Antitrust Litig., 935 F. Supp. 2d 1107 (N.D. Cal. Mar. 29, 2013) (MDL No. 1827). ↑
See, e.g., Lillard & Sfekas, supra note 3; E. Glen Weyl & Michal Fabinger, Pass-Through as an Economic Tool: Principles of Incidence Under Imperfect Competition, 121 J. Pol. Econ. 528 (2013). ↑
Rubens found evidence of a monopsonistic Chinese tobacco market and cited to other examples of vertically structured industries with buyer power, like book publishing and beef processing in the U.S. Michael Rubens, Market Structure, Oligopsony Power and Productivity, 13 Am. Econ. Rev. 2382 (Sept. 2023). ↑
Weyl and Fabinger showed that the pass-through rate is determined by the relative elasticity of supply and demand, where higher elasticity of demand would lead to a decrease in pass-through. Weyl and Fabinger, supra note 8. ↑
See, e.g., Justin McCrary & Daniel L. Rubinfeld, Measuring Benchmark Damages in Antitrust Litigation, 3 J. Econometric Methods 63 (2014); Daniel L. Rubinfeld, Quantitative Methods in Antitrust, inIssues in Competition Law and Policy 723 (ABA Section of Antitrust Law 2008). ↑
World Trade Org., supra note 7. The U.S. International Trade Commission uses similar models to quantify the impact of trade policies in fact-finding investigations for the executive branch and Congress. SeeU.S. Int’l Trade Comm’n, USMCA Automotive Rules of Origin, supra note 7; U.S. Int’l Trade Comm’n, Rice: Global Competitiveness, supra note 7. ↑
Amiti et al. found that border pass-through rates of the 2025 U.S. tariffs average between 86 and 94 percent, depending on the time period. Mary Amiti et al., Who Is Paying for the 2025 U.S. Tariffs?, Liberty St. Econ. (Feb. 12, 2026). Gopinath and Neiman similarly found pass-through rates of the 2025 U.S. tariffs to be between 80 and 100 percent. Gita Gopinath & Brent Neiman, The Incidence of Tariffs: Rates and Reality (Nat’l Bureau of Econ. Rsch., Working Paper No. 34620, 2026). ↑
Cavallo et al. found average pass-through rates of the 2025 tariffs to be between 14 and 20 percent. See Cavallo et al., supra note 4. Flaaen et al. found tariff pass-through to consumers from wine tariffs to be over 100 percent. See Flaaen et al., supra note 4. ↑
U.S. Int’l Trade Comm’n, USMCA Automotive Rules of Origin, supra note 7. ↑
Aaron Flaaen, Ali Hortaçsu & Felix Tintelnot, The Production Relocation and Price Effects of US Trade Policy: The Case of Washing Machines, 110 Am. Econ. Rev. 2103 (2020). ↑
Cell phone location data and location history are usually turned on by most cell phone users. In a recent U.S. Supreme Court decision, the Court considered how the Fourth Amendment applies to a geofence warrant requesting cell site location information (“CSLI,” i.e., cell phone location data and location history).
In its June 29, 2026, decision in Chatrie v. United States, the Court commented on the ubiquitousness of cell phones: “Modern cell phones, we observed a dozen years ago, are ‘such a pervasive and insistent part of daily life that the proverbial visitor from Mars might conclude they were an important feature of human anatomy.’”[1] These mobile technological wonders (which many people take for granted because of how they have become so integrated into their daily lives) collect and store a tremendous amount of detailed information about their owners’ lives. Some of that information is stored locally on the phone, and some in the “cloud” (e.g., the remote physical servers owned by the provider(s) of the location service functionality).
There are a lot of good reasons why most users activate location data and location history on their cell phones. This includes, without limitation, use of location-based functionalities on the phone such as using mapping/directions services, real-time updates on your daily commute, relevant location information of services near your location, and awareness of the location of loved ones who have consented to your knowing their location.
In Chatrie, local police in Virginia were trying to solve a crime involving a man robbing a credit union. As described in the syllabus, the police “learned from witness interviews and surveillance footage that the robber had approached the credit union from a corner of an adjacent church while appearing to talk on a cell phone, but they could not find out anything more, and the robber remained at large.”[2] The police applied to the local court for a geofence warrant directed to Google requesting CSLI within a certain radius of the credit union (the geofence) that Google collects through its Location History service, and described a three-step process that the police would follow: “[S]tep one, Google would produce anonymized location data for all cell phones within the geofence 30 minutes before to 30 minutes after the robbery; at step two, officers would attempt to narrow the list, and Google would provide additional anonymized data for that narrowed list, consisting of cell-phone locations both inside and outside the geofence during a two-hour period surrounding the robbery; and at step three, officers would further narrow the list, and Google would turn over identifying information, including names and phone numbers, for users on the final list.”[3] Based on that process, the federal government charged Okello Chatrie, petitioner, one of the individuals identified through that process, with committing the crime.
The Court was asked to consider whether the Fourth Amendment applied to (1) the use of a geofence warrant as described in the Court’s decision and, if so, (2) whether the search was reasonable given the features of the warrant they employed. The Court answered the first part of the question by holding that the police conducted a search when they gained access to Location History data, stating, “An individual has a reasonable expectation of privacy in records about his cell phone’s location, and police intrude on that constitutionally protected interest when they demand the information—even though for only a limited time, and from a third-party tech company.”[4] The Court stated further “The Fourth Amendment applies, too, when officials tap into Google’s ‘database of physical location information.’ Ibid. That database is new, but the principle covering it is not: That principle is instead the one our history has given.”[5] For the second part of the question (whether the search was reasonable given the warrant issued), the Court remanded to the Court of Appeals to determine whether the warrant issued and each of its steps were properly described with particularity and found to be supported by probable cause.
The bottom line is that the Fourth Amendment protects “against unjustified governmental intrusion on the privacy of the individual.”[6] The determination as to whether the search is reasonable depends on the facts. Nevertheless, the individual cell phone owner should read the fine print of agreements pertaining to cell phone location data and location history and knowingly exercise their freedom to choose whether to turn on or off that (and any other) cell phone functionality.
Chatrie v. United States, No. 25-112, 2026 U.S. LEXIS 2878 (U.S. June 29, 2026) (citing Riley v. California, 573 U.S. 373, 385 (2014)). ↑
The fiduciary duties of the board of directors form the cornerstone of corporate governance in the United States and most common-law jurisdictions. These duties are primarily comprised of the duty of care, the duty of loyalty, and, increasingly, the duty of good faith. Directors are legally obligated to act in the best interests of the corporation and its shareholders, exercising their responsibilities with diligence, prudence, and integrity. The legal framework governing these duties is largely shaped by state corporate statutes—most notably the Delaware General Corporation Law (“DGCL”)—and an evolving body of case law that interprets and enforces these obligations.
