In a significant victory for environmental advocacy groups, the U.S. Supreme Court’s refusal on June 30, 2025, to grant certiorari in two pivotal cases—Port of Tacoma v. Puget Soundkeeper Alliance^[1] and ExxonMobil Corp. v. Environment Texas Citizen Lobby^[2]—is widely expected to embolden and increase the prevalence of citizen suits under federal environmental statutes. The Court’s decision leaves intact lower-court rulings that affirm a broad scope for citizen enforcement, reinforcing the role of individuals and organizations as “private attorneys general” in holding polluters accountable.

The denial of certiorari in these cases sends a clear message: The current legal framework empowering citizens to enforce environmental laws remains robust. Industry petitioners in both cases had sought to significantly narrow the reach of citizen suit provisions, particularly concerning standing requirements and the ability to enforce state-issued permits that go beyond federal standards. The Court’s inaction signals a rejection of these attempts to curb environmental watchdog efforts.

Port of Tacoma: Upholding State Permit Enforcement

In Port of Tacoma, the petitioners challenged a U.S. Court of Appeals for the Ninth Circuit ruling that allowed environmental groups to enforce state-issued Clean Water Act (“CWA”) permits in federal court, even when those permits contained requirements more stringent than federal law.^[3] This case centered on alleged violations of Washington State’s Industrial Stormwater General Permit, with Puget Soundkeeper Alliance arguing for accountability for polluted runoff from a wharf.

The Supreme Court’s denial of cert in this instance means that the Ninth Circuit’s expansive interpretation stands. This outcome is crucial because it allows citizens in circuits aligned with the Ninth (and Fourth and Eleventh) Circuit to continue to enforce the full scope of state-issued National Pollutant Discharge Elimination System (“NPDES”) permits. This is a considerable win for states seeking to implement stricter environmental protections and for citizen groups dedicated to upholding them.

It also highlights a continuing circuit split on this issue, as the U.S. Court of Appeals for the Second Circuit has a narrower view. But for now, the broader interpretation prevails in a significant portion of the country.

ExxonMobil: Affirming Broad Standing and Penalties

The ExxonMobil case involved a prolonged battle over air pollution from ExxonMobil’s Baytown, Texas, petrochemical complex. The U.S. Court of Appeals for the Fifth Circuit had upheld a substantial $14.25 million civil penalty against Exxon, the largest ever in a Clean Air Act (“CAA”) citizen suit.^[4] ExxonMobil had urged the Supreme Court to revisit its 2000 precedent in Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., which established that civil penalties paid to the government could satisfy Article III’s “redressability” requirement for citizen plaintiffs.^[5] The company also sought to impose a more restrictive standard for demonstrating “traceability” of injuries to specific violations.^[6]

By denying cert, the Supreme Court left the Fifth Circuit’s decision undisturbed, affirming the broad interpretation of standing for citizen plaintiffs and reiterating that civil penalties can serve as a deterrent and redress injuries in citizen suits. This outcome is a significant affirmation of the fundamental principles underpinning environmental citizen enforcement, ensuring that groups like Environment Texas and the Sierra Club can continue to pursue accountability for environmental violations and secure substantial penalties that discourage future noncompliance.

The Landscape Ahead: More Citizen Suits Expected

The implications of these denials are clear: Environmental groups are poised to leverage these victories to intensify their citizen suit efforts. The CWA and CAA, along with over a dozen other federal environmental statutes, explicitly include citizen suit provisions, recognizing that government enforcement agencies may not always have the resources or the political will to pursue every violation.^[7]

As federal enforcement priorities potentially shift, citizen suits are expected to become an even more vital backstop, filling any perceived gaps in regulatory oversight. This means regulated entities should anticipate a heightened risk of litigation from environmental organizations, underscoring the critical importance of robust environmental compliance programs. The ability of citizens to seek both injunctive relief and significant civil penalties payable to the U.S. Treasury provides a powerful incentive for companies to adhere to environmental regulations.

In essence, the Supreme Court’s recent order list has reinforced the power of the public in environmental protection, solidifying the legal avenues for citizens to act as guardians of the nation’s air and water. This decision ensures that citizen suits will continue to be a formidable force in environmental litigation for the foreseeable future.

What This Means for Industry

1. Increased Legal Risk: Industries should anticipate a rise in citizen-led litigation, particularly from well-organized advocacy groups capable of using regulatory data and compliance reports to build strong cases.
2. Compliance Pressure: Regulatory compliance will no longer be a shield only scrutinized by the government. Any violation, even minor or self-reported, may trigger a lawsuit from a citizen group.
3. Litigation Costs: Even unsuccessful suits can entail significant legal costs and reputational damage. For example, ExxonMobil’s litigation spanned over a decade, involving appeals and millions in legal fees.

How Companies Can Protect Themselves

To mitigate this new landscape of liability, companies—especially those operating in manufacturing, energy, and logistics—should adopt proactive risk-management strategies.

1. Robust Compliance Systems: Implement and document environmental controls in real time. Use third-party audits to verify compliance with discharge, emissions, and permit conditions.
2. Transparency and Community Engagement: Foster open communication with local communities and environmental groups. Transparency can reduce adversarial relationships and build trust.
3. Rapid Incident Response: Ensure that any environmental release, even if minor, is addressed immediately and logged properly. Self-correction and voluntary reporting may reduce the likelihood of a lawsuit.
4. Legal Risk Assessments: Conduct periodic assessments to identify areas where past or current practices may be vulnerable to citizen suits. Remediate proactively.

