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On August 28, 2025, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) published a rule relaxing certain restrictions on Syria under the Export Administration Regulations (EAR). But unlike the much broader lifting of U.S. sanctions on Syria, which we previously discussed, BIS has retained significant parts of the longstanding restrictive export control regime on Syria.

While BIS has provided important new and expanded license exceptions for Syria, and much more favorable license application review policies, BIS has retained the longstanding requirement to have authorization in place under the EAR to send to Syria any item subject to the EAR (except food and medicine designated as EAR99, i.e., not subject to any Export Control Classification Number (ECCN) on the Commerce Control List (CCL)). BIS is required by statute to restrict all items on the CCL for Syria,[1] but the executive branch has some flexibility when it comes to requiring licenses for EAR99 items.

Accordingly, while BIS continues to require authorization for Syria for all items except EAR99 food and medicine, it has added new License Exception Syria Peace and Prosperity (SPP) in § 740.5 of the EAR to authorize exports and reexports to Syria of all EAR99 items, provided that there are no applicable end use or end user restrictions under Part 744 of the EAR. Deemed exports and reexports to Syrian foreign nationals in the U.S. or third countries continue to be restricted only when it comes to technology on the CCL (but not EAR99 technology).

The net effect of these changes is that the broad licensing requirement that continues to apply can be satisfied in many cases by confirming that the transaction meets the requirements of a license exception, in which case no actual license from BIS would be needed. But this structure remains more cumbersome and complex than simply removing the broad underlying licensing requirement, which BIS has not done. Additionally, Syria remains listed in the EAR’s Country Group E:1, alongside North Korea and Iran, which, among other impacts, requires filings in the Automated Export System (AES) for all exports from the U.S.

Additionally, BIS has set out much more favorable license application review policies for Syria. So, when an actual license from BIS is needed, one can be obtained in most cases. With that said, there has been widespread reporting recently that BIS is experiencing a significant licensing backlog, so processing times may be extended. Additionally, any lack of clarity or potential concern around a particular license request (e.g., unknown or problematic end users, inadequate controls around diversion, etc.) is likely to lead to significant delays and potential denial. So, those wishing to obtain a license from BIS should be thorough and thoughtful about drafting the request in a way that will satisfy the U.S. government.

Syria remains designated as a State Sponsor of Terrorism (SST), and, despite the broad lifting of sanctions, there remain a number of restricted parties, groups, etc. within Syria. Therefore, license exceptions for Syria include limitations when there are restricted parties or restricted end uses involved, and BIS licensing officers will carefully review those issues in considering license applications. In general, transactions that could make a significant contribution to Syria’s military potential, including its military logistics capability, or that could contribute to acts of international terrorism, will continue to be restricted.

Newly Available or Expanded License Exceptions

In addition to adding License Exception SPP to the EAR for EAR99 items, BIS has made available or expanded the availability of several other license exceptions for Syria. However, all of these exceptions continue to be subject to the general restrictions on the use of license exceptions in § 740.2 of the EAR. The details of some of the key new or expanded license exceptions for Syria are as follows:

License Exception Consumer Communications Devices (CCD) in § 740.19: CCD was not previously available for Syria, but has now been made available. Moreover, the restrictions for Syria under CCD are much simpler and narrower than those that apply to Russia, Belarus, and Cuba. There are no specific end user restrictions for Syria under CCD, although this exception does not apply when any end user or end use restrictions under Part 744 of the EAR apply.

License Exception Aircraft, Vessels and Spacecraft (AVS) in § 740.15: AVS was previously available, but only for foreign flagged/owned/operated aircraft reexported to Syria on temporary sojourn. This has been expanded to authorize vessels and U.S. flagged aircraft. It does not, however, change any FAA restrictions on U.S.-registered civil aircraft operating in Syria. There remain important restrictions under AVS, including that the transaction cannot support Syrian police, military, or intelligence end users or end uses, and equipment and spare parts are only authorized if they are designated as EAR99 or controlled on the CCL exclusively for anti-terrorism reasons.

License Exception Temporary imports, exports, reexports, and transfers (in-country) (TMP) in § 740.9: Previously, TMP was available for Syria only for items for use by the news media, but this has been expanded to cover exports to a U.S. person’s foreign subsidiary, affiliate, or facility, as well as shipping containers, and other listed types of items.

License Exception Servicing and replacement of parts and equipment (RPL) in § 740.10: RPL was not previously available for Syria, but parts of this exception have been made available, provided that the transaction would not support Syrian police, military, or intelligence end users or end uses.

In addition, other license exceptions have been expanded, including GOV and TSU, and BAG remains available as well.

License Application Review Policies

BIS has for many years maintained a general policy of denial for license applications for Syria, with limited exceptions such as case-by-case reviews for items necessary for the support of the Syrian people, to ensure safety of civil aviation, telecommunications, and a few other areas.

BIS has now provided a much more favorable licensing policy for Syria, including a presumption of approval for a broad range of commercial end uses to support economic and business development in Syria and to support the Syrian people, including through the improvement or maintenance of telecommunications, water supply and sanitation, power generation, aviation, or other civil services that “support peace and prosperity in Syria without making a significant contribution to the military potential of Syria or the ability of Syria to support acts of international terrorism.” So, while the government will generally issue such licenses, they can still deny a request if they have doubts about these restricted areas. Accordingly, applicants should provide as much information as they can about the limited utility of what they are seeking to provide, and/or controls in place around unauthorized diversion.

Looking Ahead

These changes take effect today, September 2, and mark a significant shift in U.S. export control policy toward Syria, opening new opportunities for trade in civilian goods and services. The regulatory landscape, however, remains complex, and organizations considering entering or expanding in the Syrian market should carefully review their compliance posture.

Troutman Pepper Locke’s Sanctions + Trade Controls team will continue to monitor for developments in this area. In the meantime, please reach out to a member of our team for guidance.

