Tag: Federal

Strategic Use of Arbitration Provisions in Nonprofits’ Contracts

In the nonprofit sector, organizations often face unique legal challenges that require efficient and cost-effective dispute resolution mechanisms. Arbitration provisions in contracts can offer nonprofits a strategic advantage by providing a streamlined process for resolving disputes. Below, we explore the benefits and strategic considerations for incorporating arbitration clauses in contracts, drawing on recent developments and case law.

Background and Legal Basis

Arbitration is increasingly favored in the business context for its efficiency, cost-effectiveness, and confidentiality. Unlike traditional litigation, arbitration generally allows parties to resolve disputes more quickly and with less expense, which is particularly beneficial for nonprofits operating on limited budgets. The process is also private, protecting sensitive information related to donors and beneficiaries, avoiding potential adverse publicity and reputational harm, and has less risk of unpredictability like a “run-away” jury verdict.

The Federal Arbitration Act (FAA), enacted in 1925, provides the foundational legal framework for arbitration in the United States. As a result, arbitration agreements involving interstate or foreign commerce are enforceable and binding. The FAA’s core principle is to support a national policy favoring arbitration, overcoming historical resistance in some areas.

The Uniform Arbitration Act and its revised version offer a model statute adopted by most states to ensure the enforceability of arbitration agreements, even in the face of state laws that may be hostile to arbitration.

Under these arbitration statutes, federal or state courts may be involved both before or after arbitration. First, the courts are empowered to order parties to arbitrate where an enforceable arbitration agreement exists. Second, the courts may conduct a substantially limited review of an arbitration award and may enter judgment on the award or, in some cases, vacate the award or order further arbitration proceedings.

Federal Court Jurisdiction

Most trial lawyers prefer federal courts. However, the FAA does not automatically confer federal court jurisdiction over arbitration matters. Federal court jurisdiction requires a federal question or diversity of citizenship between the parties. When one of the arbitrating parties is structured as an LLC or non-corporate entity, determining diversity can be complex because it is based on the citizenship of the individuals or corporations that ultimately own the entity, regardless of how many layers are in the ownership structure. Thus, as a practical matter, many arbitration matters are decided within state courts.

Arbitration Rules

There is no requirement that an arbitration agreement select an arbitration organization to administer the arbitration. Private arbitration, where the parties self-administer the matter, is possible but increasingly rare. Instead, there are two major arbitration organizations in the United States and many smaller ones. The two major organizations are the American Arbitration Association (AAA) and the Judicial Arbitration and Mediation Services (JAMS). Each organization has several sets of arbitration rules focused on the nature of the dispute. For example, there are rules for general commercial disputes, expedited cases, and larger, more complex matters. Selecting the applicable rules is an important consideration when drafting an arbitration provision.

Drafting Arbitration Clauses

When drafting arbitration clauses, clarity and precision are paramount; otherwise, you risk entering into litigation to interpret the clause. At the very least, the arbitration clause should cover the when, where, which, and how details of the arbitration process. Nonprofits should consider whether to use broad or narrow clauses. Broad clauses cover all disputes arising from or relating to the contract, while narrow clauses limit arbitration to specific issues. Sample clauses are available from the AAA and JAMS that provide templates for structuring effective arbitration agreements. These clauses should specify the rules governing arbitration, the number of arbitrators, and the location of proceedings, among other issues.

Deemed Arbitration Clauses

Courts have found other contractual clauses to be arbitration clauses and subjected them to the requirements for arbitration. For example, a real estate contract that included a procedure involving three experts to determine the actual square footage development potential of a property to be sold was deemed an arbitration clause. Thus, when the parties disagreed as to the determination by the experts, the court performed only the substantially limited review used to review arbitration awards, not a broader review that would allow reversal for mistakes or law or fact.

Conclusion

For nonprofits, arbitration provisions offer a strategic tool for managing disputes efficiently and confidentially. However, nonprofits should carefully draft effective arbitration clauses that align with their operational needs and legal obligations. Thoughtful consideration of the scope, rules, and procedural requirements will ensure that arbitration serves as a valuable mechanism for dispute resolution.

© 2024 ArentFox Schiff LLP
For more news on Arbitration Provisions, visit the NLR ADR, Arbitration, & Mediation section.

Recent Federal Strike Force Prosecutions Serve as Warning to U.S. Manufacturers and Other Exporters

The recent enforcement activities of the newest federal strike force serve as a warning to U.S. manufacturers and other businesses involved in the export of products that the government is doubling down on prosecuting trade violations. The expressed mission of the multi-agency Disruptive Technology Strike Force (Strike Force) is “to counter efforts by hostile nation states to illicitly acquire sensitive U.S. technology to advance their authoritarian regimes and facilitate human rights abuses.” The latest Strike Force criminal indictments focus on technology such as:

  • Aerospace and defense source code,
  • Aircraft components,
  • Microelectronic components used in unmanned aerial vehicles (UAVs),
  • Laser welding machinery.

There is every reason to expect that the Department of Justice’s (DOJ) future targets will extend beyond the kind of individual defendants who have been the focus of the 24 criminal indictments to date and include legitimate companies whose compliance program deficiencies allow the illicit exports to occur. Ensuring that a company’s trade compliance program meets or exceeds the expressed standards of the DOJ and the Department of Commerce (DOC) is now more essential than ever.