Looking Ahead

The Supreme Court’s June 30 decision sends a clear signal: Citizen suits are here to stay—and may even be growing in power and frequency. While this strengthens environmental accountability, it also places added pressure on industries to go beyond minimum legal compliance and embrace more holistic environmental governance practices.

As the regulatory landscape evolves, businesses must prepare not only to meet federal standards but also to defend their records in the court of public and legal opinion.

1. Port of Tacoma, No. 24-350, 2025 WL 1787738 (U.S. June 30, 2025) (denial of cert). ↑

2. ExxonMobil, No. 24-982 (U.S. June 30, 2025) (denial of cert). ↑

3. Port of Tacoma, 104 F.4th 95 (9th Cir. 2024); see also 33 U.S.C. § 1365. ↑

4. ExxonMobil, 968 F.3d 357 (5th Cir. 2020); see also 42 U.S.C. § 7604. ↑

5. Friends of the Earth, 528 U.S. 167, 187 (2000). ↑

6. See ExxonMobil, 968 F.3d at 368. ↑

7. 33 U.S.C. § 1365; 42 U.S.C. § 7604. ↑

The Mendes Hershman Student Writing Contest is a highly regarded legal writing competition that encourages and rewards law students for their outstanding writing on business law topics. Papers are judged on research and analysis, choice of topic, writing style, originality, and contribution to the literature available on the topic. The distinguished former Business Law Section Chair Mendes Hershman (1974–1975) lends his name to this legacy. Read the abstract of this year’s second-place winner, Jake Granese of University of Miami School of Law, Class of 2026, below. Visit the University of Miami Business Law Review website to read the full article, published in Volume 34.

Sports betting in the United States has exploded in recent years, with a record-breaking $11 billion in revenue in 2023.^[1] This growth has inspired state governments to try to leverage this lucrative business. One recent development is the 2021 Gaming Compact between the Seminole Tribe of Florida and the state of Florida.^[2] The Compact represents a milestone towards exclusivity in mobile gaming for Native American tribal nations. Under the Compact, the Seminole Tribe receives sports betting exclusivity, for both retail sports wagering and online sports wagering, all across Florida, in exchange for a revenue sharing arrangement—unlike any other form of exclusivity. In the landmark case West Flagler Associates v. Haaland, the D.C. Circuit Court of Appeals upheld the Compact, ruling that any bet made off tribal land, but processed through servers located on tribal land, can be legally considered within tribal jurisdiction.^[3] This case solidified the Compact’s legality after a prolonged legal battle.

This ruling paves the way for sports betting legalization in other states with Native American tribal nations, shifting the balance of tribal-state relations throughout the country. Although the economic rewards of such arrangements are attractive, there are serious secondary concerns. One main worry is monopolistic control, detrimental to consumers through limited competition, suppressed market innovation, and increased costs. Though tribal sovereignty is important, policymakers need to also consider consumer protections as a top priority. Without proper regulation and oversight, sports betting offerings could yield predatory practices that exploit vulnerable customers. As more states move to legalize sports betting, regulators must guarantee competitive and fair markets for all consumers.

1. Marcus Lu, Visualizing the Growth of U.S. Sports Betting, Visual Capitalist (July 5, 2024). ↑

2. See generally 2021 Gaming Compact Between the Seminole Tribe of Florida and the State of Florida, Fla.–Seminole Tribe of Florida (Apr. 23, 2021) (available at Letter from Bryan Newland, Principal Deputy Assistant Sec’y – Indian Affs., U.S. Dep’t of the Interior, to the Hon. Marcellus W. Osceola, Jr., Chairman, Seminole Tribe of Florida (Aug. 6, 2021), at 13). ↑

3. W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059, 1066 (D.C. Cir. 2023). ↑

The continued expansion of e-commerce has driven a number of recent trends in intellectual property (“IP”) enforcement that require businesses to reexamine their IP assets’ form and protection. These include a shift in enforcement from traditional, registered IP to unregistered IP; an increase in IP enforcement against gray market goods; and an increase in infringement claims against online marketplaces. Policy changes such as new and increased tariffs may also affect IP enforcement. The effect of each trend will differ depending on the nature of a business, but business counsel should prioritize addressing them, as IP assets increasingly impact a business’s competitive edge and inform its future partnerships.

A Shift Toward Enforcement of Unregistered IP

Alice Corporation v. CLS Bank International, a landmark 2014 Supreme Court decision, generally weakened patent rights by invalidating a patent whose central concept was an abstract idea that merely required generic computer implementation and failed to sufficiently transform the abstract idea. Since then, many more patents, particularly in the software industry, have been challenged. In addition, the patent application process may take several years, and protection from a granted patent lasts only twenty years. This can lock businesses into IP that may or may not be valuable in the next decade, depending on e-commerce fads and new technologies. Because virality is often the source of a product’s success, flexibility in the ability to enforce different types of IP may be the most valuable commodity.

Accordingly, in addition to maintaining registered IP assets (like patents), businesses may benefit from developing a robust trade secret program and investing in unregistered trade dress and trademark protection. Counsel should help businesses increase their portfolio of unregistered IP, which offer flexibility to pursue infringement claims on an ad hoc basis. Unlike a patent or a registered trade dress or trademark, unregistered IP is amorphous—allowing the IP owner the flexibility to define its assets at the time the need to litigate against a competitor arises. For example, rather than have potential infringement allegations constrained by the four corners of a design patent, a business can define its trade dress as the exact elements of its own product packaging that are similar to its competitor’s packaging.

