Pennsylvania Federal Court Declines to Preliminarily Enjoin FTC Rule Banning Non-Competes

Earlier today (July 23, 2024), Judge Hodge in the U.S. District Court for the Eastern District of Pennsylvania denied a tree care company’s motion to stay the effective date and preliminarily enjoin the Federal Trade Commission’s (“FTC”) proposed final rule (“Final Rule”) banning nearly all non-competes. ATS Tree Services, LLC v. Federal Trade Commission, No. 2:24-cv-01743-KBH (E.D. Pa.). The decision comes in the wake of the U.S. District Court for the Northern District of Texas’ July 3, 2024 ruling to the contrary in Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, which stayed the Final Rule’s effective date as to the plaintiffs in that case, but had no nationwide effect.

The Pennsylvania Court’s Decision

The Pennsylvania court denied Plaintiff ATS Tree Services, LLC’s (“ATS”) request for a preliminary injunction based on its conclusion that the company failed to establish that it (i) would suffer irreparable harm if injunctive relief was not issued; and had a reasonable likelihood of succeeding on the merits of its claims.

ATS argued it would be harmed by incurring “nonrecoverable efforts to comply” with the Rule, and by losing “the contractual benefits from its existing non-compete agreements.” ATS described its nonrecoverable compliance costs as: costs associated with notifying its twelve employees of the change in accordance with the Rule’s notice provision; the costs and efforts to “review and modify [its] business strategy”; and the unquantifiable costs and efforts of altering its specialized training program. But court found these either insufficient or too speculative to support injunctive relief. ATS further argued it would face the risk that its employees would leave and transfer confidential information to direct competitors. The court found these risks too speculative.

ATS also unsuccessfully argued that it would succeed on the merits because, it asserted, the FTC lacks substantive rulemaking authority under its enabling statute, the FTC exceeded its authority, and Congress unconstitutionally delegated legislative power to the FTC. The court rejected each argument. The court further found that the “major questions doctrine” did not apply, because the Final Rule falls within the FTC’s core mandate, and the FTC has previously used its Section 6(g) rulemaking power in similar ways to the Final Rule.

Looking Forward

The Pennsylvania court’s decision did not analyze the Ryan decision, which reached contrary conclusions. It is likely that the dispute will ascend to the Third and Fifth Circuits, respectively. Notably, the Ryan court has indicated that it intends to issue a final judgment on the merits by August 30, 2024, which is likely to be appealed, and the Final Rule is scheduled to become effective by September 4, 2024.

© 2024 Proskauer Rose LLP.
For more news on the Eastern District of Pennsylvania’s decision in ATS Tree Services, LLC v. Federal Trade Commission, visit the NLR Antitrust Trade Regulation section.

Michigan Supreme Court Expands Employer Exposure to Public Policy Retaliation Claims

In Michigan, various state employment laws prohibit employers from retaliating against employees. But can an employee pursue a public policy retaliation claim against the employer in addition to a statutory retaliation claim?

On July 22, 2024, the Michigan Supreme Court ruled that anti-retaliation provisions in two important workplace safety laws—the federal Occupational Safety and Health Act (“OSHA”) and Michigan’s Occupational Safety and Health Act (“MIOSHA”)—do not preclude a plaintiff from also asserting a violation of public policy in court. Stegall v. Resource Technology Corp (Case No. 165450, decided July 22, 2024).

Cleveland Stegall, an IT specialist working at FCA through the staffing agency Resource Technology, complained internally about asbestos insulation issues at the assembly plant and threatened to file complaints with the government. He was subsequently terminated. Stegall sued both entities for wrongful discharge under OSHA and MIOSHA’s anti-retaliation provisions, as well as termination in violation of public policy.

At-will employees generally may be terminated for any reason (or no reason at all). But one exception to this rule is that certain terminations violate public policy and therefore create an actionable legal claim. This includes firings for “failure or refusal to violate a law” or exercising a right conferred by the Michigan Legislature.

Both the trial court and the Court of Appeals dismissed Stegall’s public policy claim because they concluded that the OSHA and MIOSHA laws already forbid retaliation. The Michigan Supreme Court reversed. It reasoned that the remedies under OSHA and MIOSHA are insufficient, pointing to the truncated 30-day period to file a complaint with the relevant government agency, the discretion granted to the respective investigating agency, and the employee’s lack of control over what occurs after a complaint has been filed. See 29 U.S.C. §660(c)(2) and MCL 408.1065(2).

What does this case mean for employers? The Michigan Supreme Court’s decision provides another avenue for employees to pursue retaliation claims, particularly where the employee raises workplace safety concerns. It is unclear, however, whether courts will extend this ruling and allow employees to pursue public policy wrongful discharge claims if the employee is also seeking relief under another anti-retaliation statute.

© 2024 Miller, Canfield, Paddock and Stone PLC
For more news on Employer Anti-Retaliation Lawsuits, visit the NLR Labor & Employment section.

FTC/FDA Send Letters to THC Edibles Companies Warning of Risks to Children

Earlier this week, the Federal Trade Commission (FTC) and Food and Drug Administration (FDA) sent cease-and-desist letters to several companies warning them that their products, which were marketed to mimic popular children’s snacks, ran the risk of unintended consumption of the Delta-8 THC by children. In addition to the FDA’s concerns regarding marketing an unsafe food additive, the agencies warned that imitating non-THC-containing food products often consumed by children through the use of advertising or labeling is misleading under Section 5 of the FTC Act. The FTC noted that “preventing practices that present unwarranted health and safety risks, particularly to children, is one of the Commission’s highest priorities.”

The FTC’s focus on these particular companies and products shouldn’t come as a surprise. One such company advertises edible products labelled as “Stoney Ranchers Hard Candy,” mimicking the common Jolly Ranchers candy, and “Trips Ahoy” closely resembling the well-known “Chips Ahoy.” Another company advertises a product closely resembling a Nerds Rope candy, with similar background coloring, and copy-cats of the Nerds logo and mascot. This is not the first time the FTC has warned companies about the dangers of advertising products containing THC in a way that could mislead consumers, particularly minors. In July of 2023, the FTC sent cease-and-desist letters to six organizations for the same violations alleged this week – there companies copied popular snack brands such as Doritos and Cheetos, mimicking the brands’ color, mascot, font, bag style, and more.

This batch of warning letters orders the companies to stop marketing the edibles immediately, to review their products for compliance, and to inform the FTC within 15 days of the specific actions taken to address the FTC’s concerns. The companies also are required to report to the FDA on corrective actions taken.

Copyright © 2024, Hunton Andrews Kurth LLP. All Rights Reserved.
For more on Cannabis, visit the NLR Biotech Food Drug section

Full Steam Ahead: NLRB Top Lawyer Signals Continued Focus On Injunction Actions

Last month, the U.S. Supreme Court issued a decision in Starbucks v. McKinney clarifying the standards courts must use when evaluating requests by the National Labor Relations Board (NLRB) for injunctive relief under Section 10(j) of the National Labor Relations Act (NLRA). Many view this as, at least in some jurisdictions, heightening the standard the agency must meet in these cases.