Compliance Keys

  • Exposure Risk for Manufacturers and Distributors. The export-diversion schemes prosecuted to date share a common element—a bad actor sought to exploit innocent U.S. manufacturers and distributors by misrepresenting their identity and end-use plans or by seeking to compromise the manufacturer’s computer systems. As U.S. export controls (particularly those aimed at Russia and China) have expanded over the past several years, schemes like those alleged in these indictments have proliferated. Failing to be alert for the warning signs of such schemes may expose a company to becoming a victim of sanctions evaders or, worse, an enforcement target for ignoring red flags. The Export Administration Regulations prohibit companies from engaging in a transaction with the knowledge that a violation has occurred or will occur. “Knowledge” is not limited to actual knowledge; it can also be inferred from turning a blind eye to red flags in a transaction. As a result, having personnel trained to identify and respond appropriately to red flags suggesting that diversion could be occurring can be crucial to avoiding export violations.
  • Precautions to Detect and Prevent Imposter Schemes.
    • First, a written risk-based export control compliance plan can be a valuable aid in detecting diversion schemes and other illicit behavior. Such plans detail procedures employees must follow for conducting diligence on new and existing customers and transactions, evaluating when export licenses are required for a transaction, and detecting and responding to red flags. They provide clear guidance on when and how to escalate potential issues. Such a compliance plan gives employees the tools to help them identify when their company may be facing a diversion scheme and how to respond appropriately before a transaction is executed.
    • Second, companies can emphasize conducting “know your customer” (KYC) diligence on transactions. The importance of such diligence is heightened when new customers are involved, when business with an existing company is expanding to new products, or to involve new product destinations. The DOC has published extensive guidance on KYC diligence (often in conjunction with other U.S. government agencies and with enforcement authorities in allied countries). This week, the DOC and export control authorities from the other G7 countries issued new guidance that identifies items most likely to be the subject of diversion efforts by Russia, lists common red flags suggesting potential export control and sanctions evasion in a transaction, and suggests some diligence best practices to prevent diversion and evasion. This new guidance echoes similar guidance issued by U.S. and allied government agencies over the last two years for detecting diversion schemes in the current environment of export controls and sanctions regarding Russia and China. (For example, our summary of the joint guidance issued last year by export-control authorities in the United States, the United Kingdom, Canada, Australia, and New Zealand addressing 45 types of goods at high risk for diversion and recommended KYC diligence steps can be found here.) Companies should be tracking and incorporating, as appropriate, these guidance updates
    • Third, companies can be knowledgeable about the potential uses of their products and technology. This knowledge informs when and where a company may face diversion risk. Products and technology with permissible uses could be a target for diversion where they can be used for purposes the U.S. government restricts. For example, in one of the recent Strike Force cases, U.S. v. Postovoy, the alleged diversion scheme targeted a company whose microelectronic components could be used in drones and UAVs. Keeping U.S.-origin components out of such vehicles used by Russia in the war with Ukraine has been a major U.S. export control policy priority. Similarly, in another Strike Force case, U.S. v. Teslenko, the alleged diversion scheme targeted a company whose laser welders had applications that could aid Russia’s nuclear weapons program. Knowing the market for illicit uses for a company’s products and technology helps a company tailor its compliance efforts by identifying what products may be attractive to bad actors and what specific red flags may be of most concern regarding the company’s products and technology.
  • Cybersecurity Vigilance to Prevent Technology Theft. Another case announced alongside the Strike Force cases, U.S. v. Wei, is a reminder that U.S. manufacturers of sensitive technology face a multifront effort by foreign malign actors to gain access to that technology. In addition to ensuring up-to-date export controls and sanctions compliance programs, U.S. manufacturers should consider measures to protect their technology from misappropriation through cyber intrusion by implementing appropriate processes and tools to prevent and detect such activity by these actors. These processes and tools can include:
    • Regularly sharing cyber hygiene tips and training on current phishing schemes and conducting phishing tests to increase employee awareness of these risks,
    • Maintaining system hygiene by regularly scanning systems for vulnerabilities and unauthorized accounts, monitoring access logs for suspicious activity, and prohibiting automatic email forwarding to external addresses to prevent data leakage,
    • Installing a secure email gateway to filter out spam, malware, and phishing attempts and employing email authentication techniques (e.g., SPF, DKIM, and DMARC),
    • Tracking and monitoring all endpoints and mobile devices to detect suspicious activities and regularly auditing access logs to identify violations or attempted violations of access policies, and
    • Restricting administrative and privileged account access to minimize potential damage and limiting remote access to critical data and functions.

The Indictments

The six most recent indictments relating to the Strike Force’s efforts confirm that export control and sanctions compliance, particularly concerning Russia, China, and Iran, is a significant enforcement priority for the DOJ and other government agencies. As one Strike Force member stated, the DOJ, “through the work of the Strike Force, will continue to do all [it] can to prevent advanced technologies from falling into the hands of our adversaries and protect our national security.” These indictments and a related indictment announced simultaneously highlight the risks of manufacturers and distributors falling victim to schemes like those alleged in the indictments or becoming the focus of enforcement efforts for committing export control violations.

U.S. v. Postovoy. A Russian citizen living in the United States was indicted for conspiring to violate the Export Control Reform Act (ECRA), to smuggle, launder money, and defraud the United States. After Russia invaded Ukraine, the individual used a series of companies he owned around the world to obtain and unlawfully export microelectronic components that could be used in drones and UAVs from the United States to Russia. The individual concealed and misstated end-user and destination information in communications with U.S.-based distributors.

U.S. v. Song. A Chinese national was indicted for wire fraud and aggravated identity theft in connection with attempts to obtain software and source code from the National Aeronautics and Space Administration (NASA), research universities, and private companies. Over several years, the individual “spear phished” individuals at NASA, the Air Force, Navy, Army, and Federal Aviation Administration; research universities; and aerospace companies in an attempt to obtain code to which the individual suspected the victims had access. At all relevant times, the individual, who assumed the identities of persons known to the victims, was an employee of a Chinese state-owned aerospace and defense contractor.

U.S. v. Teslenko. A U.S. resident and a Russian national were indicted for smuggling and conspiracy to violate the ECRA, smuggle, and defraud the United States. For approximately six years, the individuals exported laser welding machines from one’s employer in the United States to a Russian company involved in Russia’s nuclear weapons program. The individuals falsified export documentation to conceal the end user.

U.S. v. Goodarzi. A dual U.S. and Iranian citizen was charged with smuggling UAV components to Iran from the United States. For four years, the individual obtained U.S.-originated parts and either transshipped them, typically through the United Arab Emirates or transported them in his own checked luggage during trips to Iran. The individual had acknowledged in numerous emails with U.S. suppliers that the parts could not be transferred to Iran because of sanctions. The individual also lacked the proper export license to send these items to a sanctioned country like Iran.

