The latest Federal Trade Commission (“FTC”) action in furtherance of its avowed commitment to “restore fairness to the American labor market” involves a no-poach investigation, not a noncompete case. On December 19, 2025, the FTC announced that it and the New Jersey Attorney General’s Office reached settlements with a building services company barring it from using no-hire agreements.

According to New Jersey’s attorney general, “When employers enter into no-hire agreements, employees pay the price. They have fewer job opportunities, lower wages, and weaker benefits. That’s why our office is committed to ending these unlawful labor practices across our state.” The FTC expressed a similar sentiment: “American workers have a right to pursue job opportunities that offer them higher pay and better benefits. Yet anticompetitive no-hire agreements . . . prevent workers from realizing their full earning potential.”

The FTC’s complaint alleges that the no-hire provisions violate both Section 1 of the Sherman Act, which prohibits agreements that unreasonably restrain trade, and Section 5 of the FTC Act, which bars unfair methods of competition. The agency defines “no-hire agreements” in the complaint as an agreement between two or more companies that “restricts, imposes conditions on, or otherwise limits a company’s ability to solicit, recruit, or hire another company’s employee,” directly or indirectly, either during employment or for any period of time after, including by imposing fees.

The injury to competition alleged under Section 1 includes the elimination of “direct, horizontal, and significant forms of competition to attract labor in the U.S. building services industry,” thereby denying employees access to job opportunities, restricting their mobility, and depriving them of competitively significant information that they could have used to negotiate for better terms.

With respect to Section 5, the FTC claims that the no-hire agreements tend or are likely to harm competition, consumers, and employees in the building services industry. Restricting the ability of building owners and competing building service contractors to hire employees harms:

• Employees because it limits their ability to negotiate for higher wages, better benefits, and improved working conditions, and may lead to further hardship if the building where they work changes management, because the no-hire agreements force them to leave their jobs in some circumstances.
• Building owners and managers because they may be foreclosed from seeking or accepting bids from competitor vendors due to the prospect of losing long-serving workers with extensive, building-specific experience.

Neither the complaint nor the analysis in aid of public comment makes allegations related to market power or market share. Based on published information, the vendor told FTC staff that it did not enforce the no-hire provisions. During the course of the investigation, begun in the prior administration, however, the FTC learned that there had been at least one attempt to enforce compliance. An FTC statement also notes that any legitimate objectives of no-hire agreements could have been achieved through significantly less restrictive means. The agency specified that, among other terms, the scope and duration of the restrictions were not reasonably necessary to achieve the purported procompetitive purpose.

Before the most recent government shutdown, the FTC made clear its intent to bring enforcement actions against conduct likely to harm labor markets, although the focus then appeared to be “unfair” employee noncompete agreements. In September 2025, the FTC abandoned its defense of its 2024 rule banning virtually all worker noncompetes, entered into a settlement agreement with a pet cremation company prohibiting use of noncompete clauses in its employment agreements, issued a Request for Information Regarding Employer Noncompete Agreements to enlist the public in identification of “specific employers continu[ing] to impose noncompete agreements,” and announced that it would host a workshop regarding unfair noncompete agreements.

The FTC’s noncompete workshop has been rescheduled for January 27, 2026, with an agenda for three panels: (1) Locked out of Work: Victims of Anticompetitive Noncompetes; (2) Unleashing the American Worker: Policy Perspectives on Noncompetes; and (3) Counting the Costs: The Economics of Noncompetes.

Although the public case materials provide limited information, there are some key takeaways from the latest FTC enforcement action:

• Make certain that any representations made to agency staff are accurate.
• The FTC intends to continue to police labor markets in terms of no-hire and noncompete agreements.
• Restrictions on worker movement should be framed as narrowly as possible to accomplish a specific and demonstrable procompetitive goal.
• “Penalties” or fees designed to prevent worker departures or improved bargaining positions should be avoided. The more significant the fee, the greater the antitrust risk.
• Restraints that go beyond the employees staffed on the specific project that is the subject of the contract are riskier.
• Noncompete and no-hire provisions are riskier when the impacted employees are low-wage workers, largely because it can be difficult to justify the restrictions.
• Even restraints that exceed the term of employment by only six months may be excessive, particularly if low-wage workers are affected.
• Worker restrictions should not be designed to prevent competition in market for the employer’s products or services.

Because modern directors and officers (“D&O”) liability policies are written on a “claims made” basis, coverage is determined based on when the claim for wrongful acts is first made against an insured. If a company does not have a D&O policy in place, it risks being uninsured for claims made during a gap in claims-made coverage. D&O policies also contain “change in control” provisions limiting coverage for wrongful acts occurring after there is a change in ownership. So, what happens when a company is acquired, merges with another company, or sells its assets such that the selling entity no longer is a going company that maintains a D&O policy?

The approach taken in many transactions is securing “runoff” and “tail” coverages, which extend a policy’s coverage period beyond the date of the transaction and allow insureds to recover for claims alleging pre-transaction wrongdoing. However, from a practical standpoint, placing and pursuing coverage under tail policies can be fraught with peril. This article presents an overview of five common coverage issues to consider when runoff provisions are at play.

1. Negotiate Favorable Policy Provisions (and Then Follow Them).

D&O policies are not all created equal. Quite the opposite, as terms are heavily negotiable and customizable. This variety carries over to D&O policy runoff and tail coverage. For instance, many standard forms do not include guaranteed tail coverage with pre-negotiated term and pricing options. Leaving these critical coverage negotiations to chance can lead to real problems, especially when a company is insolvent or in bankruptcy, where cash flow is paramount and large insurance premiums can exacerbate existing financial strain. Negotiating terms in advance can introduce certainty and predictability in the midst of complex transactions and ownership changes.

Policies may also impose varying degrees of requirements to select and effectuate tail coverage. For example, policies can require prompt notice of changes in management control, sometimes accompanied by additional underwriting requirements to secure coverage.

Understanding precisely when and how those provisions operate in practice can minimize conflict based on technicalities in the policy.

To help facilitate seamless insurance continuity in future transactions, policyholders should assess their D&O coverage placements and renewals with an eye towards future M&A activity and how runoff and tail provisions would be treated in those transactions.

2. Understand What Constitutes a Change in Control.

One basic but often overlooked question about tail coverage is when it even may be implicated. Companies and executives may have their own assumptions about when D&O policies will continue in force or require tail coverage, which may not match what the policy actually says. For example, some may assume that simply filing for bankruptcy automatically triggers a change in control. Or conversely, some may assume that a company’s emergence from bankruptcy does not trigger runoff provisions in the absence of a more traditional acquisition or merger. Neither assumption may be true, and the policy will always control.

These kinds of misunderstandings can then lead to the failure to timely elect tail coverage, missed notice deadlines, and similar missteps that insurers can use to deny or limit coverage. Missing these nuances in policy language can leave policyholders exposed to D&O claims without a coverage safety net. Working closely with risk professionals, like brokers and outside coverage counsel, can help navigate these issues and avoid transaction-related gaps in coverage.

3. Be Wary of Straddle Claims.

A company can seemingly do everything right—place robust D&O coverage, monitor forthcoming changes in control, timely elect tail coverage, and submit a post-transaction claim for coverage alleging pre-transaction wrongdoing ostensibly covered by the tail policy. But then comes a surprise denial. Some of the biggest offenders that can seemingly negate tail coverage altogether are exclusions aimed at so-called “straddle” claims. Straddle claims allege misconduct both before and after the effective date of tail coverage.

Coverage grants in tail policies are tailored to respond only to claims alleging pre-closing wrongful acts. But some insurers go a step further in adding exclusions to policies that bar coverage for any claim based upon, arising out of, directly or indirectly resulting from, or in any way involving a wrongful act allegedly committed on or after the runoff date. These provisions eliminate coverage entirely—even for portions of the claim tied exclusively to pre-runoff wrongdoing—based on the presence of a single post-runoff wrongful act. That can lead to finger-pointing between insurers, especially where a surviving entity purchased a going-forward D&O policy that has a similarly broad exclusion barring coverage for any claim involving any pre-closing wrongful acts.

To avert contentious coverage battles, policyholders should closely scrutinize tail policies to eliminate or narrowly tailor these kinds of exclusions. Clarifying how policies address straddle claims can ensure that such claims do not fall through uncovered cracks because of conduct timing. Buyers and sellers should have an understanding of the pre-closing and post-closing insurance regimes that will be in place around a transaction in order to avoid any potential denials of straddle claims.

4. Reckon with Reduced Limits and Coverages.

Policyholders purchasing tail coverage may also assume that all coverage terms remain intact. In addition to new exclusions, however, tail policies may also be accompanied by reduced limits. This can be especially important to monitor because the tail coverage in place as of the runoff date is finite and needs to respond to all claims throughout the entirety of the runoff period, which often lasts six years.

Tail endorsements for management liability policies may also include only certain coverages, most commonly D&O, and omit other coverages, such as employment practices liability. Assessing the full suite of available tail and extended reporting periods can ensure there are no unexpected gaps in coverage for post-closing claims. For example, a selling company would likely want broad coverage, while a buyer who has agreed to pay for some, or all, of a tail policy may argue that including atypical tail endorsements was not contemplated when an insurance cost-sharing arrangement was agreed to. Both sides of a transaction should endeavor to be as precise as possible when allocating costs and specifying expected tail policy terms to avoid disputes and ensure appropriate coverage throughout the transaction.

5. Consider Coverage for the Wind Down.

Tail coverage is especially important in bankruptcy as debtors seek to have plans confirmed and questions arise about protecting against historical or future liabilities. One overlooked aspect can be in liquidations requiring plan administrators or other individuals, like chief restructuring officers (“CROs”), to stay on after a plan is confirmed to wind down operations. Under most tail policies, D&O coverage terminates at the time of plan confirmation, even if exposure to claims challenging the orderly liquidation or winding down of the company does not cease. To address that, policyholders can secure “wind down” coverage to fill that gap and extend protection during wind-down phases to key administrators, CROs, and anyone else facing potential exposure for post-confirmation conduct.

* * *

Runoff and tail coverage should protect companies and directors and officers against claims for legacy liabilities, but pitfalls abound. Proactively negotiating favorable terms and understanding and adhering to key policy provisions can help ensure continuity of coverage and avoid uninsured exposures and surprise denials after closing.

As chairs of the American Bar Association’s Private Target Mergers & Acquisitions Deal Points Study (the Private Target Deal Points Study), we are pleased to announce that we published the latest iteration of the study to the ABA’s website on December 16, 2025.

Congratulations! But Wait. What Exactly Is This Private Target Deal Points Study, Anyway?

