The National Law Forum

SEC Awards $600,000 to Whistleblower

On February 22, the U.S. Securities and Exchange Commission (SEC) issued a $600,000 whistleblower award to an individual who voluntarily provided the agency with original information which led to a successful enforcement action.

Through the SEC Whistleblower Program, when a qualified whistleblower’s information contributes to an enforcement action in which the SEC collects at least $1 million, the whistleblower is entitled to an award of 10-30% of the funds collected by the government. The SEC also extends anti-retaliation protections to whistleblowers and thus does not disclose any identifying information about award recipients.

In determining the exact percentage for a whistleblower award, the SEC weighs a number of factors. According to the order for the $600,000 award, the SEC considered that “[the whistleblower] provided new information that significantly contributed to the success of the Covered Action; [the whistleblower] provided substantial, ongoing assistance, including participating in an interview with Commission staff and providing helpful documents on multiple occasions; and the charges in the Covered Action were based, in part, on [the whistleblower’s] information.”

The SEC Whistleblower Program has already issued a slew of whistleblower awards in the 2022 fiscal year. Since the fiscal year began on October 1, 2021, the SEC has awarded over $100 million to over 30 individual whistleblowers.

The 2021 fiscal year was a record year for the program. During the fiscal year, the SEC received a record 12,200 whistleblower tips and issued a record $564 million in whistleblower awards to a record 108 individuals. Over the course of the year, the whistleblower program issued more awards than in all previous years combined.

Overall, since issuing its first award in 2012, the SEC has awarded approximately $1.2 billion to nearly 250 individual whistleblowers.

Geoff Schweller also contributed to this article.

Article By Mary Jane Wilmoth with Kohn, Kohn & Colapinto.

For more articles about SEC whistleblowers, visit the NLR White Collar Crime & Consumer Rights section.

Pennsylvania Lawmakers Propose New State Office to Support Immigrants

A group of Pennsylvania lawmakers recently proposed legislation to establish the Office of New Pennsylvanians, which aims to attract, retain, and embrace immigrants in Pennsylvania. As Pennsylvania continues to suffer lagging population growth, the proposal highlights the critical need to welcome immigrants and support their transition to the Commonwealth.

Population Growth Lagging in Pennsylvania

Despite being the fifth-largest state in the country, Pennsylvania has experienced slower population growth than much of the country. According to 2020 census data, Pennsylvania has achieved only 2.4% population growth since 2010, ranking 44^th out of 50 states. Western states like Utah (18.4%), Idaho (17.3%), and Texas (15.9%) led all states in population growth during the same period.

Due to this lagging growth, Pennsylvania is set to lose a congressional seat in this year’s redistricting, for a decrease from 18 to 17 seats in the U.S. House of Representatives. The loss of a congressional seat could cost the Commonwealth political clout and will affect the amount of federal funding it receives, which is often based on population.

Despite Pennsylvania’s lagging population growth, its immigrants are becoming an increasingly important portion of its economy. According to the American Immigration Council, one in fourteen residents of Pennsylvania is an immigrant, while one in ten entrepreneurs is an immigrant. In fact, immigrants represent approximately 9% of the entire workforce in Pennsylvania. For this reason, lawmakers are exploring options to promote and retain immigrants and spur additional growth in Pennsylvania.

Proposed Legislation Creating the Office of New Pennsylvanians

On Feb. 9, 2022, members of the Welcoming PA Caucus of the Pennsylvania House of Representatives formally unveiled House Bill 2173, which proposes the creation of the Office of New Pennsylvanians. The bill, sponsored by Reps. Sara Innamorato (D-Allegheny) and Joe Hohenstein (D-Phila.), will be responsible for attracting, retaining, and embracing immigrants who live in Pennsylvania. Speaking of the bill, Rep. Innamorato noted, “immigrants move to our country for the promise of freedom and more opportunity. But recent census data shows Pennsylvania is lagging in population growth. So, it’s more important than ever to enact policies that welcome them to our beautiful Commonwealth.”