Duty of Care
The duty of care requires directors to make informed decisions after reasonable inquiry, relying on adequate information and deliberation. Courts typically apply the “business judgment rule,” which presumes that directors acted in good faith and in the best interests of the corporation unless there is evidence of gross negligence or misconduct. Directors are expected to stay apprised of material facts, consult with experts when necessary, and actively participate in board meetings. Failure to meet the duty of care can result in personal liability if harm to the corporation or its shareholders occurs as a result.
Duty of Loyalty
The duty of loyalty obligates directors to place the corporation’s interests above their own personal interests, avoiding conflicts of interest and self-dealing. Directors must disclose any potential conflicts and recuse themselves from decisions where their impartiality may be compromised. Breaches of the duty of loyalty are treated seriously by courts, often resulting in heightened scrutiny and potential liability. The duty of loyalty has been extended to encompass not only direct conflicts but also situations where directors may be influenced by relationships or affiliations that could impair their independent judgment.
Duty of Good Faith
Although often considered a subset of the duty of loyalty, the duty of good faith has emerged as a distinct fiduciary obligation. Directors must act with honesty and integrity, eschewing actions taken with improper motives or intent to harm the corporation. Courts have held that intentional dereliction of duty or conscious disregard for responsibilities can constitute a breach of good faith, giving rise to liability even in the absence of self-interest or negligence.
Balancing Risk, Reputation, and Long-Term Value
Modern corporate governance increasingly demands that boards of directors balance risk management, reputational concerns, and the pursuit of long-term value. Directors are expected to implement robust risk oversight mechanisms, identify and mitigate material risks, and foster a culture of compliance throughout the organization. This includes financial, operational, regulatory, cyber, and environmental risks, among others. The board’s role is not to eliminate risk but to ensure that risk-taking aligns with the corporation’s strategic objectives and risk appetite.
Reputation management has become a critical component of fiduciary duty, as public perception and stakeholder expectations can significantly impact corporate value. Directors must monitor and respond to reputational threats, including those posed by social, environmental, and governance (“ESG”) issues. Effective communication, ethical conduct, and responsiveness to stakeholder concerns are essential to safeguarding the corporation’s reputation and sustaining trust in the marketplace.
The pursuit of long-term value requires directors to look beyond short-term financial performance and consider the sustainability of corporate practices. This involves integrating ESG factors into decision-making, assessing the impact of corporate actions on employees, communities, and the environment, and promoting innovation and adaptability. Courts have recognized that boards may legitimately consider long-term interests and broader stakeholder impacts, so long as these considerations ultimately serve the best interests of the corporation and its shareholders.
Legal Trends and Practical Guidance
Recent legal developments emphasize the importance of board oversight and proactive engagement. Directors are increasingly held accountable for failures in risk oversight, particularly in areas such as cybersecurity, regulatory compliance, and crisis management. Shareholder activism and litigation have expanded the scope of potential liability, making it imperative for boards to document their decision-making processes, seek expert advice where appropriate, and maintain transparent communication with stakeholders.
In practice, boards should regularly review and update governance policies, establish clear protocols for managing conflicts of interest, and ensure that directors possess the necessary expertise and independence. Training and education on fiduciary duties, risk management, and evolving legal standards can help directors fulfill their obligations and adapt to changing expectations. Ultimately, balancing risk, reputation, and long-term value is a dynamic process that requires vigilance, integrity, and a commitment to ethical leadership.
This article is related to a CLE program that took place during the ABA Business Law Section’s 2026 Spring Meeting. To learn more about this topic, listen to a recording of the program, free for members.
The views and opinions expressed in this article are solely the author’s own and are presented in the author’s personal capacity. They do not necessarily reflect the views, positions, or policies of the author’s employer or any organization with which the author is affiliated.
Sources
Del. Code Online, tit. 8, § 141 (Board of directors; powers; number, qualifications, terms and quorum).
In a ruling handed down on November 26, 2025,[1] the Commercial Chamber of the French Cour de Cassation (Supreme Court for Judicial Matters) held that an abuse of power (abus de pouvoir) by a corporation’s board of directors may result in the board’s decisions being declared null and void. Although it did not find that such an abuse of power was established in the case before it, the French supreme court nevertheless formally recognized a new ground for nullity in corporate law. This development aligns with the well-established principle of corporate veil and serves as a reminder that the company’s interest must always guide decision-making within corporations.
Case Facts
A French société anonyme (public limited liability company) operated a casino under a public service delegation agreement and owned the buildings in which the casino was located. As the agreement was coming to an end, the company’s board of directors concluded that the corporation faced a risk of losing the buildings, as they could potentially be classified as “reversion assets” belonging to the public domain. To mitigate this risk, the board decided to separate ownership of the real estate from the operation of the casino. Acting on this decision, the company did not apply for renewal of the service contract for the casino and instead leased the premises to a newly incorporated “sister” company specially set up by the majority shareholder, which was subsequently awarded the new public service delegation by the municipality.
Minority shareholders contended that the board’s decision effectively caused the corporation to relinquish a profitable line of business in favor of a newly formed entity controlled exclusively by the majority shareholder. On this basis, they initiated litigation against the corporation and its controlling shareholder, seeking annulment of the corporate decision and related agreements on the ground of abuse of majority power.
Statement of Principle
The court set forth the following principle:
[I]n accordance with Article 1833 of the French Civil Code, a decision of the board of directors of a limited company may be declared null and void for abuse of power only if it is demonstrated that such decision is contrary to the company’s interests and was taken for the exclusive benefit of members of the board of directors or any other specific person, in particular shareholders. The existence of an abuse of power is assessed as of the date on which the challenged decision was made.[2]
In this case, the Commercial Chamber dismissed the appeal, declining to find that abuse of power had occurred. Even though the restructuring adopted by the board resulted in lower corporate profits and benefited the controlling shareholder, it was not demonstrated that the decision was contrary to the corporation’s interest, since it enabled the company to protect a strategic asset.