The Private Target Deal Points Study is a publication of the Market Trends Subcommittee of the ABA Business Law Section’s M&A Committee. It examines the prevalence of certain provisions in publicly available private target mergers and acquisitions transactions during a specified time period. The Private Target Deal Points Study is the preeminent study of M&A transactions, widely utilized by practitioners, investment bankers, corporate development teams, and other advisors.

The 2025 iteration of the Private Target Deal Points Study analyzes publicly available definitive acquisition agreements for transactions executed and/or completed either during calendar year 2024 or during the first quarter of calendar year 2025. In each case, the transaction involved a private target acquired by a public buyer, with the acquisition material enough to that public buyer for the Securities and Exchange Commission to require public disclosure of the applicable definitive acquisition agreement.

The final sample examined by the 2025 Private Target Deal Points Study is made up of 139 definitive acquisition agreements and excludes agreements for transactions in which the target was in bankruptcy, reverse mergers, and transactions otherwise deemed inappropriate for inclusion.

Although the deals in the 2025 Private Target Deal Points Study reflect a broad array of industries, the health care and technology sectors together made up over 20% of the deals. Asset deals comprised 21% of the study sample, with the remainder either equity purchases or mergers.

Of the 2025 Private Target Deal Points Study sample, 42 deals signed and closed simultaneously, whereas the remaining 97 deals had a deferred closing some time after execution of the definitive acquisition agreement.

The transactions analyzed in the 2025 Private Target Deal Points Study were in the “middle market,” with purchase prices ranging between $25 million and $900 million; purchase prices for a majority of deals in the data pool were below $200 million.

The Private Target Deal Points Study Sounds Great! How Can I Get a Copy?

• All members of the M&A Committee of the Business Law Section received an email alert from Jessica Pearlman with a link when the study was published. If you are not currently a member of the M&A Committee but don’t want to miss future email alerts, committee membership is free to Business Law Section members, and you can sign up on the M&A Committee’s homepage.
• ABA members who are not currently members of the Business Law Section can sign up to join on the Section’s membership webpage.
• The published 2025 Private Target Deal Points Study is available for download by M&A Committee members from the Market Trends Subcommittee’s Deal Points Studies page on the ABA’s website. Also available at that link are the most recently published versions of the other studies published by the Market Trends Subcommittee, including the Canadian Public and Private Target M&A Deal Points Studies, European Private Target M&A Deal Points Study, US Public Target Deal Points Study, and Strategic Buyer/Public Target M&A Deal Points Study.

How Does the 2025 Private Target Deal Points Study Differ from the Prior Version?

The 2025 version of the Private Target Deal Points Study has a number of features that differentiate it from prior iterations.

• Earnouts: Earnouts became less prevalent and displayed some buyer-friendly features. Use of earnouts decreased from 26% during the period covered by the 2023 Study to 18% during the period covered by the 2025 Study. Earnouts are often used to address valuation gaps, and this data point suggests that valuation gaps narrowed somewhat during the period covered by the 2025 Study.
• RWI: The use of representations and warranties insurance (RWI) increased compared to the prior Study. 63% of deals during the period covered by the 2025 Study referenced RWI (our proxy for whether a transaction utilized RWI) as compared to 55% of the deals during the period covered by the 2023 Study.
• No Survival Deals: Deals that provide that representations and warranties do not survive closing increased from 30% in the prior Study to 41% in this Study. This increase is likely related to the increase in RWI deals.
• Indemnification for “Actual” vs. “Alleged” Breaches: Indemnity coverage for alleged breaches increased from 17% from to 27% in this year’s Study; this appears to also be driven by an increase in RWI deals.
• Single vs. Double Materiality Scrape: The use of double materiality scrapes increased from 69% to 82% in the prior study. Again, this increase appears to be related to the increase in the use of RWI.
• New Data Points: We added a few additional data points. Look for the “new data” flags (see samples below) to make them easy to spot.
  • 
    Transaction Expenses as Part of Post-Closing Adjustment. We added a data point to track how often transaction expenses are taken into account in the post-closing purchase price adjustments.
  • Existing Fact/Condition as Part of MAE Definition. We wanted to see how often deals that include the definition of “Material Adverse Effect” (MAE) specify that a fact or condition existing at the time of signing the acquisition agreement could constitute an MAE, so we added that data point to this year’s Study.
  • Control of Defense of Third Party Claims—Failure to Adequately Defend and Government Authority Involvement. We have added to this year’s Study a data point on how often the failure/inability to adequately defend a claim could result in a loss of the indemnifying party’s right to control defense of that claim. We added a similar data point on claims involving government regulatory authority.
  • Fraud as a Standalone Indemnity. We added a data point tracking how often fraud is included in purchase agreements as a standalone indemnity.

Please join us in extending a huge thank-you to everyone who worked so hard on this study, from leadership to advisors to issue group leaders to the working groups, all of whom are listed in the credits pages.

For more information, at 1:00pm EST on February 10, 2025, there will be an In the Know webinar with the Study Chairs and Issue Group Leaders providing analysis and key takeaways from the results of the Private Target M&A Deal Points Study.

The legal profession, as an independent pillar of American democracy, commits to upholding the rule of law, whether it is through defending this fundamental principle in the courtroom or zealously advocating for support from major institutions and the American public. With the current U.S. political landscape introducing new challenges for lawyers, one thing is clear—America’s power rests on the strength of its rule of law, which respects differing viewpoints through civil discourse in order to maintain its integrity in policymaking and governance.

In recent years, the heightened geopolitical climate in the United States and globally has left individuals, families, businesses, and communities to grapple with many difficult conversations, challenged by opposing ideological viewpoints of those closest to them. The purpose of this article is to share observations from a dispute resolution practitioner’s perspective on how individuals across the ideological spectrum can aim to restore peace and preserve relationships with those of diverging worldviews.

The following are stories of lessons learned and personal thoughts on how one can bridge ideological splits.

Understanding of the Self

The last few presidential election cycles have caused families, colleagues, and communities to publicly express dissatisfaction if the outcome was not in their favor. Like many, I also fell victim to my own judgments during those moments. Then, I started reflecting and asking myself, “Why is it that some of the friends and family I respected the most and felt most aligned with suddenly, overnight, became the very people I judged due to a single vote? What values did we share that bonded us in the first place—because we clearly have areas in our lives where our minds meet?”

By practicing self-reflection and self-questioning, we can better recognize our own biases and judgments and let those learnings inform how we navigate difficult conversations grounded in respect, empathy, and understanding. Further, by practicing honest self-inquiry, we can more effectively and confidently communicate our ideological positions and beliefs, thereby raising each other’s awareness about the shared values and differing priorities.

To Better Understand the Other

In most households, it is nearly impossible for all family members to agree on personal matters, let alone ideological beliefs. The closer a relationship, the more likely one strongly reacts to feelings of invalidation or judgment. When there is genuine curiosity, mutual respect, and confidence in the relationship, however, any polarizing views will undoubtedly create a productive discussion. In my experience, I have learned that by assuming the other person’s “positive intent,” my relationship with the individual I disagreed with naturally grew closer; we managed to separate our positions from our relationship and not let our minds be clouded by reducing the other person’s entire being to just one single vote.

By validating another person’s feelings and not necessarily their viewpoint, we can foster more trust, openness, and candidness from that individual. Through active listening and sincerity during this “information-gathering phase,” we can gain added context and background that help us better understand what shaped the other person’s decisions. As individuals, all of us—what I like to call multifaceted beings—are shaped by our unique upbringing, experiences, and education, among other things. Therefore, this exercise of “seeking first to understand, then to be understood,” as Stephen Covey says, can help deepen the relationship by successfully moving through crucial conversations to allow everyone their right to feel seen and heard, without judgment.

In Order to Preserve the Relationship

The closest relationships are often the ones that cause deeper emotional wounds and disappointments when ideological viewpoints clash. However, the strength of a relationship only deepens when we have the confidence and knowledge that any crucial conversations will not shake its foundation. To bridge any divide, the power lies in our ability to maintain composure and willingness to talk at critical moments so that productive dialogue can lead to a more profound understanding from both sides.

In summary, bridging the ideological divide does not require individuals with opposing viewpoints to engage in a lengthy debate in defense of their positions. It simply requires each person to be self-aware of their own biases and judgments, reflect on their shared core principles, if any, and invite dialogue, rooted in empathy and curiosity, with those on opposite ends of the ideological spectrum. Conversations about conflicting viewpoints are justifiably difficult to navigate, but without them and without diversity of thought, we would not be the United States of America with an established rule of law that has stood tall for nearly 250 years.

This article is part of a series on the rule of law and its importance for business lawyers created by the American Bar Association Business Law Section’s Rule of Law Working Group. Read more articles in the series.

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

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

Is your board of directors fit for the future? Board evolution should be top of mind for both private and public companies. A forward‑looking board adapts to strategic shifts and leadership changes, maintains an evergreen skills matrix, and balances tenure with age and domain diversity to ensure fresh perspectives alongside stability. When executed effectively, board evolution enhances competitive relevance, decreases governance risk, strengthens resilience, and sets the foundation for the company to outperform its peers. These ten tips offer key factors to consider to ensure an evolving board.

