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Client Alert

Risk Mitigation Strategies for Food and Beverage Companies: Five Prophylactic Measures

October 31, 2017

by Kent J. Schmidt

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Each year, food, beverage and agribusiness companies pay millions of dollars in settlements, penalties and judgments to consumers allegedly harmed through the sale, advertisement and manufacture of their products. The legal hazards that stem from the sale of food and beverages range from the single contamination claim to the nationwide consumer class action alleging that individuals were misled about an ingredient in a product. Some claims have merit while others are frivolous by any reasonable standard.

Faced with these real and varied risks, a prudent market participant must continually assess and refine its litigation and regulatory risk mitigation strategy. Devising a liability risk profile that identifies key areas of vulnerability can bring into focus what would otherwise appear to be dauntingly nebulous and undefined liability scenarios. An effective litigation risk mitigation strategy for food and beverage producers considers the unique aspects of the product and the nature of the customers and distribution channels. The plan evolves with the business as it grows. Effective implementation requires substantial resources and a commitment from varied disciplines and professions: food scientists and technologists, members of the sales and marketing team, key executives, outside consultants and vendors such as insurance brokers, to name a few.

The starting point in this process is to identify the three types of claims typically brought against companies in the food and beverage industry. Excluding intellectual property claims, most food and beverage litigation relates to one or more of following three categories:

  • Product liability claims in which a consumer is injured or becomes ill by the food or beverage—e.g., adulterated food or undisclosed ingredients causing allergic reactions;
  • Breach of warranty claims, particularly in the B2B context, which are governed by contract terms and the Uniform Commercial Code; and
  • False advertising and consumer protection claims alleging misstatements or omissions on food labels and advertisements about the product, its ingredients or origins or deception relating to the packaging (“slack-fill” laws). 

The obvious prophylactic measures that most companies undertake in the normal course include ensuring compliance with FDA and state food safety regulations, submission and adherence to Sanitary Standard Operating Procedures (SSOPs), Hazard Analysis and Critical Control Point plan (HACCP) and scrutinizing advertisements and food labels. Beyond these obvious steps, one might consider five risk mitigation strategies that, if not overlooked entirely, are not always exploited to the fullest extent advisable.

1. Analyze Insurance Coverage and Third-Party Indemnity Issues

A natural place to begin in the assessment of any risk mitigation is insurance and related indemnity strategies. While any responsible market participant has a standard general liability in place, many companies do not take full advantage of the opportunity to transfer risks to third parties.

The first step is to re-examine insurance policy language, bearing in mind the precise types of claims that are likely to be brought relating to the food or beverage. The exclusionary language in the policy, sometimes skimmed over when the coverage is placed, becomes a central focus after a claim has been asserted at which time words and phrases are parsed in an almost hermeneutic fashion. At that point, it is too late to remedy newly-discovered gaps in coverage. The better time to engage in this analysis of coverage and exclusionary language is before the claim is brought.

A few of the many coverage questions that arise in this space relate to exclusions for advertising injury, whether claims for lost profits of third parties are covered, and out-of the-ordinary claims that arise from a particular type of product defect. For example, a policy that covers food contamination may not cover a claim arising from glass or other foreign objects in the food or beverage.

But insurance coverage is not the only way a party can contractually shift litigation risks to third parties. Contracts containing indemnity provisions can produce a similar result. Think strategically about contractual allocations of risks all the way through the chain of distribution, including ingredients, packaging and other component suppliers.

Suppose a food product that a company is manufacturing uses an ingredient that is contaminated or has a similar defect. A prudent manufacturer using the contaminated ingredient from a third party may find it useful to have an indemnity provision in a supply contract pursuant to which the claim may be tendered to the vendor of the defective ingredient. But suppose further the vendor is now insolvent or judgment proof or the vendor is abroad and beyond the actual jurisdictional or practical reach of U.S. courts. Another option is to require that all ingredient and packaging providers secure an insurance policy covering the risk of loss arising from a contamination and naming the manufacturer as an additional insured.

