On January 17, Governor Phil Murphy signed a bill into law (A3451/S2950) that significantly amends the New Jersey Family Leave Act (NJFLA). The new rules, which take effect on July 17, 2026, will expand the employers covered under the NJFLA and the employees eligible for job-protected leave.

The new law also amends the Temporary Disability Insurance (TDI) and Family Leave Insurance (FLI) laws to provide job protection for individuals receiving these benefits. Previously, the TDI and FLI laws provided for wage replacement benefits but did not guarantee reinstatement.

Current NJFLA Requirements

Employer Obligations: Under the current NJFLA, employers with 30 or more employees (including out-of-state employees) must provide eligible employees up to 12 weeks of job-protected leave during a 24-month period for the following reasons:

• To care for or bond with a child, as long as the leave begins within one year of the child’s birth or placement for adoption or foster care;
• To care for a family member who has a serious health condition; or
• During a state of emergency:
  • To care for a family member who has been isolated or quarantined because of suspected exposure to a communicable disease; or
  • To provide required care or treatment for a child if their school or place of care is closed due to a public health emergency.

Eligible Employees: Employees are eligible for protected leave under the NJFLA if they have been employed for at least one year and have worked at least 1,000 hours in the past 12 months.

Job Protections: Employees returning to work from NJFLA leave are entitled to return to the same position they held before leave or to a position with equivalent seniority, status, employment benefits, pay, and other terms and conditions of employment.

Key Changes in 2026

• More employers are covered— the NJFLA will apply to employers with at least 15 employees (including out-of-state employees).
• Employee eligibility requirements are reduced— employees who have been employed for at least three months and worked at least 250 hours during the preceding 12 months will be eligible for NJFLA leave.
• The same job protections provided to employees returning from NJFLA leave must be afforded to employees returning from TDI or FLI leave. Previously, TDI and FLI were considered to be strictly wage replacement benefits and employers had no obligation to reinstate employees at the end of the benefits period.
• Employees who are eligible for earned sick leave and either TDI or FLI may choose which type of leave to take first and only one type of paid leave may apply at a time.

Action Items for Employers

Employers with at least 15 employees should plan to comply with the NJFLA and:

• Review and update policies and handbooks to reflect the amended rules and procedures for requesting leave;
• Train human resources, managers, and supervisors on the expanded protections;
• Provide notice to employees of their rights and obligations under the NJFLA; and
• Document employee leaves, including employee start and return dates; reasons for leave; type of leave taken; when and why leave is approved or denied; and when leaves are taken sequentially or overlap.

Nationwide Family Leave Updates

Employers with employees in multiple states should keep in mind other recent state law amendments that may affect their leave policies. Some examples are:

• Colorado: As of January 1, the Paid Family and Medical Leave Insurance Act provides employees an additional 12 weeks of paid leave if they have a child receiving inpatient care in the neonatal intensive care unit (NICU).
• Delaware: Benefits under the Healthy Delaware Families Act are payable beginning January 1, and the law provides employees up to 12 weeks of paid leave for parental bonding and up to six weeks of paid leave for serious health conditions or military exigencies.
• Maryland: As of January 1, employers must provide each employee with written notice of their rights under the Family and Medical Leave Insurance program at the time of hire, annually, and within five days of requesting leave.

We will continue to monitor the implementation of the NJFLA and other state leave laws. If you have questions about how the NJFLA, or any other state or local family leave law, applies to your organization, please reach out to your Troutman Pepper Locke employment counsel.

2025 was another consequential year in the consumer finance industry. On the federal level, President Donald Trump started his second term in January 2025 and since then has led an unprecedented rollback of federal agency oversight, impacting everything from the Consumer Financial Protection Bureau to the Federal Trade Commission. State legislatures, regulators, and attorneys general moved quickly to fill the resulting void.

Looking ahead to 2026, we expect these trends to deepen: a leaner and more constrained federal enforcement posture, increasing reliance on courts rather than agencies to interpret core consumer statutes, and an even more complex state-by-state patchwork governing credit, collections, digital assets, and emerging products. In this environment, compliance and litigation strategies will need to account not only for today’s reduced federal scrutiny but also for future administrations and private litigants who will review 2025-2026 conduct in hindsight.

To access the report, please click here.

Topics covered include:

We hope you find this report insightful and valuable. We are here as your trusted resource to help you understand and tackle today’s challenges, while preparing you for what lies ahead.

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The Consumer Finance Podcast: In this episode of The Consumer Finance Podcast, host Chris Willis is joined by Consumer Financial Services Practice Group leadership Michael Lacy and Simon Fleischmann to preview the firm’s annual Consumer Financial Services Year in Review and Look Ahead publication. They describe how the publication provides concise summaries of the past year’s key trends, cases, and regulatory developments — along with informed predictions for 2026 and beyond — across areas such as consumer class actions, bankruptcy, credit reporting, digital assets, mass arbitration, mortgage and auto finance, payment processing, and privacy and data security. They also introduce an upcoming companion podcast series featuring several of the publication’s section authors. Click here to listen.

In Rutledge v. Clearway Energy Group LLC, the Delaware Supreme Court, sitting en banc, answered two certified questions from the Court of Chancery and held that the controlling-stockholder safe harbor provisions enacted by Senate Bill 21 do not violate the Delaware Constitution. The court concluded that the amended Section 144 of the Delaware General Corporation Law, which permits a controlling-stockholder transaction (other than a going-private transaction) to be cleansed by either an independent committee approval or a majority-of-the-minority stockholder vote (rather than requiring both under applicable case law), represents a legitimate exercise of the General Assembly’s legislative authority, does not divest the Court of Chancery of its equity jurisdiction, and may be applied retroactively to transactions that occurred before SB 21’s enactment, except for proceedings that were pending as of February 17, 2025.

With the constitutional challenge now resolved, deal planners should treat the amended Section 144 framework as settled law. For private equity sponsors and other controlling stockholders, this means that a single cleansing mechanism, either a properly functioning independent committee or an informed, uncoerced majority-of-the-minority vote, is sufficient to insulate a non-going-private transaction from entire-fairness review and foreclose equitable relief or damages for breach of fiduciary duty claims. Sponsors and their counsel should ensure that transaction processes are designed from the outset to satisfy the statutory requirements, including the board’s determination of director disinterestedness and, where applicable, the statutory presumption of independence for directors of public companies who satisfy stock exchange independence standards.

Guilty pleas by a now defunct crypto exchange and its co-founder and former chief technology officer (CTO), along with the recent arrest of its other co-founder and former chief executive officer (CEO) in the Eastern District of California, send a strong reminder to the digital assets industry that it cannot grow lax in establishing, implementing, and maintaining robust anti-money laundering (AML) compliance programs. This case also illustrates that, consistent with the Criminal Division’s May 2025 White-Collar Enforcement Plan, the Department of Justice (DOJ) continues to prioritize holding individual wrongdoers accountable.