[1] See Section (5)(a)(1) of the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 (Pub. L. 108-175).

This article originally appeared in the September 2025 The Corporate & Securities Law Advisor Insights publication and is reposted with permission.

Real estate investment trusts, or REITs, own more than $4 trillion of commercial real estate assets, according to information from the National Association of Real Estate Investment Trusts, an industry group.[1] Broadly, REITs are pooled investment vehicles or other companies that invest in real estate and meet technical requirements of the Internal Revenue Code of 1986, as amended (the Code). REITs facilitate capital formation for real estate projects and provide easy-to-access exposure to real estate for investors. Recognizing these (and other) benefits, Congress adopted Sections 856-860 of the Code to provide certain beneficial tax treatment to REITs.

Although REITs are creatures of the Code, they are also subject to the federal securities laws, including the Investment Company Act of 1940, as amended (the 1940 Act). An issuer is subject to the 1940 Act if it meets the definition of an “investment company.” REITs are either organized and operated to exist outside the definition of an investment company in the first instance or, if they are within that definition, to satisfy an exemption available to issuers primarily engaged in purchasing and owning real estate and real estate-related assets.

REIT counsel must not lose sight of a REIT’s 1940 Act status. Commonly, REIT counsel are asked to give legal opinions that REITs are not required to register as “investment companies” within the meaning of the 1940 Act in connection with corporate transactions. Such opinions should be rendered with diligence and care, as inadvertent investment company status can result in dire penalties, including voidability of contracts and shareholder rescission rights.[2]

Background to 1940 Act

The 1940 Act regulates investment companies, which are pooled investment vehicles that are primarily engaged in investing in securities. Similar to REITs, investment companies make the benefits of professional management and portfolio diversification available to investors of all types, including retail investors. Investment companies are restricted in the amount of leverage they can incur and are prohibited from engaging in certain transactions with affiliates, among other operational restrictions which would be onerous for a typical REIT.

Fundamental to this discussion is the distinction between securities and real estate assets. The treatment of certain assets is clear; for example, fee interests in real estate and mortgages fully secured by real estate are clearly not securities. Conversely, interests in other companies that invest in real estate, or loans that are not fully collateralized may be securities. Joint ventures may pose challenging questions. While the joint venture (JV) itself may invest in fee interests or fully collateralized mortgages, a venturer’s investment is only indirect, often involving multiple tiers of ownership.

For a REIT, issues of investment company status become acute where the proportion of securities in a portfolio approaches the 40% threshold, or where a REIT is otherwise engaged primarily in securities-related activities. A REIT, depending upon the nature of its investment portfolio, may come within the definition of an investment company as contained in Section 3(a) of the 1940 Act, in which event, absent an exemption, registration of the REIT would be required.

Investment Company Defined

As defined in Section 3(a)(1) of the 1940 Act, an investment company is any issuer that:

(1) Engages primarily in investing, reinvesting, or trading in securities (or holds itself out as doing so) (the Primarily Engaged Test); or

(2) Engages in investing, reinvesting, owning, holding, or trading in securities and owns (or proposes to acquire) investment securities whose value exceeds 40% of the value of the issuer’s assets (the Asset Test).[3]

Thus, both the Primarily Engaged Test and Asset Test turn on whether and to what extent an issuer is engaged with securities.[4]

The 1940 Act defines “security” in its Section 2(a)(36).[5] Like 1940 Act status, security status is a perennial issue for securities practitioners. Important for these purposes is that the staff of the Securities and Exchange Commission (SEC) generally interprets the term “security” more broadly under the 1940 Act and Advisers Act than it does under the 1933 Act or 1934 Act. This position is based on the notion that investor protection issues may be sharper in these contexts given the intermediation between issuer and investor by a third party, being an investment company (under the 1940 Act) or an investment adviser (under the Advisers Act).[6]

Key to the examination of the character of a REIT’s portfolio is the definition of “investment securities,” as used in the 40% Asset Test. Investment securities exclude securities issued by majority-owned subsidiaries of the owner that (i) are not investment companies, and (ii) are not relying on the exception from the definition of investment company in Sections 3(c)(1) or 3(c)(7). The 1940 Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company that is a majority-owned subsidiary of such person.

Joint Ventures

REITs often make investments through JVs. In a typical JV, two or more otherwise unrelated parties pool capital and/or expertise in a common enterprise. While a real estate JV ultimately holds real estate assets, the interest in the JV entity itself may be a security in the portfolio of a REIT for purposes of the 1940 Act.

JVs typically take the form of partnerships or limited liability companies. These types of interests are not enumerated in the definition of “security,” Section 2(a)(36), and so are analyzed under the Howey framework to determine whether they are investment contracts.[7] In Howey, the U.S. Supreme Court defined an investment contract as “a contract, transaction or scheme whereby a person (1) invests his money (2) in a common enterprise and (3) is led to expect profits solely from the efforts of the promoter or a third party.”[8]

An interest in a JV may fail the “efforts of others” prong if a joint venturer retains control over the JV. In Williamson v. Tucker, the Fifth Circuit found a “strong presumption” that an interest in a JV is not a security and that this presumption is a “difficult burden” to overcome.[9] Nonetheless, courts will look to the “economic realities” of the arrangement. If the contractual language is “specific and unambiguous” as to a venturer’s power to exercise a controlling influence over the business and affairs of the venture, then the presumption that the JV interest is not a security will be rebutted only by evidence that it the venturer cannot actually exercise those powers.[10] In particular “[a] joint venture interest can be designated a security if it can be established that:

(1) An agreement among the parties leaves so little power in the hands of the partner or venturer that the arrangement in fact distributes power as would a limited partnership;

(2) The partner or venturer is so inexperienced and unknowledgeable in business affairs that he is incapable of intelligently exercising his partnership or venture powers; or

(3) The partner or venturer is so dependent on some unique entrepreneurial or managerial ability of the promoter or manager that he cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers.”

