Category: Uncategorized

Corporate Transparency Act Alert: Filing Deadline Now March 21, 2025 

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Contact: Adam Bingham

As of March 21, most U.S. businesses are required to file Beneficial Ownership Information (BOI) reports under the Corporate Transparency Act (CTA). This follows recent court rulings that lifted nationwide injunctions, clearing the way for the U.S. Department of the Treasury and FinCEN (the Financial Crimes Enforcement Network) to enforce these requirements. 

What is the Corporate Transparency Act? 

The CTA was enacted to combat money laundering, terrorist financing, and other forms of financial crime by increasing transparency of company ownership. It requires reporting companies to disclose their beneficial owners—individuals who directly or indirectly

  • Own or control at least 25% of the company; or 
  • Exercise substantial control over the company’s operations or decisions

This information must be reported to FinCEN and will be kept in a secure, non-public database accessible only to authorized government authorities and financial institutions conducting due diligence. 

Who Needs to File

Most U.S. businesses are required to report, including

  • Corporations, LLCs, and other entities created or registered in the U.S. 
  • Foreign entities doing business in the U.S

Exemptions include

  • Publicly traded companies 
  • Certain regulated entities, like banks and insurance companies 
  • Inactive entities meeting specific criteria 

Why is This Important Now? 

Since December 2024, the CTA’s filing deadlines were on hold due to nationwide injunctions. These injunctions have now been lifted, following the Smith v. Treasury case in the 5th Circuit, allowing FinCEN to enforce the deadlines again

  • Pre-‘24 Companies (formed before January 1, 2024) and New Companies (formed on or after January 1, 2024) are required to file by March 21. 
  • Companies involved in National Small Business United v. Yellen are currently exempt from reporting. 

What Should You Do Now

If you were waiting for legal challenges to be resolved before filing, the wait is over. We strongly recommend proceeding with your CTA filing to avoid potential penalties

  • Identify your beneficial owners and gather their information, including name, date of birth, address, and a unique identifying number (e.g., driver’s license or passport number). 
  • Submit your BOI report through FinCEN’s online filing portal, which is free and designed to be user-friendly. 
  • Consult your accountant or legal representative to ensure compliance. 

Potential Legislative Change

While Congress is considering a bill to extend the filing deadline for Pre-‘24 Companies to January 1, 2026, this legislation has not yet passed. Therefore, it is safest to proceed with the March 21, 2025 deadline in mind. 

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.  

The Future of Fashion Law: Can California and New York Set the Global Standard? 

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Contact: Warren Koshofer

The fashion industry is a global powerhouse of creativity and commerce, but beneath the glamour lies a harsh reality—one of environmental strain and questionable labor practices. From greenhouse gas emissions and chemical waste to exploitative working conditions, fast fashion’s rapid expansion has come at a steep cost. Now, lawmakers in California and New York are pushing back with ambitious legislation designed to hold major fashion brands accountable for their environmental and social impact.

The two bills, California’s Fashion Environmental Accountability Act (CFEAA) and New York’s Fashion Sustainability and Social Accountability Act (NYFSSA), share a common goal—forcing transparency and responsibility in an industry long criticized for its opaque supply chains and inconsistent sustainability efforts. However, they take fundamentally different approaches in their enforcement mechanisms and priorities. If either (or both) become law, the impact on global fashion companies will be profound.

California’s Approach: Environmental Due Diligence and Transparency 

California has long positioned itself as a global leader in climate policy, and the proposed CFEAA follows this tradition by focusing squarely on environmental accountability. Introduced in February 2025, the bill targets large fashion businesses that conduct operations in California. Specifically, it applies to brands with total annual revenues exceeding $1 billion and multi-brand retailers with annual gross receipts over $100 million. The CFEAA, as currently drafted, mandates rigorous environmental due diligence including disclosure of environmental impact, carbon emissions, waste use, and waste, to ensure that major players in the industry are actively working to reduce their ecological footprint.

Key Provisions of the CFEAA 

Under the proposed CFEAA, fashion companies operating in California would be required to comply with strict environmental disclosure and compliance requirements. Beginning in 2026, they would be required to publicly disclose Scope 1 and Scope 2 emissions, which include greenhouse gas emissions from their direct operations and energy consumption. By 2027, the mandate would extend to Scope 3 greenhouse gas emissions, ensuring transparency on the full environmental impact of production, including supply chain emissions. In addition to disclosure, the law would require companies to align their climate goals with the Paris Agreement, setting clear targets for emissions reduction.

Beyond carbon emissions, the CFEAA also seeks to tackle chemical and wastewater management. By 2028, businesses engaged in dyeing, washing, printing, and garment finishing would have to conduct annual wastewater testing to monitor and report chemical discharges, aimed at curbing pollution and mitigating harm to water sources. To further strengthen corporate accountability, the bill calls for annual environmental due diligence reports starting in 2027, requiring companies to assess and disclose risks associated with their operations and supply chains while detailing mitigation strategies.

Failure to comply with the CFEAA regulations would carry significant financial penalties. Companies that do not meet the law’s requirements would face fines of up to 2% of their annual revenue, a considerable deterrent for industry leaders. These penalties would be allocated to the Fashion Environmental Remediation Fund, a state-managed initiative designed to support environmental restoration projects in communities disproportionately affected by fashion industry pollution.

