On May 1, 2023, the U.S. Supreme Court granted certiorari to Loper Bright Enterprises v. Raimondo [1] – a D.C. Circuit decision that upheld agency deference under Chevron v. Natural Resources Defense Council. [2] Chevron has stood for nearly 40 years on the principle that agencies should be armed with the flexibility to craft regulations with a higher level of specificity than the enabling statute. But prior decisions and recent dicta of the Supreme Court point to a drastic reduction in agency deference, if not a complete reversal of Chevron.

In Loper, a group of commercial fishing companies challenged a rule promulgated by the National Marine Fisheries Service that requires fishing vessels to be accompanied by a paid regulatory compliance monitor. The rule is based on a provision of the Magnuson-Stevens Act, which states that federal regulators have the authority to place “observers” on fishermen’s boats. But the Act is silent on who should pay for the costs of the observers. The D.C. circuit found in a 2-1 opinion that although the statute is ambiguous, the agency’s interpretation of the statute to require the fisher cover the cost of the observer was ‘reasonable’ under Chevron.

Agency decisions are generally reviewed under the “arbitrary and capricious” standard, which in effect allows an agency to apply its own construction of the enabling statute unless the construction is unreasonable. Chevron instructs that courts analyze cases involving an agency’s interpretation of a statute using a two-step analysis:

The Supreme Court granted cert to the fisher petitioners on two grounds:

  • “Whether the Court should overrule Chevron or
  • Whether the Court should at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.”

Accordingly, the Court could do away with the framework all together and allow courts to apply general principles of statutory construction without considering the reasonableness of the agency’s decision. The Court could also more narrowly hold that Chevron deference should not apply in some instances. Either way, it seems likely that there will be a change to the way courts are directed to review agency action under an ambiguous or silent enabling statute.

States, including Louisiana, have adopted the Chevron deference framework. Thus, if the Chevron framework is disturbed, states would be left to grapple with their own methods of reviewing agency decisions.

Loper is the latest development in a series of cases that the Court has considered agency deference. The Court most recently addressed agency deference in West Virginia v. EPA [3] in 2022. In that case, the Court found that the EPA did not have authority under Section 111(d) of the Clean Air Act to promulgate emissions caps.  The Court in West Virginia utilized the “Major Questions Doctrine,” which provides that an agency must point to “clear congressional authorization” in “extraordinary cases” where the “history and the breadth of the authority that [the agency] has asserted,” and the “economic and political significance” of that assertion, provide a “reason to hesitate” before concluding that Congress meant to confer an agency with authority. [4]

Based on that ruling and dicta from the Court, it seems likely that the Court will side with the fisherman petitioners to at least limit agency deference under Chevron.

The case will be considered during the next term beginning in October 2023, with a decision expected sometime in 2024 near the conclusion of the term. Kean Miller will continue to monitor the case for developments.

[1] https://www.scotusblog.com/case-files/cases/loper-bright-enterprises-v-raimondo/

[2] Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

[3] W. Virginia v. Env’t Prot. Agency, 142 S. Ct. 2587 (2022).

[4] Id. at 2595.

When award-winning photographer Lynn Goldsmith snapped a portrait of the artist formerly known as Prince for Newsweek in 1981, she could not have predicted the cultural and legal impact the pop legend’s portrait would have. In 1984, Vanity Fair sought to license the photograph for an “artist reference” in a story about the musician. Goldsmith agreed to license a one-time use of the photograph with full attribution. Vanity Fair commissioned Andy Warhol to create a silkscreen using Goldsmith’s image and used Warhol’s piece in the magazine with attribution as promised. However, Andy Warhol would go on to create 15 additional works using the Goldsmith photograph, now known as the artist’s “Prince Series.” Although Warhol created the Prince Series nearly forty years ago and three years prior to Warhol’s death, it was not until 2016 when Condé Nast featured the “Orange Prince,” one of Warhol’s silkscreen prints, as part of its tribute to Prince’s passing that Goldsmith learned of the additional reproductions. Condé Nast paid the Andy Warhol Foundation for the Visual Arts, Inc. (“AWF”) $10,000 for the license, while Goldsmith received neither a license fee nor a source credit.

Upon failure to resolve the matter privately, AWF filed suit against Goldsmith, seeking a declaratory judgment that Warhol’s works did not infringe Goldsmith’s copyright in the original photograph, or, in the alternative, Warhol’s works constituted fair use of the subject photograph.[1] The Southern District of New York granted summary judgment to AWF on its claim of fair use, but the Second Circuit Court of Appeals reversed.

The Copyright Act motivates creativity by granting the author of an original creative work rights to reproduce their work, prepare derivatives works, and (in the case of pictorial or graphic works) display the copyrighted works publicly. This ownership interest in the creative work is balanced with the general public’s need to access the creative arts and exercise First Amendment rights. The fair use doctrine (the basis of AWF’s copyright infringement defense) allows use of a copyrighted work by persons other than the author for “purposes such as criticism, comment, news reporting, teaching . . ., scholarship, or research”[2] and is evaluated through multiple factors. On petition for writ of certiorari, AWF asked the Supreme Court to evaluate whether the Condé Nast licenses are fair use based on just the first fair use factor, “the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes.”[3] On this issue, the Supreme Court agreed with the Second Circuit that the first factor of fair use favored Goldsmith. Because AWF did not dispute that the remaining fair use factors favored Goldsmith, the Court affirmed the Second Circuit’s finding of copyright infringement.