Regarding the first prong, which examines the relative power between the venturers, courts ask whether a venturer’s interest in a JV has the hallmarks of a limited partnership interest (which is a security): limited liability, no ability to dissolve the entity, and no ability to act on behalf of the partnership or otherwise take part in its management.[11]

As to the second prong of the Williamson test, a court considers whether the venturers were inexperienced and lacked particular expertise in the type of venture at issue (and not general business experience), such that they would “be relying solely on the efforts of the promoters to obtain their profits.” If so, the venturer’s interest may be a security.

Finally, if the manager has a “non-replaceable expertise” or a “unique understanding” of the business and a venturer would “be left with no meaningful option” without the manager, then the JV interest may be a security.

The key inquiry in Williamson is thus not whether a party actually exercises control, but rather whether it has the ability to do so. This line of reasoning is important to real estate JVs, as many venturers are either capital partners or development partners in practice. But so long as each venturer retains the ability to actually control the JV, the JV interest should not be deemed to be a security under the Williamson test. Although Williamson was decided under the Securities Act of 1933, the SEC staff has used the Williamson framework for purposes of the 1940 Act.[12]

If a JV interest owned by a REIT is found not to be a security for purposes of the 1940 Act, then it will not count against the REIT’s 40% bucket for purposes of the Asset Test of the 1940 Act, and should not be regarded for purposes of the Primarily Engaged Test. A REIT, or any other issuer, can thus hold nonsecurity JV interests without limit and without investment company status, provided that it does not otherwise come within the definition of an investment company.

Tiered Structures

JVs often hold real estate indirectly, through the use of one or more intermediary special purpose entities. This fact complicates the investment company analysis described above, but does not necessarily condemn it. The general rule is that a company that invests in interests in other companies investing in real estate is generally deemed to be investing in securities for purposes of the 1940 Act.[13]

However, the staff recognized an important exception to this rule in a 1974 release. In that release, the Division of Investment Management of the SEC published an interpretation on these structures, so-called two-tier real estate companies (Two Tier Real Estate Release).[14] The Division stated that “limited partnership interests owned by a two-tier real estate partnership may be sufficiently analogous to securities issued by majority-owned subsidiaries such that the Division would not recommend an enforcement action to the Commission if (1) an upper company owns more than 50 percent of the limited partnership interests in all the limited partnerships in which it invests and has the right to dismiss and replace the general partners of such underlying companies and the limited partners of such company have the right to dismiss and replace their general partner or partners; (2) such company is not an investment company within the meaning of Section 3(a)(1) of the 1940 Act.”[15]

Subsequent no-action guidance on this topic demonstrates that the staff takes a strict approach to the requirements that an upper-tier entity own a majority of the interests in the lower-tier entity, and that the upper-tier entity have dismissal rights as to the manager of the lower-tier entity.[16]

Although the Two Tier Real Estate Release predates the Williamson decision, both illuminate the same notion: that control over an entity obviates security status. In Williamson, a joint venturer does not hold a security where it can control the JV; and in tiered structures, an upper-tier entity does not hold a security issued by a lower-tier entity where it controls such lower-tier entity by virtue of ownership and dismissal rights.

In our experience, the positions laid out in Williamson and the Two Tier Real Estate Release are frequently extrapolated to investment structures with more than two venturers, and/or more than two tiers in an investment structure. The lodestar remains the same, however, and careful attention must be paid to how control is exercised throughout the structure.

Commercial realities may mean that a REIT invests in real estate through JVs or tiered structures that do not satisfy the requirements of Williamson or the Two Tier Real Estate Release. In these cases, a REIT may be primarily engaged in investing in securities, or may exceed the 40% Asset Test.

Statutory Exemptions

3(c)(5)(C) Exemption

As initially enacted by Congress in 1940, Section 3(c)(5) originally was intended to exclude from the definition of investment company companies that did not resemble, or were not commonly considered to be, investment companies. These issuers generally held mortgages and other interests in and liens on real estate — not shares of stock or bonds issued by corporate issuers.[17] In 1960, in part in reaction to the adoption of changes to the tax code to give effect to REITs, the SEC stated that the applicability of the Section 3(c)(5)(C) exclusion could be determined only on the basis of the facts and circumstances of the particular REIT, but that generally, any REIT that invested “exclusively in fee interests in real estate or mortgages or liens secured by real estate” could rely on the Section 3(c)(5)(C).[18]

Section 3(c)(5)(C) of the 1940 Act provides an exemption from the definition of “investment company” for issuers not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type, or periodic payment plan certificates, and who are primarily engaged in …[the business of] purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.

The staff of the SEC has taken the position that the exclusion in Section 3(c)(5)(C) may be available to an issuer if:

At least 55% of its assets consist of “mortgages and other liens on and interests in real estate” (qualifying interests) and the remaining 45% of its assets consist primarily of real estate-type interests (55%/45% asset test);
At least 80% of its total assets consist of qualifying interests and real estate-type interests;
And no more than 20% of its total assets consist of assets that have no relationship to real estate (miscellaneous assets).[19]

Qualifying interests include mortgage loans fully secured by real estate, fee interests in real estate, second mortgages secured by real property, deeds of trust on real property, installment land contracts, and leasehold interests secured solely by real property.[20] On the other hand, an interest in the nature of a security in another issuer engaged in the real estate business is generally not a qualifying interest.[21] The crux of the no-action guidance is that the asset be the “functional equivalent of direct ownership in…real estate[.]”[22]

3(c)(6) Exemption

REITs relying on Section 3(c)(5)(C) may invest in real estate through tiered structures as well. Section 3(c)(6) of the 1940 Act excludes from the definition of investment company any company primarily engaged, directly or through majority-owned subsidiaries, in the businesses described in Section 3(c)(5). Thus, a REIT relying on Section 3(c)(5)(C) to avoid 1940 Act in registration in the first instance may effect investments in real estate not only directly as per Section 3(c)(5)(C), but also indirectly through majority-owned subsidiaries.