Through this ambitious legislation, California is joining New York in signaling commitment to reshaping the fashion industry, prioritizing sustainability, and enforcing corporate responsibility at an unprecedented scale. However, critics argue that while the CFEAA places strict environmental demands on companies, it does little to address labor conditions and workers’ rights in global supply chains—a notable gap given the ongoing criticism of the industry’s labor related practices.

New York’s Approach: Comprehensive Corporate Responsibility 

The proposed NYFSSA takes a far broader approach than California’s bill. The NYFSSA focuses on more than emissions and environmental disclosures. Instead, the proposed bill also directly targets corporate responsibility across the entire supply chain, including labor practices, wages, and human rights violations.

Originally introduced in 2022, the NYFSSA was reintroduced in 2025 as Senate Bill S4558, and it has gained renewed political momentum. The law would apply to fashion companies with at least $100 million in global revenues that manufacture or sell products in New York—effectively ensuring that nearly every major global fashion brand would be subject to its requirements.

Key Provisions of the NYFSSA 

Under the proposed NYFSSA, fashion companies must map out their entire supply chain and identify, cease, prevent, mitigate and account for actual and potential adverse impacts to human rights and the environment in both their own operations and their supply chain. Unlike the CFEAA, which focuses primarily on environmental disclosures, the NYFSSA additionally requires public disclosure of labor practices, wages, and sourcing policies, ensuring that brands cannot hide unethical business operations behind vague sustainability pledges.

The proposed New York legislation demands robust environmental and social due diligence. Fashion industry companies would be required to set clear climate targets and report on their progress toward emissions reductions, water conservation, and toxic chemical elimination. To prevent greenwashing—the practice of misleading consumers about sustainability efforts—the bill calls for third-party verification of corporate sustainability reports, ensuring that commitments translate into real-world action rather than empty promises.

The NYFSSA calls for fashion companies to adhere to fair wage laws across all levels of production, from textile mills to garment factories, preventing exploitation within their supply chains. Independent audits would be conducted to evaluate working conditions, wages, and hiring practices, ensuring that companies are not engaged in child labor, wage theft, or other undesirable employment practices.

Like its California counterpart, failure to comply with the NYFSSA would come with steep financial consequences. Companies that violate its provisions could face fines of up to 2% of their annual revenues. These funds would be directed to the Fashion Remediation Fund, which would in turn provide worker relief and finance environmental restoration projects in communities disproportionately affected by unethical and unsustainable industry practices.

Through this sweeping legislation, New York is taking an aggressive stance on corporate responsibility. Indeed, New York’s aim seems to be reshaping the fashion industry to foster a more sustainable, ethical and socially responsible fashion ecosystem.

What’s Next? 

Both bills have their challenges. Critics argue that the CFEAA, while groundbreaking in environmental accountability, does not go far enough in addressing supply chain labor issues. Meanwhile, some claim that the NYFSSA is overly ambitious, placing burdensome supply chain requirements on companies that could be difficult to enforce, especially in countries with weak labor laws.

At the same time, major fashion brands and industry groups are pushing back against both laws, arguing that they impose heavy regulatory burdens and would likely increase costs for companies and consumers alike. Not coincidentally, the fast-fashion industry, with its reliance on cheap production models and just-in-time manufacturing, would be hardest hit by the proposed legislation.

Is This a Turning Point for Fashion? 

Despite opposition, both bills reflect a growing trend: lawmakers are no longer allowing fashion brands to self-regulate when it comes to environmental and labor standards. Whether these bills pass in their current form or get watered down, the era of unchecked fashion industry practices, opaque supply chains, and questioned labor practices is coming under scrutiny.

With fast-fashion giants like Shein, Zara, and H&M capturing an increasing share of the $2.5 trillion fashion industry market, the question is not whether regulations will come—but how soon and how strict they ultimately will be. If California and New York succeed, the fashion industry as we know it may never be the same again.

 
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations. 

Executive Orders Target DEI and Workplace Protections

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Contact: Devon Mills

Recently signed executive orders issued by the Trump administration have raised questions about the future of diversity, equity, and inclusion (DEI) initiatives and workplace protections, particularly for federal contractors. While these orders directly impact businesses that contract with the federal government, their influence extends far beyond, creating uncertainty for all employers, including private companies, nonprofits, and state and local entities.

While the orders signal a shift in federal enforcement priorities, employers must understand state and local laws—including strong protections in California and New York—remain firmly in place. As such, businesses across industries must be cautious about making any immediate changes that could expose them to legal risk.

Here, we break down the key implications of Trump’s DEI and gender-related orders and what businesses should do next.

DEI Under Scrutiny – But Still Legal and Advisable

The Trump administration has ordered federal agencies to scrutinize and, where possible, curtail DEI initiatives in hiring and promotions. This includes directing agencies to:

Identify and deter “illegal DEI discrimination and preferences” across sectors, including publicly traded corporations, non-profits, and higher education.
Target high-profile DEI practitioners for compliance investigations or litigation.
Develop enforcement plans to eliminate practices deemed inconsistent with federal civil rights laws.

While these directives may create uncertainty, it is critical to note that, at present, DEI programs remain lawful under federal law. In fact, the U.S. Equal Employment Opportunity Commission (EEOC) continues to encourage employers to “[r]ecruit, hire, and promote with EEO principles in mind, by implementing practices designed to widen and diversify the pool of candidates.”

Furthermore, California law explicitly requires employers to prevent discrimination in hiring and employment practices. Under the California Fair Employment and Housing Act (Cal. Gov. Code, § 12940 et seq.), employers cannot discriminate against job applicants or employees based on race, color, national origin, gender, sexual orientation, gender identity, disability, or other protected characteristics.