The Company

On December 9, 2025, Paxful Holdings, Inc. (Paxful), an online cryptocurrency marketplace, pleaded guilty to three counts of conspiracy related to: (1) operating an unlicensed money transmitting business (MTB), (2) failing to comply with its AML obligations under the Bank Secrecy Act (BSA), and (3) violating the Travel Act. Under a plea agreement executed in 2024 and accepted by the court in December 2025, Paxful agreed to pay a $4 million criminal penalty, reflecting its limited ability to pay as it winds down operations. Paxful also agreed to a separate $3.5 million penalty imposed by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), substantially reduced from a potential $112.5 million penalty in light of the company’s financial condition.

According to the plea agreement, Paxful operated a cryptocurrency marketplace but willfully failed to establish, develop, implement, and maintain an effective AML compliance program, resulting in the platform being used to transfer the proceeds of, among other things, fraud schemes, illegal prostitution, and hacks by malign state actors.

Established in 2015, Paxful, among other things:

• Failed to designate an AML compliance officer until 2018;
• Failed to train employees on AML and know-your-customer (KYC) requirements until 2019;
• Did not verify the true identities of customers as required under applicable laws, regulations, and rules;
• Marketed itself to customers as a platform where users could buy and sell cryptocurrency without providing government-issued identification or other standard KYC documentation;
• Facilitated transactions associated with illegal activity but failed to file suspicious activity reports (SARs); and
• Falsely represented the strength and scope of its AML compliance program to other financial institutions.

The Paxful resolution demonstrates that, even where a company is insolvent or winding down, DOJ and FinCEN will pursue criminal and civil enforcement for willful AML failures, but may calibrate monetary penalties based on an ability-to-pay analysis.

The Executives

Artur Schaback (Co-founder and former CTO)

In addition to the company, in July 2024, Paxful’s co-founder and former CTO, Artur Schaback, pleaded guilty to a conspiracy charge arising from Paxful’s failure to maintain an effective AML compliance program. Schaback is cooperating with the government and faces a statutory maximum sentence of up to five years in prison, but has not yet been sentenced, as the sentencing has been repeatedly delayed and has not yet occurred.

Ray Youssef (Co-founder and former CEO)

Most recently, federal prosecutors have charged Paxful’s other co-founder and former CEO, Ray Youssef, with charges similar to Schaback, including conspiring to evade AML requirements, operating an unlicensed MTB, and facilitating illegal prostitution-related activities through the crypto exchange’s operations. The indictment alleges Youssef helped design a business model that targeted illicit “vice industries,” including enabling crypto payments for prostitution advertising websites such as the defunct Backpage.com. Youssef, arrested earlier in February, has publicly claimed he is being targeted for his crypto advocacy and has vowed not to plead guilty and to fight the charges.

Takeaways

This criminal action confirms that DOJ continues to prioritize promises made in its May 2025 memorandum setting out the Criminal Division’s White-Collar Enforcement Plan for the new administration. Specifically, the memorandum stated: “[I]n the digital assets context, prosecutors should ‘focus on prosecuting individuals who victimize digital asset investors, or those who use digital assets in furtherance of criminal offenses.'” As shown here, the Division is actively working to identify, investigate, and prosecute both corporate and individual criminal wrongdoing and prioritizing schemes involving senior-level personnel or other culpable individual actors. The Criminal Division developed these policies “because justice demands the equal and fair application of criminal laws to individuals and corporations who commit crimes,” noting that “[t]he Department’s first priority is to prosecute individual criminals.”

The case also illustrates that, despite the current administration’s stated efforts to move away from “regulation by prosecution” in the digital assets industry, as stated in the deputy attorney general’s digital assets memorandum, DOJ’s Criminal Division’s Money Laundering, Narcotics, and Forfeiture Section (formerly known as MLARS) in coordination with FinCEN, continues to bring BSA-based charges where it can establish knowing and willful violations tied to significant underlying criminal activity. As described in the digital assets memorandum, federal prosecutors are directed not to charge regulatory violations in digital asset cases under the BSA or for operating an unlicensed MTB absent evidence of knowing and willful misconduct. This approach is consistent with the Criminal Division’s May 2025 white-collar enforcement priorities to pursue digital asset cases where willful violations facilitate substantial criminal conduct such as fraud, exploitation, or other criminal offenses.

Paxful’s resolution with the DOJ also highlights the distinction between voluntary self-disclosure and receiving cooperation credit. The plea agreement noted that Paxful did not receive credit for voluntarily self-disclosing its misconduct under the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP), but because the company did not self-report its misconduct before it was already on the government’s radar. It did, however, receive meaningful credit under the policy for cooperating with the DOJ’s investigation by, among other things: (1) promptly collecting, analyzing, and organizing voluminous information; (2) providing timely updates on facts learned during its internal investigation; and (3) making detailed factual presentations to the government. In addition, Paxful received cooperation credit for taking extensive and timely remedial measures, including engaging an external auditor to enhance its compliance program, using automated tools to assist with the implementation of its KYC and AML compliance policies, and working with federal law enforcement to respond to law enforcement requests despite having moved its operation outside the United States.

For companies in the digital asset space, the distinction matters: early voluntary self-disclosure can materially improve the outcome, but robust cooperation and remediation can still meaningfully influence charging decisions and penalty outcomes where self-disclosure is no longer available.

Cryptocurrency companies should also consider using automated tools to enhance the effectiveness of their AML controls. Banks and other financial institutions doing business with cryptocurrency companies should closely review those companies’ compliance programs for these components. Financial institutions in the digital assets industry must continue to maintain and regularly review their AML compliance programs to avoid willful violations.

In particular, companies operating in the cryptocurrency industry should ensure they:

1. Promptly designate and empower a qualified AML compliance officer with sufficient authority and resources;
2. Implement robust KYC identification and verification procedures, including for higher-risk customers and counterparties;
3. Provide timely and ongoing AML/KYC training to relevant personnel tailored to the company’s business model and risk profile;
4. Monitor for and timely report suspicious activity, including filing SARs where appropriate, supported by effective transaction monitoring;
5. Accurately describe the strength and scope of their AML compliance programs to banks and other counterparties; and
6. Conduct periodic risk assessments and independent testing of their AML compliance programs, and remediate identified gaps.

Troutman Pepper Locke is closely monitoring this development in digital asset enforcement and the current administration’s evolving priorities. If you have questions on how these priorities impact your business or wish to begin evaluating your existing compliance programs, please do not hesitate to contact a member of our White Collar Litigation and Investigations team.

While the U.S. Supreme Court’s recent decision invalidating tariffs imposed under the International Emergency Economic Powers Act (IEEPA) resolves one legal issue, it has left unresolved another set of legal issues that will be highly complicated for businesses — how to obtain a refund for those duties that were paid but that the Court has determined the government lacked the authority to impose, and how claims to those refunds can be resolved once the refunds are issued. Across many supply chains, IEEPA-related tariffs were incorporated into pricing, reimbursed through contractual pass-through mechanisms, or absorbed through negotiated commercial adjustments. As refunds begin flowing back to importers of record, a new question emerges: Who ultimately “owns” the refunded duties — the importer that paid U.S. Customs and Border Protection (CBP), or a downstream party that bore some or all of the economic cost (e.g., distributors, manufacturers, retailers, or ultimately consumers)? This question will be determined not under customs laws and regulations, but under ordinary principles of commercial contract law.