These types of indemnity provisions can be utilized throughout the distribution chain, from farm to table. Consideration of the possibility that a product-related claim might be compounded by another party’s failure and insolvency or lack of insurance is a key step in mitigating against product-related litigation risks.

2. Negotiate and Effectively Implement Robust Terms in B2B Contracts

This leads to the second step in mitigating against food and beverage-related claims: carefully negotiating and reviewing key terms in business-to-business contracts with a focus on the rights and remedies available when things go south. The dozens if not hundreds of contractual relationships created in the farm to table chain of distribution involve many contractual arrangements varying in degrees of sophistication and detail. In each of these bargained-for-exchanges of consideration, various provisions and protections can be negotiated to address scenarios when a product triggers a claim. Here are some of the contract provisions that might be considered:

  • From the sellers’ perspective, one of the most important contractual provisions is to effectively and conspicuously limit the scope and duration of various warranties, including disclaimers of implied warranties or any other deviations from the standard specifications.
  • It may be possible to circumscribe the remedies available to the buyer, including a reasonable liquidated damages clause and with clear and unequivocal disclaimer of all liabilities for lost profits and other losses. 
  • In that same vein, thought should be given to the remedies in the event that a few non-conforming units are defective and whether the buyer may reject the entire lot or has more limited recourse.
  • For ingredient and packaging manufacturers, the extent to which a party in the chain of distribution must test and inspect products or components before accepting and incorporating into the ultimate product should be clearly stated.
  • A provision limiting the time in which a lawsuit or other claim can be filed may be important along with arbitration, venue and choice of law provisions. 

A common unforced error made by many is to shore up their written contract language with favorable terms only to find in litigation that those terms are not treated as operative. This is how contract terms are set aside by courts. In B2B transactions, terms and conditions printed on the reverse side of invoices are sometimes neglected, not retained, or canceled out by the buyer’s own terms and conditions resulting in what the Uniform Commercial Code calls the “battle of the forms.”

The takeaway here is that it is important to not only review the contract terms but ensure that, with respect to each B2B transaction, those favorable terms become part of the bargain and enforceable to defend against claims. In some instances, a master supply agreement should be negotiated in which the parties expressly agree that those terms cover all transactions, irrespective of the competing terms on preprinted purchase orders and invoices.

3. Make Internal Critical Assessments a Benefit Rather than the Bane of Future Litigation

The next risk mitigation strategy relates to the creation and control of documents about the product and related food safety issues that may be discoverable in litigation. These internal critical assessment documents, of great interest to a plaintiff’s lawyer, may include robust internal debates, scathing criticisms of current food sanitation systems, the need for enhancements in design of a product or shoring up disclosures on a label. There are often disagreements within an organization about a proper response to consumer complaints or whether a marketing claim has sufficient supporting data. The resulting emails and paper trails can provide ammunition to a plaintiff’s lawyer in litigation and provide support to an otherwise weak claim.

An unavoidable tension exists between the need to engage in free and open communications about food and beverage safety and quality and the danger those very well-intentioned documents will be used in litigation. A few jurisdictions, recognizing this tension and the need to encourage open and free communications in this context, have adopted an evidentiary privilege of critical self-assessment, excluding such documents from evidence. But the contours of the critical self-assessment privilege are far from clear and provide little assurance that such communications will be protected from discovery in litigation.1

How does a company balance the need to encourage open and free communication among employees while at the same time avoiding the creation of “smoking gun” emails in subsequent litigation? Here are three ideas:

