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Chemical Industry Update - January 2019

January 23, 2019

by Troy M. Keller, David Marx, Dave Townsend, and T. Augustine Lo

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Government Shutdown and Impact on the Chemical Industry

I had really hoped the partial government shutdown would be over before this issue came out, but here we are.  From what we’ve been hearing, the operations of most in the chemical industry do not appear to have been materially impacted—not so far, anyway.  International trade is still flowing, even if some important initiatives are on hold (see more on trade below). In terms of litigation matters, while federal courts are barely operational going forward (e.g., no money for court employees from January 25 on), the dockets of chemical companies tend more to be in state courts anyway.  The skeleton crew at the EPA is not believed to be progressing new product reviews under TSCA right now, but that backlog was quite large before the shutdown, so it’s hard to say much has changed: again, at least in the short term.  

Where the shutdown is having the most immediate impact is on corporate transactions.  The primary U.S. regulatory processes that tend to be relevant for chemicals deals include the SEC registration process, the HSR filing and merger review process and—for transactions involving foreign investors—the CFIUS review process.  Here is a quick run-down on these areas:  

  • SEC. The fact that the SEC is not reviewing or declaring registration statements effective means securities lawyers need to head to the law library to sort a path for deals involving registered securities (public equity offerings, mergers, exchange offers, etc.).  The SEC has offered some guidance, but it is filled with caveats.  
  • HSR. HSR filings are being accepted, but early termination is not being granted, and in the event of competitive issues, second requests are likely to be issued, throwing many transactions into a lengthier and more costly process than they otherwise would have been in. 
  • CFIUS. The timing for CFIUS deadlines and time limits are tolled during the shutdown.  This means companies who filed mandatory declarations may find themselves in limbo, potentially until well after the shutdown ends, while the backlog is being worked through.  Other transactions face a difficult decision: do they make a CFIUS filing and play the waiting game or do they move ahead with their transaction and face the risks of CFIUS review post-closing?

To be clear, deals are still happening, and there are ways to manage these challenges, but buyers and sellers need to enter negotiations having thought ahead about how these factors will impact timing and deal certainty.  And unfortunately, even when the shutdown is over, the backlogs will likely remain.

2019 Proxy Season: Disclosure Trends

Proxy season is upon us.  There is no one at the SEC to connect with on shareholder proposals and registration statement effectiveness, but that doesn’t mean a lot isn’t happening in terms of disclosure trends.  Chairman Clayton and others in the SEC pushed out views on a number of topics before year-end, noting an expectation to see better disclosure on Brexit’s impacts on companies and risks associated with cybersecurity.  He also commented on ESG disclosures, acknowledging the trend and the investor interest but suggesting thoughtfulness in how these are approached.  We fully agree.  There is rising pressure to include sustainability & social responsibility disclosures in SEC filings, and at some point it will be difficult not to have a dedicated section in a company’s proxy.  Indeed, climate change and sustainability topics made up by far the largest category of shareholder proposals last year.  Expect to see more of the same in 2019.  But in our view, these disclosures should be considered carefully.  We have examined the variety of approaches taken within and outside the industry, and at least for the time being it’s hard to do these except in a customized way. To catch up on these trends, Dorsey held useful webinars that are available for playback, both on the 2019 proxy season generally and on ESG trends specifically. 

How U.S. Trade is Affected by the Shutdown (including NAFTA 2.0)

The U.S. Government shutdown has significantly impaired the ability of key agencies to address trade-related issues facing U.S. companies.  Processing of exclusions from 301 tariffs by USTR, for example, remains on hold.  Likewise, the U.S. Department of Commerce, which investigates complaints concerning unfairly priced or subsidized imports, announced that its investigation deadlines are tolled until the government reopens.  The U.S. International Trade Commission, which also handles proceedings relating to unfair trade complaints, announced that the shutdown has disrupted its ability to carry out ongoing antidumping, countervailing duty, and intellectual-property related investigations, and that updates to the Harmonized Tariff Schedule will not be made during the shutdown.  With the partial or near-total closure of these three key agencies, members of the chemical industry may encounter difficulties in obtaining the attention to their trade-related concerns, such as relief from the Trump Administration’s tariff actions.

