Brief Introduction:

On July 1, 2024, the Western District of Louisiana ruled in favor of the plaintiffs in the case, State of Louisiana et al. v. Joseph R. Biden Jr. et al. No. 2:24-CV-00406 (W.D. La. July 1, 2024), ordering that the Biden Administration’s ban on the export of liquified natural gas (LNG) be stayed in its entirety, effective immediately. Plaintiffs in this case are sixteen (16) states (Louisiana, Alabama, Alaska, Arkansas, Florida, Georgia, Kansas, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, Texas, Utah, West Virginia, and Wyoming) who jointly filed to challenge the Biden Administration’s LNG export ban to countries without a free trade agreement (“non-FTA countries”) in violation of the Administrative Procedure Act (“APA”), Congressional Review Act, and the United States Constitution. Under this ban, the Department of Energy (“DOE”) halted permit approvals to export LNG to non-PTA countries while the agency reviewed how the shipments affect climate change, the economy, and national security. The Court granted the plaintiffs’ request for a preliminary injunction, which will freeze the Biden Administration’s LNG ban in its entirety while litigation is pending and will stop the Administration’s delay of consideration of projects aimed at the exportation of LNG. This ruling has nationwide impacts.  

Top 2 Takeaways:

  1. The Biden Administration’s ban departs from historical precedent and the legal requirements for the approval process of LNG export licenses, especially considering the DOE’s relatively recent dismissal of a similar petition, stating that there is “no factual or legal basis” for “halt[ing] approval of pending applications to export LNG.” DOE, Order Denying Petition for Rulemaking on Exports of Liquified Natural Gas at 27 (July 18, 2023), https://perma.cc/TB8Y-56TV.
  • While the instant decision is a major win for the LNG industry, given the DOE can continue scrutinizing proposals for new LNG exports, the short-term practical effects of the ruling are likely to be minimal. This ban creates uncertainty for American citizens employed in LNG production and exportation and likely discourages new investments.

Substantive Content:

The United States is the largest producer and largest exporter of LNG in the world. In 2023, it was reported that 88.9% of the total U.S. LNG exports were to non-Free Trade Agreement countries, and the remaining 11.1% went to Free Trade Agreement countries. Natural Gas Imports and Exports Monthly February 2024.pdf (energy.gov). The domestic LNG market is not only crucial to the United States’ capital expenditures and job markets, but also critical to global energy markets.

In January of 2024, President Joe Biden and his administration announced a temporary and possibly indefinite hold on pending decisions of LNG exports. The DOE also announced that it was pausing determinations of applications to export LNG exports to all but eighteen (18) countries to “update the assessments used to inform whether additional LNG export authorization requests to non-FTA countries are in the public interest.”

Leading foreign and domestic business groups seeking to quash their dependence on Russian natural gas have expressed concern. In a letter dated January 26, 2024, the U.S. Chamber of Commerce, Business Europe and Keidanren (Japan Business Federation) wrote to President Biden expressing concern with the pause on new LNG export license applications. https://www.keidanren.or.jp/en/policy/2024/011.pdf. The groups noted their dependence on U.S. LNG imports for energy security and urged President Biden to reconsider his decision “in light of the unique and vital role of American natural gas in meeting the critical energy security and Paris Agreement objectives that our nations share.” Id. Similarly, on March 18, 2024, nearly 150 state and local chambers from thirty-five states joined the U.S. Chamber of Commerce in a letter to the DOE expressing their concerns about the recent moratorium on LNG export license applications. https://www.uschamber.com/assets/documents/240318_Coalition_LNGExports_Sec.-Granholm.pdf. Sixteen states – including Louisiana, Texas, and West Virginia – took matters a step further and filed a civil action in the United States District Court for the Western District of Louisiana.

These sixteen states filed suit against President Biden and the DOE moving for a preliminary injunction on the Biden Administration’s LNG export ban. The states argued that the ban exceeded statutory authority, abused the federal government’s discretionary authority, posed significant harm to the economy, and violated the Natural Gas Act (NGA), which governs LNG exports and strives to “encourage the orderly development of plentiful supplies of electricity and natural gas at reasonable prices.” More importantly for purposes of the injunction, Plaintiffs argued that the LNG ban inflicted significant harms to each individual state, including loss of jobs and revenue streams. Louisiana, for example, is home to 18,000 jobs rooted in LNG production and export. LNG production has contributed to more than $175 million in state tax revenue and had over $4.4 billion in statewide economic impact. Thus, the LNG export ban could cost Louisiana thousands of jobs and deprive the state of weighty revenues.

The Biden Administration responded to plaintiffs’ Complaint and Motion for Preliminary Injunction with a Motion to Dismiss for Failure to State a Claim and a Motion to Dismiss for Lack of Jurisdiction. Defendants contended (1) that the Western District of Louisiana did not have jurisdiction, (2) Plaintiffs failed to establish standing, (3) Plaintiffs did not challenge a final agency action under the APA, and (4) Plaintiffs failed to state a claim for relief.