Strategies Against Gray Market Goods

There has been an increase in IP enforcement against resellers (often independent sellers) of gray market goods on e-commerce platforms because of the threat gray market goods pose to businesses’ revenue and brand integrity. Gray market goods are genuine goods originating from a brand owner but distributed outside of authorized channels. Some argue that distribution of gray market goods undercuts a brand’s control over its products. They further argue that these goods confuse customers, as listings of the same item on different platforms may offer different prices, with the cheaper gray market good lacking other official features like warranty policies or packaging. Accordingly, some believe this discrepancy hurts the brand’s reputation for consistency, reliable quality inspection, and transparent pricing, all of which ultimately devalues the brand’s IP.

For brand owners, trademark infringement claims are available to prevent sales of gray market goods. Brand owners typically bring a trademark infringement claim under Section 32 of the Lanham Act for registered marks and Section 43(a) for unregistered marks. An initial defense to these claims is the first sale doctrine, which protects subsequent lawful resellers of a product from trademark infringement claims because trademark owners no longer have the right to control distribution after the first sale—as long as the product is not materially altered and the source of the product is clear. To defeat this defense, brand owners should add intangibles to their products sold on authorized channels. Classic examples include warranty and satisfaction guarantee programs, but newer ideas could include access to online apps and profiles, exclusively for those who purchase the product through authorized channels.

Counsel for resellers should take note that brand owners have started pursuing false advertising claims under Section 43(a) of the Lanham Act. These claims are typically based on a reseller’s improper description of the product—for example, selling a used product as new. Claims for inadequate packaging or delay in delivery are also possible. The evidence for these claims is often gathered from feedback provided on the reseller’s account. To avoid false advertising claims, businesses (especially smaller shops) should clearly and unambiguously describe their product.

Policing Online Platforms

Policing IP infringement on e-commerce platforms is relatively simple for trademarks but becomes more complicated when the IP asset at issue is trade dress or a patented design. Keyword searches, which can be useful for identifying trademark infringement, are usually inadequate to hunt for and locate products that infringe these other IP rights.

In response to such difficulties, some brand owners bring infringement claims against the platform that hosts the infringing products rather than against the sellers (often foreign counterfeiters). To avoid liability and comply with the Digital Millennium Copyright Act, however, online marketplaces need only have a robust program where they take down infringing products upon notice and remove repeat infringers—and they typically do.

Though take-down programs are largely sufficient to meet their legal obligations, online marketplaces may find a proactive monitoring system a worthwhile strategy to consider and implement. With the sheer number of products listed on online marketplaces, traditional forms of monitoring are no longer capable of efficiently identifying infringing postings. As such, marketplaces should consider using artificial intelligence tools to monitor their websites for counterfeiting. These tools can identify patterns of counterfeiting within large numbers of listings and proactively take down infringing products even before receiving a notice.

The Impact of Tariffs—Counterfeit Goods and Licensing Agreement Disruption

At a surface level, tariffs are taxes imposed on foreign suppliers that subsequently impact business operations and supply chains in the U.S. and decrease the profits of those who export to the U.S. However, tariffs also have far-reaching ramifications for intellectual property that businesses should be aware of to stay ahead of the curve.

Businesses that source materials from foreign outlets face increased costs of operation and strained relationships with long-term suppliers because of tariffs. Two results tend to follow: (1) an influx of counterfeit goods trying to capitalize on the market’s dissatisfaction with the inflated price of legitimate goods and (2) a disruption in licensing as tariffs affect pricing and royalty structures and consequently cross-border licensing agreements.

Counsel and businesses should consider the following actions in light of these developments. First, if production is moved to a different jurisdiction in response to a shift in trade agreements, counsel should conduct an IP audit in the new jurisdiction to examine risks and ensure the enforceability of any IP assets. Second, to combat counterfeit products, tools like unique serial numbers, digital watermarking, and blockchain-based product tracking should be considered to bolster protection. Third, clauses in agreements including royalty adjustments, exclusivity terms, and termination triggers should be revisited in light of the tariffs.

Because the creation, acquisition and protection of IP is an investment and discretionary spend, tariffs may disincentivize the procurement of U.S. IP by foreign suppliers. However, because tariffs can make U.S. companies more profitable, it is possible that with increased tariffs, U.S. companies will enhance their investment in IP assets. In a tense competitive environment, foreign suppliers may resort to litigation to regain their declined competitive standing, while U.S. companies may be feeling less litigious. Counsel for U.S. businesses should be aware of this litigation potential and proactively analyze what IP protection the business has in its arsenal should the need to bring a claim against a competitor arise.

In light of the risks posed by the digital marketplace and the ever-evolving economic landscape, it is imperative that businesses and their legal advisors remain up to date with IP developments and consider incorporating flexible unregistered IP, product-associated intangibles, and artificial intelligence monitoring systems to strengthen their IP protection while reevaluating their supply chains and operations.

There are few issues as sensitive in private mergers and acquisitions (“M&A”) as “sandbagging.” As deal lawyers know well, “sandbagging” refers to a scenario where an M&A buyer brings a post-closing indemnification claim based on a breached seller representation and warranty that the buyer was arguably aware of prior to closing.

The recent ruling of the Delaware Court of Chancery in In re Dura Medic Holdings, Inc. has finally provided certainty in Delaware.^[1] However, cross-border M&A lawyers should know that the question remains open in Canada.