The proposed Office of New Pennsylvanians will operate within the Department of Community and Economic Development (“DCED”). Additionally, the proposed legislation will develop an advisory committee consisting of appointed public and private officials who will make recommendations to the governor on policies, procedures, regulations, and legislation to attract, retain, and integrate immigrants.

If created, the Office of New Pennsylvanians will respond to immigration-related issues and inquiries, coordinate with state agencies regarding immigration-related policy, and work with stakeholders (including higher education facilities, municipal officials, and business leaders) to develop strategies to attract and retain immigrants in the Commonwealth.

Rep. Hohenstein stressed that “it is incumbent upon each of us to ensure that people who emigrate from their home country to Pennsylvania will find a new welcoming, supportive home here. Codifying the support we provide to immigrants would establish that we see our responsibility to our immigrant neighbors as a priority and would benefit all Pennsylvanians.”

The bill was introduced on Dec. 16, 2021, and has been referred to the Committee on State Government. Sponsored and co-sponsored by Democrats, it must overcome a Republican majority in Harrisburg before being enacted into law.

Article By Raymond G. Lahoud with Norris McLaughlin P.A.

For more articles about Pennsylvania, visit the NLR Pennsylvania area of law page.

New York To Require Licensure of Pharmacy Benefit Managers

In an effort to counteract rising prescription drug costs and health insurance premiums, New York Governor Hochul signed S3762/A1396 (the Act) on December 31, 2021. This legislation specifies the registration, licensure, and reporting requirements of pharmacy benefit managers (PBMs) operating in New York. The Superintendent of the Department of Financial Services (Superintendent) will oversee the implementation of this legislation and the ongoing registration and licensure of PBMs in New York. Notably, this legislation establishes a duty of accountability and transparency that PBMs owe in the performance of pharmacy benefit management services.

Though the Governor only recently signed the Act, on January 13, 2022, an additional piece of legislation, S7837/A8388, was introduced in the New York Legislature. If passed, this legislation would amend and repeal certain provisions proposed in the Act. As of the date of this blog post, both the Senate and Assembly have passed S7837/A8388, and it has been delivered to the Governor for signature. Anticipating that Governor Hochul will sign S7837/A8388 into law, we have provided an overview of the Act, taking into account the impact that S7837/A8388 will have, and the changes that both make to the New York State Insurance, Public Health, and Finance Laws.

New York State Insurance Law: Article 29 – Pharmacy Benefit Managers

The Act adds Article 29 to the Insurance Law. The Section includes, among other provisions, definitions applicable to PBMs, as well as licensure, registration, and reporting requirements, as detailed below.

Definitions

Section 2901 incorporates the definitions of “pharmacy benefit manager” and “pharmacy benefit management services” of Section 280-a of the Public Health Law. “Pharmacy benefit management services” is defined as “the management or administration of prescription drug benefits for a health plan.” This definition applies regardless of whether the PBM conducts the administration or management directly or indirectly and regardless of whether the PBM and health plan are associated or related. “Pharmacy benefit management services” also includes the procurement of prescription drugs to be dispensed to patients, or the administration or management of prescription drug benefits, including but not limited to:

Mail service pharmacy;
Claims processing, retail network management, or payment of claims to pharmacies for dispensing prescription drugs;
Clinical or other formulary or preferred drug list development or management;
Negotiation or administration of rebates, discounts, payment differentials, or other incentives, for the inclusion of particular prescription drugs in a particular category or to promote the purchase of particular prescription drugs;
Patient compliance, therapeutic intervention, or generic substitution programs;
Disease management;
Drug utilization review or prior authorization;
Adjudication of appeals or grievances related to prescription drug coverage;
Contracting with network pharmacies; and
Controlling the cost of covered prescription drugs.