Rolling back DEI programs may, in fact, have unintended legal consequences. Recently, the National Institute for Workers’ Rights—an affiliate of the plaintiff-oriented National Employment Lawyers Association—issued a memo warning that scaling back DEI initiatives could be used as evidence in discrimination claims. An employer’s decision to move away from DEI efforts may serve as circumstantial evidence of discriminatory intent or suggest that an employment action was based on protected characteristics such as race, gender, religion, or national origin.

Additionally, anti-DEI statements made by senior executives, decision-makers, or supervisors may be viewed as indicators of bias, akin to direct discriminatory remarks. Collectively, these factors could strengthen claims that an employer has fostered a hostile work environment or engaged in unlawful discrimination.

Employer Takeaway

Businesses should not interpret Trump’s orders as requiring them to dismantle DEI efforts. Instead, they should review existing policies to ensure compliance with state and federal law and consult legal counsel if adjustments are necessary.

Gender Identity and Workplace Rights – Federal vs. State Protections

Another of Trump’s orders seeks to limit federal recognition of gender identity, defining legal protections strictly in terms of biological sex. However, this does not override state laws protecting transgender and nonbinary employees.

For example, California’s Gender Recognition Act, which has been in effect since 2019, ensures that:

Transgender and nonbinary individuals receive full legal recognition.
Employees have the right to use restrooms and other sex-specific facilities consistent with their gender identity.
Employers cannot discriminate against individuals based on gender identity or expression.

Additionally, the California Attorney General has reaffirmed that the state will continue enforcing its existing anti-discrimination laws despite federal policy changes.

Employer Takeaway

Employers operating in California, New York, and other states with strong anti-discrimination laws must continue upholding workplace protections for transgender employees. Companies should reaffirm inclusive policies and remind employees of their legal rights to maintain compliance and prevent workplace disputes.

Moving Forward – Practical Steps for Employers

In the wake of Trump’s actions during his first days in office, employers should take a measured approach rather than making reactive changes. Key steps include:

Reviewing DEI and anti-discrimination policies to ensure compliance with state and federal laws.
Training HR and leadership teams on applicable employment laws, particularly in jurisdictions with strong protections.
Monitoring enforcement actions and legal developments that may impact hiring, promotions, and workplace policies.
Consulting legal counsel before altering workplace policies in response to federal executive orders.

Bottom Line

While federal policy shifts may create uncertainty, employers should stay the course when it comes to DEI and workplace protections, particularly in states with robust anti-discrimination laws. Misalignment with these laws could lead to compliance risks, potential liability, and reputational harm.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

The Challenges and Benefits of U.S. Discovery in International Disputes: The New Era in the World of International Arbitration 

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By Omer Er and Maggie Franz

In the world of international disputes, U.S. discovery processes have long been a double-edged sword. On the one hand, they offer an expansive toolkit for fact-finding; on the other, they present significant challenges for arbitration, a mechanism designed for efficiency and privacy. With the recent narrowing of 28 U.S.C. Section 1782—once a powerful tool for parties seeking discovery in aid of arbitration—the landscape for resolving international disputes is evolving rapidly.

For arbitrators, litigants, and practitioners, understanding these changes is critical to navigating discovery in a post-ZF Automotive era.

U.S. Discovery 101

The U.S. discovery process is markedly broader and more expansive compared to other countries, making it a unique feature of its civil litigation system. Unlike many jurisdictions where judges oversee and control evidence-gathering, U.S. lawyers conduct discovery with significant autonomy, including taking oral depositions and requesting extensive document production. The scope of discovery is broad, allowing parties to request any information that might lead to admissible evidence, even if it establishes liability against the producing party—a concept often restricted in other systems. For instance, while U.S. lawyers can compel the opposing party to produce incriminating documents, many civil law countries limit discovery to evidence supporting a party's own case and assign judges a gatekeeping role. Additionally, the U.S. heavily incorporates electronic discovery (e-discovery), requiring the production of electronically stored information like emails and metadata, a process less common or developed abroad. While this liberal approach promotes transparency and thorough preparation, it also significantly increases costs and complexity, contrasting with the more streamlined, judge-controlled discovery processes in other jurisdictions, which prioritize efficiency and cost reduction.

The Power—and Limits—of U.S. Discovery in International Disputes

U.S. discovery is renowned for its breadth and reach, allowing parties to compel testimony, request documents, and unearth evidence that can make or break a case. This expansive approach stands in stark contrast to the narrower discovery mechanisms found in many other legal systems, making U.S. courts an attractive venue for obtaining information, even for disputes rooted outside their borders.

Section 1782 of the U.S. Code historically facilitated this by allowing litigants in foreign or international proceedings to petition U.S. federal courts for discovery. Its appeal lay in the ability to access U.S.-based evidence without the cumbersome procedures of diplomatic letters rogatory. Over time, it became a favored tool for international arbitrations as well.

But the U.S. Supreme Court’s 2022 decision in ZF Automotive US v. Luxshare, Ltd. marked a pivotal shift. By ruling that Section 1782 only applies to tribunals “imbued with governmental authority,” the Court excluded private arbitration panels from its scope. This decision left many questions about where discovery for international arbitration stands now.

The Arbitration Conundrum Post-ZF Automotive

Arbitration thrives on principles of efficiency, confidentiality, and party autonomy. The decision in ZF Automotive reinforced the idea that arbitration, as a private dispute resolution mechanism, should not be subject to the broad, court-supervised discovery processes typically reserved for public tribunals. While this aligns with arbitration’s ethos, it presents challenges for parties who rely on U.S. evidence to support their claims.