Sandbagging: Market Practice

The possibility of sandbagging presents M&A parties with three options: they can (1) include a “pro-sandbagging” clause that expressly permits it, (2) include an “anti-sandbagging” clause that expressly prohibits it, or (3) forgo any sandbagging clause and remain silent on the issue.

Which approach is most common? According to the most recent American Bar Association private target M&A deal point studies, the answer is clear: remaining silent is the most common avenue.^[2] In the United States, 76 percent of deals were silent on sandbagging, with 19 percent of deals including a pro-sandbagging clause and 5 percent of deals including an anti-sandbagging clause. In Canada, 82 percent of deals were silent on sandbagging, with 10 percent of deals including a pro-sandbagging clause and 8 percent of deals including an anti-sandbagging clause.

The question that follows is this: What approach to sandbagging would a court take when faced with contractual silence? The answer is now certain in Delaware. Things unfortunately remain murky in Canada.

Sandbagging in Delaware: Finally, Crystal Clear Skies

In Dura Medic Holdings, the buyer claimed damages for the seller’s breach of a representation and warranty stating that the target had not received notice of noncompliance with health-care laws in the preceding three years. The seller’s disclosure schedules had identified one such notice, but post-closing the buyer discovered others, and the additional regulatory review resulted in significant expense. The seller defended the claim on the basis that it had informed the buyer of the additional notices during a pre-closing due diligence call. The purchase agreement was silent on sandbagging. This put sandbagging squarely before the Delaware Court of Chancery.

Previous Delaware rulings had waffled somewhat. Historically, U.S. deal lawyers were confident that Delaware was a pro-sandbagging jurisdiction even without precedent directly on point. However, an aside by the Delaware Supreme Court in 2018 caused confusion by stating that “[v]enerable Delaware law casts doubt” on a buyer’s ability to sandbag.^[3] Subsequent and more favorable obiter comments by Delaware courts on sandbagging calmed U.S. lawyers’ concerns.^[4]

But it was not until Dura Medic Holdings, decided earlier this year, that the issue of sandbagging was confronted head-on. The court rejected the seller’s defense, explaining that the seller’s disclosure during the due diligence call “has no bearing on the legal analysis.”^[5] The reason was that a “breach of contract claim is not dependent on a showing of justifiable reliance.”^[6] The result was that having “contractually promised [the buyer] that it could rely on certain representations, [the seller] is in no position to contend that [the buyer] was unreasonable in relying on [the seller’s] own binding words.”^[7]

Notwithstanding that the purchase agreement was silent on sandbagging, the alleged knowledge of the buyer at execution that the representation was inaccurate did not impact the buyer’s ability to later claim for a breach of the representation. Stated more simply, Delaware is a pro-sandbagging jurisdiction.

Sandbagging in Canada: Still Cloudy, Twenty Years and Counting

The law around sandbagging in Canada is much less clear. The principal reason is conflicting appellate precedent from over two decades ago. Neither ruling was directly on point, but their general implications for sandbagging are relatively uncontroversial. The first, a 2001 ruling of the Alberta Court of Appeal (“ABCA”), appeared to endorse sandbagging.^[8] The second, a 2003 ruling of the Ontario Court of Appeal (“ONCA”), cast doubt on it.^[9]

The waters have since been muddied further by related rulings by the Supreme Court of Canada (“SCC”) regarding the duty of good faith in contract in 2014^[10] and 2020.^[11] The first established good faith as a “general organizing principle” of the common law, which includes a duty of honest performance in contract.^[12] It explained that this includes a duty that parties “not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.”^[13] The second elaborated that dishonest performance may include “lies, half-truths, omissions, and even silence, depending on the circumstances.”^[14]

Neither ruling addresses sandbagging. But it is arguable that the SCC’s treatment of good faith and honest performance could undermine an attempt at sandbagging, along the lines of the ONCA ruling. Alternatively, a court could instead focus on the SCC’s instruction that good faith does not require a counterparty to “forego advantages flowing from the contract,”^[15] along the lines of the ABCA ruling.

Practical Takeaways for Cross-Border Private M&A

Sandbagging raises complicated issues. Luckily for U.S. M&A lawyers, things have been greatly simplified by Dura Medic Holdings. On the other hand, given the continued uncertainty in Canada, U.S. M&A lawyers should remain vigilant regarding the potential complications surrounding sandbagging when working on cross-border deals. Given that the large majority of Canadian private M&A agreements go silent on sandbagging, these potential complications will quickly take on practical, real-world significance should a buyer foresee a possibility of sandbagging or should the seller suspect that the buyer may engage in sandbagging.

M&A parties should also be aware of related practical considerations relevant to sandbagging. For example, when acting for the buyer and the agreement is either silent on sandbagging or includes an anti-sandbagging clause, lawyers should be alert to the possibility that the seller might be tempted to engage in a “document dump” whereby a large amount of disclosure is made in the run-up to execution or closing. Related considerations regarding the drafting of the purchase agreement include (1) cross-referencing and whether disclosure in one disclosure schedule may constitute disclosure with respect to related disclosure schedules and (2) whether the acquisition agreement addresses updates to the seller’s disclosure schedules prior to closing (in the event of a transaction that has an interim period between signing and closing). Specific considerations regarding the latter include whether the agreement is silent on the point, expressly prohibits it, or expressly permits or requires it. This is important because whether (and under what conditions) the seller is permitted to update its disclosure schedules post-execution but prior to closing can impact the chance of sandbagging issues later arising.