A “pharmacy benefit manager” is defined as any entity that performs the above listed management services for a health plan. Finally, the term “health plan” is amended to encompass entities that a PBM either provides management services for and is a health benefit plan or reimburses, in whole or in part, at least prescription drugs, for a “substantial number of beneficiaries” that work in New York. The Superintendent has the discretion to interpret the phrase “substantial number of beneficiaries.”

Registration Requirements

PBMs currently providing pharmacy benefit management services must register and submit an annual registration fee of $4,000 to the Department of Financial Services (DFS) on or before June 1, 2022 if the PBM intends to continue providing management services after that date. After June 1, 2022, every PBM seeking to engage in management services must register and submit the annual registration fee to DFS prior to engaging in management services. Regardless of when a PBM registers, every PBM registration will expire on December 31, 2023.

Reporting Requirements

On or before July 1 of each year, each PBM must report and affirm the following to the Superintendent, which includes, but is not limited to:

Any pricing discounts, rebates of any kind, inflationary payments, credits, clawbacks, fees, grants, chargebacks, reimbursement, other financial or other reimbursements, inducements, refunds or other benefits received by the PBM; and
The terms and conditions of any contract or arrangement, including other financial or other reimbursement incentives, inducements, or refunds between the PBM and any other party relating to management services provided to a health plan including, but not limited to, dispending fees paid to pharmacies.

The Superintendent may request additional information from PBMs and their respective officers and directors. Notably, the above documentation and information are confidential and not subject to public disclosure, unless a court order compels it or if the Superintendent determines disclosure is in the public’s best interest.

Licensing Requirements

The Superintendent is also responsible for establishing standards related to PBM licensure. The Superintendent must consult with the Commissioner of Health while developing the standards. The standards must address prerequisites for the issuance of a PBM license and detail how a PBM license must be maintained. The standards will cover, at a minimum, the following topics:

Conflicts of interest between PBMs and health plans or insurers;
Deceptive practices in connection with the performance of management services;
Anti-competitive practices connected to the performance of management services;
Unfair claims practices in connection with the performance of pharmacy benefit managements services;
Pricing models that PBMs use both for their services and for payment of services;
Consumer protection; and
Standards and practices used while creating pharmacy networks and while contracting with network pharmacies and other providers and in contracting with network pharmacies and other providers. This will also cover the promotion of patient access, the use of independent and community pharmacies, and the minimization of excessive concentration and vertical integration of markets.

To obtain a license, PBMs must file an application and pay a licensing fee of $8,000 to the Superintendent for each year that the license will be valid. The license will expire 36 months after its issuance, and a PBM can renew their license for another 36-month period by refiling an application with the Superintendent.

New York State Public Health Law: Amendments to Section 280-a

Duty, Accountability, and Transparency of PBMs

As briefly mentioned above, the Act also amends Public Health Law 280-a. Notably, this legislation imposes imposes new duty, accountability, and transparency requirements on PBMs. Under the new law, PBMs interacting with a covered individual have the same duty to a covered individual as the PBM has to the health plan for which the PBM is performing management services. PBMs are also compelled to act with a duty of good faith and fair dealing towards all parties, including, but not limited to, covered individuals and pharmacies. In addition, PBMs are required to hold all funds received from providing management services in trust. The PBMs can only utilize the funds in accordance with its contract with their respective health plan.

To promote transparency, PBMs shall account to their health plan any pricing discounts, rebates, clawbacks, fees, or other benefits it has received. The health plan must have access to all of the PBMs’ financial information related to the management services the PBM provides it. The PBMs are also required to disclose in writing any conflicts of interest PBMs shall disclose in writing any conflicts of interests, as well as disclose the terms and conditions of any contract related to the PBM’s provision of management services to the health plan, including, but not limited to, the dispensing fees paid to pharmacies.