The first factor of fair use considers the nature of and reasons for a copier’s use of an original work.[4] “The larger the difference, the more likely the . . . factor weighs in favor of fair use. The smaller the difference, the less likely.”[5] When the original and the copy share a similar purpose, there is a concern that the copy will substitute for the original. Because the copyright owner has the exclusive right to prepare derivative works of their original—that is, recasts, transformations, or adaptations of the original work—the copy must be substantially transformative to have a different purpose or character than the original and that degree of transformation must also be balanced against any commercial nature of the use.

AWF argued that the Prince Series is sufficiently transformative of Goldsmith’s original photograph because the artworks convey a different meaning or message than her photograph. Yet, because the first use factor focuses on the degree in which the infringing use has a different purpose or character, the Court ultimately sided with Goldsmith. The majority found that AWF’s licensing of the “Orange Prince” copy to Condé Nast is not a substantially different purpose than Goldsmith’s photograph. Goldsmith took the original photograph and licensed it to Newsweek for use in an article about Prince, and then similarly licensed the work to Vanity Fair in association with an article about Prince. AWF licensed the “Orange Prince” to Condé Nast for an article about Prince. “As portraits of Prince used to depict Prince in magazine stories about Prince, the original photograph and AWF’s copying use of it share substantially the same purpose,” wrote Justice Sonia Sotomayor for the majority.

The majority opinion stresses that its opinion is limited to AWF’s license to Condé Nast: “Only . . . AWF’s commercial licensing of ‘Orange Prince’ to Condé Nast, is alleged to be infringing. We limit our analysis accordingly. In particular, the Court expresses no opinion as to the creation, display, or sale of any of the original Prince Series works.”[6] A concurrence written by Justice Neil Gorsuch (joined by Justice Ketanji Brown Jackson) further argued that the subsequent use (AWF’s licensing to Condé Nast) is the relevant inquiry rather than considering the original copier’s (Andy Warhol) intent in creating the “Orange Prince.” Conversely, Justice Elena Kagan’s (joined by Justice John Robert’s) condemnatory dissent sharply criticized the majority’s purported failure to appreciate how Warhol’s work differed from Goldsmith’s photograph. The dissent specifically cited to the Court’s decision just over two years ago in Google LLC v. Oracle America, Inc., where Warhol’s works were deemed the “perfect exemplar of a ‘copying use that adds something new and different.’”[7] The majority opinion dismisses the dissent as “a false equivalence between AWF’s commercial licensing and Warhol’s original creation” which results in “a series of misstatements and exaggerations, from the dissent’s very first sentence.”[8]

Most often in fair use inquiries, the dispute focuses on a copier’s use of the copyrighted work. It is not often a court is presented with the issue of a third party’s independent use (that is, use without the involvement of the copy’s creator) of the subsequent work. The majority opinion is narrow and focuses on one specific fair use factor in the context of one specific use. The Court’s decision cautions that the motivations behind the third party’s use must be considered on their own merit, rather than allowing the use and motivations of the original work to automatically transfer to the third party’s use.

Significant also to the finding of infringement is that the remaining fair use factors—including the fourth factor, “the effect of the use upon the potential market for or value of the copyrighted work”—was admitted to favor Goldsmith. In fact, that is precisely what occurred in this matter. Throughout her career, Goldsmith regularly photographed celebrities and licensed those photographs to magazines for articles about that celebrity. Condé Nast needed a picture of Prince for its 2016 memorial article about Prince, and it licensed the “Orange Prince” from AWF instead of Goldsmith’s photograph. This use “served the same essential purpose of depicting Prince in a magazine commemorating his life and career.”[9]

Despite the pains made by the majority to limit the opinion’s reach, this decision will likely have significant ramifications for the art world, particularly art markets and licensing. While here the original artist’s use itself is unaddressed, the decision may temper a creator’s ability to market new creative works that incorporate copyrighted works. The fair use doctrine’s intent is to protect use of copyrighted works in particular contexts and has particular importance in artistic criticism and parody. Though a creator may still be able to express themselves artistically using the copyrighted work, finding a gallery or dealer willing to accept the work may prove more challenging. For those willing to accept the work, expect strong warranties and artist indemnification contract clauses.

Read the Supreme Court’s opinion here.

Special thanks to William Wildman, Loyola University New Orleans College of Law, Class of 2023, for his assistance in the researching and drafting of this post.

[1] See Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, 382 F.Supp. 3d 312 (S.D. N.Y. 2019).

[2] 17 U.S.C. § 107.

[3] Id.

[4] Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, 598 U.S. ___ (2023).

[5] Id.

[6] Id. at ____ (slip op. 21).

[7] Id. at ____ (dissent op. 2).

[8] Id. at ____ (slip op. 22, n. 10).

[9] Id. at ___ (slip op. 23, n. 11).

In this part two of our discussion of the foreclosure process on commercial real estate in Louisiana, we are demystifying the procedures involved in executory process foreclosures in Louisiana. While Louisiana does not allow non-judicial foreclosure options for creditors, it does provide a streamlined judicial process known as executory process foreclosure, allowing a creditor to get to a sale of the property within 75-120 days of filing the petition, in most instances.