1. In re Dura Medic Holdings, Inc., No. 2019-0474-JTL, 2025 Del. Ch. LEXIS 47 (Jan. 29, 2025). ↑

2. See the 2023 ABA Private Target Mergers & Acquisitions Deal Points Study (including transactions from 2022 and Q1 2023) and the 2025 ABA Canadian Private Target Mergers & Acquisitions Deal Points Study (including transactions from 2020, 2021, and 2022). ↑

3. Eagle Force Holdings, LLC v. Campbell, No. 10803, 2018 Del. LEXIS 233, at *66 (May 24, 2018). ↑

4. See, e.g., Arwood v. AW Site Servs., No. 2019-0904-JRS, 2022 Del. Ch. LEXIS 57 at *7 (Mar. 9, 2022) (“In my view, Delaware is, or should be, a pro-sandbagging jurisdiction.”). ↑

5. Dura Medic Holdings, 2025 Del. Ch. LEXIS 47, at *40. ↑

6. Id. at *41. ↑

7. Id. at *42. ↑

8. Eagle Res. Ltd. v. MacDonald, 2001 CanLII 264 (Can. Alta. C.A.). ↑

9. Transamerica Life Can. Inc. v. ING Can. Inc., 2003 CanLII 9923 (Can. Ont. C.A.). ↑

10. Bhasin v. Hrynew, 2014 CanLII 71 (S.C.C.), [2014] 3 S.C.R. 494. ↑

11. C.M. Callow Inc. v. Zollinger, 2020 CanLII 45 (S.C.C.), [2020] 3 S.C.R. 908. ↑

12. Bhasin, 2014 CanLII 71. ↑

13. Id. ↑

14. Callow, 2020 CanLII 45. ↑

15. Bhasin, 2014 CanLII 71. ↑

When an insured is pursuing a representation and warranty insurance (“RWI”) claim, a critical consideration is whether diminution in value damages (“DIV Damages”) can be asserted as Loss covered by the RWI policy.^[1] This article, to be published in four parts, discusses Delaware mergers and acquisitions (“M&A”) damages law regarding DIV Damages and describes how an insured can pursue them as part of an RWI claim.

Part I addresses (i) the principal differences between DIV Damages calculated using a multiple of EBITDA methodology (“MOE Methodology”) and DIV Damages calculated using a discounted cash flow methodology (“DCF Methodology”), and (ii) the evolution of cases involving DIV Damages calculated using an MOE Methodology under Delaware M&A damages law. Part II will address the evolution of cases involving DIV Damages calculated using a DCF Methodology under Delaware M&A damages law. Part III will discuss the requirements for a DIV Damages award as part of an RWI claim. Part IV will discuss the limitations on, and other matters regarding, a DIV Damages award as part of an RWI claim.

Each part of this article contains practice tips for attorneys for insureds seeking recovery of DIV Damages as part of an RWI claim.

What Are DIV Damages?

DIV Damages are a form of expectation damages in which the amount of the damages is the difference between (i) the value of the target business as represented to the buyer (almost always the purchase price paid for the target business by the buyer) and (ii) the value of the target business after giving effect to the diminution in the target business resulting from a breach of the Acquisition Agreement representations and warranties (“R&W Breach”) or from fraudulent misrepresentation or deceit regarding the target business. DIV Damages are often the most significant portion of an RWI claim recovery sought by an insured.

Notwithstanding the terminology often inaccurately used, DIV Damages are not “multiplier losses” or based on “multiplied damages.” Instead, DIV Damages are M&A damages calculated by reference to either: (i) in the case of an MOE Methodology, (a) an actual or deemed shortfall in the EBITDA of the target business for a specified measurement period (“Measurement Period EBITDA”) caused by the R&W Breach or by the fraudulent misrepresentation or deceit, times (b) the multiple applied by the insured to the Measurement Period EBITDA in determining the purchase price to pay for the target business; or (ii) in the case of a DCF Methodology, the loss of future cash flows and terminal value over a specified period caused by the R&W Breach or by the fraudulent misrepresentation or deceit, discounted to present value by the application of a discount factor. By comparison, an example of “multiplied damages” would be treble damages awarded to a private plaintiff for an antitrust violation, in which damages are calculated and then statutorily multiplied by three to determine the aggregate amount to be paid by the offending person or entity to the private plaintiff for the specified antitrust violation.^[2]

The Principal Differences Between Using an MOE Methodology and Using a DCF Methodology to Calculate DIV Damages

An MOE Methodology and a DCF Methodology are both ways to value a target business. However, on the one hand, an MOE methodology is retrospective, focused on historical EBITDA for a specified Measurement Period prior to the Acquisition, typically a specified calendar year or a trailing twelve months (“TTM”) or latest or last twelve months (“LTM”) period before a specified month-end date. On the other hand, a DCF methodology is prospective, focused on projected cash flows during a specified period—say five years or seven years after the Acquisition—with a terminal value (i.e., an additional number of years of projected cash flows summed) added on, all subject to a discount rate. As such, DIV Damages calculated using a DCF methodology are often confused with, and even referred to as, “lost profits damages.”

