Commercial Litigation Law Blog
Commercial Litigation
When Tax Becomes Trial: Why Courtroom Experience Changes Federal Tax Litigation
Most taxpayers do not begin an IRS dispute thinking about trial. They are usually focused on a much more immediate question: Is the IRS right? That makes sense. Tax controversies often begin with an examination, a notice, a proposed adjustment, a penalty, or a denial of a refund claim. At that stage, the dispute may feel primarily technical. What does the Internal Revenue Code say? How did the IRS calculate the adjustment? What documents support the taxpayer’s position? But when a dispute becomes serious enough that litigation is a realistic possibility, the questions become more about what you can prove. First, who has the burden of proof? And then, who are the witnesses, both good and bad, and will they still be available if this case goes to trial, even if it’s years from now? What documents exist? What story do they tell? And who will ultimately be deciding whether that story is credible? That shift in mindset is critical. Federal tax litigation requires more than knowing the tax law. It requires building a case that can withstand scrutiny in a courtroom. And that process often begins long before anyone files a petition or complaint. What Happens Before Litigation Does Not Stay There One of the biggest mistakes taxpayers and advisors can make is treating the administrative process as though it exists in a vacuum. It does not. Yes, when litigation starts it is a de novo proceeding (Latin for starting “anew”) but, what happened during the administrative process does not simply disappear when the case reaches court. Positions taken during an audit, appeals conference, protest, refund claim, penalty response, or other administrative proceeding can follow the taxpayer into litigation. That does not mean every statement made during an IRS examination becomes binding. But explanations, documents, factual representations, and valuation positions advanced early in the dispute can later become part of the case. If the taxpayer tells the IRS one story during the examination and a materially different story appears at trial, someone is going to ask why. If a business tells the Service that a transaction had one purpose in response to an Information Document Request and later relies on a different purpose in litigation, that inconsistency may affect credibility. And if documents are not preserved because everyone assumes the dispute will be resolved administratively, litigation counsel cannot recreate them years later. At that point, you may find yourself hoping the IRS kept the document in its administrative file and produces it when needed. Hope is not a preferred legal strategy. The administrative process is therefore not merely something to “get through” before litigation. It is often the beginning of the litigation record, even if nobody wants or expects the matter to end up in court. That does not mean every response to the IRS should be drafted as though it will someday be projected onto a courtroom screen. But when the amount at stake is significant, the allegations are serious, or the dispute is unlikely to resolve quickly, it is worth asking how today’s position may affect tomorrow’s case. Where the Case Is Tried Can Change the Case Taxpayers may have different paths to judicial review depending on the type of dispute. The U.S. Tax Court is generally a prepayment forum. In a traditional deficiency case, that means a taxpayer can challenge the IRS’s determination without first paying the disputed tax. For many taxpayers, that is an enormous advantage. Tax Court cases, however, are decided by judges, not juries. The U.S. Court of Federal Claims is another federal forum for certain tax cases, but it likewise conducts bench trials rather than jury trials. Federal district court litigation is different. Generally, the taxpayer must first pay the tax at issue, satisfy the applicable refund claim requirements, and then sue for a refund. In appropriate tax refund cases, either party may request a jury. The government lawyers across the table are different too. In Tax Court, the government is generally represented by the IRS Office of Chief Counsel. In federal district court and the Court of Federal Claims, the United States is represented by the Department of Justice. These differences are not cosmetic. Where the case is tried, who the opposing lawyers are, and whether the ultimate decision-maker is a tax judge or a jury can materially affect the presentation of the case, the facts that receive the most attention, the experts needed, the level of technical detail that is useful, timing, cost, and the practical leverage available to each side. Forum is not simply a question of where a complaint gets filed. Sometimes it changes the case itself. A Good Tax Position Still Has to Be Proved Tax cases frequently turn on facts that are far less tidy than the tax return. And by the time litigation begins, significant time has often passed. Everyone suddenly wishes the record is better and the evidence to be stronger. It is great when a client remembers an important conversation. It is much better when the client remembers the conversation and we have the contemporaneous email confirming it. Testimony is evidence. Testimony supported by contemporaneous documentation is better evidence. And life happens. An employee who understood the transaction left the company three years ago. The CPA changed firms. The person responsible for maintaining the records retired. The business reason for a decision was obvious to everyone at the time, so nobody thought there was any reason to write it down. Until there was. That’s where trial experience changes the way a dispute is evaluated. A litigator has to consider not only about whether a fact is true, but also whether it can be proved – and, when there are several ways to prove it, which one is likely the most effective. There is no such thing as an automatic win simply because the taxpayer has a strong legal argument. A technically strong tax position with a poor factual record can become a very difficult case. Judges and Juries Hear the Same Case Differently One of the most significant strategic differences in federal tax litigation is whether the ultimate factfinder will be a judge or a jury. A judge works with complicated legal disputes every day. Tax Court also lives and breathes federal tax law. That changes the presentation. Tolerance for courtroom drama tends to diminish. A Tax Court trial can involve highly technical testimony, extensive expert reports, complicated statutory frameworks, and extensive post-trial briefing. The judge has the benefit of being able to work through that factual and legal record over time. A jury trial is fundamentally different. Jurors generally do not arrive at the courthouse with a working knowledge of the Internal Revenue Code. They are people being asked to understand a complicated dispute, determine what actually happened, decide who they believe, and then apply the law the judge gives them. The facts matter. The story matters. Presentation matters. And the client matters. A technically sophisticated position can be badly damaged if the taxpayer appears evasive, inconsistent, or unable to explain why certain actions were (or were not) taken. Conversely, a complicated case can become understandable when the witnesses are credible, the documents support their explanation, and the evidence fits together in a coherent story. Consider a promoter penalty case. The underlying tax structure and statutory requirements may be complicated. But once the dispute reaches a jury, the most important questions become remarkably direct: What was the arrangement? What did the person actually say? What did they know at the time? What did they rely on? What evidence supports the government’s allegations? A jury has to understand the answers. That does not mean oversimplifying the case or pretending complicated tax law is simple. It means separating what is technically interesting from what is actually important and explaining the latter in a way that someone who has never read the Internal Revenue Code can follow. The burden of proof matters too. In many tax disputes, the taxpayer carries it. In others, including certain penalty cases, the government bears the burden on critical issues. Where a jury is legally available, deciding to give up that jury can mean giving up a meaningful strategic advantage. That decision should be made deliberately, not simply because bench trials are more familiar to most tax practitioners. Time Can Be Part of the Litigation Strategy There is another important difference between judge-tried tax litigation and jury litigation that is easy to overlook: when do you get an answer? In a jury trial, once the evidence is complete and the case is submitted, the jury deliberates and returns a verdict. The parties generally know the answer before they leave the courthouse. A Tax Court case works differently. After trial, many cases require extensive post-trial briefing. That process alone can take months. The judge then reviews the testimony, exhibits, proposed findings of fact, and legal arguments before issuing an opinion. There is no fixed deadline for when that opinion must issue. In a complicated case, the wait can be substantial. Sometimes it is measured in years. And time can have a real economic cost. In many Tax Court deficiency cases, a taxpayer does not have to pay the disputed tax while the case is pending. That is one of the great benefits of the Tax Court as a prepayment forum. But if tax ultimately remains due, interest generally continues to accrue on the unpaid liability until the taxpayer takes time to stop it. That creates a counterintuitive reality: the least expensive forum to enter is not necessarily the least expensive forum when everything is over. Federal district court refund litigation generally requires payment first. That can make the federal district court route more expensive upfront — and, for some taxpayers, financially impossible. A jury case may also require concentrated discovery, experts, significant trial preparation, and greater expense over a shorter period. But in the right case, there is value in getting an answer. A verdict can provide economic certainty while a Tax Court case may still be awaiting an opinion. That matters when interest is running. It matters when a disputed liability affects financing, financial statements, transactions, or business planning. And it matters when management has already spent years living with a tax controversy. None of this means district court is always preferable to Tax Court. It is not. The ability to challenge an asserted deficiency without first paying it is indispensable for many taxpayers, and there are options for addressing the running of interest that should be discussed with counsel. The point is simpler: forum selection has economic consequences as well as legal ones. The analysis should include both the cost of getting to trial and the cost of waiting for the dispute to end. Trial Strategy Should Begin Before Trial The best time to start thinking about trial is not the week before trial. It is when the dispute first begins showing signs that it may not resolve easily. That awareness can change relatively simple decisions. Save the IRS notice. Save the envelope it came in. Keep the mailing receipt and tracking information when something important goes to the IRS. Document when notices were actually received. Preserve the business records underlying the position. Identify the employees, accountants, consultants, and advisors who actually know what happened. Preserve the contemporaneous business reason for a decision instead of assuming someone will remember it four years later. And when the stakes warrant it, consider bringing litigation counsel into the process before the administrative proceeding is finished. That does not mean every audit needs a trial lawyer. Many do not. But significant cases are easier to litigate when someone was thinking about the evidence before the evidence disappeared. Mailing records are a surprisingly good example. The date on an IRS notice, the date it was mailed, when the taxpayer actually received it, whether it went to the correct address, and when the taxpayer responded can become critical procedural facts. The same is true when the taxpayer sends something to the IRS. Years later, “I know we mailed it” is nowhere near as useful as the certified-mail receipt or tracking record showing that you did. Recent ERC disputes have brought that lesson into particularly sharp focus, with taxpayers sometimes needing to establish exactly when a claim or response was mailed. This is why one of the least glamorous pieces of litigation advice is also one of the most useful: Save the envelope. And save the receipt. Better yet, apply the same mindset to the entire dispute. The Bottom Line John Adams famously told a jury during the Boston Massacre trials that “facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” More than 250 years later, trial lawyers are still learning the same lesson. By the time a tax dispute reaches a courtroom, most of the facts that will decide the case have already happened. The witnesses have had the conversations. The business made the decisions. The documents were created or they were not. The IRS took its position, and the taxpayer responded. Good tax law matters. But once tax becomes trial, being right is only part of the job. You still have to prove it. The best litigation strategy is therefore not the one invented on the eve of trial. It is the one that began while the evidence was still available, the witnesses still remembered what happened, and the taxpayer still had choices about how – and where - to fight.
October 5, 2026
Bankruptcy
The Art of Eliminating a $13 Million Obligation
The Chapter 11 plan of Nikola Corporation wiped out the company's obligation to pay $13 million under a prepetition settlement agreement resolving a securities fraud class action. The result illustrates the power of Bankruptcy Code section 510(b) to transform certain categories of unsecured claims into equity-type claims. The underlying securities litigation arose from one of the most publicized corporate collapses of the last decade. Nikola was founded with an ambitious vision of developing hydrogen-powered and electric commercial vehicles. For a time, it became one of the market's most celebrated emerging clean-energy companies, achieving a multibillion-dollar valuation despite having only limited commercial operations. The company's fortunes changed dramatically after a series of public allegations that many of its statements concerning vehicle capabilities, technological achievements, development milestones, and commercial prospects were materially misleading. Investors alleged that they purchased Nikola stock at artificially inflated prices based on those representations. When contrary information became public through a series of corrective disclosures, Nikola's stock price declined sharply, generating substantial losses for shareholders. A securities class action followed in the United States District Court for the District of Arizona. The class plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. As is typical in securities fraud litigation, the claimed damages were tied directly to the decline in Nikola's stock price following the corrective disclosures. The theory was straightforward: investors allegedly paid more for Nikola shares than they otherwise would have paid had the market known the truth. Prior to its bankruptcy filing, Nikola and the class plaintiffs participated in mediation and reached a settlement memorialized in a January 2025 term sheet. Under the proposed settlement, Nikola agreed to pay the class $13 million in cash together with other consideration. The settlement appeared to transform a disputed securities fraud claim into a fixed contractual payment obligation. Indeed, the settlement term sheet contemplated that if Nikola later filed bankruptcy, it would seek court approval of the settlement under Bankruptcy Rule 9019. Less than a month later, however, Nikola commenced its Chapter 11 cases. The class plaintiffs filed a proof of claim asserting entitlement to at least the $13 million. At first glance, the claim appeared stronger than a typical unliquidated securities claim. The parties had already negotiated a resolution, agreed on a payment amount, and documented the settlement terms. Yet bankruptcy law focuses not merely on the form of a claim but on its origin. That distinction became outcome-determinative. Section 510(b) requires mandatory subordination of claims "for damages arising from the purchase or sale" of a debtor's securities. Congress enacted the provision to preserve the traditional risk allocation between creditors and shareholders. Creditors bargain for repayment. Equity investors bargain for potential upside while assuming the risk that the enterprise may fail. When an investor's losses stem from ownership or purchase of stock, section 510(b) generally prevents that investor from elevating those losses to parity with ordinary unsecured creditors. Nikola argued that the class claim, even after settlement, still arose from the purchase and sale of Nikola stock. The settlement had changed the amount of the claim, but not its essential character. The economic injury remained the same: losses allegedly suffered because investors purchased Nikola shares at inflated prices and later experienced a decline in value when the truth emerged. The bankruptcy court agreed, characterizing the claim as a textbook section 510(b) claim seeking damages measured by the diminution in value of the debtor's equity securities. As a result, Nikola's plan placed the securities settlement claim into a separate subordinated class reserved for claims subject to section 510(b). Because senior creditor classes were not being paid in full, the subordinated class was projected to receive no recovery. A claim that had been negotiated down to a $13 million settlement and appeared destined for payment outside bankruptcy was relegated to the bottom of the distribution waterfall and effectively eliminated. The class plaintiffs did not seriously dispute that section 510(b) applied. Instead, they focused on procedure, arguing that Nikola could not subordinate their claim through plan confirmation alone. According to the plaintiffs, the debtor was required to file a formal claim objection or commence an adversary proceeding before subordinating the claim. Both the bankruptcy court and the district court rejected that argument, concluding that section 510(b) subordination concerns priority and treatment rather than claim allowance and that Bankruptcy Rule 7001(h) expressly permits subordination to be implemented through a chapter 11 plan. The lesson from Nikola is that a settlement agreement may create a contractual right to payment. Still, it does not necessarily erase the nature of the underlying injury that gave rise to the obligation. Where the economic reality remains shareholder loss arising from the purchase or sale of the debtor's stock, section 510(b) may continue to apply. In Nikola, that principle transformed a seemingly fixed $13 million settlement obligation into a subordinated claim that ultimately recovered nothing.
September 29, 2026
Commercial Litigation
What Parents Need to Know About Title IX in Private K-12 Schools
Title IX is a federal civil rights law that prohibits sex-based discrimination in education programs and activities that receive federal financial assistance. It can apply across a broad range of school programs and concerns, including academics, athletics, student housing, school-sponsored programs and activities, admissions where applicable, pregnancy-related protections, and responses to sexual harassment and other sex-based misconduct. For families at private K-12 schools, the first question is whether Title IX applies at all. If it does not, the school’s policies, procedures, and available remedies determine how concerns are addressed. Understanding Title IX Coverage That coverage question is especially important for private K-12 schools because not all are subject to Title IX. In general, Title IX applies only when a school receives federal financial assistance. For example, in general, religious institutions do not receive federal funding and, as a result, are exempt from Title IX. Because funding arrangements and exemptions can vary, families should ask whether the school is covered by Title IX, whether it has designated a Title IX coordinator, and what formal process it uses to address sex-based discrimination complaints. The legal landscape also continues to evolve. Following a federal court decision issued on January 9, 2025, schools covered by Title IX currently operate under the 2020 Title IX regulations rather than the 2024 Final Rule. What Happens if a Private School Is Not Covered by Title IX? If a private school is not covered by Title IX, that does not necessarily mean the concern will be ignored or that no process exists. Instead, the matter is often handled under the school's handbook, code of conduct, student safety policies, employment policies, or other complaint procedures. In some situations, other federal, state, or local laws may also apply, depending on the facts and the type of school involved. In New York, the state legislature has opted to separately address campus sexual assault pursuant to New York Education Law Article 129-B. NY Article 129-B, otherwise known as the "Enough is Enough" law, requires all colleges and universities in the state to adopt comprehensive rules regarding sexual assault, dating violence, domestic violence, and stalking. Families should ask who will investigate the complaint, what policy will be used, what interim or supportive measures are available, whether there is an appeal process, and when the school expects to reach a decision. When Title IX does not apply, the school's response may look more like an internal investigatory process than a formal Title IX grievance procedure. That means the procedural steps, timelines, and available remedies may be defined by school policy rather than federal regulation. In serious situations, families may also wish to consider whether reporting to law enforcement or seeking civil legal remedies is appropriate. In all cases, it’s important for families to seek legal advice as soon as they become aware of the campus issue to determine the best way to route their concerns. Reporting Concerns and Seeking Support If a student experiences sexual harassment or other sex-based discrimination, families should promptly report the concern to the appropriate school official. At a covered school, that will often be the Title IX coordinator, who can explain the school's procedures, discuss available supportive measures, and answer questions about the complaint process. If a family believes a covered school has not adequately addressed a complaint, it may file a complaint with the U.S. Department of Education's Office for Civil Rights or seek legal remedies through the court system. What to Expect During the Process Every school's procedures differ, but Title IX investigations generally involve gathering information from the parties and witnesses, reviewing relevant documents, and evaluating the parties’ credibility. Schools typically notify the parties of the complaint, explain the process, and provide information about available supportive measures. Investigation timelines vary, but many schools aim to complete investigations within approximately 60 days. Unlike many college and university procedures, K-12 schools are not required to hold live hearings. Religious Schools and Title IX Some private schools are affiliated with religious organizations. Even when a religious school receives federal financial assistance, it may qualify for a religious exemption if compliance with certain Title IX requirements would conflict with its religious tenets. Because the scope of these exemptions has been the subject of ongoing litigation and regulatory debate, families should not assume that Title IX applies identically at every religious school. Parents may wish to ask whether the school claims any Title IX religious exemptions and how those exemptions affect its policies and procedures. Practical Tips for Families Families can play an important role in protecting a student's rights by: Determining whether the school receives federal financial assistance Reporting concerns promptly and identifying the appropriate school contact Preserving all documentary and electronic evidence Keeping records of emails, meetings, notices, and other communications Requesting information about the school's process, timeline, and available supportive measures Following up on important conversations with the school in writing Asking for an explanation of how the issue affects the student's educational experience, including attendance, participation, safety, or academic performance Effective Advocacy For families at private K-12 schools, effective advocacy begins with understanding whether the school is covered by Title IX. If it is, the school should be following the mandated grievance procedure outline under the Title IX Regulations. If it is not, the case will often be handled under the school's own policies and procedures instead. In either situation, families should ask who is responsible for the response, what rules apply, what supportive measures are available, and what timeline the school expects to follow. Whether the matter proceeds through Title IX or through school-specific procedures, clear communication, careful documentation, and timely reporting can help families seek support and protect a student's access to educational opportunities.