Scope of the Ruling
This ruling establishes a new ground for declaring corporate decisions null and void. The scope of the ruling extends beyond the mere board of directors of the French société anonyme. The broadened reach of the abuse-of-power doctrine therefore calls for heightened vigilance from corporate managers and their advisers, including where decision-making rules are governed by shareholder agreements or voting agreements. However, the concept remains difficult to establish in practice, as the case at hand illustrates. While the court’s confirmation that an abuse of power may give rise to nullity is unsurprising, the decision raises significant questions, particularly in light of the recent legislative reform governing the nullity of corporate decisions under French law.
Definition of Abuse of Power in a Board of Directors: Substantive Conditions and Terminology
In this ruling, the Cour de Cassation draws on terminology from criminal law[3] to establish a new concept, as evidenced by the extensive publicity given to its decision. The ruling’s statement of principle clearly sets out two cumulative conditions for a board decision to be characterized as abusive. The decision must be
contrary to the corporation’s interest (intérêt social); and
taken for the exclusive benefit of certain persons, such as directors or shareholders.
This definition is close to that of the concept of abuse of majority power (abus de majorité), though it is not identical.
Abuse of Majority Power
In the well-known principle laid down in the judgment of April 18, 1961,[4] the court defined the conditions required to characterize an abuse of majority power: a decision taken (i) for the exclusive benefit of the majority shareholder, (ii) to the detriment of the company’s interest.
In the past, French case law has used the concept of abuse of majority power to examine decisions made by a board of directors,[5] or even by a noncollegial body such as a managing partner,[6] and determine whether such decisions should be declared null and void.
In substance, the conditions for abuse of power closely parallel those of abuse of majority power. It should be noted that the claimants actually brought their case on the basis of an alleged abuse of majority power.
Abuse of Power: Clarifying the Terminology
The terminological distinction between abuse of majority power (abus de majorité) and abuse of power (abus de pouvoir) reflects the need to differentiate between decisions made by a board of directors and decisions made by shareholders. Accordingly, abuse of power refers to a decision taken in the interests of “specific persons,” with board members cited first among them.
As stated in the explanatory note to the judgment, directors “are not, legally speaking, the representatives of the shareholders who appointed them”;[7] they must exercise their mandate in the interests of the company and not in the interests of shareholders,[8] with the legal entity acting as a buffer between the board and the shareholders.
Beyond a terminological clarification, the court appears to confirm the view that directors are vested with a specific “power,” the abuse of which may lead to judicial sanction.[9]
Date of Assessment of the Abuse of Power
The court further clarifies that the abuse of power is assessed as of the date on which the challenged decision was made. This distinction is significant because it precludes the court from considering the actual consequences of the alleged abusive decision when determining whether an abuse of power occurred.
The Broad Scope of Abuse of Power: Vigilance Needed
Applicability to Other Corporate Forms
The ruling was rendered in relation to decisions made by the board of directors of a société anonyme. However, the court’s decision to provide extensive publicity for the judgment suggests that its scope may go beyond this specific context. Substantively, the reference to Article 1833 of the French Civil Code, a provision falling under the section known as “common corporate law,” reinforces the idea that the ruling on abuse of power could apply to all types of corporations.[10]
Extending Abuse of Power to Other Corporate Bodies
This shift from abuse in the exercise of a shareholder’s voting rights to abuse in the exercise of powers attached to a corporate function suggests that abuse of power could extend to all corporate bodies, whether collegial or not. Accordingly, it could apply to the decisions made by the president of a simplified joint stock company (société par actions simplifiée) or the manager of a limited liability company (société à responsabilité limitée).
Ultimately, abuse relates to the exercise of power by any corporate officer, regardless of the legal form of the corporation.
Abuse of Power: No Contractual Avoidance
The likely mandatory nature of this prohibition should serve as a warning to practitioners. Indeed, nothing appears to allow directors, or the shareholders who appoint them, to contractually shield themselves from the risk of a decision being characterized as an abuse of power. This is particularly relevant to shareholder agreements, which often reserve special rights for certain shareholders within management bodies, such as the boards or committees of sociétés par actions simplifiées, whose functions are similar to those of the board of directors of a société anonyme. It is also relevant to individual commitments, voting agreements, etc.
As such, it appears that the contractual agreements among shareholders, whose primary purpose is to protect the company itself, may not prevent a decision from being challenged as an abuse of power. A corporate decision may be challenged on the grounds of abuse of power if it meets both required conditions, even if it complies with the provisions of a shareholder agreement.
Challenges in Establishing the Concept on the Merits
Judicial Reluctance to Recognize Abuse of Majority Power
An examination of case law shows that it is rare for courts to find abuse of majority power[11] and to declare corporate decisions of a shareholder’s meeting null and void on that basis. This reluctance can be explained by the principle that judges should not interfere in the natural affairs of a company. Considering that this case addresses the validity of a decision by a management body (rather than a general meeting), one could expect even greater judicial caution.
The case at hand illustrates precisely the difficulty plaintiffs face in having abuse recognized in the context of a decision adopted by a director.
In this case, the contemplated restructuring involved ending the direct operation of the casino by the corporation that owned the premises—due to the risk to the real estate ownership—and entrusting the operation to a corporation wholly owned by the majority shareholder. The project, which was adopted by the board of directors within the framework of related party transactions, was clearly in the interests of the controlling shareholder. However, its objective was to preserve the company’s strategic real estate assets. Therefore, in the eyes of the judges, abuse of power was not established as the decision did not go against the company’s interests.
Practical Challenge: Should Any Reference to a Majority Be Abandoned?
Through its choice of the term abuse of power, the Cour de Cassation shifted the focus away from the notion of a majority and toward the exercise of an individual director’s prerogatives. In this case, it was the misuse of these prerogatives that the court sought to sanction.
Does this mean that reference to a majority is no longer necessary? That does not appear to be the case since, without the support of a majority, a collective body cannot adopt a resolution. The question of calculating a majority therefore remains in practice when assessing abuse of power. For the purpose of this calculation, the court appears to apply an individualized vote-counting approach, i.e., one vote per director.
Yet, it is legitimate to consider the board’s specific composition. For example, how should the majority of votes be calculated on a board composed partly of independent directors and/or of employee representatives? And what if the directors were pursuing their own separate interests while adopting the same resolution?
Defining the Scope of Nullity
A New Ground for Nullity Without a Statutory Basis
While rejecting the plaintiff’s arguments, the judges affirmed that a decision taken by company directors or officers could be declared null and void where an abuse of power is established. This outcome comes as no surprise, as it is consistent with prior case law related to abuse of majority power.[12] In both cases, the decision may be declared null and void without a specific statutory provision.