U.S. v. Nader. A dual U.S. and Iranian citizen was indicted for violating U.S. economic sanctions and other federal laws in connection with procuring U.S.-originated aircraft components for Iran’s armed forces. Customers in Iran placed orders with the individual, who, in turn, directly or through others, contacted U.S. companies for the components. The individual falsely identified himself or his U.S.-based company as the end user of the components. The individual attempted to export the components, including transshipment to Iran, on several occasions; however, DOC agents detained each export.

U.S. v. Wei. In addition to the above criminal cases brought through the work of the Strike Force, the DOJ announced the indictment of a Chinese national on charges of fraud, conspiracy, computer intrusion, and aggravated identity theft for unlawfully accessing the computer network of a U.S. telecommunications company. The individual—a member of the People’s Liberation Army—and co-conspirators accessed the company’s systems in 2017 and stole documents relating to communications devices, product development, testing plans, internal product evaluations, and competitive intelligence. The individual attempted to install malicious software to maintain access to the company’s systems; his access continued for approximately three months.

Copyright © 2024 Robinson & Cole LLP. All rights reserved.
For more news on Export Regulations, visit the NLR Antitrust, Trade, & Regulation

Handling an EPA Inspection: What to Do Before, During, and After the Process

Regardless of a company’s environmental compliance record, facing a U.S. Environmental Protection Agency (EPA) inspection can present significant risks. When conducting inspections, EPA inspectors and technical personnel examine all aspects of companies’ operations, and it is up to companies to demonstrate that enforcement action is unwarranted. When faced with uncertainty, EPA personnel will err on the side of non-compliance with EPA regulations, and this means that companies that are unable to affirmatively demonstrate compliance can find themselves facing unnecessary consequences under federal environmental laws.

With this in mind, all companies need to take an informed, strategic, and systematic approach to defending against EPA inspections. While EPA inspections can present significant risks, companies can—and should—manage these risks effectively. Effectively managing the risks of an EPA inspection starts with understanding what companies need to do before, during, and after the process.

To be clear, while there are several steps that companies can—and generally should—take to prepare for their EPA inspections, there is no single “right” way to approach the inspection process. A custom-tailored approach is critical, as companies facing scrutiny from the EPA must be prepared to address any and all compliance-related concerns arising out of their specific operations.

What to Do Before an EPA Inspection

With this in mind, what can companies do to maximize their chances of avoiding unnecessary consequences during an EPA inspection? Here are five steps that companies should generally take upon learning of an impending visit from EPA personnel:

1. Make Sure You Know What Type of EPA Inspection Your Company is Facing 

One of the first steps to take is to ensure that you know what type of EPA inspection your company is facing. The EPA conducts multiple types of inspections, each of which involves its own protocols and procedures and presents its own risks and opportunities. As the EPA explains:

“Inspections are usually conducted on single-media programs such as the Clean Water Act, but can be conducted for more than one media program. Inspections also can be conducted to address a specific environmental problem (e.g., water quality in a river), a facility or industry sector (e.g., chemical plants), or a geographic (e.g., a region or locality) or ecosystem-based approach (e.g., air or watershed).”

Under the EPA’s current approach to environmental compliance enforcement, most inspections fall into one of five categories:

  • On-Site Inspections – The EPA routinely conducts on-site inspections. During these inspections, EPA personnel may observe the company’s operations, collect samples, take photos and videos, interview company personnel, and review pertinent environmental compliance documentation.
  • Evaluations – The EPA conducts evaluations to assess facility-level compliance under the various federal environmental statutes. These evaluations may be either “full” or “partial,” with full compliance evaluations (FCEs) examining all pertinent areas of compliance and partial compliance evaluations (PCEs) “focusing on a subset of regulated pollutants, regulatory requirements, or emission units at a given facility.”
  • Record Reviews – Record reviews typically take place at an EPA field office or other government location, and they “may or may not be combined with field work.” With that said, in many cases, on-site inspections and record reviews go hand-in-hand.
  • Information Requests – An information request is, “an enforceable, written request for information to a regulated entity, a potentially regulated entity, or a potentially responsible party about a site, facility, or activity.” The EPA uses information requests to “substantiate the compliance status of [a] facility or . . . site,” and the EPA may issue an information request either in connection with or after conducting an on-site inspection.
  • Civil Investigations – The EPA describes civil investigations as, “an extraordinary, detailed assessment of a regulated entity’s compliance status, which requires significantly more time to complete than a typical compliance inspection.” In most cases, a civil investigation will follow an inspection that uncovers significant or systemic compliance failures.

2. Make Sure You Understand the Scope of the EPA’s Inspection 

After discerning the nature of the EPA’s inquiry, the next step is to ensure that you understand its scope. Is the EPA focusing on a specific environmental statute (i.e., the Recovery Act, the Clean Air Act (CAA) or Clean Water Act (CWA)); or, is it conducting a comprehensive assessment of environmental compliance? If the EPA is focusing on a specific environmental statute, is it focusing on all areas of compliance monitoring under the statute, or is it focusing on a particular enforcement priority like resource conservation? Answering these types of questions will be critical for efficiently implementing an informed defense strategy.

3. Locate All Relevant Compliance Documentation 

Once you know what the EPA will be looking for, the next step is determining what it is going to find when they request information. This begins with locating all of the company’s relevant compliance documentation. This will facilitate conducting an internal EPA compliance assessment (more on this below), and it will also allow the company to efficiently respond to document requests and other inquiries during the inspection process.

4. Conduct an Internal EPA Compliance Assessment (if There is Time)

If there is time, it will be important to conduct an internal EPA compliance assessment, like a mock audit, before the EPA’s inspection begins—unless the company has recently completed a systematic environmental compliance audit in compliance with the relevant EPA Audit Protocols. There is incentive for self-policing which incentivizes you to voluntarily discover and fix violations. If there is not time to conduct an internal assessment before the inspection begins, then this should be undertaken in parallel with the company’s inspection defense, with a focus on accurately assessing the risks associated with the inspection as quickly as possible.