When Refund Entitlement Becomes a Contract Question

Refunds issued by the U.S. government are typically paid to the importer of record because that party legally remitted the duties. Once payment is received, however, entitlement to retain those funds turns on how tariff risk and pricing authority were allocated between commercial counterparties. Courts addressing these disputes, when dealing with sophisticated parties, are unlikely to focus on economic hindsight or perceived fairness. Instead, they will examine what the parties agreed, expressly or implicitly, when transactions occurred. That inquiry rarely begins and ends with a single agreement.

In modern goods transactions governed by the Uniform Commercial Code (UCC), contractual obligations are frequently reflected across a broader commercial record, including master agreements, purchase orders, invoices, confirmations, and performance conduct over time. Where refund rights were never expressly addressed (which is common) courts may reconstruct the parties’ allocation of tariff risk from this collective documentation.

Why the Commercial Record Now Matters

Many tariff-related pricing changes were implemented operationally rather than through formal contract amendments. Businesses reacted in real time, adjusting pricing through invoices, surcharge notices, or commercial correspondence as regulatory conditions evolved. As a result, courts may closely examine supply and distribution agreements, purchase orders and acknowledgments, invoice structures and duty line items, tariff surcharge communications, pricing negotiations reflected in emails, and the parties’ course of performance.

Under UCC principles, consistent commercial conduct may clarify contractual meaning even where formal documentation is incomplete. How tariff costs were billed, described, and accepted may therefore become central evidence of whether payments were intended as reimbursement of governmental charges or as finalized commercial pricing. That distinction may ultimately determine ownership of refunded IEEPA-related tariffs.

Contractual Provisions Likely to Shape Refund Outcomes

Tariff Pass-Through and Duty Allocation Clauses

Courts will first examine whether contracts treated tariffs as identifiable pass-through expenses or merely permitted pricing adjustments reflecting increased costs. Express reimbursement language strengthens downstream arguments that refunds should follow the party that funded the duty payments. By contrast, provisions granting pricing discretion in response to cost increases may support the view that tariff impacts became embedded in negotiated product pricing rather than preserved as separately recoverable amounts. The legal consequence appears to be straightforward, at least in principle: reimbursement provisions point toward repayment obligations.

Change-in-Law and Regulatory Adjustment Provisions

Many commercial agreements authorized price adjustments arising from governmental action or regulatory change. Downstream parties may argue these clauses imply reciprocal adjustment once tariffs are invalidated. Importers, however, may contend that such provisions enabled permanent commercial repricing decisions made under then-existing market conditions, not temporary advances subject to later reconciliation. Courts will often assess whether these provisions were intended to restore economic balance or simply permit flexibility during regulatory volatility.

Pricing Structure and Surcharge Treatment

Operational pricing mechanics frequently carry substantial interpretive weight. Courts may consider whether tariffs were separately itemized on invoices, described as temporary surcharges, or incorporated into revised unit pricing. Separately identified duty charges may indicate reimbursement intent. Integrated pricing adjustments, by contrast, may demonstrate that the parties renegotiated the economic bargain itself, suggesting payments were final consideration for goods rather than conditional tariff reimbursements. In many disputes, pricing structure will serve as the clearest evidence of contractual intent.

Incoterms and Allocation of Import Responsibility

Delivery terms may provide additional context regarding risk allocation: (i) DDP (Delivered Duty Paid) arrangements may indicate seller responsibility for duties; and (ii) FOB (Free on Board) or CIF (Cost, Insurance, and Freight) structures may suggest buyers assumed import-related exposure. While Incoterms do not independently resolve refund ownership, they help courts understand which party contractually bore import risk when goods entered U.S. commerce, an important backdrop when assessing reimbursement expectations.

Integration, Modification, and Reservation-of-Rights Clauses

Contract provisions governing modification and integration may significantly shape refund disputes. Agreements requiring written amendments may limit reliance on informal emails or operational discussions suggesting reimbursement expectations. Conversely, documented reservations of rights or temporary surcharge language may support downstream recovery arguments. These clauses frequently determine whether tariff-era pricing adjustments are treated as provisional accommodations or binding commercial outcomes.

Potential Claims Asserted by Downstream Parties

Downstream purchasers seeking repayment may rely on both contractual and equitable theories, including:

• Breach of contract where duties were invoiced as pass-through charges;
• Unjust enrichment claims alleging improper retention of refunded funds;
• Breach of the implied covenant of good faith and fair dealing under UCC-governed agreements;
• Restitution or disgorgement based on payments made under legal assumptions later invalidated; and
• Equitable reallocation arguments tied to payments made solely because tariffs were presumed lawful.

Each theory ultimately depends on demonstrating that IEEPA-related tariff payments functioned as reimbursement rather than negotiated price consideration.

Importer Defenses Supporting Refund Retention

Importers, however, may rely on equally well-established commercial defenses.

• Commercial Pricing Independence: Importers may argue tariff exposure informed overall pricing decisions rather than creating reimbursement obligations. Once incorporated into negotiated pricing, payments may constitute consideration for completed sales transactions, unaffected by subsequent governmental refunds.
• Absence of Refund or Reconciliation Obligations: Courts are generally reluctant to impose repayment duties not reflected in agreements negotiated by sophisticated parties. Contractual silence regarding refund allocation may therefore favor importer retention.
• Allocation of Regulatory and Market Risk:Where agreements place cost volatility or regulatory change risk on buyers, importers may argue tariff exposure formed part of the negotiated commercial risk allocation existing at the time of sale.
• Course of Performance: Extended performance under revised pricing without reconciliation mechanisms may evidence mutual understanding that tariff-related payments were final when made.
• Voluntary Payment, Waiver, and Accord and Satisfaction: Buyers that knowingly paid tariff-adjusted invoices (particularly following negotiation or continued performance) may face defenses grounded in voluntary payment, waiver, estoppel, or accord and satisfaction principles recognizing commercially settled expectations.
• Integration and No-Modification Protections:Integration clauses limiting informal modification may further support importer arguments that tariff pricing adjustments represented definitive commercial agreements rather than temporary arrangements awaiting refund reconciliation.

Why Routine Commercial Documents May Decide the Outcome

In many cases, refund entitlement will not turn on headline contractual language but on how tariff costs were implemented in practice. Courts may closely analyze invoice descriptions, pricing communications, purchase order exchanges, and whether either party reserved rights as tariff legality remained uncertain. Documentation once viewed as routine operational paperwork may now function as the primary evidence defining contractual intent and ownership of refunded duties.

The Bottom Line

The Court’s decision eliminates the legal basis for IEEPA-related tariffs. It does not determine how refunded duties unwind across private commercial relationships. Customs laws and regulations dictate who receives repayment from the government. However, contract law, shaped by pricing structure, risk allocation, and commercial performance, will determine who ultimately retains it. For many companies, the next phase of the IEEPA unwind will resemble a contract dispute far more than a trade compliance exercise. Recovering refunds may be procedural. Determining entitlement to those funds may require careful legal analysis of agreements, transactional records, and years of supply-chain conduct.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently announced a $1.7 million civil penalty against a private secondary school and athletic training institution in Florida. According to OFAC, this institution entered into tuition and enrollment agreements with, and received payments from, two individuals designated on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List, whose children attended the institution.