Less than two weeks after the hearing, on July 1, 2024, U.S. District Judge James Cain, Jr. ruled in favor of the plaintiffs, granting the preliminary injunction and finding that the states demonstrated there was “evidence of harm” caused by the ban “specifically to Louisiana, Texas, and West Virginia in the loss of revenues, market share, and deprivation of a procedural right.” DOE, Order Denying Petition for Rulemaking on Exports of Liquified Natural Gas at 46 (July 18, 2023), https://perma.cc/TB8Y-56TV. In temporarily blocking the ban on new LNG approvals, Judge Cain stated that the states will likely succeed in their case, citing the evidence the states presented showing loss of revenues and deferred investments in LNG projects due to the Biden Administration’s actions and noting that the DOE had failed to provide a “detailed justification” for stopping the permit approval process when it had continued to process applications during previous updates to the agency’s analyses. The Court also noted its confusion with the Biden Administration’s decision to halt the LNG approval process in the first place, given the Natural Gas Act’s “express language that applications are to be processed expeditiously” and the DOE’s July 2023 decision on essentially the same topic. The Court was of course referring to the DOE’s July 2023 order denying a petition for rulemaking on LNG exports, in which the DOE acknowledged that “there is no factual or legal basis” to “halt approval of pending applications to export LNG.” DOE, Order Denying Petition for Rulemaking on Exports of Liquified Natural Gas at 27 (July 18, 2023), https://perma.cc/TB8Y-56TV. The Court had strong words regarding the DOE’s decision to halt the permit approval process for LNG exports to non-FTA countries stating that it is “completely without reason or logic and is perhaps the epiphany of ideocracy.”

The Biden Administration, fighting to uphold the ban, filed an appeal to the Fifth Circuit Court of Appeals on August 5, 2024.

Conclusion:

This victory for the energy industry may be short-lived as everyday Americans, business groups, and global energy markets await the Fifth Circuit Court of Appeals decision on whether to permanently strike down the LNG ban. The potential implications of this ruling on the global natural gas supply are significant, as countries in Europe and Asia, in need of a reliable natural gas supply, may now be forced to seek natural gas from sources other than the United States.

Kean Miller will continue to monitor these developments and the pending appeal. For questions or to discuss any of the foregoing, please contact Kean Miller’s Energy/Environmental Team.

As previously reported, on April 23, 2024, by a vote of 3-2 along party lines, the Federal Trade Commission (FTC) voted to approve a final rule effectively banning employers from entering into non-compete agreements with their workers, with few limited exceptions (the “Rule”). The Rule was set to go into effect on September 4, 2024.

But, on August 20, 2024, the federal district court for the Northern District of Texas entered a Memorandum Opinion and Order and a Final Judgment in the Ryan LLC v. Federal Trade Commission case, holding that the Rule is unlawful and setting it aside. Pursuant to the court’s order, the Rule shall not be enforced or otherwise take effect on September 4, 2024, or thereafter. And although the FTC sought to limit the application of the court’s order to the named plaintiffs in the lawsuit only, the court confirmed the relevant law did not contemplate party-specific relief, that setting aside agency action has nationwide effect, and the ruling affects persons in all judicial districts equally.

Although the FTC will likely appeal the district court’s ruling, for the time being, all employers can halt any preparations they were taking and/or planning to take in anticipation of the Rule’s September 4, 2024 effective date. As a result of the district court’s ruling, employers: (1) may continue drafting and entering into non-compete agreements with their workers consistent with applicable state and other laws; (2) will no longer be required to rescind existing non-compete agreements that otherwise comply with applicable laws; and (3) are no longer required to provide individualized notice of rescission to current and former workers bound by non-compete agreements.

During the 2024 Regular Session of the Louisiana Legislature, the Louisiana Natural Resources Trust Authority was created to address a longstanding problem involving abandoned or orphan wells. This Trust Authority will allow the State of Louisiana to revamp its approach to orphan well management and finance, with goals of responsible development and cost savings across the industry.[1]

The Louisiana Department of Energy and Natural Resources (“DENR”), led by Secretary Tyler Gray and assistant secretary and former Kean Miller attorney, Andrew Young, will take charge of this project. DENR has previously identified as many as 4,600 orphaned or abandoned wells in Louisiana which are characterized as having no responsive owner.[2]

Act No. 727 allows DENR the financial flexibility develop a more robust system of plugging abandoned wells, protecting the environment, preventing serious safety hazards, and allowing operators to do business more easily in Louisiana going forward.[3] This is a win-win for the environment, the people of Louisiana, and our great oil and gas industry.

[1] advocate-la.newsmemory.com/?publink=43fa68ee2_134d3d4

Program targets orphan wells – The Advocate (newsmemory.com)

[2] www.dnr.louisiana.gov/index.cfm/page/1622

[3] www.legis.la.gov/legis/ViewDocument.aspx?d=1382753

The 2024 Regular Session of the Louisiana Legislature ended on June 3, 2024. The first regular session of the new term saw legislation on several hot-button issues, including criminal justice reform, reorganization of state governmental entities, insurance reform, education, public access to government records, public libraries, protection of the Louisiana seafood industry, and improvements to correctional facilities. Legislators introduced 1,491 bills (982 House/509 Senate), 42 constitutional amendments, and 771 resolutions and study requests. 792 bills became law. The Legislature also approved a $42.1 billion state operating budget to fund executive department operations.[1]

The Legislature also enacted several new laws affecting energy production and environment regulation. Legislation was passed on several topics including carbon capture and sequestration, air quality monitoring, the sale of electric vehicles, federal revenue sharing for alternative energy projects, liquified natural gas (“LNG”) exports, and changes to “dig law,” among others. Many of these laws go into effect on August 1, 2024, while others became effective upon signature of the Governor, or another date prescribed by legislation. This article offers a synopsis of relevant changes that were made to energy and environmental laws, as well as the regulatory agencies that enforce them.