5. Put Together Your EPA Inspection Defense Strategy and Team 

Effectively responding to an EPA inspection requires an informed defense strategy and a capable team. A company’s EPA inspection defense team should include appropriate company leaders and internal subject matter experts as well as the company’s outside EPA compliance counsel.

What to Do During an EPA Inspection

Here are some important steps to take once an EPA inspection is underway:

1. Proactively Engage with the EPA’s Inspectors and Technical Personnel 

Companies facing EPA inspections should not take a back seat during the process. Instead, they should seek to proactively engage with the EPA’s inspectors and technical personnel (through their EPA compliance counsel) so that they remain fully up to speed and can address any potential issues or concerns as quickly as possible.

2. Use the Company’s EPA Compliance Documentation to Guide the Process 

For companies that have a strong compliance record and clear documentation of compliance, using this documentation to guide the inspection process can help steer it toward an efficient and favorable resolution.

3. Carefully Assess Any Concerns About Non-Compliance 

If any concerns about non-compliance arise during the EPA inspection process, company leaders should work with the company’s EPA compliance counsel to assess these concerns and determine how best to respond.

4. Work with the EPA’s Inspectors and Technical Personnel to Resolve Compliance Concerns as Warranted 

If any of the EPA’s concerns about non-compliance are substantiated, companies should work with the EPA’s inspectors and technical personnel (through their EPA compliance counsel) to resolve these concerns as efficiently as possible—and ideally during the inspection process so that no follow-up interactions with the EPA are necessary.

5. Focus on Achieving a Final Resolution that Avoids Further Inquiry

Overall, the primary focus of a company’s EPA inspection defense should be on achieving a final resolution that avoids further inquiry. Not only can post-inspection civil investigations present substantial risks, but unresolved compliance concerns can leave companies (and their owners and executives) exposed to the possibility of criminal prosecution in some cases as well.

What to Do After an EPA Inspection 

Finally, here are some key considerations for what to do after an EPA inspection:

1. Complete Any Necessary Follow-Up as Efficiently as Possible 

If any follow-up corrective or remedial action is necessary following an EPA inspection, the company should prioritize completing this follow-up as efficiently as possible. Not only will this help to mitigate any penalty exposure, but it will also help mitigate the risk of raising additional concerns with the EPA.

2. Implement Any Lessons Learned 

If the EPA’s inspection resulted in any lessons learned, the company should also prioritize implementing these lessons learned in order to prevent the recurrence of any issues uncovered during the inspection process. This is true whether implementation involves making minor tweaks to the company’s documentation procedures or completing a substantial overhaul of the company’s environmental compliance program.

3. Use Systematic EPA Compliance Audits to Evaluate and Maintain Compliance 

Systematic auditing is one of the most efficient and most effective ways that companies can evaluate and maintain EPA compliance. For companies that are not using the EPA’s Audit Protocols already, working with experienced outside counsel to implement these protocols will be a key next step as well.

4. Challenge Any Unwarranted Conclusions as Warranted 

If the company’s EPA inspection resulted in unwarranted determinations of non-compliance, seeking to reverse the agency’s conclusions may involve working with its lawyers post-inspection. Depending on the circumstances, it may also involve going to court. Whatever it takes, ensuring that the company does not face unjustified penalties will be essential for both short-term and long-term environmental compliance risk management.

5. Prepare for Further Enforcement Action as Necessary 

If an EPA inspection results in substantial findings of non-compliance, it may be necessary to prepare for further enforcement action. Depending on the circumstances, this could involve facing a civil investigation, a criminal investigation conducted jointly by the EPA and the U.S. Department of Justice (DOJ), or litigation in federal court. Here, too, an informed and strategic defense is essential, and it will be critical to continue working with experienced EPA compliance counsel throughout this process.

Oberheiden P.C. © 2024
For more news on EPA Site Inspections, visit the NLR Environmental, Energy, & Resources section.

EPA Announces Strengthening the Safer Choice and Design for the Environment Standard for Commercial and Household Cleaning Products

On August 8, 2024, the U.S. Environmental Protection Agency announced that it made updates to strengthen the Safer Choice and Design for the Environment (DfE) Standard, which identifies the requirements that products and their ingredients must meet to earn EPA’s Safer Choice label or DfE logo. EPA states these updates strengthen the criteria that products must meet to qualify for the voluntary Safer Choice label, supporting the use of safer chemicals in the marketplace.

According to EPA, the Safer Choice program was implemented so consumers and purchasers for facilities like schools and office buildings could find cleaners, detergents, and other products made with safer chemical ingredients. It encourages use of chemicals that meet EPA’s stringent criteria for human health and the environment and provides opportunities for companies to differentiate their products in the marketplace with the Safer Choice label.

Similarly, the DfE program assists consumers to find antimicrobial products that meet high standards for public health and the environment. It assists consumers to identify antimicrobial products like disinfectants that meet the health and safety standards of the normal pesticide registration process required by the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), as well as meeting the Safer Choice and DfE Standard.

In addition to updated clarifying language, the final updated Standard includes:

  • A new certification program for cleaning service providers that use Safer Choice- and DfE-certified products. The Cleaning Service Certification logo is available for organizations and businesses that use cleaners, detergents, disinfectants, and related products as part of their primary operations. The logo distinguishes cleaning service providers who use Safer Choice-certified products for cleaning and DfE-certified products for disinfection either exclusively or to the maximum extent practicable.
  • Strengthened criteria that pet care products must meet to ensure they use only the safest possible ingredients for humans, pets, and the environment.
  • Updated safer packaging criteria, ensuring primary packaging does not include any unintentionally added per- and polyfluoroalkyl substances (PFAS) or other chemicals of concern.
  • Strengthened sustainable packaging requirements for all Safer Choice-certified products to use post-consumer recycled content and be recyclable or reusable.
  • Updated criteria for wipe products to ensure certified wipes contain “Do Not Flush” language to help reduce damage to wastewater treatment systems.
  • New, optional energy efficiency or use reduction criteria to encourage companies to use less water, use renewable energy, and improve energy efficiency.