1. Strategic alignment and leadership changes. As strategic direction and leadership change at a company, so should the board. Directors should always consider whether their contributions can support long-term objectives and increase shareholder value. A new strategic direction may require thoughtful replacement of certain directors. An evolving board proactively aligns its membership with current strategic direction, seeking new expertise where needed to strengthen governance and performance.
2. Diverse perspectives and skillsets. An evolving board thrives on diversity of background, experience, and qualifications. Foundational expertise in leadership, operations, risk management, finance, and governance is expected of all directors, but true effectiveness comes from integrating a wide range of perspectives and capabilities. An evolving board actively identifies skill gaps and seeks complementary competencies that elevate collective impact. Ongoing education, particularly in emerging and trending topics, fosters continuous learning and ensures directors remain current. By combining strong core skills with diverse viewpoints, boards can be better equipped to navigate complexity, challenge assumptions, and drive strategic resilience in today’s rapidly changing business environment.
3. Tenure. Tenure is valuable in creating stability and knowledge continuity at the highest level. Excessive tenure can also limit fresh perspectives, however. An evolving board should balance institutional knowledge with new ideas and diverse viewpoints. Boards can establish guidelines for director tenure to promote renewal and prevent stagnation. These guidelines also provide for a more graceful director exit at the appropriate time.
4. Age diversity. Age-linked policies, such as a mandatory retirement threshold, support board refreshment without compromising valuable experience. An evolving board should consider a mix of generational perspectives, which can strengthen alignment with current market dynamics and current business needs. Younger directors may bring perspectives that resonate with target demographics, while seasoned members can provide stability and institutional knowledge. Striking the right balance ensures inclusivity, continuity, and relevance.
5. Collaboration and camaraderie. Boards should regularly assess how directors build trust and collaborate. Strong trust and camaraderie lead to effective decision-making and reduce noise both in board meetings and in oversight of leadership. An evolving board should incorporate questions on teamwork into annual evaluations, which will help identify areas for improvement and accountability. When necessary, decisive action should be taken to address persistent uncooperative behavior, as a single disruptive director can compromise the effectiveness of the entire board.
6. Self-reflection. As the company evolves, directors should reflect on their own commitment and contributions. Are they making a valuable impact? Do they still have the time to commit to the increasing demands of board service? Questions related to self-evaluation can be added to the annual board evaluation review or can be discussed in quiet conversations with individual directors. An evolving board encourages a culture of self-awareness that fosters accountability and effectiveness.
7. Commitment to thoughtful evolution. The composition of the board and board committees should be refreshed regularly instead of remaining static. Tools like overboarding policies and voluntary rotations create a culture of commitment to change. Committee rotations not only introduce fresh perspectives but also broaden directors’ enterprise‑level knowledge. An evolving board embraces change that revitalizes governance while preserving the continuity necessary for stability.
8. High-risk conflicts. Director conflicts of interest, whether relational or financial, can damage trust and credibility. High-risk conflicts can also call into question the decision-making process of the entire board and lead to litigation risk. An evolving board should implement clear, consistent policies to identify, disclose, and mitigate conflicts of interest. Proactive management of these risks reduces governance vulnerabilities and reinforces the board’s integrity.
9. Activism preparedness. Shareholder activism frequently focuses on the composition of the board and the effectiveness of board members. Unaddressed vulnerabilities are often highlighted by activists or institutional investors, putting the board on the defensive. An evolving board proactively monitors investor sentiment, anticipates stakeholder concerns, and ensures the company is meeting expectations for board composition. By identifying and addressing potential weaknesses in advance, boards can reduce external pressure and maintain credibility.
10. Succession planning. Always anticipate director transitions, both expected and unexpected. An evolving board should revisit succession planning at regular meetings of the governance committee and ensure transparency with a full report to the entire board. Governance committees should engage search firms to maintain an ongoing pipeline of qualified candidates and ensure readiness to refresh the board. Proactive succession discussions build trust, reinforce stability, and strengthen stakeholder confidence by demonstrating foresight rather than reacting to change.

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

This is the fourth and final installment in a series on damages available for intellectual property (“IP”) claims, focusing on trade secret damages. Understanding damages is essential for two reasons: it highlights the potential rewards of building a robust IP portfolio, and it offers a benchmark for assessing risk when facing an IP claim. Our previous articles discussed trademark, patent, and copyright damages.

Trade Secret Misappropriation

Trade secrets consist of formulas, practices, processes, designs, instruments, patterns, or compilations of information that confer a business advantage over competitors who do not know or use them.

Misappropriation of trade secrets involves unauthorized acquisition, disclosure, or use of a trade secret, protected under the Uniform Trade Secrets Act (“UTSA”), as adopted by various states, and/or the federal Defend Trade Secrets Act of 2016 (“DTSA”).^[1] The UTSA provides a framework for civil claims while the DTSA grants trade secret owners the ability to seek redress in federal court, along with a clear definition of misappropriation and measures for safeguarding trade secrets, including measures against international espionage.

All states except New York and North Carolina have adopted the UTSA. North Carolina has its own distinct yet similar statutory framework for the UTSA, while New York applies common-law principles to trade secret matters. The DTSA is a federal law that applies nationwide.

Trade Secret Damages

Under the UTSA and the DTSA, trade secret owners can seek damages for actual loss, unjust enrichment, reasonable royalties, or exemplary damages up to double any other remedy when willful and malicious misappropriation exists.

Monetary relief under both the UTSA and the DTSA may be appropriate whether or not injunctive relief is granted.

Monetary damages are only appropriate for the period in which misappropriation overlaps with the period in which information is entitled to protection as a trade secret, plus the additional period, if any, in which a misappropriator retains an advantage over good-faith competitors because of misappropriation.

Actual Loss and Unjust Enrichment

Both the UTSA and the DTSA state that a successful plaintiff is entitled to damages for actual loss and unjust enrichment.

Actual Loss

Actual loss can include lost profits or other measurable harm directly attributable to the defendant’s actions.

A plaintiff bears the burden of proving actual damages with sufficient evidence. A lack of evidence or speculative claims may preclude recovery under these measures. There must be a clear depiction of the financial damage resulting from the misuse or theft of the trade secret.

Unjust Enrichment

A plaintiff may recover for unjust enrichment caused by misappropriation, provided that such enrichment is not already accounted for in the calculation of actual loss. Unjust enrichment may be calculated based on the defendant’s profits, increased productivity, market share gained from the use of the trade secret, or the development costs saved.

The plaintiff must show evidence that the defendant profited at the plaintiff’s (trade secret holder’s) expense. A lack of evidence or speculative claims may preclude recovery under these measures. Courts are hesitant to award damages for unjust enrichment unless the plaintiff can demonstrate that the defendant acquired some calculable profit or benefit from the misappropriation.

Double Counting

A successful plaintiff may recover both actual loss and unjust enrichment damages, but there can be no double counting. This means that, to recover both, the defendant’s unjust enrichment must be distinct from or in excess of the plaintiff’s actual loss.

Reasonable Royalties

If neither actual loss nor unjust enrichment can be proven, the UTSA allows courts to award a reasonable royalty for the period during which the use of the trade secret could have been prohibited.

A reasonable royalty is an approximation of a royalty under a voluntary licensing agreement. Courts typically assess what the parties would have reasonably agreed to in a hypothetical negotiation at the time the misappropriation began. Courts often begin with real-world comparables as a starting point for determining a reasonable royalty. These comparables may include licensing agreements or other transactions involving similar trade secrets. Then the court will adjust the royalty amount using a calculation based on facts specific to the case, often proven by an expert witness. The calculation may consider market value of the trade secret; cost savings or value to the defendant; duration and scope of use; and overall willingness to license the trade secret based on factors like risks of disclosure, competitive advantage, and relationship between the parties.

In order to justify this alternative measure of damages, there must be competent evidence of the amount of a reasonable royalty. This remedy is discretionary and is typically applied when other forms of damages are unprovable. The court may not order payment of a reasonable royalty for longer than the period of time the use of the trade secret could have been prohibited.

Exemplary Damages

If the misappropriation is found to be willful and malicious, the UTSA and the DTSA permit courts to award exemplary damages in an amount not exceeding twice the award for actual loss or unjust enrichment. Courts have interpreted “willful and malicious” to include conduct that is intentional and motivated by ill will or improper motives.

While the courts are granted discretion, judges often look to the following factors to determine the degree to which they will enhance damages: degree of intent, defendant’s state of mind, extent of harm, duration of misuse, efforts to conceal misuse, prior conduct of similar misappropriations, and deterrence.

Attorney Fees

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney fees to the prevailing party.

Summation

Trade secret misappropriation presents complex legal challenges, but both the UTSA and the DTSA provide a comprehensive framework for addressing these disputes and awarding damages. Whether through actual loss, unjust enrichment, reasonable royalties, or exemplary damages, courts aim to ensure fair compensation for the harm suffered and to deter future misconduct.

* * *

This concludes our overview of damages for trade secret misappropriation and our series on damages for IP infringement.

1. Defend Trade Secrets Act, Pub. L. No. 114-153 (2016). ↑

Most plaintiffs in lawsuits pay their lawyer via a contingent fee. If the case settles for $1,000,000, the lawyer is paid a percentage, say 40 percent. Checks can be cut in different ways, but in most cases, the lawyer receives the gross proceeds, deducts the fee and expenses, and sends the balance to the client. As a result of these mechanics, many plaintiffs assume that at most, their tax obligations apply to the amount they actually receive (in this example, $600,000).

However, under Commissioner v. Banks,^[1] plaintiffs in contingent fee cases generally must report all the proceeds as gross income, even if the lawyer is paid directly out of the proceeds before the plaintiff receives anything. If the settlement is fully taxable (and defendants tend to assume that most settlements are taxable) the plaintiff is likely to receive an IRS Form 1099 for 100 percent of the settlement amount.

Some defendants will agree to pay lawyer and plaintiff separately. However, that does not obviate the income to plaintiff, as the Supreme Court made clear in Banks.

Moreover, the Form 1099 regulations generally require defendants to issue a Form 1099 to the plaintiff for the full amount of a settlement to the extent a recovery does not qualify for a tax exclusion, even if part of the money is paid to the plaintiff’s lawyer. The plaintiff would need to use an available tax deduction for the legal fees if their recovery is taxable as ordinary income (including wages), in order to pay tax only on the reduced amount they actually received.

From 2018 through 2025, the Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, which was how many plaintiffs historically deducted legal fees.^[2] The One Big Beautiful Bill Act^[3] made that suspension permanent, so plaintiffs can no longer deduct legal fees as miscellaneous itemized deductions. Is the elimination of miscellaneous itemized deductions a huge blow for plaintiffs?

In 2018, I was alarmed at the change, imagining that many plaintiffs could be saddled with paying taxes on money paid to their lawyer that they could not deduct. However, long before 2018, plaintiffs frequently were displeased with miscellaneous itemized deductions, even though they were legally available. Miscellaneous itemized deductions faced three limitations: (1) Only fees greater than 2 percent of the plaintiff’s adjusted gross income could be deducted; (2) higher incomes were subject to a phaseout of deductions; and (3) legal fees were not deductible for purposes of the alternative minimum tax.

Therefore, long before 2018, a plaintiff who could find a better tax deduction—ideally an above-the-line deduction—claimed it instead of a highly restrictive miscellaneous itemized deduction. The stakes grew larger in 2018 and continue today. A plaintiff whose above-the-line deduction is disallowed can no longer fall back on a miscellaneous itemized deduction as second choice. But I have come to believe that there are still ways for most plaintiffs to claim viable tax deductions despite the elimination of miscellaneous itemized deductions.

Above-the-Line Deductions

It has long been the rule that legal fees in cases involving a taxpayer’s trade or business (other than the trade or business of being an employee) or involving a taxpayer’s efforts to produce rental or royalty income can qualify as an above-the-line deduction. In 2004, shortly before the Banks case was decided by the Supreme Court, Congress enacted an above-the-line deduction for employment, civil rights, and whistleblower claims.^[4] Congress expanded it over the years, and the IRS has made claiming it simpler.^[5]

However, a plaintiff’s deduction for fees cannot exceed the income the plaintiff received from the litigation in the same tax year. That same-year limit presents no problem in a typical contingent fee case since the contingency fee is paid out of the settlement payment nearly contemporaneously with the payment of the settlement. If the plaintiff is paying legal fees hourly over several years, some plaintiffs ask their lawyer to pay back prior fees and bill them again out of the settlement.