Abuse of Power and Reform of the Rules Governing Nullity
Although the decision was rendered under the legal framework in force prior to the entry into force of Order No. 2025-229 of March 12, 2025, which reformed the rules governing nullity of corporate decisions, nothing appears to prevent the sanction from being applied to corporate decisions under the new regime.
That said, applying the “triple test” under Article 1844-12-1 of the French Civil Code regarding the nullity of a corporate decision challenged for abuse of power raises legitimate questions:
In its preliminary review of an alleged abuse of power, the judge will have to verify, in particular, that “the consequences of nullity for the company’s interests are not excessive, as of the date of the ruling, compared to the harm to the interests it is meant to protect.”[13] Where abuse of power is established, could the judge refuse to declare the decision null and void, on the grounds that doing so would disproportionately harm the company’s interests at the time the sanction is pronounced, even though the challenged decision itself impaired those very interests at the time it was taken?
What about chains of nullities? Could a judge limit the effects of the nullity of a decision for abuse of power, in accordance with the discretionary power granted under Order No. 2025-229 of March 12, 2025?
Irrespective of how these questions may ultimately be settled by future case law, directors and officers are bound to ensure that their decisions are made solely in the interest of the company, without favoring any third party, be it shareholders or directors. The corporate interest must remain the abiding compass guiding all decision-making within the company.
The term abuse of power is not new as such. It is used to refer to several criminal offenses, including those attributable to company directors who, “in bad faith, make use of the powers they possess or the votes they hold in that capacity in a manner they know to be contrary to the interests of the company, for personal gain or to benefit another company or undertaking in which they have a direct or indirect interest.” Code de commerce [C. com.] [Commercial Code] art. L. 242-6 (Fr.). ↑
Cass. com., Apr. 18, 1961, Bull. civ. III, No. 175. The principle states that “there is abuse of majority when a resolution has been taken contrary to the general interest and with the sole aim of favoring the members of the majority to the detriment of those of the minority.” ↑
For an example of refusal to annul a board decision on the grounds of abuse of majority, see Cass. com., Feb. 24, 1975, No. 73-14.141. ↑
According to established doctrine, the prerogatives granted to company directors are based on authority whose misuse must be sanctioned. See, in this regard, Gérard Cornu, Preface to Emmanuel Gaillard, Le pouvoir en droit privé (Economica 1985). ↑
In this regard, see B. Dondero, Note on Cass. com., Nov. 26, 2025, No. 23-23363, JCP E 2025, 1345, FS-BR. ↑
See, for example, the refusal to characterize an abuse of majority power in the case of a merger. Cass. com., June 3, 2003, No. 99-18707. ↑
Nullity confirmed in the context of abuse of majority power in relation to compulsory distribution of profits. See Cass. 3e civ., Feb. 7, 2012, No. 10-17.812, F-D. ↑
This article examines a rapidly emerging wave of litigation targeting data centers on environmental, land use, nuisance, tort, and civil rights grounds and the mass tort, personal injury, and property damage claims likely to follow.
Background
The AI boom has fueled an unprecedented expansion of data centers—particularly “hyperscalers” consuming over one hundred megawatts of continuous power. As these facilities proliferate, they have drawn opposition from local residents, environmental groups, and the “Not In My Backyard” (“NIMBY”) movement, which has begun organizing community groups specifically to oppose data center development.[1] The result is a new and growing class of litigation bringing environmental, land use, nuisance, tort, and civil rights claims against data center projects.
Current Litigation Landscape
Since late 2024, lawsuits challenging data center development have increased across the country. The claims generally fall into four categories: zoning and environmental review challenges, transparency and open-records claims, nuisance and property damage claims, and Clean Air Act and emissions claims.
Zoning and Environmental Review Challenges
Beginning with Coalition for Responsible Data Center Development v. City of Farmington (December 2024), communities have challenged the approvals of data center construction.[2] The Minnesota Center for Environmental Advocacy alone filed four separate actions in 2025 alleging cities bypassed mandatory environmental review.[3] Similar zoning challenges have since been filed in California, West Virginia, New York, South Carolina, Georgia, North Carolina, and Kentucky, collectively targeting facilities ranging from 147 acres to 1,845 acres.[4]
Transparency and Open-Records Claims
A separate line of cases targets the alleged secrecy surrounding data center approvals. In Wisconsin, Midwest Environmental Advocates sued the Public Service Commission for refusing to disclose electrical load data for Meta’s AI campus.[5] In Missouri, residents filed a twelve-count Sunshine Law complaint alleging that city officials held private briefings and released a twenty-nine-page development agreement on a Friday for a vote the following Monday.[6]
Nuisance and Property Damage Claims
Post-construction claims have also emerged. In Newsom & Central VA Marine v. Amazon Data Services, plaintiffs allege that an Amazon data center caused brown water, diminished air quality, excessive noise, and constant blue light flashes.[7] In Oregon, Amazon paid $20.5 million to settle a class action alleging nitrate contamination of a county’s sole drinking water source.[8]
Clean Air Act and Emissions Claims
In a landmark April 2026 case, the Southern Environmental Law Center filed a Clean Air Act citizen suit on behalf of the NAACP against Elon Musk’s xAI, alleging that twenty-seven unpermitted gas turbines powering its Memphis-area data center have the potential to emit over 1,700 tons of nitrogen oxides, 19 tons of formaldehyde, and 180 tons of fine particulate matter annually—in an area already graded “F” for ozone pollution. The NAACP seeks injunctive relief and civil penalties of up to $124,426 per day of violation.[9]
Future Litigation Risks