This update follows a November 2023 request for public comment on EPA’s proposed updates to the Standard. This is EPA’s fourth update of the Standard since its inception in 2009 and the first since 2015. EPA states it periodically updates the Standard to keep current with the state of scientific and technological innovation, increase transparency and reduce redundancy, and expand the scope of the program as appropriate.

The updated Standard is available here.

©2024 Bergeson & Campbell, P.C.
by: Heather F. Collins, Barbara A. Christianson of Bergeson & Campbell, P.C.

Filing Requirements Under the Corporate Transparency Act: Stealth Beneficial Owners

The Corporate Transparency Act (“CTA”) requires most entities to file with the Financial Crimes Enforcement Network (“FinCEN,” a Bureau of the U.S. Department of the Treasury) Beneficial Ownership Information (“BOI”) about the individual persons who own and/or control the entities, unless an entity is exempt under the CTA from the filing requirement. There are civil and criminal penalties for failing to comply with this requirement.

A key issue: WHO are the Beneficial Owners?

FinCEN has issued a series of Frequently Asked Questions along with responses providing guidance on the issue of who the beneficial owners are.

Question A-1, issued on March 24, 2023, states that “[BOI] refers to identifying information about the individuals who directly or indirectly own or control a company.”

Question A-2, issued on Sept. 18, 2023: Why do companies have to report beneficial ownership information to the U.S Department of the Treasury? defines the CTA as “…part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.”

Question D-1, updated April 18, 2024: Who is a beneficial owner of a reporting company? states that “A beneficial owner is an individual who either directly or indirectly (i) exercises substantial control over a reporting company” and, in referring to Question D-2 (What is substantial control?), “owns or controls at least 25 percent of a reporting company’s ownership interests.”

Question D-1 goes on to note that beneficial owners must be individuals, i.e., natural persons. This guidance is extended by Question D-2 on Substantial Control, where control includes the power of an individual who is an “important decision-maker.” Question D-3 (What are important decisions?) identifies “important decisions” with a pictorial chart of subject matters that FinCEN considers important, such as the type of business, the design of necessary financings, and the structure of the entity. Question D-4 explores ownership interests (again with a pictorial) including equity interests, profit interests, convertible securities, options, or “any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.”

Who, in FinCEN’s view, has “substantial control”?

Question D-2 lists four categories of those who have substantial control:

  1. A senior officer, including both executive officers and anyone “who performs a similar function;”
  2. An individual with “authority to appoint or remove certain officers or directors;”
  3. An individual who is an important decision-maker; or
  4. An individual with “any other form of substantial control.”

“Silent partners” and/or other undisclosed principals, including some who may be using the reporting company for nefarious purposes, might be discussed here, but that is not the intended subject of this writing. Rather, this piece is intended to warn businesspersons and their advisers of potential “stealth beneficial owners” – those whose status as beneficial owners is not immediately obvious.

First, consider the typical limited liability company Operating Agreement for an LLC with enough members and distribution of ownership interests so that no member owns over 25% of the LLC’s equity. If the LLC is manager-managed, then the manager(s) is/are Beneficial Owners, but the other members are not. But what if the Operating Agreement requires a majority or super-majority vote to approve certain transactions? Assuming that those transactions are “important” (as discussed in Question D-3), then possessing a potential veto power makes EACH member a beneficial owner. Such contractual limitations on executive power necessarily raise the issue of “beneficial ownership” in corporations, in limited liability companies, and even in limited partnerships where the Limited Partners have power to constrain the general partner (who clearly is a beneficial owner).

Second, consider the very recent amendments to the Delaware General Corporation Law (“DGCL”) in response to the Delaware Chancery Court’s holding in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co (“Moelis”) Feb. 23, 2024. In Moelis, the CEO had a contract with the Company that materially limited the power of the Board of Directors to act in a significant number of matters. Vice Chancellor Travis Laster issued a 133-page opinion finding the agreement was invalid, as it violated the Delaware Law that placed management and governance responsibilities in the Board. Because such arrangements are frequently used in venture capital arrangements as part of raising capital for new enterprises, the Delaware Legislature and the State’s Governor enacted amendments to the DGCL that expressly authorize such contracts. In the Moelis situation itself, Ken Moelis was a major owner and CEO so he would have had to be disclosed as a Beneficial Owner if Moelis & Co. had not been exempt from the filing requirements of the CTA because it is a registered investment bank.

But what of a start-up venture entity where a wealthy venture investor owns a 10% interest in the entity, but has a stockholder agreement that gives him substantial governance rights including the ability to veto or even overrule board decisions? Is that venture investor not a “beneficial owner”? Somewhat even more Baroque, what about the private equity fund controlled by a dominant investor, say William Ackman or Nelson Peltz? If that fund invests in the same start-up entity and holds a 10% interest, but also has a stockholder agreement giving the fund substantial governance rights, isn’t the controlling owner of the fund a “beneficial owner” of the start-up?

Finally, consider financing with a “bankruptcy remote entity” where the Board of that entity includes a contingent director chosen by the finance source. The contingent director does not participate in any part of the governance of the entity unless the entity finds itself in financial distress. The organizational documents of the entity provide that at that point, the contingent director can veto any decision to file for bankruptcy protection. At that point, the contingent director apparently becomes a “beneficial owner” of the entity, with the CTA filing requirements applicable. A more interesting question is whether the contingency arrangement in the organizational documents makes the contingent director a “beneficial owner” from the inception of the financing. Further, with respect to bankruptcy, key questions remain unanswered, such as whether the trustee in a Chapter 7 bankruptcy proceeding or a liquidating trustee in a Chapter 11 bankruptcy proceeding has a reporting obligation under the CTA.

This piece is not intended to identify all the situations that may give rise to “Stealth Beneficial Owners.” Rather, its intent is to raise awareness of the complexities involved in answering the initial question – WHO is a “beneficial owner”?

©2024 Norris McLaughlin P.A., All Rights Reserved

SCOTUS Freezes States’ Efforts to Resolve Water Conflict

What Happened?