The shutdown is also diverting attention from U.S. Congressional ratification and implementation of the new trade agreement concluded last year with Canada and Mexico.  Formally called the U.S.-Canada-Mexico Agreement (“USMCA”), the popular press has also dubbed it, “NAFTA 2.0.”  While the USCMA contains some significant deviations from the current NAFTA, such as the provision for automatic termination after 16 years absent agreement to continue in force, the USMCA retains duty-free treatment for goods that are currently subject to such preferential treatment under NAFTA.  Most importantly for the chemical industry, the USMCA proposes to include an Annex 12-A (“Chemical Substances”), which could significantly reduce impediments to cross-border trade in chemical products.  That annex specifically addresses the harmonization of chemical regulations among the three countries, including a coordinated approach to assessing the risks of chemical products for regulatory purposes.  Actual implementation of this concept, of course, will depend on Congress’s willingness to adopt the text that the Trump Administration negotiated with Canada and Mexico.  

Update on 301 Exclusion Applications 

Since July 2018, the Trump Administration has imposed three sets of tariffs under Section 301 of the Trade Act of 1974, which have had a significant impact on the chemical industry.  Citing allegations of forced intellectual property transfers targeting U.S. businesses operating in China and Chinese industrial policy, the Trump Administration’s tariffs cover approximately one-half of goods originating from China.  These Section 301 tariffs are in addition to other tariffs that American importers must pay on these goods.  

The first round of tariffs issued in July 2018, covering approximately $34 billion in annual imports, primarily targeted machinery and related goods, and thus had limited impact on the chemical industry.  The second list, however, imposed in August 2018 includes a large number of organic chemical compounds and other items valued at approximately $16 billion in imports, subjecting them to 25% ad valorem tariffs.  Because of the impact on downstream consumers in the United States, a number of affected companies unsuccessfully opposed this second list before it was finalized, and have asked for exclusions from the tariffs under procedures issued by the Office for the U.S. Trade Representative (“USTR”).  To date, USTR has not granted exclusions under the second list, although most of them remain under consideration by USTR.  By comparison, USTR issued approximately 1000 exclusions under the process for the first list; another 1730 requests have been denied.

The third list of goods subject to tariffs, by far the largest set, covers approximately $200 billion in annual imports from China.  This list includes a wide range of organic and inorganic chemical products, as well as goods made from plastics and synthetic materials.  Initially taking effect at 10% ad valorem in October 2018, the Trump Administration had promised to increase the rate to 25% ad valorem in January 2019.  However, in early December 2018, the White House and Beijing announced a pause in new tariffs such that the USTR would delay increasing the rate for the third list until early March 2019, pending the outcome of bilateral negotiations intended to resolve the trade tensions that led to the imposition of the Section 301 tariffs.  While the outcome of those negotiations remains uncertain, the USTR recently indicated a willingness to establish an exclusion process for affected importers if the rate increases later this year to 25% ad valorem. 

Chemicals M&A in 2019: The Advantages of Bolt-Ons

Predictions about deal activity in 2019 have been mixed.  For the chemical industry, the slow-down in terms of quantity of deals is already happening.  The number of chemicals deals $25mm or larger dropped an estimated 40% from 2017 to 2018.  And in 2019, there are a number of headwinds that won’t help, including trade wars, increased regulatory hurdles and slowdown of major economies.  

One category of transactions that can be advantageous, headwinds notwithstanding, is the bolt-on or tuck-in transaction.  These deals typically range in size from $5 to $200 million and involve a product line or roll-up of a facility that can be tucked into an existing business unit.  On the legal front, a significant advantage is that bolt-ons often don’t require an antitrust review due to their size.  This avoids major expense and potential for delay.  Foreign investment reviews, if applicable, are also simpler in a deal that involves one or two product lines or a single facility. 