Other plaintiffs treat a portion of a current year settlement as a reimbursement of previously paid (and not deducted) legal fees. The latter is a kind of reverse tax benefit theory. Either approach could be attacked on audit, but either one may allow a plaintiff to take a reporting position that the net settlement is taxable, not the gross.

Physical Injury Recoveries

Most physical injury settlements need not worry about the tax treatment of the legal fees. In a physical injury case with no interest and no punitive damages, the plaintiff’s recovery should be fully excludable from income under section 104.^[6] The related attorney fees are taxed only to the lawyer, not to the plaintiff, and the plaintiff does not need to deduct the legal fees. But what if a case is partially taxable and partially tax-free?

Example: Sam is injured in an accident and collects $300,000 in compensatory damages and $5 million in punitive damages. The $300,000 is tax free, but the $5 million is taxable. If Sam pays a 40 percent contingent fee, $2 million of that $5 million in punitive damages goes to the lawyer, with Sam netting $3 million of the punitive damages. Sam must report the full $5 million of punitive damages as gross income and needs a way to deduct the $2 million in legal fees paid out of the punitive damages.

A similar situation arises with interest. Pre- or post-judgment interest is taxable even on physical injury damages. Sometimes, an allocation of legal fees that is not strictly pro rata can help, but this must be documented accordingly. The more conventional answer is to find a tax deduction for the legal fees attributable to the interest.

Employment and Discrimination Claims

Some of the confusion about the tax treatment of legal fees came from unfortunate drafting by Congress. An employment plaintiff can effectively claim a deduction in any kind of employment case, regardless of whether discrimination is alleged. Above-the-line treatment applies to legal fees in any case under any law “regulating any aspect of the employment relationship,”^[7] which is a much broader scope than just employment cases involving discrimination.

Yet as written, the deduction is named by the tax code as a deduction in cases involving claims of “unlawful discrimination,” which can imply to taxpayers that the deduction is narrower than it actually is. The statutory definition of an unlawful discrimination claim is a veritable kitchen sink; section 62(e) defines unlawful discrimination to include any claims brought under one or more of a specifically identified list of federal statutes:^[8]

1. the Fair Labor Standards Act of 1938 (29 U.S.C. §§ 201 et seq.);
2. sections 4 or 15 of the Age Discrimination in Employment Act of 1967 (29 U.S.C. §§ 623 or 633a);
3. sections 501 or 504 of the Rehabilitation Act of 1973 (29 U.S.C. §§ 791 or 794);
4. section 510 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1140);
5. section 105 of the Family and Medical Leave Act of 1993 (29 U.S.C. § 2615);
6. sections 1981, 1983, or 1985 of Title 42 of the United States Code;
7. sections 703, 704, or 717 of the Civil Rights Act of 1964 (42 U.S.C. §§ 2000e–2, 2000e–3, or 2000e–16);
8. section 102, 202, 302, or 503 of the Americans with Disabilities Act of 1990 (42 U.S.C. §§ 12112, 12132, 12182, or 12203); or
9. any whistleblower protection provision of federal law prohibiting the “retaliation or reprisal against an employee for asserting rights or taking other actions permitted under Federal law.”^[9]

The unlawful discrimination deduction also covers whistleblowers who were fired or faced retaliation. Separately, section 62 allows whistleblowers to deduct fees in federal False Claims Act, state whistleblower cases, and IRS, SEC, and Commodity Futures Trading Commission claims.^[10]

Catchall Employment Claims

Critically, there is also a catchall that covers any kind of claim arising in or about employment, making the list illustrative, not finite. Section 62(e)(18) allows a deduction for claims alleged under

[a]ny provision of federal, state or local law, or common law claims permitted under federal, state or local law, that provides for the enforcement of civil rights, or regulates any aspect of the employment relationship, including claims for wages, compensation, or benefits, or prohibiting the discharge of an employee, discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.^[11]

This is an expansive description, and so far, there appears to be little authority. In Letter Ruling 200550004, the IRS ruled that attorney fees and costs to obtain federal pension benefits fell within the catchall category. The case concerned a taxpayer who, after his retirement, discovered that he was being short-changed on his pension. Notably, the IRS ruled that the case fell within the catchall for unlawful discrimination, even though the action was brought under ERISA. Since only actions brought under section 510 of ERISA are expressly allowed under section 62(e), the catchall was needed to cover the taxpayer’s case. This ruling suggests an expansive reading of the catchall, as does its plain language.

Civil Rights Claims

Section 62(e)(18) also provides for deduction for legal fees to enforce civil rights, a term much broader than section 1983 of the Civil Rights Act.^[12] The deduction applies to any claim for the enforcement of civil rights under federal, state, local or common law.^[13] Section 62 does not define “civil rights” for this purpose, nor do the legislative history or committee reports. Yet some legal definitions are expansive:

a privilege accorded to an individual, as well as a right due from one individual to another, the trespassing upon which is a civil injury for which redress may be sought in a civil action. . . . Thus, a civil right is a legally enforceable claim of one person against another. ^[14]

The IRS has used a very broad definition for civil rights in other contexts. For example, in a General Counsel Memorandum, the IRS stated, “We believe that the scope of the term ‘human and civil rights secured by law’ should be construed quite broadly.”^[15] Therefore, invasion of privacy, defamation, debt collection, credit reporting, and many other cases can fairly be classified as involving claims for civil rights. Medical device case, consumer litigation, claims for wrongful death, wrongful birth, wrongful life, and many others could be considered as enforcing the civil rights of the plaintiffs.^[16]

In my view, a path often exists to deduct legal fees in numerous contexts, where I believe it is defensible to characterize claims as involving civil rights, given IRS authorities that give this term a very broad interpretation. There is not 100 percent certainty, but I have written many tax opinions in support of a broad view of civil rights for purposes of legal fee deductions. So far, my IRS audit experience on this issue has been positive.

To be sure, it would be best if the tax law were amended to make it clear that no plaintiff should have to fear paying taxes on the portions of a settlement or judgment that is paid to their lawyer and does not end up in their pocket. However, until the tax law is clarified, there are viable workarounds for plaintiffs to avoid the topsy-turvy result of a plaintiff paying taxes on more money than they net out of a case.

Business Expenses

For a business, legal fees are a classic business expense. In addition to corporations, LLCs, and partnerships, a sole proprietor is entitled to claim business expenses on Schedule C if the legal fees relate to the business. Before the above-the-line deduction was enacted in 2004, some plaintiffs argued that a lawsuit itself amounts to a business venture so they should be able to deduct legal fees. Some plaintiffs consider filing a Schedule C, even if they have never done so in the past.

But without a Schedule C track record, it can be a tough argument.^[17] Moreover, Schedule C is historically more likely to be audited and also draws self-employment taxes. The extra tax hit can be 15.3 percent, although over the wage base, the rate drops to 2.9 percent. Still, in appropriate cases, a business expense deduction for legal fees is perfectly appropriate.

Capital Recoveries

A plaintiff with a capital recovery does not need to, and technically should not, deduct related legal fees. If a recovery is capital in nature, you should capitalize the legal fees and offset them against the recovery. Whether you capitalize the legal fees or view them as a selling expense, either approach should avoid tax on the attorney fees.

Exceptions to Banks

Although we are focusing on attorney fee deductions, it is worth noting that some plaintiffs may have arguments that they should not be considered to have gross income on the legal fees in the first place. To my mind, it is generally safer to assume that the legal fees will be gross income to the plaintiff, particularly compared with the strained approaches to avoid the income that are sometimes suggested. In Banks, the Supreme Court laid down the general rule that plaintiffs have gross income from contingent legal fees.

However, general rules have exceptions, and the Court alluded to situations in which this general 100 percent gross income rule might not apply. Falling within one of the exceptions to the Banks case is not a way of deducting legal fees, but should rather avoid the income in the first place.

Injunctive Relief

The Supreme Court suggested that legal fees for injunctive relief may not be income to the plaintiff. The bounds of this exception to Banks are still not clear, and in my experience, the issue comes up only rarely. If the plaintiff receives only injunctive relief, but plaintiffs’ counsel is awarded large fees, should the plaintiff be taxed on those fees? Perhaps not, but tax advice and a tax opinion in such a case is appropriate.

Court-Awarded Fees

Court-awarded fees may not be income to the plaintiff, but much depends on how the award is made and the nature of the fee agreement. Suppose that a lawyer and client sign a 40 percent contingent fee agreement. It provides that the lawyer is also entitled to any court-awarded fees. A verdict for plaintiff yields $500,000, split 60/40. The plaintiff has $500,000 of gross income, and should look for a deduction.

However, if the court separately awards another $300,000 to the lawyer alone, that should not be gross income to the plaintiff. What if the court sets aside the fee agreement and separately awards all fees to the lawyer? Does such a court order mean the IRS should not be able to tax the plaintiff on the fees? The terms of the fee agreement will matter. In that case, the statutory fee effectively satisfied the plaintiff’s obligation to pay the contingency fee that they otherwise would owe their counsel. Some private letter rulings suggest that an award of fees or costs that satisfies a plaintiff’s separate obligation to pay a contingency fee is includible in the income of the plaintiff.

Statutory Attorney Fees

This topic may be misunderstood more than many others. If a statute provides for attorney fees, can this be income to the lawyer only, bypassing the plaintiff? Perhaps in some cases, although contingent fee agreements may have to be customized. In Banks, the Court reasoned that the attorney fees were generally taxable to plaintiffs because the payment of the fees discharged a liability of the plaintiffs to pay their counsel under their fee agreements.

However, in statutory fee cases, the fees are not necessarily paid to satisfy a plaintiff’s liability. Instead, a statute (rather than a fee agreement) creates an independent liability on the defendant to pay the attorney fees. If the statutory fees were not awarded, the plaintiff may not be obligated to pay any additional amount to their attorney. Accordingly, some attorneys seem to assume that if a statute calls for attorney fees, the general rule of Banks can never apply. However, the mere availability of attorney fees under a statute does not override the general rule of Banks.

If the contingent fee agreement is like most, the fact that the fees can be awarded by statute may not be enough to distance the plaintiff from the fees. As the Banks decision notes, the relationship between lawyer and client is principal and agent. The fee agreement and the settlement agreement may need to address the payment of statutory fees. On at least two occasions after Banks was decided, the IRS has issued private letter rulings concluding that a plaintiff was not taxable on statutory fees separately paid to and awarded to their counsel that did not substitute for or provide credit against any contingency fee obligation owed by the plaintiff to their counsel.^[18]

Lawyer-Client Partnerships

This was a rather hot topic before and after Banks, but it seems to be only a footnote today. A partnership of lawyer and client arguably should allow each partner to pay tax only on that partner’s share of the profits. However, despite numerous amicus briefs, the Supreme Court in Banks expressly declined to address this long-discussed topic. If ethics rules can be navigated, a partnership tax return with K-1s to lawyer and client could help. However, as a practical matter, lawyer-client partnerships have not been promising,^[19] and they are very rarely discussed or implemented.