On June 21, 2024, the Supreme Court narrowly held that three states could not enter a consent decree to settle their interstate water dispute without the support of the intervening federal government. The ruling halts the agreement between Texas, New Mexico, and Colorado to settle Texas’s claims and reconfigure water allocation under the Rio Grande Compact going forward. The decision frustrates multi-year efforts by the states to fairly apportion shrinking water supplies and continues uncertainty for water users dependent on flows from the Rio Grande. More generally, the decision highlights the federal government’s power in cases arising under interstate compacts where federal interests are “inextricably intertwined” with the outcome.

Background

In 2013, Texas sued New Mexico and Colorado, claiming that New Mexico’s increased groundwater pumping was diminishing flows from the Rio Grande, unfairly shorting water allocated to the Lonestar state. This claim arose under the Rio Grande Compact, a 1938 allocation agreement between the three states that depend on the Rio Grande’s waters. The Supreme Court allowed the federal government, although not a party to the Compact, to intervene in the dispute in 2014, based on the federal interests in delivering water to Mexico under a 1906 treaty, in operating a Bureau of Reclamation reservoir and irrigation project closely connected to Compact compliance, and in fulfilling potential federal obligations to Indian tribes. The Supreme Court held that the federal government’s interests were “inextricably intertwined” with the case.

Since that decision, the states sought a compromise, recognizing that the 1938 Compact failed to predict severe droughts and dwindling water supplies, new circumstances that require adaptation. Despite this negotiated solution, the federal government refused to sign the agreement. The federal government claimed that the settlement undermines the Compact’s plain language, which cannot be modified without congressional approval, and that the negotiated agreement would impose new obligations on the federal reservoir and irrigation project. Based on its intervenor status, the federal government asked the Supreme Court to reject the deal in the absence of its consent.

Writing for the 5-4 majority, Justice Jackson explained that the Court’s 2018 decision to allow federal claims in the case to proceed “leads inexorably” to the federal government’s approval being necessary before a valid resolution. Justice Gorsuch, writing for the dissent, cautioned that this deference to the intervenor risks federalizing interstate water disputes and limiting the necessary discretion for states to independently manage their waters. Despite previously authoring a unanimous 2018 decision that green-lighted the federal claims, his dissent pointed back to “a century’s worth” of precedent, holding that the Reclamation Act requires the federal government to comply with state control of water resources and not to assert incompatible federal interests. The majority reasoned, by contrast, that the federal government’s interest was particular to the Compact, where compliance depends on federal action.

Analysis

The Court’s acknowledgment of the federal interest in the three states aligning Rio Grande Compact compliance with contemporary water realities is expressly tailored to the unique federal role in this situation. The problem the Court focused on was the proposed resolution’s failure to include the federal government, given its intervenor status and its integral role in managing a reservoir and irrigation project essential to the Compact. This does not authorize federal interference in all interstate water compacts, as the dissent fears, but others may be “inextricably intertwined” with federal interests. Still, the pointed dissent may signal that a significant court minority stands ready to guard state control of water resources when the federal government overreaches. The decision’s immediate impact will perpetuate uncertainty for water users in all three states as the parties are forced back to trial or the negotiating table.

Will Hemp Save the World, Before the Government Kills It?

There is a great line in the wonderful film Charlie Wilson’s War, where Charlie Wilson (played remarkably by the inimitable Tom Hanks) describes the successful, if relatively covert, involvement of the United States government in the Soviet-Afghan War: “These things happened. They were glorious and they changed the world… and then we f***d up the endgame.”

With the next Farm Bill somewhere on the horizon, I believe we are approaching a similar moment for the future of hemp. I believe the future of hemp is glorious and that it can change the world. What will we do to the endgame?

This is an analysis about the current state of hemp and whether that industry will revolutionize the world before the government relegates it back to the ash heap of history. It just so happens to dovetail with my personal experience representing clients in connection with the hemp business.

In the Beginning…

Back in the “stone age” (circa 2017) when I decided I wanted to be a cannabis lawyer, I began with a focus on hemp. [As a brief aside, telling people in Alabama you practice cannabis law in 2017 must have been what Noah felt like when he was telling people it was about to start raining.]

The 2014 Farm Bill, which for the first time legalized “industrial hemp” as distinct from marijuana under the Controlled Substances Act and allowed state agricultural departments and universities to license the production of hemp, cracked the door for a nascent and limited hemp market, and it was a remarkable time to advise new hemp operators and investors about how to maximize this opportunity within the contours of the law.

At the same time, I was regularly receiving calls from existing clients, colleagues within the firm, and strangers about how their non-cannabis companies should conduct themselves when approached by hemp companies who wanted to do business with them. The latter category included banks, insurance companies, real estate companies, and myriad companies who had questions about how their employees’ use of hemp interplayed with the companies’ existing drug testing policies. Most of the time the companies were reluctant to have anything to do with hemp, but the conversations were interesting, and it was clear that most companies realized the landscape was changing. It was the Wild West, and I was having a ball.

Rocket Fuel

Enter the 2018 Farm Bill and the explosion of the hemp industry. The 2018 Farm Bill dropped the word “industrial” and defined “hemp” as:

the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

In addition to removing the limitations from the 2014 Farm Bill licensing, the 2018 Farm Bill also moved oversight authority from the Department of Justice and DEA to the USDA and FDA.