For example, multinational companies often hold critical evidence within U.S. jurisdictions—documents, financial records, or emails crucial to the outcome of an arbitration. The narrowing of Section 1782 means parties must now look elsewhere to access such evidence.

The State Court Solution: New York and California Leading the Way

Although federal courts have restricted the use of Section 1782, state courts in New York and California provide alternative avenues for discovery. Both states allow pre-complaint discovery in aid of arbitration, albeit under stricter conditions than federal courts once offered.

  • New York: Rule 3102(c) of the Civil Practice Law and Rules permits pre-complaint discovery to aid arbitration when a party can demonstrate necessity or “extraordinary circumstances.” For example, New York courts have ordered discovery to preserve evidence critical to an overseas arbitration, recognizing its potential impact on the arbitral process.
  • California: The state’s Civil Procedure Code under Title 9.3 allows parties to request discovery assistance from state courts, provided the arbitral tribunal approves. This process ensures that state courts complement, rather than interfere with, arbitration proceedings.

For parties who can satisfy these requirements, state court discovery provides a valuable lifeline.

Despite these options, discovery in aid of arbitration remains inconsistent across the U.S. Most states lack explicit provisions allowing courts to assist with arbitration discovery. In some cases, statutes have been repealed or intentionally exclude arbitration. For example:

  • Pennsylvania: Repealed its discovery provision for foreign tribunals, including arbitrations, in 2012.
  • Texas and Florida: Allow pre-complaint discovery to preserve testimony for court cases but make no mention of arbitration, reflecting a broader reluctance to intervene in private dispute mechanisms.

This patchwork of rules may cause uncertainty for international litigants, underscoring the importance of understanding jurisdiction-specific discovery laws.

The Way Forward for International Arbitration

As parties adapt to the post-ZF Automotive landscape, strategic solutions are essential for overcoming discovery challenges. Here’s how arbitration practitioners can navigate this evolving terrain:

Leverage State Courts Where Possible

Familiarity with state-specific rules, particularly in arbitration-friendly jurisdictions like New York and California, is crucial for accessing U.S.-based evidence. Both states allow pre-complaint discovery in support of arbitration under specific circumstances, offering a valuable alternative when federal courts are unavailable.

Draft Tailored Arbitration Agreements

Parties should proactively address discovery needs during contract negotiations by including tailored provisions for evidence gathering. For example, specifying mechanisms for document production or interim relief can prevent uncertainty and reliance on judicial interpretation.

Explore Parallel Litigation Applications

Parallel litigation can be a powerful tool for parties seeking interim relief or addressing discovery challenges in arbitration. Courts can provide remedies that arbitral tribunals may lack the authority to enforce, offering a practical solution for preserving rights and securing compliance. For instance:

Preliminary Injunctions: These orders can prevent the destruction of evidence or ensure that critical information remains available for arbitration proceedings.

Attachments and Freezing Orders: These measures secure assets or preserve evidence at risk of being hidden or dissipated before a tribunal can act.

Pursue Alternative Evidence Sources

When U.S.-based discovery is unavailable or restricted, parties should explore other avenues, such as:

  • Letters Rogatory: Requesting judicial assistance through diplomatic channels to obtain evidence from foreign jurisdictions.
  • Arbitral Tribunal Orders: Seeking evidence directly under the procedural rules of the arbitration institution or tribunal.

These methods may require careful navigation of cross-border legal systems but can yield critical results when local discovery options are insufficient.

Monitor Evolving Case Law

The interpretation of Section 1782 and related discovery rules continues to evolve. For example, courts are clarifying the boundaries of what constitutes a “tribunal imbued with governmental authority.” Staying informed about these developments is essential to identify emerging opportunities or mitigate risks.

Conclusion

The restrictions imposed by ZF Automotive have reshaped the discovery landscape for international arbitration, but they also invite innovative strategies. By leveraging state courts, drafting robust arbitration agreements, employing parallel litigation for interim relief, and exploring alternative evidence sources, parties can adapt effectively to these challenges.

The key to success lies in a proactive and adaptable approach. International arbitration remains a cornerstone of global dispute resolution, and practitioners who navigate these evolving dynamics skillfully will ensure that their clients are well-positioned in any forum.

New Wave of Lawsuits Targeting Website Tracking Tools: What You Need to Know 

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Written by Mona Hanna and Aaron Plesset

A growing number of businesses with websites are facing costly class action lawsuits under California’s Invasion of Privacy Act (CIPA), where potential exposure can reach $5,000 per violation or three times the actual damages, whichever is greater. At the center of these claims are widely used tools like Google Analytics and Meta Pixel, which track visitor activity online. If your business uses similar tools, you could be at risk for significant legal exposure. 

Why Does This Matter? 

CIPA is a California law passed in 1967 that protects individuals' privacy. Suddenly, this decades-old statute is being leveraged in a surge of new class action lawsuits contending that these tracking tools may be violating the law. Two critical parts of CIPA are involved: Section 631, which covers wiretapping—the unlawful interception of communications—and Section 638.51, which addresses devices that track the origin or destination of a communication, like identifying where a website visitor came from or went next. 

While many are familiar with the concept of wiretapping, the idea that web tracking tools could be considered wiretapping or tracking devices is new to most. Plaintiffs, along with their counsel looking to seize upon the opportunity to sue, argue that tools collecting website visitor data—such as IP addresses or browsing habits—without proper user consent are violating CIPA. 