At Dorsey, we love these transactions because they can be executed on quickly and efficiently if approached in the right way.  Having an industry-tailored and process-based approach to due diligence is the top priority.  Reps & warranties insurance is available even on very small deals and can help bridge across differences in terms of risk appetite.  In our view, earn-out provisions, while popular, tend to be the trickiest parts of these transactions.  Recent caselaw reinforces this view and suggests that efforts to reduce the contractual standard (e.g., from best efforts to commercially reasonable efforts) will be lost on the court, so designing simple, clear objectives and obligations is key. 

Notes from All Over

After much anticipation, the Alliance to End Plastic Waste was launched last week by a consortium of industry companies.  Chemical Week’s article summarizes the initiative well. 

China is considering upgrading its chemical regulation program.  From initial signs, the proposed law’s requirements would rival those of other major chemical regulation regimes around the world.  As we’ve noted before, the proliferation of rigorous chemical laws (and retailer chemical policies) is inevitable, but without better coordination these costs will become a material burden on global manufacturers.  

On December 21, 2018, the California Court of Appeals upheld the enforceability of forum selection clauses in bylaws of a Delaware corporation.   For public companies that have a forum selection clause, this is positive news, as it appears more and more likely these will be enforced outside of Delaware and plaintiffs won’t have venues they can run to circumvent validly adopted bylaws.  This good news is tempered by the trend in recent years for plaintiff lawyers to make securities law based claims rather than fiduciary ones, even in the M&A context, and so they can bring those claims in federal court, or in some cases other state courts.

Parliament warns that the UK Government has failed to prepare for chemical registration post-Brexit, suggesting risks that UK products may not be valid for sale in the EU post-Brexit.

The latest issue of Dorsey’s Anti-corruption Digest is available.  Great reporting of the more interesting cases and investigations all around the world.

Helpful background and analysis from Dorsey’s environmental team regarding the ongoing uncertainty surrounding the application of the Clean Water Act to waters of the United States (WOTUS).  

A House bill titled the Energy Innovation and Carbon Dividend Act of 2018 was proposed late last year and gets points for creativity.  It would tax carbon emissions at the production end (refineries, coal mines, natural gas lines) and use the proceeds to pay a dividend out to all U.S. citizens.  

If there was ever any doubt, new California Governor Gavin Newsom seems to be picking up the baton from outgoing Governor Jerry Brown on environmental topics.  This from Newsom’s inaugural address: "California has always helped write America’s future . . . People’s lives, freedom, security, the water we drink, the air we breathe – they all hang in the balance. The country is watching us. The world is waiting on us. And the future depends on us. And we will seize the moment.” 

Questions or requests?  Contact Troy Keller.

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The Supreme Court Update - October 14, 2026

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EPA Limits Title V Re-Litigation of NSR Permits