The 2018 Farm Bill was a tectonic shift, and we recognized the new regime’s potential almost immediately, predicting the following:

  • Increased “smart” money and research. Because hemp has been a Schedule I substance along with marijuana for decades, many sophisticated sources of funding have abstained from financing the industry. This placed hemp at a competitive disadvantage to other commodities and prevented hemp from reaching its full potential. Now that hemp can be manufactured and sold without substantial legal risks, look for the money to flow toward this underserved sector. Publicly traded companies, private equity firms, venture capitalists and other investment groups will all take significant stakes in both the manufacturing and selling of hemp and hemp-derived products. In addition to traditional commercial development efforts, much of this cash is likely to be spent to hire top researchers to develop proprietary strands of hemp to meet a range of product applications and to take steps to protect the resulting intellectual property.
  • Explosion of hemp and hemp-derived products. Fueled in large part by this injection of financing from sophisticated investors, there is likely to be an explosion in the ways that hemp is used. Hemp already has hundreds — if not thousands — of known uses, and that number should grow substantially once the industry is exposed to the market forces that come with smart money and increased research. The biggest winner may be the hemp-derived CBD business. Hemp-derived CBD is a compound believed to have significant therapeutic benefits without an appreciable psychoactive component. The Washington Post has reported that “dozens of studies have found evidence that [CBD] can treat epilepsy as well as a range of other illnesses, including anxiety, schizophrenia, heart disease, and cancer.” One industry analysis predicts that the hemp-CBD market alone could hit $22 billion by 2022. The health and wellness sector should see particular hemp-related activity and growth in the coming years.
  • Increased ancillary services provided to hemp-related businesses. Because hemp has been included within the definition of marijuana under federal law for decades, most banks, law firms and other service providers have avoided providing services to hemp businesses to avoid the risk of charges of money laundering or conspiring to violate state and federal drug laws. The absence of such service providers has fostered a great deal of uncertainty in an area where certainty and clarity have been sorely needed. With hemp’s new legal status, look for professional service providers to enter the market in 2019 and beyond. Of course, entities looking to provide services to hemp-related businesses should take adequate precautions to ensure those businesses are only producing federally legal hemp.
  • Consolidation and integration. An interesting phenomenon in “legal” marijuana states has been the rapid consolidation and integration of marijuana growers, processors and dispensaries. Some states have mandated vertical integration (e.g., the growers are the sellers) through regulation. And a number of large cannabis companies have acquired grow operations or multi-unit dispensaries rather than establish a cannabis presence in a state from scratch. The hemp industry is likely to follow a similar path, both through government regulation and because larger companies are likely to seek to obtain sufficient quantities of hemp through consolidation and vertical integration. Accordingly, attorneys and investors should anticipate significant merger and acquisition activity in the coming years.
  • Federal regulations and state regimes. The 2018 Farm Bill does not create an entirely unregulated playing field for hemp. Over the coming months, the U.S. Department of Agriculture and Food and Drug Administration will issue regulations implementing the 2018 Farm Bill. State governments will also unveil plans governing the testing, labeling and marketing of hemp-related products, as well as the licensing and monitoring of hemp-related businesses.

I’m proud to say that we were pretty much on the money with these projections, and countless studies and data confirm that hemp can be a viable product with countless form factors that help shape the global economy.

That is when I realized that I might be able to make a career as a cannabis lawyer.

The Good with the Bad

Of course, the development of the hemp industry has not been without controversy – in fact it may be the controversy that has spurred much of the development.

I would be lying to you if I told you that every hemp or hemp-derived product was designed with the best of intentions or contained appropriate mechanisms to ensure consumer safety. There are certainly hemp-derived products on the market that have not been subjected to sufficient product development and testing, and that are being marketed in ways that rightfully should concern policymakers and the public. Novel, psychoactive cannabinoids that fall within the bounds of the terms, if perhaps not the spirit, of the Farm Bill fill the shelves of stores around the country with little to no mechanisms for enforcement. That should change, and Americans should have confidence that the products made available to them are safe and effective.

In response to this proliferation, a number of states have enacted rules and regulations restricting the production and sale of certain hemp-derived cannabinoids. A number of those rules – for example, age and purity restrictions for psychoactive cannabinoids – seem well-intentioned, and we expect to see more of those unless and until the federal government takes further action.

On occasion, however, it appears that the motivations of policymakers may be less pure. It is no secret amongst those in the cannabis industry that marijuana licensees in states that have legalized marijuana are no fans of the unregulated hemp-derived psychoactive industry. After all, marijuana companies are subject to astronomical taxes and endure regulatory costs that make turning a profit far more difficult than if they were able to offer a product that offered a somewhat similar “high” without the institutional overhead and headwinds. Florida may be the clearest and most recent example. With adult-use marijuana widely expected to become law in Florida soon, the state legislature recently passed a law largely prohibiting delta-8 and delta-10.

On the other hand, it would be wrong, even lazy, to suggest that the development of hemp-based products has been without substantial benefits to society as a whole. Entrepreneurs are developing hemp-based substitutes for any number of the most common products used around the globe, meaning that the addressable market for hemp is everyone on earth and beyond.

A younger version of me once wrote, in comparing the addressable market for marijuana to that of hemp:

Hemp, on the other hand, has the potential to dwarf marijuana in the global market. Unlike its sister plant, hemp has the capacity to replace products we use every day without us even realizing it. For example, hemp can provide a substitute for concrete, plastic, fuel, automotive parts, clothes, etc. These are products nearly all consumers need but they neither realize nor care what the products are made of, as long as they work. In that way, while the market for marijuana is limited to consumers looking to purchase marijuana, the market for hemp includes anyone who purchases products that can be manufactured by hemp. In part for these reasons, experts predict four to five times growth in the industrial hemp market in the next five years.

I stand by those words. I am convinced that hemp can change the world.

But I am equally convinced that local, state, and federal governments can, without the appropriate consideration for hemp’s benefits, relegate the plant back to its prohibition era status and deny the world its many benefits. The policy choices made by state governments, and perhaps most importantly by the federal government during the next Farm Bill, could fundamentally alter the future of hemp. Will it be a soon-forgotten shooting star that dazzled the world for a decade and then burned out, or will we look back at the past decade as the renaissance of one of civilization’s oldest and most versatile plants?

Conclusion

I’ll end where I began because Philip Seymour Hoffman’s work is revered by the Budding Trends community (and anyone with taste), and because the film’s ominous conclusion is a message for anyone who wants to see the hemp industry thrive in the years ahead.

As Hanks’ character celebrates the Afghan defeat of the Soviets, the hardened CIA analyst played by Hoffman offers this parable:

On his sixteenth birthday the boy gets a horse as a present. All of the people in the village say, “Oh, how wonderful!”

The Zen master says, “We’ll see.”

One day, the boy is riding and gets thrown off the horse and hurts his leg. He’s no longer able to walk, so all of the villagers say, “How terrible!”

The Zen master says, “We’ll see.”