This action underscores that any educational institution that enrolls international students, accepts payments from outside the U.S., or otherwise interacts with non‑U.S. persons — whether a K‑12 school, specialized academy, camp, or university — can be exposed to sanctions risk and should develop a “risk-based” OFAC compliance program.

Likely Reasons for the Significant Penalty in This Case

OFAC expects a sanctions compliance program to be commensurate with, and specifically responsive to, the risks presented in each situation. This institution attracted many international student-athletes because of its full-time boarding opportunities, professional training programs, and college sports recruiting resources. The institution likely had a relatively high sanctions risk profile due to its heavy exposure to foreign students and parents. As a result, OFAC would have had relatively high expectations for this institution in terms of compliance.

According to OFAC, the institution entered into six tuition enrollment agreements, three with each SDN, for their children’s participation in its programs. In addition, the institution received payments for these students’ enrollment by credit card as well as wire transfers initiated by nondesignated third‑party individuals and entities in Mexico. Third-party payment is often a red flag, as SDNs typically have significant challenges accessing the international banking system. This institution’s risk profile thus was further elevated as a result of these third-party transactions.

The sanctioned individuals were expressly identified in the enrollment agreements, and their names matched the entries on OFAC’s SDN List. Despite that facial violation, the institution apparently did not conduct any screening and did not identify the sanctions issue.

The significant penalty in this case also likely reflects the fact that this institution did not take even the first step in sanctions compliance — consulting the SDN List, which contained the names of both parents.

Best Practices

Educational institutions with international exposure can manage sanctions risk by implementing a risk-based compliance framework. Some of the key best practices can include:

• Adopting a formal sanctions compliance policy;  
• Identifying specific individuals with responsibility for carrying out the policy, and ensuring proper training;  
• Conducting a basic risk assessment to identify the types of transactions with the greatest potential OFAC exposure (e.g., international students, payments from foreign bank accounts, etc.);  
• Refining the risk assessment to pinpoint the higher-risk cases that warrant closer scrutiny;  
• Having a process for restricted party and sanctioned country/territory screening at appropriate stages, as a function of risk (e.g., onboarding, billing, and payment processing); and  
• Considering whether the screening should be manual or automated, daily/ongoing, or only prior to key transactions, along with other details such as which lists to screen, whether/when to conduct additional due diligence prior to screening, etc.  

This OFAC penalty is an important reminder that sanctions compliance is not confined to banks and multinational corporations. Nor is it an issue only for sophisticated universities. Any institution with international exposure should develop, implement, and periodically refine a risk-based sanctions compliance program.

Troutman Pepper Locke’s Sanctions + Trade Control team regularly advises educational institutions and other nontraditional actors on practical, right‑sized sanctions compliance programs and can assist with risk assessments, policy design, training, and response strategies when potential issues are identified.

INTRODUCTION

Latent construction defects can surface years after construction ends. Every defect is different, but they all raise the same question: who is responsible? This is a simple question with no simple answer, and warranty disputes can lead to huge losses for owners and contractors alike: owners are forced to pursue warranty claims and risk incurring costs of correction that should have been covered, while contractors bear the risk of “call back” repair work for which they may not be responsible. Both parties have multiple tools at their disposal to clarify their obligations and allocate responsibilities, but many (if not most) construction contracts fail to achieve the appropriate balancing of the risks each party should properly take on.

The following analysis focuses on a 2021 New York case, HTRF Ventures, LLC v. Permasteelisa N. Am. Corp., 190 A.D.3d 603 (1st Dept 2021), which has had notable impacts on the negotiation of guarantees and warranties against defective work and materials. The article begins with the background of the case, then examines the Permasteelisa holding and its significance in light of the traditional warranty language used in the construction industry. Permasteelisa has implications for both owners and contractors in New York, which is a trendsetter for the construction industry, and contracting parties are already making changes to adjust to the new precedent. In other words, while directly affecting those in New York, construction professionals everywhere should watch closely.

THE PERMASTEELISA CASE

Permasteelisa arose out of an issue with defective window units and sealants in the curtainwall system at the Frank Gehry-designed Inter Active Corporation, or IAC Building, located at 555 West 18th Street in Manhattan, New York. In November 2016, HTRF Ventures, LLC (HTRF), the owner of the IAC Building, commenced a breach of contract action against Permasteelisa North America Corporation (Permasteelisa) for Permasteelisa’s failure to remedy defects, alleging leakage arising from faulty sealants within the window units installed in the IAC Building’s curtainwall by Permasteelisa.

The IAC Building[1]

Permasteelisa had been engaged by the construction manager pursuant to a subcontract that named HTRF as a third-party beneficiary to complete the curtainwall scope of work on the IAC Building, which was completed in 2007.[2] The dispute arose because Permasteelisa refused to repair or replace the window units and remedy the issue with the sealants, arguing that they were only bound by a five-year warranty period covering workmanship (and that its material suppliers were responsible for the longer warranty periods covering the materials). Here, the subcontract required Permasteelisa to remediate “faulty, defective or improper Work, materials or equipment” discovered within one year of the acceptance of the project “or for such longer period as may be provided in the Plans, Specifications including all Performance Criteria, General Conditions, Special Conditions or other Contract Documents.” Importantly, the specifications required (i) a five-year warranty covering materials and workmanship, (ii) a 10-year warranty on seal failure of the double-glazed units, and (iii) a 20-year warranty for structural glazing and silicone weather seals. Permasteelisa provided a five-year warranty for materials and workmanship, as well as a 10-year warranty from the seal supplier and a 20-year warranty from the glazing supplier.

For its part, HTRF argued that Permasteelisa was bound not only by the five-year guarantee issued by Permasteelisa directly, but also by the separate, 10-year warranty against failure of the sealants in the window units that was contained in the relevant specifications. In support of its claim, HTRF pointed out that Permasteelisa’s subcontract required it to guarantee its work for one year or “for such longer period as may be provided in the Plans, Specifications, … or other Contract Documents.” HTRF argued that the separate 10-year warranty constituted such a “longer period” provided in the specifications and that, therefore, Permasteelisa was bound to honor that 10-year period.

In opposition, Permasteelisa took the position that it had followed the contractual requirements to “submit” its own five-year warranty and “provide” the separate 10-year warranty from the window unit manufacturer, attacking the owner’s reliance on the 10-year warranty as a “preposterous, tortured and intentional misreading.”[3] Overruling these objections, the New York County Supreme Court (the trial court in Manhattan) held that the contract documents bound Permasteelisa to both the five-year and 10-year warranties and that “[u]nder the plain language of the relevant agreements, Permasteelisa’s failure to honor and satisfy these warranties constituted a default by Permasteelisa.”[4] The result was that Permasteelisa faced potentially millions of dollars in additional costs, as the rework involved removing the window units, cleaning the defective sealant, applying new sealant, and reconstructing the curtainwall.