September 29, 2026
Commercial Litigation
Dictum Meum Pactum: Your Word is Your Bond, Unless More is Required
You’ve seen it in overwrought period-movies, where some character — a knight or dashing hero — proclaims, “My word is my bond!” as he looks stoically and deeply into the camera. The audience is meant to believe him; sometimes we discover he was never worthy of our trust. Hollywood aside, what does the law have to say about promises? The law, wise as she is, can demand more of her heroes than their own steely gaze. Enter “surety bonds.” What is a Bond? It’s a promise. In a court context, a bond is simply a promise. It is made by someone who is, in some way, interacting with our court system. When a loved one dies, or declines in mental capacity, a probate or guardianship/conservatorship can be established to formalize your role in managing the estate or the incapacitated person’s affairs. Because the law has formally passed the baton of leadership of another man’s earthly estate to you, it will also ask forward-looking accountability from you. These types of circumstances can be lumped together as “fiduciary matters,” and that term is tied directly to the oath you take and the bond you “post.” Whether it is a promise-bond (no surety) or a policy-insured-promise (a bond with surety) will depend on the tasks ahead of you and the circumstances of the case. Many people are surprised to learn about bonding requirements when they begin probating a loved one’s estate; many people think bondsmen are reserved for criminal cases. True, in the criminal context, courts may impose “personal recognizance bonds” which are promises that a defendant (who the judge determines is not any real threat to the community, or any real ‘flight risk’) will come back to court, at a later date, to have the case adjudicated fully; a “bond hearing” tests those two legitimate concerns. In the appeals-context (and depending on your particular state) an “appeal bond” may be nominal, or it may require the full payment of the money-judgment, and a ‘suspending bond’ (sometimes called a supersedeas bond) can work to protect the judgment amount secured in the lower court, while also insulating the appellant as he pursues his right to corrective action from the higher court. These are all, regardless of species, “promises,” so the pithy definition of a bond as a promise, holds. Your Word Alone: Bonds without Surety If you are appointed as guardian of an incapacitated person, your state may blend-in authority over assets, as well as decision-making power over the medical care of the precious person. In Virginia, the law distinguishes guardianship of the person (decisions about the ward’s corporeal care) and conservatorship of the estate (the assets/finances). In some cases, if a guardianship is only over “the person” and no assets are in play, a “promise only” bond may do the job, and no insurance policy is required to back up that promise. In those cases, you must nonetheless take an oath to faithfully perform all your duties to the ward as part of the court’s “qualification” process, however you won’t need to apply with a bonding company to purchase the insurance. Surety Bonds: Ensuring Performance by The Chosen One, for The Loved One If your role, as with executors or conservators, involves overseeing assets (e.g., things of value like bank accounts, real property, cars, stocks, jewelry, etc.) some states will require an insurance policy to vouch for your promise. This puts the “sure” in assuring you do your work properly. Surety, insurance, assurance, all echo what the state seeks here — it seeks a little more confidence from you than just your word. This rigor can be required based on 1) your relationship to the decedent, 2) your status as an out-of-state resident, or 3) the terms of the will itself, or the court’s order appointing you. Many people are confounded by the bonding requirement when they are named as executor. Understandable confusion. Why would you need a bond if you are helping close out the affairs of a loved one? Sometimes, if the will does not explicitly direct that the testator/decedent “waives the bond,” the executor may have to apply for this special insurance policy, issued by a bonding company, to back up your promise to properly report to the court and distribute the estate to the decedent’s chosen beneficiaries (grandkids, charities, long-time friends, or great loves). You may also be called upon to secure a bond if you discover that you are tasked by a court to serve as the conservator of a loved one who has diminished to the point of complete inability to care for themselves or their finances. The bond amount is approximated to the best-guess value of the ward’s estate. Importantly, at your initial qualification in this role, that estimate may be a good-faith “guess;” but as time passes and you begin to receive information from the ward’s banks, the court, with your help and input, will reassess the estate’s value, and increase the bond, if the dollars escalate well-above the initial estimates. Don’t worry about being wrong at the outset with your ‘best guess;’ the system will right-size protection for the ward/estate as better information is discovered. As an inventory is reviewed and confirmed, revising the initial estimate is common and easy, precisely because the law knows many families are serving their deceased kinsman, with very little visibility into his assets. Very often, you will only become aware of best information after you are formally qualified by the court, and you have authority to be given sensitive financial data. We Swear, Because We Care: Oath as Accountability The need for a surety bond could seem a little penal to the “Chosen One,” stepping up to do the thankless work of overseeing an elderly ward, administering an estate, or taking over the books of an elderly family member. But no. Think of it as a “further assurance” for a person who has necessarily lost the capacity to watch out for their own life’s bounty. When you’re appointed guardian/conservator for a precious person, the Commonwealth has a stake in ensuring you faithfully serve your loved one. Similarly, when you are named as an executor, you will be asked a few questions prior to taking your oath. Have you ever been convicted of a big crime? Have you ever filed for bankruptcy? Ever been a lawyer? This litany of questions aims to protect the ward/estate from a reckless, hapless, or witless custodian of funds belonging to another man. Qualification will require you to swear that these answers are true and that you will faithfully perform your duties. Because society asks that a promise-made, be a promise-kept. It is an honor to have been selected to serve an estate; it is an honor to be chosen by the court to protect a person in need of a proxy. Done right, taking an oath should weigh heavily on us. The task is as weighty as the honor. Honorable people can remain so, with external guardrails like surety bonds to help them perform all their duties. Your loved one thanks you. Society thanks you. Because when you raise your right hand… there’s something heroic in it.
September 25, 2026
Commercial Litigation
When the Mammoth Gets Out: Is a Genetically Engineered Animal a Product, or Is It Livestock?
It is a little before dawn when the fence gives way. The animal that steps through it is not supposed to exist. It stands nearly 11 feet at the shoulder, wrapped in a coat of coarse, rust-colored hair, its breath rising in the cold. It weighs five tons. A quarter mile off, a rancher hears a low rumble he feels in the floorboards before he hears it in the air. By the time he reaches the window, the thing is already in his neighbor’s wheat field, then his neighbor’s fence, then his neighbor’s parked truck. This is less far-fetched than it used to be. Colossal Biosciences, a company based in Dallas, has spent several years and a great deal of money on what it calls de-extinction, using gene editing to bring back species the earth has not seen in thousands of years. i The woolly mammoth is its most famous target. Whether or not a mammoth ever walks out of a lab, the company has already done something quieter that ought to interest lawyers. It has made us ask what body of law would govern the animal if one ever did. Because when that mammoth flattens the fence and crosses the wheat field, the first hard question is not biological. It is legal. Who pays for the wheat, the fence, and the truck? To answer that, a court will have to decide something no court has decided before. Is a woolly mammoth livestock, or is it a product? The Law Already Knows What to Do with Animals The law has been sorting out liability for wayward animals for a very long time, longer than it has handled almost anything else. Cattle have wandered into neighbor’s crops since there were neighbors and crops, and the common law worked out rules for the aftermath. The modern American version lives in the Restatement (Third) of Torts, which sorts the animal kingdom into a few practical categories. An owner of livestock that strays onto a neighbor’s land and does damage is generally strictly liable for the intrusion. There is no need to prove the rancher was careless, only that the cattle got out and the corn got eaten. An owner of a wild animal, meaning a species that has not been domesticated and tends to hurt people unless restrained, is strictly liable for the harm it causes. Everyone understands that keeping a tiger is a different proposition from keeping a cow. And an owner of an ordinary domestic animal becomes strictly liable once he knows, or has reason to know, that his particular animal has dangerous tendencies abnormal for its kind. That is the rule behind the old idea that every dog gets one free bite.ii Underneath all of this runs a deeper legal principle. In 1868, the House of Lords decided Rylands v. Fletcher, a case that had nothing to do with animals. A mill owner built a reservoir on his land. It burst through some abandoned mine shafts and flooded his neighbor’s coal mine. The court held him liable even though he had not been negligent, and it announced a rule that has echoed through the common law ever since. A person who brings onto his land something likely to do mischief if it escapes keeps it there at his peril, and answers for the damage if it gets loose.iii The Rylands principle appears to fit this scenario. A wooly mammoth in a wheat field is surely something extraordinary and something likely to do mischief if it escapes. Neither Quite Animal nor Quite Product So the law has categories, and at least one seems to fit. If the mammoth is just an exotic, dangerous beast, the wild-animal rule imposes strict liability, and the inquiry ends there. If it is closer to livestock, the trespassing-animal rule imposes strict liability for the crops and the fence. Either way the neighboring rancher recovers. Where is the difficulty? The difficulty is that every one of these doctrines quietly assumes something that is not true of a mammoth. Each assumes the species already exists and that people have built up some working knowledge of how it behaves. Cattle stray and trample. Tigers maul. A dog that has bitten once may bite again. The categories work because generations of experience have filled them. No one has that experience with a mammoth. No rancher has raised one. No veterinarian has treated a herd of them. No actuary has a drawer full of mammoth claims. The last person with any practical knowledge of the species died before the pyramids were built. The dangerous-propensities rule asks what is normal for the animal’s kind, and for this animal nobody alive can answer. There is a second problem. A cow is born. A tiger is born. The mammoth was designed. Somewhere a research team chose its traits, selecting for cold tolerance, for size, for coat, editing a genome the way an engineer sets a tolerance on a drawing. The animal in the wheat field did not simply get loose. It is the output of a manufacturing process. It’s a product. The Law Also Knows What to Do with Products Products liability exists to hold manufacturers responsible for the things they design and sell into the stream of commerce. The logic is intuitive. The company that decides how a product will be built, and profits from selling it, is the party best placed to make it safe and to pay when it is not. The doctrine asks a familiar set of questions. Was there a design defect, meaning the thing was unreasonably dangerous as intended? Was there a manufacturing defect, meaning this particular unit came out different from its design? Was there a failure to warn, meaning the maker did not tell foreseeable users and bystanders what they needed to know to stay safe?iv Now ask those same questions about the mammoth. If the animal is aggressive because a team selected for size and dominance, is that a design defect? If a genetic edit expressed differently in this individual than the company intended, and produced a beast more unpredictable than the blueprint promised, is that a manufacturing defect? If the company handed the animal to a preserve without warning that its containment needs went beyond anything in ordinary ranching, is that a failure to warn? None of these questions is absurd. Every one of them sounds like a products case. This is the collision at the heart of the problem. Livestock law assumes an animal that is born and merely owned. Products law assumes an object that is designed and sold. A genetically engineered mammoth is both at once. It is born and built, owned and manufactured, alive and, in the coldly commercial sense, a product. It does not fit either box, because it was never meant to exist in a world that has only two boxes. Who Pays for the Damage? Line up the possible defendants. First, there is the owner, the preserve or facility that held the animal and let it escape. This is the classic livestock posture. You owned the beast, you failed to contain it, you answer for the damage. Straightforward, and probably right as far as it goes. However, there is also the creator, the company that designed the animal, chose its traits, “manufactured” it, and put it into the stream of commerce. If the injury flowed from a characteristic the company deliberately engineered, the rancher’s lawyer will not be content to sue only the party that owned the fence. He will follow the deeper pocket back to the drawing board and argue that a company cannot design a five-ton animal, sell it, and then walk away from the predictable results of its own design choices. Likely, courts will end up borrowing from both traditions at once. The owner answers under animal-law principles for failing to contain the creature. The creator answers under products principles for the traits it built into it. That is not a tidy rule. But tidy rules tend to be the ones the law inherits for problems it has already seen. This is a problem the law has not seen, and the first courts to face it will be improvising with borrowed tools. The Quiet Gatekeeper: Insurance There is one more player in this drama, and it may matter more than any court. Long before a judge rules on whether a mammoth is a product or livestock, an underwriter has to decide whether it can be insured at all, and at what price. Insurers price risk from data, and here there is none. There is no loss history and no mortality table for an animal that has been extinct for millennia. Faced with that kind of uncertainty, an insurance market does one of two things. It refuses the risk, or it prices the risk so high that the underlying activity stops making economic sense. The mammoth may never be stopped by a statute. It may simply turn out to be uninsurable. Living Products are Coming Either Way It would be easy to file all of this under science fiction and move on. That would be a mistake. The mammoth is the most theatrical example of a category that is already arriving in quieter forms, and it is not only about giants. Colossal’s own roster runs well past the mammoth, to the Tasmanian tiger, the dodo, the moa, the South African bluebuck, and the dire wolf, whose pups the company says it has already produced.v Add the gene-edited cattle and hogs, the engineered salmon, and the disease-resistant crops already moving toward market, and the pattern is hard to miss. A growing catalogue of organisms are, unmistakably, designed. Each raises a gentler version of the question the mammoth asks so loudly. When a living thing is engineered by a company and sold into the world, is it an animal, a product, or some third thing the law has not yet named? For centuries tort law has kept two sets of rules on two separate shelves. Animals are born, and the law of animals governs them. Products are made, and the law of products governs them. The whole structure rests on the assumption that living things and manufactured things are different kinds of things. Synthetic biology quietly dissolves that assumption. It produces organisms that are grown rather than assembled, that reproduce rather than roll off a line, and that were still designed as deliberately as any machine. So when the mammoth finally puts its shoulder into that fence, or, more likely, when some engineered animal with a far less exciting name does something a court has to sort out, the judge will reach for the tools on hand. She will find two bodies of law built for two kinds of things and a defendant that is somehow both. The mammoth is a good way to notice the problem. It is not, in the end, what the problem is about. The problem is that biology is becoming an engineering discipline, and the liability rules were written for a world in which it was not. i Colossal Biosciences, The De-Extinction Company, https://colossal.com (last visited Sept. 12, 2026). ii Restatement (Third) of Torts: Liab. for Physical & Emotional Harm § 21 (Am. L. Inst. 2010) (intrusion by livestock or other animals); id. § 22 (wild animals); id. § 23 (abnormally dangerous domestic animals with known dangerous tendencies). iii Rylands v. Fletcher (1868) LR 3 HL 330 (appeal taken from Eng.), aff’g Fletcher v. Rylands (1866) LR 1 Ex 265 (Blackburn, J.). iv Restatement (Third) of Torts: Prods. Liab. § 2 (Am. L. Inst. 1998) (distinguishing manufacturing defects, design defects, and defects based on inadequate warnings). v Colossal Biosciences, Our Species, https://colossal.com/species/ (last visited Sept. 12, 2026) (listing the woolly mammoth, thylacine, dodo, moa, bluebuck, and dire wolf); see also Colossal Biosciences, Dire Wolf, https://colossal.com/direwolf/ (last visited Sept. 12, 2026) (announcing the birth of dire wolf pups).
September 23, 2026
Commercial Litigation
Understanding Motions to Dismiss: Why They Are Not the Easy Escape Many Defendants Hope For
No one wants to be a defendant in a lawsuit. This is especially so when you feel like the claims against you are inaccurate and/or spurious. As a result, if you've been sued, one of your first questions may be: "Can we get this case thrown out right away?" It's a natural reaction. Litigation is expensive, time-consuming, and stressful. The idea of ending a lawsuit before spending money on document exchanges, depositions, court appearances, and even a trial is appealing to anyone facing legal action. That is where a motion to dismiss comes in. A motion to dismiss asks the court to end a lawsuit or at least dispense with individual claims at a very early stage, often before any evidence has been exchanged between the parties. While that sounds straightforward, motions to dismiss are often much harder to win than most people expect. Understanding why can help you make a more informed decision about whether pursuing one makes sense in your case. What Is a Motion to Dismiss? Put simply, a motion to dismiss is a formal application asking the court to decide that, even if everything alleged in the lawsuit were true, the plaintiff still lacks a valid legal claim. At this early stage of a case, the court generally is not deciding who is telling the truth. Instead, the court is determining whether what the plaintiff has asserted in the complaint could, even if proven later, legally support a claim. This can be one of the most confusing aspects of litigation for defendants. It is easy to read a complaint and immediately conclude that it contains and/or identify exaggerations, inaccuracies, or outright falsehoods. A defendant considering a motion to dismiss might understandably ask: "Why would a court ever assume any of this is true?" The answer is that, with a few limited exceptions, it legally has to in order to apply applicable law governing motions to dismiss. In doing so, it is often creating a legal fiction solely for the purpose of deciding the motion to dismiss and is not deciding whether the allegations are actually true. It merely, temporarily, accepts them as true to decide whether the lawsuit is legally sufficient to move forward. If the answer is no—if even accepting all the allegations as true, there is still no claim—the court can dismiss a case right away, before any discovery, on the ground that there is no legally supportable claim. Those limited exceptions (that the court does not have to accept as true) are bald allegations that amount to conclusions only and are really fact-free; allegations that are conclusively refuted by documentary evidence. For instance, if the complaint simply accuses a defendant of committing fraud but does not say how, the Court need not accept it as true. Similarly, if there is a document or record that shows, in fact, that the defendant did not commit fraud, the Court does not need to accept that allegation as true. Therefore, in addition to the above, where the claims are refuted by documentary evidence or not supported by sufficient facts, the court can also dismiss a case right away, before any discovery, on the ground that there is no legally supportable claim. Why Motions to Dismiss Are Difficult to Win Motions to dismiss are extremely difficult to win. This is because the court must create the legal fiction discussed above. It looks at a complaint in the light most favorable to the person who filed it, and therefore, the burden on the person seeking dismissal is significant. To win, the defendant typically must show that the plaintiff would not be entitled to relief under any reasonable interpretation of the alleged facts, or that records definitively undermine their claim. In other words, the defendant must show that the lawsuit is legally defective from the start as it is written. That is a high bar. Many defendants believe they are right on the facts and have evidence to prove it. While they may very well be correct, since a motion to dismiss comes into play before evidence is exchanged, if there are any issues that cannot be definitively decided, the case must move on to the discovery phase. As evidence usually comes into play later in the case, after discovery has occurred, unless it is available to the court on the motion to dismiss, it cannot be considered in dismissing the case. As a result, cases that ultimately fail may survive an early motion to dismiss. Some of the most spurious cases require discovery to show their lack of merit. Many losing cases can defeat motions to dismiss if they reach the minimal bar of plausibly stating a claim. What Happens If the Motion Is Denied? One of the most important points for clients to understand is that losing a motion to dismiss does not mean losing the case. It simply means the lawsuit will continue. The movant will answer the complaint. The parties then move into discovery, where they exchange documents, take depositions, and gather evidence. The defendant still has the opportunity to challenge the plaintiff's claims later through a motion for summary judgment or at trial. A denial means only that the court believes the plaintiff has alleged enough facts for the case to proceed. It is not a determination that the plaintiff is correct. The Cost-Benefit Analysis A motion to dismiss necessarily creates additional legal fees at the beginning of a case; therefore, every client should be educated on to the risks and strategic aims of submitting this permissive filing. Preparing the motion often requires detailed legal research, drafting extensive papers, reviewing opposition papers, preparing a reply, and often appearing in court for oral argument. If the motion is denied, the case generally returns to the same stage it would have reached if no motion had been filed. For that reason, clients should view a motion to dismiss as an investment with both potential rewards and risks. The reward is obvious: a successful motion could end the lawsuit early and save substantial litigation costs. The risk is that the client may spend money pursuing the motion only to end up proceeding to discovery anyway. Does Winning End the Case Forever? Not necessarily. In some situations, a successful dismissal allows the plaintiff to revise the complaint and try again. The court may determine that the lawsuit, as written, is inadequate and give the plaintiff an opportunity to fix the problem. In other cases, the court dismisses the claims permanently. This is often referred to as a dismissal "with prejudice." When that occurs, the plaintiff generally cannot bring the same claims again, although an appeal may still be possible. The likelihood of a permanent dismissal depends on the facts of the case, the legal issues involved, and the court handling the matter. A client should include this in its risk-reward analysis discussed above in when deciding to make such a motion. So When Does a Motion to Dismiss Make Sense? Despite the challenges, motions to dismiss remain valuable tools in many cases. They can be appropriate when there is a strong legal defect in the complaint, when key claims are clearly barred by law, or when eliminating claims early could significantly reduce litigation costs and exposure. In some situations, even filing the motion can help clarify the issues in dispute and force the plaintiff to identify the legal basis for the case. The key is understanding that a motion to dismiss is not a guaranteed shortcut. It is a strategic decision that should be weighed carefully against the costs, risks, and potential benefits. The Bottom Line Many people enter litigation hoping there is a quick way to make the lawsuit disappear. Occasionally, a motion to dismiss provides exactly that result. More often, however, the case proceeds beyond the initial stage and into discovery. The decision to file a motion to dismiss should therefore be made with realistic expectations. The client should go in with eyes wide open. It can be a powerful tool when the circumstances are right, but it is not a magic wand. The most important thing is to understand both the opportunities and the risks before making the investment. An informed client is better positioned to make sound decisions, manage litigation costs, and develop an effective overall case strategy.
September 17, 2026
Commercial Litigation
Before You File in Tax Court: Should Your Client Take the IRS to a Jury?