For a creditor to utilize executory process under Louisiana law, it must possess certain loan documents. Specifically, the mortgage must contain a confession of judgment of the indebtedness and must be in authentic form (i.e., executed before a notary and two witnesses). Additionally, subject to a few exceptions, the creditor must have the original promissory note or other evidence of debt that is secured by the mortgaged property. If the borrower is a legal entity, such as a corporation or limited liability company, the creditor must have (or locate) a proper written authorization for the individual who executed the documents to act for the borrower entity.

After the preparatory work has been done, an executory process foreclosure lawsuit begins with the filing of a verified petition that includes the original note, authorization, and a certified copy of the mortgage as attachments. The petition is processed on an expedited basis and an order directing the sheriff to seize and sell the property can be issued in a matter of days. The parish clerk of court will issue a writ of seizure and sale that directs the sheriff to seize and sell the property at issue to satisfy, in whole or part, the creditor’s debt.

The sheriff’s office will constructively seize the property by filing a notice in the parish property records and will proceed to advertise and sell the property. Notice of the sale must be provided to all individuals and entities who may have an interest in the property. Many sheriff’s offices will ask the creditor to assist in cancelling any liens and encumbrances that should not remain on the property prior to the sheriff’s sale and/or prior to any deed being issued.

Many seizing creditors decide to sell the property with appraisal, which will preserve any deficiency rights against the debtor and any guarantors post-sale. This requires both the creditor and debtor to provide an appraisal of the property to the sheriff’s office. Should any party fail to appoint an appraiser, the sheriff’s office will appoint one on their behalf. The bidding at the sheriff’s sale will open at two-thirds (2/3) of the appraisal value of the property for a sale done “with appraisal.”

At the sale, the creditor is allowed to “credit bid” up to the amount of its debt, which amount will be provided by the creditor prior to the sale date. Should the creditor be the winning bidder for the property, the creditor will be required to pay a 3% commission to the Sheriff in cash, plus certain fees and costs of the sale, as well as any unpaid property taxes. Should a third party be the winning bidder, the sheriff’s commission and fees, as well as any unpaid taxes, will be deducted from the sale proceeds prior to a check being issued to the creditor.

If there are no bidders at the sale, the creditor may ask the sheriff’s office to reset the property for sale. At a second sale of the property, the opening bid will start at the sheriff’s costs and fees instead of at two-thirds (2/3) of appraised value.

An attorney experienced with Louisiana’s executory process foreclosure laws and procedures will be able to help a creditor determine if foreclosure via executory process is possible. Kean Miller works with lenders, servicers, and law firms from across the country on workouts, foreclosures, dation en paiement (read “deed in lieu”), note sales, and commercial bankruptcy cases. We would be glad to talk with you about how we may be able to help with your distressed credit situation.

Artificial Intelligence (AI) is a rapidly growing field that has the potential to revolutionize many aspects of our lives. One area where AI has already made significant inroads is in content creation. With the help of AI-powered writing assistants, businesses and individuals can generate high-quality content with minimal effort. However, there are legal concerns associated with using AI to generate content, like this blog article, which was created in part through the assistance of ChatSonic AI.

One of the primary legal concerns is related to copyright – both in terms of protecting the work generated and the concern of infringing someone else’s work. Copyright law protects original works of authorship, including literary works like blog articles. When an AI program generates a blog article, it is unclear who owns the copyright. Is it the person who programmed the AI, the AI itself, or the person who uses the AI to generate the content? This is a complex legal issue that has yet to be fully resolved. Currently, US law does not allow for copyright protection on works created solely by AI. This prohibition is currently being challenged in US Courts and will undoubtedly make its way through the appeals process over the next few years. Patent law has about a year’s head start on this issue, but the decisions have not been pro-AI. In 2022, the Federal Circuit ruled that computer programs cannot qualify as inventors under the US Patent Act. Thaler v. Vidal, 43 F.4th 1207 (Fed. Cir. 2022). It stands to reason that if a computer program cannot invent, it also cannot create a work of authorship. The owner of the AI software in Thaler recently filed a petition for a writ of certiorari asking the Supreme Court to review the Federal Circuit’s ruling. Interestingly, the same individual and computer program are behind the leading test case on the copyright side as well. But neither of these cases deals with the scenario where the AI is a co-inventor or, like this article, a co-author with a human. As such, we will not have definitive answers on ownership and protection of AI-generated works for years to come. 

Many are concerned with the potential for plagiarism. In the legal context, however, plagiarism is more properly referred to as “copyright infringement.” While AI writing assistants may be designed to generate original content, there is still a risk that the AI could inadvertently produce content that is substantially similar to existing work. This could result in accusations of plagiarism, causing reputational harm, or liability for infringement. “I didn’t know” is not likely to be a viable defense in such a claim. Most forms of infringement are strict liability torts, meaning that the owner of the infringed work does not need to prove the infringer’s intent or knowledge of infringement. Rather, the infringer’s knowledge and intent really only determine if enhanced damages may be assessed against the infringer. As such, using AI carries intrinsic risk because the user often has no way to determine the source of information or to check that the content is truly original. 

Liabilities may also arise from the publication of inaccurate information. If an AI-generated blog article contains inaccurate, misleading, or even defamatory information, who is responsible? US law does not currently allow suits against computer programs as they are neither natural nor juridical persons (i.e., entities). Furthermore, the use of AI software is typically conditioned upon the acceptance of license terms, which often pass the liability for content onto the end user of the software. In all likelihood, the poster of the content will be liable, at least under a negligence theory. 