Such subsidiaries could include JVs (provided that they qualify as a majority-owned subsidiary), but also special purpose entities, property companies, and other entities organized for particular purposes in the real estate ownership structure. In designing tiered structures reliant on 3(c)(6), practitioners should bear in mind the Two Tier Real Estate Release so that lower-tier entities are sufficiently analogous to majority-owned subsidiaries such that upper-tier entities may rely on Section 3(c)(6).

Conclusion

The staff periodically addresses the issue of real estate companies under the federal securities laws. As we’ve seen, there were statements in 1960 (related to REITs), 1974 (the Two Tier Real Estate Release). And as recently as 2011, the SEC issued a Concept Release soliciting comment on various interpretive issues in the application of the 1940 Act to REITs, mortgage companies, and other real estate companies. No formal rulemaking or other staff guidance directly succeeded the Concept Release, although the staff has continued to grant no-action relief under Section 3(c)(5)(C) to expand the scope of qualifying investments.[23]

Avoiding investment company status is essential to the operation of a REIT. A REIT may be an investment company depending on the nature and character of its portfolio. JVs and tiered structures present two structures that deserve particular attention in this context. REITs that are prima facie investment companies may nonetheless rely on Section 3(c)(5)(C) and 3(c)(6) to avoid investment company status. The security-to-asset portfolio mix should be monitored on an ongoing basis, and should be considered as one factor in the acquisition and disposition of portfolio assets. The historic development of real estate companies and related regulatory environment has led to a workable, if imperfect, balance.

[1] NAREIT, Industry Fact Sheet, April 2025 available at https://www.reit.com/investing/investing-tools/nareit-statistical-publications/reitwatch/reitwatch-2025.[2] See Section 47(b), 1940 Act.

[2] See Section 47(b), 1940 Act.

[3] The definition of “Investment Company” also includes any issuer of face-amount securities of the installment type. These issuers are largely extinct today.

[4] REITs may avoid investment company status under the Primarily Engaged test by holding out as investing in real estate (even if such real estate investment is done through ownership of securities). In assessing whether an issuer is an investment company under the Primarily Engaged test, courts and the SEC look to (1) the issuer’s historical development, (2) the issuer’s public representations of policy, (3) the activities of its officers and directors, (4) the nature of its present assets, and (5) the sources of its present income. Factors (4) and (5) are considered to be of most importance. In the Matter of Tonopah Mining Co. of Nevada (Investment Company Act Release No. 1084, 26 SEC 426 at 427, July 22, 1947).

[5] “Security” means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

[6] The Regulation of Money Managers, Frankel, et. al. § 5.07[B][5].

[7] Securities & Exchange Commission v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946).

[8] Id.

[9] Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981) at 421 (“[A] general partnership or joint venture interest generally cannot be an investment contract under the federal securities acts.”).

[10] Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 241 (4th Cir. 1988). See also S.E.C. v. Schooler, 902 F. Supp. 2d 1341, (S.D. Cal. 2012).

[11] Williamson.

[12] See, e.g., Pacesetter I L.P., SEC Staff No-Action Letter (Jul. 18, 1986); ML Research and Development Partners I, L.P., SEC Staff No-Action Letter (Sept. 24, 1984); SLM Entertainment, Ltd., SEC Staff No-Action Letter (Oct. 15, 1981); Related Condominium Investors L.P., SEC Staff No-Action Letter (Feb. 11, 1985).

[13] The staff has taken the position that an issuer that is primarily engaged in the business of holding interests in the nature of a security in another person engaged in the real estate business, generally may not rely on Section 3(c)(5)(C). Companies Engaged in the Bus. of Acquiring Mortgages & Mortg.-Related Instruments, Release No. 29778 (Aug. 31, 2011).

[14] Sec. & Exch. Comm’n Release Notice, Release No. 8456 (Aug. 9, 1974).

[15] Id.

[16] For a concise summary of this no action guidance, see Therese L. Miller, Two-Tier Real Estate Limited Partnerships: Avoiding Investment Company Status, C282 ALI-ABA 469, 471 (1988).

[17] See, e.g., H.R. Rep. No. 2639, 76th Cong., 3d Sess. 12(1940) (“Subsection (c) specifically excludes companies dealing in mortgages.”); H.R. Rep. No. 1382, 91st Cong., 2d Sess. 17 (1970) (“Although the companies enumerated have portfolios of securities in the form of mortgages and other liens on and interests in real estate, they are excluded from the act’s coverage because they do not come within the generally understood concept of a conventional investment company investing in stocks and bonds of corporate issuers.”).

[18] Real Est. Inv. Tr., Release No. 3140 (Nov. 18, 1960) (the 1960 REIT Release).

[19] See, e.g., Salomon Brothers, Inc., SEC Staff No-Action Letter (June 17, 1985); Citytrust, SEC Staff No-Action Letter (Dec. 19, 1990); Greenwich Capital Acceptance Inc., SEC Staff No-Action Letter (Aug. 8, 1991).

[20] See, e.g., United States Property Investment N.V., SEC Staff No-Action Letter (May 1, 1989) (mortgage loan secured exclusively by real estate in which the value of the real estate was equal or greater than the note evidencing the loan); Division of Investment Management, SEC, The Treatment of Structured Finance Under the Investment Company Act, Protecting Investors: A Half Century of Investment Company Regulation (1992) Ch. 1 (“Protecting Investors Report”) at n. 345 and accompanying text (mortgage loan in which 100% of the principal amount of each loan was fully secured by real estate at the time of origination and 100% of the market value of the loan was fully secured by real estate at the time of acquisition); United Bankers, SEC Staff No-Action Letter (Mar. 23, 1988) (fee interests in real estate); The State Street Mortgage Co., SEC Staff No-Action Letter (July 17, 1986) (second mortgages); First National Bank of Fremont, SEC Staff No-Action Letter (Nov. 18, 1985) (deeds of trust on real property); American Housing Trust I, SEC Staff No-Action Letter (May 21, 1988) (installment land contracts); Health Facility Credit Corp., SEC Staff No-Action Letter (Feb. 6, 1985) (leasehold interests).