NLRB General Counsel Jennifer Abruzzo issued a memo on July 16 noting this ruling will not affect how her office views Section 10(j) cases. According to the press release, “General Counsel Jennifer Abruzzo reaffirmed her commitment to seeking Section 10(j) injunctions after the Supreme Court’s recent decision in Starbucks Corp. v. McKinney, which set a uniform four-part test applicable to all Section 10(j) injunction petitions.”

The statement then goes on to note, “General Counsel Abruzzo explained that, while the Supreme Court’s decision in Starbucks Corp. provides a uniform standard to be applied in all Section 10(j) injunctions nationwide, adoption of this standard will not have a significant impact on the Agency’s Section 10(j) program as the Agency has ample experience litigating injunctions under that standard and has a high rate of success in obtaining injunctions under the four-part test — a success rate equivalent to or higher than the success rate in circuit courts that applied the two-part test.”

Employers should take note, as the NLRB does indeed have a high success rate when seeking these injunctions against employers. For example, in fiscal year 2020, the agency prevailed in every 10(j) case it brought. These actions can be costly from a time and resources perspective for companies, as they are then forced to defend against alleged labor violations before both the NLRB and in federal court simultaneously.

Accordingly, while the recent Supreme Court ruling did offer a uniform standard and clarity around the legal framework for 10(j) cases, it appears this won’t cause a dip in the amount of such matters the NLRB brings.

© 2024 BARNES & THORNBURG LLP
For more news on NLRB Injunction Actions, visit the NLR Labor & Employment  section.

EU Publishes Groundbreaking AI Act, Initial Obligations Set to Take Effect on February 2, 2025

On July 12, 2024, the European Union published the language of its much-anticipated Artificial Intelligence Act (AI Act), which is the world’s first comprehensive legislation regulating the growing use of artificial intelligence (AI), including by employers.

Quick Hits

  • EU published the final AI Act, setting it into force on August 1, 2024.
  • The legislation treats employers’ use of AI in the workplace as potentially high-risk and imposes obligations for their use and potential penalties for violations.
  • The legislation will be incrementally implemented over the next three years.

The AI Act will “enter into force” on August 1, 2024 (or twenty days from the July 12, 2024, publication date). The legislation’s publication follows its adoption by the EU Parliament in March 2024 and approval by the EU Council in May 2024.

The groundbreaking AI legislation takes a risk-based approach that will subject AI applications to four different levels of increasing regulation: (1) “unacceptable risk,” which are banned; (2) “high risk”; (3) “limited risk”; and (4) “minimal risk.”

While it does not exclusively apply to employers, the law treats employers’ use of AI technologies in the workplace as potentially “high risk.” Violations of the law could result in hefty penalties.

Key Dates

The publication commences the timeline of implementation over the next three years, as well as outline when we should expect to see more guidance on how it will be applied. The most critical dates for employers are:

  • August 1, 2024 – The AI Act will enter into force.
  • February 2, 2025 – (Six months from the date of entry into force) – Provisions on banned AI systems will take effect, meaning use of such systems must be discontinued by that time.
  • May 2, 2025 – (Nine months from the date of entry into force) – “Codes of practice” should be ready, giving providers of general purpose AI systems further clarity on obligations under the AI Act, which could possibly offer some insight to employers.
  • August 2, 2025 – (Twelve months from the date of entry into force) – Provisions on notifying authorities, general-purpose AI models, governance, confidentiality, and most penalties will take effect.
  • February 2, 2025 – (Eighteen months from the date of entry into force) – Guidelines should be available specifying how to comply with the provisions on high-risk AI systems, including practical examples of high-risk versus not high-risk systems.
  • August 2, 2026 – (Twenty-four months from the date of entry into force) – The remainder of the legislation will take effect, except for a minor provision regarding specific types of high-risk AI systems that will go into effect on August 1, 2027, a year later.

Next Steps

Adopting the EU AI Act will set consistent standards across the EU nations. Further, the legislation is significant in that it is likely to serve as a framework for AI laws or regulations in other jurisdictions, similar to how the EU’s General Data Protection Regulation (GDPR) has served as a model in the area of data privacy.

In the United States, regulation of AI and automated decision-making systems has been a priority, particularly when the tools are used to make employment decisions. In October 2023, the Biden administration issued an executive order requiring federal agencies to balance the benefits of AI with legal risks. Several federal agencies have since updated guidance concerning the use of AI and several states and cities have been considering legislation or regulations.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more news on the EU AI Act, visit the NLR Communications Media Internet section.

The Economic Benefits of AI in Civil Defense Litigation

The integration of artificial intelligence (AI) into various industries has revolutionized the way we approach complex problems, and the field of civil defense litigation is no exception. As lawyers and legal professionals navigate the complex and often cumbersome landscape of civil defense, AI can offer a transformative assistance that not only enhances efficiency but also significantly reduces client costs. In this blog, we’ll explore the economic savings associated with employing AI in civil defense litigation.

Streamlining Document Review
One of the most labor-intensive and costly aspects of civil defense litigation is the review of vast amounts of discovery documents. Traditionally, lawyers and legal teams spend countless hours sifting through documents to identify and categorize relevant information, a process that is both time-consuming and costly. AI-powered tools, such as Large Language Models (LLM) can automate and expedite this process.

By using AI to assist in closed system document review, law firms can drastically cut down on the number of billable hours required for this task. AI assistance can quickly and accurately identify relevant documents, flagging pertinent information and reducing the risk of material oversight. This not only speeds up the review process and allows a legal team to concentrate on analysis rather than document digest and chronology, but significantly lowers the overall cost of litigation to the client.

By way of example – a case in which 50,000 medical treatment record and bills must be analyzed, put in chronology and reviewed for patient complaints, diagnosis, treatment, medial history and prescription medicine use, could literally take a legal team weeks to complete. With AI assistance the preliminary ground work such as document organization, chronologizing complaints and treatments and compiling prescription drug lists can be completed in a matter of minutes, allowing the lawyer to spend her time in verification, analysis and defense development and strategy, rather than information translation and time consuming data organization.

Enhanced Legal Research
Legal research is another growing area where AI can yield substantial economic benefits. Traditional legal research methods involve lawyers poring over case law, statutes, and legal precedents to find those cases that best fit the facts and legal issues at hand. This process can be incredibly time-intensive, driving up costs for clients. Closed AI-powered legal research platforms can rapidly analyze vast databases of verified legal precedent and information, providing attorneys with precise and relevant case law in a fraction of the time. Rather than conducting time consuming exhaustive searches for the right cases to analysis, a lawyer can now stream line the process with AI assistance by flagging on-point cases for verification, review, analysis and argument development.

The efficiency of AI-driven legal research can translate into significant cost savings for the client. Attorneys can now spend more time on argument development and drafting, rather than bogged down in manual research. For clients, this means lower legal fees and faster resolution of cases, both of which contribute to overall economic savings.

Predictive Analytics and Case Strategy
AI’s evolving ability to analyze legal historical data and identify patterns is particularly valuable in the realm of predictive analytics. In civil defense litigation, AI can be used to assist in predicting the likely outcomes of cases based on jurisdictionally specific verdicts and settlements, helping attorneys to formulate more effective strategies. By sharpening focus on probable outcomes, legal teams can make informed decisions about whether to settle a case or proceed to trial. Such predictive analytics allow clients to better manage their risk, thereby reducing the financial burden on defendants.