In the case of an MOE Methodology, it is the multiple that accounts for the risks associated with the target business. In the case of a DCF Methodology, it is either the projected cash flows themselves or the discount rate (sometimes referred to as a “risk-adjusted discount rate”) that accounts for the risks associated with the target business. In the case of an MOE Methodology, it is the multiple that increases the size of the shortfall in EBITDA during the Measurement Period from 1x. In the case of a DCF Methodology, it is the multiple years of projected cash flows and the terminal value that increase the size of the loss of cash flows from 1x.

One other note about the two methodologies: While this is not true across the board, financial buyers such as private equity firms tend to use an MOE Methodology to determine the purchase price for the target business (subject to deal adjustments, as in the case of an auction), while strategic buyers tend to use a DCF Methodology to confirm the acceptability of, if not actually establish, the purchase price for the target business.

Evolution of Cases Involving DIV Damages Calculated Using an MOE Methodology Under Delaware M&A Damages Law

From the Beginning: Cobalt v. Crystal

The seminal case involving DIV Damages calculated using an MOE Methodology under Delaware M&A damages law is the 2007 Delaware Chancery Court case of Cobalt v. Crystal.^[3] Cobalt involved the sale of WRMF—a West Palm Beach, Florida, radio station—by James Crystal Enterprises, LLC (“Crystal”) to Cobalt Operating, LLC (“Cobalt”), for a purchase price of $70 million. The purchase price was based on measurement period Broadcast Cash Flow (“BCF”) (a “financial measure . . . roughly akin to [EBITDA]”^[4]) of the target of $5 million, times a multiple of 14.

After finding that Crystal had breached and committed fraud with respect to certain Acquisition Agreement representations and warranties, then–Vice Chancellor Strine^[5] awarded Cobalt (i) DIV Damages of $11 million, based on (a) a measurement period BCF of $4.2 million adjusted to eliminate the effects of the R&W Breach, times (b) the multiple of 14 ($58.8 million, rounded up to $59 million, and then subtracted from the purchase price paid of $70 million); (ii) indemnification for out-of-pocket damages of $180,754 for credits extended by Cobalt to certain advertisers in respect of the R&W Breach; (iii) prejudgment interest; and (iv) reasonable attorney fees and costs.^[6]

In support of the award of DIV Damages to Cobalt, Vice Chancellor Strine made a number of factual and legal findings, including the following:

• “the traditional method of computing damages for a breach of contract claim is to determine the reasonable expectations of the parties”
• “[e]xpectation damages [in this case, the DIV Damages] are calculated as the amount of money that would put the non-breaching party in the same position that the party would have been in had the breach never occurred”
• Crystal “knew Cobalt was relying on a cash flow multiple in reaching the price it was willing to pay for WRMF”
• “Crystal did not present its own valuation evidence” to counter the valuation evidence presented by Cobalt^[7]

Cobalt continues to stand as the preeminent Delaware M&A damages law case involving an award of DIV Damages calculated using an MOE Methodology for an R&W Breach.

I Thought There Was a Rule Against Perpetuities? Zayo v. Latisys

The next significant Delaware M&A damages law case involving DIV Damages calculated using an MOE methodology is the 2018 Delaware Chancery Court case of Zayo v. Latisys.^[8] Zayo involved the sale of a group of IT infrastructure service providers ( “Latisys Companies”) by seller Latisys Holdings, LLC (“Latisys Holdings”) to buyer Zayo Group, LLC (“Zayo”) for a purchase price of $675 million. Zayo performed “extensive financial modeling of the Latisys business,” including “a synergies analysis[,] . . . an analysis of implied multiples of publicly known comparable transactions[,] . . . a 30-year [DCF] analysis, a net present value sensitivity analysis and an internal rate of return analysis.”^[9]

Vice Chancellor Slights first determined that the buyer Zayo had failed to prove a breach of the Acquisition Agreement representations and warranties, which by itself was dispositive of the case and did not require him to consider Zayo’s M&A contract damages claim. Nevertheless, “for the sake of completeness,”^[10] Vice Chancellor Slights also determined that Zayo was not entitled to a recovery of DIV Damages in respect of the asserted R&W Breach. In support of that determination, he made a number of factual and legal findings, including the following:

• Zayo’s valuation expert “lack[ed] . . . experience in valuing going concern businesses”
• Zayo’s valuation expert “base[d] her opinion solely on a multiple of EBITDA” analysis, even though “there [was] no evidence that Zayo actually based its purchase price on a multiple of EBITDA”
• to justify DIV Damages, “[t]he actual value the [buyer] received . . . must assume, and account for, a diminution of the [target’s] earnings into perpetuity”
• “[t]he ‘benefit of bargain’ methodology is appropriate for calculating damages only when the alleged breach of the representation or warranty has caused a permanent diminution in the value of the business (as a result of lost revenues into perpetuity) and the business has thereby been permanently impaired. This is where Zayo’s proof, and [its valuation expert’s] damages calculations, fell short.”^[11]

Although Vice Chancellor Slights’s damages dictum (that the loss and repricing of short-term customer contracts did not support Zayo’s claim for DIV Damages) was justified on the facts of the case, the extent and definitiveness of his findings that only a loss of revenues “into perpetuity” and thus a “permanent impairment” of earnings can support a claim for DIV Damages has been viewed by many M&A practitioners as legally unjustified.^[12] Nevertheless, for a period of time, RWI claimants seeking recovery of DIV Damages had a difficult precedent to contend with in Zayo, absent evidence of such a loss into perpetuity and permanent impairment.