Conclusion

No plaintiff believes that it is fair to pay taxes on portions of their recovery paid directly to their lawyer that they never see. Before 2018, alternative minimum tax, the 2 percent AGI threshold, and the phase-out of deductions limited the efficacy of miscellaneous itemized deductions. There was frequent grousing about those rules, but it was relatively rare for them to result in catastrophic tax positions.^[20] Since 2018, miscellaneous itemized deductions have been gone, and while it seemed for a time that they might come back in 2026, they are now gone for good.

As plaintiffs have been doing for years, planning with the existing deduction choices is needed. I may be more aggressive with attorney fee deductions than some other tax advisers, but so far, I have not seen a plaintiff with a contingent fee lawyer actually pay tax on their gross settlement with no deduction. If plaintiffs cannot credibly argue that they avoided the gross income, there is usually a reasonable tax position for them to take to declare the gross income but to only pay taxes on their net recovery.

Robert W. Wood is a tax lawyer with Wood LLP (www.WoodLLP.com). This discussion is not intended as legal advice.

1. Commissioner of Internal Revenue v. Banks, 543 U.S. 426 (2005). ↑

2. Tax Cuts and Jobs Act, Pub. L. 115-97, § 11045 (2017). ↑

3. One Big Beautiful Bill Act, Pub. L. 119-21 (2025). ↑

4. The Civil Rights Tax Relief provision of the American Jobs Creation Act of 2004, H.R. 4520, § 703 (2004). ↑

5. See Robert W. Wood, Tax Write Off of Legal Fees Simplified, Bus. L. Today (Mar. 31, 2022). ↑

6. Internal Revenue Code, 26 U.S.C. § 104. ↑

7. I.R.C. § 62(e)(18). ↑

8. See I.R.C. §§ 62(e)(4)–(7), (11), (13), (14), (16), and (17). ↑

9. I.R.C. § 62(e). ↑

10. See I.R.C. § 62(a)(21). ↑

11. I.R.C. § 62(e)(18). ↑

12. 42 U.S.C. § 1983. ↑

13. See I.R.C. § 62(e)(18). ↑

14. 15 Am. Jur. 2d Civil Rights § 1. ↑

15. IRS Gen. Couns. Mem. 38468 (Aug. 12, 1980). ↑

16. See Civil Rights Fee Deduction Cuts Tax on Settlements, 166 Tax Notes Fed. 1481 (Mar. 2, 2020). ↑

17. See Alexander v. Comm’r, 72 F.3d 938 (1st Cir. 1995). ↑

18. See IRS Private Letter Ruling 201015016 (Jan. 5, 2010); IRS Private Letter Ruling 201552001 (Aug. 25, 2015). ↑

19. Allum v. Comm’r, T.C. Memo 2005-117, aff’d, 231 Fed. Appx. 550 (9th Cir. 2007), cert. denied, 128 S. Ct. 303 (2007). ↑

20. For a famous example, see Spina v. Forest Preserve District of Cook County, 207 F. Supp.2d 764 (N.D. Ill. 2002), as reported in 2002 National Taxpayer Advocate Report to Congress at 166; see also Adam Liptak, Tax Bill Exceeds Award to Officer in Sex Bias Case, N.Y. Times, Aug. 11, 2002, at section 1, p. 18. ↑

Federal appellate courts are currently confronting pivotal questions about hazardous substance designations, cultural natural resource damages, and judicial oversight of U.S. Environmental Protection Agency (“EPA”) settlements.

D.C. Circuit to Hear PFAS CERCLA Hazardous Substance Designation

The U.S. Court of Appeals for the D.C. Circuit is scheduled to hear oral arguments in early 2026 in a high-profile case challenging the EPA’s designation of two per- and polyfluoroalkyl substances (“PFAS”)—perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOS”)—as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) section 102. This marks the first time the EPA has used this provision to regulate a substance through rulemaking.

The case—Chamber of Commerce of the United States v. EPA—is drawing widespread attention due to its potential to set precedent for how PFAS are regulated and how CERCLA is interpreted going forward. The D.C. Circuit has scheduled oral arguments for January 20, 2026, emphasizing that the date is fixed unless modified by court order.

Although the rule designating PFOA and PFOS as CERCLA hazardous substances was finalized under the Biden administration, the Trump-era EPA has opted to defend it. However, industry challengers, led by the U.S. Chamber of Commerce and six other organizations, argue in a November 14 reply brief that the rule is legally flawed and cannot be salvaged by future regulatory reforms.

Specifically, they point to EPA’s admission that its interpretation of the phrase “may present substantial danger” lacks a clear regulatory framework. While the agency intends to issue a “Framework Rule” to guide future designations and incorporate cost considerations, the challengers argue that such efforts come “too late” to validate the current rule.

9th Circuit Considers Cultural NRD Claims in Cross-Border Dispute

In a parallel Superfund battle, the 9th Circuit is reviewing an en banc petition in Confederated Tribes of the Colville Reservation v. Teck Cominco Metals Ltd., where Canadian officials and industry groups are backing efforts to overturn a panel ruling that permitted Washington State tribal nations to seek natural resources damages (“NRD”) for cultural harms caused by toxic discharges into the Columbia River.

Teck Cominco, a Canadian mining firm, is seeking to avoid liability under CERCLA for releases from its smelter upstream in British Columbia. In amicus briefs filed in November, the Province of British Columbia and the Canadian Chamber of Commerce argue that applying CERCLA to cultural harms would violate Canadian sovereignty and expose foreign entities to sweeping liabilities under U.S. environmental laws. The Mining Association of Canada also joined in opposition.

A panel ruling in September allowed the Confederated Tribes to pursue claims that incorporate their unique cultural and spiritual ties to the Upper Columbia River, marking a significant expansion in how courts may interpret NRD liability under CERCLA.

3rd Circuit Weighs Judicial Oversight of Superfund Settlements

Meanwhile, the 3rd Circuit is assessing how much discretion courts should exercise in reviewing Superfund settlements, especially in light of recent Supreme Court decisions on agency deference. The case—USA v. Alden Leeds—involves a $150 million settlement approved by a New Jersey district court that allows a group of smaller potentially responsible parties (“PRPs”), known as the Small Parties Group (“SPG”), to avoid future liability for cleanup costs at the highly contaminated Diamond Alkali site.

Occidental Chemical Corp. (“OxyChem”), the largest PRP, is challenging the settlement, arguing that recent decisions—particularly the 2024 Loper Bright Enterprises v. Raimondo Supreme Court ruling that overturned Chevron deference—mean courts must more closely scrutinize EPA settlements.

SPG, in a brief filed on October 27, counters that the Loper Bright decision applies only to legal interpretations by agencies, not to the courts’ oversight of negotiated settlements. It further cites the Supreme Court’s 2025 National Environmental Policy Act ruling in Seven County Infrastructure Coalition v. Eagle County, which reaffirmed substantial deference to EPA’s discretionary settlement authority.

SPG also disputes arguments from Nokia of America, which was excluded from the settlement, asserting that its claims are premature. The case raises important questions about how EPA balances fairness and efficiency in securing cleanup funding from a wide array of responsible parties.

Takeaway

These cases are poised to redefine the contours of Superfund liability. The outcomes will not only influence how emerging contaminants like PFAS are regulated but also challenge the boundaries of judicial deference and international environmental accountability. Together, they signal a critical inflection point in the evolution of CERCLA—where scientific uncertainty, legal interpretation, and cross-border implications converge to reshape environmental governance in the United States.

On November 10, 2025, the U.S. Environmental Protection Agency (“EPA”) issued a pre-publication version of a proposed rule that would substantially narrow the scope of per- and polyfluoroalkyl substances (“PFAS”) reporting obligations under section 8(a)(7) of the Toxic Substances Control Act (“TSCA”). Notably, this proposal includes an exemption for imported articles, a major shift from the original 2023 rule. The public has until December 29, forty-five days from the rule’s official publication in the Federal Register, to comment.

Background: Original TSCA PFAS Reporting Rule

Finalized in October 2023, the original rule required manufacturers and importers of PFAS and PFAS-containing articles to report detailed data on activities dating back to January 1, 2011. Importantly, the rule lacked standard TSCA exemptions, drawing widespread concern for creating excessive compliance burdens—particularly on companies importing finished products containing trace levels of PFAS.

Key Proposed Exemptions

EPA now proposes to ease compliance by incorporating traditional exemptions found in other TSCA rules. Proposed exemptions include:

1. PFAS imported as part of an article
2. PFAS present in mixtures or articles below 0.1% (de minimis)
3. PFAS present as impurities
4. Byproduct PFAS not used for commercial purposes, including those formed incidentally during end use or exposure
5. Non-isolated intermediates
6. PFAS used in small quantities for research and development

Additionally, EPA is requesting feedback on whether to add a production volume threshold—mirroring the 25,000 lbs. (or 2,500 lbs.) exemption in the TSCA Chemical Data Reporting rule.

Revised Reporting Timeline

EPA is proposing to shift the reporting window from the originally scheduled period of April 13, 2026, to October 13, 2026. Under the new timeline:

• Reporting will begin sixty days after the effective date of the final rule.
• The submission window will last for three months, not six.

The EPA cited the need for additional time to develop and test the electronic reporting software (Central Data Exchange, or CDX) and to potentially incorporate changes based on industry feedback and a recent executive order to reduce regulatory burdens.

Key Provisions Unchanged

Several core aspects of the 2023 rule remain intact:

• The reporting lookback period remains January 1, 2011, to December 31, 2022.
• The PFAS definition is unchanged. Below are the generic chemical formulas used by regulatory bodies upon which EPA relies to define broad categories of PFAS based on their core structures.
  • R-(CF₂)-CF(R’)R”
  • R-CF₂OCF₂-R’
  • CF₃C(CF₃)R’-R”
• The “known to or reasonably ascertainable by” standard for due diligence continues to apply.

EPA is, however, seeking comment on whether to limit reportable PFAS to those with CASRN, TSCA Accession Numbers, or LVE Numbers.

Policy Rationale

According to EPA, the goal of this proposal is to make the rule more implementable, reduce duplicative and unnecessary reporting, and align with congressional intent. EPA Administrator Lee Zeldin emphasized that the initial rule risked imposing nearly $1 billion in compliance costs, labeling it a “crushing regulatory burden,” especially for small businesses. In contrast, the proposed revisions aim to preserve critical data collection without overburdening the regulated community.