Automating Routine Tasks
Many routine tasks in civil defense litigation, such as preparation of document and pleading chronologies, scheduling, and case management, can now be automated using AI. Such automation reduces the need for manual intervention, allowing legal professionals to focus on more complex and value-added case tasks. By automating such routine tasks, law firms can operate more efficiently, reducing overhead costs and improving their bottom line. Clients benefit from quicker turnaround times and lower legal fees, resulting in overall economic savings.

Conclusion
The economic savings for clients associated with using AI in civil defense litigation can be substantial. From streamlining document review and enhancing legal research to automating routine tasks and reducing discovery costs, AI offers a powerful tool for improving efficiency and lowering case costs. As the legal industry continues to embrace technological advancements, the adoption of AI in civil defense litigation is poised to become a standard practice, benefiting both law firms and their clients economically. The future of civil defense litigation is undoubtedly intertwined with AI, promising a more cost-effective and efficient approach to resolving legal disputes.

© 2024 McGivney, Kluger, Clark & Intoccia. ALL RIGHTS RESERVED.
For more on Artificial Intelligence, visit the NLR Communications Media Internet section

Recent Federal Developments, July 2024

TSCA/FIFRA/TRI

EPA’s Proposed NMP Risk Management Rule Includes Requirements To Protect Workers And Consumers: On June 15, 2024, the U.S. Environmental Protection Agency (EPA) issued a proposed rule under Section 6(a) of the Toxic Substances Control Act (TSCA) that would protect workers and consumers from exposure to N-methylpyrrolidone (NMP). 89 Fed. Reg. 51134. To address the identified unreasonable risk, EPA proposes to: prohibit the manufacture (including import), processing, distribution in commerce, and use of NMP in several occupational conditions of use (COU); require worker protections through an NMP workplace chemical protection program (WCPP) or prescriptive controls (including concentration limits) for most of the occupational COUs; require concentration limits on a consumer product; regulate certain consumer products to prevent commercial use; and establish recordkeeping, labeling, and downstream notification requirements. Comments are due July 29, 2024. Under the Paperwork Reduction Act (PRA), comments on the information collection provisions are best assured of consideration if the Office of Management and Budget (OMB) receives a copy of the comments on or before July 15, 2024. According to EPA’s June 5, 2024, press release, NMP is used to manufacture and produce many electronics, polymers, agricultural chemicals, and petrochemical products. EPA states that NMP is used in the production of specialized electronics, such as semiconductors and magnet wire, as well as lithium-ion batteries used in a wide variety of applications, including aerospace vehicles and electronic devices. EPA notes that NMP “also has numerous other industrial, commercial and consumer applications, including adhesives and sealants, paints and coatings, paint removers, lubricants, automotive care products, degreasers, cleaning and furniture care products.” For more information, please read the full memorandum.

EPA Announces Final Cancellation Order And Updates To Existing Stocks Provisions For Several Chlorpyrifos Products: On June 25, 2024, EPA announced the issuance of a final cancellation order for Corteva’s chlorpyrifos product “Dursban 50W in Water Soluble Packets” and three Gharda chlorpyrifos products, and an amendment to the existing stocks provisions for two Liberty and three Winfield chlorpyrifos end-use products. EPA also states that it has updated its frequently asked questions about chlorpyrifos. More information is available in our July 2, 2024, blog.

EPA Announces New Initiatives To Improve Efficiency, Worker Protections, And Transparency In New Chemical Reviews: During the June 26, 2024, “TSCA Reform — Eight Years Later” conference, presented by Bergeson & Campbell, P.C. (B&C®), the Environmental Law Institute (ELI), and the George Washington University Milken Institute School of Public Health, Michal Ilana Freedhoff, Ph.D., Assistant Administrator, Office of Chemical Safety and Pollution Prevention, EPA, provided the keynote address. During her remarks, Freedhoff announced four new initiatives in EPA’s review of new chemicals under TSCA. As later announced by EPA, these initiatives are:

  • Engineering checklist: In May 2024, EPA began implementing an internal engineering checklist to review systematically new chemical submissions and identify potential data gaps at the beginning of the review process.
  • Worker protections: According to EPA, most TSCA Section 5(e) orders are consent orders negotiated between EPA and the notice submitter that use standard “boilerplate” text. In June 2024, EPA updated the boilerplate language to strengthen worker protections and provide further clarity to the text.
  • Updated statistics for new chemical review timelines: On June 26, 2024, EPA began including completed “rework” risk assessments when reporting monthly statistics on new chemical reviews. EPA has updated its Statistics for the New Chemicals Program under TSCA web page to include a category listing all completed rework risk assessments since the beginning of 2024.
  • Reference Library: On June 26, 2024, EPA launched the New Chemicals Division Reference Library, an index of EPA documents related to the work of the New Chemicals Division. It currently contains over 90 entries, and EPA will update it as it develops new materials.

More information is available in our June 26, 2024, blog item. A summary of the conference is available in our July 9, 2024, memorandum.

EPA Postpones Proposed Expansion Of The Safer Choice And DfE Programs: As reported in our July 27, 2023, memorandum, in July 2023, EPA proposed an expansion of the Safer Choice and Design for the Environment (DfE) programs to include certification of additional product categories. According to EPA’s website, “EPA thanks the many commenters for their input. EPA reviewed the comments and understands several categories are of interest to stakeholders and Safer Choice partners. With the 2024 decrease in EPA’s funding, however, EPA is not able to pursue expansion at this time. EPA plans to reconsider the expansion in the future as resources allow.” On June 28, 2024, a summary of comments received on EPA’s proposed expansion was posted in the online docket. More information is available in our July 5, 2024, blog item.

EPA Releases Draft Risk Evaluation For 1,1-Dichloroethane And Draft Hazard Assessment Of 1,2-Dichloroethane For Public Comment And Peer Review: On July 1, 2024, EPA announced the release of the draft risk evaluation for 1,1-dichloroethane and the draft human health hazard assessment supporting the draft risk evaluation for 1,2-dichloroethane (also known as ethylene dichloride) prepared under TSCA. EPA states that it “preliminarily determined 1,1-dichloroethane poses unreasonable risk to human health (of workers) and the environment.” According to EPA, the effects to people from exposure to 1,1-dichloroethane and 1,2-dichlorethane are “kidney and other cancers, as well as harmful non-cancer renal, nasal, immune system, and reproductive effects.” Publication of a notice of availability in the Federal Register will begin a 60-day comment period. More information will be available in a forthcoming memorandum.

Court Vacates TSCA Section 4 Test Order, Grant’s Vinyl Institute’s Petition For Review: On July 5, 2024, the U.S. Court of Appeals for the District of Columbia Circuit issued its decision in Vinyl Institute, Inc. v. EPA (No. 22-1089). As reported in our May 31, 2022, blog item, on May 23, 2022, the Vinyl Institute, Inc. (VI) filed suit against EPA, seeking review of EPA’s March 2022 test order for 1,1,2-trichloroethane issued under TSCA Section 4(a)(2). The court states that “EPA’s non-public part of the administrative record is not part of ‘the record taken as a whole’ subject to our heightened substantial evidence review of TSCA test orders.” According to the court, to the extent EPA relies on non-public portions of the administrative record, it “has failed to provide substantial evidence that meets its statutory mandate.” The court vacated the test order, remanding to EPA to satisfy that mandate with “substantial evidence in the record taken as a whole.” The court also denied VI’s motion to supplement the record “with scientific information it could have — and should have — submitted earlier.” More information is available in our July 10, 2024, blog item.