Environmental Quality & Natural Resources

HB 474 (Act No. 473) affects wetland assimilation projects, which are natural wetlands into which secondarily treated and disinfected effluent from a wastewater treatment plant is discharged to improve water quality and wetland sustainability. HB 474 requires that if wetland assimilation projects discharge treated wastewater, warning signs must be posted near the entrance to wildlife management areas affected by the discharge.[2]

SB 432 (Act No. 494) added requirements for groundwater well meters and monitoring devices for wells capable of drawing 50,000 gallons per day that operate within the Capital Area Groundwater Conservation District. The new law provides that if well owners/operators can comply with the new statutory requirements, secondary monitoring devices from the Capital Area Groundwater Conservation Commission are not required. The new law also adds appointment procedures for industrial members of the Commission.

SB 503 (Act No. 181) creates the Community Air Monitoring Reliability Act to establish standards for community air monitoring programs. The new law provides that air monitoring data collected by third party organizations can be used by the Louisiana Department of Environmental Quality if the data meets federally approved standards for testing and monitoring. The new law also provides that third party data can be used for enforcement proceedings against emission sources for potential violations of the source’s air permits so long as there is other corroborating evidence that a violation has occurred. The new law became effective upon signature of the Governor.

SCR 30 urges and requests the Louisiana Department of Environmental Quality to study the implementation of real-time community air monitoring and notification systems. The resolution creates the Community Air Monitoring and Notification Task Force and requests that it study the costs and benefits of implementation of such systems in communities disproportionately impacted by the negative effects of air pollution.

Coastal Protection & Restoration

HB 806 (Act No. 726) makes changes to the membership of the Coastal Protection and Restoration Authority Board. It adds three at large members who are appointed by the governor and removes the secretaries of the Department of Transportation and Development and the Department of Economic Development, the commissioners of administration, agriculture, and insurance, and the director of the Governor’s Office of Homeland Security and Emergency Preparedness. The new law became effective upon signature of the Governor.

HB 300 (Act No. 408) proposes a constitutional amendment to require all federal revenues generated from alternative or renewable energy production on the Outer Continental Shelf be allocated to the Coastal Protection and Restoration Fund. Current law already allocates revenues generated from oil and gas activity on the Outer Continental Shelf to coastal restoration; this amendment would add funds generated by all other energy activities. The constitutional amendment will be considered by the voters on the November 5, 2024 ballot. HB 305 (Act No. 684) is a companion to HB 300 that, if the constitutional amendment passes, will codify the amendment’s provisions, and provide funding allocations for projects related to hurricane protection and repairs to infrastructure impacted by coastal land loss.

Carbon Capture & Sequestration (CCS)

HB 966 (Act No. 645) allows the commissioner of conservation to order unitization for CCS projects under certain conditions.[3] The commissioner of conservation is authorized to order unitization for a public and necessary purpose with consent of 75% of the property owners within the area of the proposed unit. HB 966 provides that property owners within the unit will receive compensation and requires notice to all mineral interest owners when an application for a CCS injection well permit is completed. It requires the commissioner to determine whether the area of review for a CCS project is within a 500-foot radius of a proposed drilling site and prohibits CCS wells in a unit from being within 500 feet of an inhabited dwelling. It also establishes procedures for authorizing unitization, judicial review of unitization orders and terms, and modification of units. Existing agreements, however, will not be affected by the unitization order.

HB 492 (Act No. 620), a companion bill to HB 966, provides clarification on the rights of owners of land as it relates to eminent domain by requiring a certificate of public necessity and convenience prior to the exercise of eminent domain for CCS facilities and pipelines. It also prohibits expropriation of underground storage rights.

HB 937 (Act No. 461) pertains to landowner liability for carbon dioxide sequestration and clarifies which parties are responsible for obligations established by law. Under HB 937, surface and pore space owners are not liable for any claims related to CCS simply because they are the property owner or due to the fact that they have entered a contract to allow their property to be used for CCS projects.

HB 516 (Act No. 702) requires CCS operators to have an emergency response plan and record maps of CCS projects in affected parishes. It prohibits a CCS well within 500 feet of schools, inhabited dwellings that do not belong to the CCS operator, and health care facilities. It also requires CCS operators to conduct periodic ground water quality testing and monitoring above the stored carbon dioxide and report to the office of conservation. The new law became effective upon signature of the Governor.