New York State Finance Law: Addition of Section § 99-oo

If enacted, S7837/A8388 will add Section 99-oo to the Finance Law. This law would create a special fund called the Pharmacy Benefit Manager Regulatory Fund (Fund). The New York State Comptroller (Comptroller) and Commissioner of Tax and Finance will establish the Fund and hold joint custody over it. The Fund will primarily consist of money collected through fees and penalties imposed under the Insurance Law. The Comptroller must keep Fund monies separate from other funds, and the money shall remain in the Fund unless a statute or appropriation directs its release.

Looking Forward: PBM Regulation in New York and Beyond

In a January 2, 2022, press release, Governor Hochul touted the Act as “the most comprehensive [PBM] regulatory framework” in the United States. The Governor has made clear her intent to regulate PBMs, and New York lawmakers appear to just be getting started. PBMs in New York and throughout the United States should anticipate their state’s legislatures introducing and enacting more laws and regulations.

Article By Jean D. Krebs, Cody Keetch, Nick L. Torres with Mintz.

For more about pharmacies, visit the NLR Healthcare section.

A View From Washington, DC — Budgets, Bills, and Elections

February in Washington, DC, usually ushers in the start of a new federal budget approval process, but that will not be the case this year. President Joe Biden is not expected to release his fiscal year 2023 budget until later this spring, which will be followed by congressional hearings and oversight on our nation’s federal spending. While the president’s budget is not binding, in a Congress controlled by his own party, his suggestions on how Congress should appropriate our federal dollars are certainly taken seriously.

Furthering delays, Congress is still mired in passing the fiscal year 2022 appropriations bills — which appear to now be on target for passage in mid-March. Part of the slowdown on passing these bills revolves around an agreement on the overall topline spending number. The House approved $1.506 trillion in spending in its versions of the 12 annual appropriations bills. The Senate never released a topline number. President Biden’s budget request was for $1.523 trillion, $770 billion for nondefense spending and $753 billion for defense spending. Also of note, assuming these bills are enacted, it will be the first time in a decade that Congress has provided funds for earmarks (now referred to as “community projects”) through appropriations legislation.

Another weighty item on Congress’ agenda is the reauthorization of the nation’s flood insurance program. The National Flood Insurance Program (NFIP) was last reauthorized in 2012, when Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012. The NFIP’s five-year reauthorization ended on September 30, 2017, and since then, the program has been funded by a series of short-term measures. The program is currently operating under an extension that expired on February 18, 2022. The purpose of the Biggert-Waters Act was to make the NFIP solvent, as the program faced a $24 billion deficit. But anyone who has kept apprised of the program knows it’s not solvent and is broken in many respects. Current policyholders are facing an 18% policy rate increase in the coming year.

Finally, once summer arrives, many in Congress will turn their attention in earnest to the mid-term elections in November. Several states have new congressional maps due to redistricting. The released census data gave Texas, Florida, North Carolina, Montana, and Oregon additional seats, while California, New York, and Pennsylvania (among others) lost seats. In an almost evenly divided House, the Republicans only need to pick up three to five seats in order to take control, and most observers expect that to happen. The current US Senate is evenly divided and most incumbent Senate seats are safe, but a few states, such as Georgia, Nevada, Wisconsin, and Pennsylvania, are statistically tied in current polling and are truly toss-up elections at this point, leaving control of the US Senate up for grabs.

Article By Elizabeth Leoty Craddock and R. Christian Johnsen with Jones Walker LLP.

For more articles about election and legislative updates, visit the NLR Election & Legislative section.

What You Don’t Know Can’t Hurt You: SCOTUS Rules Inadvertent Legal Errors Cannot Overturn Copyright Infringement Decisions

“No harm, no foul.” That was the message the U.S. Supreme Court delivered Feb. 24 in ruling that a copyright infringement verdict should not have been overturned because of inaccurate information in the copyright registration asserted. The Court’s 6-3 opinion vacates a Ninth Circuit decision that threw out an infringement verdict on the ground that the registrant should have known the law regarding filing multiple works within one registration, a practice referred to as group registrations.