What Should Businesses Do?

EPA is explicitly inviting comment on all aspects of the proposed changes, particularly:

• the newly proposed exemptions,
• the revised submission period, and
• the possibility of a production volume threshold.

Stakeholders—especially importers, manufacturers, and those involved in supply chain compliance—should strongly consider submitting comments during the forty-five-day public comment period.

This is the third part of our three-part series “What Fresh Hell Can This Be?”^[1] about beneficial ownership reporting. In the first part we discussed the Financial Crimes Enforcement Network’s (“FinCEN”) general residential real estate geographic targeting orders (“GTOs”), the Southwest U.S. border GTO, and the soon to be effective non-financed residential real estate reporting regulations.^[2] In the second part we discussed the Corporate Transparency Act (“CTA”) and its Reporting Rules as (being generous) “revised” by the interim final rule (“IFR”) published on March 26, 2025, including changes and issues wrought by the revisions.^[3] We now turn our attention to the New York LLC Transparency Act, a statute whose intent has been thwarted by the IFR’s destruction of the intended scope of the CTA.

The New York LLC Transparency Act: The Basics

New York’s LLC Transparency Act (“Transparency Act”) was the first and to date is the only state statute providing for a state-level beneficial ownership database^[4] akin to that of the CTA.^[5] Narrower in scope than was the CTA, which reached essentially all companies (corporations, LLCs, limited partnerships, etc.) created or qualified to transact business in the United States, the Transparency Act reaches only LLCs.^[6] Under this law, each limited liability company organized in New York that would be treated as a “reporting company” under the CTA^[7] (a “domestic reporting LLC”) is obligated to file a beneficial owner designation (“BOD”) within thirty days of when it files its initial articles of organization.^[8] With respect to LLCs organized outside of New York but applying to transact business in the Empire State^[9] that would be a reporting company under the CTA^[10] (a “foreign reporting LLC” (domestic reporting LLCs and foreign reporting LLCs are, collectively, “reporting LLCs”)) must file a BOD within thirty days of when it files its application for a certificate of authority to transact business in New York. All of these filings will be electronic and made with the New York secretary of state.^[11] In addition, the New York secretary of state is authorized to issue regulations to effect the required BOD filing mechanism.^[12] To date^[13] no regulations have been issued, but the secretary of state has signaled that they will soon be issued.

The Initial Reporting Deadline and Claims of Exemption

As most recently amended, the Transparency Act has an initial effective date of January 1, 2026. Working from that date, the initial filing due dates for a domestic reporting LLC or a foreign reporting LLC are as follows:

Where a reporting LLC believes itself exempt from the Transparency Act’s reach by reason of one of the exemptions from “reporting company” status under the CTA and the Reporting Rules,^[18] it must file a report to that effect, including under which of the CTA’s / Reporting Rules’ exemptions it qualifies;^[19] this submission is made under penalty of perjury.

Updating Obligations

Having filed an initial BOD, an annual update is required. That annual update will require either updates to any information that has changed or a certification that the information of record remains accurate.^[20] This updating obligation includes a new certification from each exempt company as to the exemption upon which it is relying. Unlike the CTA, there is no obligation to file an update simply because of a change as to the reporting LLC’s information or that of any of its beneficial owners.^[21]

Beneficial Owners

The Transparency Act incorporates by reference from the CTA and the Reporting Rules the definitions and principles there employed to determine who is with respect to a reporting LLC a “beneficial owner.”^[22] The problem this incorporation raises for the Transparency Act is discussed below.

Applicants

The Transparency Act requires, as to each reporting LLC, information about the “applicant,” the definition of which is adopted from the CTA.^[23] However, while the CTA did not require that an initial Beneficial Ownership Information Report (“BOIR”) for a company organized before January 1, 2024, report its company applicant,^[24] no such limiting principle applies under the New York law—in other words, all LLCs ever organized in New York (if still in operation) or qualified to transact business (if still qualified) must identify a company applicant. The New York LLC Act became effective in October 1994, so in some instances there will need to be a lookback of thirty-one years to determine who was the applicant(s). Currently, the Transparency Act provides no mechanism of relief for reporting LLCs whose applicants who are no longer with us; it will be rather difficult to submit either a current address or an identifying number from a current driver’s license or passport for a person now deceased. Similar problems will exist as to applicants who cannot be identified or located or who are simply recalcitrant.^[25]

Required Contents of a BOD

Each reporting LLC, in its BOD, is required to set forth as to each beneficial owner and each applicant the following:

• full legal name;
• date of birth;
• current home or business street address;^[26] and
• a unique identifying number from (i) an unexpired passport, (ii) an unexpired state driver’s license, or (iii) an unexpired identification card or document issued by a state or local government agency or tribal authority for the purpose of identification of that individual.^[27]

Consequences of Failure to File

There are a variety of $500 penalties that apply upon failure to file an initial or an annual update report, ranging from per diem fines up to and including dissolution or the cancellation of the certificate of authority to transact business.^[28]

A Few Points of Comparison

Notwithstanding that the Transparency Act adopts by references certain rules and principles from the CTA, there are material differences between the two regimes that may be encapsulated as follows:

The New York City Real Property Transfer Tax Return

In addition to the Transparency Act, New York City’s Department of Finance, in connection with the New York City Real Property Transfer Tax Return (“NYC-RPT”), requires disclosure of two new additional “grantor” and “grantee” types: (1) single-member LLCs and (2) multiple-member LLCs. For any grantor or grantee that is an LLC, the NYC-RPT requires the names of all members of the grantor or grantee, regardless of percentage of ownership interest or level of management control, as well as each member’s Social Security number or employment identification number. According to published reports, the aim of this change was to capture information needed to address tax fraud.^[58]

The IFR-Sourced Inconsistencies Between the Transparency Act and the CTA

As already discussed, the IFR effected significant changes to the system contemplated by the CTA and the Reporting Rules; the Transparency Act, having been drafted well before the IFR, has suffered consequent damage. For example:

Bills to amend the Transparency Act to “de-link” it from certain of the CTA’s definitions and the disconnects identified above have been approved by the New York legislature; whether they will ultimately be enacted into law remains to be seen.^[67] Speaking broadly, the proposals delete the cross-references to the CTA and the related regulations and substitute repetitions of the previously referenced language.

For example, currently the Transparency Act provides that: “‘[r]eporting company’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(11), as amended, and any regulations promulgated thereunder,” and then goes on to restrict the application to foreign and domestic LLCs.^[68] The proposed amendment to the Transparency Act would rewrite that definition to provide that a reporting company is an LLC either organized in or qualified to transact business in New York and not falling within one of twenty specific categories similar, but not identical, to the twenty-three exemptions from reporting company status under the pre-IFR Reporting Rules.^[69]

There will remain, however, significant issues. For example, the definition of “beneficial owner” (effective as of January 1, 2026) references both the CTA statute and the related regulations, the latter now exempting all U.S. persons from its scope.^[70] Under the possibly amended definition, a “beneficial owner” will be “any entity or individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: (1) exercises substantial control over the entity; or (2) owns or controls not less than twenty-five percent of the ownership interests of the entity.”^[71] And herein lie more problems. First, what is the definition of “substantial control”? It was exhaustively defined in the CTA’s Reporting Rules,^[72] but it is not proposed that the definition there employed be incorporated by reference into the Transparency Act. And what is the definition of “owns or controls”? What it meant under the CTA’s Reporting Rules to “own or control” an interest in a reporting company was carefully detailed,^[73] but no similar definition appears or is proposed to be added to the Transparency Act. Last, although what constitutes an “ownership interest” in a reporting company was detailed in the CTA’s Reporting Rules,^[74] that term is not defined in the Transparency Act.

Further, there is a provision of New York Senate Bill 8432 (which substituted for Assembly Bill 8662) that is simply baffling, namely, a revised definition of “exempt company” that appears to be a faulty cut-and-paste:

(c) “Exempt company” shall mean a limited liability company or foreign limited liability company not otherwise defined as a reporting company that meets one or more of the following conditions:

(1) a minor child, which shall mean an individual under the age of eighteen;

(2) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;

(3) an individual acting solely as an employee of a corporation, limited liability company, or other similar entity and whose control over or economic benefits from such entity is derived solely from the employment status of the person;

(4) an individual whose only interest in a corporation, limited liability company, or other similar entity is through a right of inheritance; or

(5) a creditor of a corporation, limited liability company, or other similar entity, unless the creditor meets the requirements of paragraph one of this subdivision.^[75]

While this is clearly based upon a provision of the Reporting Rules,^[76] in the Reporting Rules it is a series of exemptions from the defined term “beneficial owner”—not “exempt company.”^[77]

There also exists the question of whether there will be sufficient time for New York to both organize its beneficial ownership reporting database (to date, the authors are unaware of the promulgation of even proposed regulations) and publicize the revised law.

As matters stand currently, consequent to its linkage to the CTA’s Reporting Rules as to what is a “reporting company,” the Transparency Act will not apply either to the LLCs organized (“created,” in the parlance of the CTA) in New York or to any other LLC organized in the United States.^[78] Rather, it will reach only LLCs that have been formed outside the U.S. and then have qualified or do qualify to transact business in New York^[79]—assuming that the foreign organization does fall within the scope of a reporting company requiring it to be a “limited liability company” and an “entity.”^[80] In order to return the Transparency Act to its intended scope, its revision will be necessary in order to de-link its definitions from those now employed in the CTA and the post-IFR Reporting Rules.^[81]

Beneficial Ownership Reporting in Limbo

As we bring this article to a close, the CTA still remains on the books, even as the current administration has through questionable regulatory action destroyed the contemplated reporting system;^[82] the Southwest U.S. border GTO is in litigation and has at the circuit court level been found wanting; the residential real estate GTOs are provisionally extended until the delayed effective date of the Residential Real Estate Rules, which are themselves under challenge;^[83] and New York’s LLC Transparency Act is caught between the rock and the hard place of adopted-by-reference defined terms that are now inconsistent.

We are certainly glad to have cleared up all of that.^[84]

Postscript

In Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting in Limbo, Bus. L. Today (Dec. 9, 2025), at footnote 259 we discussed the Fidelity National litigation in which the validity of the RRE Rules was challenged. Fid. Nat’l Fin., Inc. v. Bessent, No. 3:25-cv-00554 (M.D. Fla. filed May 20, 2025). We noted that as to its status oral argument as to competing motions for summary judgment has been heard. On December 9 the magistrate judge issued a recommendation (docket item 82) that the plaintiffs’ motion for summary judgment be denied and that the government’s motion for summary judgment be granted, finding that the adoption of the RRE Rules was legitimate pursuant to a statutory grant of authority.