To mitigate these legal concerns, it is important to take certain precautions when using AI to generate blog articles. First and foremost, it is essential to ensure that the AI writing assistant being used is reliable and produces high-quality, original content. It is also important to properly credit any sources used in the content generated by the AI. Another important step is to have a clear agreement in place that specifies ownership of the content generated by the AI. This can help avoid any disputes over copyright ownership down the line. It is also a good idea to have a disclaimer on any AI-generated content that clarifies that an AI program generated the content and that the user is responsible for verifying the accuracy of the information presented. Those looking for an example may look at the last line of this article. 

In conclusion, while AI-powered writing assistants can be a valuable tool for generating high-quality blog content, legal concerns must be considered. Copyright, plagiarism, and liability are all potential issues that must be addressed to ensure that the use of AI in content creation is legal and ethical. By taking the appropriate precautions, however, it is possible to harness the power of AI to create compelling and engaging blog articles while also protecting your legal interests.

Disclaimer: To be clear, this article was generated using the assistance of an AI program. A human has reviewed, revised, supplemented, and rewritten parts of this content. By doing so, an article that may have otherwise taken an hour and a half to write took about 45 minutes. Nevertheless, as with all blog articles, the reader is responsible for verifying the information presented and should not rely upon this article as providing any legal advice. 

Artificial Intelligence (AI) is trending. It can be found in our cars, our smartphones, our search engines, and even in our homes. 

AI is also profoundly disrupting major industries and professions. In more recent years, AI infiltrated the legal services industry and is now poised to fundamentally alter the practice of law. But AI will not drive lawyers to extinction. 

Instead, it will become an essential tool that we must embrace and learn to use in order to provide optimal representation to our clients. Put differently, AI will only eliminate the need for lawyers who are unprepared or unwilling to use it.

There are two types of AI, hard and soft. Hard AI includes machines thinking like humans. Soft AI, on the other hand, involves training machines to do work that humans would ordinarily perform. In the case of soft AI, the machines are not thinking like humans but rather include a process through which the computers can complete tasks and learn as they go. Within the broader category of AI, there is also Machine Learning (ML) and Deep Learning. The primary aim of ML is to allow computers to learn automatically without human intervention. While Deep Learning, a smaller subset of ML, allows computers to independently classify images, generate automatic handwriting, colorize black and white images, or add sound to silent movies.  

Importantly, AI is already assisting the legal services industry in several key respects. Legal research has been at the forefront of incorporating AI into the legal practice. 

Legal research tools rely upon user-generated search terms and parameters to allow lawyers to search legal rulings and statutes across multiple jurisdictions in a matter of minutes. 

Some publishing companies offer enhanced features that employ AI to evaluate written briefs in order to assess the strengths and weaknesses of the arguments made, identify gaps in the underlying research, and predict the potential outcomes of these submissions. 

Thus, AI has gone beyond merely finding and categorizing results to providing a predictive analysis.

AI has been employed with Electronic-Discovery (E-Discovery) for years, and its use in this arena is now well-established. E-discovery software allows lawyers to use specific search terms and parameters to quickly scan and retrieve relevant, responsive, and non-privileged information for a case. Existing AI can also organize and summarize these documents to allow easy access.

Most law firms have abandoned paper files in favor of electronic files. Document management software, a simpler form of AI, allows lawyers to code, organize, store, and search documents, all while protecting confidentiality and privilege.

More recently, AI has been deployed in expertise automation, which involves accumulating legal knowledge into software that clients and lawyers alike can use to assist in particular legal disputes. For example, software has been developed that can assist individuals in drafting wills or partitioning property through divorce or other proceedings. User input is required for expertise automation, but this AI facilitates access to legal services for those who would not otherwise have the resources to retain an attorney.

Most applications of AI in the legal profession require the input, management, and oversight of attorneys. That is because the majority of widespread AI technologies produce data-based solutions to specific problems. The future of AI in the legal profession will include more automated services, such as preparing initial drafts of contracts or legal briefs. But it is important to understand that there are practical limitations to the use of AI and, hence, its ability to fully automate the need for lawyers. AI cannot replicate or replace the need for human judgment, empathy, creativity, and adaptability. For example, AI cannot present a compelling case to a jury. Nor can AI replicate creative, persuasive writing required in appellate briefs.  

So far, large language model-based systems, such as ChatGPT, have shown flaws in their ability to delve into creative writing. AI does not perfectly replicate human thought processes and, as a result, can generate bizarre or sometimes false results. As one legal scholar noted, ChatGPT found a legal authority that was on all-fours with what was requested. The problem, however, was that the case did not exist in real life. (See Spoehel, Jay “Will AI replace lawyers? Two legal experts weigh in”, Fox Business: https://www.foxbusiness.com/technology/artificial-intelligence-replace-lawyers-two-legal-experts-weigh-in).

Additionally, because AI draws upon existing data, there are practical limitations to its efficacy. Existing data may be tainted by bias, thereby skewing the results. Furthermore, the rules of law and precedent are not as steadfast as computer coding, and AI may not accurately or quickly adapt to these changes. 