Overview On September 25, 2026, the U.S. Environmental Protection Agency (“EPA”) published a final rule that significantly limits the ability of third parties to use the Clean Air Act (“CAA”) Title V permitting process to revisit New Source Review (“NSR”) permitting decisions years after those decisions were made. The rule establishes that NSR permitting determinations generally must be challenged during the original permitting proceeding, thereby providing regulated sources with greater permitting certainty and finality for major capital projects. Published in the Federal Register titled Clarifying the Scope of “Applicable Requirements” Under State Operating Permit Programs and the Federal Operating Permit Program (Docket ID No. EPA-HQ-OAR-2023-0401), the rule amends 40 C.F.R. Parts 70 and 71 to codify EPA’s interpretation regarding when requirements established under other CAA programs may be reviewed, modified, or implemented through the Title V operating permit program. The rule becomes effective 30 days after publication. The rule addresses two principal issues: (1) the relationship between NSR preconstruction permitting and Title V operating permits, and (2) the treatment of the General Duty Clause under CAA section 112(r)(1). Most significantly, the rule provides greater certainty for sources navigating the NSR permitting process. EPA’s amendments are intended to ensure that NSR permitting decisions made through an approved public process are generally not revisited later through Title V permit proceedings. The rule responds to a circuit split between the U.S. Courts of Appeals for the Fifth and Tenth Circuits. In Environmental Integrity Project v. EPA, 969 F.3d 529 (5th Cir. 2020), the Fifth Circuit upheld EPA’s interpretation, concluding that it was consistent with the text, structure, and purpose of Title V. In contrast, the Tenth Circuit reached the opposite conclusion in Sierra Club v. EPA, 964 F.3d 882 (10th Cir. 2020), finding that the then-existing regulatory definition of “applicable requirement” did not support EPA’s position. By amending the regulatory language on which the Tenth Circuit relied and codifying the interpretation approved by the Fifth Circuit, EPA has established a nationwide framework governing the interaction between NSR and Title V. NSR and Title V: EPA Establishes a Uniform Nationwide Framework At the core of the rule is EPA’s effort to define the respective roles of NSR and Title V. The rule codifies the approach EPA has applied since 2017: once a source obtains an NSR permit under an EPA-approved permitting program, and that permit was issued following public notice with an opportunity for comment and judicial review, the permit establishes the NSR-related “applicable requirements” of the State Implementation Plan (“SIP”) or Federal Implementation Plan (“FIP”) for Title V purposes. Under this framework, Title V is not a vehicle for re-examining underlying NSR permitting decisions. EPA does not intend to use the Title V process to revisit applicability determinations, emissions calculations, control technology determinations, permit conditions, or other issues resolved through the NSR permitting process. This principle applies regardless of the stage of the Title V proceeding; whether the NSR permit was issued pursuant to a SIP or FIP; the type of NSR issue involved; or whether the NSR permit is incorporated into Title V sequentially or concurrently. Limited Exceptions EPA recognizes several circumstances in which NSR issues may still be reviewed through the Title V program: No NSR permit was issued at all; The permit was issued without public notice and an opportunity for comment and judicial review; or The issue involves substantive overlap between Title V and NSR requirements, such as the adequacy of monitoring provisions. As a result, the rule does not insulate unpermitted projects or foreclose review of matters that independently arise under Title V. Key Regulatory Amendments The rule revises the definition of “applicable requirement” in 40 C.F.R. §§ 70.2 and 71.2. Paragraph (1): Where an NSR permit is issued with public notice and an opportunity for comment and judicial review, the permit establishes and defines the applicable SIP or FIP requirements for Title V purposes. Paragraph (2): All NSR permit terms, including terms contained in minor NSR permits, constitute applicable requirements that must be incorporated into Title V