[21] The Realex Capital, SEC Staff No-Action Letter (Mar. 19, 1984). See also, 1960 REIT Release (A REIT that invests “to a substantial extent in other [REITs] . . . or in companies engaged in the real estate business or in other securities” may not be able to rely on Section 3(c)(5)(C)).

[22] See United States Property Investments N.V., SEC Staff No-Action Letter (May 1, 1989) (JV investments in real estate are the “functional equivalents of direct ownership…”).

[23] See, e.g., Redwood Trust, Inc. No Action Letter (Aug. 15, 2019).

In In re Dura Medic Holdings, Inc. Consolidated Litigation,[1] the Delaware Court of Chancery held that Revlon review (i.e., the obligation of the board of directors of a Delaware corporation to seek the best price reasonably available), would apply in a final-stage transaction involving an asset sale, where there were no allegations that defendants stood on both sides of the transaction, received a non-ratable benefit, or avoided a unique detriment.

Background

This action was initially filed by a medical device company and its private equity-sponsored parent, which had acquired the company, against the company’s original sellers for breach of a merger agreement. The original sellers asserted counterclaims, in addition to various third-party claims, including by the company’s co-founder (Newton). Newton filed a derivative action for breach of fiduciary duty against the private equity firm and the company’s CEO and directors, who were also partners at the private equity firm (Comvest parties). The actions were consolidated.

Newton challenged the asset sale by the Comvest parties and alleged that those defendants breached their fiduciary duties when searching for financing and when negotiating and approving the sale.

Analysis

Newton and the Comvest parties disagreed with the proper standard of review related to the sale. Newton sought for the court to apply entire fairness, while the Comvest parties sought the most deferential business judgment rule. The court applied neither. Instead, the court evaluated the sale under the enhanced scrutiny standard of review, whereby the court found that the sale fell within a range of reasonableness. The Comvest parties therefore did not breach their fiduciary duties because the sale was a final-stage transaction that effectively ended the stockholders’ ongoing investment in the company, which implicated Revlon.[2]

The court rejected Newton’s argument that pursuing a sale instead of securing additional financing to enable the company to continue as a standalone entity was a breach of fiduciary duty. The record showed that the Comvest parties previously provided the company with more financing than the company likely warranted. The Comvest parties did not use their control of financing to force the company into a vulnerable position and had no obligation to provide additional funding.

The court also held that the Comvest parties’ search for a transactional partner fell within the range of reasonableness. Although the court found that the process that led to the sale was not ideal, with board meeting minutes not reflecting meaningful board involvement, and no outside financial or legal advisors being involved, likely due to the cost. Nonetheless, the sales interactions represented arm’s length negotiations, with no prior relationship or conflict.

Finally, the court held that the sale price fell within a range of reasonableness because there was only one other actionable proposal to buy the company, but those terms were worse than those of the sale. The court found that the offers provided contemporaneous evidence that the consideration in the sale fell within a range of reasonableness.

Takeaways

The court’s decision reinforces the nuanced application of Delaware’s standards of review in fiduciary duty cases. In particular, the case demonstrates that the court will apply Revlon in the case of any end-stage transaction, not just those involving mergers.

[1] 331 A.3d 796 (Del. Ch. 2025).

[2] Delaware decisions have acknowledged that “a final-stage transaction for all shareholders” is one that warrants application of enhanced scrutiny. McMullin v. Beran, 765 A.2d 910, 918 (Del. 2000); see In re Mindbody, Inc. S’holder Litig., 2020 WL 5870084, at *13 (Del. Ch. Oct. 2, 2020) (The cash-for-stock Merger was a final-stage transaction presumptively subject to enhanced scrutiny under Revlon.); Huff Energy Fund, L.P. v. Gershen, 2016 WL 5462958, at *13–14 (Del. Ch. Sept. 29, 2016).

This article was originally published on August 29, 2025 on Law360 and is republished here with permission.

On June 20, in U.S. Food and Drug Administration v. R.J. Reynolds Vapor Co., the U.S. Supreme Court concluded that marketing denial orders issued by the FDA regarding new tobacco products can be challenged not only by the applicants — typically, the manufacturer or importer of the products — but also by retailers of such products.[1]

As a result, we are likely to see more challenges to marketing denial orders brought before the U.S. Court of Appeals for the Fifth Circuit, where litigants have generally had greater success relative to other appellate courts.

This decision also opens the door for other types of interested parties to challenge marketing denial orders, possibly offering more venues for appeals.

The Federal Food, Drug and Cosmetic Act, as amended by the Family Smoking Prevention and Tobacco Control Act, or TCA, requires that new tobacco products, including electronic cigarettes, receive FDA marketing authorization before they can be marketed or sold.[2]

If the FDA denies such authorization, the TCA allows for “any person adversely affected” to seek judicial review of the marketing denial order under the Administrative Procedure Act in either the U.S. Court of Appeals for the District of Columbia Circuit or the circuit court where the person resides or has their principal place of business.[3]

In this case, the FDA issued marketing denial orders to RJR Vapor for flavored e-cigarette products under the Vuse Vibe, Vuse Solo and Vuse Alto brands, including several menthol-flavored products.[4] These products had been on the market when the FDA instituted a new requirement that manufacturers or importers of e-cigarettes and other previously unregulated tobacco products apply for authorization from the agency to continue marketing those products.