The End of Perpetuity? In re Dura Medic

And then came the 2025 Delaware Chancery Court case of In re Dura Medic.^[13] Dura Medic involved the sale of a durable medical equipment supply company (“Dura Medic”) by its stockholders (“DM Stockholders”) to Comvest Partners, a private equity firm (“Comvest”), for a purchase price of $30 million. The buyer Comvest based the purchase price on the Company’s LTM^[14] April 2018 EBITDA, times a multiple of 6.7797.^[15]

After determining that certain Acquisition Agreement representations and warranties had been breached, Vice Chancellor Laster awarded Comvest: (i) DIV Damages of $2,847,890, based on (a) a deemed shortfall in Measurement Period EBITDA of $433,322 resulting from lost profits from two customers at the heart of one of the two R&W Breaches, times (b) the multiple of 6.7797, minus (c) $89,903 in actual post-Acquisition collections from such customers; and (ii) $100,000 of out-of-pocket damages for fees paid to a healthcare regulatory consulting firm with respect to the other of the two R&W Breaches.^[16]

In connection with awarding DIV Damages to Comvest, Vice Chancellor Laster made a number of factual and legal findings, including the following:

• Where the Acquisition Agreement is silent on the appropriate measure of damages, “the court must look to the common law [, under which] a party can recover reasonable expectation damages based on a multiple where the [purchase] price was established with a market approach using a multiple.”^[17]
• With respect to the DM Stockholders’ asserting Zayo as a precedent that only permitted the application of a multiple of a shortfall in EBITDA to losses permanently affecting the target business:
  • the buyer Zayo had provided no evidence in that case that it had based the purchase price for the target Latisys Companies on a multiple of EBITDA
  • the customer contracts at issue in that case all expired in one year or less after the Acquisition
  • the case’s “reference to a ‘permanent diminution . . . into perpetuity’ . . . [did] not translate into a test for future cases”
  • the Zayo court had offered no legal authority for the “permanent diminution” requirement for the application of a multiple^[18]
• Revenue from new customers added after the Acquisition would have been additive if Dura Medic could also have retained the lost customers at the heart of the applicable R&W Breach.^[19]
• Fraud is not required to apply a multiple in calculating expectation damages.^[20]

To summarize the foregoing, Dura Medic not only distinguished the damages findings in Zayo but also concluded that a recurring diminution in EBITDA after the Acquisition, not a “permanent diminution . . . into perpetuity” of EBITDA, was sufficient to support the award of DIV Damages based on a multiple.

But is Zayo actually dead? Cobalt, Zayo, and Dura Medic were all Delaware Chancery Court cases, decided by three different Vice Chancellors over an eighteen-year period. While the Delaware Supreme Court did affirm Vice Chancellor Strine’s decision in Cobalt, the Delaware Supreme Court has not directly or indirectly overruled Vice Chancellor Slights’s damages decision in Zayo. All that said, the strength and logic of the DIV Damages findings in Dura Medic, particularly those directly contradicting the findings in Zayo, taken together with the dicta status of the DIV Damages findings in Zayo, do appear to toll a death knell for the Zayo requirement of a “permanent diminution . . . into perpetuity.”

Practice Tips for Attorneys for Insureds

In the Acquisition Agreement drafting and negotiation phase, consider the following:

• If the definition of Damages or Losses in the Acquisition Agreement is incorporated into the definition of Loss in the policy, ensure that the definition in the Acquisition Agreement does not exclude “diminution in value,” “multiple of EBITDA,” “multiplier damages,” “lost profits,” or the like, and preferably try to have the definition explicitly include the first or second of those terms.
• If one-half (or some other portion) of the policy retention can be borne by the seller through an indemnification escrow provided for in the Acquisition Agreement, try to ensure that no type of Damages or Losses are disclaimed or waived in the Acquisition Agreement that are covered by the policy.

This article is the first in the RWI Practice Insights series by John T. Capetta.

1. This article focuses on buyer-side RWI policies and U.S. law (principally Delaware case law). Although there may be other methodologies to calculate DIV Damages, this article focuses on those calculated using either an MOE Methodology or a DCF Methodology as defined in the second paragraph. The period of time for which the historical EBITDA is measured in an MOE Methodology, or for which the projections used in a DCF Methodology are included, is referred to in this article as the “Measurement Period.”

   • As used in this article:
     • the term Loss has the definition set forth in the RWI policy;
     • the term Acquisition Agreement includes stock purchase agreements, merger agreements, asset purchase agreements, and other types of business combination agreements by which a buyer acquires a target business from a seller;
     • the term Acquisition refers to the business combination contemplated by the Acquisition Agreement;
     • the term the buyer and the term the insured are often used interchangeably;
     • the term target and the term target business are used interchangeably;
     • the term R&W Breach also includes a claim under an RWI policy with respect to a tax indemnification provision in the Acquisition Agreement; and
     • the phrase without required disclosure by the seller refers to a failure by the seller to make a disclosure to the buyer even though required to do so by a representation and warranty in the Acquisition Agreement.