In 2021, the Appellate Division, First Department (the intermediate appellate court covering Manhattan and the Bronx) affirmed the trial court in a ruling that has reshaped the impact of warranty provisions in New York construction contracts. The First Department adhered to well-recognized principles under New York law that a contract must be interpreted to give meaning to each and every part, and courts are to avoid interpretations rendering any term meaningless or without effect.[5] Importantly, the First Department held that Permasteelisa could not raise its assignments of supplier warranties to HTRF as a defense because “Permasteelisa … unmistakably agreed … to both a guarantee and a warranty, separate and apart from each other.”[6] Thus, even if supplier warranties are provided to the owner, under Permasteelisa, any guarantee incorporating “such longer period as may be provided in the Plans, Specifications, or other Contract Documents” may cause the contractor to also be directly liable for any of the extended warranties contained in the construction documents.

In practical terms, the First Department held that if a contractor’s guarantee says it applies for one year or any longer period referenced in the drawings, specifications, or other contract documents, then the contractor can be held responsible for those longer warranty periods even if the contractor expected to provide only a short-term guarantee paired with longer warranties from downstream parties. Consider the following hypothetical: A contractor signs a contract with a one‑year guarantee on its work, “or for such longer period as may be provided in the contract documents.” The roofing specification includes a 20‑year warranty. Under Permasteelisa, the contractor can be held responsible for roof failures during the 20‑year period, not just the first year.

WARRANTIES AND GUARANTEES

The dispute in Permasteelisa centers on language that appears frequently in standard construction contracts. To understand the case’s broader impact, it is useful to consider how warranties and guarantees are usually addressed. Most forms include a set of two or three promises known variously as “warranties” and “guarantees.” Typically, a “warranty” concerns the performance or durability of a product, piece of equipment, building materials, or construction work, and a “guarantee” concerns a contractor’s obligation to perform “call back” work when defects are discovered.[7] Some states, such as California and Florida, provide implied warranties of workmanship for all construction work that arise in addition to any express warranties given by contractors.[8] In New York, the implied warranty of workmanship applies only to residential home builders and runs to the benefit of homeowners, meaning that construction defect claims by commercial real estate developers are subject to the same six-year statute of limitations applicable to any other contract claim.[9] In the absence of strong statutory protections, then, commercial project owners often insist upon including express warranty provisions in New York contracts.

Regardless of which state laws apply, express warranty provisions are a core feature of commercial construction contracts throughout the industry. So-called “special” guarantees and “extended” product or materials warranties, on the other hand, are commonly found in the specifications pages within the construction documents.[10]

The drafting of warranty and guarantee provisions varies depending on the party holding the pen. One of the most common American Institute of Architects (AIA) construction agreements, for example, uses the following language:

• If within one year after the date of Substantial Completion of the work or designated portion thereof, or after the date for commencement of warranties established under Subparagraph 9.9.1 [concerning partial occupancy or use], or by terms of an applicable special warranty required by the Contract Documents, any of the work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition.[11]

The above-referenced provisions incorporate both the contractor’s standard one-year guarantee period and any special warranty contained within the specifications. Although other standardized construction contracts deal with the issue differently, such as the more contractor-friendly ConsensusDocs,[12] most owner-protective warranty provisions contain the above language in one form or another.

On the opposite extreme, some contractors may insist on a complete transfer of warranty liability to subcontractors, pursuant to a provision such as the below:

• Contractor shall assign to Owner all warranties received by it from Subcontractors that are not otherwise issued in Owner’s name. Such assignment of warranties to Owner must also allow Owner to further assign such warranties. However, Owner shall not make any warranty claim against Contractor with respect to any portion of the Work supplied in whole or in part by any Subcontractor if and to the extent Contractor has previously assigned all warranties received by it from such Subcontractor to Owner.[13]

This contractor-friendly formulation has a few implications. First, the contractor’s responsibility to backstop subcontractor warranties ends once the warranties are assigned to the owner. Second, since the owner is in technical privity with the subcontractors with respect to post-assignment warranty claims, the owner is required to pursue warranty claims on its own. Owners, in turn, often demand that the contractor will “assist and coordinate” or “enforce on Owner’s behalf” as a way of binding the contractor to its subcontractors’ warranties without entitling the owner to a direct claim against the contractor based solely on a subcontractor’s breach. Third, and most importantly, this language forces owners to rely on the financial wherewithal of the subcontractors and not the contractor, which presents significantly heightened risk for project owners. The risk of subcontractor default or other neglect of warranty obligations shifts to the owner following the expiration of the contractor’s one-year guarantee period, resulting in exposures for latent defects that may not become apparent for years thereafter. If the responsible subcontractor, supplier, or vendor goes out of business or is otherwise unable or unwilling to honor its warranty, an owner may incur significant out-of-pocket expenses for remedying the defective work themselves.

In practice, the construction industry typically follows the second formula: most contractors provide a one-year call-back warranty and merely assist the owner with enforcing the terms of any extended warranties against the subcontractors or vendors responsible for defective work. As noted above, however, many construction agreements contain the first formulation (such as AIA contracts and ConsensusDocs).

BUILDING ON THE PERMASTEELISA PRECEDENT

The principle set forth in Permasteelisa would eliminate the ambiguity between industry practices and contract drafting with respect to a contractor’s warranty obligations. While this represents a new legal precedent, however, the rule established by Permasteelisa is not likely to lead to major changes in practice. Contractors will continue to push for standard one-year guarantees for “call back” work. Likewise, contractors will continue assigning subcontractor and supplier warranties to owners and seek to limit their obligations to assisting and coordinating the owner’s enforcement rights after the contractor’s guarantee expires. Owners will continue to accept this arrangement as long as warranty work gets done. But when the responsible party is unable or unwilling to honor the warranty, whether due to subcontractor default, bankruptcy, litigiousness, or all manner of disputes over the scope of responsibility, owners might wield the principles in Permasteelisa to push a contractor otherwise refusing to backstop the subcontractor’s faulty work.

It must be noted, however, that Permasteelisa has not been tested on its merits – to date, no reported cases have referenced its holding on warranty language other than in a memorandum filed by one of the parties (ironically, in a case involving warranty claims against Permasteelisa subsidiary Benson).[14] Thus, much of the jurisprudence around warranty and guarantee language in New York construction contracts remains to be developed.

Some other questions remain untested as well. First and foremost, Permasteelisa was held liable under extended warranties as a subcontractor to the prime contractor on the IAC Building project. Permasteelisa has not been used as a basis to bind a general contractor or construction manager to warranties and guarantees provided by subcontractors, sub-subcontractors, or suppliers with multiple degrees of separation from the contractor. That prospect is complicated by the many variables involved in discovering, evaluating, and remediating construction defects. Thus, while Permasteelisa would likely bolster such a claim, whether it becomes a meaningful vehicle for large-scale call-backs against prime contractors remains to be seen. Moreover, the contract language in the prime agreement will ultimately govern the prime contractor’s obligations to the owner.