Nonetheless, law practices must embrace these technological advances and be prepared to deploy them to further their clients’ interests and goals.

In 2012, the American Bar Association added a comment to the rule governing an attorney’s obligation to provide “competent representation to a client” that espoused the notion that the attorney must understand “the benefits and risks associated with relevant technology….” While the scope of this is ever-changing, it is easy to anticipate the inclusion of relevant AI technologies in the not-too-distant future. 

When it comes to AI, however, the ABA model rules do not mandate that lawyers become computer coders. Instead, lawyers will need a working knowledge and understanding of the available AI tools. Lawyers will need to be able to know which tools will best meet their clients’ needs and, more importantly, understand how to use those tools. The savvy lawyer will know what queries to run, how best to construct them, and how to evaluate and structure the results in order to devise a cohesive action item or argument on behalf of their client. AI will not, in the end, render the legal profession obsolete but will drive to extinction those professionals who refuse to embrace it.

In Gauthreaux v. The City of Gretna, 22-424 (La. App. 5 Cir. 3/29/23), ___ So.3d ___, 2023 WL 2674191, Louisiana’s Fifth Circuit Court of Appeal held that Louisiana’s statutory employment protections related to sex did not extend to sexual orientation and declined to extend the United States Supreme Court’s Bostock v. Clayton County, Georgia decision to claims arising under state law. The Louisiana Court of Appeal affirmed the decision of the trial court and dismissed the case for no cause of action. The Court of Appeal reasoned that the Louisiana Employment Discrimination Law, specifically La.R.S. 23:332, does not provide protections for persons based on their sexual orientation or status as a transgender person.

Previously, in Bostock, the United States Supreme Court held that the prohibition on sex discrimination under Title VII of the Civil Rights Act of 1964 includes protections from discrimination based upon sexual orientation and transgender status. Writing for the six Justice majority, Justice Neil Gorsuch stated, “An individual’s homosexuality or transgender status is not relevant to employment decisions. That’s because it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex . . . Again, the individual employee’s sex plays an unmistakable and impermissible role in the discharge decision.” Bostock v. Clayton County, Georgia, 590 U.S. ___, ___, 140 S.Ct. 1731, 1741-42 (2020). Prior to the Bostock decision, courts were split on whether Title VII extended protections based on one’s sexual orientation or transgender status. Although the Bostock Court expanded the meaning of sex discrimination under Title VII, the Court made it clear that its opinion did not address issues such as bathroom assignments, dress code policies, locker room assignments, preferred pronouns, and, most notably, Bostock’s applicability to state law. Justice Gorsuch affirmed that the question the Court was deciding was “whether an employer who fires someone simply for homosexual or transgender or otherwise discriminated against the individual ‘because of such individual’s sex.’” Id. at ___, 140 S.Ct. 1731,1753.

Like many other states, Louisiana provides for protections based upon race, age, sex, and other protected classifications, some of which parallel federal law. Louisiana courts have held that the state’s protections based upon sex are similar to Title VII and extended Title VII’s jurisprudence to Louisiana’s parallel statutory claims.

In Gauthreaux, the City of Gretna terminated the plaintiff for misconduct, sexual harassment, dishonesty, prior incidents of sexual harassment, and insubordination. The plaintiff asserted that he was never disciplined for any of these issues, and therefore, they were a pretext for his termination. The plaintiff maintained that the true reason for his termination was his protected status as a LGTBQ+ male. The plaintiff alleged that a co-worker made sexual advances toward him, and that the plaintiff confronted the co-worker and inquired about the alleged sexual advances. In turn, the co-worker reported the plaintiff for sexual harassment. The plaintiff argued that had he been a female or a non-LGTBQ+ male he would not have suffered the same discrimination or termination. Further, the plaintiff asserted that he was protected by La.R.S. 23:332 based on his sexual orientation because La.R.S. 23:332 closely parallels Title VII, and the Supreme Court in Bostock extended protections under Title VII based upon sex to include sexual orientation and transgender status. The trial court disagreed and dismissed the suit, and the Court of Appeal affirmed.

The Court of Appeal was unpersuaded by the plaintiff’s argument that La.R.S. 23:332 extends to protections based on sexual orientation because of its close relation to Title VII and Bostock’s expansion of Title VII. Citing Bostock, the Court of Appeal expressly noted that “the majority opinion in Bostock states that the only law it considered in rendering its opinion was Title VII, specifically stating that ‘none of these other [federal or state laws that prohibit sex discrimination] are before us . . .’” The Court of Appeal acknowledged Bostock as persuasive; however, with respect to Louisiana state law, Louisiana courts are not bound by the Supreme Court’s interpretation of Title VII and its holding that sex discrimination includes discrimination based on one’s sexual orientation or status as a transgender person, and the Court of Appeal declined to extend Bostock to La.R.S. 23:335.

The Gauthreaux decision is controlling in the Louisiana Fifth Circuit Court of Appeal, but other state and federal courts may see Gauthreaux as persuasive. Although the Louisiana Fifth Circuit ruled against the plaintiff, the plaintiff may seek a rehearing or may seek review by the Louisiana Supreme Court, so the issue may not be settled yet (even in the Louisiana Fifth Circuit).

For additional information, please contact: Ed Hardin at (225) 382-3458 or Shearil Matthews at (225) 382-3450.