permits. Paragraph (4): CAA section 112(r)(1) (the General Duty Clause) is expressly excluded from the definition of “applicable requirement,” while section 112(r)(7) Risk Management Program requirements remain included. EPA also amended 40 C.F.R. §§ 70.8 and 70.12 to clarify that alleged defects in requirements established outside the Title V process generally do not provide a basis for EPA objection to a Title V permit or for a Title V citizen petition. General Duty Clause Exclusion The rule also codifies EPA’s longstanding position that the General Duty Clause in CAA section 112(r)(1) is not an “applicable requirement” for Title V purposes. EPA points to several considerations supporting that conclusion, including the distinction between the General Duty Clause and Title V permit terms, the provision’s origins in the Occupational Safety and Health Act’s general duty clause, and the different enforcement structures applicable to the General Duty Clause and Title V permit requirements. Importantly, excluding section 112(r)(1) from the definition of “applicable requirement” does not eliminate EPA’s authority to enforce the General Duty Clause independently of the Title V program. The final rule instead clarifies that the General Duty Clause need not—and should not—be incorporated into Title V permits as an applicable requirement. Practical Implications for Regulated Sources Greater Finality for NSR Permits  For projects requiring PSD, nonattainment NSR, or minor NSR permits, the permitting process becomes the primary forum for resolving disputes regarding applicability determinations, emissions calculations, control technology requirements, offsets, and permit conditions. Once an NSR permit is issued through a qualifying public process, regulated sources should face substantially reduced risk that those same issues will be challenged years later through Title V permit proceedings. Reduced Risk of Collateral Permit Challenges Stakeholders have sometimes sought to use Title V permit issuance, renewal, revision, or citizen-petition proceedings to challenge underlying NSR determinations. The final rule makes clear that Title V is not the appropriate vehicle for challenging whether an applicable requirement was correctly established in the first instance. This should reduce the risk of permit delays and uncertainty associated with collateral challenges to previously issued NSR permits. The rule does not, however, eliminate all Title V challenges relating to an NSR permit. Challenges concerning the Title V permit itself—including whether it appropriately incorporates applicable requirements or contains adequate compliance provisions—remain possible. Increased Importance of the Initial NSR Proceeding Because Title V generally will not provide a second opportunity to challenge the substantive validity of an NSR determination, the administrative record developed during the NSR process becomes increasingly important. Permit applicants should ensure that applicability analyses, emissions calculations, control technology evaluations, modeling demonstrations, and supporting technical documentation are thoroughly developed during the original permitting proceeding. For significant projects, applicants may therefore have an additional incentive to identify and resolve potential permitting issues before the NSR permit is issued rather than assuming that unresolved issues can be addressed during a subsequent Title V proceeding. Potential Incentive for Broader Public Participation EPA also notes that permitting authorities may choose to provide public notice and an opportunity for comment for a broader range of NSR permits because permits issued through a qualifying public process receive the benefit of the finality framework established by the rule. Some permitting authorities may conclude that greater public participation at the NSR stage is preferable to uncertainty during subsequent Title V proceedings. Conclusion The final rule is principally a permitting-certainty measure. For sources that obtain NSR permits through a public process, EPA has substantially limited the ability of third parties to revisit underlying NSR determinations through the Title V program. As a result, regulated entities should benefit from greater finality regarding key permitting decisions, reduced risk of collateral permit challenges, and increased certainty when planning and implementing capital projects.