Data center litigation is still in its infancy, but the claims are likely to escalate. Plaintiffs will almost certainly bring noise and light pollution claims—some residents near data centers claim a pervasive “high-pitched whine” that deters them from going outside.[10] Health-related personal injury claims are also probable, as some research links chronic noise and light exposure to hearing loss, insomnia, and diminished quality of life.[11] Nuisance, mass tort, and class action claims alleging personal injury, property damage, and/or natural resource damages from land temperature increases and contamination of surface water and groundwater from cooling water discharge represent a significant emerging risk.[12] Some research indicates that data center cooling-tower discharge may contain concentrated salts, corrosion inhibitors, biocides, heavy metals, and potentially per- and polyfluoroalkyl substances (“PFAS”). A separate study using NASA satellite data found that data centers may raise surrounding land temperatures by an average of 3.6°F—with extreme cases reaching 16.4°F—affecting over 340 million people globally.[13]
Economic harm claims—driven by the increased electricity and water demand that data centers impose on local infrastructure—are also likely to follow, with one report projecting $225 in additional annual electric costs per household in affected communities.[14] Given these increased costs, plaintiffs are likely to bring claims under utility statutes,[15] or under consumer protection statutes alleging unfair trade practices through shifting of infrastructure costs to ordinary customers.[16] A recent complaint filed before the Federal Energy Regulatory Commission (“FERC”) alleging that data centers unjustly shift electricity costs to consumers is an early indicator of the nature of these potential claims.[17]
Complaint ¶ 35, Coal. for Responsible Data Ctr. Dev. v. City of Farmington, No. 19HA-CV-24-5838 (Minn. Dist. Ct., Dakota Cnty. filed Nov. 29, 2024); Our Story, Coal. for Responsible Data Ctr. Dev. (last visited Mar. 17, 2026). ↑
Complaint, Minn. Ctr. for Env’t Advoc. v. City of Hermantown, No. 69DU‑CV‑25‑3448 (Minn. Dist. Ct., St. Louis Cnty. filed Nov. 5, 2025); Complaint, Minn. Ctr. for Env’t Advoc. v. City of Pine Island, No. 25-CV-25-2298 (Minn. Dist. Ct., Goodhue Cnty. filed Oct. 16, 2025); Complaint, Minn. Ctr. for Env’t Advoc. v. City of Lakeville, No. 19HA‑CV‑25‑5103 (Minn. Dist. Ct., Dakota Cnty. filed Aug. 5, 2025); Complaint, Minn. Ctr. for Env’t Advoc. v. City of North Mankato, No. 52‑CV‑25‑568 (Minn. Dist. Ct., Nicollet Cnty. filed Aug. 5, 2025). ↑
City of Imperial v. County of Imperial, No. ECU-004457 (Cal. Sup. Ct. filed Dec. 4, 2025); Hatfield v. TransGas Dev. Sys., LLC, No. 3:25-cv-00714 (S.D. W. Va. filed Dec. 3, 2025); In re FLX Strong v. Town of Lansing Zoning Bd. of Appeals, Index No. EF2026-0069 (N.Y. Sup. Ct., Tompkins Cnty. filed Jan. 29, 2026); Crosby v. Colleton County, No. 2026CP1500021 (S.C. Ct. C.P. filed Jan. 9, 2026); Guido v. Columbia Cnty. Bd. of Comm’rs, No. 2026ECV0297 (Ga. Super. Ct., Columbia Cnty. filed Feb. 25, 2026); Guido v. Columbia Cnty. Bd. of Comm’rs, No. 2026ECV0298 (Ga. Super. Ct., Columbia Cnty. filed Feb. 25, 2026); Hairston Clan v. Stokes Cnty., No. 26CV000198-840 (N.C. Super. Ct., Stokes Cnty. filed Mar. 12, 2026); Franklin Citizens for Responsible Dev. v. City of Franklin Planning & Zoning Comm’n, No. 26-CI-00123 (Ky. Cir. Ct. filed Apr. 2, 2026). ↑
Complaint, Midwest Env’t Advocs., Inc. v. Wis. Pub. Serv. Comm’n, No. 2025-cv-004023 (Wis. Cir. Ct. filed Dec. 9, 2025). ↑
Petition, State of Missouri ex rel. Wake Up Jeffco, LLC v. City of Festus, No. 26SL-CC03024 (Mo. Cir. Ct. filed Apr. 8, 2026). ↑
Complaint, Newsom & Cent. VA Marine v. Amazon Data Servs., Inc., No. 3:25‑cv‑00074 (W.D. Va. filed Sept. 15, 2025). ↑
For example, claims could be brought under Texas Senate Bill 6, California Senate Bill 57, or Oregon’s POWER Act, among others. ↑
See, e.g., 815 Ill. Comp. Stat. 505; Cal. Bus. & Prof. Code § 17200. ↑
Complaint, Md. Off. of People’s Couns. v. PJM Interconnection, L.L.C., FERC Docket No. EL26-63-000 (filed May 7, 2026) (“PJM’s hybrid methodology broadly socializes to all customers costs that data centers, not existing customers, are driving. That result is unjust and unreasonable and violates the cost causation principles that have long governed transmission cost allocation and that this Commission has repeatedly affirmed.”). ↑
There has been a significant change in the laws governing how farms may be owned and operated. The “how” and “why” are somewhat involved, so bear with us as we explain why reorganizing those properties and operations into limited liability companies (“LLCs”), limited partnerships, or S corporations should now be considered.
Agricultural Real Estate Ownership Issues
There are a variety of issues that must be considered in connection with the ownership and operation of agricultural real estate. Certain states impose limitations on the ownership of agricultural real estate. For example, South Dakota has adopted policies against the ownership of agricultural land by corporations or LLCs, irrespective of whether domestic or foreign,[1] and states such as Iowa have adopted integrated statutes as to “family farms.”[2] Other states have adopted laws that preclude ownership of real estate, agricultural or otherwise, by business organizations that include a “foreign adversary.”[3] At the federal level, acquisitions and transfers of interests in “agricultural land”[4] by a “foreign person”[5] trigger certain reporting obligations,[6] with civil penalties for failure to do so.[7]
Practically speaking, it has been common to hold and operate agricultural real estate in partnership consequent to how certain farm support programs—namely, the Price Loss Coverage and the Agricultural Risk Coverage, each created by the Agricultural Act of 2014 (also known as the “2014 Farm Bill”)—have determined who can receive payments.[8] Until recently, each has provided for certain payments to each person “actively engaged in farming”; where a partnership was used, separate payments (now up to $155,000 per annum) could be made to each partner. However, where a farm was operated through a business entity such as a corporation or an LLC, there was no “look-through” to the natural persons who are themselves actively engaged in farming, and the entity would be treated as a single farmer.[9] This treatment had the effect of dissuading the operation of certain farming operations through business organizations that afford limited liability and, on particular facts, other benefits.