A business owner in Louisiana who wishes to dissolve his or her non-operating LLC may run across information demonstrating how to dissolve the LLC with the Louisiana Secretary of State using an affidavit provided by the Secretary of State. Although this can be a valid method of dissolving an LLC, business owners should beware that dissolving the LLC via this method (also known as “short form dissolution”) may leave him or her open to future liability.

In the section authorizing this form of dissolution, Louisiana Revised Statute § 12:1335.1(A) provides in pertinent part that after dissolution of an LLC via affidavit with the Secretary of State:

the members, or the organizer if no membership interests have been issued, shall be personally liable for any debts or other claims against the limited liability company in proportion to their ownership interest in the company. (Emphasis added.)

It is important for business owners to understand the implications of dissolving an LLC via short form dissolution and to understand that this short form dissolution may leave them open to continued personal liability even after the business has been dissolved.

Business owners should not be dissuaded from dissolving their non-operating LLC, however, as leaving the non-operating business in “active” status can also represent continued liabilities and other issues. Instead, the business owner should consider long form dissolution, to achieve peace of mind. Long form dissolution which can be achieved by following the proper protocols set forth in Louisiana Revised Statute § 12:1338, which, if done properly, can provide the former business owner(s) with an added layer of protection by creating a three (3) year peremptive period after which time all claims which have not been already filed against the LLC already may be time barred “perpetually and peremptorily.”

To obtain the protections of this peremptive period, the business must first dissolve the LLC in accordance with Louisiana Revised Statute § 12:1334 by an authorized act of consent from the LLC performed in agreement with its formative documents (such as its operating agreement). The LLC must then “wind up” its business through winding up and liquidation and perform the requirements of Louisiana Revised Statute § 12:1338 which includes, among other things, the posting of two (2) separate legal notices in a local newspaper and the filing of certain documents with the Louisiana Secretary of State.

For more information on how to properly dissolve your LLC or other business form via long form in order to avoid personal liability, contact a trusted business lawyer for advice particular to your situation.

UPDATEIn its Action on Decision (AOD 2023-01, 2023-10 IRB 502), the Internal Revenue Service (“IRS”) announced its acquiescence to the holding of the Fifth Circuit in Trafigura Trading LLC v. United States, No. 21-20127, 29 F.4th 286 (5th Cir. 2022), i.e., that Internal Revenue Code (“IRC”) Section 4611(b)(1)(A) imposes a tax on exports in violation of the Export Clause of the United States Constitution. Although the IRS disagrees with the holding, it will follow the decision in all circuits in the interest of sound tax administration. This blog post was originally published in October 2022 and has been updated to reflect these developments.

On Monday, October 24, the United States Department of Justice (the “DOJ”) confirmed that it did not appeal the Court of Appeals for the Fifth Circuit’s decision in Trafigura Trading LLC v. United States, No. 21-20127, 29 F.4th 286 (5th Cir. 2022). The Fifth Circuit invalidated the federal tax on domestic crude oil exported from the United States as unconstitutional. The DOJ also provided a letter to House Speaker Nancy Pelosi explaining its decision and reaffirming its commitment to defending the oil export tax in other circuits. The Fifth Circuit’s finding that the oil export tax is unconstitutional and the DOJ’s decision not to appeal create both a refund opportunity and considerable uncertainty for taxpayers. In Trafigura Trading, the Fifth Circuit found that the oil export tax violated the Export Clause under Article I, section 9, Clause 5 of the United States Constitution, which bans taxes or duties on articles exported from any state. Any taxpayer that previously paid the tax should consider filing refund claims on a timely basis before the statute of limitations on refunds prevents recovery of these amounts.

Tax on Exported Crude Oil Held Unconstitutional

The tax on exported crude oil is imposed by IRC Section 4611(b) as one of the “Environmental Taxes” under Subtitle D (Miscellaneous Excise Taxes). The tax was originally imposed in 1980 but exports of crude oil were heavily restricted by the Bureau of Industry and Security until 2016.[1] The tax applies to domestic crude oil that is exported from the United States, at a rate of nine cents per barrel (after 2016). The tax is due quarterly, and the return must be filed on the last day of the first calendar month following the quarter for which it is made.[2] Proceeds from the tax go into the Oil Spill Liability Fund (“the Fund”).

Trafigura Trading, the taxpayer, sought a refund of over four million dollars in taxes paid between tax years 2014 and 2017 under IRC Section 4611(b). Trafigura Trading argued that the tax was unconstitutional under the Export Clause. The IRS audit division denied the refund request, and the IRS appeals division denied Trafigura’s protest of the refund claim denial because it “does not consider arguments based on constitutional grounds.”

When Trafigura challenged the denial, the government argued that the levy was not a prohibited tax on exports but a “user fee”, citing United States v. U.S. Shoe, 523 U.S. 360 (1998), and Pace v. Burgess, 92 U.S. 372 (1875) in support of that proposition. The United States District Court for the Southern District of Texas disagreed and granted Trafigura Trading’s motion for summary judgment.

In considering the government’s appeal, the Fifth Circuit looked to the historical context of the Export Clause and noted that delegates to the constitutional convention from the southern states (the nation’s then primary exporters) considered the Export Clause so important that there would have been no Constitution without it. The Appeals Court therefore determined that the ban on export taxes was meant to be unqualified and absolute. Hence, the government’s only defense was to show that the “tax” was, despite its name, a “user fee.”