When the IRS proposes a substantial tax liability, many taxpayers and their advisers instinctively assume that the next step is the United States Tax Court. That is often the correct forum. Tax Court lets taxpayers challenge a deficiency without first paying and also offers access to judges who deal with federal tax law every day. But Tax Court is not the only option. In an appropriate case, a taxpayer may instead pay the disputed liability, file an administrative refund claim, and bring a refund suit in federal district court. Unlike Tax Court, a federal district court can provide something potentially significant: a trial before a local jury. That alternative may be especially important when the taxpayer’s dispute falls within a category that the IRS has publicly targeted and in which the Tax Court has developed a substantial body of government-favorable precedent. Captive-insurance arrangements, Puerto Rico tax-incentive cases, conservation easements, listed transactions, and transactions of interest are prominent examples. Sometimes the Forum Is as Important as the Tax Issue I often say that jury trials are, at least in part, popularity contests — and it is hard to lose a popularity contest to the IRS. A jury may be particularly receptive when a taxpayer can present credible witnesses, contemporaneous business records, and a logical explanation for the transaction under examination. When the IRS’s position depends on portraying a legitimate business, its owners, or its advisers as abusive or dishonest, a local jury may provide a valuable opportunity to test that characterization. This does not mean that a jury will disregard the law or automatically side with the taxpayer. The taxpayer must still establish the elements necessary to recover a refund, and the district judge will decide the governing legal questions. But when the outcome depends heavily on facts, credibility, and business reality, the identity of the factfinder matters. The Concern Is Greatest in Heavily Targeted Categories Every tax case should be decided on its own facts. In practice, however, prior decisions inevitably shape how later cases are evaluated. That becomes particularly significant when the Tax Court has repeatedly considered a particular type of transaction and consistently ruled in the government’s favor. Over time, the disputed category can acquire a negative identity of its own. A taxpayer may then face not only the evidence in its particular case, but also an existing body of decisions involving other taxpayers, different advisers, different documents, and different facts. Captive-Insurance Arrangements The Tax Court has decided a series of micro-captive cases in favor of the government. Those decisions have developed a body of precedent addressing risk distribution, actuarial pricing, claims administration, circular cash flows, risk pools, and whether the arrangements constitute insurance in the commonly accepted sense. Many of the arrangements addressed in those opinions had significant factual weaknesses. Nevertheless, the accumulation of adverse decisions can make it difficult for a taxpayer with materially different facts to separate its case from the broader category. Once “micro-captive” or “§ 831(b)” appear in the case, the taxpayer may find itself defending not only its own insurance program but the reputation of the industry as a whole. Puerto Rico Tax-Incentive Cases The IRS has established a compliance campaign directed at taxpayers claiming benefits under Puerto Rico Acts 20 and 22, now incorporated into Act 60. The campaign addresses whether taxpayers were bona fide residents of Puerto Rico, whether income was properly sourced to Puerto Rico, and whether particular structures improperly shifted income away from the United States. The IRS has committed examination resources, technical guidance, data analysis, and other enforcement tools to these cases. Its published materials identify perceived noncompliance involving both residency and income sourcing. As these cases move from examination into litigation, taxpayers may confront a government narrative that treats the Puerto Rico incentive structure itself with suspicion. Yet the critical questions — where the taxpayer lived, where services were performed, how the business operated, and where the income was earned — are often highly factual. A jury may evaluate those questions through testimony, business records, travel records, communications, and other contemporaneous evidence. Conservation Easements Conservation-easement litigation has likewise produced a substantial body of government-favorable decisions. Many cases involve technical deed requirements, valuation disputes, partnership structures, promotional materials, and questions concerning the taxpayer’s charitable intent. The IRS has publicly identified abusive syndicated conservation easements as an enforcement priority. That designation can influence how the transaction is perceived before the taxpayer’s particular facts are examined. A jury will not cure a defective deed or disregard an applicable statutory requirement. But where the dispute turns on valuation, intent, reasonable reliance, or the credibility of competing experts, jury review may offer a materially different forum. Listed Transactions and Transactions of Interest The same concern applies more broadly to listed transactions and transactions of interest. An IRS designation creates reporting obligations and potentially significant penalties, but it does not establish that every taxpayer participating in the transaction acted improperly. Nor does it prove that the IRS’s proposed tax treatment is correct in every case. Nevertheless, the designation itself can become a central feature of the dispute. The taxpayer may be viewed as a participant in an abusive strategy before the court considers the specific facts, legal advice, business purposes, and economic consequences of the transaction. In those circumstances, presenting the case to a jury without the same history of category-specific Tax Court decisions may be strategically important. Tax Court and District Court Offer Different Paths A taxpayer who receives a statutory notice of deficiency may petition the Tax Court without paying the proposed liability. The case is decided by a Tax Court judge, not a jury. Alternatively, the taxpayer may allow the liability to be assessed, pay the amount required to pursue a refund action, file a proper administrative claim for refund, and, after satisfying the applicable procedural requirements, bring suit in federal district court. Federal law gives district courts jurisdiction over qualifying federal tax-refund suits, and either party may request a jury trial. The taxpayer may also bring a refund suit in the United States Court of Federal Claims, but that court does not provide a jury. When jury review is part of the litigation strategy, federal district court is therefore the relevant alternative. The Principal Drawback: Payment Usually Comes First The most obvious advantage of Tax Court is that the taxpayer ordinarily does not have to pay the asserted deficiency before obtaining judicial review. A district-court refund suit generally works in the opposite order. Under the Supreme Court’s full-payment rule, the taxpayer ordinarily must pay the assessed tax before filing suit to recover it. For a large deficiency, that can create a substantial financial burden and may make the district-court route impractical. There are important exceptions for certain divisible taxes and penalties. Employment taxes, trust-fund recovery penalties, and some assessable penalties may permit refund litigation after payment of only the divisible portion required by the applicable statute. Internal Revenue Code § 6703 also provides a special procedure for challenging certain promoter penalties, including penalties under § 6700. The payment requirement must therefore be evaluated based on the particular tax or penalty. CPAs should not assume either that the entire assessment must always be paid or that a partial payment will necessarily be sufficient. Where the taxpayer has access to the necessary funds, or where a divisible assessment permits a more limited payment, the strategic value of a jury may justify the cost of pursuing the refund route. Ankner Demonstrates the Value of Escaping a Category-Based Narrative The potential value of a district-court jury was illustrated in Ankner v. United States, where I served as lead trial counsel for a captive-insurance manager and its chief executive officer in their successful challenge to approximately $4 million in promoter penalties imposed under § 6700. Although Ankner involved promoter penalties rather than a direct challenge to captive-insurance deductions, the government’s theory depended on its characterization of the underlying micro-captive arrangements. The verdict represented the first courtroom victory for a taxpayer in the § 831(b) micro-captive arena and, to date, remains the only taxpayer victory — standing apart from an otherwise uninterrupted series of government victories in Tax Court. After making the payment required to invoke the special statutory refund procedure, the taxpayers challenged the penalties in the United States District Court for the Middle District of Florida. At trial, the government could not prevail merely by characterizing the underlying arrangements as micro-captives or relying on adverse decisions involving other taxpayers. It was required to prove the specific statutory elements of § 6700 based on the evidence involving these taxpayers. The jury heard the witnesses, reviewed the documents, and considered what the taxpayers had actually said, what they knew, and whether the statements identified by the government were materially false. The jury rejected the government’s position and found that the taxpayers were not liable for the penalties. The lesson is not that juries will always rule for taxpayers. It is that a jury can require the parties to move beyond the label attached to a transaction and return the focus to the particular witnesses, documents, representations, and business facts in the case. Although the burden of proof in Ankner was governed by the provisions applicable to § 6700 penalties, the broader lesson applies to other disputes: an IRS enforcement designation or a series of adverse cases involving other taxpayers should not replace individualized consideration of the evidence. The Refund Claim Should Be Prepared With Litigation in Mind Choosing district court requires more than paying the assessment. Internal Revenue Code § 7422 generally requires the taxpayer to file an administrative refund claim before bringing suit. The claim should identify each ground on which the refund is sought and provide sufficient facts to advise the IRS of its basis. The refund claim should therefore be prepared as the foundation for potential litigation. Counsel should consider the legal theories, relevant tax periods, supporting documents, potential witnesses, and expert issues before the claim is filed. A strong refund claim may also improve the prospects for resolving the dispute administratively. It demonstrates that the taxpayer has developed the case, understands the evidentiary requirements, and is prepared to proceed if the IRS does not allow the refund. The Forum Decision Must Be Made Early The choice between Tax Court and district court should not be postponed until the eve of trial. When the IRS issues a statutory notice of deficiency, the taxpayer ordinarily has 90 days to file a Tax Court petition. Filing that petition generally forecloses a later district-court refund action involving the same tax and period. The taxpayer and its advisers should therefore evaluate the competing forums before the petition is filed. If the taxpayer selects the refund route, the administrative claim and the limitations period for filing suit must also be monitored carefully. Once the IRS mails a formal notice of disallowance, Internal Revenue Code § 6532(a) generally provides two years to file suit. Continuing to negotiate with the IRS or pursuing an administrative appeal does not, by itself, extend that deadline. When CPAs Should Raise the Issue CPAs are often in the best position to recognize cases that may benefit from district-court review. They understand the client’s business, know the quality of the records, and can evaluate whether the taxpayer and other witnesses can credibly explain the disputed transaction. The forum question deserves consideration when: The IRS appears to be applying an industrywide enforcement position rather than focusing on the taxpayer’s individual facts The dispute turns heavily on credibility, intent, valuation, reasonable reliance, or business purpose The client has strong witnesses and contemporaneous documentation The client’s business explanation can be communicated clearly to non-tax specialists Payment is financially possible, or a divisible-tax procedure may reduce the required payment The deadline for filing a Tax Court petition is approaching These factors do not mean district court is necessarily the better forum. A dispute involving a narrow statutory interpretation or an issue driven principally by specialized tax doctrine may be better suited to a Tax Court judge. But a fact-intensive case with a strong record and an unfavorable category-based narrative should prompt a deliberate forum analysis. A CPA does not need to determine the proper forum. The CPA needs to recognize when the choice deserves a conversation with litigation counsel before the available options narrow. Do Not Treat Tax Court as the Automatic Choice Tax Court remains an important and frequently appropriate forum. Its prepayment jurisdiction and specialized judges offer substantial advantages. But when a taxpayer has materially better facts than the cases that preceded it, the ability to present those facts to a local jury may offer meaningful strategic value. The question should be considered before Tax Court becomes the automatic, and potentially irrevocable, choice. As Ankner demonstrates, moving beyond the IRS’s label and focusing the factfinder on the taxpayer’s actual evidence can change the outcome.
September 15, 2026
Commercial Litigation
DExit: How Texas is Building a Corporate Alternative to Delaware
Through business court reform, corporate governance legislation, and the creation of a national stock exchange, Texas is making a deliberate bid to compete with Delaware as America's preferred corporate domicile. Texas is a lot of things, but subtle is rarely one of them. And there is certainly nothing subtle about Texas's recent efforts to attract businesses and capital to the Lone Star State. The latest evidence can be found in a term that has increasingly entered corporate nomenclature: DExit. Short for "Delaware Exit," DExit refers to the growing trend of companies reconsidering Delaware as their state of incorporation. Much of the public discussion surrounding DExit has focused on a handful of high-profile corporate relocations and reincorporations. That focus, however, risks missing the larger story. For more than a century, Delaware has occupied a singular place in corporate America. That dominance is remarkable when one considers Delaware's size. The entire State of Delaware could fit within the greater Houston metropolitan area and still leave room for a few Buc-ee's locations. Yet this geographically tiny state became the legal home of many of America's largest corporations by offering something few jurisdictions could match: a sophisticated body of corporate law and a specialized judiciary capable of resolving corporate disputes with predictability. Texas has spent the last several years studying that playbook. Recent amendments to the Texas Business Organizations Code, the creation of the Texas Business Court and Fifteenth Court of Appeals, and the launch of the Texas Stock Exchange suggest that Texas is no longer content merely to attract a company's regional office or even its corporate headquarters. Texas now wants the company's legal domicile as well. Whether Texas ultimately succeeds remains to be seen. Delaware's advantages remain substantial. But for the first time in decades, a serious challenger appears to be emerging. Rewriting the Corporate Rulebook The clearest evidence of Texas's ambitions appear in Senate Bill 29 and the legislature's recent amendments to the Texas Business Organizations Code (TBOC). The legislature was not particularly coy about what it hoped to accomplish. State Senator Bryan Hughes described Delaware as a jurisdiction in which many companies had become "shackled by a burdensome Delaware legal establishment dominated by activist judges and special interest groups" and stated that the legislation would help bring American enterprise and jobs to Texas.1 The bill's legislative history described Texas's goal as becoming the "corporate law capital of America."2 Amended TBOC § 21.218 narrows shareholder inspection rights by requiring a shareholder to hold shares for at least six months or own at least 5% of the corporation's outstanding shares before demanding access to books and records. The statute also limits inspections to requests related to a shareholder's economic interest in the corporation and generally restricts access to certain categories of electronic communications. That restriction on electronic communications is particularly significant. Emails, text messages, and other electronic communications are among the most voluminous and expensive categories of information for a company to collect, review, and produce upon a books and records request. The legislature also codified the business judgment rule through TBOC § 21.419, establishing a statutory presumption that directors and officers acted in good faith, on an informed basis, and in the best interests of the corporation. Senator Hughes stated that the change would allow Texas businesses to "confidently deploy capital" by providing greater certainty to corporate decision-makers.3 Finally, new TBOC § 21.373 permits qualifying corporations to adopt heightened requirements for shareholder proposals, including minimum ownership thresholds, holding periods, and proxy solicitation requirements. Reasonable minds may disagree on the wisdom of these changes, but their purpose is clear. Texas is actively reshaping its corporate-governance framework to make itself more attractive to corporate managers and directors considering where to incorporate. Building a Texas Version of the Court of Chancery Corporate lawyers have never chosen Delaware solely because of its statutes. Delaware's true advantage has long been its Court of Chancery and the extensive body of precedent developed through decades of specialized corporate litigation. Texas’s response is the Texas Business Court. Operational since September 2024, the court has jurisdiction over certain complex business disputes, including corporate-governance matters and significant commercial transactions. For many claims, Business Court jurisdiction generally requires an amount in controversy exceeding $5 million. Appeals proceed directly to the newly established Fifteenth Court of Appeals, creating a centralized path for the development of Texas business law.4 Early results suggest the court is attracting substantial use. During its first year, the Texas Business Court received 185 filings, including 145 corporate-governance cases. Judges issued more than 680 orders, conducted more than 270 hearings and conferences, and produced 42 written opinions.5 Those numbers matter. Delaware's dominance did not emerge overnight. It developed because companies, lawyers, and judges repeatedly chose a singular and specialized forum for business disputes, which resulted in a predictable body of case law. Texas appears to be attempting a similar process. Ringing the Opening Bell The most ambitious piece of Texas's strategy may be the Texas Stock Exchange (TXSE). A state can attract incorporations through favorable laws. It can improve predictability through specialized courts. But creating a genuine alternative corporate ecosystem requires access to capital markets. The Texas Stock Exchange received SEC approval in September 2025 and completed its rollout into full production trading in July 2026. It is Texas’s first fully integrated national securities exchange.6 Its launch was more than symbolic. TXSE began trading with more than 50 member-firms and described its opening as the broadest day-one participation of any exchange launch in half a century. TXSE leadership has stated that the exchange was designed to provide “real competition for primary listings for the first time in decades."7 In August 2026, Reuters reported that TXSE secured its first primary listings, an early milestone in that effort, and noted that the venture is backed by prominent financial institutions and investors, including BlackRock, Citadel Securities, and Charles Schwab.8 TXSE plans to begin facilitating initial public offerings in 2027, which would mark its next major step toward becoming a full-service competitor to the established New York exchanges.9 No one should expect TXSE to depose the New York Stock Exchange or Nasdaq anytime soon. That is not the point. The significance of TXSE lies in what it represents. Texas is no longer content to attract headquarters. It is building the infrastructure that supports public companies after they arrive. The message seems to be that if a company is willing to move its charter to Texas and litigate its disputes in a Texas business court, Texas would also like it to ring the opening bell here. Viewed alongside the TBOC amendments and Business Court reforms, the exchange is another step in Texas's broader effort to become the legal home of major American businesses. Texas Makes Its Move Delaware remains the dominant corporate domicile in America. Its position rests on more than a century of corporate law precedent and the predictability that comes with it. No state can replicate that overnight. Texas, however, enters this competition from a position of strength. In 2026, Texas surpassed California as the state with the largest number of Fortune 500 headquarters. The state is now home to 57 Fortune 500 companies with a combined $2.8 trillion in annual revenue.10 For decades, Texas competed on cost, taxes, and population growth. Today, it is competing on corporate governance and capital as well. Whether DExit ultimately becomes a wave or merely a footnote in corporate history remains to be seen. What is already clear is that Texas has made a deliberate decision to challenge Delaware's dominance. The coming years will determine whether businesses embrace that challenge. Texas, however, is no longer content to be where companies do business. It wants to be where they choose to call home. 1 Press Release, Office of Senator Bryan Hughes, Senator Bryan Hughes Files Groundbreaking Bill to Transform Texas Corporate Law (Feb. 27, 2025). 2 S.B. 29, 89th Leg., Reg. Sess. (Tex. 2025), legislative history and bill analyses; Tex. Bus. Orgs. Code §§ 21.218, 21.373, 21.419. 3 Note 1, supra. 4 H.B. 19, 88th Leg., Reg. Sess. (Tex. 2023), legislative history; S.B. 1045, 88th Leg., Reg. Sess. (Tex. 2023), legislative history; Tex. Gov't Code ch. 25A and § 22.2151. 5 Office of Court Administration, The Business Court of Texas, Annual Report FY 2025. 6 Office of the Governor, Governor Abbott Marks Successful Trading Launch of Texas Stock Exchange (July 31, 2026). 7 Texas Stock Exchange, Texas Stock Exchange Celebrates Successful Launch of Trading (July 31, 2026). 8 Reuters, Texas Stock Exchange Lands First Primary Listings in Bid to Carve Out Market Turf (Aug. 18, 2026; updated Aug. 19, 2026). 9 Eric Revell, Texas Stock Exchange Officially Goes Live to Rival NYSE and Nasdaq, Fox Business (July 31, 2026). 10 Fortune Media, Amazon Claims No. 1 Spot on the Fortune 500 (June 3, 2026); Office of the Governor, Texas Leads With Most Fortune 500 Headquarters (June 3, 2026).