HB 169 (Act No. 415) changes current law by converting the established cap on damages for non-economic, or “general,” damages for injuries arising out of CCS projects from a “per occurrence” cap to a “per person” cap. As originally drafted, the bill would have removed the $250,000 damages cap altogether; however, the bill was amended in the House to retain the cap but convert it to a ‘per-person’ application.

HB 934 would have changed the allocation of carbon capture revenues and would have required that the distribution of funds for constitutional and statutory dedications also adhere to the new allocation formula provided by HB 934. However, the bill was vetoed by Governor Landry. In his veto message, the Governor stated that while he supported the sharing of CCS revenues, changes to constitutionally dedicated funds cannot be made through statute.

State Government Organization

HB 810 (Act No. 727) governs the organization, duties, and responsibility of the Department of Energy and Natural Resources (DENR) and creates three new offices with the DENR: (1) the Office of Enforcement, (2) the Office of Energy, and (3) the Office of Land and Water.

  • The Office of Enforcement’s duties are to inspect the regulated community and enforce the laws and regulations within its jurisdiction.
  • The Office of Energy is to manage functions and programs related to the alternative energy infrastructure and the unified energy data and information program.
  • The Office of Land and Water’s duties include managing state lands and water bottoms, issuing energy-related permits and leases on state lands and water bottoms, and managing surface waters of the state.

HB 810 also transfers the Office of the Oil Spill Coordinator from the Department of Public Safety and Corrections to DENR and creates the Natural Resources Trust Authority within DENR to manage grants, investments, and the financial obligations of the permitted community. Additionally, it adds powers and duties for the secretary (i.e., deployment and operation of energy infrastructure and energy and natural resources data and information program and reporting to the legislative oversight committee on termination of board and commission within the department every four (4) years). It also removes the independent operation of the Office of Conservation. HB 810 became effective on July 1, 2024.

HCR 18, SCR 36, and SCR 14 urge federal action on liquified natural gas (LNG) exports. SCR 14 urges the Department of Energy to consider the benefits of LNG exports, while HCR 18 urges the Biden Administration to resume consideration of applications and cites the disruption its “pause” in application approvals has on the global supply chain. SCR 36 requests that Congress block the Administration’s decision to pause export application approvals.

Alternative Energy

SB 268 (Act No. 327) creates a state sales tax rebate for the purchase of equipment, machinery, and other items used in lithium recovery activities. It caps the total rebates that can be granted to $100,000 for the program’s life and ends, or “sunsets,” the program on December 31, 2025. The new law became effective upon signature of the Governor.

HB 515 (Act No. 251) prohibits state governmental entities from restricting a private individual from buying or selling a vehicle that uses a combustion engine. The law does not, however, restrict the sale of electric vehicles.

HCR 64 creates the Clean Hydrogen Task Force to study the growing clean hydrogen industry in Louisiana. Louisiana has been a leading energy center for our nation, and hydrogen can be used as a substitute for conventional fossil fuels with considerably lower greenhouse gas emissions. One of the project’s goals is to make the Louisiana market more competitive in this sector.

Utilities & Infrastructure Security

HB 397 (Act No. 75), commonly referred to as the “One-Call” bill, provides relative to the Louisiana Underground Utilities and Facilities Damage Prevention Law. The largest change made through the legislation is the process for project ticket authorization. The bill also addresses excavations and utilities and allows marking of utilities in certain areas. The bill will allow work to continue a project without the need for an operator to refile project tickets at each project stage. Operators will also be notified when work starts. If an agreement cannot be reached with utility operators, the one-call ticket process can be used. The new law will become effective on January 1, 2025.

HB 507 (Act No. 565) changes the existing prohibition of unlawful entry of a critical infrastructure by adding water control structures, including floodgates or pump stations, wireline, wireless communication networks, and data network facilities to the definition of “critical infrastructure.” The bill also adds penalties for second offenses and offenses committed during a state of emergency.

Litigation

SB 355 (Act No. 765) provides that evidence of third-party litigation finance agreements is discoverable in all state civil actions.

Effective Date of Acts and Future Sessions

Unless otherwise specified in the legislative text, the effective date of all bills during the 2024 Legislative Session is August 1, 2024. The next regular session of the Legislature will begin on April 14, 2025, which will be a “fiscal” or “limited” session in which the Legislature may consider matters relating to state taxation.

It should be noted, however, that stakeholders and lawmakers considered the idea of holding a constitutional convention and also considered convening a limited special session in August or September for the purpose of amending Article VII of the state constitution prior to the fiscal session which convenes in April of next year. A decision was recently made to not convene a special session this year for the purposes of amending the Constitution.

Kean Miller will continue to monitor these developments. For questions or to discuss any of the foregoing, please contact Kean Miller’s Energy/Environmental Team.

[1] For more information about the State Operating Budget for the new fiscal year or other general information about the 2024 Regular Session or 2024 Special Session on criminal justice reform, please see the Louisiana House of Representatives Legislative Services “Session Wrap” summary report, which is available at https://www.house.louisiana.gov/Agendas_2024/2024%202ES-%20RS-Wraps.pdf.

[2] Act 473 became law without the Governor’s signature.