RJR Vapor applied for authorization with the FDA within the time frame required by the agency’s guidance. Three years later, the FDA denied the applications, finding that RJR Vapor had failed to demonstrate that marketing of the products would be “appropriate for the protection of public health,” as required by the TCA.[5]

RJR Vapor, joined by retailers located within the Fifth Circuit, filed joint petitions for review challenging the marketing denial orders in the Fifth Circuit.[6] The court noted that RJR Vapor is incorporated and has its principal place of business in North Carolina. Had the company filed alone, its options would have been limited to the D.C. Circuit and the U.S. Court of Appeals for the Fourth Circuit.

The FDA argued that the retailers were not adversely affected by the denial and thus had no right to appeal. The FDA requested the Fifth Circuit to dismiss the petitions for lack of venue or to transfer them to the D.C. Circuit or Fourth Circuit. The Fifth Circuit denied the FDA’s motions, however, concluding that “venue was proper over the joint petition to review the FDA’s denial order.”[7]

The key question on appeal at the Supreme Court was who qualifies as a person adversely affected by a marketing denial order, giving them the right to appeal. Is it only the manufacturer that submitted the application for marketing authorization? Or does it also include a retailer of products subject to the application at issue?

RJR Vapor and the retailers’ position was that any person adversely affected may include retailers that face financial harm as a result of a marketing denial order.

The companies observed that a different TCA judicial review provision in the context of withdrawal of marketing authorization allows only applicants to sue, but here, Congress chose the phrase “any person adversely affected” — which must extend to at least one person beyond the applicant itself. Because the TCA’s marketing authorization provisions refer to sales, they argued that the retailers are next in line.

The FDA argued that RJR Vapor was forum shopping since it only sought review in the Fifth Circuit because its principal argument — that the FDA acted arbitrarily and capriciously by changing the evidentiary standards for flavored electronic cigarettes after manufacturers submitted their applications — was previously rejected by other courts.

The FDA also argued that retailers are not actually within the “zone of interests” protected by the statutory provision at issue, which should extend only to the applicant whose marketing application is denied. The agency asserted that, without marketing authorization, the sale of the products is unlawful (even though the FDA allowed the continued sale of the products pursuant to an enforcement discretion policy), so the retailers’ legal rights are not changed by virtue of the marketing denial order and are instead bystanders.[8]

Ultimately, the Supreme Court sided with RJR Vapor and the retailers, stating that a person does not have to be actually within the zone of interests protected by the statute to be adversely affected. Instead, consistent with prior Administrative Procedure Act cases, the court concluded that a petitioner “with an interest ‘arguably sought to be protected by the statute'” was sufficient.

According to the court, retailers fit the bill because, “[i]f the FDA denies an application, the retailers, like the manufacturer, lose the opportunity to profit from the sale of the new tobacco product — or, if they sell the product anyway, risk imprisonment and other sanctions.”

As a result, the Supreme Court held that the Fifth Circuit “correctly concluded that at least one proper petitioner had venue” because two of the retailers that joined in the petition had their principal places of business within the Fifth Circuit.

In a dissenting opinion, Justice Ketanji Brown Jackson, joined by Justice Sonia Sotomayor, argued that Congress intended the judicial review provision of the TCA to protect manufacturers, not retailers. The dissent emphasized that the TCA’s premarketing authorization scheme “involves an exchange between tobacco manufacturers and the FDA that occurs when said manufacturers wish to market a new tobacco product,” and retailers “have no rights and play no role” in this FDA authorization process.

So, what happens next?

In the short term, many marketing denial order cases that were stayed pending a decision in this case are likely to resume. Indeed, on July 19, the Fifth Circuit consolidated six such cases that had all been stayed and granted the joint motion to lift the stay, signaling that a wave of follow-on decisions is likely as courts apply the Supreme Court’s reasoning to these pending challenges.[9]

In the longer term, these and other follow-on cases will still need to answer several outstanding issues.

First, the court left open the question of whether “each petitioner in a joint petition for review must independently establish venue,” as the FDA asserted. The court explained that no court, including the Fifth Circuit, had analyzed the question before, and the court rarely addresses arguments for the first time, particularly because of the possible implications such a decision could have on other venue statutes.

Therefore, it remains to be seen whether manufacturers may ultimately join with retailers to review a marketing denial order in the Fifth Circuit, even if the retailers, and potentially other interested persons, could separately bring a challenge there. The Fifth Circuit has not indicated whether it will hear additional briefing on this issue regarding whether each petitioner must independently establish venue; however, this issue will likely be addressed in the future.

Second, the court’s interpretation of the TCA’s cause of action could extend beyond retailers. The court held that any person “arguably sought to be protected by the statute” may have standing to challenge a marketing denial order.

Although the court’s analysis focused on the direct financial interests of retailers, its reasoning could apply to other parties that demonstrate a “significant, direct impact” from a marketing denial order. For example, individual adult smokers or nicotine users might argue that a marketing denial order denies them the opportunity to purchase and consume a less harmful nicotine product. It remains to be seen whether courts would allow such a challenge or seek to distinguish the harm to consumers as “marginally related to” the TCA.

Third, there might yet be some retailers that would not qualify as adversely affected, even if they wish to sell products subject to a marketing denial order. In this case, the court found that “[i]f the FDA denies an application, the retailers, like the manufacturer, lose the opportunity to profit from the sale of the new tobacco product.”

Importantly, however, the retailers here had already sold Vuse products in the U.S., including several of the products at issue, for years.[10] Would a court still find that a retailer is adversely affected by a marketing denial order where the retailer has never sold the premarket tobacco product application applicant’s products but desires to do so?

On the one hand, the retailer would still lose the opportunity to profit from the sale of the new product, which the court suggested was sufficient. On the other hand, one could argue that a retailer’s interest in selling a future product is too speculative and attenuated. Future cases may resolve this question.