August 31, 2026
Bankruptcy
Celsius Litigation: Framework for Valuing Digital Assets in Avoidance Actions
In a recent decision addressing a question raised by the crypto winter, the United States Bankruptcy Court for the Southern District of New York outlined a framework for valuing digital assets recovered through bankruptcy avoidance actions. The ruling is noteworthy because it confronts an issue that traditional bankruptcy jurisprudence has rarely faced: volatile, highly liquid assets that can dramatically increase or decrease in value in a short period of time. As Judge Glenn observed, digital assets differ from traditional property because they are easily transferable, actively traded, and subject to significant market fluctuations. In the Celsius litigation, the court had to determine: “1. Is the Litigation Administrator entitled to recover (a) the allegedly transferred digital assets if they remain in the applicable Defendant’s possession, custody or control or, alternatively, (b) their value? 2. If the Litigation Administrator is entitled to recover the value of any allegedly transferred digital assets, what value is the Litigation Administrator entitled to recover if the allegedly transferred digital assets: i. Have appreciated since they were transferred from Celsius? ii. Have depreciated since they were transferred from Celsius?” In re Celsius Network, LLC, No. 22-10964-MG, 2026 WL 1999187, at *1 (Bankr. S.D.N.Y. July 10, 2026) The litigation administrator claimed that the appropriate measure of damages is either (1) the return of the digital asset or (2) the market price of the asset if the asset appreciated. In the event the transferred asset has depreciated, the litigation administrator claimed that the court should award the market price of the digital asset on the date of the transfer. Section 550 of the Bankruptcy Code allows a trustee or estate representative to recover either the property transferred or, if the court so orders, the value of that property. The Bankruptcy Code, however, does not specify how value should be measured when the property fluctuates in price after the transfer. Judge Glenn therefore turned to the statute's underlying purpose: restore the estate to the position it would have occupied had the transfer never occurred. The Court's Three-Part Framework Judge Glenn ultimately adopted a practical framework designed to balance three competing concerns: Making the estate whole Preventing preference defendants from profiting from avoidable transfers Avoiding unfair or potentially limitless liability resulting from cryptocurrency market volatility The court held: For depreciating assets, the estate may recover the transfer-date value, regardless of whether the defendant still holds the asset. For appreciating assets still held by the defendant, the estate may recover the asset itself. For appreciating assets that have been sold, the estate may recover the sale price obtained by the defendant. The defendant bears the burden of proving both that the asset was sold and the amount for which it was sold. If the defendant cannot establish those facts, the estate may recover the judgment-date value. This framework represents an effort to tailor traditional avoidance principles to the realities of cryptocurrency markets. The Decision Regarding Depreciating Assets is Based on Well-Established Precedent Judge Glenn's analysis began with what he viewed as the easier question: assets that declined in value after transfer. The court emphasized that the purpose of § 550 is restorative rather than punitive. If a cryptocurrency worth $100,000 at the time of transfer later falls to $10,000, requiring the estate to accept only the depreciated asset or its current value would leave the estate substantially worse off than if the transfer had never occurred. In effect, the bankruptcy estate would bear the entire market loss. Relying on prior fraudulent transfer and avoidance precedent, Judge Glenn concluded that transfer-date value is the proper measure for depreciating property because it restores the estate to the financial position it would have occupied absent the transfer. The court reasoned that allowing only recovery of the current value would undermine the statute's remedial purpose. Why the Court Rejected Judgment-Date Value for Appreciating Crypto The more difficult issue involved assets that appreciated after transfer. The litigation administrator argued that appreciation should inure to the benefit of the estate because, had the transfer never occurred, the estate would have retained the asset and potentially realized the upside. The argument found support in cases involving real estate and other appreciating property. Judge Glenn, however, distinguished digital assets from many traditional forms of property. He noted that cryptocurrency is extraordinarily liquid, highly volatile, and can be sold almost instantaneously. Moreover, unlike real estate, many transferees no longer possess the specific assets that were transferred. The court was particularly concerned that imposing judgment-date valuation on a defendant who sold cryptocurrency years earlier could create what it described as "essentially limitless liability." A customer who withdrew and sold Bitcoin long ago could be exposed to damages tied to market increases occurring long after the asset had been disposed of. The court concluded that such a result would be inequitable. Judge Glenn also observed that there was no evidence that Celsius would necessarily have held the assets through the period of appreciation. The company may have sold, rebalanced, hedged, or otherwise deployed the assets. Awarding judgment-date appreciation therefore risked providing the estate with a windfall rather than merely restoring it. The Court's Middle Ground Rather than adopting either transfer-date value or full judgment-date value as a universal rule, Judge Glenn crafted a middle-ground approach. If a defendant still possesses an appreciating digital asset, the estate may recover the asset itself and thereby receive the benefit of appreciation. That result mirrors what would have occurred had the transfer never happened. If the defendant sold the asset, however, recovery is limited to the benefit actually realized through the sale. The estate receives the sale proceeds, including any appreciation captured by the defendant, but not speculative gains that accrued after disposition. In the court's view, this approach honors Congressional concern regarding a "wait-and-see" strategy by transferees while avoiding exposure to unlimited liability based solely on subsequent market movements. Practical Takeaways for Digital Asset Holders Judge Glenn's decision represents one of the first comprehensive attempts to address how cryptocurrency should be valued in bankruptcy avoidance actions. Rather than applying a rigid valuation date, the court adopted a flexible framework that distinguishes between appreciating and depreciating assets and considers whether the cryptocurrency remains in the transferee's possession. The ruling seeks to restore the estate and avoid imposing limitless liability driven solely by crypto market volatility. For digital asset holders, the message is clear: maintain thorough records, understand the risks of later-avoidable transfers, and recognize that post-transfer appreciation may not always belong to the party currently holding the coins.
August 31, 2026
Commercial Litigation
AI, Data Breaches, and an Old Lesson from the Law of Bailment
OpenAI recently disclosed that, during testing of one of its frontier artificial intelligence models, AI agents working to solve assigned tasks found ways to access the internet and ultimately infiltrate the systems of another AI company, Hugging Face. They did so through pathways OpenAI's developers never intended them to reach. The incident quickly dominated technology and cybersecurity headlines. It also prompted OpenAI to send two of its security engineers to Black Hat USA 2026, one of the cybersecurity industry's premier conferences, to discuss what occurred.1 Although the Black Hat presentation included highly technical explanations of the exploits, there were two noteworthy statements that stood out from a legal perspective. First, one OpenAI engineer explained that agents who became stuck on their assigned tasks "thought to try to get internet access in ways we didn't intend." Second, the presenters repeatedly emphasized that the incident was not the result of malicious human actors. It was an unintended consequence of testing frontier AI systems whose behavior ultimately extended beyond what their developers anticipated.2 Some observers view the incident as another example of the broader concerns surrounding AI autonomy and alignment. Others see it as evidence that cutting-edge AI systems require greater oversight, testing safeguards, and deployment controls. Regardless of where one falls in that debate, the incident highlights a challenge general counsel cannot afford to ignore. Organizations increasingly face risks not only from malicious actors, but also from highly capable systems pursuing legitimate objectives through unexpected means. The legal implications of that reality, however, may be far less revolutionary than many assume. The Technology Has Changed. The Legal Question Has Not. In Krupa v. TIC International Corp., a federal court recently summarized the relationship between businesses and customer data in simple terms: "Consumers entrust their data to firms with the expectation that those firms take reasonable care against data breaches."3 Long before courts dealt with ransomware, credential theft, or AI-enabled cyberattacks, they addressed a more basic question. What duty does someone owe when entrusted with another person's property? The law answered that question through the doctrine of bailment. A custodian was not an insurer against every loss. But the custodian was expected to exercise reasonable care over property entrusted to it. More than a century ago, in Claflin v. Meyer, a New York court explained that a warehouse owner was not automatically liable simply because thieves successfully stole property entrusted to his care. Liability turned on whether the warehouse failed to exercise the degree of care that a prudent person would use to protect his own property under similar circumstances.4 That same principle continues to echo through modern data-breach litigation. Courts may label the theory differently depending on the jurisdiction. One court may analyze negligence. Another may discuss bailment. A third may focus on some other duty. Yet the practical question remains remarkably consistent throughout. Did the company take reasonable steps to protect information entrusted to its care? Today's businesses may not store their customers’ data in warehouses, but they are the keepers of a vast array of valuable digital data. Banks maintain clients’ financial information. Law firms possess confidential communications. Healthcare providers store patient records. Virtually every organization now serves as a custodian of information entrusted to it by someone else. In the nineteenth century, courts looked at locks, guards, and warehouse security. Today they examine the overall cybersecurity posture of an organization. The specific safeguards may be different, but the inquiry is very similar. The tools have changed. The standard has not. Why the OpenAI Incident Matters The significance of the OpenAI-Hugging Face incident is not that it suddenly created a new legal duty. It may, however, influence what decision-makers come to expect from organizations entrusted with sensitive information. During the Black Hat presentation, OpenAI's engineers acknowledged a concern increasingly shared across the cybersecurity industry. Offensive AI capabilities may be advancing faster than defensive ones. For general counsel, that does not mean every company must immediately deploy cutting-edge AI security tools or spend unlimited resources on cybersecurity. Courts have never required perfection, and they are unlikely to start now. But reasonable care is not a static concept. As threats evolve, expectations evolve. A security posture that appeared reasonable five years ago may not appear reasonable five years from now. What General Counsel Should Be Asking The lesson from the OpenAI incident is not that every company needs to keep up with all the goings-on of every cutting-edge AI company. The lesson is that cybersecurity can no longer be treated as an issue that belongs exclusively to IT. General counsel do not need to know how to configure firewalls or administer cloud environments. They should, however, be able to explain why the organization chose the safeguards it did and why those safeguards were reasonable under the circumstances. In advising a client after reviewing the OpenAI incident, it would be important to determine whether management could confidently answer a handful of basic questions: What sensitive information does the company hold? Where is that information stored, and who has access to it? What cybersecurity standards or frameworks guide the company's program? How often does the company assess new risks or known vulnerabilities? Which vendors store or process sensitive information for the company? How does the company monitor emerging AI-related cybersecurity threats? When did the company last conduct a tabletop exercise or incident-response drill? If a breach occurred tomorrow, what evidence would show that the company acted reasonably? The goal is not merely to have answers. The goal is to document the process. If a breach ultimately occurs, a company is far better positioned when it can point to documented, pre-breach evaluations of its cybersecurity risks and safeguards. That evidence tells a compelling story. It shows that management recognized the risks, discussed potential safeguards, consulted the appropriate professionals, and made informed decisions before anything went wrong. A judge or jury is generally more likely to view that conduct as reasonable than a company attempting to reconstruct and justify its decisions only after a breach has occurred. The Legal Standard Has Not Changed The emergence of increasingly capable AI systems has generated plenty of headlines and speculation. Some of that concern may prove justified. Some may prove overstated. From a legal perspective, however, the underlying principle remains remarkably familiar. No company is expected to create an impenetrable system. No company is expected to anticipate every threat. What courts have historically required is reasonable care. AI may have altered the speed, scale, and sophistication of cyberattacks. Yet the fundamental question that follows a breach remains much the same as it was when courts evaluated warehouse burglaries more than a century ago. Did the company act reasonably to protect what was entrusted to its care? The warehouses have changed. They are now digital. The duty of reasonable care, however, remains the same. 1 Michael Dalton & Eric Wallace, The "Breaking" News: The OpenAI-Hugging Face Incident: A Technical Reconstruction and Its Implications for AI, Black Hat USA 2026, YouTube (Aug. 2026), https://www.youtube.com/watch?v=87DyyMV0kCY. 2 Id. 3 Krupa v. TIC Int'l Corp., No. 1:22-cv-01951-JRS-MG, 2023 WL 143140, at *2 (S.D. Ind. Jan. 10, 2023). 4 Claflin v. Meyer, 75 N.Y. 260, 264-65 (1878). See also In re Target Corp. Customer Data Sec. Breach Litig., 66 F. Supp. 3d 1154, 1175-77 (D. Minn. 2014) (allowing data-breach claims to proceed past the pleading stage).
August 17, 2026
Commercial Litigation
Data Center Developers Take Note: Virginia Court Allows Nuisance Suit Against Amazon to Proceed
Virginia's booming data center industry received an important legal reminder this summer. In Newsom v. Amazon Data Services, Inc., a federal court in Virginia allowed a neighboring property owner's nuisance lawsuit against Amazon to move forward, overruling, in part, Amazon's motion to dismiss. Newsom v. Amazon Data Services, Inc., W.D. Va. No. 3:25-CV-00074, 2026 WL 1993954, at *1 (W.D. Va. July 10, 2026). The landowner and business tenant plaintiffs alleged that construction of Amazon's Louisa County data center created excessive noise, bright lights, dust, flooding, water-quality issues, vibrations, structural cracking to the plaintiffs’ property, and disruptions to the plaintiffs’ business. The court found the plaintiffs’ allegations sufficient to withstand a motion to dismiss. The case will now proceed, and discovery can begin. Why This Matters The decision is significant because it reinforces a growing trend of opposition and resistance to data center developments. Even if a project is properly permitted, it can still face nuisance claims from neighboring property owners or occupants. Virginia courts have long recognized that lawful development activities can become actionable if they unreasonably interfere with a neighbor's use and enjoyment of property. Bowers v. Westvaco Corp., 244 Va. 139, 147, 419 S.E.2d 661, 667 (1992). Just as importantly, the court refused to analyze each complaint in isolation. Instead, it looked at the alleged impacts collectively, considering the combined effects of noise, dust, lights, vibrations, flooding, and other conditions on the neighboring property. For data center developers, that approach creates risk. A complaint that might appear manageable when viewed issue-by-issue can look much different when all alleged impacts are bundled together into a single nuisance claim. A Growing Challenge for Large-Scale Projects The ruling comes as data center development continues to expand beyond Northern Virginia into communities such as Louisa County and elsewhere across the country. These projects often involve years of construction activity, extensive grading, heavy truck traffic, large-scale utility work, and around-the-clock operations. As a result, developers should expect increased scrutiny from nearby residents and businesses, particularly when projects are located near existing homes or commercial properties. Key Takeaways for Developers Developers should view this decision as a reminder to focus not only on regulatory and permitting compliance but also on neighboring-property impacts. Some practical lessons include: Document noise, dust-control, and stormwater-management efforts Investigate complaints from neighboring property owners and occupants promptly Engage with neighboring property owners early in the development process Recognize that tenants and occupants, not just property owners, may have standing to bring nuisance claims in certain circumstances Bottom Line Newsom is only an initial procedural ruling, not a determination that Amazon is liable. But it sends a clear signal that Virginia courts are willing to entertain nuisance claims arising from large-scale data center construction when neighbors plausibly allege substantial interference with their property rights. For developers, owners, and contractors, the case is a reminder that successful projects require more than permits and approvals. Managing the impact on neighboring properties may be just as important as managing the project itself.
August 13, 2026
Commercial Litigation
Defending Property Managers Against Expanding Debt Collection Claims in Maryland
Over the last several years, plaintiffs' lawyers have increasingly attempted to repackage routine landlord-tenant disputes as violations of Maryland consumer protection and debt collection statutes. What historically would have been lease disputes, rent collection matters, or disagreements over fees are now being asserted as claims under the Maryland Collection Agency Licensing Act ("MCALA"), the Maryland Consumer Debt Collection Act ("MCDCA"), and related consumer protection statutes. Frequently, these claims are brought as putative class actions seeking relief on behalf of thousands of current and former tenants. For property managers, owners, and multifamily housing operators, the stakes can be significant. These cases often seek not merely individual damages, but class-wide relief, disgorgement of rent, restitution, attorneys' fees, declaratory relief, and injunctions affecting ongoing business operations. As a result, the costs and disruption associated with defending such claims can be substantial, even where the underlying legal theories are ultimately unsuccessful. Why These Claims Matter The modern wave of debt collection litigation against property managers often starts with a deceptively simple premise: that because a property manager receives rent payments or communicates with tenants regarding payment obligations, it must be acting as a debt collector subject to Maryland debt collection licensing requirements. From that premise, plaintiffs frequently attempt to build far-reaching claims asserting that: A property manager operates as an unlicensed collection agency Rent accepted by the property manager must be disgorged or refunded Consumer protection statutes have been violated Lease provisions are unlawful Entire classes of tenants are entitled to restitution or statutory remedies. These theories can create enormous exposure if allowed to proceed, particularly in the class action context. Even weak claims can generate significant litigation costs through class certification proceedings, electronic discovery, expert witness expenses, and settlement pressure. For that reason, early strategic evaluation is critical. The Threshold Question: Is the Property Manager Actually Acting as a Debt Collector? In many of these cases, the central legal question is not whether rent was collected. Rather, the question is whether the challenged activity constitutes debt collection as defined by Maryland law. Property management companies perform a broad range of functions that extend far beyond collecting rent. Depending on the management arrangement, they may: Market and lease units Execute leases Manage maintenance and repairs Supervise vendors and contractors Coordinate utilities and common-area operations Handle tenant communications Manage compliance obligations Administer financial aspects of the property The mere fact that rent collection is one component of those responsibilities does not necessarily transform a property management company into a regulated collection agency. Equally important, many management companies collect rent pursuant to direct contractual authority granted in the lease itself. When a tenant agrees to pay rent directly to a property manager or a management entity acting on behalf of ownership, the legal significance of that relationship may differ substantially from the activities of a third-party debt collector whose sole function is collecting delinquent debts. These distinctions have proven critical in recent Maryland litigation. Why Early Motions to Dismiss Matter One of the most effective defense tools in these cases is a carefully crafted motion to dismiss. Too often, defendants approach these cases as if discovery is inevitable. In many instances, however, the central disputes are legal rather than factual. Questions concerning: The meaning of MCALA Whether a statutory exemption applies Whether a property manager falls within a statutory definition Whether a claim for unjust enrichment is available Whether lease provisions are lawful as a matter of law Whether a plaintiff has adequately alleged damages may be resolved at the pleading stage An early dismissal can eliminate the need for class certification proceedings, extensive document production, expensive depositions, expert testimony, and protracted litigation. In recent cases, some Maryland courts have dismissed challenges to routine property-management practices before discovery began, recognizing that statutory interpretation questions often can and should be resolved on the pleadings. Other Maryland courts have allowed these claims to proceed, thereby forcing property management companies and property owners to incur significant litigation expenses and the risk of an adverse judgment. Common Claims and Defense Themes Consumer Protection and Debt Collection Claims Many complaints rely on the assumption that collecting rent is synonymous with debt collection. A successful defense often requires careful examination of: The statutory definitions The nature of the defendant's business The relationship between the parties Any applicable exemptions Whether the challenged conduct falls within the intended scope of consumer debt collection statutes Frequently, plaintiffs focus on labels rather than conduct. Courts, however, can be persuaded to look beyond labels and examine the actual role performed by the defendant. Unjust Enrichment and Restitution Claims Another common theory seeks restitution of rent on the ground that the defendant allegedly lacked authority to collect it. Maryland law provides substantial defenses to these claims, particularly where a written lease governs the relationship, the tenancy was fully performed, the tenant received possession and use of the property, and the tenant obtained the benefit of the bargain. These principles can provide a powerful basis for dismissal at an early stage. Lease-Based Claims Plaintiffs also increasingly challenge lease provisions governing fees, notice requirements, holdover language, liability provisions, or other operational terms. Again, many of these claims present legal questions suitable for resolution through motion practice. A careful analysis of the lease language, applicable statutes, and governing case law can often narrow or eliminate these claims before substantial litigation costs are incurred. Practical Recommendations for Property Managers and Owners Although these lawsuits are often driven by aggressive legal theories, there are practical steps property managers and owners can take now, before they are sued, to reduce risk. Maintain Clear Contractual Authority Review management agreements and leases to be sure they clearly define the property manager's role and authority, including authority relating to rent collection and tenant communications. Review Collection and Communication Practices Evaluate whether rent demands, notices, and tenant communications are consistent with applicable law and internal policies. Understand Vendor Relationships Confirm whether outside vendors involved in collection activities require licensing or other regulatory approvals. Document the Basis for Charges Maintain complete records regarding rent, fees, utility allocations, and other assessments. Strong documentation can be critical when defending statutory or class-action claims and may help avoid unnecessary disputes. Engage Experienced Counsel Early The expression an ounce of prevention is worth a pound of cure applies here. Counsel familiar with these emerging debt-collection theories can help identify and address potential vulnerabilities before litigation arises. Once a lawsuit has been filed, opportunities to shape the facts and contractual framework are often limited. Early reviews of leases, management agreements, collection practices, and vendor relationships can place property managers and owners in a far stronger position if challenged later. Experience Matters in Developing Areas of Law The legal landscape surrounding rent collection and debt collection statutes continues to evolve. Several trial courts have rejected expansive theories seeking to treat routine property management activities as debt collection, while other cases continue to work their way through Maryland's courts. In developing areas of law, results frequently depend on identifying the dispositive legal issues early and presenting them in a way that allows courts to address them before litigation spirals into costly discovery and class certification battles. For property owners, managers, and housing providers, the goal is not simply to win eventually. The goal is to win efficiently, before litigation costs and business disruption overwhelm the practical value of the defense. Because Maryland courts have reached differing conclusions in some of these cases, the law remains developing. Property managers and owners should assume that these theories will continue to be tested until the appellate courts provide further guidance.