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Energy Law: Month in Review - September 2026

Welcome to Dorsey’s Energy Law: Month in Review. We provide this update to our clients to identify significant developments in the previous month. Please reach out to any of the authors, listed above, to discuss these issues. Regulatory Developments Massachusetts Ratchets Up State and Local Regulation of AI Data Centers In early September, Governor Maura Healey of Massachusetts signed an executive order requiring that artificial intelligence data centers secure the approval of local communities as a precondition to proceeding with a given project. According to the terms of the order, data center developers will need to secure a “community benefits agreement” as a precondition to receiving permits from numerous state agencies, including the Department of Environmental Protection, the Energy Facilities Siting Board, and the Massachusetts Environmental Policy Act Office. Beyond requiring community benefits agreements, the order also mandates that developers mitigate utility costs to consumers, prohibits the use of nondisclosure agreements, and requires various state agencies to develop measures to limit data center impacts on the environment. North Carolina Regulators Decline Approval of Duke Energy Gas Turbine On September 18, 2026, North Carolina Utilities Commission (NCUC) denied Duke Energy’s application for a certificate of public convenience and necessity required to construct a gas-fueled combustion turbine at its Smith Energy Complex in North Carolina. The NCUC objected strongly to the $584 million price tag and noted that Duke appeared to be constructing the facility “based on anticipated data center customer additions.” The NCUC rejected that anticipated growth as “insufficiently reliable for the Commission to act at this point.” In rejecting Duke’s application, the NCUC also noted that Duke had signed the White House Ratepayer Protection Pledge, in which it represented that it would not shift data center costs to consumers. The NCUC observed that the record did not demonstrate how Duke “intends to adhere to its commitments under the Ratepayer Protection Pledge with regard to the Proposed Facility.” Notably, commission staff had actually supported the construction of the turbine, citing concerns about Duke’s reserve margins. The NCUC noted that it “understands the Public Staff’s expressed concerns,” but those concerns were outweighed by the NCUC’s reservations, including questions of demand. Department of Energy Approves Funds for Grid Improvement The U.S. Department of Energy (DOE) recently announced that it would fund 31 grid-improvement projects in 26 states. The funding initiative is part of the DOE’s “SPARK” initiative. The funding will include $1.9 billion in federal funding from DOE and $3.35 billion in recipient cost-sharing funding. The funds will go to projects designed to improve grid reliability and lower electricity costs. Recipients plan to reconductor over 1,500 miles of transmission lines and will deploy grid-enhancing technologies across approximately 21,000 miles. DOE stated that this initiative will make available over 23 additional gigawatts of electricity. Texas Moderates Rules Governing Data Center Interconnection The Texas Public Utility Commission adopted new regulations governing large-load interconnections. The rules impose a flat study fee of $100,000 for all proposed interconnections, which departs from the initial proposal to impose study fees using a tiered system based on project size. Additionally, the final rule eliminates the PUC’s previous proposal to impose a non-refundable interconnection fee of $50,000 per MW of contracted peak demand. The final rule also moderates the initially proposed regulations governing Electric Reliability Council of Texas (ERCOT) notifications for large-load customers’ non-utilized capacity. The proposed rules would have required notifying ERCOT within 30 days of missing a scheduled energization milestone by six months. The final rules, however, do not require informing ERCOT unless a scheduled energization milestone is missed by 24 months. FERC Denies TransAlta 202(c) Cost-Recovery Plan The Federal Energy Regulatory Commission (FERC) recently rejected TransAlta’s plan to recover $19.9 million in expenses stemming from a DOE order in which DOE prohibited TransAlta from retiring its coal-powered Centralia power plant. TransAlta had previously intended to retire the facility at the end of 2025. TransAlta’s cost recovery plan proposed spending an additional $23 million on repairs to continue operating the unit. FERC’s main objection had to do with geographic scope. TransAlta’s recovery plan called for recovering costs from California Independent System Operator (CAISO) and the Southwest Power Pool (SPP), but the DOE’s order requiring operation of the plant was designed to ensure reliability in the Northwest assessment area (Montana, Oregon, Washington, and parts of northern California and northern Idaho). Accordingly, FERC was unwilling to allow cost recovery from CAISO and SPP when the order that precipitated the additional costs only related to the Northwest assessment area. FERC informed TransAlta that it would only approve cost recovery from load-serving entities in the Northwest assessment area. FERC’s decision comes amid a rush of DOE emergency orders requiring the continued operation of coal-fired generating units. Litigation Appeals Court Upholds Washington Hydropower Plant With Caveats In a September 21, 2026, opinion, the Washington Court of Appeals largely upheld a Clean Water Act water quality certification by the Washington Department of Ecology for the Goldendale Energy Storage Project, a proposed pumped-water storage hydropower system adjacent to, but off-stream from, the Columbia River. A nonprofit (Columbia Riverkeeper) and the Confederated Tribes and Bands of the Yakama Nation appealed the certification, contending that it failed to impose necessary conditions and monitoring requirements to protect the water quality of the Columbia River. Most saliently, the plaintiffs argued that the project had the potential to leak 100 acre-feet of water per year into tributaries of the Columbia River. The Court of Appeals broadly rejected plaintiffs’ challenge to the state’s conclusion that “the project was designed not to leak.” That said, the Court of Appeals did reverse on one narrow issue. Specifically, the court determined that the state’s conclusion that “leakage from the project’s tunnels would be monitored and reported” was not supported by the evidence because the certification “does not explicitly require monitoring and reporting to determine whether there is any leakage.” Accordingly, the court remanded the matter to the state to impose monitoring and reporting requirements but otherwise affirmed the certification. Legislative Developments California Legislates Restrictions on Data Center Energy Use and Grid Costs On September 21, 2026, California Governor Gavin Newsom signed seven bills broadly regulating data centers in the state. SB 1168 directed the California Public Utilities Commission to assess the energy used by data centers. It also requires the PUC to pass costs of transmission and distribution upgrades and load increases on to data centers, rather than customers. SB 886 and SB 887 compel data centers to pay for infrastructure upgrade and generation costs, and wildfire mitigation costs, in addition to imposing environmental review. The statutes additionally increase local oversight of data centers. AB 1577 imposes a monthly reporting requirement that requires data centers to supply energy consumption and efficiency data to the California Energy Commission. AB 2383 contains incentives for data centers to use onsite clean energy generation. Finally, AB 2469 and AB 2619 require data center developments to assess water supply and develop a water scarcity plan. The statutes also mandate statewide water reporting as a precondition to obtaining and renewing business licenses.