In addition, Permasteelisa has not been extended to sureties who have provided performance bonds guaranteeing project completion. While at least one court has declined to extend Permasteelisa as such, holding that “the terms of the performance bond speak only to finishing the job in the event that [the contractor] failed to do so” and that “the ten year contractual warranty is not and has never been supported by [the surety’s] performance bond,” see Kiva Const. & Eng’g, Inc. v. Int’l Fid. Ins. Co. (W.D. La. 1990),[15] that case is not binding on New York courts.[16] Still, Kiva Const. & Eng’g, Inc. highlights an aspect of performance bonds that carries implications for Permasteelisa: standard performance bonds include contractual limitations periods, typically of two years after completion of the work. The question of whether this contractual limitations period would supersede an extended warranty period within the contract, which is guaranteed by that same performance bond, has no clear answer at this time.

Nonetheless, even if industry practices around warranty work have not undergone significant changes, Permasteelisa has important implications for construction counsel dealing with warranty provisions. First, Permasteelisa provides owners with an enforcement mechanism against contractors who have agreed to the owner-protective warranty formulation and whose projects are not beyond the applicable extended or special warranty periods. In those circumstances, as demonstrated in Permasteelisa, long-term warranties will be deemed the responsibility of the contractor. While the Permasteelisa decision was specific to the First Department, which includes Manhattan and the Bronx, New York’s other appellate divisions often follow the First Department, and are likely to follow suit. Thus, from the perspective of owners under contracts that incorporate extended warranties, Permasteelisa strengthens the ability to hold the contractor responsible for those longer obligations.

On the contractor’s side, counsel is already negotiating warranty provisions more aggressively in the wake of Permasteelisa, pushing to align contract language to industry practices (handing off responsibility for warranty claims to owners after the one-year guarantee period). While attractive to contractors in the near term, this strategy carries risks in addition to the perceived benefits. While it may be true that contractors do not intend to personally guarantee 20-year warranties against roof leakage when they assign such warranty documents to project owners, the duty and risk of conducting due diligence on lower-tier subcontractors and suppliers are properly borne by the contractor and not the owner. Allowing strictly contractor-friendly warranty provisions shifts the burden of vetting the lower tiers to owners, who will need greater visibility into subcontractors’ and suppliers’ financial condition and business practices before they can comfortably rely on a long-term warranty not backed by the contractor. Since both situations are untenable, the solution will likely be somewhere in the middle. Ultimately, however, a good contractor will stand behind its work regardless of what the contract says.[17]

CONCLUSION

Permasteelisa promises not only to introduce changes but also to reinforce existing boundaries in the fast-moving New York construction sector. In order to keep deals moving, construction counsel for owners and contractors alike should understand its implications and be prepared for the additional clarifications likely to arise out of this new precedent. For both sides, the bottom line is that latent construction defects can sink a project, but adept counsel can avoid this pitfall by negotiating clear, fair, and meticulously drafted warranty and guarantee provisions.

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[1] Photo: Wikimedia Commons 2009.

[2] As a third‑party beneficiary, HTRF could enforce certain promises in the subcontract directly against Permasteelisa, even though it was not a signatory.

[3] HTRF VENTURES, LLC, Plaintiff, v. PERMASTEELISA NORTH AMERICA CORPORATION, Defendant., 2018 WL 8796964 (N.Y.Sup.).

[4] HTRF Ventures, LLC v. Permasteelisa North America Corp., No. 655970/2016, 2019 WL 2929576, at *9 (N.Y. Sup. Ct. July 08, 2019).

[5] HTRF Ventures, LLC v. Permasteelisa N. Am. Corp., 190 A.D.3d 603 (1st Dept 2021).

[6] Id.

[7] Richard S. Robinson, Warranties in Construction Contracts: Contractor’s Drafting Strategies, Practical Law Real Estate 4-611-6846.

[8] California has a 10-year statute of limitations for latent deficiencies in construction accruing on substantial completion (see Cal. Civ. Proc. Code § 337.15), and Florida has a four-year statute for latent defects accruing upon discovery (see Fla. Stat. Ann. § 95.11(3)). However, Florida also has an outside date of seven years from substantial completion for any claims, regardless of when discovered. Id.

[9] N.Y. Gen. Bus. Law § 777-a(1) (Housing merchant implied warranty); N.Y. C.P.L.R. 213(2) (Actions on contract).

[10] As others have pointed out, construction contracts also contain order-of-precedence clauses (providing that, in the event of a conflict or inconsistency between or among the contract documents, the contractor is bound to the stricter or greater requirement) that could provide an alternate basis for bringing a Permasteelisa-type claim against a contractor whose contract documents include multiple guarantees and warranties. Richard S. Robinson, Warranties in Construction Contracts: Contractor’s Drafting Strategies, Practical Law Practice Note 4-611-6846.

[11] Menorah Campus, Inc. v. Frank L. Ciminelli Const. Co., 18 Misc. 3d 1135(A) (Sup. Ct. 2004), aff’d, 26 A.D.3d 904 (4th Dept 2006), citing AIA A201-1987 (General Conditions of the Contract for Construction) § 12.2.2.1 (emphasis removed). Note: this case was based on the 1987 AIA contract language, but no major updates have been made to that provision in modern AIA contracts.

[12] Steven G.M. Stein, Ronald O. Wietecha, “A Comparison of Consensusdocs to the Aia Form Construction Contract Agreements,” Constr. Law., Winter 2009, at 11, 14.

[13] “Common Use of Subcontractor Warranties Clause in Contracts.” Law Insider, 2025. https://www.lawinsider.com/clause/subcontractor-warranties/_9 Menorah Campus, Inc. v. Frank L. Ciminelli Const. Co., 18 Misc. 3d 1135(A) (Sup. Ct. 2004), aff’d, 26 A.D.3d 904 (4th Dept 2006), citing AIA A201-1987 (General Conditions of the Contract for Construction) § 12.2.2.1 (emphasis removed).

[14] THE BOARD OF MANAGERS OF 252 CONDOMINIUM, on behalf of the Unit Owners, Plaintiff, v. WORLD-WIDE HOLDINGS CORP., et al, 2025 WL 1998097 (N.Y.Sup.) (“Benson’s Trade Contract includes a guarantee of its work for periods of between 10 and 20 years following the receipt of a temporary certificate of occupancy and the completion of all major punch list items. This guarantee is in addition to other warranties Benson has provided. Benson does not dispute, nor could it, that these guarantees remain in effect today and have not expired–indeed, the residential owners did not begin to occupy the Condominium and work on their punch lists did not even start until 2017 and continued for years afterwards. Accordingly, Benson’s timeliness arguments fail.”) (internal citations removed).

[15] Kiva Const. & Eng’g, Inc. v. Int’l Fid. Ins. Co., 749 F. Supp. 753, 756 (W.D. La. 1990), aff’d sub nom. Kiva Const. v. Int’l Fid. Ins., 961 F.2d 213 (5th Cir. 1992).

[16] Importantly, some surety bonds explicitly include the contractor’s warranty obligations.

[17] Jeremy Baker, Beware the “One Year” Warranty: Contractor Callback Periods v. Warranties of Quality Work. Baker Law: Design and Construction Counsel. https://designbuildlaw.com/beware-the-one-year-warranty-contractor-callback-periods-v-warranties-of-quality-work/

Please enjoy the winter edition of Troutman Pepper Locke’s Alumni Newsletter.