EPA Publishes Compliance Guide For Final Methylene Chloride Risk Management Rule: On July 10, 2024, EPA published a compliance guide for its final methylene chloride risk management rule issued under TSCA. According to EPA, the compliance guide will help industry, workers, and other interested stakeholders understand and comply with the new regulations to prevent injuries, long-term illnesses, and deaths. EPA also announced that in June 2024, it released a fact sheet on the rule containing information on who is subject to the rule along with a summary of compliance timelines. More information will be available in a forthcoming memorandum.

EPA Grants TSCA Section 21 Petition Seeking Section 6 Rule Prohibiting Three PFAS Found In Fluorinated Plastic Containers: EPA announced on July 11, 2024, that it granted a petition filed a petition under TSCA Section 21 requesting that EPA establish regulations under TSCA Section 6 prohibiting the manufacturing, processing, use, distribution in commerce, and disposal of three per- and polyfluoroalkyl substances (PFAS) formed during the fluorination of plastic containers. EPA “will promptly commence an appropriate proceeding under TSCA Section 6.” According to EPA’s announcement, EPA intends to request information, including the number, location, and uses of fluorinated containers in the United States; alternatives to the fluorination process that generates perfluorooctanoic acid (PFOA), perfluorononanoic acid (PFNA), and perfluorodecanoic acid (PFDA); and measures to address risk from PFOA, PFNA, and PFDA formed during the fluorination of plastic containers. More information will be available in a forthcoming memorandum.

EPA’s Spring 2024 Unified Agenda Includes Proposed And Final TSCA, TRI, And PFAS Rules: EPA’s Spring 2024 Unified Agenda, published on July 5, 2024, includes a number of proposed and final TSCA, Toxics Release Inventory (TRI), and PFAS rulemakings. More information on the rulemakings, including links to our memoranda, will be available in an upcoming blog item.

RCRA/CERCLA/CWA/CAA/PHMSA/SDWA

EPA Publishes 2024-2027 Climate Adaptation Plan: EPA announced on June 20, 2024, the release of its 2024-2027 Climate Adaptation Plan, which describes Agency actions to address the impacts of climate change and help build a more climate-resilient nation. Highlights include:

  • Fostering a climate-ready workforce;
  • Building facility resilience;
  • Developing climate-resilient supply chains;
  • Integrating climate resilience into external funding opportunities;
  • Applying climate data and tools to decision making; and
  • Integrating climate adaptation into rulemaking processes.

EPA Amends Standards And Practices For All Appropriate Inquiries: EPA issued a final rule on June 24, 2024, amending the “Standards and Practices for All Appropriate Inquiries” to reference a standard practice recently made available by ASTM International, “a widely recognized standards development organization.” 89 Fed. Reg. 52386. EPA states that it is amending the All Appropriate Inquiries Rule to reference ASTM International’s E2247-23 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property” and allow for its use to satisfy the requirements for conducting all appropriate inquiries under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). In addition, after one year, EPA will remove recognition of the previous version of that standard, ASTM E2247-16, as compliant with the All Appropriate Inquiries Rule. The final rule will be effective August 23, 2024.

EPA Proposes To Remove Affirmative Defense Provisions From Specified NSPS And NESHAP: On June 24, 2024, EPA proposed amendments to several New Source Performance Standards (NSPS) and National Emission Standards for Hazardous Air Pollutants (NESHAP) under the Clean Air Act (CAA). 89 Fed. Reg. 52425. Specifically, EPA proposes to remove the affirmative defense provisions associated with violation of emission standards due to malfunctions. According to EPA, it proposes to remove these provisions because they are inconsistent with a D.C. Circuit Court decision that vacated affirmative defense provisions in one of EPA’s CAA regulations, and because EPA finds that the reasoning in the decision applies equally to other CAA rules. Since the court decision, EPA has been removing affirmative defense provisions from CAA rules when they were otherwise revised or amended. EPA states that this action “proposes to remove the remaining affirmative defense provisions more efficiently.” Comments are due August 8, 2024.

PHMSA Amends HMR To Require Real-Time Train Consistent Information In Electronic Form: The Pipeline and Hazardous Materials Safety Administration (PHMSA) published a final rule on June 24, 2024, amending the Hazardous Materials Regulations (HMR) to require railroads that carry hazardous materials to generate in electronic form, maintain, and provide to first responders, emergency response officials, and law enforcement personnel certain information regarding hazardous materials in rail transportation to enhance emergency response and investigative efforts. 89 Fed. Reg. 52956. According to PHMSA, the amendments address a safety recommendation of the National Transportation Safety Board and statutory mandates in The Fixing America’s Surface Transportation Act, as amended by the Infrastructure, Investment, and Jobs Act, and complement existing regulatory requirements pertaining to the generation, maintenance, and provision of similar information in hard copy form, as well as other hazard communication requirements. The effective date of the final rule is July 24, 2024. The voluntary compliance date was June 24, 2024. The delayed compliance date for Class I Railroads is June 24, 2025, and for Class II and III Railroads is June 24, 2026.

EPA Proposes To Extend Compliance Date For Installation Of Certain Variable Refrigerant Flow Systems: On June 26, 2024, EPA proposed to amend a provision of the Technology Transitions regulations promulgated under the American Innovation and Manufacturing Act. 89 Fed. Reg. 53373. The proposed amendment would allow one additional year, until January 1, 2027, solely for the installation of new residential and light commercial air conditioning and heat pump variable refrigerant flow systems that are 65,000 British thermal units per hour or greater using components manufactured in the United States or imported prior to January 1, 2026. According to EPA, the existing January 1, 2026, compliance date for the installation of certain variable refrigerant flow systems “may result in significant stranded inventory that was intended for new construction. EPA is promulgating this action to mitigate the potential for significant stranded inventory in this subsector.” Comments are due July 26, 2024.

PHMSA Requests Feedback On De Minimis Quantities Of Explosives: PHMSA published a request for information (RFI) on June 28, 2024, to solicit information from hazardous materials (HAZMAT) shippers pertaining to what small quantities or low concentrations of explosives they offer for transport appear to present a low risk to life, property, and the environment. 89 Fed. Reg. 54157. PHMSA seeks to determine what small quantities or low concentrations of explosives HAZMAT shippers offer for transport that appear to present a low risk (e.g., negligible severity, remote probability) to life, property, and the environment. PHMSA will use the information to define the focus of a research project investigating the risk of small and/or de minimis quantities of explosive substances and in selecting test samples for PHMSA research and development Contract# 693JK322C00003. Comments are due September 26, 2024. PHMSA states that it will consider comments received after that date to the extent possible.

EPA Determines Current NESHAP For PQBS Source Category Provides “Ample Margin Of Safety”: On July 5, 2024, EPA published a final rule regarding the residual risk and technology review conducted for the NESHAP for the Coke Ovens: Pushing, Quenching, and Battery Stacks (PQBS) source category and the periodic technology review for the Coke Oven Batteries (COB) source category NESHAP. 89 Fed. Reg. 55684. EPA states that it is issuing a final determination that risks due to emissions of hazardous air pollutants (HAP) from the PQBS source category are acceptable and that “the current NESHAP provides an ample margin of safety to protect public health.” The final rule was effective July 5, 2024, except for amendatory instruction 3, which was effective July 15, 2024. The incorporation by reference (IBR) of certain publications listed in the rule is approved by the Director of the Federal Register beginning July 5, 2024. The IBR of certain other material listed in the rule was approved by the Director of the Federal Register as of July 13, 2005.