Changes Under the One Big Beautiful Bill Act
This treatment changed under the One Big Beautiful Bill Act (“OBBBA”), which at section 10306 created a new category of entity, a “qualified pass-through entity,” namely:
(A) a partnership . . . ;
(B) an S corporation . . . ;
(C) a limited liability company that does not affirmatively elect to be treated as a corporation; and
Payments made to a qualified pass-through entity shall not exceed, for each payment specified in subsections (b) and (c), the amount determined by multiplying the maximum payment amount specified in subsections (b) and (c) by the number of persons and legal entities (other than qualified pass-through entities) that comprise the ownership of the qualified pass-through entity.[11]
This provides a look-through of the qualified pass-through entity to those persons who are themselves “actively engaged in farming,”[12] equivalent to what had previously been reserved for partnerships and joint ventures.[13]
Regulations as to this change in the law were issued on June 2, 2026.[14] Therein it is provided:
Section 10306 of OBBBA amended Section 1001 of the Food Security Act of 1985 to provide equitable treatment of certain entities under the provisions for payment limitations. Payment limitations are the maximum amount that a person or legal entity can receive for any crop year, directly or indirectly, under certain CCC, FSA, and NRCS programs, and payments to legal entities are tracked (“attributed”) through four levels of ownership. Attribution of payments through four levels of ownership of legal entities is applied. When a legal entity is a payment applicant, then the entity itself (the “payment entity”) is attributed the full payment amount and all owners in the first three member levels are attributed an amount equal to their indirect ownership share in the payment entity. In this way, payments are limited to eligible participants comprising the payment entity and owners through the fourth level of ownership. Owners at the member level may be persons or other legal entities, including qualified pass-through entities.[15]
It would appear, although it is less than clear, that an LLC electing to be treated as an S corporation by filing a Form 2553 (Election by a Small Business Corporation),[16] which has the effect of electing into corporate classification even absent a Form 8832 (Entity Classification Election),[17] is not a qualified pass-through entity as contemplated by these rules. The qualified pass-through entity rules encompass “a limited liability company that does not affirmatively elect to be treated as a corporation,” and an LLC filing a Form 2553 does elect into treatment as a corporation. Yes, it is true that the intention is to be treated as a corporation under Subchapter S of the Internal Revenue Code, but Subchapter S is not “a corporation taxed as a partnership”; rather an S corporation is a tax corporation subject to the particular rules of Subchapter S, and, “[e]xcept as otherwise provided in this title, and except to the extent inconsistent with this subchapter, subchapter C shall apply to an S corporation and its shareholders.”[18] Ergo, it would appear that the inclusion of S corporations within the “qualified pass-through entity” category is limited to those organizations ab initio classified as corporations[19] that then elect into Subchapter S.
The Planning Opportunity
This change in the law represents a significant loosening of the effective limitations on owning and operating agricultural real estate as a limited partnership, an S corporation, or an LLC. For example, a farm may now be operated as a corporation or an LLC, thereby yielding the benefits of limited liability. Prior issues with respect to partition of property owned in joint tenancy or in partnership may not exist if held by a corporation, LLC, or limited partnership. Furthermore, in some circumstances, what was once a complex planning framework can evolve into a more streamlined model, lowering administrative costs and allowing farm operators and their advisers to focus less on entity-level compliance and more on core business activities.
As a result of this change in the law, there may be estate planning opportunities available for LLC- or corporate-owned farming operations that may have not previously been available. Every situation is different, and the business and tax laws at issue will need be considered before any reorganization is undertaken.
Starting with the 2026 crop year, for payment eligibility purposes, FSA will treat applicable limited liability companies (LLCs) and S-Corporations (S-Corps), and other similar entities, as “pass through entities.” Each member of the qualified pass-through entity who meets actively engaged in farming criteria will help qualify the entity for expanded payments.
Previously, farm operations that were structured as an LLC or an S-Corp were limited to a single payment limitation, which varies by program. Now, partnerships, S-Corps, qualifying LLCs, and joint ventures or general partnerships will be treated the same.
For program year 2026 only, farm operations that are structured as LLCs or S-Corps or one of the new qualified pass-through entities must file updated farm operating plans with FSA for program year 2026 by Sept. 15, 2026. After program year 2026, FSA will continue to use June 1 as the date for determining ownership interest in an entity. Producers who have crop insurance or Noninsured Crop Disaster Assistance Program coverage should contact their crop insurance agent or local FSA office before restructuring their farm operation to ensure appropriate timing for restructuring without impacting current insurance coverage.
Members of qualified pass-through entities must provide contributions and be engaged in farming for the entity to be considered actively engaged in farming.
An additional change allows members of all entity types to receive compensation for labor and management contributions and use the same contribution to qualify as “actively engaged in farming.” This update provides consistent treatment of member contributions across all entity types. ↑
Internal Revenue Serv., Form 8832; see alsoAbout Form 8832: Entity Classification Election, Internal Revenue Serv. (last visited July 9, 2026); Larry R. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 19:16 (June 2026). ↑
26 U.S.C. § 1371(a); Ribstein et al., supra note 17. ↑
This article is Part XIII 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.
It could simply be the Baader-Meinhof phenomenon (i.e., the “frequency illusion”), but I seem to be running into the implied covenant of good faith and fair dealing at every turn lately.[1] Indeed, in a recent Delaware Court of Chancery decision, Facilities Holdings, LLC v. ASM Global Parent, LLC,[2] an express version of the implied covenant was invoked via a standard boilerplate provision—the “further assurances clause.”
While further assurances clauses are generally used to obtain an additional document necessary to fully evidence a transfer of assets in connection with the closing of a sale and purchase transaction,[3] they are not necessarily limited to that purpose,[4] particularly when they appear in an agreement governing an ongoing relationship.
Further assurances clauses have generally been described as “catchall contract provision[s] by which a party, after making a precise commitment to perform in some manner, makes a vague, more general commitment to take other actions that are incidental to, and necessary for, the performance of the core commitment.”[5] While “[s]uch a provision does not create a new obligation,”[6] it may require parties to take additional actions that are consistent with the other express terms of the contract. One commentator has even described a further assurances clause as follows:
A further assurances provision is the exclamation point on the parties’ agreement. In the other parts of the agreement, the parties define their mutual objectives and detail their specific commitments to each other. By contrast, a further assurances provision is a general provision designed to require the parties to exercise a certain degree of effort to achieve the agreement’s overall objectives. It recognizes that parties do not and cannot contemplate and draft for every contingency. Thus, the further assurances provision serves as a gap filler and a back stop.[7]
If that sounds a bit like an express version of the implied covenant’s gap-filling function,[8] it should. One court has even suggested that “how other courts interpret the obligation to behave in good faith may suggest how a court should interpret the language contained in the Agreement’s further assurances clause.”[9]
In Facilities Holdings, the operator and lessee (“Operator”) of certain sports and entertainment venues entered into a concession agreement for each venue and a master agreement covering all venues with the vendor (“Vendor”), who was granted the right to be the exclusive food and beverage vendor at the venues. Each concession agreement provided that if the Operator was sold to a third party, the term would be extended by five years, subject to the approval of the landlord of the applicable venue.