  • Employee Awareness: The first step in addressing the problem is to acknowledge that it exists, which is more than many companies do. Employees throughout the organization must understand how the statements they make in an email may not only be discoverable in litigation, but become some of the most critical documents in the case. An email exaggerating the severity of a problem or concern, perhaps sent without all of the facts or with a focus on organizational issues and only tangentially related to a food safety issue, can be difficult to walk back during a deposition. Everyone from the senior executives to the shift supervisors must understand this balanced and somewhat nuanced message. Employees should not misunderstand company statements about emails and other writings as a directive to suppress concerns but only to be prudent in how those issues are expressed in emails and other writings.
  • Meetings and Calls Rather than Emails: Some matters are best addressed in face-to-face meetings or phone conferences rather than an endless string of emails in which each person pontificates on a sensitive issues.
  • Close the Loop: When issues are raised in any email or other writing, and a remedy is implemented, that resolution should be documented and the writing preserved. If a concern merits the creation of a formal or informal writing, its resolution should similarly be in writing and that writing retained.
  • Involve Counsel on Key Issues: While the contours of the critical self-assessment privilege are undefined and its recognition limited, the attorney-client privilege is universally recognized and protects most communications made in the context of obtaining legal advice. But there are limits to the scope of this privilege and the attorney work product doctrine. The quality assurance personnel cannot simply copy in-house counsel on every email under the guise of seeking legal advice. Where legal advice is sought, particularly in connection with a specific incident—for example, the early stages of a product recall—including counsel in the discussion presents the additional benefit of protecting the communications from discovery in litigation.

4. Know the Current Trends in Food and Beverage Class Action Litigation

It is commonly known that the food and beverage industry has been the target of a spate of consumer class actions in recent years, particularly in California. The Ninth Circuit has earned the nickname “The Food Court” as it sorts through a voluminous docket of class actions alleging that consumers were misled about the food and beverages they consume. Food and beverage companies would do well to heed the current trends, paying particular attention to cases involving competitors or those selling similar products.

Here are some of the of most common consumer cases against food and beverage companies:

  • All Natural, Organic, GMO, Ingredients: At the top of the list are class actions alleging false or deceptive claims about the nutritional or other qualities in food or beverage. These range from the definition of a micro-brew, organic certifications, whether ingredients qualify as “all natural,” the presence of GMOs and similar ingredient claims.2
  • Origin Claims: In addition, a number of claims regarding the origin of the food and beverage products continue to be filed.3
  • Greenwashing and Fair Trade: As consumers of food and beverages become more attuned to socially responsible choices, sellers are increasingly touting their product’s ecological benefits or that it is procured through “fair trade.” These claims, if not substantiated, can lead to consumer claims of deceptive advertising.4
  • Slack Fill Statutes: Both regulators and California consumers are bringing claims relating to the slack fill—the space in a container of a product compared to the actual volume. Slack fill regulations prohibit a seller from deceiving consumers about the contents through packaging that is deceptive.5
  • Social Media Campaigns and Product Endorsements: A relatively recent area of concern relates to the advent of social media as a means for advertising. The FTC has taken action against companies paying individuals with large social media followings to endorse, tweet or post about products without disclosing to the public that this is a paid endorsement.6
  • Prop 65 Warnings: Although this California law has undergone several reforms in recent years to curb abuses, there has been no drop off in the number of actions and settlements relating to the alleged failure to warn about carcinogens and chemicals deemed to increase the risk of cancer or cause reproductive harm.

Knowing the recent trends and what types of claims are being filed against competitors or others in the same space is an important aspect of reducing the risk of similar claims.

5. Create a Crisis Management Plan for a Doomsday Scenario

The fifth prophylactic measure is based on the assumption that, notwithstanding the foregoing strategies and a host of other best practices, a crisis will arise at the most inopportune time. These crises take many forms. Besides preparing for run-of-the-mill commercial litigation disputes, one must anticipate a massive food recall, a disparaging tweet about product quality or contamination that goes viral, a surprise visit from the FDA that shuts down a factory or a class action lawsuit with intrusive and burdensome discovery. In some crises, decisions normally reached over many days of deliberation must be made in hours or even moments.

To avoid being caught flatfooted, a company should develop various crisis management plans well in advance, outlining a plan to swiftly convene a team of key executives and outside consultants and implement a response. Here are some questions that should be carefully considered as part of this plan:

  • Who will take the lead and what members will fill out the team, including quality, root cause analysis, public relationship, customer response, insurance and legal? 
  • What steps will be taken to trace the problem though control numbers and product coding to ensure that the scope of a food recall is appropriate to the defect?
  • How will the public’s right to know be addressed and what regulators must be informed?
  • Who are the contacts in other organizations in the chain of distribution who need to be brought into the discussions and analysis, and who will interface with them? 
  • Who is running the social media response when this problem hits the Twittersphere? 