In Unicolors Inc. v. H&M Hennes & Mauritz LP, a jury found that Unicolors’ fabric pattern copyrights were violated and the district court entered judgment for H&M to pay nearly $800,000 for selling jackets that infringed on Unicolors’ copyrights. H&M moved for judgment as a matter of law that Unicolor’s copyright registration was invalid because for group registrations, all works in the applications must be published “in the same unit of publication.” Unicolor released some of the garments containing the protected patterns to private customers, and released the others to the public at a different time. Thus, the asserted registration did not technically satisfy the requirements. The district court denied H&M’s motion and found that safe harbor provision of the Copyright Act allows for innocent mistakes of fact and law. In this case, Unicolor was not aware that all works in a group registration had to be published “in the same unit of publication.”

The Ninth Circuit overturned this ruling, siding with H&M that Unicolors’ copyright registration was invalid because of legal errors in the application, saying a safe harbor provision for copyright registration errors only applies to factual mistakes, not unintentionally misreading the law. Justice Stephen Breyer, writing for the majority, pushed back on this idea:

“In our view, however, §411(b) does not distinguish between a mistake of law and a mistake of fact. Lack of knowledge of either fact or law can excuse an inaccuracy in a copyright registration,” he wrote.

Justice Breyer also noted that many copyright applicants are often “novelists, poets, painters, designers, and others without legal training” and said Congress never intended to make it more difficult for those non-attorneys to successfully apply for a copyright. “Given this history, it would make no sense if §411(b) left copyright registrations exposed to invalidation based on applicants’ good-faith misunderstandings of the details of copyright law,” he said.

The Supreme Court’s decision is s a victory for creators’ rights and provides some peace of mind for those creators filing copyright applications without the assistance of an attorney. However, this decision will focus discovery on whether any errors in a registration—be them factual or legal—were made “with knowledge that [the error] was inaccurate.”

Article By Laura A. Kees and Jacob S. Wharton with Womble Bond Dickinson LLP.

For more articles about the U.S. Supreme Court, visit the NLR Litigation section.

Intra-Class Conflict Dooms Auto Insurance Class Action in Fifth Circuit

Last week the Fifth Circuit issued a short opinion that made an important point that does not arise often in class certification decisions. Class certification failed because the plaintiffs’ proposed theory of liability would benefit only some class members and disadvantage others, who would be overpaid if the plaintiffs’ theory were correct. For that reason alone, the plaintiffs could not adequately represent the class.

Prudhomme v. Government Employees Insurance Company, No. 21-30157, 2022 WL 510171 (5th Cir. Feb. 21, 2022) (per curiam) was similar to another case I recently wrote about—the plaintiffs claimed that their insurer undervalued their vehicles that were deemed total losses, in violation of Louisiana statutes. Sidestepping questions about commonality and predominance, which are usually the focus of class certification decisions, the Fifth Circuit affirmed the denial of class certification because the adequacy of representation requirement was not met. This was because “a portion of the proposed class members received payments above (that is, benefitted from) the allegedly unlawful valuation.” According to the district court opinion, an expert witness opined that approximately one-fifth of the class would have received less on the plaintiffs’ theory than they received from GEICO. While the plaintiffs argued that class members who were overpaid on their theory might still be entitled to some damages under Louisiana law, that would likely create a typicality problem. Class representatives cannot adequately represent a class if they offer “a theory of liability that disadvantages a portion of the class they allegedly represent.”

Look out for this type of issue the next time you are litigating a class action. It might be lurking in your case when you peel back the onion.

Article by Wystan M. Ackerman with Robinson & Cole LLP.

For more articles about class-action lawsuits, visit the NLR Litigation section.

California Considers Unclaimed Property Voluntary Disclosure, Interest Forgiveness Legislation

The California State Assembly is considering Assembly Bill 2280, which would launch a much-anticipated opportunity for businesses to report unclaimed property to California – interest-free – under an amnesty program.