EPA Releases Science-Based Recommendations To Help Reduce Exposure To Contaminants, Including PFAS, In Fish: EPA announced on July 11, 2024, that it issued updated recommendations under the Clean Water Act (CWA) for contaminants that states, Tribes, and territories should consider monitoring in locally caught, freshwater fish. According to EPA, for the first time, it has added several PFAS to the contaminant list alongside lead, three cyanotoxins, a flame retardant, and amphetamine. With this announcement, EPA suggests that states, Tribes, and territories monitor for these contaminants. EPA notes that this update comes after reviewing scientific literature, analyzing data, and seeking external peer review of the Agency’s analysis, and it will help ensure that state and Tribal fish advisories consider the latest science.

FDA

FDA Updates Resources For FSMA Rule: On June 27, 2024, the U.S. Food and Drug Administration (FDA) released additional resources to help industry comply with the Food Traceability Rule, a component of the Food Safety Modernization Act (FSMA). Resources include a template spreadsheet to help fulfill data submission requests and minor revisions to the Food Traceability List. Additional information is available at the link here.

FDA Releases Update For Priority Guidance Topic List: On June 28, 2024, FDA provided an update for its priority guidance topic list, which was released in January. Since January, FDA has issued the following guidance documents:

FDA notes that its “intent is to publish all draft and final guidance topics on the list” but that “modifications in plans may be needed to support emerging issues and Administration priorities.”

FDA Revokes Authorization For Brominated Vegetable Oil: On July 3, 2024, FDA amended its regulations to revoke the authorization for the use of brominated vegetable oil (BVO) in food. 89 Fed. Reg. 55040. The final rule revokes the authorization for the use of BVO as a food ingredient intended to stabilize flavoring oils in fruit-flavored beverages. FDA notes that there are no other FDA authorized uses. The rule is effective on August 2, 2024.

NANOTECHNOLOGY

ECHA Evaluating Function Of EUON; Survey Closed July 3, 2024: The European Chemicals Agency (ECHA) is evaluating the function of the European Union (EU) Observatory for Nanomaterials (EUON). As part of its evaluation, ECHA conducted a survey to collect responses from EUON website visitors and stakeholders. The survey closed July 3, 2024. More information is available in our June 24, 2024, blog item.

ECHA Updates Report On Key Areas Of Regulatory Challenge, Addresses Micro- And Nano-Sized Materials: On June 12, 2024, ECHA announced that it updated its report on key areas of regulatory challenge, providing more detailed information on areas where scientific research is needed to protect human health and the environment from hazardous chemicals. The report addresses micro- and nano-size materials. More information is available in our June 17, 2024, blog item.

NIOSH Highlights NTRC’s Work On Engineering Controls And PPE: On July 1, 2024, the National Institute for Occupational Safety and Health (NIOSH) posted a NIOSH Science Blog item entitled “Celebrating 20 Years of the Nanotechnology Research Center: Highlights from Engineering Controls and Personal Protective Equipment,” part of a series commemorating the 20th anniversary of the Nanotechnology Research Center (NTRC). NIOSH researchers plan to develop a new reliable aerosol testing method that can accurately evaluate the respirator penetration against workplace nanomaterials; evaluate the effectiveness of NIOSH-approved® respirators to determine whether existing respirator guidelines apply to workers exposed to nanomaterials; and compare nanomaterial penetrations determined by direct-reading and elemental carbon analysis methods. More information is available in our July 5, 2024, blog item.

NNI And NNCO Will Hold July 24 Workshop On “Responsible Development, Social Science, And The National Nanotechnology Initiative”: The National Nanotechnology Initiative (NNI) and the National Nanotechnology Coordination Office (NNCO) are convening a July 24, 2024, workshop, “Responsible Development, Social Science, and the National Nanotechnology Initiative: A Workshop to Explore Past and Future Intersections.” The agenda includes a presentation about the recently released “Blueprint for the Use of Social and Behavioral Science to Advance Evidence-Based Policymaking,” introductions to key nanotechnology case studies by federal experts, and flash talks by social scientists. More information is available in our July 3, 2024, blog item.

BIOBASED/RENEWABLE PRODUCTS/SUSTAINABILITY

B&C® Biobased And Sustainable Chemicals Blog: For access to a summary of key legislative, regulatory, and business developments in biobased chemicals, biofuels, and industrial biotechnology, go to https://www.lawbc.com/brand/bioblog/.

LEGISLATIVE

House Appropriations Committee Approves FY 2025 Interior, Environment, And Related Agencies Appropriations Act: The House Appropriations Committee announced on July 9, 2024, that it approved the Fiscal Year (FY) 2025 Interior, Environment, and Related Agencies Appropriations Act by a vote of 29 to 25. According to the press release, the bill:

  • Ensures chemical and pesticide manufacturers are not overburdened with requirements that would drive business overseas and threaten American competitiveness;
  • Blocks EPA’s car regulations on light, medium, and heavy-duty vehicles;
  • Prohibits EPA from allowing California to require that new small off-road engines, such as lawn care equipment, be zero-emission;
  • Prohibits funds for EPA’s Clean Power Plan 2.0 and regulatory overreach regarding ozone emissions and steam electric power plants;
  • Reduces funding for EPA by 20 percent;
  • Reduces funding for the Council on Environmental Quality to the authorized level of $1 million;
  • Rejects eight of the Administration’s climate change executive orders; and
  • Prohibits agencies from using the Social Cost of Carbon (SCC) in cost-benefit analyses and blocks the Interagency Working Group on Social Cost of Greenhouse Gases.

House Committee Holds EPA Oversight Hearing On July 10, 2024: The House Committee on Oversight and Accountability held a full committee hearing on July 10, 2024, on “Oversight of the U.S. Environmental Protection Agency.” The Committee’s July 3, 2024, press release quotes Committee Chair James Comer (R-KY) as stating: “We know the Biden Administration is overreaching its environmental protection authorities extensively, flouting the limits the Supreme Court set upon them two years ago in West Virginia v. EPA and adopting statutory interpretations that surely will not pass muster under the Court’s recent decision in Loper Bright Enterprises v. Raimondo. The Committee looks forward to holding the agency accountable next week for its efforts to cement Green New Deal and other misguided priorities that have hurt both American businesses and consumers across the country.” More information will be available in a forthcoming memorandum.