These and other questions must be addressed in a well-crafted crisis management plan so that, rather than focusing on these threshold and structural issues, all time and attention can be devoted to finding a path out of the woods.

* * *

The challenges to succeeding in the business of growing, processing and selling food and beverages to the public are daunting enough without the potential of costly litigation or regulatory challenges. But with careful planning, including consideration of these five strategies, many of potential claims and legal risks can be avoided.

Kent J. Schmidt represents and advises companies in litigation arising from the sale of food and beverages and other consumer products. His practice includes both litigation in lawsuits filed in California and around the nation and working with clients to devise preventive strategies.

1 The critical self-assessment privilege was first recognized in Bredice v. Doctors Hospital, Inc., 50 F.R.D. 249 (D.D.C. 1970) aff'd, 479 F.2d 920 (D.C.Cir.1973), which held that minutes of hospital staff meetings regarding procedures to improve patient care could be protected from discovery in a malpractice suit because of the important public interest in having hospitals critically evaluate the quality of the care they provide. Since then, few courts have expressly recognized the privilege and most “seem reluctant to extend the privilege beyond the circumstances under which the privilege was first recognized.” See Williams v. Corelogic Rental Prop. Sols., LLC, 2016 U.S. Dist. LEXIS 148752, at *18 (D. Md. Oct. 26, 2016).
2 In California, these claims are typically brought under the False Advertising Law (Cal. Bus. & Prof. Code § 17500), the Unfair Competition Law (Cal. Bus. & Prof. Code § 17200) as well as the Consumer Legal Remedies Act which prohibits “[r]epresenting that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another” and “[m]isrepresenting the source, sponsorship, approval, or certification of goods or services” or the “affiliation, connection, or association with, or certification by, another.” Cal. Civ. Code § 1770(a)(2), (3) and (7).
3 Designation of origin claims are brought under both federal and state standards. See Cal. Bus. & Prof. Code § 17533.7; Cal. Civ. Code § 1770(a)(4) (CLRA prohibition against using “deceptive representations or designations of geographic origin in connection with goods or services”); 15 U.S.C. § 1125(a)(1) (the Lanham Act specifically prohibits using any “false designation of origin.”).
4 See e.g., 16 C.F.R. § 260 (Guides for the Use of Environmental Marketing Claims; Final Rule) (extensive regulations regarding various environmental claims routinely made by sellers of consumer products); Cal. Public Res. Code § 42359.6(b) (“a person shall not sell a food or beverage container in this state that is labeled with the term ‘biodegradable,’ ‘degradable,’ or ‘decomposable,’ or any form of those terms, or in any way imply that the food or beverage container will break down, fragment, biodegrade, or decompose in a landfill or other environment.”); Cal. Public Res. Code § 42359.6(b)(a) (“a person shall not sell a food or beverage container in this state that is labeled with the term ‘compostable’ or ‘marine degradable,’ unless, at the time of sale, the food or beverage container meets the applicable ASTM standard specification, as specified in subdivision (b) of Section 42359.5.”)
5 See e.g., 21 C.F.R. § 100.100(a) defining slack-fill as “the difference between the actual capacity of a container and the volume of product actually contained therein.”).
6 See 16 C.F.R. § 255.0 (Guides Concerning the Use of Endorsements and Testimonials in Advertising), Example 5 (blogger endorsements) and https://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclose

Dorsey & Whitney is hosting a Food Risk Summit on November 30, 2017.  Tom Vilsack, former U.S. Secretary of Agriculture and former Governor of the State of Iowa is the keynote speaker. Topics include Food Safety Issues; GMOs, Non-Milk Milk, and other Legislative and Regulatory Issues; Insuring the Risk of Product Contamination, Withdrawals from Market and Recalls; Labeling, Slack Filling and Contamination:  Food Litigation Today; Betting the Company:  Surviving a Recall; and Who’s Holding the Bag?  Indemnity Agreements and Risk Transfers. For further details and registration, click here.

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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.

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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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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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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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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.

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The Supreme Court Update - October 14, 2026