Unclaimed property is a regulatory challenge for businesses in every industry and commonly results when company financial obligations remain unsatisfied or inactive for a legally defined period.

The unclaimed property is often owed to vendors, employees, customers, or shareholders stemming from ordinary business transactions, including:

accounts receivable credits
bank and investment accounts
gift cards
royalties
securities and dividends
uncashed payroll and vendor payments
virtual currencies

California has tried passing voluntary compliance legislation since its amnesty program expired several years ago, but has been unsuccessful. The sleeping giant has again awakened.

Any company with operations in California, with California-formed entities, or with customers, vendors, or employees in California should proactively evaluate its unclaimed property compliance and monitor this legislation carefully.

Every state’s law requires companies to report unclaimed property to the state annually, yet compliance rates are low nationwide. AB 2280 estimates that 1.3 million California tax-filing businesses did not correctly report unclaimed property in 2020. To close this compliance gap, California and most other states regularly audit companies to identify unreported unclaimed property. Such audits often involve detailed reviews of company accounting records for 10 or more years by third-party auditors on behalf of numerous states.

Currently, California imposes 12 percent annual interest on any past-due unclaimed property identified, which likely deters annual compliance, with companies electing to wait for the state to authorize an audit rather than pay the interest assessment. The new bill aims to fix that.

Under AB 2280, California’s Controller is authorized to establish a voluntary disclosure agreement (VDA) or voluntary compliance program for any company that:

is not currently under examination by California
is not involved in a civil or criminal action involving unclaimed property compliance
has not been notified of an unclaimed property interest assessment or negotiated a waiver of interest in the last five years

The proposed law would allow the state to forgive the interest if the company:

participates in an educational training program
reviews accounting records for unclaimed property for 10 years
makes sufficient efforts to reunite property with owners
timely files initial reports and remits all identified unclaimed property for the 10 years

The bill may be heard in committee March 19 and it is unclear whether this legislation will become a reality. AB 2280 is not California’s first voluntary disclosure effort. California had a temporary unclaimed property amnesty program in the early 2000s, and the State Assembly declined to advance voluntary disclosure program legislation in February 2018.

Notably, even if AB 2280 successfully becomes law, the voluntary compliance program is contingent upon the legislature appropriating funds in the Budget Act.

Beyond AB 2280, California is ramping up other efforts to drive unclaimed property compliance:

In the 2019 California Budget Act, the State Controller’s Office was tasked with increasing unclaimed property compliance, including through adopting an unclaimed property amnesty program; it’s unclear whether this particular bill satisfies that task or if there is more to come
In July 2021, California’s governor approved and signed into law Assembly Bill 466, which authorizes the Franchise Tax Board to share information with the Controller’s

Office regarding the taxpayer’s revenue and previous unclaimed property compliance (or lack thereof). This development is notable because revenue and reporting history detail is often used by states to identify companies for unclaimed property enforcement initiatives.

Voluntary compliance programs and VDAs that include an interest abatement are a common-sense incentive for voluntary compliance for states, and the advantages for companies merit thoughtful consideration.

Article By Stephen S. Herst, Salvador P. LaVina, and Stanley Heyman with Barnes & Thornburg LLP.

For more articles about California legislation, visit the NLR California law section.

CDC Drops Masking Recommendations for Most Healthy Individuals

As COVID-19 cases and hospitalizations fall and certain states and localities drop mask mandates, the U.S. Centers for Disease Control and Prevention (CDC) updated its mask guidance on February 25, 2022, dropping public indoor mask recommendations for the majority of groups of individuals.