MISCELLANEOUS

California Court Grants Injunction To Stop Prop 65 Warnings For Titanium Dioxide In Cosmetic And Personal Care Products: On June 12, 2024, the U.S. District Court for the Eastern District of California (District Court) issued an Order granting a preliminary injunction brought by the Personal Care Products Council (PCPC), which alleged that the California Office of Environmental Health Hazard Assessment’s (OEHHA) requirement for warnings under Proposition 65 (Prop 65) related to titanium dioxide in cosmetics and personal care products violated the First Amendment. The Personal Care Products Council v. Bonta, No. 2:23-cv-01006-TLN-JDP (E.D. Cal. 2024). In its Order, the District Court enjoined the California Attorney General and any private citizen enforcers from enforcing Prop 65’s warning requirement for “cancer as applied to Listed Titanium Dioxide (i.e., titanium dioxide that consists of airborne, unbound particles of respirable size) in cosmetic and personal care products.” The District Court also denied a motion to intervene by Environmental Health Advocates, Inc. (EHA), who had argued it was “an interested party because it is the primary enforcer of Prop 65.” For more information, please read the full memorandum.

Proposition 65: OEHHA Proposes Additional Changes To “Short-Form” Warning Option: On June 14, 2024, the California OEHHA issued a notice proposing additional changes to its Prop 65 Article 6 “clear and reasonable warnings” regulations for “short-form” warnings (Notice). The changes proposed now are to the proposed regulations that OEHHA issued on October 27, 2023. The history of these amendments, dating back to January 2021, are set forth in our memorandum available here. Written comments on the proposed changes were due no later than June 28, 2024. More information is available in our July 5, 2024, memorandum.

June 2024 IRIS Program Outlook Released: EPA’s Health and Environmental Risk Assessment (HERA) Program announced on June 27, 2024, the release of the June 2024 Integrated Risk Information System (IRIS) Program Outlook. To maintain transparency, the IRIS Program provides an updated outlook of program activities. The IRIS Program Outlook describes assessments that are in development and projected public milestone dates.

Registration Opens For July Webinars On Minnesota’s PFAS In Products Law; MPCA Publishes Summary Of Comments On CUUs: The Minnesota Pollution Control Agency (MPCA) will hold two public webinars in July to provide updates and answer questions on Minnesota’s PFAS in products law (Amara’s Law), which takes effect in stages between 2025 and 2032:

  • Progress on rule development, July 18, 2024, 10:00 a.m. – 11:30 a.m. (CDT): Join MPCA staff for a presentation on preliminary rule writing for the PFAS in products reporting, fees, and currently unavoidable use (CUU) rules. Registration is open.
  • Information on 2025 prohibitions for retailers and manufacturers, July 25, 2024, 11:00 a.m. – 12:00 p.m. (CDT): This webinar will discuss how the 2025 PFAS in products prohibitions will affect retailers and manufacturers starting January 1, 2025, when 11 categories of consumer products must be free of intentionally added PFAS. Registration is open.

As reported in our January 12, 2024, blog item, MPCA published a request for comments (RFC) on planned new rules governing CUU determinations for products containing PFAS. According to the RFC, the main purpose of the rulemaking is to establish criteria and processes through which MPCA will make decisions on what uses of intentionally added PFAS will qualify as CUUs in products sold, offered for sale, or distributed in Minnesota. Any such determinations must be published by rule by MPCA by January 1, 2032. MPCA has posted a summary of the comments received on the RFC. More information is available in our June 24, 2024, blog item.

Minnesota Department Of Health Highlights Recent Publications On PFAS Bioaccumulation And PFAS In Infant Formula: The Minnesota Department of Health (MDH) recently noted that Health Risk Assessment scientists at MDH have published two articles in the Journal of Environmental Exposure Assessment related to PFAS:

OIRA Will Offer Training Sessions On Effective Participation In The Public Comment Process: As part of its efforts to strengthen public engagement in the federal regulatory process, the Office of Information and Regulatory Affairs (OIRA) in OMB announced on July 10, 2024, that it will offer training sessions on effective public participation in the public comment process. 89 Fed. Reg. 56777. In response to feedback received from the public and as part of its ongoing efforts to strengthen public participation in the regulatory process, OIRA will hold two training sessions on effective participation in the public comment process. During the training sessions, OIRA will describe opportunities to provide comment in the federal regulatory process; how to submit public comments; and how to draft effective public comments. The training sessions will be held on July 18, 2024, from 3:00 p.m. to 3:45 p.m. (EDT) and July 24, 2024, from 5:30 p.m. to 6:15 p.m. (EDT).

CISA Hosts 2024 Chemical Security Seminars On July 11 And 18, 2024: The U.S. Department of Homeland Security’s (DHS) Cybersecurity and Infrastructure Security Agency (CISA) is hosting the fully virtual 2024 Chemical Security Seminars on July 11 and July 18, 2024, from 10:00 a.m. – 3:00 p.m. (EDT). The sessions will cover a range of topics related to the security of dangerous chemicals. More information is available in our July 8, 2024, blog item.

Comments On Canada’s Updated Draft State Of PFAS Report And Revised Risk Management Scope Are Due September 11, 2024: The July 13, 2024, Canada Gazette includes a notice announcing the availability of the Updated Draft State of Per- and Polyfluoroalkyl Substances (PFAS) Report (Updated Draft Report) and Revised Risk Management Scope for Per- and Polyfluoroalkyl Substances (PFAS) (Revised Risk Management Scope). The Minister of the Environment and the Minister of Health (the ministers) propose to recommend that the class of PFAS, excluding fluoropolymers, be added to Part 2 of Schedule 1 of the Canadian Environmental Protection Act, 1999 (CEPA). According to the Revised Risk Management Scope, Canada is considering:

  • As a first step, a regulatory instrument under CEPA to restrict PFAS not currently regulated in firefighting foams; and
  • Additional regulatory instrument(s) under CEPA to prohibit other uses or sectors in relation to PFAS. Prioritization for prohibition may be based on factors such as socioeconomic considerations, the availability of feasible alternatives, and the potential for human and environmental exposure.

The Revised Risk Management Scope states that “[v]oluntary risk management actions are also being considered to achieve early results to reduce releases of PFAS, as a complement to the proposed regulatory instruments.” Comments are due September 11, 2024. More information is available in our July 12, 2024, blog item.

©2024 Bergeson & Campbell, P.C.
For more news on Recent Federal Environmental Developments, visit the NLR Environmental Energy Resources section.

Supreme Court Holds That the Eighth Amendment Does Not Prevent Enforcement of Local Camping Bans, Authorizing a Significant Shift in Local Policies on Homelessness

Until recently, local policies on homelessness have been guided by two controversial rulings from the Ninth Circuit Court of Appeals: Martin v. Boise (9th Cir. 2019) 920 F.3d 584 and Johnson v. City of Grants Pass (9th Cir. 2022) 50 F.4th 787.[1] However, the Supreme Court’s decision in City of Grants Pass v. Johnson(2024) 603 U.S. ____, is likely to transform local jurisdictions’ policy approaches to managing homelessness. In a 6-3 decision, the Supreme Court upheld the city’s ban on camping and parking overnight on public property.

By way of background, in Martin, the Ninth Circuit held that the Eighth Amendment’s restriction against cruel and unusual punishment barred cities from imposing criminal penalties for violations of public-camping ordinances whenever the number of homeless individuals exceeds the number of “practically available” shelter beds in a jurisdiction. In Johnson, the Ninth Circuit expanded on Martin and held that a city cannot enforce its camping ban or impose fines or civil penalties unless the city has enough shelter beds for its entire population. Since then, affected cities and states have widely criticized these two Ninth Circuit rulings, which effectively blocked the enforcement of local ordinances prohibiting or regulating camping and sleeping outdoors.

