.

Articles

Chemical Industry Update - November 2018

November 2, 2018

by Troy M. Keller and Cam C. Hoang

Download as a PDF

Share this page

The Future of Chemical Regulation

A lot is happening right now in the world of chemical regulation.  In the Americas, just in October: Argentina and Brazil announced an MOU to work together on chemicals management; Brazil then released its draft law for industrial chemicals regulation (though the outcome of the presidential election last week may put its passage in doubt); both Mexico and Chile took steps toward rolling out classification and labelling regulations for chemical substances; and the U.S. has a new substances backlog under TSCA of 550 cases.  On the other side of the Atlantic, in an open letter to Heads of State, industry associations highlighted the risks of a hard Brexit in which the UK is outside the REACH regime, which could lead to duplication of chemical registrations and a complicated untangling of regulatory coverage.  Also in Europe, its circular economy initiatives (which we reported on last month) came under pressure from a number of industry groups arguing that instead of mandating participation in an expensive database of allegedly harmful substances in products, the EU should invest in R&D for recycling technologies, testing methods and circular production models (see more here).  And in Asia, its major economies have been fine-tuning existing chemical regulations of late, with regulatory updates reported last month in Malaysia, China and Taiwan.  

What does this all mean?  Certainly, gone are the days when REACH was the only serious chemical regulation out there.  As nations continue to adopt, update and enforce their chemicals laws, the future will involve a landscape that is more fragmented but also (hopefully) more predictable than in the past.  Compliance costs will rise, not just for chemical sellers but on down the value chain.  This will be offset by more transparency and a clearer path to approvals, leading to more predictable access to markets.  However, engagement--not just by industry associations but by individual companies--is needed to push policy makers for as much alignment as possible among jurisdictions.

Burden of Proof Clarified in DuPont Patent Infringement Case

Patents in the chemical arts are often granted based on tiny differences over prior art, such as the reacting of components at a slightly different temperature or pressure from what has commonly been done in the past.  This can make defense of these patents difficult when a challenger brings a case alleging a patent’s claims are not sufficiently inventive (i.e., that they are obvious).  Making things even more complicated, it has been unclear in the past when or even if the patent holder needs to make its case for “non-obviousness” at the all-important inter partes review stage of a patent challenge.  (Today, instead of challenging patents in Federal District courts, many would-be litigants contest the validity of patents via inter parties review proceedings held before the Patent Trial and Appeal Board, an administrative court at the United States Patent and Trademark Office.)   In E.I. DuPont De Nemours & Co. v. Synvina C.V., 2017-1977 (Fed. Cir. Sept. 2018), the Federal Circuit held that once a prima facie case of obviousness is established against patent claims, the burden shifts to the patentee to rebut the presumption of obviousness at the inter partes review proceeding.  The patent holder can then present many different forms of rebuttal evidence, such as criticality of a claimed range to achieve unexpected results or a teaching away from the claimed range in the prior art references, to show that its patent represents real innovation.  This clarification of the burden-shifting—including that the patent holder should present its evidence of non-obviousness at this early stage—is significant, particularly in chemicals cases, as it will in many instances tend to push the real fight to the beginning of the proceedings. 

Is Your Supply Chain Impacted by List 3 Tariffs?

The 301 Tariffs on Chinese imports are affecting the chemical industry's supply chain, impacting some companies more than others.  As mentioned in our prior update, many companies are seeking exclusions on specific products that are critical to their value chains, and Dorsey has been actively involved.  However, so far, the exclusion process has only been available for products on the first two lists.  There has been no indication that USTR will offer a similar process for the third list, even though the third list covers four times the amount of imports as the first two combined (and a significant number of chemical products).  Members of both the House and Senate have now sent letters to the USTR calling for an exclusion process for these goods as well.  We hope their efforts are effective.  

US-China Business Council Encourages China to Adopt Tariff Exclusion Process 

On October 23, the US-China Business Council sent a letter to China's Minister of Finance encouraging China to (i) adopt a Public Comment Period for proposed tariffs on U.S. imports into China and (ii) establish an exclusion process (similar to the process in the U.S. referenced above) that allows companies to apply for exclusions of specific products from the tariff list.  It will be interesting to see China's response (none yet), but if an exclusion process is established, this will give companies an opportunity to make the case for why their imports should be excluded.  We will send out a special update on this topic if there are developments.

Investors Push SEC for Rulemaking on Sustainability Disclosures 

A growing body of investors are seeking improved disclosures and board oversight with respect to ESG (environmental, social and governance) topics.  A cottage industry has formed of ESG analysts purporting to rate companies on their performance in these areas.  In this environment, it can be challenging for companies to determine (1) which ESG issues to prioritize and (2) which standards are appropriate and helpful to their investors and other stakeholders.  Purporting to offer a solution, a coalition of law professors, NGOs and  institutional investors representing more than $5 trillion in assets have signed a petition for rulemaking, calling on the Securities and Exchange Commission to require public companies to uniformly disclose ESG information.  The petitioners emphasize the need for the SEC to bring coherence to this area, citing existing, multiple initiatives on human capital management, climate, tax, human rights, gender pay ratios and political spending.  