Some time passes and the village goes to war. All of the other young men get sent off to fight, but this boy can’t fight because his leg is messed up. All of the villagers say, “How wonderful!”

The Zen master says, “We’ll see.”

The message behind this story is pretty clear. We’re prone to jump to conclusions about whether something is “good” or “bad.” We are especially quick to label something as “bad.” The reality is that things can be either good or bad, both good and bad, or neither. When it comes to whether Congress and the states will recognize hemp’s great potential, I guess we’ll see.

© 2024 Bradley Arant Boult Cummings LLP
For more on Hemp, visit the NLR Biotech, Food, Drug section.

New USPTO Obviousness Guidelines Seek to Refine Examiner Evaluations Likely Making Path to Patent Grant More Difficult and Potentially Opening Door to More Patent Challenges

On February 27, the United States Patent and Trademark Office (USPTO) released new guidance aimed at enhancing the methodology used to assess the obviousness of patent applications. The updated USPTO guidance emphasizes the need for a clear articulation of a reasoned analysis, grounded in relevant facts, in determining whether a claimed invention meets the criteria of being obvious. The USPTO asserts that this initiative is in line with the directives of the U.S. Supreme Court’s landmark decision in KSR Int’l Co. v. Teleflex Inc., advocating for a flexible approach toward obviousness evaluations.

The USPTO suggests that this newly issued guidance will act as a practical manual for USPTO examiners, applicable to all utility patent applications under review or contestation. It allegedly aims to ensure a standardized application of the law of obviousness across various cases.

A brief synopsis provided from the USPTO’s updated guidance and garnered since the KSR decision of the Federal Circuit include:

  • In KSR, the Supreme Court instructed the Federal Circuit that persons having ordinary skill in the art also may glean suggestions from the prior art that go beyond the primary purpose for which that prior art was produced. “Thus, the Supreme Court taught that a proper understanding of the prior art extends to all that the art reasonably suggests and is not limited to its articulated teachings regarding how to solve the particular technological problem with which the art was primarily concerned.”
  • Since KSR, the Federal Circuit has confirmed that “the flexible approach to obviousness encompasses not only how to understand the scope of prior art, but also how to provide a reasoned explanation to support a conclusion that claims would have been obvious.”
  • However, a flexible approach to obviousness does not negate the need for articulated reasoning and evidentiary support, the USPTO said.
  • Obviousness decision-makers must examine all the evidence before them.
  • The USPTO states that, “there is no one-size-fits-all approach to crafting an obviousness rejection.”

Kathi Vidal, Director of the USPTO, expressed the agency’s commitment to issuing reliable patent rights while ensuring clarity and consistency across the board. “Our initiative aims at bolstering transparency and uniformity within our processes and across the innovation landscape,” Vidal remarked.

The implications of this USPTO guidance extend to design patents as well, with the USPTO keenly awaiting the Federal Circuit’s verdict in LKQ Corp. v. GM Global Technology Operations LLC.

Additionally, the USPTO makes notes that it is gearing up to explore the influence of artificial intelligence on the landscape of prior art and the competence of someone skilled in the art, particularly how these factors interplay with patentability assessments including obviousness determinations. The USPTO plans to invite public commentary on these topics soon.

The updated USPTO guidelines initially appear to increase the burden on the patent applicant or the patentee to show that a claimed invention is not obvious by allowing the obviousness decision-makers (e.g., USPTO examiners and judges of the Patent Trial and Appellate Board (PTAB)) more flexibility in rejecting claims and to go outside of the boundaries of patent documents used to reject claims as long as reasoning is articulated and evidentiary support is provided. To counter an obviousness rejection made by an obviousness decision-maker, patent applicants or patentees should review obviousness rejections for a clearly articulated obviousness reasoning, including evidentiary support (e.g., not purely the examiner or judge’s argument) that is sound (e.g., actually supports the examiners or judges’ positions). Patent applicants and patentees also may need to rely on more expert declarations or affidavits to help overcome obviousness rejections.

Copyright © 2024 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more news on Patent Law Guidance, visit the NLR Intellectual Property Law section.

President Biden Nominates Three FERC Commissioners

On February 29, 2024, President Biden nominated three new commissioners of the Federal Energy Regulatory Commission (“FERC”). The nominations will be reviewed and voted on by the Senate Energy and Natural Resources Committee and are subject to confirmation by the full Senate. If approved, the nominees will provide FERC with a full slate of five commissioners, including three Democrats and two Republicans.

Judy Chang is the Managing Principal of the Analysis Group in Boston and former Undersecretary of Energy and Climate Solutions of the Massachusetts Department of Energy Resources. She is a Democrat and will succeed Commissioner Allison Clements with a term ending June 30, 2029. Commissioner Clements has announced that she would not serve a second term, but she may remain on FERC after June 30, 2024, until replaced or through December 31, 2024. Ms. Chang was the keynote speaker at Pierce Atwood’s 2022 Energy Infrastructure Symposium.

Lindsay See is the Solicitor General of the State of West Virginia. Ms. See is a Republican, recommended to the President by Senate Minority Leader Mitch McConnell, and will succeed former Commissioner James Danly with a term ending June 30, 2028. Ms. See has represented West Virginia in many multi-state legal coalitions on a variety of national issues, including energy and environmental rules and policies.

David Rosner is a member of the FERC staff, an energy industry analyst who has been on loan to the majority staff of the Senate Energy and Natural Resources Committee, which is chaired by Senator Joe Manchin of West Virginia. Mr. Rosner will succeed former Chairman Richard Glick with a term ending June 30, 2027.

All three nominations have been received by the Senate and referred to the Energy and Natural Resources Committee, which will hold a hearing on each nominee. The Committee has not yet scheduled any hearings.

FERC Chairman Willie L. Phillips was designated as chairman on February 9, 2024. He was previously acting chairman. His term ends June 30, 2026. Commissioner Mark C. Christie’s term ends on June 30, 2025.

©2024 Pierce Atwood LLP. All rights reserved.

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.

© 2022 Jones Walker LLP
For more articles about election and legislative updates, visit the NLR Election & Legislative section.