In order to qualify as a “user fee,” however, the charge contained in IRC Section 4611(b) would have to satisfy a two-part test articulated by the United States Supreme Court in U.S. Shoe and Pace. First, the charge must not be based on the quantity or value of the exported oil – if it was, it was more likely a tax. Second, the charge must “fairly match” or “correlate reliability” with the Fund’s services to exporters.

As to the first part of the test, the government admitted that the charge was based on the volume of oil exported. The tax failed the second part of the test because, as noted by the Appeals Court, the Fund is mainly used to provide reimbursement for oil spill cleanup costs above a statutory cap, to cover costs incurred by federal, state, and Indian tribe trustees for natural resource damage assessment and restoration, and to support research and development on oil pollution. The Appeals Court held that these were not services provided to exporters in return for the charge as a “value-for-value transaction” but were instead “a mishmash of anti-pollution measures for the general benefit of society.” Even if exporters benefitted indirectly from these measures, the same could be said for any tax. For those reasons, the Court held that the charge under IRC Section 4611(b) was a tax and not a “user fee.” As a result, the Appeals Court affirmed the decision of the District Court, and ruled that the tax under IRC Section 4611(b) violated the Export Clause and could not be enforced by the government.

Refund Implications for Taxpayers

Of immediate concern to taxpayers is that the statute of limitations for filing a refund claim expires the later of three years from the date the return was filed or two years from the date the tax was paid.[3] As a result, taxpayers are running out of time to file potential refund claims for recovery of taxes paid in prior years under IRC Section 4611(b). Until the issue is ultimately resolved, taxpayers should consider continuing to file refund claims for open periods.

The DOJ’s decision not to appeal the Fifth Circuit’s decision, highlights one of the longstanding issues with our system of judicial review of tax matters – that authoritative rules to resolve a tax controversy may not be determined for a protracted period of time.[4] In this case, the DOJ’s decision not to appeal causes considerable uncertainty for taxpayers because, absent a legislative fix, taxpayers with materially similar facts may have different tax consequences based solely on whether their challenge to the tax would be subject to the jurisdiction of the Fifth Circuit. This uncertainty will persist until the statute is amended in a manner that renders it constitutional or the United States Supreme Court definitively rules on the issue.

Alleviating some of this uncertainty, in March 2023, the IRS in its Action on Decision (AOD 2023-01, 2023-10 IRB 502) announced that it acquiesces to the Fifth Circuit’s holding that IRC Section 4611(b)(1)(A) imposes a tax on exports in violation of the Export Clause. The IRS stated that although it disagrees with the holding, it will follow the decision in all circuits in the interest of sound tax administration. This implies that the IRS will apply the Fifth Circuit’s decision in disposing of cases in all circuits with the same controlling facts but could cease to do so if the decision is superseded by new legislation, regulations, rulings, cases or Actions on Decisions.

In addition to considering whether to file refund claims related to past tax periods, a taxpayer subject to the tax should also retain necessary documentation and consider filing refund claims on a timely basis with respect to these payments in order to preserve the right to recover these amounts from IRS. Taxpayers outside of the Fifth Circuit should also consider filing timely refund claims to protect their right to recover these amounts as the issue is unresolved and may ultimately be decided in favor of taxpayers, and also given that the IRS has announced that it will follow the Fifth Circuit’s decision in all circuits (unless the controlling facts vary). Finally, taxpayers should monitor any proposed amendments to IRC 4611.

For additional information, please contact: Jaye Calhoun at (504) 293-5936 or Willie Kolarik at (225) 382-3441.

[1] https://www.bis.doc.gov/index.php/documents/pdfs/1462-crude-oil-final-rule-5-12-1016/file

[2] Treas. Reg. 40.6071(a)-1(a).

[3] IRC Section 6511.

[4] Edwin N. Griswold, The Need for a Court of Tax Appeals, 57 Harv.L.Rev. 1153 (1944) (available at: https://repository.uchastings.edu/cgi/viewcontent.cgi?article=1020&context=tax).

Foreclosure proceedings in Louisiana can be challenging for lenders and servicers not familiar with the Bayou State’s particular procedures. This blog post provides a brief introduction to Louisiana’s foreclosure process focused on mortgaged commercial or industrial property.

First and foremost, Louisiana is a judicial-foreclosure state. The foreclosing creditor must request and obtain a court order authorizing the seizure and sale of the mortgaged property before the foreclosure sale can happen. If the mortgage allows for foreclosure by executory process, the order authorizing a foreclosure sale on that mortgage may be issued within days of a foreclosure petition being filed. A later blog post will discuss the differences between “executory process” and “ordinary process” foreclosures in Louisiana. Louisiana does not allow a foreclosure sale to occur without some judicial process.

Second, in addition to a judge, Louisiana foreclosure procedure also involves participation from local law enforcement. The Sheriff for the parish (read “county”) where the immovable property and improvements are located must constructively seize the property and post public notices about the seizure and the scheduled sale date. (In Louisiana, the proper legal name for real estate that can be encumbered by a mortgage is “immovable property.” Tangible things that can generally be encumbered by a security agreement and a UCC-1 are called “movable property.”)