[3] Unitization, normally used for oil and gas projects, is the coordinated operation of a geological reservoir “by all the owners of rights in the separate tracts overlying the reservoir.” Jacqueline Lang Weaver & David F. Asmus, Unitizing Oil and Gas Fields Around the World: A Comparative Analysis of National Laws and Private Contracts, 28 HOUS. J. INT’L L. 3, 6 (2006).

On May 1, 2024, the U.S. 5th Circuit reversed an Eastern District of Louisiana decision based on a differing interpretation and application of the Supreme Court’s Lauritzen-Rhoditis factors; holding that the law of the flag state governed the injured mariner’s maritime law claims against the vessel operator.

In Ganpat v. Eastern Pacific Shipping PTE, Ltd., Kholkar Ganpat, an Indian citizen and seaman, contracted malaria while aboard the M/V STARGATE due to the ship’s alleged failure to stock enough anti-malaria medicine when it stopped at Savannah, Georgia. Ganpat became symptomatic, however, during the ship’s voyage from Savannah to Brazil. Upon reaching Brazil, Ganpat was hospitalized and had to have his toes amputated.

During Ganpat’s ordeal, the ship’s operator was Eastern Pacific Shipping (“EPS”), a Singaporean company, and the ship flew under the flag of Liberia. Ganpat was employed by a Liberian corporation, and his employment contract contained a clause providing that the agreement would be governed by and interpreted in accordance with the laws of the ship’s flag. A collective bargaining agreement was also incorporated into Ganpat’s employment contract. The ship was owned by a Liberian company.

In December 2018, Ganpat sued EPS in the Eastern District of Louisiana (“EDLA”) asserting Jones Act and U.S. General Maritime Law tort claims, as well as a claim for breach of his collective bargaining agreement. Notably, Ganpat did not sue the owner of the ship or his own employer. After consenting to jurisdiction in the EDLA, EPS sued Ganpat in India seeking an anti-suit injunction preventing the U.S. litigation. In turn, Ganpat sought his own anti-suit injunction against EPS’ suit in India. The EDLA granted Ganpat’s injunction, which EPS appealed. However, the 5th Circuit affirmed the decision, holding that EPS’ lawsuit in India was vexatious and oppressive enough to outweigh any comity concerns. EPS then sought writs with the U.S. Supreme Court, which was ultimately denied.

The EDLA was tasked next with determining what substantive law applied to Ganpat’s maritime claims. The district court concluded that U.S. law applied after analyzing the Lauritzen-Rhoditis factors. These factors include: (1) the place of the wrongful act; (2) the law of the flag; (3) the allegiance or domicile of the injured worker; (4) the allegiance of the defendant shipowner; (5) the place of the contract; (6) the inaccessibility of the foreign forum; (7) the law of the forum; and (8) the shipowner’s base of operations. The district court concluded that factors two, four, and eight pertained to the ship’s owner who was not sued, so they were inapplicable, while factors three and five favored Indian law. However, the latter factors traditionally do not carry much weight because a seaman’s work is transient and his place of contract fortuitous. Factor six was found to only be relevant in a forum non conveniens determination, which would not appear here. Finally, the district court found that factor seven favored U.S. law. Similarly, the district court concluded that this same analysis would apply to Ganpat’s collective bargaining agreement.

Thereafter, the EDLA’s ruling was appealed and Ganpat found himself back in the 5th Circuit. With respect to governing choice of law, the 5th Circuit held that “the only Lauritzen-Rhoditis factor that favored an application of U.S. law is the seventh factor—the law of the forum,” but noted that this factor is typically given “little weight” in choice of law determinations. The 5th Circuit also disagreed with the district court’s assessment that the “law of the flag” and the “base of operations” factors lack choice-of-law significance in cases where the shipowner is not a defendant because another party can act in place of the shipowner—like EPS. The fact that the allegedly tortious conduct occurred in Savannah, Georgia was also held to be fortuitous as EPS was visiting many other countries throughout the voyage as well. Lastly, the Court held that Liberian law applied to Ganpat’s breach of contract claim because his claim for disability was based on his employment contract, which contained a clear choice-of-law provision.

Thus, the 5th Circuit remanded the case back to the EDLA with instruction to apply Liberian law to Ganpat’s maritime tort and contract claims. Given the history of this case, it would not be surprising if Ganpat sought writs with the U.S. Supreme Court as EPS did after the last 5th Circuit decision.

An estimated 32 million companies are now facing new compliance obligations due to the Corporate Transparency Act (“CTA”), which aims to enhance transparency in corporate ownership and curb money laundering, terrorism financing and other financial crimes. The CTA, which took effect on January 1, 2024, represents a significant shift in the ownership information reporting obligations of corporations, limited liability companies and other business entities covered by the CTA. Companies subject to the CTA must report personal information about their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). By strategically revising its organizational documents, a company can help itself avoid pitfalls related to CTA compliance and the associated penalties for noncompliance.