July 29, 2026
International
International Trade: Service of Process and Default Judgments Can Reach You in Unexpected Ways
A recent Second Circuit decision offers a valuable lesson for foreign companies dealing with U.S. counterparties: a plaintiff may effect service of process through a collection agent, even if that agent was not expressly authorized to accept service of process on the company’s behalf. Ryniker v. Sumec Textile Co. Ltd., 177 F.4th 365 (2d Cir. 2026). The Second Circuit reinstated a default judgment against a Chinese creditor, Sumec Textile Company Limited, following a convoluted procedural path from bankruptcy court to district court, then bankruptcy court again and a rare direct appeal to the Second Circuit. As they say, the devil is in the details. A closer look at the background helps explain why the court reached that result. Décor Holdings, Inc. and its affiliates were sellers of decorative fabric that filed voluntary Chapter 11 petitions on February 12, 2019. They listed Sumec Textile Company Limited, a Nanjing, China-based textile manufacturer, as their second-largest unsecured creditor. Sumec Textile Company Limited held an export credit insurance policy with China Export & Credit Insurance Corporation, known as Sinosure, and submitted an insurance claim to Sinosure for the unpaid balance owed by the debtors. Before Sinosure paid on the insurance claim, Sumec Textile Company Limited executed a Collection Trust Deed authorizing Sinosure to collect, “on our behalf,” the “full amount” of the debt owed by the debtors, $3,029,719.52, and granted Sinosure “full power” to exercise collection rights and remedies in Sumec Textile Company Limited’s name or Sinosure’s own name. Sinosure then hired Brown & Joseph, LLC, a U.S. collection agency, to collect the debt. Sinosure’s instructions to Brown & Joseph granted it “full power” to exercise collection rights and remedies for “amicable debt collection.” The Collection Trust Deed, however, did not authorize Sinosure to accept service of a summons or complaint on Sumec's behalf or act in any way for Sumec. To assist in debt collection, Sinosure hired the Detroit-based collection agency Brown & Joseph LLC (“B&J”). The scope of B&J's authority and services was set forth and limited by a Trust Deed and Letter of Instruction dated March 4, 2019. There is no language in the Trust Deed and Letter of Instruction that authorizes B&J to accept service of process on behalf of Sumec. B&J filed a proof of claim in Décor Holdings, Inc.’s bankruptcy on behalf of Sumec. The dispute arose when a litigation administrator later commenced an adversary proceeding seeking to recover payments made to Sumec and to disallow Sumec’s claim. The summons and complaint were mailed to Sumec “in care of Brown & Joseph” at the address listed on the proof of claim. Brown & Joseph engaged with the plaintiff after service, stating it was reviewing the matter with “our client and the creditor,” referencing an ordinary course defense, and noting that Sumec believed the payments “were made in the ordinary course of business.” Despite these communications, Sumec never appeared, and a default judgment was entered. The central issue on appeal was whether Brown & Joseph qualified as an “agent authorized by appointment or by law to receive service” under Bankruptcy Rule 7004, even though the governing documents did not expressly authorize it to accept service of process. The Second Circuit answered yes, holding that Brown & Joseph had implied actual authority to accept service on Sumec’s behalf. The Court emphasized that actual authority is not limited to what is expressly stated. It includes authority “to perform acts necessary or incidental to achieving the principal’s objectives, as reasonably understood from the principal’s manifestations.” Here, Sumec had authorized Sinosure to collect the “full amount” of the debt, and Sinosure had in turn authorized Brown & Joseph to do the same. By filing a proof of claim in Sumec’s name and designating itself as the recipient for notices, Brown & Joseph positioned itself as the functional representative of the creditor in the bankruptcy case. Critically, the adversary proceeding did not exist in isolation. It sought not only to recover alleged preferences but also to disallow the very claim Brown & Joseph had been authorized to pursue. In that context, they rejected the argument that express authorization to accept service was required. Instead, it reasoned that authority to recover the “full amount” necessarily included authority to receive notice of litigation that could reduce that recovery. As the Court put it, actual authority may be implied from the principal’s objectives, and here those objectives made service on Brown & Joseph appropriate. The Court therefore reinstated the default judgment. For foreign creditors, the implications are significant. This decision underscores that delegating collection authority and allowing a default to be entered may carry material negative consequences that extend beyond simple debt recovery. Even where agency documents state that the agent does not have authority to accept service, a court may find otherwise based on the scope of the assignment and the surrounding circumstances. Interestingly, in this case, the creditor had posted a bond to stay enforcement during the appeal process and the reinstatement of the default judgment clears the path to satisfying the judgment quickly. The takeaway is straightforward but important: foreign companies should carefully define and, where appropriate, limit the authority granted to insurers, factors, and collection agents. Absent clear boundaries and active oversight, service of process on a U.S. agent may be sufficient to bind a foreign creditor even where the creditor has not expressly authorized the agent to accept service and the agent has affirmatively informed the plaintiff that it lacks such authority.
June 29, 2026
Commercial Litigation
United States Tax Court Delivers Important R&D Credit Win for Architectural Innovation
The United States Tax Court released its opinion today on Smith v. Commissioner, T.C. Memo. 2026-50, and it is a significant R&D credit win for taxpayers that perform sophisticated technical work for clients. I am particularly satisfied with the outcome, having had the privilege of litigating this case. This matter involved research credits claimed by Adrian Smith + Gordon Gill Architecture, LLP, or AS+GG, for research activities performed in connection with large scale architectural projects during the 2008, 2009, and 2010 tax years. AS+GG is known for ambitious, complex, and highly sustainable architectural design. The projects at issue involved supertall towers, zero carbon and low energy design concepts, wind studies, solar orientation analysis, structural and environmental performance issues, and other technical design challenges. This context matters, as the case was not about routine design work. The opinion describes a firm working at the edge of what architecture, engineering, and sustainable design could accomplish. In that respect, the case is a useful reminder that R&D credits are not limited to laboratories, software companies, or manufacturing floors. Innovation also happens in design studios, engineering meetings, building models, wind studies, and iterative technical problem solving. The IRS Conceded the Four-Part Test One of the most important features of the case is what was not in dispute by the time of trial. The IRS ultimately conceded that AS+GG’s claimed business components satisfied the four-part test for qualified research under section 41(d). That concession mattered, and it did not happen by accident. A significant part of the case was devoted to developing the factual record on the nature of AS+GG’s work. Through extensive discovery, the taxpayers built the record showing that the projects involved real technical uncertainty, a process of experimentation, and design work directed at performance, sustainability, structure, energy usage, wind behavior, solar orientation, and other technical objectives. By the time of trial, the government no longer tried the case on the theory that the work failed the four-part test. Instead, the IRS conceded that issue, and the trial focused on the funded research exclusion under section 41(d)(4)(H). That is a major point. For taxpayers in architecture, engineering, design, and other technical service industries, the concession reinforces something important: sophisticated client work can involve qualified research. The remaining fight was not whether AS+GG’s work was research. It was whether the funded research rules limited the credit. The Funded Research Issue The funded research exclusion is one of the most important limitations on R&D credits for companies that perform technical work under customer contracts. Section 41(d)(4)(H) excludes research “to the extent funded” by another person. The regulations generally ask two questions: First, was payment contingent on the success of the research Second, did the taxpayer retain substantial rights in the research The Court applied that familiar framework. The taxpayers argued that, after Loper Bright, the Court should not simply accept the regulatory test and should instead adopt a narrower reading of “funded.” The Court rejected that argument and held that the funded research regulations remain valid. That part of the opinion is important, but it should not obscure the practical taxpayer win. Even applying the regulatory framework urged by the government, the taxpayers prevailed on the central issue that mattered most for four of the six sample projects: substantial rights. The Taxpayer Win: Substantial Rights The heart of the opinion is the Court’s substantial rights analysis. The Court held that AS+GG retained substantial rights in the research performed on four of the six sample projects: Atrium City Tower, Masdar HQ, Atrium City Masterplan, and Plot R2. That holding matters because a taxpayer that retains substantial rights in the research may still claim R&D credits on a reduced basis, even if the Court concludes that payments were not contingent on success. The practical result is that AS+GG was not treated as having simply performed fully funded research for a customer on those projects with no credit available. Instead, the Court recognized that AS+GG retained meaningful rights to use the results of its research in its business. That is a significant result in a funded research case. It is also a lesson in contract drafting. The Court did not treat intellectual property provisions, copyright language, licenses, confidentiality clauses, settlement agreements, and use restrictions as boilerplate. It parsed the language project by project. On some projects, the language preserved enough rights for the taxpayer. On others, it did not. That project-by-project analysis is one of the most useful aspects of the opinion. It shows that small differences in contract language can produce very different R&D credit outcomes. Why this Matters for R&D Credit Taxpayers Smith is especially useful for architecture, engineering, construction, consulting, design, and other technical service businesses. Many of these companies assume that R&D credits are unavailable because they perform work for clients. That assumption is too broad. A customer contract does not automatically eliminate the credit. The funded research rules are more nuanced. The key questions are who bears the relevant risk and whether the taxpayer retains meaningful rights in the research. The opinion reinforces several important points. First, design and architecture can involve qualified research. The Court’s factual findings describe technical work involving sustainability, wind, energy, structure, geometry, performance, and environmental constraints. Those are exactly the kinds of uncertainties that can support R&D credit claims when properly documented. Second, substantial rights matter. A taxpayer does not necessarily lose the credit merely because the customer receives project rights, licenses, or deliverables. The question is whether the taxpayer retained meaningful rights to use the research results in its own business. Third, contracts matter. The funded research analysis is driven heavily by the agreement between the taxpayer and the customer. Taxpayers who wait until audit to think about substantial rights are often too late. Fourth, documentation still matters. The Court left the precise credit amounts to be determined through computation. That is a reminder that winning the legal issue is not enough. Taxpayers also need project level documentation and expense substantiation that allow the allowable credit to be calculated. A Strong, Reasonable Compensation Win The opinion also includes an important win on reasonable compensation, an issue I personally handled at trial, and one of the most satisfying parts of the case. AS+GG’s R&D credit included wage related qualified research expenditures attributable to the partners. The government challenged the partners’ 2008 compensation under section 174(e), arguing for a much lower reasonable compensation amount. At trial, a central part of the taxpayers’ case revealed that the government’s reasonable compensation theory did not fit the economics of the business. That point came through clearly in the expert testimony. The IRS expert advanced a much lower compensation number under a multifactor analysis, but his own independent investor analysis showed that, even after his adjustments, AS+GG generated a 939% return on equity. On that math, he concluded that the partners’ total compensation was not unreasonable. That was a powerful trial point. The government’s expert opinion, when tested against the controlling Seventh Circuit standard, supported the taxpayers. The Court agreed that the independent investor test applied because the case was appealable to the Seventh Circuit. Once that standard governed, the result followed: the partners’ 2008 compensation was reasonable under section 174(e). That holding is meaningful for owner-operated businesses where the people driving the research are also principals of the business. In those cases, the R&D credit often depends not only on whether the work qualifies, but also on whether compensation paid to key technical leaders can be included in wage QREs. Here, the Court accepted the taxpayers’ position and preserved an important component of the credit. Practical Takeaways The biggest takeaway from Smith is that R&D credit planning should begin before the contract is signed. Taxpayers performing technical work for customers should review their agreements for at least three things: First, what happens if the research fails Second, who owns the work product, technical information, drawings, designs, models, methods, and other research results Third, does the taxpayer retain the right to use what it learned and developed in future work Those questions should be addressed in the contract itself. They should not be left to implication, course of dealing, or after-the-fact argument. This case also highlights the importance of project-level documentation. Taxpayers should identify the business components, the technical uncertainties, the process of experimentation, the employees or principals performing qualified services, and the expenses tied to the research. Conclusion Smith v. Commissioner is a significant R&D credit decision and a gratifying taxpayer win. The IRS conceded that the work satisfied the four-part test. The Court held that AS+GG retained substantial rights in four of the six sample projects and allowed the taxpayers to claim research credits to the extent permitted by the funded research rules. The Court also accepted the taxpayers’ position on reasonable compensation, preserving an important wage QRE issue. For taxpayers in architecture, engineering, design, consulting, and other technical service businesses, the message is encouraging: customer contract work does not automatically defeat the R&D credit. But the contract language matters, the retained rights matter, and the record matters.
June 16, 2026
Commercial Litigation
The NFL and the Limits of Arbitration Agreements: What Employers Need to Know
Brian Flores, an NFL coach, recently made headlines after the U.S. Supreme Court declined to intervene in a dispute over whether his claims must be arbitrated. Flores asserted race discrimination claims against the NFL and several teams arising from his employment. With the Court denying certiorari on the enforceability of the NFL’s arbitration agreement, those claims will proceed in federal court in the Southern District of New York. This development is notable given the increasing prevalence of arbitration agreements in employment relationships. Many employers require employees to sign arbitration agreements at the outset of employment, often limiting their ability to litigate claims, such as discrimination or wage-and-hour disputes, in court. Because courts frequently grant motions to compel arbitration under these agreements, more disputes are diverted away from judicial forums. However, the NFL’s experience in this case illustrates that not all arbitration agreements will withstand judicial scrutiny. The Federal Arbitration Act (“FAA”) embodies a strong federal policy favoring arbitration, meaning that the vast majority of arbitration agreements will stay a federal suit while the parties proceed in an arbitral forum. Still, that policy is not without limits. Arbitration agreements must preserve a party’s ability to pursue statutory remedies and must, in substance, provide for arbitration, not merely label a process as such. In Flores v. New York Football Giants, Inc., the Second Circuit concluded that the NFL’s arbitration provision did fall under the purview of the FAA. The court emphasized two critical deficiencies. First, the agreement failed to provide for an independent forum for resolving disputes. Instead, it vested authority in the NFL Commissioner to oversee the process. This arrangement fell short of the neutrality expected in arbitration. As the court explained, an arbitration agreement must contemplate an “independent forum that is separate from the parties to the dispute.” A process that requires one party to submit disputes to the “substantive and procedural authority of the principal executive officer” of the opposing party is “an agreement for arbitration in name only.” Second, the agreement lacked sufficient procedural framework. Under the FAA, an arbitration agreement must establish how disputes will be resolved. Although the NFL’s provision granted the Commissioner authority to define procedures, the court found this open-ended delegation inadequate. Thus, the agreement “bore virtually no resemblance to arbitration agreements as envisioned and protected by the FAA.” For employers, the decision provides important guidance. While arbitration remains a valuable tool, its enforceability depends on careful drafting. Key Takeaways for Employers Ensure True Independence of the Arbitral Forum The forum must be neutral and separate from the parties. Employers should avoid retaining unilateral control over the decision-maker or process. Define Clear Procedures Arbitration agreements should outline, at least in general terms, how disputes will proceed — such as rules governing selection of the arbitrator, discovery, and hearings. This can often be done by selecting JAMS, AAA, or another arbitration service. Avoid Unconscionability Procedural fairness matters. Discovery limitations, for example, must not prevent employees from effectively vindicating their statutory rights. As the Fourth Circuit noted in Stinger v. Fort Lincoln Cemetery, LLC, while limited discovery is inherent in arbitration, it cannot be so restrictive as to undermine those rights. Account for State Law Requirements In addition to federal law, state-level unconscionability standards can affect enforceability. Employers should ensure their agreements comply with applicable state law. Ultimately, while the FAA does much of the heavy lifting in enforcing arbitration agreements, the Flores case serves as a reminder that an agreement must actually provide for arbitration in both form and substance. Employers who take the time to draft fair, balanced, and clearly defined arbitration provisions will be best positioned to ensure their agreements are enforceable.
June 3, 2026
Commercial Litigation
Prejudgment Asset Freezes: Where the Line Is Drawn
In these turbulent times, more and more creditors are pushing for prejudgment asset freezes and restraints. Recent decisions in New York and Florida illustrate when that is possible. A district court in New York was reversed when it granted a preliminary injunction against the assets of guarantors who did not give the creditors any security interest. Interestingly, a bankruptcy court in Florida gave a plan trustee an injunction in a fraudulent conveyance action. The U.S. Supreme Court’s decision in Grupo Mexicano is the common theme. Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999). Grupo Mexicano is considered a departure from practice in the U.K. courts, which issue the so-called Mareva injunctions prohibiting defendants from transferring assets before judgment. See Mareva Compania Naviera S. A. v. International Bulkcarriers S. A., 1 All E.R. 213 (1980). Grupo Mexicano stands for the proposition that an unsecured creditor has no rights, at law or in equity, in the property of his debtor before judgment. New York (Leadenhall v. Advantage Capital – 2d Cir.) The Second Circuit Court of Appeals confirmed that where a creditor has no rights in a debtor’s assets, neither law nor equity shall operate to grant such rights prejudgment, and reversed, as an abuse of discretion, the District Court’s grant of a preliminary injunction against the assets of guarantors. The lenders extended a secured loan to borrower entities and obtained comprehensive collateral from the borrowers, but only unsecured guarantees from affiliated guarantors who pledged no assets. After discovering alleged fraud and default and accelerating roughly $600 million in debt, the lenders sued for breach of contract, fraud, and RICO, and sought to freeze both borrower and guarantor assets prejudgment, based on fears of dissipation. The district court granted the injunction, but the Second Circuit reversed because, as to the guarantors, the lenders asserted only legal claims for money damages, identified no specific property, and held no lien or equitable interest in guarantor assets. Those facts placed the case squarely within Grupo Mexicano. An unsecured creditor with a legal damages claim cannot restrain a defendant’s general assets before judgment, even where dissipation is likely. The absence of any pledged collateral, traceable res, or equitable remedy (such as restitution of specific property) was dispositive. Florida (Vital Pharmaceuticals – Bankr. S.D. Fla.) In a recent decision, Judge Russin held that Grupo Mexicano was inapplicable in a case arising from the bankruptcy of Vital Pharmaceuticals, which was forced into bankruptcy after losing a false advertising lawsuit brought by its competitor, Monster Energy. The debtor’s CEO, while the company faced massive and mounting litigation exposure, caused the company to transfer nearly $10 million of corporate funds to purchase and maintain a specific luxury property titled in a shell entity he controlled, with no consideration flowing back to the company. The transfers occurred as the company was allegedly insolvent or rendered insolvent, and while facing hundreds of millions of dollars in contingent liabilities. After confirmation of a liquidating plan, the trustee brought fraudulent transfer claims seeking to recover that specific real property (or its value), and moved to enjoin further encumbrance or transfer. Critically, the trustee traced estate funds directly into an identifiable res (the property) and pursued equitable relief, avoidance, and recovery of the property itself, not merely money damages. The court granted the preliminary injunction, holding that Grupo Mexicano did not apply because the action fit within the traditional equitable exception. It was an equitable fraudulent-conveyance claim targeting specific property, where the injunction served to preserve the res pending adjudication. The strong factual showing of insider transfers, lack of value, insolvency, and pending litigation exposure further supported both the likelihood of success and the need to prevent dissipation. The recent decisions underscore that Grupo Mexicano remains a firm constraint on prejudgment asset freezes in the United States: unsecured creditors pursuing legal claims for money damages cannot restrain a defendant’s general assets absent a recognized equitable interest. At the same time, courts will grant such relief where the plaintiff can anchor its claim in equity by tracing funds to a specific, identifiable res and seeking recovery of that property. Ultimately, the outcome determinative factors are not urgency or risk of dissipation, but whether the creditors can tie their claim to an identifiable asset or equitable remedy.