1. Of the famous poet and witticist Dorothy Parker (1893–1967), it is said:

   “If the doorbell rang in her apartment, she would say, ‘What fresh hell can this be?’—and it wasn’t funny; she meant it.” You might as well live: the life and times of Dorothy Parker, John Keats (Simon Schuster, 1970, p. 124). Often quoted as “What fresh hell is this?” as in the title of the 1987 biography by Marion Meade, “Dorothy Parker: What Fresh Hell Is This?”

   See Dorothy Parker, Wikiquote (last visited Nov. 22, 2025). The authors suggest this is a fair summation of all that practitioners have had to face over the last more than two years in staying current on developments in beneficial ownership reporting. ↑

2. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting in Limbo, Bus. L. Today (Dec. 9, 2025). ↑

3. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting and the CTA, Bus. L. Today (Dec. 10, 2025). ↑

4. The closest exception to this statement is the District of Columbia, which has since 2019 required disclosure of beneficial owners with ownership of or exceeding 10 percent or who control or have the ability to control the operational direction of the company. See D.C. Code § 29-102.01(a)(6), (7) (addressing initial filings by, respectively, domestic and foreign entities); id. § 29-102.11(a)(6), (7) (annual report filings by, respectively, domestic and foreign entities); see also 1 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 4A:36 (Dec. 2025). ↑

5. See S.B. 995B, 2023–2024 Leg. (N.Y. 2023) (signed by the governor on Dec. 22, 2023) (Approval Memo 91) (codified as 2023 New York Laws 772 and effective 365 days after adoption (theoretically, Saturday, December 21, 2024)). It was then amended on March 21, 2024, to, among other points, provide an initial effective date of January 1, 2026. See S.B. 8059, 2023–2024 Leg., § 10 (N.Y. 2024); see also Andrew Weiner, Brian Montgomery & Deborah Thoren-Peden, Why NY May Want to Reconsider Its LLC Transparency Law, Law360 (Mar. 13, 2025) (“New York is, as of this date, the only state to have enacted a beneficial ownership disclosure law modeled on the federal Corporate Transparency Act.”).

   While New York is the only state-level beneficial ownership system comparable to the CTA in effect, similar programs have been considered in California (S.B. 738, 2023–24 Sess. (Cal. 2024)); Maryland (S.B. 954, 2024 Gen. Assemb., Reg. Sess. (Md. introduced Feb. 2, 2024)); and Massachusetts (H. 3566, 193d Gen. Ct. (Mass. introduced Mar. 30, 2023)). See also Weiner, Montgomery & Thoren-Peden, supra (“During the salad days of the federal CTA, before the opposition coalesced, several state legislatures jumped into the fray and considered their own CTA-like legislation, notably California, Maryland and Massachusetts. But only New York succeeded in adopting a ‘baby CTA’ statute, named the LLC Transparency Act.”). ↑

6. See N.Y. Ltd. Liab. Co. Law [hereinafter NYLLC Law], § 102(m) (defining “limited liability company” or “domestic limited liability company” to mean “an unincorporated organization of one or more persons having limited liability for the contractual obligations and other liabilities of the business . . . other than a partnership or trust, formed and existing under this chapter and the laws of this state.”). ↑

7. See id. § 1106(b) (effective Jan. 1, 2026) (“‘Reporting company’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(11), as amended, and any regulations promulgated thereunder, but shall only include limited liability companies formed or authorized to do business in New York state.”). That provision of the CTA (31 U.S.C. § 5336(a)(11)(A)) identifies a reporting company as:

   (A) means a corporation, limited liability company, or other similar entity that is—

   (i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or

   (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe. ↑

8. See NYLLC Law § 1107 (effective Jan. 1, 2026) provides in part:

   (d) Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, a reporting company shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, an exempt company shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.

   (e) Within one year of the effective date of this section, all previously formed or authorized reporting companies shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within one year of the effective date of this section, all previously formed or authorized exempt companies shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section. ↑

9. See id. § 102(k). This section defines a “foreign limited liability company” as:

   an unincorporated organization formed under the laws of any jurisdiction, including any foreign country, other than the laws of this state (i) that is not authorized to do business in this state under any other law of this state and (ii) of which some or all of the persons who are entitled (A) to receive a distribution of the assets thereof upon the dissolution of the organization or otherwise or (B) to exercise voting rights with respect to an interest in the organization have, or are entitled or authorized to have, under the laws of such other jurisdiction, limited liability for the contractual obligations or other liabilities of the organization. ↑

10. See id. § 1107(d), (e) (effective Jan. 1, 2026). ↑

11. See id. § 1107(c) (effective Jan. 1, 2026) (“All beneficial ownership disclosures, attestations of exemption, and filing fees shall be submitted electronically as prescribed by the department of state. The beneficial ownership disclosure or attestation of exemption shall be signed electronically consistent with the provisions of article three of the state technology law.”). What are to be the filing fees that attach to these filings have not yet been publicly addressed. See also Memorandum from John Whalen, N.Y. Secretary of State’s Office, to “Drawdown Accounts” Dated Nov. 3, 2025, Re: Beneficial Owner Disclosure (copy is in possession of authors). (“All beneficial ownership disclosure statements and attestations of exemption must be filed with the Department electronically. The Department is developing an online filing system, that will be available on 01/01/2026.”). ↑

12. See NYLLC Law § 1108(h) (effective Jan. 1, 2026) (“The secretary of state may promulgate regulations necessary to effectuate the provisions of this article.”). ↑

13. As of December 7, 2025. ↑

14. See NYLLC Law § 1107(d) (effective Jan. 1, 2026) (“Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, a reporting company shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, an exempt company shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”). ↑

15. See id. § 1107(e) (effective Jan. 1, 2026) (“Within one year of the effective date of this section, all previously formed or authorized reporting companies shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within one year of the effective date of this section, all previously formed or authorized exempt companies shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”). ↑

16. See id. § 1107(d) (effective Jan. 1, 2026) (“Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, a reporting company shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, an exempt company shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”); see also Memorandum from John Whalen at the N.Y. Secretary of State’s office, supra note 11:

    Foreign limited liability companies that are authorized to do business in New York State on or after January 1, 2026, will be required to file an initial beneficial owner disclosure statement or attestation of exemption within 30 days of authorization. Those authorized to do business in New York State prior to January 1, 2026, will need to file by December 31, 2026. ↑

17. See NYLLC Law § 1107(e) (effective Jan. 1, 2026) (“Within one year of the effective date of this section, all previously formed or authorized reporting companies shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within one year of the effective date of this section, all previously formed or authorized exempt companies shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”); see also Memorandum from John Whalen at the N.Y. Secretary of State’s office, supra note 11. ↑

18. See NYLLC Law § 1106(b) (effective Jan. 1, 2026). ↑

19. See id. § 1107(b) (effective Jan. 1, 2026) (“[A]ll exempt companies shall electronically file, under penalty of perjury, an attestation of exemption in such form designated by the department of state, which statement shall include the specific exemption claimed and the facts on which such exemption is based. Any company filing an exemption pursuant to this subdivision shall be subject to the annual statement requirement as stated in subdivision (g) of this section in the form prescribed by the department, which statement shall be attested to under penalty of perjury.”); see also Andrew Weiner, Brian Montgomery & Deborah Thoren-Peden, Evolving Federal Rules Pose Further Obstacles to NY LLC Act, Law360 (May 14, 2025) (“An exempt company, to qualify for exemption under the LLC Transparency Act, must file an attestation of exemption, under penalty of perjury, citing the exemption claimed and the facts on which the exemption is based, to be updated annually.”).

    Aside from the inconsistency problem identified below, this requirement is a marked departure from the CTA as enacted through the Reporting Rules. Under that system, no filing was required if a company as of an initial effective date was able to avail itself of an exemption from reporting company status. If a company filed a Beneficial Ownership Information Report (“BOIR”) and then fell within the scope of an exemption, it would file an updated BOIR indicating it was henceforth exempt, but without the requirement to identify under which exemption it fell. See 31 C.F.R. §§ 1010.380(a)(2)(ii), 1010.380(b)(3)(ii). ↑

20. See NYLLC Law § 1107(g) (effective Jan. 1, 2026) (“Once the initial beneficial ownership disclosure has been filed, all reporting companies shall electronically file with the department of state an annual statement confirming or updating: (1) their beneficial ownership disclosure information; (2) the street address of its principal executive office; (3) status as exempt company, if applicable; and (4) such other information as may be designated by the department of state.”). ↑

21. Compare 31 C.F.R. § 1010.380(a)(2)(i). ↑

22. See NYLLC Law § 1106(a) (effective Jan. 1, 2026) (“‘Beneficial owner’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(3), as amended, and any regulations promulgated thereunder.”). ↑

23. See id. § 1106(d) (effective Jan. 1, 2026) (“‘Applicant’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(2), as amended, and any regulations promulgated thereunder, but shall only include those relating to limited liability companies.”). The cited provision of the CTA provides:

    APPLICANT.—The term “applicant” means any individual who—(A) files an application to form a corporation, limited liability company, or other similar entity under the laws of a State or Indian Tribe; or (B) registers or files an application to register a corporation, limited liability company, or other similar entity formed under the laws of a foreign country to do business in the United States by filing a document with the secretary of state or similar office under the laws of a State or Indian Tribe.

    The Reporting Rules, pre-IFR, at 31 C.F.R. § 1010.380(e), defined “company applicant” as:

    (1) For a domestic reporting company, the individual who directly files the document that creates the domestic reporting company as described in paragraph (c)(1)(i) of this section;

    (2) For a foreign reporting company, the individual who directly files the document that first registers the foreign reporting company as described in paragraph (c)(1)(ii) of this section; and

    (3) Whether for a domestic or a foreign reporting company, the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.