In the Supreme Court’s decision in Johnson, the Court rejected the Ninth Circuit’s rulings and held that ordinances prohibiting camping, overnight parking, or sleeping outdoors do not violate the Eighth Amendment’s protections against cruel and unusual punishment because these ordinances regulate “conduct” and “actions”, rather than “mere status.”

The Court focused on the practical implications of Martin and Johnson, finding that the Ninth Circuit created an unworkable and confusing test to evaluate public camping ordinances, based on subjective and vague determinations of who is “involuntarily” homeless. The Court also criticized judicial injunctions prohibiting the enforcement of public camping ordinances, finding that these determinations are “public policy responses” best handled by local governments and the legislature (not courts).

In doing so, the Court agreed with local jurisdictions that complained that the Ninth Circuit inappropriately limited available policymaking tools and “undermined” local efforts to address homelessness. The Court emphasized that local governments have “broad power” over the substance and enforcement of their laws and must be afforded “wide latitude” and “flexibility” to address homelessness.

Although the Court’s ruling authorizes the enforcement of public camping ordinances, it does not grant unfettered power to local jurisdictions. The Court acknowledges that public camping ordinances could still implicate other constitutional concerns, including potential violations under the Due Process Clause. The Court further notes that local governments are not required to adopt public camping ordinances, and may choose to narrow such laws by imposing relevant time, place, and manner restrictions.

Even with these limitations, the Court’s decision is likely to significantly alter the future of local policies on homelessness, especially throughout California. Local governments are now authorized to take more aggressive actions to enforce existing ordinances (or enact new ones) prohibiting or otherwise regulating overnight camping and parking on public property. Ordinances that include relevant time, place and manner restrictions (e.g., regulating when, where, and how people sleep in public) are likely to be particularly insulated from constitutional challenges.

We will continue to monitor updates to local policies on the homeless in response to this decision and provide updates as they become available.

FOOTNOTES

[1] See prior article here.

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Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.

by: Alexander L. Merritt, Kathryn C. Kafka of Sheppard, Mullin, Richter & Hampton LLP

For more news on the Supreme Court’s decision in City of Grants Pass v. Johnson, visit the NLR Real Estate section.

Be Careful What You Write: What a Heavily Redacted Antitrust Complaint Teaches Us About Creating Problematic Documents in Transactions

The Federal Trade Commission (FTC) recently filed a complaint in the U.S. District Court for the Southern District of Texas to stop Tempur Sealy’s proposed acquisition of Mattress Firm. See Federal Trade Comm’n v. Tempur Sealy Int’l, Inc. and Mattress Firm Group Inc., Case No. 4:24-cv-02508 (S.D. Tex. Jul. 2, 2024). On the same day, the FTC also commenced an administrative proceeding in its own court to block the transaction. See In re Tempur Sealy Int’l, Inc. and Mattress Firm Group Inc., Docket No. 9433 (FTC Jul. 2, 2024). According to the complaints, Tempur Sealy is the world’s largest mattress supplier and Mattress Firm is the largest mattress retailer in the United States. Vertical mergers between manufacturers and retailers can often produce procompetitive benefits, but this transaction struck the FTC as anticompetitive. The FTC’s principal concern appears to be that Tempur Sealy would shut off its rivals’ access to Mattress Firm.

Supporting the FTC’s decision to sue, Federal Trade Commissioner Melissa Holyoak said, “Despite the increased likelihood of procompetitive effects from vertical mergers, they may still result in harm in some circumstances. Consistent with these well-established economic principles, I vote in favor of filing this complaint based upon the substantial evidence generated by staff’s thorough investigation, especially the parties’ own ordinary-course documents. I have reason to believe that the effect of Tempur Sealy’s acquisition of Mattress Firm ‘may be to substantially lessen competition.’” (Emphasis added).

What exactly was in these ordinary course documents that caused Holyoak to believe this merger violates Section 7 of the Clayton Act and Section 5 of the FTC Act? The short answer is we don’t know. The complaints, which extensively quote some documents, are heavily redacted and the documents themselves, even in redacted form, are not attached to the complaints. Nor would we expect the documents to be attached, as they likely contain competitively sensitive information that ordinarily would not be on the public record. Rather than speculate about the documents themselves, let’s use the allegations in the FTC’s complaints as a tool to remind ourselves how documents are used in antitrust investigations and how lawyers and clients can work together to reduce the likelihood that potentially problematic documents are created.

  1. What’s an “ordinary course” document? As the name suggests, an ordinary course document is one that is created by the parties in the course of their ordinary business activities. It may be a routinely issued report, an email or text exchange by two employees, Slack messages, a slide deck, board minutes or any other form of written communication. Antitrust regulators routinely use these documents to gain insight into how the parties see themselves in relation to the competition, the rationale for a transaction, and how the parties view the likely competitive effects of a transaction. Often regulators will place more emphasis on communications from senior leadership in a corporation as those individuals may have greater knowledge of the transaction and have more authority to “speak” for an entity than lower-level employees. Regulators will use these documents not only to support their own theories and claims, but also to contradict the parties’ advocacy about the procompetitive aspects of a deal.
  2. How does the government obtain these ordinary course documents? In the case of the Tempur Sealy/Mattress Firm transaction and other high dollar value transactions, the parties were required to file Hart-Scott-Rodino (HSR) premerger notification forms. When an HSR filing is required, the parties must produce documents that discuss the transaction in relation to certain specific topics, such as competition, competitors, markets, and market shares. These documents are usually not ordinary course documents as they were created specifically for the deal but are nevertheless critical in the regulators’ review of potential competitive issues. Documents routinely produced in the HSR process, such as Confidential Information Memoranda (CIM) and Management Presentations, may contain statements that could create potential antitrust concerns. Clients should recognize that even the smallest of things in a CIM or Management Presentation have the potential to create big problems, as government regulators will read every page of what is submitted to them. For example, assume that an HSR filing contains a 100-page deck intended to serve as a Management Presentation, and one page of that deck contains a sentence that says: “We [seller] are the dominant player in our industry and we face minimal competition.” The rest of the deck might be completely innocuous, but depending on the circumstances, that one sentence has the potential to ignite regulators’ interest.Some transactions, such as Tempur Sealy/Mattress Firm, undergo a Second Request process after HSR is filed. A Second Request is an extensive subpoena requesting documents and data from the parties that goes far beyond the HSR process. The Second Request process is what likely turned up the “ordinary course” documents mentioned in Holyoak’s statement. This included text messages. See, e.g., Paragraph 108 of the federal complaint and Paragraph 99 of the administrative complaint. Judging from the amount of redacted material referenced in the complaints, the FTC appears to believe there are many documents that portray this transaction in an anticompetitive light.

    Clients should also be aware that the government’s authority to review and investigate transactions is not limited to only those transactions that require HSR filings; the government’s authority extends to any transaction that impacts competition in the United States. In addition to HSR filings, the government learns about deals through a variety of sources, such as press reports and third party complaints from customers or competitors. Accordingly, our views about document creation extend to all transactions, not just those requiring HSR premerger notification.