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A Message From Firm Leaders

With fall in full swing, we are thrilled to share some highlights from the past few months and are looking forward to an exciting end to our inaugural year as Troutman Pepper Locke.

In recent months, we have had the pleasure of welcoming three new lateral partners to our team — Maryia Jones in our Consumer Financial Services Practice Group, Heather Heath Ryan in our Tax and Benefits Practice Group, and Thomas Heffernan in our Energy Transactional Practice Group. Since the start of the year, our firm has grown by 20+ lateral partner additions, and counting, across various practices and offices, significantly enhancing our capabilities and reach.

In September, we welcomed the inaugural Troutman Pepper Locke Entry-Level Associate class. The 2025 ELA class consists of 70 associates across 21 of our offices and is a diverse and talented group of individuals with impressive backgrounds from 41 of the nation’s top law schools. These new associates represent 19 different practice groups, bringing with them valuable insights from their experiences in law review, clerkships, and various other professional work experiences. We look forward to providing them with the opportunity to launch their legal careers within the collaborative and dynamic environment of Troutman Pepper Locke.

As we wrap up the final days of our inaugural year as Troutman Pepper Locke, we are pleased to share highlights from the past couple of months and are looking forward to an exciting start to the new year.

We have recently had the pleasure of welcoming new lateral partner Andrés Chaves to the Energy Transactional Practice Group. Throughout 2025, we have added more than 20 lateral partners across multiple practice areas and key industry sectors, further strengthening our capabilities and expanding our reach. We have also recently announced 20 newly elected partners and eight newly promoted counsel across numerous practices and offices. The 2026 class of partners and counsel embody the dedication, innovation, and commitment to client service that define Troutman Pepper Locke.

Our first year as a combined firm has been an overwhelming success. We brought our people, platforms, and practices together, enabling deeper collaboration across offices and disciplines. We strengthened relationships with longstanding clients, welcomed new ones, and expanded our reach in key industries and markets — all while staying focused on responsiveness, efficiency, and results.

As we celebrate the season, we’re grateful for your steadfast support. Your trust and partnership have fueled Troutman Pepper Locke’s growth and success.

Wishing you peace, joy, and a wonderful holiday. We look forward to what we’ll accomplish together in the year ahead.

Tom, Amie, David, and Ashley

	Tom Cole Chair		Amie Colby Managing Partner
	David Taylor Vice Chair		Ashley Taylor Vice Chair

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A Message From the Alumni Relations Team

We can’t thank you enough for your continued engagement during this inaugural year as Troutman Pepper Locke. It was wonderful to see so many of you at our receptions, to celebrate your achievements throughout the year, and to expand the reach of our alumni community. 

With the support of our alumni and attorneys this year, we are proud to share that:

• The alumni community includes 9,000+ members.
  
• We hosted more than 700 guests at 10 regional alumni receptions across the country. (Click here to enjoy reception photos! Password: alumni)
  
• We provided 25+ alumni-inclusive CLE programs and other learning opportunities to more than 600 alumni participants.

The bonds formed during your time with us remain strong, enrich the firm, and inspire us to keep reaching higher. We are eagerly working to expand our offerings to include new and meaningful ways to stay well-connected in the new year so please stay tuned!

In the spirit of the season, we wish you and your loved ones a joyful holiday filled with peace, love, and happiness. May the coming year bring you success, good health, and fulfillment in all your endeavors.

We’ll be in touch!

Clare, Erin, and Kayla

	Clare Roath Director of Alumni Relations		Erin Warner Alumni Relations Manager
	Kayla Kennedy Alumni Relations Manager

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Celebrating the Season: Treats and Traditions

In this season of celebration, members of our Troutman Pepper Locke community share how their families honor the holidays in deeply personal ways. From Chanuka candles that bring light to darkness, to an Armenian Christmas that extends the season with faith and heritage, to a Christmas tradition built around word games and friendly competition, these stories remind us there’s no single way to celebrate — only meaningful ways to gather, reflect, and carry hope into the new year.

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Getting to Know Troutman Pepper Locke

What a year it has been! In our first 12 months together:

• The firm’s reach has expanded with over 1,600 attorneys across 30+ offices.
  

• The combined firm saw an increased and improved presence in Chambers USA, including 18 new or improved bandings for our practice groups and 66 new or improved bandings for our attorneys. Read more.
  
• Legal 500 honored 25+ nationwide practices and 125+ attorneys. Read more.
  
• The Pepper Center for Public Service celebrated it’s 10^th anniversary and published a 10-year Report detailing its achievements, awards, and ongoing efforts to improve the lives of those in need.
  
• We moved into BTI’s Top 10 for client service — a major leap in trust and reputation. Read more.
  
• The firm continued to see significant growth in industry league table rankings released by Bloomberg and LSEG, maintaining top rankings internationally and in the Americas.
  
• Attorneys from both legacy firms have been recognized in Thomson Reuters’ Stand-Out Lawyers, Managing IP’s IP Stars, the IAM Patent 1000, Lawdragon’s Leading Lawyers, M&A Atlas Awards, Global Restructuring Review, and M&A Advisor, among many, many others.

We are excited to see what Troutman Pepper Locke will achieve in 2026!

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Community in Action

Troutman Pepper Locke’s commitment to outstanding and innovative service extends beyond client work to the communities where we live and serve. This year, firmwide fundraising and volunteer initiatives made a meaningful impact on more than 300 charitable organizations — including the American Red Cross, local food banks, veterans’ groups, schools, youth programs, community clean-up efforts, and many more.

We’re grateful to our firm leaders, attorneys, and business professionals for their dedication and passion — coordinating such efforts is no small task and reflects the strength of our Troutman Pepper Locke community. Together, we make a difference!

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CLE Opportunities

Be sure to check Troutman Pepper Locke’s Learn + Connect Centerfor frequent updates on additional offerings and share with your fellow alumni and friends of the firm!

Free Fridays: Practicing Law Institute CLE Offerings

As part of the firm’s membership, we are happy to offer CLE offerings from PLI to friends of the firm. If you would like to be included in our Free Friday PLI email distribution, please contact Clare Roath.

On Demand CLE from Troutman Pepper Locke

Troutman Pepper Locke is pleased to share with our alumni an innovative on-demand CLE portal.

You can visit www.troutmancle.com for access to free recorded content and free registration for live webinars presented by Troutman Pepper Locke attorneys.

Simply add programs of interest to your cart and checkout as you would an online store. Communications about the program, including PINs for access and CLE certificates will be sent to the email address you provide during checkout.

Please note that you may need to work with your IT professionals if this site is initially flagged by your cybersecurity software.

Contact our CLE management team with any questions.

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Firm News

Troutman Pepper Locke Elects 20 New Partners Nationwide

Troutman eMerge Named Best Client–Law Firm Team Finalist at The American Lawyer Industry Awards

Global Restructuring Review Recognizes Troutman Pepper Locke Among 2025 Top 100 Firms

The M&A Advisor Recognizes Troutman Pepper Locke With Information Technology Deal of the Year and Corporate/Strategic Deal of the Year Awards

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Let’s Stay Connected

Join the alumni LinkedIn page

Register to receive invitations and communications

Email the alumni team

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.