    This provision was amended by the IFR to provide:

    For purposes of this section, the term “company applicant” means:

    (1) [Reserved]

    (2) The individual who directly files the document that first registers the reporting company as described in paragraph (c)(1)(ii) of this section; and

    (3) The individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document. ↑

24. See also 1 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 4A:18 (Dec. 2025):

    The CTA goes on to require that the initial BOIRs filed by reporting companies include information as to the applicant. This protocol was modified in the Reporting Regulations to the effect that (a) companies pre-existing the effective date of the Reporting Regulations are not required to identify their applicants (renamed in the Reporting Regulations the “company applicant(s)”) and (b) eliminated the requirement that the identifying information provided as to the company applicant be updated. ↑

25. See also Robert R. Keatinge & Thomas E. Rutledge, Impossible Things: Compliance with the Corporate Transparency Act When Beneficial Owners or Company Applicants Are Nonresponsive, Bus. L. Today (Dec. 16, 2024). ↑

26. Permitting the use of a business address is a departure from the CTA, which requires a residential address. See 31 C.F.R. § 1010.380(b)(1)(ii)(C)(2). ↑

27. See NYLLC Law § 1107(a) (effective Jan. 1, 2026). In contrast with the CTA (31 C.F.R. § 1010.380(b)(ii)(E)), the Transparency Act does not require an image of the passport / driver’s license / identification card from which the unique identifying number is taken. In another contrast with the CTA, it provided for a “FinCEN ID” that could be used by a beneficial owner in place of providing to the company his or her personal identifying information, with that FinCEN ID number then included in the reporting company’s BOIR. See 31 C.F.R. § 1010.38(b)(4); see also Ribstein, Keatinge & Rutledge, supra note 4, § 4A:25. The Transparency Act has no equivalent to a FinCEN ID. ↑

28. See NYLLC Law § 1108 (effective Jan. 1, 2026). ↑

29. See id. § 1106(b). There is a certain ambiguity in determining what is a foreign “limited liability company”; if a foreign country does not use that label, is the foreign entity a “limited liability company”? ↑

30. See 31 U.S.C. § 5336(a)(11)(i); 31 C.F.R. § 1010.380(c)(1)(i). ↑

31. See 31 U.S.C. § 5336(a)(11)(ii); 31 C.F.R. § 1010.380(c)(1)(ii). ↑

32. See S.B. 8059, 2023–2024 Leg., § 10 (N.Y. 2024). ↑

33. See 31 C.F.R. § 1010.380(a)(1)(A). ↑

34. See NYLLC Law § 1107(d) (effective Jan. 1, 2026). ↑

35. See 31 C.F.R. § 1010.380(a)(1) (extended in 2024 to ninety calendar days); see also Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 66730 (Sept. 28, 2023). ↑

36. See NYLLC Law § 1107(e) (effective Jan. 1, 2026) (“Within one year of the effective date of this section, all previously formed or authorized reporting companies . . . .”). ↑

37. See 31 C.F.R. § 1010.380(a)(1)(iii). ↑

38. See NYLLC Law § 1107(g) (effective Jan. 1, 2026) (“Once the initial beneficial ownership disclosure has been filed, all reporting companies shall electronically file with the department of state an annual statement confirming or updating: (1) their beneficial ownership disclosure information; (2) the street address of its principal executive office; (3) status as exempt company, if applicable; and (4) such other information as may be designated by the department of state.”). ↑

39. See 31 C.F.R. § 1010.380(a)(2). ↑

40. See NYLLC Law § 1107(a) (effective Jan. 1, 2026). ↑

41. See 31 C.F.R. §§ 1010.380(b)(1)(ii) (“and every individual who is a company applicant”), 1010.380(b)(2)(iv) (“Notwithstanding paragraph (b)(1)(ii) of this section, if a reporting company was created or registered before January 1, 2024, the reporting company shall report that fact, but is not required to report information with respect to any company applicant”). ↑

42. See 31 C.F.R. § 1010.380(b)(1)(ii)(E). ↑

43. See 31 C.F.R. § 1010.380(b)(4). ↑

44. See NYLLC Law § 1107(d) (effective Jan. 1, 2026), which provides in part:

    (2) by court order; (3) to officers or employees of another federal, state or local government agency where disclosure is necessary for the agency to perform its official duties as required by statute or necessary to operate a program specifically authorized by law; or (4) for a valid law enforcement purpose including as relevant to any law enforcement investigation by the office of the attorney general. ↑

45. See 31 U.S.C. § 5336(c)(2)(B). ↑

46. See 31 U.S.C. § 5336(c)(2)(C). ↑

47. See NYLLC Law § 1107(f) (effective Jan. 1, 2026). ↑

48. See 31 U.S.C. § 5336(c)(2)(A). ↑

49. See NYLLC Law § 1108(a)(2) (effective Jan. 1, 2026). ↑

50. See NYLLC Law § 1108(a)(3) (effective Jan. 1, 2026). ↑

51. See NYLLC Law § 1108(b)(1) (effective Jan. 1, 2026). ↑

52. See NYLLC Law § 1108(b)(2) (effective Jan. 1, 2026). ↑

53. See NYLLC Law §§ 1108(e)(1), 1108(e)(4) (effective Jan. 1, 2026). ↑

54. See 31 U.S.C. § 5336(h)(3)(A). ↑

55. See 31 U.S.C. § 5336(h)(3)(B). ↑

56. See NYLLC Law § 1107(b) (effective Jan. 1, 2026) (“All exempt companies shall electronically file, under penalty of perjury, an attestation of exemption in such form designated by the department of state, which statement shall include the specific exemption claimed and the facts on which such exemption is based.”). ↑

57. See 31 C.F.R. § 1010.380(a)(2)(ii):

    If a reporting company meets the criteria for any exemption under paragraph (c)(2) of this section subsequent to the filing of an initial report, this change will be deemed a change with respect to information previously submitted to FinCEN, and the entity shall file an updated report.

    See also Fin. Crimes Enf’t Network, Frequently Asked Questions (“FAQs”), FAQ J.8 (Sept. 18, 2023). ↑

58. See Revised NYC Property Transfer Tax Return Requires New Disclosures for Multiple Member LLCs, Prac. L. Real Est. (July 23, 2015); see also Lauren Elkies Schram, 5 Reasons Why the New LLC Disclosure Rules Stink, Com. Observer (July 29, 2015). New York is also considering in 2025 legislation that if enacted would require the filing of additional beneficial ownership information for LLCs that file a Rent Registration Statement under the Emergency Tenant Protection Act of 1974. S.B. 119, 2025–2026 Leg. (N.Y. 2025). ↑

59. See NYLLC Law § 1106(a) (effective Jan. 1, 2026). ↑

60. See 31 C.F.R. § 1010.380(d)(4)(ii). ↑

61. See NYLLC Law § 1106(b) (effective Jan. 1, 2026). ↑

62. See 31 C.F.R. § 1010.380(c)(2)(xxiv). ↑

63. See NYLLC Law § 1106(c) (effective Jan. 1, 2026). ↑

64. See 31 C.F.R. § 1010.380(d)(4)(i). ↑

65. See NYLLC Law § 1106(d) (effective Jan. 1, 2026). ↑

66. See 31 C.F.R. § 1010.380(e). ↑

67. See S.B. 8432, 2025–2026 Leg. (N.Y. 2025) (substituting for A.B 8662A, 2025–2026 Leg. (N.Y. 2025)). To the authors’ knowledge, these bills were passed but not sent to the governor when the New York legislature adjourned. ↑

68. See NYLLC Law § 1106(b) (effective Jan. 1, 2026). ↑

69. See S.B. 8432, § 1; A.B. 8662A, § 1; see also 31 U.S.C. § 5336(a)(11)(B); 31 C.F.R. § 1010.380(c)(2). ↑

70. See Houston, Keatinge, Rutledge & Wheaton, supra note 3. ↑

71. See S.B. 8432, § 1(a); A.B. 8662A, § 1(a). ↑

72. See 31 C.F.R. § 1010.380(d)(1). ↑

73. See id. § 1010.380(d)(2)(ii)–(iii), (d)(3). ↑

74. See id. § 1010.380(d)(2)(i). ↑

75. See S.B. 8432, § 1(c); A.B. 8662, § 1(c). ↑

76. See 31 C.F.R. § 1010.380(d)(3). ↑

77. This is not to suggest that this let’s just say inexplicable provision of Senate Bill 8432 is its only failing. Section (1)(b)(2), which intends to define those LLCs exempt from the BOR filing obligation (although they are required to file a statement that they are exempt and that specifies the exemption(s) upon which they are relying), includes at (xvi) an exemption for any [LLC] that “(A) operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in subparagraph (xiv). . . .” Subparagraph (xiv) addressed pooled investment vehicles. No doubt the intended cross-reference is to (xv), which addresses nonprofit organizations under I.R.C. § 501(c). See also 31 U.S.C. §§ 5336(a)(ii)(B)(xx), 5336(a)(ii)(B)(xix); 31 C.F.R. §§ 1010-380(c)(2)(xx), 1010-380(c)(2)(xix). Ergo, the CTA’s exemption from reporting company classification for an “entity assisting a tax-exempt entity,” except as to the perhaps null set of I.R.C. § 501 tax-exempt pooled investment vehicles, is not available under the Transparency Act. Thanks to Alan Stachura for pointing out this obscure error. ↑

78. See also Weiner, Montgomery & Thoren-Peden, supra note 19:

    As a result, the term “reporting company” under the regulations to the CTA, including the IFR, now refers only to foreign reporting companies. Any entity formed in the U.S., the District of Columbia or any U.S. territory is by definition not a reporting company and therefore is expressly exempt from reporting.

    Unless and until the IFR is significantly changed by the promised final rule, the arguable consequence is the elimination of the requirement under the LLC Transparency Act to report any information for any LLC created in New York or elsewhere in the U.S. and qualified to do business in New York. ↑

79. See Memorandum from John Whalen at the N.Y. Secretary of State’s office, supra note 11 (“Effective January 1, 2026, limited liability companies that are formed under the laws of a foreign country and which are authorized to do business in New York will be subject to new beneficial ownership information disclosure requirements.”). ↑

80. See also Ribstein, Keatinge & Rutledge, supra note 4, § 4A:10. Note that the Transparency Act references the CTA for what is a “foreign LLC” and does not use the definition of that term otherwise employed in the New York LLC Act. See NYLLC Law § 102(k):

    “Foreign limited liability company” means an unincorporated organization formed under the laws of any jurisdiction, including any foreign country, other than the laws of this state (i) that is not authorized to do business in this state under any other law of this state and (ii) of which some or all of the persons who are entitled (A) to receive a distribution of the assets thereof upon the dissolution of the organization or otherwise or (B) to exercise voting rights with respect to an interest in the organization have, or are entitled or authorized to have, under the laws of such other jurisdiction, limited liability for the contractual obligations or other liabilities of the organization. ↑

81. See Andrew J. Weiner, Brian H. Montgomery & Deborah S. Thoren-Peden, The Ironic Impact of FinCEN’s New CTA Regulations on New York’s LLC Transparency Act, Pillsbury (May 5, 2025). ↑

82. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting and the CTA, Bus. L. Today (Dec. 10, 2025). ↑

83. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting in Limbo, Bus. L. Today (Dec. 9, 2025). ↑

84. The authors would like to thank Pia Angelikis, Dr. J. William Callison, Professor Michael Healy, Kevin Shepherd, Alan Stachura, and Andrew Weiner for helpful comments on aspects of this manuscript. The authors retain the responsibility for any and all errors herein. ↑