May 28, 2026
Tax
Cannabis Tax Relief Is Here — But IRS Risk Is Just Beginning
For years, cannabis operators have functioned under a fundamentally distorted tax regime. Section 280E denied deductions that every other business takes for granted, forcing companies to pay tax on something closer to gross income than net profit. That framework has now changed, at least for a significant portion of the industry. The federal government’s decision to reschedule state-licensed medical cannabis to Schedule III removes the § 280E limitation and allows qualifying businesses to deduct ordinary and necessary expenses under § 162. The headline is clear: tax relief is here. But the more important reality is this: the industry is transitioning from a regime of disallowance to a regime of interpretation, and that is where risk lives. A Structural Shift, Not Just a Tax Cut The removal of § 280E does more than reduce tax liability. It fundamentally changes how cannabis businesses are analyzed for tax purposes. For the first time, medical operators must think like every other taxpayer. They must evaluate what constitutes an ordinary and necessary expense, how costs are allocated across lines of business, and whether those positions are sustainable under IRS examination. This normalization introduces flexibility but also subjectivity. And subjectivity is where disputes begin. For operators with both medical and recreational activities, the issue is even more pronounced. Because recreational cannabis remains a Schedule I substance, § 280E still applies to that portion of the business. That creates an immediate need to develop defensible allocation methodologies between revenue streams, personnel, facilities, and shared overhead. These are not merely accounting questions, they are positions that will ultimately be tested. Timing, Transition, and Retroactivity Another layer of complexity lies in how the change is implemented. Treasury and the IRS have signaled that § 280E relief may apply to the entire taxable year that includes the effective date of rescheduling. If that approach holds, it creates a significant opportunity, but also risk. Businesses may take positions that maximize deductions across the full year, while the IRS may later challenge how those positions were calculated or documented. There is also the open question of retroactive relief. The possibility that prior years could be revisited raises strategic considerations around amended returns, refund claims, and statute of limitations issues. These decisions are not purely mechanical. They require a view of how the IRS is likely to respond. R&D Credits: A New Frontier for Cannabis Tax Strategy Perhaps the most underappreciated implication of rescheduling is access to the research and development credit under § 41. Cannabis businesses, particularly those engaged in cultivation, extraction, and product development, often perform activities that meet the technical requirements for qualified research. These include developing new strains, improving yield and consistency, refining extraction processes, and designing new delivery methods. Historically, many operators either avoided claiming the credit or took a conservative approach due to the overlay of § 280E and the lack of clear precedent in the industry. That restraint is likely to disappear quickly. The financial upside is real. Properly documented R&D credits can offset a meaningful portion of federal tax liability, and in some cases provide payroll tax offsets for earlier-stage businesses. But this is not low-risk territory. R&D credits are already an area of heightened IRS scrutiny, and the agency has become increasingly aggressive in challenging claims that lack contemporaneous documentation or rely on overly broad characterizations of qualifying activities. Cannabis businesses entering this space will be doing so under two compounding factors: new eligibility, and a tendency toward aggressive positioning. That combination is precisely what draws enforcement attention. The Inevitable Second Phase: IRS Scrutiny Tax law changes of this magnitude do not settle quietly. They move in phases. The first phase is what we are seeing now: rapid adoption of favorable positions. The second phase is where the IRS responds, often several years later, once patterns emerge and guidance is issued. That is when the real issues surface. The IRS will examine whether allocation methodologies between medical and recreational operations are reasonable, whether deductions claimed under § 162 are adequately substantiated, whether R&D credits meet the technical and documentation requirements, and whether positions taken during the transition period were overly aggressive. By the time these questions are asked, the financial stakes are often significant, and the factual record is already fixed. Why This Requires a Different Approach Most tax planning focuses on maximizing current benefit. In this environment, that is only part of the equation. The more important question is whether the positions being taken today will hold up under examination, appeals, or litigation. That requires thinking not just like an advisor, but like the IRS and, when necessary, like a litigator. Having spent nearly a decade inside the IRS Office of Chief Counsel and now representing clients in complex tax disputes, I have seen how these cases are developed from the government’s side. That perspective informs of a different approach. It means building allocation methodologies that are not just reasonable but defensible, structuring R&D credit claims with audit in mind from the outset, identifying positions that are likely to become enforcement targets, and preparing for disputes before they arise rather than reacting after the fact. In a transition like this, the strongest position is not the most aggressive one. It is the one that can survive scrutiny. The Bottom Line The rescheduling of medical cannabis is a turning point. It brings long-awaited tax relief and opens the door to planning opportunities that were previously unavailable. But it also moves the industry into a more complex and contested tax environment, one where interpretation, documentation, and defensibility matter as much as the underlying benefit. The businesses that come out ahead will not simply be the ones that claim the most. They will be the ones who approach this moment with a clear understanding of how those claims will be evaluated when it matters most. If you are navigating these issues, the question is not just whether you are taking advantage of the opportunity. It is whether you are positioned to defend it.
May 8, 2026
Commercial Litigation
From CARES Act Relief to CARES Act Enforcement: PPP and ERC Risks Are Rising
When Congress passed the CARES Act in March 2020, it did more than inject liquidity into the economy through programs like the Paycheck Protection Program (PPP). It also created a parallel set of compliance obligations that are only now coming into sharper focus. If that sounds familiar, it should. In a prior blog post, I warned about the Employee Retention Credit (ERC) deadline quietly creeping up on businesses. That dynamic, where relief programs created at the same moment begin to generate legal exposure years down the line, is not unique to ERC. PPP is now entering that same phase, but with a more aggressive enforcement backdrop. While ERC issues often surface through a lack of IRS administrative action and taxpayers facing looming deadlines to file an action in court, PPP is increasingly appearing in the form of civil investigations because of looming government deadlines. And the Department of Justice is running out of time. Most PPP-related fraud claims are governed by statutes of limitation that trace back to the earliest loans issued in 2020. As those deadlines approach, DOJ is not winding down its efforts; it is accelerating them. The result is a noticeable shift in how these cases are being pursued. One of the clearest indicators is the surge in Civil Investigative Demands, or CIDs. These are not informal inquiries. A CID allows the government to compel documents, written responses, and sworn testimony, often before a lawsuit is filed. In practice, it is a tool designed for speed, used when the government needs to build a case and preserve claims before time expires. What might have been a slow-moving inquiry a year ago is now being compressed into a much tighter timeline. Investigations are more targeted, more coordinated, and increasingly driven by data: loan size, forgiveness certifications, and application representations are all being evaluated with renewed urgency. But there is another dynamic at play. One that is harder to see and harder to measure. PPP loan data is, by and large, public. That transparency was intended to promote accountability. In practice, it has also created fertile ground for False Claims Act whistleblower activity. There is growing speculation that a meaningful number of PPP investigations are being fueled by qui tam filings: complaints brought by private relators on behalf of the government. The challenge, of course, is that qui tam actions are filed under seal. They are confidential by design. That means a business receiving a CID has no way of knowing whether the investigation stems from internal government analysis, a data-driven flag, or a whistleblower complaint. Nor is there any immediate way to assess the credibility or motivation behind the underlying allegations. In other words, the investigation may already be several steps along before the target even knows it exists. For businesses and their counsel, that uncertainty adds another layer of complexity. You are not just responding to the government, you are potentially responding to an unseen relator, with unknown information and unknown incentives, whose allegations have already cleared at least an initial threshold of scrutiny. That reality reinforces the broader point: We are at an inflection point where CARES Act relief is transitioning into CARES Act enforcement. ERC deadlines are closing in. PPP statutes of limitation are approaching. And the government is actively working, possibly with the assistance of private whistleblowers, to ensure that it does not leave potential claims on the table. So it is important to understand what it means if your company is caught in the crosshairs of scrutiny. A CID is not something to set aside or address casually. It is the start of a serious engagement with the government, and the response strategy needs to reflect that reality. Early assessment of exposure, careful control of the narrative, and thoughtful engagement can often make the difference between a manageable resolution and a much more costly outcome. At the same time, it is worth remembering that not every PPP case fits the narrative of fraud. Many businesses were navigating unprecedented uncertainty in real time, making decisions based on guidance that evolved rapidly. Certifications made in 2020 are now being revisited with the benefit of hindsight, and sometimes with a level of scrutiny that overlooks the context in which those decisions were made. That nuance matters. And it is often where experienced counsel can add the most value. The broader takeaway is this: the same legislation that created opportunity in 2020 is now creating exposure in 2025 and beyond. ERC and PPP may follow different enforcement paths, but they share a common origin, and increasingly, a common sense of urgency. Add in the reality of sealed qui tam filings and public data-driven scrutiny, and the enforcement landscape becomes even more complex. In fact, that urgency just got a small, but notable, twist. As of April 27, 2026, the IRS introduced a new option for taxpayers whose ERC claims have been disallowed: the ability to request additional time to pursue administrative review by effectively tolling the clock before heading to court. In theory, this gives businesses a bit of breathing room when deadlines are tightening and pressure is building. In practice, however, it’s a brand-new procedural tool with very little track record, limited eligibility, and plenty of unanswered questions about how often it will be granted or how smoothly it will function. In other words, just as the enforcement environment is accelerating, the IRS has added a potential off-ramp, but whether it’s a reliable one or just another layer of complexity remains to be seen. The government is watching the clock. You should be too. If you are seeing an uptick in PPP-related inquiries or CIDs, or dealing with ERC issues as those deadlines approach, you are not alone. These matters are becoming more common, more compressed, and more consequential. It may be time to call in counsel. Because when the clock is running out, or the government is knocking at your door, the difference between exposure and resolution is strategy.
May 6, 2026
Commercial Litigation
Virginia Moves to Further Restrict Non-Compete Agreements
Virginia continues to restrict non‑compete covenants. On April 13, 2026, Governor Spanberger signed Senate Bill 170 (“SB 170”) SB170 - 2026 Regular Session | LIS, into law. SB 170 will materially limit the enforceability of non‑compete agreements in Virginia moving forward. For years, Virginia courts enforced narrowly tailored non‑compete agreements, and employers adopted non-competes across industries as a risk‑management tool. As of July 1, 2026, any company or employer doing business in Virginia should reexamine the use of non- competes. In many cases, it will no longer make economic or operational sense to use non-compete provisions. Under amended Virginia Code § 40.1‑28.7:8, a non‑compete becomes unenforceable if an employee is terminated without cause and the employer has not provided severance or other disclosed monetary compensation. This rule applies to all employees, regardless of seniority, compensation level, or role. Importantly, the law will not be retroactive, meaning that non-compete agreements in effect, and unmodified, before July 1, 2026, will remain enforceable. For Virginia business owners and HR professionals, the most important takeaway is this: a non‑compete can now be perfectly drafted and still fail entirely based on how the employee’s departure is handled. If your termination process is misaligned with your employment agreements, you may lose the very protection you thought you had purchased. The first practical impact of SB 170 is that termination decisions are now legally intertwined with enforceability. Employers should no longer wait until an employee resigns or is separated to consider whether a non‑compete will achieve the employer’s goals. That analysis needs to happen at the front end, when the employer makes an offer to an employee. Employers should be asking themselves whether they are truly willing to commit, in advance, to paying severance to preserve post‑employment restrictions. Employers should also decide which employees actually present a competitive threat worth that cost, rather than automatically rolling non‑compete language into every offer letter. A second major shift is that SB 170 extends far beyond the “low‑wage employee” focus of earlier Virginia legislation. This law applies just as much to executives, senior managers, sales professionals, and business development employees as it does to entry‑level staff. Employers who assume their leadership team or top performers are insulated from these changes are mistaken. Virginia law no longer treats non‑competes as a default option even at the highest levels of an organization, and employers should revisit every existing assumption about who may be bound by post‑employment restrictions. Unfortunately, SB 170 also leaves critical questions, as key terms in the statute are undefined. For example, SB 170 does not explain what constitutes a “for cause” termination, nor does it specify how much severance—or what type of compensation—is sufficient to preserve enforcement. That ambiguity virtually guarantees litigation. Employers relying on vague termination language, inconsistent cause determinations, or ad hoc severance arrangements are setting themselves up for disputes they are unlikely to win, particularly given that the statute authorizes attorneys’ fees and penalties of up to $10,000 per violation. As a result of SB 170, non‑competes are no longer “free.” Employers who want them to remain enforceable must ensure compliance and planning in all hiring decisions and offer letters. Employers should clearly define what constitutes for cause termination events in employment agreements, commit to severance or other post‑separation compensation in advance, and disclose separation pay or compensation at the time the employee signs the employment agreement and non‑compete. In many cases, once these costs are identified, businesses will decide that a non‑compete no longer makes economic sense for a given role. Between now and July 1, 2026, Virginia employers should take several concrete steps. First, review employment agreements and non‑compete templates for compliance with SB 170. Existing agreements should be inventoried so decision-makers know which employees are subject to post‑employment restrictions and which agreements may be amended or renewed in a way that triggers SB 170. Second, Employers should tighten termination provisions in employment agreements. Consider clearly defining for cause termination events to align with actual business practices and goals. Employers should resist the temptation to automatically renew non‑competes without reevaluating whether they are necessary and sustainable under the new framework. Finally, HR, legal, and management teams should be aligned before any termination decision involving a non‑compete holder is made. If a company intends to rely on a non‑compete provision going forward, it must either have a well‑documented for‑cause termination or pay severance exactly as disclosed in the employment agreement. Deviating from that plan after the fact is likely to render the restriction unenforceable. Beginning July 1, 2026, offer letters and employment agreements must be drafted with SB 170 squarely in mind. Severance obligations should be explicit, termination standards should be unambiguous, and the agreement should integrate cleanly with any separation or release documents the company typically uses. Ambiguity will not benefit the employer under this statute. Finally, as an alternative to non-compete provisions, consider refocusing your post-employment protective strategies. Confidentiality agreements, trade secret protections, data access controls, and narrowly tailored non‑solicitation provisions often provide more reliable and less expensive protection than non‑competes under Virginia’s current legal landscape. For some employers, shifting focus to these tools will reduce litigation risk while still safeguarding key business interests. SB 170 continues Virginia’s clear policy trend favoring employee mobility and limiting post‑employment restraints. Non‑competes are not gone, but they are no longer the default solution they once were. Employers who proactively adjust their agreements and offboarding strategies can still protect themselves effectively. Those who ignore these changes risk expensive disputes, unenforceable contracts, and penalties that could have been avoided with thoughtful planning.
April 28, 2026
Commercial Litigation
Developments in IEEPA Refund Process: CAPE Portal Now Live
This is an update to our previously published article, "Developments in IEEPA Refund Litigation" posted April 15, 2026. U.S. Customs and Border Protection (“CBP”) has taken a significant step forward in implementing a formal refund process for duties imposed under the International Emergency Economic Powers Act (“IEEPA”). With the launch of Phase 1 of the Consolidated Administration and Processing of Entries (“CAPE”) portal within ACE, importers now have an operational mechanism to begin submitting refund claims. While this development signals meaningful progress, eligibility is currently limited, and importers must continue to take proactive steps to preserve their rights. CBP Update: CAPE portal Now Open (Phase 1) At present, CAPE filings are limited to: Unliquidated entries Entries within 80 days of liquidation Entries outside of this scope will be rejected under current validation rules, and CBP has not yet provided guidance on when additional categories of entries will become eligible under future phases. The CAPE system allows for: Submission of multiple entry numbers in a single claim Automated validation of entry eligibility Batch processing of refund claims (currently up to 10,000 entries per form) Based on initial use, the system is generally intuitive and efficient when claims are properly vetted. While some minor system delays have been observed, likely due to high user volume, the submission process itself has proven to be relatively seamless. CIT Update: Continued Importance of Protest Rights As discussed in our prior update, the Court of International Trade (“CIT”) has emphasized the continued importance of administrative remedies. Specifically: CBP has been directed to address:Unliquidated entries; and Entries not yet final The CIT has highlighted that importers “should be aware” of protest rights under 19 U.S.C. § 1514 This remains a critical point. While CAPE provides a new refund pathway, it does not eliminate the need to file protests where applicable. Entries outside the CAPE eligibility window, particularly those more than 80 days post-liquidation, must still be addressed through traditional protest procedures. However, it was made clear that any entry that currently has a pending protest is NOT available to submit a declaration through CAPE, which seems to create hesitation with filing protective protests. Either way, importers and their representatives need to be assessing the risk and planning of action. Inaction could prove costly. Key Takeaways for Importers Categorize Entries Immediately Importers should identify and classify entries into: Unliquidated entries (currently CAPE eligible) Entries ≤ 80 days post-liquidation (currently CAPE eligible) Entries within 180-day protest window (protective protest eligible) Entries beyond 180 days (potential risk, but addressed by CIT order) CAPE Eligibility is Limited Phase 1 is restricted, and CBP has not yet announced timing for broader “Phase 2” eligibility. Importers should not delay action in anticipation of expanded access. Protests Remain a Safeguard The CIT has not resolved whether refunds will be available for entries that are final and beyond the protest period. Filing a protest remains a prudent “belt and suspenders” approach where timing permits. Prepare Claims Carefully Before Submission to Avoid Validation Errors CAPE validations are strict. Entries will be rejected if they: Fall outside eligibility windows Do not contain qualifying IEEPA HTS provisions Are not properly associated with the importer account Looking Ahead CBP’s CAPE portal represents a meaningful advancement in processing IEEPA refund claims, but the current framework remains incomplete. Importers should prioritize: Immediate identification of affected entries Submission of CAPE claims for eligible entries Preservation of protest rights where applicable At this time, there is no indication when additional CAPE filing phases will be implemented, and uncertainty remains for entries outside the current eligibility parameters.
April 21, 2026
Commercial Litigation
When Small Disputes Become Big Lawsuits — and How to Avoid Them
Lawsuits don’t just appear out of thin air. They begin as ordinary disagreements that, with the right handling, can, and should, often be resolved quickly. But once litigation is filed, particularly against someone who did not choose the fight, even a “simple” dispute can escalate far beyond its original scope. A recent matter illustrates this issue. What began as a delay in closing on the sale of an investment property, typically a straightforward transaction, quickly spiraled when the other side refused to negotiate and instead filed suit. Once litigation began, control shifted immediately. A third party was involved, attorney’s fees became an issue, and what should have remained a limited dispute turned into multiparty litigation with rising costs and complexity. At that point, the defendant had no ability to simply walk away. How Could This Have Been Prevented? One of the most misunderstood aspects of litigation is once a lawsuit is filed, defendants generally cannot unilaterally end it. Even weak or disproportionate claims require a formal response, legal expense, and tolerance for uncertainty. Delay for its own sake becomes leverage, particularly when one side can impose costs without bearing them equally. As communication breaks down, distrust grows, and positions tend to harden rather than soften. Several steps could have prevented this dispute from escalating, with early engagement being critical. Transparency about contributing factors and consistent documentation of communications would have reduced uncertainty and suspicion. Even though the underlying issue could not be immediately resolved, a solutions‑oriented dialogue focused on timing, contingencies, or limited accommodations might have preserved trust. Instead, silence and rigid positioning filled the gap, creating space for assumptions that ultimately drove the decision to litigate. There are common warning signs that a manageable disagreement is becoming something more dangerous: Communication may slow and then stop altogether Deadlines are ignored or used strategically Tone shifts from cooperative to adversarial Demands become rigid rather than exploratory Positions are framed in absolutes rather than options Recognizing these red flags early creates an opportunity to intervene before litigation becomes the default, not because it is the best solution, but because it feels like the only one left. In this case, progress came only after the focus shifted away from fault and toward risk, cost, and practicality. Once all parties understood what continued litigation meant, namely the expense, time commitment, and uncertainty of trial, the dialogue reopened. That reframing made it possible to resolve the dispute without going to court, an outcome none of the parties truly desired and one that would not have materially benefited anyone. The outcome did not turn on who was right. It turned on what made sense. The Takeaway Small disputes rarely explode overnight. They escalate through silence, an insistence on being “right,” and missed opportunities for early, practical resolution. For defendants who cannot simply dismiss a case at will, early engagement and a clear‑eyed assessment of real‑world consequences are often the most effective tools to prevent a manageable dispute from becoming something far larger than it ever needed to be.