Attorney John Cooney Returns to Dorsey in the Finance & Restructuring Group in Minneapolis

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Attorney John Cooney Returns to Dorsey in the Finance & Restructuring Group in Minneapolis

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The Supreme Court Update - October 8, 2026

On September 29, 2026, the Supreme Court granted certiorari in one case: Department of Homeland Security v. D.V.D., No. 26-426: This case concerns the Trump Administration’s “third-country removal” procedures, where immigrants are deported to countries not listed in the removal orders. In granting certiorari, the Court granted the Government’s application to stay a lower court decision halting the practice, which will allow third-country removals to continue pending resolution of the case. The issues presented are: (1) Whether the district court had jurisdiction over respondents’ claims; (2) whether the district court had authority to enter class-wide declaratory relief and APA vacatur under 8 U.S.C. § 1252(f)(1); (3) whether the Government’s guidance on third-country removals is unlawful under 8 U.S.C. § 1231(b), the due process clause, or FARRA/CAT and its implementing regulations; and (4) such other questions that the Government determines are appropriate for the proper disposition of the case. On October 1, 2026, the Court granted certiorari in three additional cases: Rhoney v. Barbosa da Cunha, No. 26-104: Immigration officials detained Ricardo Aparecido Barbosa da Cunha—a Brazilian citizen who had lived in the United States for approximately twenty years after entering without inspection—and denied him a bond hearing under 8 U.S.C. § 1225(b)(2)(A). The Second Circuit held that his detention was instead governed by § 1226(a), which permits release on bond, because § 1225(b)(2)(A)’s mandatory-detention requirement applies only to noncitizens apprehended while entering the country or shortly thereafter. The question presented is: Whether 8 U.S.C. § 1225(b)(2)(A) mandates the detention pending removal proceedings of aliens who, like Barbosa da Cunha, are present in the United States without having been admitted. Missionaries of St. John the Baptist, Inc. v. Frederic, No. 25-113: A Catholic religious organization sought to build a shrine to the Virgin Mary on land the organization owned adjacent to its church in Park Hills, Kentucky. Local zoning restrictions prohibited the proposed construction. The question presented is: Whether a land-use regulation that prohibits a religious institution from building a religious structure on its own property constitutes a “substantial burden” on religious exercise under the Substantial Burden Provision of the Religious Land Use and Institutionalized Persons Act, 42 U.S.C. § 2000cc(a). Marschner v. Marschner, No. 25-1349: Under the Uniformed Services Former Spouses’ Protection Act (“USFSPA”), a veteran’s longevity-based retirement pay can be divided in a divorce, but retirement pay based on disability and retirement pay that was waived to receive disability pay are indivisible. The question presented is: Does the USFSPA require state courts to refuse enforcement of indemnification provisions in a divorce settlement agreement?

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SEC Proposes Expansion of Investment Adviser Performance-Based Compensation Rule