What Does the Law Say? 

Section 638.51 focuses on devices that capture "signaling information"—data that reveals where a user came from or went online, but not the content of their communication. This law originally applied to devices used by law enforcement to track phone numbers, but plaintiffs now assert that website analytics tools (again, such as Google Analytics and Meta Pixel) qualify as “trap and trace devices” under this provision. 

This significantly expands a business’ potential liability. Historically, plaintiffs’ class counsel targeted businesses for CIPA violations under Section 631, limiting claims to those related to the interception of the content of communications. Of note, the collection of metadata related to communications (like IP addresses and browsing patterns) were generally considered exempt. More recently, however, plaintiffs—through their lawyers—have been challenging this notion, arguing that the collection of data falls within the scope of Section 638.51 and is therefore prohibited by CIPA. While only a few cases have been decided, courts have not ruled out that web analytical tools could, in fact, be considered “trap and trace” devices under Section 638.51. This uncertainty exposes businesses to potentially devastating liability, as plaintiffs may now have claims where they previously did not. 

What Does This Mean for You? 

With lawsuits on the rise, businesses should take proactive steps to ensure that their website tracking tools comply with CIPA. This means conducting regular privacy audits to ensure that no data is being collected from website visitors without clear, informed consent. Implementing proper consent forms is critical because obtaining explicit consent from users can serve as a complete defense to CIPA claims under both Section 631 and Section 638.51. 

By adopting these measures, businesses can reduce the risk of costly litigation and ensure compliance with California’s evolving privacy laws. Of course, the attorneys at Michelman & Robinson, LLP stand ready to assist toward that end. 

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Fashion’s Waste Problem and Move Toward Sustainability

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By Warren Koshofer and Maggie Franz

Every year, tons of unwanted garments end up in landfills across the United States. This waste problem continues to escalate, driven largely by the rise of "fast fashion," which prioritizes speed over sustainability and produces garments meant to be worn only a few times. This practice is at odds with the fashion industry's stated sustainability goals, which encourage designs that facilitate reuse, repair, and recycling.

The Rise of Fast Fashion and Sustainability Efforts

For both fashion brands and consumers, focus has increasingly shifted to sustainability and circularity, which has become a 'make-or-break' factor for fashion brands. New York Fashion Week illustrated this shift clearly, serving as a platform for designers to showcase eco-friendly innovations that seek to marry style and environmental consciousness. For example, Christian Siriano showcased two pieces—a trench coat and a wide-leg pant set—made from Circ Lyocell, a fabric made using 40 percent recycled textile waste. Siriano’s choice not only underscored his commitment to integrating sustainability into fashion, but also showed that eco-friendly materials can deliver the same elegance as traditional fabrics.

For its part, Coach also transformed used leather jackets, chinos, and discarded pajamas into trendy, streetwear-inspired looks. By turning what could have been waste into fashion pieces, Coach tapped into Gen Z’s desire for both individuality and environmental responsibility. And in a fitting commentary on fashion’s waste problem, British performance artist Jeremy Hutchison took to the streets with his ‘Clothing Zombie,’ designed to portray the 92 million tons of textile waste produced globally each year. Hutchison, dressed as an eight-foot-tall ‘zombie’ made of discarded clothing, is still making daily appearances in New York to symbolize the fashion industry waste problem ‘zombie in the room’.

The Economic Challenges of Sustainability

Solving this waste problem and fostering sustainability through the use of natural materials to supplant synthetics is a daunting task. Two brands that had strong followings—New York’s Mara Hoffman and Australia’s Kit X—succumbed to the increased cost of natural materials, with the competitive fashion industry not shifting significantly enough to prioritize sustainability over the fast pace of production and staying ahead of trends. In addition to grappling with the increased cost of producing garments and getting them to market, fashion brands may have to deal with additional costs at the back end of a product’s useful life.

The Responsible Textile Recovery Act of 2024

Enter the Responsible Textile Recovery Act of 2024 (the “Textile Recovery Act”), a bill approved by both houses of the California legislature earlier this month. This first-of-its-kind bill, now awaiting Governor Newsom’s signature by September 30, calls for the creation of an Extended Producer Responsibility Organization (EPRO) for apparel and other textile products, designed to manage the collection, sortation, and recycling of discarded products.

The proposed Textile Recovery Act requires companies that make clothing and other textiles sold in California to create a non-profit organization by 2026 that would set up hundreds of collection sites at thrift stores, begin mail-back programs, and implement additional recovery and recycling measures for discarded products. Clothing producers and retailers doing business in California will have to pay fees to the EPRO to finance the plan for collection, transportation, repair, sorting, and recycling of used garments. Similar programs already exist in California for the disposal of mattresses, carpets, and pharmaceuticals. For example, California’s Used Mattress Recovery and Recycling Act requires that mattress retailers take back customers’ used mattresses at no additional cost and then arrange and pay for recycling.

Industry Pushback and Revisions

It is no surprise that the Textile Recovery Act has met with significant pushback from various fashion industry trade groups, especially concerning who will be responsible for the costs of the EPRO. One contentious issue has been whether large third-party vendors like Amazon, Temu, and Shein—who sell substantial volumes of garments in California—would be required to contribute financially. In response to this, the bill was revised to include brands, retailers, and importers in the definition of “producers,” ensuring these large third-party platforms are held accountable.