April 15, 2026
Commercial Litigation
Developments in IEEPA Refund Litigation
Through multiple court filings, the U.S. Customs and Border Protection (CBP) and the U.S. Court of International Trade (CIT) have identified significant updates affecting importers seeking refunds of additional ad valorem duties imposed under the International Emergency Economic Powers Act (IEEPA). These developments signal meaningful progress toward a structured refund process, while also highlighting critical compliance steps importers must take now to preserve potential recovery. CBP Update: CAPE Refund Functionality Progress CBP continues to develop a new refund-processing capability within the Automated Commercial Environment (ACE) collections framework, officially named the Consolidated Administration and Processing of Entries (CAPE). This system is designed to automate and streamline the administration of IEEPA-related duty refunds. As of March 19, 2026, CBP reported the following progress: Claim portal: 73% complete Mass processing: 45% completeOngoing development includes ACE validations and event history tracking Review and liquidation/reliquidation: 80% complete Refund processing: 63% complete Once implemented, CAPE is expected to significantly improve efficiency, with CBP estimating a reduction of over 4 million labor hours compared to manual processing. The system is intended to facilitate more timely and accurate refunds for importers. CIT Update: Continued Stay and Guidance on Entry Status On March 20, 2026, the CIT issued an order continuing its prior stay (initially imposed March 4, 2026) and provided further clarification regarding treatment of entries. CBP is directed to reliquidate: Unliquidated entries; and Entries liquidated but not yet final (i.e., within 90 days of liquidation) For entries approaching or within the 180-day protest window:The CIT emphasized that importers "should be aware" of available protest remedies (under 19 U.S.C. § 1514(a)) Scope Expansion:The court amended its prior orders to encompass all IEEPA duties imposed, including those on imports from Brazil and India Notably, the CIT did not resolve whether refunds will be available for entries that are already liquidated and beyond the 180-day protest deadline, where a protest was not filed. It is important to note that the implication before this order indicated that liquidation dates were no longer relevant, however the court’s specific reference to 19 U.S.C. § 1514(a) seems to signal that failure to file a protest COULD result in forfeiting your claim. Therefore, get documents early, and file the protest if you are within the 180-day window to avoid uncertainty. Ultimately, it is a “belt and suspenders” remedy that is worth the extra time. Key Takeaways for Importers Categorize Entries Immediately The availability of refunds may depend on the liquidation status of entries. Importers should promptly identify and classify entries into the following categories: Unliquidated entries Entries liquidated within the 180-day protest period Entries liquidated beyond 180 days:With a filed protest Without a properly filed protest Current law generally provides: CBP may reliquidate within 90 days of liquidation Importers may file protests within 180 days After 180 days, liquidation is typically considered “final and conclusive” Accordingly, entries beyond the protest period may face significant barriers to recovery. Prepare for CAPE by Confirming Electronic Refund Capabilities on the ACE Portal CBP’s Interim Final Rule on Electronic Refunds (effective February 6, 2026) requires that all refunds be issued electronically. Despite approximately 330,000+ importers having paid IEEPA duties or deposits, only about 21,400 entities had completed electronic refund setup as of early March. CBP has already been unable to process 7,700 refunds for nearly 2,900 importers due to incomplete or improper setup. Important to Note Refund claims will be rejected if the importer has not enabled electronic refund capability in ACE. Importers should immediately confirm: ACE portal access Banking and payment configurations Coordination with customs brokers, where applicable Access the Electronic Refund Enrollment in CBP's ACE Portal here. Looking Ahead CBP’s CAPE system represents a major step toward modernizing the refund process for IEEPA duties, but key legal and procedural uncertainties remain, particularly regarding entries that may already be final under U.S. customs law. In the near term, importers should prioritize entry review and classification, preservation of protest rights where applicable, and completion of ACE electronic refund setup.
April 15, 2026
Commercial Litigation
Five Common Pitfalls Hard Money Lenders Must Avoid to Reduce Risk and Protect Their Deals
This article details five pitfalls hard money lenders’ teams face when working on potential deals. Detailing these pitfalls is intended to be a useful guide for those new to the industry (and want to avoid costly mistakes) and, for more experienced people in the industry, a helpful reminder of the biggest red flags everyone must be vigilant about when working on deals. The business of hard money lending carries enormous risk. Starting out requires raising sufficient capital to lend and navigating the thicket of licensing requirements and regulations that apply to hard money lenders (an endless process due to ever-changing regulations in the industry). Once established, however, hard money lenders, and their teams, have to maintain the standards they set for each deal that gets onboarded. From the sales stage through underwriting to closing, mistakes, indiscretions, and oversights may occur, and some of those errors have very costly consequences. If there is one thread tying together each of these five pitfalls, it is: know your borrower—and especially so if it’s an entity. Here are the five pitfalls. For borrowing entities, failing to properly evaluate and research individual members. When the borrower is an entity, the individual owners of that entity must be evaluated thoroughly. Hard money lenders, although they are not financial institutions in the same vein as major banks, are subject to the same requirements that the Bank Secrecy Act imposes. Those requirements include an obligation to file a suspicious activity report (SAR) with the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) for transactions that are suspicious and raise questions as to whether the transaction is an attempt at money laundering. Similarly, FinCEN requires that hard money lenders maintain an anti-money laundering program with written procedures, personnel responsible for day-to-day operations, employee training to detect suspicious activity, and testing and review of the program. For each owner of the business entity, it is crucial to run a background search on that individual. Vetting individual owners of the borrower entity is not only important for understanding who is effectively the borrower; it is also essential for the lender to comply with the Bank Secrecy Act’s requirements. Sometimes, an individual working for the lender does not realize the consequences of missing a detail like this. The most common consequence in this type of situation is an audit. If the lender faces an audit—whether from FinCEN or a state licensing authority—and that audit reveals the lender missed a red flag related to a borrower and its individual owners, the consequences can be significant. Although an audit can result in a timeframe for the lender to take corrective action, regulators also may impose fines and civil penalties, issue cease-and-desist orders requiring the lender to stop its lending activities, require loan rescissions or restitution, or pursue more frequent audits. That range of consequences coming from an audit may be daunting, but regardless of the result, it means taking resources and time away from deals and instead diverting those into managing audit responses and working with counsel to mitigate the negative consequences. For borrowing entities, not confirming the signatory has the authority to bind the entity. For any type of business entity, whether a corporation, limited liability company, or another type, it is crucial to ensure that the lender knows the signatory has the authority to sign documents on behalf of the entity. Typically, during the onboarding phase, the entity will have provided an operating agreement and a resolution authorizing the person to sign on behalf of the entity. Reviewing that operating agreement’s terms to verify the process it sets out for passing a resolution is a step that too often gets overlooked. Connecting each dot, from the company’s formation to its operating agreement setting out how a resolution may be passed, to having a resolution appointing the signatory, is necessary for any deal involving a borrower entity. If there is no follow-through on this step, the lender’s position becomes perilous for clawing back the funds it lent. In short, if the signatory did not have authority to sign, the loan documents are essentially meaningless, and the lender has virtually no recourse. A signatory lacking authority does not just arise where there is fraud. For example, if there is a dispute among the owners of the business entity regarding the operations of that entity, and there is a potential buyout or sale of an owner’s interest in the entity, that may end up affecting the lender’s loan. To avoid being caught in the middle of such a dispute, the lender, at the time of the loan, must clearly establish that the person signing on behalf of the borrowing entity had authority to do so and then maintain copies of those documents. If there is any dispute about the signatory’s authority to sign, then it may lead to a court deeming the loan documents and any guaranties invalid and unenforceable. The debt would thus not be collectible, and foreclosure on the property—the most effective way for the lender to pursue collection, if not the only way—becomes impossible. In many cases, the lender will be able to conclude that the debt is not collectible only after commencing a lawsuit seeking to enforce the loan documents and pursue a foreclosure of the property. It is only after incurring legal fees, expenses, costs, and time that a court would then potentially declare the documents to be unenforceable and leaving the lender with a loss on the loan and then the fees, expenses, and costs incurred. For borrowing entities, not confirming the structure of sub-entities. When the entity is a borrower with sub-entities, it is necessary to understand the owners of the sub-entities, as well as the layout of those sub-entities. Often, when there are sub-entities, there are specific, easily identifiable reasons, such as being a family business that incorporates family members’ interests. Other times, a web of sub-entities can be used to hide the true ownership of the borrowing entity, conceal financial problems with that entity, shield individuals known to be bad actors, or launder money. Those same requirements coming from the Bank Secrecy Act, the anti-money laundering programs and suspicious activity reports come when analyzing the sub-entities for a borrower. Every individual owner associated with the sub-entities should have a background check performed, and there should be clarity about the structure and all the individuals involved with the business. As with other failures to comply with the Bank Secrecy Act and other such regulations, one of the most common consequences is an audit. As detailed above, that audit may be very disruptive to the lender’s operations. Overlooking open judgments and liens. Thoroughly reviewing active litigation, unpaid judgments, and open liens is critical to evaluating the viability of the loan. If there is active litigation, reviewing the documents filed in that litigation is necessary to understand how it might impact the deal. That litigation may impact the real estate or the borrower’s business. As to the real estate, neighbors could have filed lawsuits that are seeking access to portions of the property or restrictions related to the property. Lawsuits like that could not only affect the salability of the property; they could also affect the lender’s rights to the property even if it foreclosed on the property and sought to sell it afterward. But, most often, it will affect the lender’s priority of lien on the property. When there are multiple liens on the same property, the priority of lien dictates who gets paid first when the property is sold, either at foreclosure or just on the market. Many times, the value of the property may only pay off the first loan, or even part of the second loan. If the lender’s lien is second, third, or fourth priority, then the lender may end up totally empty-handed when attempting to collect the loan. Failing to verify the legitimacy and contents of bank statements or other documents submitted by borrowers. Lenders’ guidelines for loans require the borrower to submit bank statements and other documents to verify the borrower’s qualifications for the loan. These are helpful mechanics for ensuring the borrower is capable of repaying the loan. Sometimes, however, borrowers engage in fraud or other unlawful activity leading them to submit documents that are either entirely fabricated or partially doctored and tailored to meet the lender’s requirements. Reviewing those documents through the lens of common sense can go a long way in revealing that they are false. When documents are suspicious or simply do not add up, it becomes important to make additional requests for documents that corroborate those already submitted and come from third parties over which the borrower has no control. Ideally, the lender maintaining these standards roots out fraudulent documents prior to the closing. For most hard money lenders, an overwhelming majority of the closed loans are then sold to private capital providers/secondary market buyers or to institutional private credit funds, such as private equity funds or hedge funds. When each loan is sold, there are representations and warranties about the loan that the lender makes to the purchaser. Those representations and warranties virtually always require the lender to buy the loan back if there is any fraud, regardless of whether the lender knows of the fraud. If, for example, the bank statements were fake and the borrower defrauded the lender, the lender would be obligated to buy back that loan. Then, if a loan is bought back, the lender would have to service the loan and take steps to collect it. This would be a highly burdensome process for a lender to undergo and would divert resources away from new deals. Conclusion Although these are not the only pitfalls that hard money lenders face, they are the most common and guarantee outsized consequences. Every member of the lender’s team needs to be aware of not only these pitfalls but others as well, to ensure that the deals being closed are the right ones.
March 24, 2026
Commercial Litigation
Defeating the IRS at Trial: Lessons from the Taxpayer Victory in Ankner v. United States
After successfully trying Ankner v. United States and defeating a multi-million-dollar promoter-penalty assessment, Matthew S. Reddington analyzes what the verdict means for the government’s burden of proof under IRC § 6700—and for taxpayers and advisors facing promoter investigations. In Ankner v. United States, a federal jury rejected the Internal Revenue Service’s attempt to impose approximately $4 million in promoter penalties under IRC § 6700 against a captive insurance manager. Janine Campanaro and I served as trial counsel for the taxpayer and successfully tried the case to verdict in the United States District Court for the Middle District of Florida. The decision offers an important reminder for businesses, advisors, and professionals facing promoter-penalty investigations: even in industries the IRS has publicly targeted, the government must still prove each statutory element of § 6700 at trial. When the government cannot meet that burden, the penalties cannot stand. As the trial record and jury verdict in Ankner illustrate, promoter-penalty disputes frequently turn not on sweeping policy debates about the legitimacy of an industry, but on far more specific evidentiary questions. The government must prove that materially false statements were made regarding the tax benefits of the transaction and that the alleged promoter knew or had reason to know those statements were false. When those elements are carefully examined through witness testimony, documentary evidence, and expert analysis, the government’s theory does not always hold. § 6700 Promoter Penalties Require the Government to Prove Specific Elements Internal Revenue Code 6700 authorizes the IRS to impose substantial penalties on individuals or businesses that promote abusive tax shelters. The statute permits penalties equal to 50% of the gross income derived from the promotional activity, which can quickly result in multi-million-dollar assessments. Despite the severity of the penalty, the government must still establish specific statutory elements when the penalty is challenged in court. In particular, the government must prove: A False or Fraudulent Statement The promoter made false or fraudulent statements regarding the tax benefits of a transaction. Knowledge or Reason to Know The promoter knew, or had reason to know, that the statements were false. In practice, the knowledge requirement frequently becomes the most contested issue in promoter-penalty litigation. A Federal Jury Found the Government Failed to Meet That Burden in Ankner Ankner v. United States arose from the government’s investigation of a captive insurance manager who assisted small businesses in forming insurance companies intended to qualify under IRC § 831(b). Rather than focusing exclusively on promotional statements regarding tax benefits, the government argued that the underlying captive insurance arrangements did not constitute legitimate insurance companies. Based on that premise, the government asserted that the captive manager and related entities made false statements regarding the tax consequences of participating in the arrangements. After paying a portion of the assessed penalties permitted in promoter-penalty disputes, the taxpayer filed suit challenging approximately $4 million in penalties related to tax years 2010 through 2016. Following the trial, the jury concluded that the government failed to carry its burden of proof, and the taxpayer was not liable for the penalties. Although jury verdicts are necessarily fact-specific, the case underscores an important point: even in areas the IRS has identified as enforcement priorities, the government must still prove each element of § 6700. Traditional Promoter-Penalty Cases Often Involved Clear Tax-Avoidance Schemes Historically, many litigated § 6700 cases involved blatantly abusive tax-avoidance schemes, where the government’s evidentiary burden was comparatively straightforward. For example, in United States v. Schulz, the defendants promoted materials instructing taxpayers how to stop withholding and paying federal income taxes. The court concluded that the promoters knowingly advanced positions repeatedly rejected by the courts. Similarly, in United States v. RaPower-3 LLC, the government successfully pursued promoter penalties against a company marketing solar-energy technology that was incapable of producing electricity. Participants were promised tax benefits tied to equipment that never functioned as represented. In Tarpey v. United States, the Ninth Circuit affirmed an $8.5 million promoter penalty related to a timeshare-donation scheme, emphasizing the broad scope of § 6700 when determining the gross income derived from the promotional activity. These cases involved clear factual records demonstrating knowingly false representations. By contrast, more recent promoter-penalty investigations increasingly involve legitimate industries and complex transactions, where the relevant facts and legal standards are far more nuanced. The IRS Is Expanding the Use of Promoter Penalties Across Multiple Industries The significance of Ankner must also be viewed against the backdrop of expanding IRS enforcement initiatives. In recent years, the IRS has increasingly relied on promoter penalties as a mechanism to deter activity in industries it believes involve aggressive tax planning. Current enforcement efforts have focused on areas such as: Micro-captive insurance arrangements Syndicated conservation easements Employee Retention Credit (“ERC”) promotions Certain partnership basis-adjustment transactions The IRS’s Office of Promoter Investigations has become particularly active in these matters, and promoter-penalty assessments are frequently pursued alongside broader civil or criminal investigations. Given the scale of potential penalties, these disputes can carry significant financial and reputational consequences for businesses and advisors. For Taxpayers and Advisors Facing § 6700 Investigations, Litigation Strategy Matters For taxpayers, captive managers, tax advisors, and other professionals facing promoter-penalty investigations, Ankner highlights an important strategic point: § 6700 cases ultimately turn on proof of statutory elements—not simply the IRS’s view of the underlying transaction. Promoter-penalty disputes often begin with extensive government investigations that focus heavily on the perceived legitimacy of the transaction itself. While those issues may form part of the broader context, the government must ultimately prove far more specific facts at trial—namely, that false statements were made and that the alleged promoter knew, or had reason to know, those statements were false. In practice, those evidentiary requirements can present meaningful challenges for the government. Because promoter-penalty cases frequently involve complex industries, expert testimony, and extensive factual records, early strategic guidance is critical. Decisions made during the investigative stage—often long before litigation begins—can substantially influence how the case develops if it proceeds to court. For that reason, businesses and advisors confronting potential § 6700 exposure should consider engaging counsel with significant experience litigating complex tax disputes through trial. Promoter-penalty cases are not merely technical tax controversies; they are fact-intensive litigation matters that require careful development of the evidentiary record and a disciplined focus on the government’s burden of proof.
March 23, 2026
Commercial Litigation
When Hypothetical Liquidations Become “Illogical”: Otay Project LP v. Commissioner
The Tax Court’s recent decision in Otay Project LP v. Commissioner, T.C. Memo. 2026-21, is likely to become one of the most discussed partnership cases of the year — not because it announces a new doctrine, but because it quietly rewrites how § 743(b) is expected to operate in large tiered partnerships. At issue was a familiar structure. A real estate development partnership underwent ownership changes that triggered a technical termination under pre-2018 § 708(b)(1)(B). Because the partnership had a § 754 election in effect, the termination required a basis adjustment under § 743(b). The partnership computed that adjustment using the regulatory hypothetical liquidation framework in Treas. Reg. § 1.743-1(d), which assumes a fully taxable disposition of partnership assets at fair market value. That hypothetical recognition of embedded gain — including large deferred income under long-term contract accounting — produced a substantial negative “previously taxed capital” amount and therefore a large positive § 743(b) adjustment. The IRS disallowed the deduction, and the court ultimately agreed. But the court did not reject the adjustment primarily on economic substance grounds. Instead, it concluded the calculation itself was “illogical,” pointing to the resulting balance sheet, which reflected negative partner capital and a basis adjustment far larger than the partnership’s book of equity. That reasoning deserves scrutiny. The Problem with the Court’s Analytical Frame Section 743(b) is mechanical. When a partnership interest is transferred, and a § 754 election exists, the statute requires the partnership to adjust inside basis so that the transferee partner’s share of inside basis matches its outside basis. Congress did not condition the adjustment on accounting symmetry, economic parity, or a positive capital account. The statute simply compares two numbers. Treasury regulations likewise adopt a mechanical approach. Treas. Reg. § 1.743-1(d) defines a transferee partner’s share of partnership basis using a “hypothetical transaction”; an immediate sale of all partnership assets for cash equal to fair market value. The regulation expressly requires gain recognition in that hypothetical liquidation. In a development partnership using the completed contract method, such a hypothetical sale necessarily accelerates large amounts of deferred income. The resulting negative capital is not anomalous — it is the direct product of the regulatory model. The purpose of § 743(b) is precisely to prevent that phantom gain from being taxed to the transferee partner a second time. The court, however, treated the result as evidence that the computation must be wrong rather than evidence that the regulation is working as intended. Negative Capital Is Not a Defect The opinion implicitly assumes that inside basis cannot produce a negative capital allocation. But neither the statute nor the regulations impose that limitation. To the contrary, § 743(b) adjustments routinely arise when outside basis exceeds a partner’s share of inside basis — especially in partnerships holding appreciated property or deferring income. The regulatory hypothetical liquidation is not a balance-sheet exercise; it is a tax allocation exercise. Its purpose is to determine how much gain would be allocated to the transferee partner if the partnership sold all of its assets immediately after the transfer. If that hypothetical gain exceeds the partner’s liquidation proceeds, negative capital necessarily follows. Calling that result “illogical” effectively replaces the regulation with a net-equity test that does not appear anywhere in subchapter K. The Liability Expansion Issue The government also argued that additional liabilities — including construction obligations — should reduce the § 743(b) adjustment. The court appeared receptive to this position. That approach risks blurring an important doctrinal boundary. Section 752 governs partnership liabilities. It does not treat executory performance obligations as liabilities simply because the partnership must perform under a contract. Real estate developers frequently have future performance obligations, but those obligations do not automatically create recourse liabilities for basis purposes. If performance obligations are treated as § 752 liabilities in order to neutralize § 743(b), the liability rules cease to be administrable. A Practical Consequence The most significant implication of Otay is not confined to pre-2018 technical terminations. The reasoning threatens routine partnership transactions: family succession transfers upper-tier partnership restructurings real estate development partnerships using CCM any partnership with a large built-in gain and a § 754 election Under the decision’s logic, a § 743(b) adjustment may be disregarded whenever the result is large enough to appear economically disproportionate. That converts a mechanical statute into a facts-and-circumstances inquiry — exactly what subchapter K historically sought to avoid. What the Case Really Reflects The opinion appears less concerned with statutory interpretation than with scale. The partnership reported substantial deferred income and an offsetting basis deduction attributable to the prior § 743(b) adjustment. The court viewed the magnitude as incompatible with economic reality. But subchapter K has never limited tax consequences by magnitude. Congress allowed long-term contract deferral. Congress allowed § 754 elections. Congress required § 743(b) adjustments to maintain parity between inside and outside basis. Large numbers are sometimes the inevitable consequence of those interacting provisions. Courts traditionally police abusive transactions through economic substance or anti-abuse doctrines. Here, however, the court did something more consequential, it recast a regulatory computational rule into an equitable limitation. Why the Decision Matters The importance of Otay lies in its methodological shift. Instead of asking whether the statute and regulations were followed, the court asked whether the result looked sensible on a balance sheet. That is not how subchapter K operates. Partnership taxation depends on predictability. Taxpayers make structural decisions — § 754 elections in particular — based on mechanical consequences. If courts can override those consequences whenever hypothetical liquidation math produces large disparities, then § 743(b) becomes unreliable as a planning tool. In short, Otay Project does not merely deny a deduction. It introduces uncertainty into one of the most fundamental coordination rules in partnership taxation: the alignment of inside and outside basis. The case will likely be remembered not for its facts, but for its implication that regulatory mechanics yield to judicial intuition. For partnerships relying on § 754 elections, that is a far more significant development than the adjustment at issue in the case itself.