When the Operator was sold to one of the Vendor’s competitors, the Vendor sought to extend the term of the concession agreements as contemplated by their express provisions. The Operator, however, claimed that the landlord of each venue had refused to approve the extension.
But the Vendor claimed “that behind closed doors, the Operator convinced the landlords to withhold consent so the Operator could replace the Vendor with affiliates of the new owner.”[10] The Vendor alleged that the concession agreements and the master agreement contained an implied covenant of good faith and fair dealing that required the Operator “not to intentionally undermine the landlord’s willingness to consent, such as by advocating that the landlord withhold its consent.”[11]
The Vendor did not suggest that the implied covenant required the Operator “to use affirmative efforts to obtain landlord consent.”[12]
The Vendor claimed, however, that the Operator had breached the express terms of the further assurances clause. That clause (labeled as a “Further Action Provision”) stated:
Subject to the terms and conditions provided in this Agreement, following the date hereof each of the parties shall, as and when requested by another party hereto, execute and deliver, or cause to be executed and delivered, such further certificates, instruments and other documents, and to take, or cause to be taken, such further actions, as may be necessary, proper or advisable under applicable law to evidence and effectuate the transactions contemplated by this Agreement.[13]
Unlike the implied covenant claim, the further assurances claim suggested the Operator had an affirmative obligation to assist the Vendor in obtaining the landlord’s consent.
The Delaware Court of Chancery denied the Operator’s motion to dismiss both claims:
Here, an obligation to “take, or cause to be taken, such further actions, as may be necessary, proper or advisable under applicable law to . . . effectuate the transactions contemplated by this Agreement” required that the Operator provided some level of support for the Vendor in obtaining landlord consent for its extension request. The Further Action Provision did not permit the Operator to seek to convince or induce a landlord to withhold its consent.
For the same reasons that it is reasonably conceivable that the [Operator] breached the implied covenant, it is reasonably conceivable that the [Operator] breached the Further Action Provision. The former only required neutrality and non-harm, yet the Complaint supports an inference that the Operator breached that obligation by engaging in harmful conduct. The Further Action Provision requires affirmative support, so the same alleged conduct supports a breach of that provision.[14]
There can be both peril and delight in contract boilerplate.[15] And it is a transactional lawyer’s job to identify both, preferably at the time of contracting:
Transactional lawyers are not, and should never become, mere “document processors.” They should not be merely filling in the blanks. And boilerplate is not sacred text that must remain unchanged for fear of altering some established meaning. . . . After all, the form doesn’t know anything, but the transactional lawyer must.[16]
Read and understand the potential impact of the seemingly innocuous further assurances clause. Regardless of how they are labeled, such clauses may contain more than is typical. Note that the clause in this case required not only the execution of documents to “evidence” the transactions contemplated by the agreement but also “actions” necessary to “effectuate” those transactions.
Facilities Holdings, LLC v. ASM Glob. Parent, LLC, No. CV 2025-0670-JTL, 2026 WL 1815842 (Del. Ch. June 24, 2026). ↑
And they can be specific or general. See, e.g., Stock and Asset Purchase Agreement by and Among Exodus Movement, Inc., Baanx Corp., W3C Corp., and Garth Howat § 5.04(a) (May 1, 2026) (“Following the Closing, each of the parties hereto shall, and shall cause their respective affiliates to (to the extent such party is legally able to direct such action, or shall otherwise instruct), execute and deliver such additional documents, instruments, conveyances, and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the other Transaction Documents. Without limitation to the foregoing, at and after the Closing, and without further consideration thereof, Seller shall execute and deliver to Buyer such further instruments and certificates as shall be necessary to vest, perfect or confirm ownership (of record or otherwise) in Buyer or its designees, Seller’s right, title or interest in, to or under any of the Purchased Assets and Company Intellectual Property, free and clear of all Encumbrances. . . .”); Asset Purchase Agreement Between Red Robin International, Inc., as Seller, and Op Burger LLC, as Buyer § 2.3(c) (June 11, 2026) (“If the parties identify, prior to Closing or within one (1) year after Closing, any assets (tangible or intangible) which are owned by Seller and not included as part of the Purchased Assets and Assumed Contracts and were reasonably necessary for Seller to operate the Purchased Restaurants prior to the Closing in Seller’s ordinary course of business, then Seller shall use commercially reasonable efforts to promptly transfer, convey and/or assign such tangible assets to Purchaser, at no additional cost to Purchaser; provided Seller shall not be obligated to transfer, convey and/or assign any such tangible assets that are Excluded Assets or otherwise set forth on Schedule 3.17.”). ↑
Tina L. Stark, Negotiating and Drafting Contract Boilerplate 607 (2003), quoted inFacilities Holdings, 2026 WL 1815842, at *21 (emphasis added). ↑
See Johnson & Johnson v. Fortis Advisors LLC, 352 A.3d 229, 251 (Del. 2026) (“The covenant functions as a limited ‘gap-filler’: it enforces the parties’ reasonable expectations in circumstances that they could not foresee and did not address in their written agreement, but it may not be used to rewrite or contradict express terms.”). ↑
Madera Prod. Co. v. Atl. Richfield Co., No. CA 3-96-CV-2951-R, 1998 WL 292872, at *7 (N.D. Tex. June 1, 1998). ↑
A foreign luxury brand decides to sell gift cards in the United States. The cards can be redeemed at any of the brand’s affiliated boutiques, hotels, or restaurants—independently owned businesses that share the brand name and pay the parent a licensing fee. The brand’s headquarters collects the money when the card is sold. Months later, when a customer redeems the card at a participating establishment, the brand wires the redemption value to the establishment, less a small commission.
Read that sequence again. The brand is collecting funds from one person. It is later transmitting those funds to another person. Under federal law (31 C.F.R. § 1010.100(ff)) and the money transmission statutes of essentially every U.S. state, that is the textbook definition of a regulated activity. The brand has—without realizing it, without intending to, without ever calling itself a financial institution—wandered into a regulatory regime built for Western Union.
This is the multi-merchant gift card trap, and it is the most underappreciated compliance risk in cross-border consumer commerce. The trap is not technical. It is conceptual. Lawyers who have correctly concluded that the product is exempt from money transmission rules—because it is closed-loop, because it cannot be cashed out, because it is just a gift card—fail to ask a separate and equally important question about the operator. The product can be exempt while the operator is not. That is the problem.