Updating Organizational Documents

To comply with the CTA, reporting companies are required to collect personal information from persons deemed to be “beneficial owners” under the CTA, which could include shareholders, members, managers, directors, officers and other key employees, and then file with FinCEN an initial report with that information, known as a Benefit Ownership Information Report (“BOI Report”). Reporting companies must thereafter continuously report any changes to reported information within the relatively stringent deadlines imposed under the CTA. Although much of the information required under the CTA would need to be provided to the reporting company by the beneficial owners, it is the reporting company’s responsibility to report the information to FinCEN and the reporting company is ultimately liable for any failure to comply.

The collection of personal information from beneficial owners to comply with CTA reporting obligations could present challenges to reporting companies with numerous or reluctant beneficial owners. In order to prevent the risk of beneficial owners failing or refusing to provide the required information, companies should review and potentially revise their organizational documents to include protective language requiring beneficial owners to provide their information. Companies should consider adding CTA-specific provisions to any organizational document or agreement between the company and persons who could be deemed to be beneficial owners, including: (i) agreements governing the rights and obligations of equity owners of the reporting company, such as operating agreements, shareholder agreements and subscription agreements, and (ii) agreements that provide for the services and responsibilities of senior officers and key employees of the reporting company, including employment agreements, offer letters and executive services agreements.

These documents should include explicit provisions imposing an obligation on the beneficial owner to provide accurate beneficial ownership information and to timely advise the reporting company of any changes to such information, as required by the CTA. Specifically, CTA provisions should include: (i) an acknowledgment by the beneficial owner of the company’s obligation to report certain beneficial ownership information as a result of such person being deemed a beneficial owner under the CTA, (ii) a covenant that the beneficial owner will provide all requested information to the reporting company, as well as any changes to such information, and (iii) a representation and warranty by the beneficial owner as to the accuracy and completeness of the information provided to the company.

An individual may obtain a FinCEN Identifier (“FinCEN ID”) by providing, directly to FinCEN, the same information as the reporting company is required to provide regarding its beneficial owners in its BOI Report. The reporting company may then report the individual’s FinCEN ID on its BOI Report in lieu of listing specific information for that individual. Companies may consider including provisions recommending or requiring beneficial owners to obtain a FinCEN ID and that the beneficial owner’s obligations can be satisfied by providing their FinCEN ID to the company. Such provisions should also include an acknowledgment by the beneficial owner that they would be responsible for updating their FinCEN ID with any changes to their personal information.

Companies should also review and potentially revise confidentiality provisions in their organizational documents to permit disclosures required by law, including those mandated by the CTA.

Conclusion

Integrating these types of provisions in organizational documents can be a useful tool for companies that need to navigate these regulatory changes and mitigate the risk of noncompliance. For more information on the CTA and related compliance tips, see How Your Company Can Prepare for the Corporate Transparency Act.

Business owners can utilize Kean Miller’s CTA compliance evaluation and reporting platform to determine if their companies are required to comply with the CTA. The platform offers a compliance screening questionnaire and, if necessary, guides users through the collection and filing process.

In this final part of our discussion of the foreclosure process on commercial real estate in Louisiana, we are detailing the procedures involved in foreclosing on property in Louisiana utilizing federal court mechanisms. Similar to ordinary process foreclosures, foreclosure in federal court involves instituting a lawsuit against the mortgagor asking that the court recognize that the indebtedness is due and that the mortgage grants the creditor a valid lien on the mortgaged property.

To file a foreclosure suit in federal court, the creditor must show that the citizenship of the creditor and defendant are diverse and that the amount due to it is in excess of $75,000.00 exclusive of interest and costs. The federal lawsuit would proceed as any normal suit would proceed, requiring service of the complaint on the defendant and allowing the appropriate delays for the defendant to respond. Like the state-court ordinary process lawsuit, the suit will proceed through the discovery process through either summary judgment or a trial on the merits.

Additionally, federal procedural laws allow the federal court to utilize state court laws. As such, the creditor can request that the property be sequestered (i.e., seized during the pendency of the suit) and a keeper be appointed. This allows the creditor to take advantage of Louisiana pre-judgment seizure mechanisms.

Similar to the state court process, once a final judgment has been rendered and all appeal delays have expired, the creditor would request that that judgment be made executory and would file a motion requesting that the Court to allow judicial sale of the property and establishing sale procedures. The order granting the sale will establish the process which the creditor and United States Marshals Office will follow for the sale of the property.

Counsel for the creditor will work closely with the Marshals Office to ensure the sale procedures are followed. Federal law, like state law, requires that the property be advertised for sale in a local newspaper prior to the sale date. A creditor may choose to have the sale occur with or without appraisal. If the sale is with appraisal, the creditor and defendant will each submit an appraisal to the Marshals Office, which will determine the opening bid for the property.

Like other foreclosure methods, the seizing creditor must provide notice of the U.S. Marshal’s sale of the property to all interested parties with a potential interest in the property. During the public auction by the Marshals Office, the creditor may credit bid on the property, up to the amount of its debt. A successful creditor will be required to pay the Marshal’s commission and any costs of the sale before the deed will be issued.

Unlike state court foreclosures, the Marshal’s commission can be significantly less depending on the value and final sale price of the property being sold. After the first $1,000 in sale proceeds, the Marshal is entitled to a commission of 1.5% of the sale price, with a maximum commission of $50,000.00. The cap can provide significant value to a creditor with high value collateral. An experienced lawyer can review a creditor’s loan documents to determine if federal court foreclosure is an appropriate mechanism to seize and sell collateral property. 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.