March 4, 2026
Tax
Tariff Litigation & Section 122 Tariffs
On February 20, 2026 the U.S. Supreme Court issued a landmark decision in Learning Resources, Inc. v. Trump holding that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs. The decision invalidates the reciprocal tariffs and trafficking/immigration tariffs imposed in 2025 under IEEPA and confirms that the power to impose tariffs lies with Congress. The Court did not prescribe a refund mechanism; that responsibility now falls to the U.S. Court of International Trade (CIT) and U.S. Customs and Border Protection (CBP). Within hours of the decision, the Administration imposed a new 10% tariff under Section 122 of the Trade Act of 1974 (now 15%), effective February 24, 2026, and limited to 150 days (absent congressional action). This creates two immediate opportunities: Refund claims for prior IEEPA tariffs (available to domestic and foreign companies) Advisory and planning work related to new Section 122 tariffs and potential replacement regimes (Section 232/301) What Changed: 1. IEEPA Tariffs Invalidated The Supreme Court ruled that IEEPA does not authorize tariff imposition. IEEPA tariffs imposed in 2025 are unlawful ab initio. Refunds are not automatic. Importers must act. 2. Section 122 Tariffs Now in Effect 15% tariff on most imports entered on or after February 24, 2026 Limited to 150 days (approx. expires July 24, 2026 unless extended) USMCA-qualified goods excluded “Goods on the water” exception for certain shipments loaded before Feb 24 and entered before Feb 28 This is a temporary bridge. Section 232 (tariff imposed for national security) and 301 (tariffs imposed on foreign products to counter unfair trade practices) actions may follow. Who May Have a Refund Claim: Those who: Imported goods between February 2025 and February 24, 2026 Paid additional IEEPA ad valorem duties Are the importer of record Have entries that are unliquidated or recently liquidated Did not yet file a protective Court of International Trade (CIT) action Refund claims are available to domestic and foreign companies – the controlling factor: who is the Importer of Record on the customs entry Important: Only IEEPA duties are refundable — not Section 232 or 301duties. Downstream buyers may have contract-based reimbursement claims. Areas Where Offit Kurman Can Assist You: 1. Tax Litigation / Customs Litigation Refund analysis and quantification Protest filings Protective CIT litigation Federal Circuit appeals Strategic coordination of administrative and judicial remedies 2. Transactional Tax Tariff deductibility analysis Accounting method considerations Timing of refund recognition Contingent asset treatment Structuring to mitigate future tariff exposure 3. Corporate & Business Structuring Restructuring importer-of-record status Creating new import entities Evaluating transfer pricing implications Risk allocation between affiliates Supply chain realignment 4. Commercial Contracts Review of tariff pass-through clauses Reimbursement rights for downstream buyers Force majeure and change-in-law provisions Supplier renegotiation strategy Indemnification enforcement 5. Commercial Litigation Claims between buyers and suppliers over tariff allocation Breach of contract actions Indemnity disputes Class or coordinated actions among distributors 6. Restructuring & Insolvency Tariff-driven liquidity pressure Claims valuation in bankruptcy Recovery of tariff refunds as estate assets Documents You Should Be Gathering: Entry summaries (CF 7501) Duty payment records Liquidation dates PSC filings Contracts allocating tariff responsibility ACE and ACH refund account status SKU lists affected by Section 122 Bottom Line: IEEPA refunds are potentially significant. Deadlines are running. Section 122 tariffs create immediate planning needs. If you import goods, manufacture overseas, distribute foreign products, or rely on cross-border supply chains, connect with Offit Kurman for consultation.
March 2, 2026
Construction
A Primer on Mechanics’ Lien Claim Waivers in Pennsylvania
Waiver of mechanics’ lien claims is an important and frequent issue on construction projects. There are various approaches to lien claim waivers, depending on the type of project and the preferences of the parties. Because of the various types of lien claim waivers, there is often confusion. This article explains the different types of lien claim waivers. An initial fundamental point regarding mechanics’ lien claims and waivers, is that they are creatures of statute. Each state has its own laws that govern mechanics’ liens and waivers. There is no universal, national law that governs. Instead, each state has its own statutes and interpretation of the law. Additionally, mechanics’ liens generally cannot be asserted against public projects. Advance Lien Claim Waiver Versus Progress or Final Lien Claim Waiver One categorical distinction between lien claim waivers is whether they apply in advance of the work, versus lien claim waivers that are executed during the progress of the project and apply to work performed as of the date of the waiver. An “advance” lien claim waiver is executed prior to the work being performed. Accordingly, it waives lien claim rights before doing the work. Most states prohibit advance lien claim waivers. In Pennsylvania, however, advance lien claim waivers are enforceable, but only on specific types of projects, and only if specific requirements are met (more on that below). In contrast, a progress or final lien claim waiver is executed during the project, or after the work is completed, and it typically clarifies that it applies to the work already performed. The standard approach is to identify a “through date,” which means that the waiver applies to all work performed “through” a certain date. Typically, the “through date” would be a prior date that has already passed, and the lien claim waiver states that it is effective to waive lien claim rights for all work performed up to and including that date. Typically, progress lien claim waivers are executed with each payment application. None of the “through dates” are future dates—which would instead be an advance lien claim waiver. Progress and final lien claim waivers are effective and enforceable. In Pennsylvania, for advance lien claim waivers to be effective, it must be a commercial project (non-residential), and a payment bond must be posted that covers the project. Also, the advance lien claim waiver is only effective to waive downstream (subcontractor/supplier) lien claim rights. The prime contractor with a direct contract with the owner cannot waive lien claim rights in advance, and the payment bond is posted by the prime contractor (so the payment bond does not cover the prime contractor’s demands for payment). Conditional Versus Unconditional Lien Claim Waivers Another categorical distinction in lien claim waivers is “conditional” versus “unconditional.” A conditional lien claim waiver identifies that it is only effective if certain conditions (typically pending payment) occur. Thus, for example, with a conditional lien waiver, it will expressly state that the waiver is “conditioned” on the future receipt of the identified payment. If the identified payment is not received, then, the waiver (even if executed) is unenforceable. Unconditional lien claim waivers, on the other hand, expressly state that the payment has already been received, and that there are no other requirements or events to occur for the lien claim waiver to be effective. Typically, these lien claim waivers identify themselves with the words “unconditional,” and they often state that the payment identified has been “received in fact,” or “received in hand.” Complications can arise when payment has not in fact already been received; yet, an unconditional lien claim waiver (stating that payment has already been received) is erroneous executed. Generally, it is fair and reasonable to insist that lien claim waivers accurately express whether the payment has in fact already been made, or whether a conditional lien claim waiver should be used instead, because the payment is pending and not yet received. It is also appropriate to revise or annotate a lien claim waiver to expressly state that certain claims, disputed amounts, open change orders, etc., are preserved and not waived. This avoids confusion on whether the payment was intended to cover any disputed, open, or unresolved items. Preliminary Notices of Lien Rights, Construction Notices Directory, and Other Requirements Lien claim waivers are specific documents that address whether a lien claim has been waived or preserved. Different and separate from lien claim waivers are statutory requirements that must be satisfied in order to preserve or pursue lien claims. Most states, including Pennsylvania, have requirements to notice and enforce lien claims. If you fail to satisfy all the requirements, including timeliness, it is likely that your lien claim will be lost. Pennsylvania, similar to most states, has certain requirements that must be fulfilled when pursuing lien claims. In Pennsylvania, certain projects may be eligible for registration on the Construction Notices Directory, which is maintained by the Department of General Services. If a project is registered, then, the requirements under the mechanics’ lien law that pertain to the Construction Notices Directory must be followed; otherwise, the lien claim may be lost. One such requirement is to provide (and file with the Directory) early notice of potential lien claim rights. Additionally, in pursuing a lien claim, certain processes must be followed; otherwise, the lien claim may be lost. In Pennsylvania, as a general rule, if the claim is by a subcontractor or anyone who is not in direct contract with the property owner, then, the claimant must give advance notice to the property owner of the intent to file the lien claim. Also, any claimant, whether a downstream subcontractor/supplier or the prime contractor must meet specific deadlines in pursuing the lien claim. And the substance of any notices or lien claim filings must fulfill the statutory requirements. Failure to timely notice or file any of the items, or failure to adhere to the substantive requirements, will often result in the lien claim being unenforceable. These requirements for noticing and pursuing the lien claim are not technically “waivers,” of the lien claim, but failure to follow the rules may result in the same outcome—the lien claim being lost and unenforceable. This article also appears in the February 2026 edition of the Spokesman, a publication of ABC Keystone.
February 25, 2026
Intellectual Property
Beckham v Beckham: The Legal Anatomy of a Very Public Breakdown
If HBO’s writer’s room is looking for its next prestige drama, then they should look no further than the Brooklyn family feud. Brooklyn Beckham, the first son of David and Victoria Beckham, took to his Instagram story to unleash a set of accusations against his family, including allegations of interference with his marriage to Nicola Peltz and “Brand Beckham” priorities. These statements intensified an already rumored family rift dating back to wedding-related disputes. But the most commercially significant feature of this story is not interpersonal conflict; it is that the conflict is playing out inside a high-value brand ecosystem, creating a multijurisdictional intellectual property battle. Once such allegations are made to millions of followers, the situation stops being purely private: it becomes an enterprise risk event that is capable of triggering contractual defaults, insurance notifications, and formal legal positioning, even if nobody wants to ever walk into a courtroom. Viewed through a legal lens, the dispute quickly breaks into several distinct areas of exposure. Defamation Risk (and why wording matters) When accusations are aired on social media, lawyers immediately ask: fact or opinion? Statements framed as verifiable facts that harm reputation can trigger defamation claims, especially when a reputation is also a revenue stream. When endorsements and licensing deals are involved, reputational harm can quickly morph into business tort exposure. “Rights to My Name”: Trademarks as Leverage Brooklyn’s reported complaint that he was pressured to sign away rights to his name pulls the dispute squarely into trademark law. Public reporting suggests the Beckhams registered their children’s names as trademarks while they were minors, with renewals now looming. That matters because whoever controls the mark controls licensing, commercial use, and has negotiation leverage in a family fallout. Contracts, Endorsements, and Morals Clauses Public drama makes brand partners nervous. Endorsement and licensing agreements often include morality clauses, non-disparagement language, and notice requirements. Once a controversy breaks, counterparties will quietly check whether they have termination rights, or at least a reason to renegotiate. Non-Disparagement and Confidentiality in Family Businesses Family empires often run through layers of companies and agreements. If any family members are contractually bound by confidentiality or non-disparagement provisions, public statements can create legal headaches. Enforcement is tricky, though. Injunctions risk free-speech pushback or loss of goodwill, damages are hard to quantify, and over-lawyering can amplify the story instead of burying it. Cease-and-Desist Letters: The First Legal Chess Move Some outlets report that lawyers got involved. From a litigator’s perspective, early correspondence matters: non-privileged pre-litigation letters can become evidence, admissions can haunt later filings, and privilege only protects communications handled carefully. A cease-and-desist letter is more about positioning than the endgame. Media Control, Privacy, and Narrative Wars Complaints about “media manipulation” raise different legal questions depending on jurisdiction. In the UK, privacy and misuse-of-private-information claims loom larger; in the US, privacy torts vary wildly by state. Fame doesn’t erase rights, but it does complicate them. Brand Custodianship and Fiduciary-Adjacent Issues When parents hold intellectual property rights for children, especially through guardian or trust structures, disputes can trigger questions that sound a lot like fiduciary duties: who controlled the asset, who benefited, and whether transitions to adulthood were properly documented. Who’s Authorized to Speak? PR teams, agents, managers, and family members often operate under overlapping authority. When statements fly, lawyers look at who approved what, whether anyone exceeded their mandate, and whether internal PR or confidentiality protocols were breached. In conclusion, Brooklyn’s private grievances should trigger public company-level risk management. The Beckham name is a business after all, and Brooklyn’s public breakdown is risky for the business. Beckham v Beckham is a battle for control. For anyone operating inside a family enterprise or personal brand, the warning is clear: adequate governance, contracts, and IP planning prepare your brand for when that Instagram statement goes live.
February 13, 2026
Commercial Litigation
When the Chicken Does Come Before the Egg: The Taxpayer-Friendly Takeaways from George v. Commissioner, Plus a Few ‘Egg-cellent’ Judicial Puns
Some tax court opinions are dry. Others are dense. And then there are the rare decisions where the court clearly enjoyed the assignment. George v. Commissioner, T.C. Memo. 2026-10 falls squarely in the third category. From its opening pages, the court signals both the seriousness of the R&D credit issues at stake and its willingness to have a little fun along the way. As Judge Greaves famously framed the dispute: “Forget the proverbial chicken or the egg; today we are called to answer which came first, the research or the research credit?” Clever turn of phrase aside, the opinion delivers something far more important for taxpayers, particularly those in agriculture and other operationally complex industries: a roadmap for how real-world innovation can qualify for the R&D credit when done correctly. The Big Win: The Court Acknowledged That Agriculture Innovates. Full Stop. Before we get to the substance, it’s worth pausing on tone. Over the course of 80+ pages, the court peppers the opinion with references to “ruling the roost,” “sunny-side up,” and other poultry-themed flourishes. That levity is notable because it accompanies a very serious acknowledgment: modern agriculture is technologically sophisticated. The opinion’s humor is not accidental. By leaning into chicken metaphors, the court subtly reinforces its understanding of the industry it is judging. From a litigation perspective, that tone is telling. Courts don’t joke about industries they don’t take seriously. The takeaway? The court was engaged, informed, and analytical, not dismissive. That is good news for future taxpayers who bring better-structured R&D claims to the table. This is reinforced by the court repeatedly recognizing that poultry production involves: Complex biological systems Evolving disease pressures Feed chemistry and nutrient optimization Genetic performance tradeoffs Data-driven decision-making at massive scale Indeed, the court emphasizes that even “small changes having dramatic impacts on profitability” are central to the industry, noting that producers may earn “approximately one penny of profit per pound.” That framing matters. The court did not dismiss these activities as routine farming. Instead, it treated them as legitimate candidates for R&D analysis, rejecting the outdated notion that innovation only happens in laboratories. What the Taxpayer Got Right (and the Court Agreed) Despite ultimately limiting the credits claimed, the court credited the taxpayer with confronting real technological uncertainty, a foundational requirement under §41. The opinion details extensive efforts to address: Disease outbreaks with no clear industry solution Antibiotic-free production pressures Feed efficiency and nutrient absorption challenges Vaccine administration methods and dosage questions Genetic line performance under different conditions The court acknowledged that these efforts involved trial-and-error, failed approaches, and iterative refinement, classic hallmarks of experimentation. In fact, the court goes as far as rejecting the IRS’s argument that data collected by George was “routine” and thus excluded from consideration. Instead, the court rejected the ‘routine’ argument the IRS has been fighting hard to revive. Likewise, the court rejected IRS attempts to repurpose the adaptation exclusion, definitively stating that an improved business component is a different business component. That distinction leaves the door wide open for taxpayers who document their experimentation contemporaneously and intentionally, even when data used for testing is collected during standard production. Practical Lessons the Court Practically Hands to Taxpayers If you read the opinion with an eye toward future claims, the lessons are unmistakable: When possible, articulate uncertainty before acting. This helps avoid the IRS assertion that a company reverse-engineered the research narrative. Design experiments with intent, though they don’t have to look like laboratory work. Document while the feathers are flying. Production data is helpful, but technical reasoning is essential. Separate experimentation from execution. Rolling out a solution is not the same as proving it works. Assume IRS scrutiny and prepare accordingly. The IRS will ask whether the “research” existed before the credit study. Courts will too. These lessons don’t clip the wings of the R&D credit. They strengthen it. The Broader Takeaway: Courts Want Better R&D Claims, Not Fewer For all the poultry puns, George v. Commissioner delivers a serious, taxpayer-friendly message: Section 41 remains viable for real-world businesses that innovate intentionally and document rigorously. The court did not narrow the statute. It did not exclude agriculture. And it did not demand laboratory conditions. It simply required that the research come first—and the credit follow honestly. Final Thought If nothing else, George proves that even an R&D case about chickens can be meaty. Matthew Reddington served as counsel in this matter and played a primary role in securing the favorable outcome for the taxpayers.
February 12, 2026
Business
Starting a Business Made Simple: A Practical Toolkit
Starting a business is exciting — but it can also feel overwhelming when you’re faced with critical decisions and don’t know where to begin. This toolkit is a practical, step-by-step guide designed specifically for new entrepreneurs. From choosing the right business structure and securing permits to drafting essential agreements, this toolkit gives you the clarity and confidence to build a strong foundation for success. Ready to turn your vision into reality? Decide on the Best Business Structure Figure out which business structure is the best fit. Common choices are sole proprietorship, partnership, limited liability company (LLC), and corporation. This may mean consulting with an attorney and with an accountant about the different options, but each business structure has its pros and cons. It’s essential to understand the pros and cons, then weigh them before deciding how to structure the business. Make Sure the Business Entity is Set Up Correctly Be aware of the requirements for forming corporate entities to ensure the business is properly set up. In some states, there may be publication requirements. For instance, in New York, a limited liability company must publish a notice within 120 days of the initial articles of organization becoming effective, as follows: “published once in each week for six successive weeks, in two newspapers of the county in which the office of the limited liability company is located, one newspaper to be printed weekly and one newspaper to be printed daily.” These requirements may be burdensome, but it’s important to follow them. In New York, a court may pause a case if the company is not properly formed and therefore cannot bring its claims against the defendant. Research the Licenses or Permits Needed for the Business Licensing and permitting can be tricky. Fortunately, many cities and states have set up portals or guides to help you determine whether your business requires a permit or a license to operate in the city or state. If you are operating a business in a niche area, however, it may take additional research to find concrete answers to whether your business needs a license or permit. Research the Tax Obligations for the Business There may be federal, state, and local taxes that apply to the business. The United States Small Business Administration is an excellent resource for starting that process, but conferring with an accountant and tax attorney may help to provide a more comprehensive understanding of those tax requirements. Be Thoughtful When Anyone Else Begins Working for the Business If that person is an employee, there are wage and hour laws, anti-discrimination laws, and other laws that apply. If you don’t want that person to be an employee, you should have an agreement in place that clarifies the relationship (and make sure you know any other legal requirements such as whether the person is an independent contractor). Particularly when a small business is just getting started and the first people working there are friends or family members, having written agreements with them seems too formal and unnecessary. In the early stages, everyone may have a clear understanding of how they fit into the business, and there isn’t room for disagreements. But as the business grows, those understandings may change, and conflicts may arise. When there’s a conflict like that, the business may be vulnerable without a written agreement clarifying the terms of the person’s involvement. Put Written Contracts in Place with Everyone You Do Business With Many businesses initially rely on phone calls or face-to-face conversations to get things done. That informal way of doing business may seem acceptable since the business is just beginning, but such discussions can lead to problems, misunderstandings, and leave the business without any legal remedies. Whenever there is a relationship between your business and others, it is essential to have an agreement in writing—even if it’s just an email or text message exchange. Conclusion By laying a solid foundation — choosing the right structure, meeting legal requirements, understanding obligations, and putting clear agreements in place — new entrepreneurs can avoid early pitfalls and focus on building a strong, sustainable business.
January 22, 2026