In sum, the Supreme Court’s decision on June 20 significantly broadens the scope for challenging FDA marketing denial orders by allowing retailers and other interested parties, alongside manufacturers, to seek judicial review. This expansion is likely to lead to an increase in marketing denial order challenges, particularly in the Fifth Circuit, while also expanding the venues where these appeals may be brought.

Stakeholders should monitor how the Fifth Circuit and other jurisdictions apply this ruling and how they consider the question regarding the need for each petitioner to independently establish venue in marketing denial order appeals.

[1] FDA v. R. J. Reynolds Vapor Co. , 145 S. Ct. 1984 (2025).

[2] See 21 U.S.C. §§ 331(a), 387b(6)(A), 387j(a)(2)(A).

[3] 21 U.S.C. § 387l(a)(1).

[4] See FDA News Release, FDA Denies Marketing of Two Vuse Menthol E-Cigarette Products Following Determination They Do Not Meet Public Health Standard (Jan. 24, 2023); FDA News Release, FDA Denies Marketing of Two Vuse Solo Menthol E-Cigarette Products (Mar. 17, 2023); FDA News Release, FDA Denies Marketing of Six Flavored Vuse Alto E-Cigarette Products Following Determination They Do Not Meet Public Health Standard (Oct. 12, 2023).

[5] R. J. Reynolds Vapor Co., 145 S. Ct. at 1990 (quoting 21 U.S.C. § 387j(c)(2)(A)).

[6] See R.J. Reynolds Vapor Co. v. FDA, Nos. 23-60037, 23-60128, 23-60545 (5th Cir.).

[7] R. J. Reynolds Vapor Co., 145 S. Ct. at 1990.

[8] See FDA Guidance Document, Enforcement Priorities for Electronic Nicotine Delivery System (ENDS) and Other Deemed Products on the Market Without Premarket Authorization (Apr. 29, 2020).

[9] See Breeze Smoke, L.L.C. v. FDA, No. 24-60304 (5th Cir. June 14, 2024); Vertigo Vapor, L.L.C. v. FDA, No. 24-60332 (5th Cir. June 28, 2024); Lead by Sales, L.L.C. v. FDA, No. 24-60424 (5th Cir. Aug. 24, 2024); Vapermate L.L.C. v. FDA, No. 24-60628 (5th Cir. Dec. 10, 2024); Elite Brothers v. FDA, No. 25-60098 (5th Cir. Mar. 6, 2025); American Vapor v. FDA, No. 25-60369 (5th Cir. Jul. 11, 2025).

[10] Brief for Respondents, FDA v. R.J. Reynolds Vapor Co., No. 23-1187 (5th Cir. Dec. 18, 2024).

Troutman Pepper Locke attorneys James Beers, Jerry Higdon, Gerry Pels, Elizabeth Corey, and Brett Miller contributed the chapter on “USA – Texas, Trends and Developments” in Chambers’ Power Generation, Transmission & Distribution 2025 Global Practice Guide.

With “drill baby drill” being a campaign rallying cry, it was apparent that, if elected, the Trump administration would seek to shift US energy policy. Few, however, were prepared for the near-dizzying pace of Executive Orders (EOs) and proposed agency actions that will have potentially long-lasting impacts for the US energy industry. Given the detail set forth in the EOs, it is clear the administration was prepared well in advance for this moment.

On the surface, the administration seeks to rationalise environmental regulation to reset the economic balance between renewable energy and fossil fuels, and perhaps to favour fossil fuel development. That, however, is a superficial analysis. The administration’s approach to energy development is intertwined with its foreign policy. This article identifies key EOs issued to date and related agency actions affecting environmental regulation of the energy industry, and discusses their impact on the energy industry. The article concludes with a discussion of what the future may hold for the industry and for the environmental legal and regulatory community. Of course, all of this requires a crystal ball of the highest quality – and few environmental crystal balls were able to predict the Trump administration’s first five months.

Read the full article.

State attorneys general increasingly impact businesses in all industries. Our nationally recognized state AG team has been trusted by clients for more than 20 years to navigate their most complicated state AG investigations and enforcement actions.

State Attorneys General Monitor analyzes regulatory actions by state AGs and other state administrative agencies throughout the nation. Contributors to this newsletter and related blog include attorneys experienced in regulatory enforcement, litigation, and compliance. Also visit our State Attorneys General Monitor microsite.

Contact our State AG Team at StateAG@troutman.com.

Troutman Pepper Locke Spotlight

Growing Trend: State AGs Making Investigations Public

By Chris Carlson, Blake Christopher, and Kyara Rivera Rivera

Chris Carlson, Blake Christopher, and Kyara Rivera Rivera of Troutman Pepper Locke discuss a recent trend of State AGs publicizing when they initiate an investigation and the considerations for companies on the receiving end.

Kalshi Faces Regulatory Scrutiny and Litigation From Several Angles

By Troutman Pepper Locke State Attorneys General Team and Natalia Jacobo

In addition to receiving cease-and-desist orders from several states (Arizona, Illinois, Montana, and Ohio), and ongoing litigation against New Jersey state gaming regulators in the U.S. Court of Appeals for the Third Circuit, KalshiEx LLC (Kalshi) is also now embroiled in litigation with regulators in Maryland and Nevada. Kalshi operates as a designated contract market, which allows adults in all 50 states to make financial trades on a broad range of topics — from sports to the weather.

AGs Demand End to Unlawful Robocalls Through “Operation Robocall Roundup”

By Troutman Pepper Locke State Attorneys General Team and Nick Gouverneur

In 2022, a bipartisan task force of 51 state attorneys general (AGs) was formed to investigate and take legal action against companies allegedly responsible for large volumes of fraudulent and illegal robocall traffic. North Carolina AG Jeff Jackson, Indiana AG Todd Rokita, and Ohio AG Dave Yost lead the “Anti-Robocall Litigation Task Force.” The task force is made up of AGs from both political parties.