The Louisiana Legislature recently made substantial changes to the Louisiana Direct Action Statute, which is codified at Louisiana Revised Statute § 22:1269.

Effective August 1, 2024, and pursuant to Act 275 of the 2024 Regular Legislative Session, the new law substantially limits the right of an injured person to sue another party’s insurer and to make the jury aware of the presence of insurance. Among the changes are the following:

Limitation of Plaintiffs’ Right of Direct Action

Prior law allowed the plaintiff a right of direct action against insurers at their choice, with very few restrictions. The plaintiff could file suit against the insured and its insurer. Under the new law, a plaintiff can only sue an insurer when one of at least one of seven exceptions applies:

  1. The insured files for bankruptcy,
  2. The insured is insolvent,
  3. Service of citation or other process has been attempted without success or the insured defendant refuses to answer or otherwise defend the action within one hundred eighty days of service,
  4. A tort cause of action exists between children and their parents or between married persons,
  5. The insurer is an uninsured motorist carrier,
  6. The insured is deceased, or
  7. The insurer issues a reservation of rights or coverage denial (but only for the purpose of establishing coverage).

This change will benefit insurers because the new law limits a plaintiff’s right of direct action against an insurer.

Preventing Disclosure of Insurance Coverage

Act 275 also provides that even when a plaintiff has a right of direct action against an insurer, the insurer should not be included in the lawsuit caption.

The Act also prohibits disclosing the existence of insurance coverage to a jury during the initial trial and any subsequent trials following an appeal.

Under prior law, the court was allowed to read instructions to the jury explaining that insurance coverage existed.

Interruption of Prescription

Under new law, filing an action against the insured shall interrupt prescription as to all insurers whose policies provide coverage for the claims asserted, even if the insurers are not included in the action.

Joinder of Insurers

If one of the seven scenarios do not apply to allow direct action against an insurer, the insurer may still be joined as a defendant by either party. The insurer should be joined at the time a judgment is to be entered or a settlement is reached. The joinder is subject to the terms and limits of the policy if the insurer denied coverage or reserved its rights at least thirty days before trial. The insurer can be given notice of the proceeding with the first responsive pleading filed on behalf of the insured defendant or by service of the citation by any method of service on a defendant provided by law.

Banks and other secured lenders are going to experience more losses, and larger losses, on small and mid-market loans because fewer businesses are eligible to be a “small business debtor” in bankruptcy and to use Subchapter V of Chapter 11 to reorganize their debts and get a fresh start. From March 2020 until June 21, 2024, businesses with up to $7.5 million in undisputed debt (plus an unlimited amount of disputed debt) were eligible to pursue a financial restructuring as a “small business debtor” operating under the auspices of a federal bankruptcy court.  On June 21, 2024, the definition of a small business debtor changed, and the maximum debt amount for a “small business debtor” dropped from $7.5 million to $3,024,725.  I have seen several articles and blog posts decrying this change from the perspective of debtors and bankruptcy professionals. As someone who typically looks at a bankruptcy case from a creditor’s lawyer perspective, I am concerned that this change will hurt banks and other secured lenders in the middle market. 

A small business debtor enjoys advantages under the Bankruptcy Code that are not available to companies with higher debt loads. First and foremost, the small business debtor can elect to use Subchapter V of Chapter 11, which allows owners of a small business debtor to maintain their ownership in the reorganized company without having to meet all of the requirements imposed on larger businesses, such as paying unsecured creditors in full or making a sizable infusion of new money capital that can go towards paying old debts. Small business debtors can discharge their pre-bankruptcy debts by devoting a reasonable percentage of future revenue over three to five years towards satisfying those old debts.  Once the business devotes the court-approved portion of its revenue to paying past debts for the court-approved period of time, the business can start using all of its current revenue for ongoing operations, preparing for future growth, ownership distributions, or whatever else management decides. Having that light at the end of the three-to-five-year tunnel gives small business owners a strong incentive to do the hard work required to keep their distressed businesses moving forward instead of throwing in the towel and starting over.

A small business debtor in a Subchapter V bankruptcy case is much more likely to keep operating through the bankruptcy process, to make loan payments to its secured lender, and to succeed in confirming a plan of reorganization that pays its secured lender in full, than a company that has too much debt to use Subchapter V, all else being equal.  Statistics from the U.S. Trustee’s Office show that Subchapter V cases resulted in a confirmed plan 52% of the time during FY 2020-2023, more than double the percentage of small business debtors who were able to confirm a plan outside of Subchapter V.  This statistical difference makes logical sense because a Subchapter V case is much less expensive than a regular bankruptcy case.  There are no creditors’ committee counsel fees or United States Trustee fees to pay, which can be huge savings when compared to a regular bankruptcy case. The lower burn rate of a Subchapter V case, as compared to a regular Chapter 11 case, helps a debtor have enough cash to make payments on its secured debt through the life of the case. Receiving regular payments from an operating company may allow the secured lender to avoid further downgrading the credit or devoting more of its capital to loss reserves.  That is a major boon to secured lenders, especially banks. Further, bankruptcy law allows the debtor’s attorneys and other professionals in a Subchapter V case to be paid for their work over time, including after the case is confirmed; in a regular Chapter 11 case, all professionals must be paid at plan confirmation, which is too big of a hurdle for some businesses to get over. I have seen plenty of situations where a company in bankruptcy had positive operating cash flow, but its bankruptcy case failed because the cash flow was not positive enough to cover all the expenses required to confirm a plan of reorganization in the regular Chapter 11 process.