The CDC’s new guidance reflects a shift in the way the agency is analyzing data to determine mitigation strategies. The agency’s goals are to direct efforts toward protecting high-risk individuals and preventing COVID-19 from overwhelming healthcare systems. Previous CDC guidance classified counties on levels of transmission based on cases and positive test rates. The new “COVID-19 Community Levels” metrics classify counties based on new COVID-19 hospitalizations, hospital capacity, and new COVID-19 cases. The CDC classified counties as high, medium, or low. While under the old metrics, nearly all U.S. residents lived in areas of high or substantial transmission, under the new system, approximately 70 percent of U.S. residents live in a county with low or medium COVID-19 community levels.

The new recommendations are as follows:

In low-level communities, individuals may choose to mask based on individual preference and risk.
In medium-level communities, the CDC advises that those who are immunocompromised or otherwise at high risk for severe illness should mask. Those who live with or have social contact with high-risk individuals should consider masking around such individuals.
In high-level communities, all individuals two-years-old and older should mask indoors in public, regardless of vaccination status or individual risk. Those who are immunocompromised or are otherwise high risk should choose a high-quality mask or respirator.

These recommendations have a greater focus on individual risk than previous recommendations. In its telebriefing announcing the changes, the CDC noted that those who wear high-quality masks are well protected, even if around unmasked individuals.

Regardless of community level, the CDC continues to recommend staying up to date (including any boosters) with vaccines and following CDC recommendations for isolation, quarantine, and testing.

Key Takeaways

Employers following previous CDC guidance may want to examine their own masking policies, while continuing to comply with any state or local orders. For employee relations reasons, many employers may want to communicate to employees that the company is aware of the new guidance and is evaluating potential changes to workplace rules and procedures in each jurisdiction. Employers that opt to lift indoor masking requirements may want to consider directing concerned employees to the CDC’s guidance on types of masks in order to educate employees about high-quality mask options.

Article By Christine Bestor Townsend of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more articles on masking, visit the NLR Coronavirus News section.

Super Bowl Ads and Greenwashing: Critics Quick To Attack

Over 112 million people tuned in on Super Bowl Sunday to watch the NFL championship game, many of them also (or even exclusively) to watch the commercials that aired throughout the night. Even the casual viewer likely noticed almost ten different commercials that centered on themes of sustainability, zero waste, carbon offset, and climate change. Yet, critics were quick to argue that the commercials were greenwashing consumers, marking perhaps the first year that Super Bowl ads and greenwashing became a topic of morning water cooler conversation. For corporations, though, the point underlies the reality that in today’s market, any and all statements that are put forth touching on environmental issues run the risk of accusations and lawsuits alleging greenwashing. Now more than ever, globally situated companies of all types that are advertising, marketing, drafting ESG statements, or disclosing information, as required by regulatory agencies, must pay extremely close attention to the language used in all of these documents and media, or else run the risk of enforcement action or lawsuits.

Super Bowl Ads and Greenwashing

Some of the more prominent commercials during the Super Bowl that featured environmentally-friendly themes came from the automobile industry. Several commercials touted new lines of 100% electric vehicles, with obvious themes centered on reducing carbon emissions and helping to combat global warming. One commercial went so far as to even directly state “no greenwashing!” in the commercial. Not to be left out, Salesforce and the food industry also aired commercials with environmental and sustainability undertones. Critics of the transparency of the messaging in these commercials, though, quickly argued that the commercials merely provided green-friendly messaging to consumers who may only be familiar with the more heavily-reported environmental issues.

Taking the automobile industry as an example, there were more electric vehicle commercials than ever during the 2022 Super Bowl. All of them displayed new lines of 100% electric vehicles, with varying themes of their impact on reducing carbon emissions. Electric vehicles are almost universally powered by lithium-ion batteries. It is that fact that greenwashing accusers say that average consumers are not told because the batteries themselves present environmental issues of potentially equal or greater concern than gasoline-powered vehicles. The issues start with the mining of lithium and the manufacture of lithium-ion uses enormous amounts of water, and the technology used to extract and transform the raw material into a usable resource also creates carbon emissions. Further, while many companies are investing millions of dollars into reuse and recycling options for lithium-ion batteries, there is growing concern regarding the practice of disposing of the batteries into landfills, which may therefore present land contamination concerns. Finally, critics point to the necessity of manufacturing, transporting, and installing recharging stations throughout the country in order to make the mass use of electric vehicles a reality as processes that will generate waste, air pollution and carbon emissions.