Industry players also expressed concern over the types of recycling deemed acceptable. Fashion brands with existing take-back programs, resale, and reuse efforts wanted these initiatives recognized as valid recycling measures. The bill was adjusted to address some of these concerns, allowing advanced textile recycling to be included as an acceptable channel for the disposal of waste.

Compliance and Enforcement

California’s Department of Resources Recycling and Recovery (CalRecycle) will oversee the implementation of the Textile Recovery Act, which includes approving the EPRO and monitoring compliance. Clothing manufacturers, retailers, and third-party sellers who make over $1 million per year selling covered goods in California will be required to participate in the EPRO. Failure to comply could result in fines of up to $10,000 per day, or up to $50,000 per day for willful non-compliance.
Looking Ahead: Will the Textile Recovery Act Move the Needle?

Whether Governor Newsom signs the Textile Recovery Act by the end of the month remains to be seen. Should it pass, the legislation could have profound implications for an industry already grappling with the costs of sustainability.

On the one hand, the proposed law may spur further innovation, much like the creative recycling efforts showcased at New York Fashion Week by Christian Soriano and Coach. Designers and brands could be incentivized to adopt sustainable materials or explore ways to reuse second-hand goods, potentially reducing the volume of discarded garments. The rise of second-hand fashion, as seen in events like the Council of Fashion Designers of America’s “Pre-Loved Fashion Week,” could become a permanent fixture in the industry.

Conversely, the added costs of compliance could disproportionately burden smaller fashion brands, which already struggle to compete in a market dominated by fast fashion and larger players. These smaller companies may face the same fate as Mara Hoffman and Kit X or become targets for acquisition as the industry consolidates further.

One thing is certain: fashion industry players should monitor Governor Newsom’s decision closely. If signed into law, the Textile Recovery Act will necessitate significant adjustments to business models, and brands will need to prepare to shoulder the financial and logistical burdens that come with compliance.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

“Google is a Monopoly,” Declares Federal Judge: Implications for Big Tech and Digital Markets 

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By Omer Er

On August 5, 2024, U.S. District Judge Amit P. Mehta ruled that Alphabet's Google violated U.S. antitrust laws through its search business practices. This landmark decision represents a significant victory for the Department of Justice and a coalition of state attorneys general seeking to curtail the market power of Big Tech.

In his 286-page opinion, Judge Mehta declared, "Google is a monopolist, and it has acted as one to maintain its monopoly." The court found that Google had abused its dominant position in the online search market, commanding approximately 90% of web searches and 95% on mobile devices.

The Court’s Key Findings

  1. Sherman Act Violation: Google violated Section 2 of the Sherman Antitrust Act by maintaining its monopoly in online search and search advertising markets.
  2. Anticompetitive Agreements: Google's exclusive contracts with OEMs like Apple and Samsung to be the default search engine were deemed anticompetitive. In 2021, Google paid Apple approximately $18 billion for default status.
  3. Foreclosure of Competition: These practices hindered competitors like Microsoft's Bing and DuckDuckGo from gaining market share.
  4. Monopoly Pricing: Google's pricing in search advertising exceeded rates that would prevail in a competitive market.

This antitrust case, initiated in 2020, marks the most significant digital age antitrust decision since the Microsoft case of the late 1990s. It sets a precedent that could influence pending actions against other tech giants including Apple, Amazon, and Meta.

Next Steps and Potential Outcomes

  1. Appeal Process: Google is expected to appeal to the U.S. Court of Appeals for the D.C. Circuit, which could take several months to a year.
  2. Remedy Hearing: Judge Mehta will likely schedule a remedy hearing to determine injunctive relief, potentially including:
    • Prohibiting exclusive default search agreements
    • Mandating equal access for competing search engines on devices
    • Potential divestiture of certain Google business units
  3. Stay of Remedies: Google may request a stay of imposed remedies pending appeal.

Google's Potential Strategies 

  1. Legal Arguments: On appeal, Google may challenge the court's market definition, argue that its practices enhance consumer welfare, and assert that the ruling stifles innovation.
  2. Compliance Measures: Google might proactively modify contractual arrangements, increase transparency in search algorithms, and enhance user options for default search engines.
  3. Public Relations: Google is likely to highlight its contributions to technological innovation and economic growth.
  4. Legislative Engagement: The company may seek to influence potential antitrust reform legislation.

The Potential Supreme Court Outlook

If the case reaches the U.S. Supreme Court, several factors could influence the outcome:

  1. Conservative Majority: The current Court's conservative majority has shown skepticism towards broad interpretations of antitrust law.
  2. Evolving Antitrust Doctrine: The Court may update antitrust doctrine for the digital age, considering factors beyond consumer pricing.
  3. Precedent Considerations: The Court's decision in Ohio v. American Express Co. (2018), dealing with two-sided markets, could influence their view of Google's business model.
  4. Economic Impact: The Court may consider the broader economic implications of altering Google's business model.

Global Implications

The U.S. ruling against Google's search practices could have global repercussions, particularly in Europe and other regions with growing tech regulation:

In the European Union

  • Reinforce Existing Stance: This ruling may reinforce the EU's aggressive approach and accelerate ongoing investigations into Google.
  • Digital Markets Act (DMA) Implementation: The ruling could influence DMA implementation, aimed at ensuring fair competition in digital markets.

In the United Kingdom

  • Post-Brexit Regulatory Alignment: The UK's Competition and Markets Authority (CMA) may align with this ruling in their own investigations.

In Asia-Pacific

  • Japan and South Korea may pursue their own antitrust actions.
  • China might use this ruling to justify regulatory actions against both domestic and foreign tech giants.