Massachusetts AG Campbell Releases Business Guidance on “Junk Fee” and Auto-Renewal Regulations

By Troutman Pepper Locke State Attorneys General Team and Namrata Kang

Massachusetts Attorney General (AG) Andrea Joy Campbell has issued guidelines to help businesses comply with the recently enacted consumer protection regulations, prohibiting “junk fees” and providing consumers with greater transparency regarding trial and subscription offers. We previously covered these regulations in detail here.

Kris Kobach, Kansas

Kris Kobach was elected as Kansas’s 45th AG in November 2022. Raised in Topeka, KS, he graduated from Washburn Rural High School and pursued his undergraduate studies in government at Harvard University, graduating summa cum laude. As a Marshall Scholar, he earned a Ph.D. in politics from the University of Oxford and completed his JD at Yale Law School, serving as notes development editor of the Yale Law Journal.

Kobach clerked for the Tenth Circuit Court of Appeals and later became a professor of constitutional law at the University of Missouri – Kansas City School of Law from 1996 to 2011. During this period, he received a White House fellowship and served in the U.S. Department of Justice as counsel to the AG.

He served as the 31st Kansas secretary of state from 2011 to 2019 and led the Presidential Commission on Election Integrity in 2017. In private practice, Kobach litigated high-profile cases, including challenges related to DACA and defending statutes against the ACLU. In 2022, he represented Air Force members in vaccine mandate exemption cases.

Kansas AG in the News:

Koback appointed Joseph Sciarrotta to serve as his chief deputy starting next week. Sciarrotta previously served as an Arizona superior court judge, general counsel to former Arizona Governor Jan Brewer, top advisor to former AG Mark Brnovich, and general counsel to the Arizona Department of Administration.

Upcoming AG Events

September: RAGA | Fall National Meeting | Miami, FL
September: DAGA | Denver Policy Conference | Denver, CO
October: AGA | Anti-Human Trafficking Summit | Oxford, MS

For more on upcoming AG Events, click here.

Troutman Pepper Locke’s State Attorneys General team combines legal acumen and government experience to develop comprehensive, thoughtful strategies for clients. Our attorneys handle individual and multistate AG investigations, proactive counseling and litigation, and manage ancillary regulatory issues. Our successful approach has been recognized by Chambers USA, which ranked our practice as a leader in the industry.

Introduction

The IRS has introduced a significant update permitting electronic filing of Form 15620 to make an election pursuant to Section 83(b) of the Internal Revenue Code. This update modernizes the compliance requirements of Section 83(b) and is particularly beneficial to the emerging company and venture capital ecosystem (ECVC), and its participants (e.g., companies, founders, employees, board members, and other service providers) who receive equity subject to vesting. This change is crucial for taxpayers in both optimizing tax planning and facilitating alternatives to ensure timely compliance.

Significance for Startups and Venture Capital Firms

The Section 83(b) election allows taxpayers to be taxed on the fair market value of their equity at the time of grant, rather than at each vesting event. This can lead to tax savings, as taxation at each vesting event may result in higher liabilities due to equity appreciation. Conversely, not filing results in taxation at each vesting event, which can become financially burdensome as the equity’s value increases, leading to higher tax liabilities over time, especially given that time-based vesting schedules regularly stretch out over several years.

For a Section 83(b) election to be valid, there is a strict timing deadline that the filing must be made within 30 days of the equity transfer to a recipient. Previously, the filing process relied on physical mail submissions, posing a risk of missing the strict 30-day deadline. The introduction of the new online filing option enhances both efficiency and reliability, making it ideally suited for the fast-paced nature of the ECVC ecosystem.

Benefits of Online Filing

Taxpayers can now streamline the filing process by creating an IRS online account to complete and submit Form 15620 electronically, which eliminates postal delays and ensures timely filing. Additionally, the online form requires confirmation that no Section 83(b) election has been previously mailed for the underlying equity subject to the election.

The online submission process provides confirmation of receipt, reducing the risk of lost or delayed mail and ensuring compliance with the 30-day filing requirement. While this improvement offers substantial benefits over the previous method, taxpayers may still opt for certified mail with return receipt requested to maintain a clear record of mailing.

Guidance for Taxpayers

Companies should consider the benefits of proactively educating equity recipients on the benefits, potential risks, and streamlined electronic filing process of Form 15620 for Section 83(b) elections. Companies should continue to track the 30-day deadline and keep records confirming that filings have been made.

Conclusion

Section 83(b) elections offer tax benefits by allowing taxpayers to include unvested equity received in connection with the performance of services in their gross income for tax purposes. While the online filing option for Form 15620 modernizes this process, making it more accessible and efficient while reducing the risk of inadvertently missing the 30-day filing deadline, Section 83(b) elections, and the resulting tax implications, are complex, and taxpayers are encouraged to consult with their own independent tax advisors.

This alert is for informational purposes only and does not constitute legal or tax advice.

Reach out to Troutman Pepper Locke if you have questions about Section 83(b), Form 15620, or want to learn more.

Plaintiffs pursuing securities fraud claims under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 face the heightened pleading standards imposed by both Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA). To survive a motion to dismiss, plaintiffs must therefore plead “the who, what, when, where, and how” of the alleged fraud and the facts that give rise to a strong inference that the defendant acted with scienter with particularity. These requirements can pose significant hurdles for plaintiffs, who may lack firsthand knowledge or direct access to facts that clearly show why a statement was misleading or documents that reveal a defendant’s state of mind.

Click here to read the full article in The Legal Intelligencer.

When a company files for bankruptcy, it can be an unsettling time for the company’s employees who may worry about job and financial security, including unpaid wages and employee benefits. While these concerns are legitimate, the Bankruptcy Code and bankruptcy process provide some protection to employees in certain circumstances.

This article will discuss what happens to unpaid wages when an employer files for bankruptcy. To access this article and read other insights from our Creditor’s Rights Toolkit, please click here.

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