Critics therefore claim that while the outward messaging from car companies is one of sustainability and clean energy, pulling the curtain back on the electric vehicle industry will reveal a different story.

Corporate Preparation Is Key

In less than two months in 2022, the fashion industry, the cosmetics industry, and the restaurant industry have seen litigation and regulatory agency activity increase with respect to greenwashing concerns. We predict that 2022 will see a great degree of regulatory enforcement action and legislation seeking to curb overzealous marketing language or statements that could be seen as greenwashing.

While there are numerous avenues to examine to ensure that ESG principles are being upheld and accurately conveyed to the public, the underlying compliance program for minimizing greenwashing allegation risks is absolutely critical for all players putting forth ESG-related statements. These compliance checks should not merely be one-time pre-issuance programs; rather, they should be ongoing and constant to ensure that with ever-evolving corporate practices, a focused interest by the regulatory agencies on ESG, and increasing attention by the legal world on greenwashing claims, all statement put forth are truly “ESG friendly” and not misleading in any way.

Article By John Gardella of CMBG3 Law

For more articles on greenwashing, visit the NLR Environmental, Energy & Resources section.

Federal Trade Commission Implements Annual Adjustments to Hart-Scott-Rodino Notification Thresholds

The Federal Trade Commission (“FTC”)’s adjusted notification thresholds for the Hart-Scott-Rodino Anti-Trust Improvement Act of 1976 (“HSR Act”) for 2022 have gone into effect beginning February 23, 2022. The “size of the transaction” thresholds have increased to $101 million (from $92 million) and $403.9 million (from $368 million), and the “size of the person” thresholds have increased to $20.2 million (from $18.4 million) and $202 million (from $184 million). The new thresholds apply to transactions that close on or after February 23, 2022, while the prior “size of the transaction” and “size of the person” thresholds will apply to transactions closing before February 23, 2022.

The HSR Act requires the parties to a merger or other M&A transaction to file a notification of the transaction with the FTC and the Department of Justice (“DOJ”) if the transaction meets the “size of the transaction” test and the parties meet the “size of the person” test. These dollar thresholds are adjusted annually based on changes to the United States gross domestic product.

Notification is required if (a) the transaction is valued at more than $403.9 million, regardless of the size of the parties; or (b) a transaction is valued at more than $101 million, but not more than $403.9 million, and, generally, one party has total assets or annual net sales of at least $20.2 million and the other party has total assets or annual net sales of at least $202 million.

If notification is required, the FTC and DOJ will have 30 days from the date on which both parties file their notices to review the competitive effects of the transaction. Prior to the expiration of this 30-day review period, the FTC or DOJ may make an additional request for documents or information from either or both parties. The parties will not be permitted to close the transaction until the 30-day review period expires, or if the FTC or the DOJ has made an additional document or information request, until 30 days after the agencies confirm that the additional request has been satisfied in full. In the past, parties filing HSR Act notifications ordinarily could request an “Early Termination” of the 30-day waiting period. However, the FTC and DOJ announced, on February 4, 2021, that they were temporarily suspending the Early Termination practice during the transition to the new Biden administration. The agencies have not yet announced when they will resume the Early Termination practice.

The FTC also announced that the maximum civil penalty amount for failure to comply with the premerger notification rules of the HSR Act has increased to $46,517 per day, from $43,792 per day.

Article By Craig Ismaili and John Sikora of Giordano, Halleran & Ciesla, P.C.

For more articles on trade, visit the NLR Antitrust & Trade Regulation section.