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which provides an exemption from the general prohibition under Section 205(a)(1) of the Advisers Act on registered investment advisers receiving performance-based compensation (the “Proposal”) so long as performance-based compensation is limited to “qualified clients”.1 Most notably for private fund sponsors, the Proposal would expand the definition of “qualified client” to include any investors that satisfy the “accredited investor” definition under Regulation D. The Proposal may also have implications for private fund managers that rely on exemptions from investment adviser registration under state law because certain state-level investment adviser registration exemptions incorporate or otherwise reference the federal qualified client definition. Expansion of the Qualified Client Definition Under the current Rule 205-3, an investor generally may qualify as a qualified client if, among other alternatives, the investor has at least $1.4 million under management with the adviser or has a net worth exceeding $2.7 million. These thresholds are higher than the financial thresholds applicable to many accredited investors under Regulation D. As a result, an investor may currently qualify as an accredited investor for purposes of investing in a private offering without qualifying as a qualified client for purposes of paying performance-based compensation. The Proposal would expand the qualified client definition to include any natural person or legal entity investor that satisfies the accredited investor definition under Regulation D. The Proposal would also remove the assets under management and net worth thresholds under the current Rule 205-3 qualified client test. For private funds relying on Section 3(c)(1) of the Investment Company Act of 1940, this change could reduce the need to apply a separate qualified client standard to investors that already qualify as accredited investors. Dorsey Observations and Next Steps If adopted as proposed, the expanded qualified client definition could be particularly significant for private fund managers. Most private fund offerings are already limited to accredited investors under Regulation D. However, the Proposal could expand the pool of prospective investors available to emerging private fund managers while reducing the regulatory burden associated with complying with Rule 205-3. The Proposal could also benefit advisers operating below the SEC registration threshold that rely on a state private fund adviser exemption. A number of states have adopted exemptions modeled on the North American Securities Administrators Association (“NASAA”) private fund adviser exemption, which may condition relief for advisers to certain funds relying on Section 3(c)(1) on each beneficial owner satisfying the federal qualified client definition. However, state requirements vary, and any effect of the Proposal would depend on the text of the applicable state exemption and how it incorporates Rule 205-3. Many emerging private fund managers may have a larger network of accredited investor relationships than qualified client relationships during the early stages of their investment advisory business. Currently, under Rule 205-3, private fund managers may receive performance-based compensation from investors who do not satisfy the qualified client definition if those investors were admitted to their private funds prior to registration with the SEC. Following registration with the SEC, however, managers may continue to permit investors that are not qualified clients to invest in future private funds but may not receive performance-based compensation from those investors with respect to such investments. In addition, because the net worth and assets under management thresholds for qualified client status are adjusted for inflation every five years, the pool of qualified client investors may diminish over time as previously eligible investors no longer satisfy the applicable thresholds. The Proposal could provide the dual benefit of greater flexibility for private fund managers to establish and maintain relationships with accredited investors as their businesses scale and they become registered with the SEC, and greater flexibility for certain accredited investors to participate in investment strategies that historically have been restricted to much larger institutional investors. Unless and until the Proposal is adopted, investment advisers should continue to comply with the existing qualified client requirements. If the Proposal is adopted, private fund sponsors should consider whether corresponding changes are appropriate for their subscription documents, investor questionnaires, and other offering materials. Advisers that are state-registered or rely on a state-level exemption should also consult the laws and regulations of each relevant jurisdiction before changing investor eligibility standards or performance-based compensation practices, because adoption of the federal amendments may not automatically modify state requirements. Comments on the Proposal will be due 60 days after publication in the Federal Register. 1 Investment Adviser Performance-Based Compensation Modernization, Investment Advisers Act Release No. IA-7022 (Sept. 30, 2026), available at https://www.sec.gov/rules-regulations/2026/09/s7-2026-28#33-11443proposed.

Regulatory Affairs Partner Randy Dann Joins Dorsey

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Regulatory Affairs Partner Randy Dann Joins Dorsey

Regulatory Affairs Partner Jeff Beelaert Joins Dorsey in Boise

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Regulatory Affairs Partner Jeff Beelaert Joins Dorsey in Boise

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Dorsey’s London Corporate Practice and Partners Earn Chambers UK 2027 Rankings

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Dorsey Recognized in Inaugural 2026 IAM/WTR Copyright 1000

Dorsey & Whitney LLP is pleased to announce its recognition in the inaugural edition of the Copyright 1000: The World’s Leading Copyright Professionals, published by IAM and World Trademark Review (WTR). Nine Dorsey attorneys were individually recognized, and the Firm’s Denver, Minneapolis, New York, Salt Lake City, and Seattle offices were recognized in the firm rankings. The following Dorsey attorneys were recognized in the inaugural guide: Lindsey Sadler Gregory Tamkin Charlene Krogh Evan Everist Jeffrey Cadwell Fara Sunderji Bruce Ewing Catherine Parrish Lake J. Michael Keyes The Copyright 1000 is the first dedicated ranking focused solely on the world’s leading copyright practitioners. The guide identifies leading copyright firms and practitioners across key jurisdictions worldwide. Dorsey’s intellectual property attorneys advise clients on a wide range of copyright matters, including protection, enforcement, licensing, litigation, transactions, and issues involving emerging technologies and digital content. The inaugural Copyright 1000 rankings are published by IAM and WTR.