   ↑

2. See Section 4 of the Clayton Antitrust Act of 1914 with respect to certain violations of the U.S. antitrust statutes. 15 U.S.C. § 15. ↑

3. Cobalt Operating, LLC v. James Crystal Enters., LLC, No. 714, 2007 WL 2142926 (Del. Ch. July 20, 2007), aff’d, 945 A.2d 594 (Del. 2008) (unpublished table decision). ↑

4. Id. at *1 n.1. ↑

5. Vice Chancellor Strine later became the Chief Justice of the Delaware Supreme Court. Vice Chancellor Strine issued some of the most significant M&A opinions ever, and certainly some of the most entertaining. See, e.g., his description and the depiction of the “Rose Mary Stretch” in Cobalt, 2007 WL 2142926, at *2. ↑

6. Cobalt, 2007 WL 2142926, at *4, *29–31. ↑

7. Id. at *29 (footnotes omitted). For want of a better place in this article to discuss it, the 2013 Delaware Chancery Court case of Universal Enterprise Group, L.P. v. Duncan Petroleum Corp., No. 4948, 2013 WL 3353743, at *19 (Del. Ch. July 1, 2013), aff’d, 99 A.3d 228 (Del. 2014) (unpublished table decision), contains potentially confusing language that describes diminution in value as an “alternative to expectation damages in particular contexts,” rather than as a type of expectation damages. However, in Universal, expectation damages would arguably have been the costs to restore certain parcels of real property (which made up the target business) to their expected condition as represented by the seller in the Acquisition Agreement, with diminution in value damages being an alternative method to compensate the buyer for the injury suffered as a result of the R&W Breaches in question. The Chancery Court rejected diminution in value damages in part because they would have produced a damages award “an order of magnitude greater than an award based on expectation damages” and thus would have been “disproportionate, constitute economic waste, and bestow a windfall.” Id. at *20. In the end, the Chancery Court awarded neither expectation damages nor diminution in value damages but instead only “actual damages” (to make matters even more confusing) in the form of the costs and expenses incurred by the buyer in remediating the parcels of real property after the Acquisition. ↑

8. Zayo Group, LLC v. Latisys Holdings, LLC, No. 12874, 2018 WL 6177174 (Del. Ch. Nov. 26, 2018). Then–Vice Chancellor Strine did issue another opinion after Cobalt and prior to Zayo that involved a multiple of EBITDA methodology: WaveDivision Holdings, LLC v. Millennium Digital Media Systems, L.L.C., No. 2993, 2010 WL 3706624 (Del. Ch. Sep. 17, 2010). However, WaveDivision arose from certain covenant breaches by the seller, which led to the seller’s not selling the target businesses to the buyer, rather than R&W Breaches. Moreover, WaveDivision involved a comparison of (i) the purchase price for the target businesses that the buyer would have paid had the Acquisition been consummated, to (ii) the value of the target businesses as they would have been operated by the buyer in the future, rather than their value ex ante (which arguably would have been equal to the proposed purchase price and thus have left the buyer without a real remedy). As a result, while there are aspects of WaveDivision that are instructive, such as with respect to mitigation, it does not fit into the line of Delaware M&A damages law cases regarding DIV Damages calculated using an MOE Methodology that began with Cobalt. ↑

9. Zayo, 2018 WL 6177174, at *6. ↑

10. Id. at *15. ↑

11. Id. at *15–17 (footnotes omitted). Vice Chancellor Slights had noted that the buyer Zayo’s “initial indication of interest [IOI] . . . ‘propose[d] a total value in the range of $625M–$655M in cash (approximately 11–11.5x Q4 2014E LQA [presumably “Last Quarter Annualized”] Adjusted EBITDA of $56.8M),’” id. at *4 (citing and quoting the IOI), but he inexplicably seemed to disregard that IOI in determining that “there is no evidence that Zayo actually based its purchase price on a multiple of EBITDA.” Id. at *17. ↑

12. See, e.g., E. Hutchinson Robbins, Jr., M&A Representation and Warranty Damages: The Myth of Lost Revenues into Perpetuity, Bus. L. Today (Aug. 19, 2021). ↑

13. In re Dura Medic Holdings, Inc. Consolidated Litigation, 333 A.3d 227 (Del. Ch. 2025). ↑

14. In Dura Medic, “LTM” stands for “Last Twelve Months.” Id. at 243. ↑

15. Id. at 259. ↑

16. Id. at 261–3. ↑

17. Id. at 259 (footnotes and internal quotation marks omitted). ↑

18. Id. at 259–60 (footnotes omitted), 260 n.55. In Zayo, Vice Chancellor Slights gave significant weight to the American Institute of Certified Public Accountants Mergers and Acquisitions Dispute Practice Aid’s pronouncements regarding the need for a permanent impairment in value in support of his determination that a multiple of EBITDA was not an appropriate methodology to calculate damages absent such a permanent impairment, but he did not cite any cases or other basis in the law for that determination, although he did distinguish a number of cases, including Cobalt, in reaching that determination. Zayo, 2018 WL 6177174, at *17 n.215. ↑

19. Dura Medic, 333 A.3d at 260. ↑

20. Id. ↑

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

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

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

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

Intent-Based Evidentiary Standard for Liability

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

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

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

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

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

Impact on Discovery and Pretrial Practice

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

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

Potential Benefits and Drawbacks of TRAIGA’s Sandbox Regulatory Model

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

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

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

Practical Advice for Business Law Practitioners

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

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

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

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

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

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

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

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

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

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

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

CAMT: A Primer

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

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

Noncorporate Entity Burden

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

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

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

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

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

Other Alternative Minimum Taxes

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

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

Risk Mitigation for Alternative Entities

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

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

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

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

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

The European Ecodesign for Sustainable Products Regulation: A Continental Shift

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

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

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

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

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

A New Form of Environmental Leadership

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

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

Sustainability as Strategy, Not Compliance

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

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

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

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

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

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

A Roadmap for a Global Transition

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

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

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

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

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

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

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

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

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

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