The Sheriff and the foreclosing creditor’s attorney will both work to ensure that the required notices are posted, advertised in the newspaper, and sent to all Mennonite notice parties before the foreclosure sale occurs. Having the Sheriff involved also helps to keep the peace during the entire process. In exchange for this work, the Sheriff is entitled to a commission equal to three (3%) percent of the price that the property brings at the foreclosure auction, called a “Sheriff’s sale” here. The foreclosing creditor can credit bid its debt at the Sheriff’s sale, but it must pay the Sheriff’s commission and all costs of the sale in cash before the Sheriff will convey title to the property.

For servicers contemplating foreclosure on commercial or industrial property worth millions of dollars, the prospect of a three (3%) commission, paid in cash, can be problematic. Sometimes lenders and servicers can reduce their out-of-pocket expense on an already-non-performing loan by filing the foreclosure lawsuit in federal court instead of state court. The U.S. Marshal’s Office, not the local Sheriff, will oversee the foreclosure process arising from a foreclosure a lawsuit filed in federal court. The U.S. Marshal’s commission is calculated at one and one-half (1.5%) percent of the sale price (after the first $1,000 of sale proceeds), and is capped by federal regulation at $50,000. See 28 CFR § 0.114(h). There are pros and cons to filing a foreclosure lawsuit in federal court instead of in state court. A later blog post will discuss the procedures for foreclosures in federal court in Louisiana.

An attorney experienced with Louisiana’s foreclosure laws and procedures will be able to help a servicer determine if a federal court foreclosure is possible, and if federal court may be a better path than state court in light of the particular property, borrower, and loan documents involved, among other considerations. Kean Miller works with lender, servicers, and law firms from across the country on workouts, foreclosures, dation en paiement (read “deed in lieu”), note sales, and commercial bankruptcy cases.

Earlier this month, the U.S. Supreme Court granted cert in the case of Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC. The question before the Court is whether, under federal admiralty law, a choice-of-law clause in a marine insurance policy can be rendered unenforceable if enforcement is contrary to a strong public policy of the state whose law is displaced.

The Supreme Court’s resolution of this rather hair-splitting dispute is likely to have significant implications for the marine insurance industry in particular, and could even extend to non-maritime insurers as well. The Court is poised either to expose a chink in the armor of choice-of-law clauses and their presumed enforceability under maritime law, or to shore up the defense that such clauses afford to insurers. And depending on how broad the Court’s ruling is, litigants in non-maritime contexts are sure to take their cue accordingly.

The Great Lakes case arose in 2019, when a yacht owned by Raiders Retreat Realty Co., LLC ran aground near Fort Lauderdale, Florida, sustaining at least $300,000 in damage. Raiders had insured the yacht with hull coverage through a policy from marine insurer Great Lakes Insurance SE. Raiders submitted a claim to Great Lakes, which rejected it. The insurer claimed that the yacht’s fire-extinguishing equipment was not timely recertified or inspected and that Raiders had misrepresented the state of this equipment in the past, thereby voiding the policy.

Great Lakes then filed suit in the U.S. District Court for the Eastern District of Pennsylvania to determine whether the policy was in fact void. Raiders denied any misrepresentation and brought five counterclaims, including breach of fiduciary duty, bad faith, and a violation of Pennsylvania’s Unfair Trade Practices Law.

Great Lakes moved for judgment on the pleadings on these three counterclaims on the grounds that each arose under Pennsylvania law and therefore contravened the insurance policy’s choice-of-law provision. That clause stated:

It is hereby agreed that any dispute arising hereunder shall be adjudicated according to well established, entrenched principles and precedents of substantive United States Federal Admiralty law and practice but where no such well established, entrenched precedent exists, this insuring agreement is subject to the substantive laws of the State of New York.

Raiders argued that the choice-of-law clause was unenforceable because applying New York law would frustrate Pennsylvania’s strong public policy of punishing insurers that deny coverage in bad faith.

The district court disagreed, holding that “the public policy of a state where a case was filed cannot override the presumptive validity, under federal maritime choice-of-law principles, of a provision in a marine insurance contract.” The key to this result was the court’s interpretation of the Supreme Court’s decision in The Bremen v. Zapata Off-Shore Co. as relevant to choice-of-forum clauses, not choice-of-law clauses.

In The Bremen, the Supreme Court noted that “[a] contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.” Distinguishing The Bremen, the district court determined that in the context of choice-of-law provisions, presumptive enforceability was the rule. Therefore, New York law should apply as the parties contracted, the court held, rendering Raiders’ Pennsylvania-based counterclaims inappropriate.

Raiders appealed the dismissal of its three counterclaims, and the Third Circuit reversed the lower court’s ruling. The appellate court reasoned that the district court had construed The Bremen too narrowly, as only applying to forum clauses. Importantly, the court noted that other circuits, including the Fifth Circuit, have extended The Bremen to choice-of-law contexts.

The Third Circuit did not do away with the principle of the presumptive enforceability of choice-of-law provisions, but it determined that one exception to that rule is where a strong public policy of the forum state would be thwarted by enforcing the choice-of-law clause.

The Supreme Court’s agreement to hear Great Lakes signals one of two things: either the Court is ready to put the presumption back in presumptive enforceability, or instead place its seal of approval on a fairly significant exception to the enforcement of choice-of-law clauses in marine insurance policies.

Stay tuned for more coverage as this case further unfolds before the Supreme Court.