In the Global South

  • Developing nations may model their digital market regulations on this case.
  • Countries negotiating with Google for market access may leverage this ruling for more favorable terms.

Conclusion

This landmark case underscores the complex interplay between technological innovation, market dynamics, and regulatory frameworks in the digital age. As it progresses through the judicial system, it will shape the future of antitrust enforcement in the tech sector. The Supreme Court's stance could set a precedent for applying antitrust laws to digital platforms and tech giants, with far-reaching implications for the tech industry and broader economy.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

New PAGA Reforms in California: Key Points for Employers 

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By Lara Shortz 

California's recent reforms to the Private Attorneys General Act (PAGA) have introduced new limits on penalties for employers that can demonstrate they have taken "all reasonable steps" to comply with the law. These penalty caps—discounting PAGA claims up to 85%—are crucial, especially considering that PAGA claims can sometimes amount to seven-figure penalties. To be sure, employers operating in California should consider conducting a privileged wage-and-hour audit to leverage these new rules and mitigate potential financial liabilities. 

What Are "All Reasonable Steps"?

To qualify for the penalty caps, employers must take "all reasonable steps," which can include

  • Performing regular payroll audits and addressing any discrepancies found. 
  • Distributing lawful written policies to employees that comply with relevant labor laws (and ensuring these policies are regularly updated). 
  • Training supervisors on Labor Code and wage order compliance to ensure they understand and follow the rules. 
  • Correcting supervisor actions when necessary to maintain compliance

The assessment of these actions' reasonableness takes into account the overall context, including an employer's size, resources, and the nature of any potential violations. Even if an employer takes all reasonable steps, there may still be evidence of violations, and often are, given the breadth of the Labor Code.

It's important to note that these penalty caps do not apply if a court finds that the employer acted maliciously, fraudulently, or oppressively, or if the employer has been found guilty of similar unlawful practices by a court or the Labor Commissioner within the past five years

Applicable Penalty Caps: Discounts from 70% to 85

  • 15% Cap: This cap applies if the employer can demonstrate that they took all reasonable steps before receiving a PAGA notice or a request for personnel records. 
  • 30% Cap: This cap applies if the employer takes all reasonable steps within 60 days after receiving a PAGA notice

For example, an employer facing potential penalties of $500,000 for violations across 20,000 pay periods could see a significant reduction. Demonstrating compliance before a PAGA notice could reduce the penalties to $75,000 (15%), while taking corrective actions within 60 days of receiving the notice could cap the penalties at $150,000 (30%)

The Importance of Attorney-Client Privileg

Conducting wage-and-hour audits under the protection of attorney-client privilege is critical. This privilege shields sensitive communications from discovery, protecting employers from having their internal discussions exposed to plaintiffs. Without legal counsel's involvement, any findings from an audit, such as incorrect wage rates, could become accessible to plaintiffs' attorneys, potentially leading to further legal complications

Final Thoughts

Employers in California should act promptly to conduct a wage-and-hour audits, update their policies and ensure that management training is occurring on a regular basis. By doing so, employers can take advantage of the recent PAGA reforms, which offer a substantial reduction in potential penalties to 15% or 30%. This proactive approach not only helps mitigate the risk of substantial financial penalties but also safeguards against individual wage-and-hour lawsuits and state investigations.  

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations. 

Navigating the Ethical Landscape of Generative AI in Legal Services 

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By Hooman Yazhari & Enrico Trevisani

The rapid advancement of generative artificial intelligence (GAI) technologies presents both opportunities and challenges for the lawyers. Given the speed with which GAI is being leveraged among law firms, the American Bar Association (ABA) just issued Formal Opinion 512, providing critical guidance on the ethical use of these tools in legal practice. No doubt about it, GAI can enhance efficiencies and accuracy in tasks such as legal research, contract review, and predictive analytics. But with the good come significant ethical concerns—many of which are discussed here—along with some insight into how legal professionals can circumvent the ethical pitfalls associated with ChatGPT and the like.

Competence: Mastering the New Tools 

One of the foundational principles in the ABA's guidance is the duty of competence. Lawyers must ensure they have a reasonable understanding of the GAI tools they rely upon, including capabilities and limitations. This does not mean that attorneys need to become AI experts. Instead, they must be aware of how the technology works, what data it relies on, and the potential risks associated with its use.

Competence also involves staying updated with technological advancements. As GAI evolves at an extraordinary pace, lawyers must continuously educate themselves about new features, risks, and ethical considerations. This ongoing education can be achieved through self-study, attending continuing legal education (CLE) programs, or consulting with experts in the field.

Importantly, lawyers should not rely solely on the substantive work product of ChatGPT or similar platforms without independent verification. The ABA highlights the risks of "hallucinations" in GAI—situations where the AI generates plausible-sounding but inaccurate or fabricated information. For this reason, attorneys must carefully evaluate and verify AI-generated content before relying on it in legal documents, client communications, or court submissions. Failing to do so could result in inaccurate legal advice or misleading representations, potentially violating the duty of competence.

Confidentiality: Safeguarding Client Information 

Confidentiality is a cornerstone of the attorney-client relationship, and the use of GAI tools introduces certain red flags in this area. Consequently, lawyers must be mindful of the risks of disclosing confidential client information when using GAI. This is especially the case when employing self-learning AI systems that could potentially store and reuse information from multiple sources.