  3. Document creation in transactions is a team sport. That means lawyers and clients should work together as a team to minimize the creation of potentially harmful documents. The team should also include investment bankers and other advisors who are generating documents that analyze the transaction. In ideal circumstances, clients will involve experienced antitrust lawyers early on to understand: 1) whether the transaction potentially raises substantive antitrust concerns, such as when two direct competitors combine; 2) if the transaction will require HSR notification; and 3) whether or not HSR is required, what are the guardrails or best practices the client should observe. Recognizing that we don’t always operate in ideal circumstances and lawyers may only become involved after certain documents are created, lawyers should nevertheless remain vigilant about documents from the time they become involved in a deal. Coaching clients and their advisors about document creation best practices is always critically important.
  4. What are some best practices? Lawyers should proactively educate their clients on what to say (or not say) about the transaction and which words or phrases may be particularly susceptible to raising potential antitrust concerns. For example, words like “dominate” and “control” in relation to competition and competitors may create problems, as could market share statistics that overstate a seller’s prominence in a particular industry. Lawyers should also review drafts of documents such as CIMs, Management Presentations, and teasers to ensure that they are free of harmful verbiage.
  5. Expect statements to be misunderstood or taken out of context: Reading the Tempur Sealy/Mattress Firm complaints, two things are clear: 1) the government relied on portions of documents to support its allegations; and 2) the context of many of the quoted statements is unknown. It may be the case that some of the statements the FTC found important become less important when the entire document is reviewed and the context of the statement is made clear. Relatedly, there may be other documents not referenced in the complaints that indicate the transaction has procompetitive benefits. Allegations in a complaint are just that – allegations – and the evidence that emerges as the case progresses may or may not support those allegations. That being said, parties are wise to follow the best practices above. Similarly, they are also wise to avoid making exaggerated statements or statements intended to be humorous. These statements may be misunderstood by government regulators who do not know the specific industry or its players as well as clients do.
  6. Follow the general principle of “less is more” when it comes to document creation. Many transactions seem to move at lightning speed, but a moment of self-reflection can be very valuable. Ask yourself: do I need to write this, and if I do, what’s the best way to say it? Some organizations are more document-intensive than others, and there may be other reasons, unrelated to antitrust considerations, that require certain documentation. But in general, more documents are probably created than are truly necessary and more documents create the potential for more problems. Regardless, the key is to remember emails, texts, Slack messages, and slide decks may be read not only by their intended recipients but also by government antitrust regulators.
Copyright ©2024 Nelson Mullins Riley & Scarborough LLP
For more news on Antitrust Complaints, visit the NLR Antitrust Trade & Regulation section.

The Five Largest SEC Whistleblower Awards from the First Half of 2024

In the first half of 2024, the SEC Whistleblower Program awarded over $18 million to whistleblowers who aided in the agency’s enforcement efforts. Below are the top five awards from the first half of 2024.

Since its inception in 2010, the Securities and Exchange Commission (SEC) Whistleblower Program has made significant strides, granting over $1.9 billion in whistleblower awards. In the first half of 2024, over $18 million was awarded to individuals who voluntarily provided original information that led to a successful enforcement action, a testament to the program’s effectiveness.

Under the SEC Whistleblower Program, qualified whistleblowers can receive 10-30% of the funds collected from a successful enforcement action based on their tip. The SEC does not disclose identifying information about award recipients, ensuring their protection and the program’s integrity.

Following are the top five whistleblower awards of the first half 2024:

1. $3.6 Million

On June 17, the SEC granted two claimants a total of $3.6 million, with the first receiving $2,400,000 and the second receiving $1,200,000.

The SEC acknowledged the significant contribution of the first Claimant whose disclosure “caused the staff to open the investigation” and “provided ongoing assistance by participating in interviews and providing documents, which saved Commission resources by helping the staff obtain information in an efficient manner.”

Claimant Two “provided information that caused the staff to inquire concerning different conduct as part of a current investigation” and “provided ongoing assistance by participating in interviews and providing documents, which helped to expedite the staff’s investigation,” according to the award order.

The award document noted that Claimant Two received a reduced reward for reporting information to the commission months after the staff had opened its investigation. Furthermore, it was noted that Claimant One provided a higher level of assistance than Claimant Two and that Claimant One’s information ultimately formed the basis of more charges in the Covered Action.

2. $3.4 Million.

On May 31, the SEC granted a payment of $3.4 million to a single Claimant. Five others filed for an award for the Covered Action but were denied.

According to the SEC, “Claimant voluntarily provided original information that significantly contributed to the success of the Covered Action,” underscoring whistleblowers’ crucial role in enforcing securities regulations.
“Enforcement staff opened the Covered Action investigation based on a referral from staff in the Division of Examinations, and not because of information submitted by any of the claimants.” the agency states.

However, it notes that the whistleblower “met with Enforcement staff” and “provided new, helpful information that substantially advanced the investigation.

The SEC further explains that the awarded whistleblower suffered hardship as a result of blowing the whistle and that there were “high law enforcement interests in this matter.”

Two of the Claimants were denied because they did not have personal knowledge of the investigation’s opening. One Claimant was denied because their tip was primarily publicly available information, and another was denied because their information did not lead to the success of the Covered Action.

3. $2.5 MILLION

On June 20, the SEC awarded $2.5 million to Joint Claimants.

According to the SEC, “the record demonstrates that Joint Claimants voluntarily provided original information to the Commission that led to the successful enforcement of the Covered Action.”

The Joint Claimants “alerted Commission staff to the conduct, prompting an examination to be commenced that resulted in a referral to staff in the Division of Enforcement and the opening of an investigation,” the SEC explains in the award order.

They also “provided significant additional information and assistance during the course of the examination and investigation, including communicating with Commission staff multiple times, which helped to save staff time and resources.”

4. $2.4 Million

On April 3, the SEC granted two claimants a combined award of $2,400,000. The first Claimant received $2 million, and the second received $400,000.

According to the SEC, “Claimant 1 qualifies as a whistleblower and Claimant 1 voluntarily provided original information to the Commission that caused Enforcement staff to open an investigation that led to the successful enforcement of the Covered Action.”

However, in 2022, Claimant 2 was originally denied as the SEC claimed that their disclosure was made by a general counsel on behalf of an entity owned by Claimant 2 and not on behalf of Claimant 2 as an individual.

Following the SEC’s 2022 denial, the Claimant filed a petition for review of their denial in the Court of Appeals for the Fifth Circuit. The SEC then sought a remand in the case and requested further information from the Claimant.

The Claimant provided “a new declaration from the entity’s general counsel that expressly states that the general counsel represented Claimant 2 in Claimant 2’s personal capacity throughout the process of providing information regarding the Company to the SEC.”

The SEC thus determined that Claimant 2 did qualify as a whistleblower and had “voluntarily provided original information to the Commission that significantly contributed to the success of the Covered Action.”

This marked the first time the SEC awarded a whistleblower who appealed an award denial before a federal appeals court.

5. $2.4 Million

On April 25, an individual Claimant was awarded $2.4 million after voluntarily providing original information to the Commission.

According to the SEC, “after internally reporting concerns, Claimant submitted a tip to the Commission that prompted the opening of the investigation and thereafter provided continuing assistance to the staff.”

Brooke Burkhart and Avery Hudson also contributed to this article.

Copyright Kohn, Kohn & Colapinto, LLP 2024. All Rights Reserved.
For more on Whistleblowers, visit the NLR Criminal Law Business Crimes section