Indeed, a standardized protocol for ESG disclosure might bring clarity and efficiency to the ESG disclosure process, but many companies hesitate to introduce ESG information in SEC reports because they question the materiality of the information for financial reporting purposes and because they have already crafted an ESG message in their separate sustainability reports.  They also worry about liability for getting it wrong (see the below update on the ExxonMobil case in New York). If disclosures do become required, allowing for disclaimers and safe harbors, similar to those currently provided to forward-looking information, could make companies more comfortable with standardized disclosure.

New York Attorney General's Office Uses Securities Laws to Push Climate Change Agenda

Already, one company is facing potential liability as a result of its disclosures attempting to quantify the impact of climate change on its business.  Recently, in People v. Exxon Mobil, N.Y.Sup.Ct., the State of New York filed a fraud lawsuit in state court against Exxon, accusing the company of misleading investors about how future regulations could impact its business.  As discussed in this Law360 article (in which we are quoted) whether the AG's office was motivated primarily by a desire to protect investors or more to promote social policy is far from clear.

Mergers & Acquisitions

CFIUS Pilot Program Includes Petrochemicals and Base Inorganics

Last month, the Treasury Department rolled out a "Pilot Program" using their expanded authority under FIRRMA to mandate reviews of all foreign investments that meet certain criteria and are in specified industries.  See details in our update here.  Petrochemicals and base inorganic chemicals are included on the list of these industries, as are several downstream industries important to the chemical industry, including aircraft manufacturing, battery technology, nanotech and biotech.  Foreign investments into these segments will face an additional hurdle for the foreseeable future.

Akorn Decision: What it Means for Chemicals M&A

One of the seminal cases on the enforceability of material adverse change (MAC) clauses is Hexion Specialty Chems. Inc. v. Huntsman Corp, 965 A.2d 715 (Del. Ch. 2008), in which the court found that  a business downturn in the short term does not justify finding a MAC.  That dispute between global chemical players was set against the backdrop of business cycles that are part and parcel with operating in this industry.  Some of these themes have been revisited in the Akorn, Inc. v. Fresenius Kabi AG decision, in which a Delaware court found for the first time that a material adverse effect had occurred and justified termination of a merger agreement--though in the Akorn case there were factors in addition to business downturns, such as compliance and internal control deficiencies.  See more in our client update here.

Due to certain characteristics of the chemical industry, chemicals M&A is primed for more of these types of disputes in the future.  First, deals frequently take a long time to close.  Many segments of the industry are consolidated (or nearly so), such that regulatory reviews in those spaces are more complicated.  And because chemical companies tend to operate in both established and emerging markets (where more merger control regimes have emerged in recent years), deals tend to be reviewed in more jurisdictions than they used to.  The more complex and longer review periods, combined with inherent cyclicality in many industry segments, increases the odds that a business case on which a deal was based may look very different six or nine months later, with the deal still pending.  

The Akorn decision is useful in this environment because it sets goalposts for how bad it might need to get for a court to find a MAC has occurred.   For buyers who see the Akorn standard as too high a bar to be a useful protection, adding objective criteria into a MAC definition (such as setting EBITDA floors) remains an option--though this approach has never really caught on in the industry.  For private deals, earn-outs have become popular as a middle-ground tactic to protecting a buyer's downside, but these constructs provide limited protection.  Whatever approach is taken, it is worth remembering that Delaware courts have consistently said that customized contract terms will be respected.  Nuanced drafting of clauses by lawyers who understand the risks that are most likely to impact chemical businesses in the near term and the trends that are likely to affect the industry in the long-term could tilt the scales in a close call situation.

Impact Investing as a Solution to Plastics Waste

The industry effort to address plastics waste is taking several forms.  One of the more innovative approaches appears to be that of seeding technology and infrastructure investments through social impact funds. Last week, it was reported that Dow would be participating in the $90 mm round of financing in a new venture called Circulate Capital, whose business model involves investing in waste management and recycling infrastructure across Asia.   In October, Amazon announced it was investing $10 mm into the Closed Loop Fund, an organization formed by major retailers two years ago to improve recycling in the United States.  These types of efforts to seed investment in the recycling industry could have both a long and short-term impact.  Long-term, there is the prospect of real solutions being developed.  Short-term, even the identification of promising technologies builds optimism that solutions will be reached.  However, there is also the risk that impact funds may invest in solutions that take the market in a different direction, such as toward plastics replacements.  Focus and awareness by the industry is called for.

Questions or requests? Contact Troy Keller.

Firm Highlights

Regulatory Affairs Partner Jeff Beelaert Joins Dorsey in Boise

News

Regulatory Affairs Partner Jeff Beelaert Joins Dorsey in Boise

News

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

Regulatory Affairs Partner Randy Dann Joins Dorsey

News

Regulatory Affairs Partner Randy Dann Joins Dorsey

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

News

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

Insights

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.

The image shows classic stone columns and steps, which often represent government buildings, courthouses, or legal institutions.

Insights

The Supreme Court Update - October 14, 2026

Insights

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.

Insights

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?

News

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.

Insights

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.