By virtue of the confidentiality conundrum, the ABA emphasizes the importance of informed consent in situations where client information might be disclosed. This means legal professionals should explain to clients the potential hazards and benefits of using GAI tools, including any privacy concerns. As a practical matter, the discussion between attorney and client must be thorough and tailored to the specific circumstances of the case and the technology in question.

It is important to note that general boilerplate language in engagement letters may not suffice. Clients need to understand the specific risks associated with the use of GAI, such as the potential for inadvertent disclosure of sensitive information. Likewise, clients must be assured that appropriate safeguards are in place to protect their data, which may involve consulting with IT professionals or cybersecurity experts.

Communication: Transparency with Clients

Effective communication is vital in maintaining trust and ensuring that clients are fully informed about their legal representation. According to the ABA, lawyers must consider whether their use of GAI tools should be disclosed to clients under Model Rule 1.4, which covers the duty to communicate, even in the absence of privacy concerns.

Of course, the necessity of disclosure depends on various factors, including the significance of the GAI tool's output in the representation and the potential impact on the client's decision-making. For example, if a GAI tool is used to generate an analysis that significantly influences a case strategy, the client should be informed. Similarly, if the use of GAI affects the reasonableness of legal fees, this should be communicated to the client as well.

Bottom line, even when not required, voluntary disclosure about the use of GAI tools can foster transparency and trust. Including information about GAI use in engagement agreements can help set clear expectations and ensure clients are comfortable with the technology being employed.

Meritorious Claims and Candor: Upholding Integrity

In litigation, the use of GAI tools must align with ethical standards, particularly concerning meritorious claims and candor toward the tribunal. Attorneys are responsible for ensuring that any AI-generated content used in court filings or communications is accurate and truthful. This includes verifying citations, ensuring that legal arguments are well-founded, and avoiding the submission of misleading or false information.

The ABA warns against relying on GAI tools without proper oversight, as doing so could lead to violations of ethical duties. For instance, if ChatGPT generates an inaccurate legal analysis or cites non-existent case law, the lawyer must correct these errors before submitting any documents to the court. The responsibility for accuracy ultimately rests with the lawyer, not the AI tool.

Supervisory Responsibilities: Ensuring Compliance 

Legal professionals in supervisory roles have a duty to ensure that all lawyers and non-lawyers in their firm adhere to ethical standards when using GAI. This includes establishing clear policies on the permissible use of such tools, providing necessary training, and appropriately supervising work.

Training should cover the ethical and practical aspects of GAI and hit upon the technology's capabilities and limitations. Attorneys should also be aware of any and all security measures in place to protect client information and the potential risks associated with GAI use.

Fees: Transparency and Reasonableness 

The ABA's guidance also addresses the issue of billing for the use of GAI tools. Lawyers must ensure that fees charged for GAI-related work are reasonable and transparent. This includes clearly communicating the basis for any charges related to GAI and ensuring that clients are not overcharged for the efficiency gains provided by these tools.

For example, if a GAI tool enables a lawyer to complete a task more quickly than traditional methods, it may be unreasonable to charge the same fee as if the work had been done manually. Attorneys should also avoid billing clients for general overhead costs associated with GAI tools, such as subscriptions or software maintenance, unless explicitly agreed upon.

Final Thoughts 

The ABA's Formal Opinion 512 makes clear that lawyers must navigate the evolving landscape of AI technology with a commitment to competence, confidentiality, transparency, and integrity. By doing so, they can harness the benefits of GAI tools while upholding the highest ethical standards in their professional conduct.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

PAGA Reform Likely to Bring Significant Changes to Future Litigation

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By Alexandra Miller

In the face of a potential ballot measure threatening the elimination of Private Attorneys’ General Act (PAGA) actions, Governor Gavin Newsom signed Assembly Bill 2288 and Senate Bill 92 into law yesterday (July 1), both of which take effect immediately.

Under the amended laws, employers are expected to finally have some relief from the extreme financial burdens imposed by PAGA. While PAGA will continue to be an avenue for employees and former employees to bring representative actions, these actions and the related penalties will be far more limited. Some of the key changes built into the amended laws are summarized as follows:

1. Plaintiffs must experience a given violation themselves, within the applicable statute of limitations, to bring a PAGA claim. To date, Plaintiffs have been able to bring claims on behalf of others, even if they did not experience the violation personally.

2. Certain penalties will be capped where employers have taken all reasonable steps toward compliance. This incentivizes employers to cure and allows an opportunity to reduce penalties where policies and practice are no longer violative. For example, there will be a 15% cap on penalties for employers who took all reasonable steps toward compliance before receiving a PAGA notice and a 30% cap on penalties for employers who took all reasonable steps toward compliance within 60 days after receiving a PAGA notice. This will be particularly beneficial to help reduce serial litigation against the same employer. There will also be reduced penalties for wage statement violations and violations that only occurred within a limited time period.

3. In addition to civil penalties, Plaintiffs will now be able to seek injunctive relief under PAGA.

4. Courts will now be specifically empowered to rule on manageability concerns which includes limiting evidence at trial and limiting the scope of PAGA claims in a given case. This is particularly important given the dearth of procedural mechanisms to combat these cases.

The amended laws also provide clarification on when larger penalties are permissible and creates other limitations, including on derivative claims. All of these changes should be carefully reviewed, as they will certainly impact future litigation.

While the reform will only apply to civil actions filed after June 19, 2024, we expect that courts may find this action persuasive and consider this change when awarding PAGA penalties with respect to currently pending litigation. That being said, employers should leverage this legal update and the related legislative history to argue for reduced penalties, as possible.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.