Borrowers in distress who can see a light at the end of the tunnel are more likely to keep operating, to keep generating revenue, and to keep making payments to their secured lenders. Distressed businesses that would have qualified for a Subchapter V case before June 21, 2024, but do not qualify today, are going to have a much harder time seeing a light at the end of their tunnel. I am concerned that shrinking Subchapter V eligibility will lead to more businesses either failing in regular Chapter 11 cases or forgoing bankruptcy altogether and simply handing their lenders the keys to their collateral.  The drastic cut in the number of businesses eligible for Subchapter V will make matters worse, not better, for secured lenders.

On June 28, 2024, the U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo[1] definitively overturned Chevron deference[2], and held that, when reviewing agency action under the Administrative Procedure Act, courts “must exercise their independent judgment” and “may not defer to an agency interpretation of the law simply because a statute is ambiguous.”[3]

Chevron deference, based on the Court’s decision in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc.,[4] laid out a procedure for courts to follow in cases involving judicial review of agency decisions under the Administrative Procedure Act (APA). It involved a two-step analysis. In “step one,” a court would consider “whether Congress ha[d] directly spoken to the precise question at issue” in its statutes delegating power to the relevant agency.[5] If unambiguous language did answer the question at issue, that language controlled. However, Chevron articulated a second step if the answer to “step one” was “no” — i.e., if “the statute [was] silent or ambiguous with respect to the specific issue” in the case.[6] In this context, a court would be required to defer to the agency’s construction of the relevant statute if that construction was “permissible.”[7] Such deference was required even if the court, using its own interpretive ability, would have construed the statute differently. The decision was justified on the ground of agency expertise in technical regulatory schemes and on a principle of judicial deference to the Executive Branch.

In the recently decided case Loper Bright Enterprises v. Raimondo, 603 U.S. ___ (2024), the Court reversed Chevron and called for courts to reassume their role as interpreters of the law.[8] Chief Justice Roberts, writing for a six-justice majority, criticized Chevron for fostering “unwarranted instability in the law,” creating “an eternal fog of uncertainty” for those attempting to plan around agency action, and for becoming “an impediment, rather than an aid, to accomplishing the basic judicial task of saying what the law is.”[9] The Court found that Chevron was incompatible with the APA because it requires reviewing courts to “decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”[10] Under the APA and the new precedent established by the Supreme Court in Loper Bright, “agency interpretation of statutes… are not entitled to deference.”[11]

What this means in practice is that a court is not required to give weight to an agency’s interpretation and must instead “exercise independent judgment in determining the meaning of statutory provisions.”[12] But courts may still rely on agency expertise in exercising that independent judgment under other deference doctrines, such as so called, “Skidmore Deference.”[13] In fact, SCOTUS frequently cited the principles of Skidmore in its opinion, including that agencies can supply “a body of experience and informed judgment to which courts and litigants may properly resort for guidance.”[14]

Chevron deference focused on an agency’s statutory authority and did not expressly address the level of deference owed to an agency’s interpretation of its own regulations. The difference is important. For instance, now, a Court is not required to provide Chevron deference to the federal Environmental Protection Agency’s (EPA’s) interpretation of a Clean Air Act provision in the promulgation of a regulation or otherwise. However, this decision does not address the level of deference owed to EPA’s interpretation of its own regulations promulgated under the Clean Air Act. Under the Federal Administrative Procedure Act, those types of regulatory actions are considered, generally, under the arbitrary and capricious standard.[15]

In any case, the Loper decision is a death knell to prescribed agency deference in statutory interpretation and clearly signals that courts should serve as a check on agency authority.

[1] 603 U.S. ____ (2024).

[2] “Chevron deference” is the term used to describe the framework historically used by reviewing courts and was established with the Supreme Court’s decision in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (2024).

[3] Loper Bright, slip op. at 35.

[4] 467 U. S. 837 (2024).

[5] 467 U. S. at 842.

[6] Id.

[7] Id.

[8] The case is a review of a D.C. Circuit decision. 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.

[9] Loper Bright, slip op. at 32-33.

[10] 5 U.S.C. § 706, Id. at 14.

[11] Id. at 14-15.

[12] Id. at 16.

[13] Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S. Ct. 161, 164, 89 L. Ed. 124 (1944).

[14] Loper Bright, slip op. at 16, quoting Skidmore v. Swift & Co., 323 U. S. 134, 140 (1944).

[15] The federal APA instructs a reviewing court to hold unlawful and set aside an agency action if it meets one of six criteria, including that the decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” See 5 U.S.C. §706(2)(A).