The Exemption Everyone Reaches For
The instinctive defense is the closed-loop prepaid access exemption at 31 C.F.R. § 1010.100(ff)(4)(iii)(A). The Financial Crimes Enforcement Network (“FinCEN”) does not regulate prepaid access usable only at a defined merchant or set of locations, capped at $2,000 per device per day. A normal gift card fits comfortably inside the exemption.
But this exemption is about the instrument. It says the gift card is not a regulated prepaid access product. It does not say anything about the company issuing the gift card. FinCEN has been explicit on this point: money transmitter status is a facts and circumstances inquiry directed at the entity. An operator can sell perfectly compliant closed-loop instruments and still be a money transmitter—because, separately and independently, it is engaged in the transfer of funds between the cardholder and the merchant.
This is where most analyses stop and most clients get exposed. The law firm tells the client the gift card is a closed-loop instrument. The client hears that and stops worrying. But the closed-loop analysis is one question. The operator-status analysis is another.
The Exemption That Actually Saves You
The exemption that does the real work is harder to invoke and almost never appears in the marketing materials of fintech consultants: the agent-of-the-payee doctrine.
The doctrine is straightforward in concept. If I, as an operator, am collecting money from a customer not on my own behalf but as the appointed agent of the merchant who will eventually deliver the goods or services, then the customer’s payment to me is—in the eyes of the law—a payment to the merchant. The merchant’s obligation to the customer is extinguished at that moment. What I do later, when I send the merchant their share, is not a transmission of funds between strangers; it is an internal settlement between principal and agent.
FinCEN recognizes a federal version of this concept through the payment processor exemption, articulated in administrative rulings FIN-2013-R002 and FIN-2014-R009. Several states have codified an explicit agent-of-the-payee exemption: Texas in Finance Code § 152.004(2), and California in Financial Code § 2010(l). The federal version requires four cumulative conditions: facilitation of a purchase or bill payment, operation through a clearance and settlement system, conduct under a formal agreement, and that agreement existing with the seller or creditor. The state versions follow similar lines, with one critical addition: the payment to the agent must immediately extinguish the customer’s obligation to the merchant.
The doctrine works. But—and this is the part that gets clients into trouble—it does not work automatically. It has to be built. Specifically, it has to be built into the contracts between the operator and the participating merchants, in advance, with language that does precise work.
What the Contracts Actually Have to Say
Here is what makes a multi-merchant program look like an agent-of-the-payee arrangement, and what makes it look like unlicensed money transmission instead.
The first thing the contracts must do is appoint the operator as agent. Not implicitly, not by course of dealing, not through the inference that operating a network creates an agency relationship. Explicitly. The merchant agreement must contain language designating the operator as the merchant’s authorized collection agent for purposes of accepting customer payments under the program.
The second thing the contracts must do is collapse the timing of payment. The agreement must state that the customer’s payment to the operator constitutes payment to the merchant for purposes of the underlying transaction, and that the customer’s obligation to the merchant is extinguished at that moment. This is the legal fiction that turns the operator’s later remittance into an internal settlement rather than a separate financial transmission. Without this language, the operator is sitting on the customer’s money for weeks or months as a kind of escrow agent, which is functionally indistinguishable from money transmission.
The third thing the contracts must do is constrain the destination of the funds. Settlement may flow only to the merchant who actually delivered the goods or services to the customer. Any flexibility in the operator’s discretion to send funds elsewhere—to other merchants, to third parties, to customer refunds outside the program—undermines the agency characterization. The agent has authority only to do what the principal authorized.
The fourth thing—and this one is structural rather than contractual—is that the settlement flow must use the regulated banking system. FIN-2014-R009 is explicit: where disbursement occurs outside a clearance and settlement system populated by Bank Secrecy Act–regulated financial institutions, the payment processor exemption is unavailable. Settlement by bank wire to the merchant satisfies this. Settlement by some bespoke mechanism—internal balance transfers, holding-account redirections, anything that bypasses regulated intermediaries—does not.
These four elements, taken together, are the architecture of compliance. None of them shows up in a “consumer terms and conditions” review. All of them must be in place before the first card is sold.
Why Florida Is the State That Matters
The agent-of-the-payee defense is not equally available everywhere. Most states either codify the exemption (Texas and California) or recognize it through interpretive practice (New York). One state does not, and that state is Florida.
The Florida Money Transmitters’ Code (chapter 560) lacks both an explicit agent-of-the-payee exemption and a clean closed-loop exemption. The Office of Financial Regulation has indicated, in declaratory statements addressed to similar fact patterns, that an entity that receives funds before transmitting them to a third party may qualify as a money transmitter even when contractually structured as the merchant’s agent. Florida looks at the economics—was money received and then sent onward?—rather than at the contract papering.
For a national program, this means Florida is the residual risk point. The contractual mitigations that solve the problem in Texas, California, and New York are not bulletproof in Florida. The structural mitigations—settlement through regulated channels, demonstrable absence of operator control over funds, ideally a payment-processing intermediary that holds the customer’s money rather than the operator itself—have to do more work in Florida than elsewhere. Counsel advising on national rollouts should treat the Florida analysis as the binding constraint, not the average state.
The Sentence That Should Appear in Every Memo
Here is the sentence that should appear, in some form, in every legal memo regarding a multi-merchant gift card program: “The product is closed-loop. The operator may not be.”
The product analysis and the operator analysis are different analyses. They reach different exemptions, require different evidence, and need to be performed in parallel. A program that has answered only the product question has addressed only half the problem.
The clients who get this wrong are not negligent. They are well-advised by lawyers who answered exactly the question they were asked. The question they were asked was “Is this gift card legal?”—and the answer was “Yes, it is closed-loop.” The question they were not asked, and that no one thought to raise, was “And what about the company selling them?”
In a multi-merchant network, that second question is the entire ball game. If the merchant agreements were drafted by someone thinking about brand standards and revenue share—which is to say, by someone who was not thinking about the Bank Secrecy Act—the operator is exposed. Not theoretically. Actually. The federal and state money transmission regimes do not require an intent to operate as a money transmitter, and they do not forgive operators who happened not to know what they were doing.
The fix exists. The fix is the agent-of-the-payee doctrine, properly papered, structurally consistent, and tested against the strictest applicable state regime. But the fix has to be built before the first card is sold. After the fact, what counsel can offer is not a defense but a remediation project—and an explanation, to a regulator, of what the company thought it was doing.
That is a conversation no general counsel wants to have. It is also a conversation that becomes inevitable the moment someone in the boardroom says, “Don’t worry, it’s just a gift card.”
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