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Troutman Pepper Locke Spotlight

California DFPI’s Next Target: Credit Reporting Industry

By Stephen C. Piepgrass, Kim Phan, and Michael Yaghi

In this special crossover episode of Regulatory Oversight and FCRA Focus, Kim Phan is joined by Michael Yaghi, partner in Troutman Pepper Locke’s Regulatory Investigations, Strategy, and Enforcement practice group, to unpack the California Department of Financial Protection and Innovation’s (DFPI) latest effort to require registration for the credit reporting industry. They discuss DFPI’s second request for comment, how it fits into California’s broader push to regulate nonbank financial services, and which entities may be swept in beyond the “big three” consumer reporting agencies — such as furnishers, data brokers, specialty credit reporting agencies, resellers, and fintechs. Kim and Michael also explore how narrowly (or broadly) the rules might be drawn, potential overlap and tension with existing FCRA requirements, what registration and reporting could mean in practice for covered entities, and what companies should be doing now as the February 26 comment deadline approaches.

Read more

Methods For Challenging State Civil Investigative Demands

By Ashley L. Taylor, Jr., Michael Lafleur, and Sydney Goldberg

This article was originally published on Law360 and is republished here with permission as it originally appeared on February 20, 2026.

When a client receives a civil investigative demand, or CID, or equivalent subpoena from a state attorney general, the first question is always some version of “how can we move to quash this subpoena?”

Read more

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State AG News

New Jersey AG Is Unanimously Confirmed as Enforcement Agenda Takes Shape

By Troutman Pepper Locke State Attorneys General Team

On February 24, the New Jersey State Senate unanimously confirmed the appointment of Jennifer Davenport to serve as New Jersey’s attorney general (AG). Davenport (whose nomination we covered here) has been serving in an acting capacity since Governor Mikie Sherrill took office in January.

Read more

Colony Ridge Settlement With Texas and US Department of Justice Reflects Shift in Enforcement Priorities

By Troutman Pepper Locke State Attorneys General Team and McKayla Riter

On March 6, 2026, a U.S. district court will consider whether to approve a settlement agreement resolving parallel lawsuits by the Texas attorney general (AG) and the federal government against Houston-area developer Colony Ridge Development, LLC and related companies. The complaints in both suits — which were filed during the Biden administration — claim that Colony Ridge discriminatorily targeted Hispanic consumers with predatory financing to purchase land for residences in areas that were in fact uninhabitable.

Read more

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AG of the Week

Anne Lopez, Hawaii

Anne Lopez assumed her role as Hawaii’s attorney general (AG) in December 2022, after being appointed by Governor Josh Green.

Before her appointment, she served as CEO and general counsel for Hawaii Health Systems Corporation, the state’s community hospital system, as a special assistant to former Hawaii AG David Louie, and as an attorney in private practice prior to joining state government. Before attending law school, Lopez was an occupational therapist.

Lopez earned her J.D. from the University of Hawaii William S. Richardson School of Law (summa cum laude) and her bachelor’s degree from San Jose State University in California.

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Upcoming AG Events

• March: RAGA | Spring Meeting | New Orleans, LA  
• April: NAAG | Annual Meeting | Charleston, SC  
• April: AGA | International Delegation | TBD  

For more on upcoming AG Events, click here.

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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.

The Trump administration is expected to call on major U.S. technology companies and data center developers to voluntarily commit to a compact designed to ensure power-needy data centers do not raise household electricity prices or undermine grid reliability.[1] The initiative comes amid a nationwide surge in energy demand, driven largely by the rapid proliferation of data centers that power the artificial intelligence (AI) boom.[2] Although the compact would be voluntary and details on monitoring or enforcement remain limited, it signals a clear expectation from federal policymakers that large technology firms “pay their own way” for the incremental costs their facilities impose on the grid.

The Trump administration’s draft pact would ask participating companies to voluntarily commit to, among other things:

• Paying 100% of the cost of new power generation required to serve their facilities.
• Funding any current or future transmission upgrades necessary to interconnect new data centers to the grid.
• Entering into long-term electricity contracts with utility companies to prevent cost-shifting to individual consumers.
• Using noncritical backup generation to support grid stability during emergencies.
• Allowing data center loads to be curtailed when necessary to ensure grid reliability.

Taken together, these commitments could materially increase capital and operating costs for large data centers and reshape how those costs are allocated among project sponsors, contractors, utilities, and end customers.

Importantly, these commitments would apply not only to data centers that participating companies own, but also to independently owned facilities from which participating companies lease capacity.[3] For context, many companies lease capacity — i.e., rent space, power, and cooling infrastructure from existing data center providers — to run AI workloads without building their own facilities or to secure capacity in power-constrained regions, a practice known in the industry as “colocation.”[4] The draft pact, however, suggests that participating companies could not avoid the pact commitments by leasing capacity from third-party providers.

If finalized in this form, the compact could drive material changes to colocation and wholesale data center agreements. Hyperscale tenants may push for provisions requiring landlords to: (1) demonstrate compliance with any applicable compact commitments; (2) indemnify tenants for noncompliance; and (3) share detailed information regarding interconnection costs, backup generation, and participation in curtailment programs. In turn, landlords may seek pass‑through mechanisms to allocate these incremental costs and risks back to tenants.

While the administration has not released any lists identifying specific companies that have agreed to the pact or been invited to participate, U.S. Secretary of Energy Christopher Wright has announced that the administration is “in dialogues with all of the hyperscale developers.”[5]

Concerns over rising electricity costs and grid reliability are also brewing at the state level. Indeed, more than 40 states have enacted or are considering data center-related legislation.[6] However, the mechanisms for addressing these challenges vary by state. For example, in June 2025, Texas lawmakers passed Senate Bill 6 (SB 6) to establish a regulatory framework to manage the rapid growth of large load customers (customers with demand of 75 MW or more).[7] Among other things, SB 6 requires large load customers to bear the costs of interconnecting to the grid. Notably, SB 6 also authorizes the Public Utility Commission of Texas to order emergency load reductions or disconnections during grid stress events. Similarly, Oregon passed the POWER Act last year, which requires large energy users (those using 20 MW or more) to buy power from state-regulated utilities for a minimum of 10 years and to pay for any additional infrastructure necessary to support their operations.[8]

By contrast, other states have adopted a study-first approach to data center regulation. For instance, California and New Jersey have enacted legislation that requires their respective utility commissions to study the impacts of data center electricity demand on retail customers and to identify policy alternatives to mitigate those impacts.[9] In New Jersey, one suggested policy alternative includes “the use of a special tariff to be applied to data centers within the State[.]”[10] These are just a few examples of recent state initiatives, but they underscore the importance for stakeholders to closely monitor the evolving regulatory landscape in the states in which they operate.

Attempts at legislating restrictions on power consumption by data centers are percolating at the federal level too. On February 11, U.S. Senators Josh Hawley and Richard Blumenthal introduced the Guaranteeing Rate Insulation from Data Centers Act (GRID Act).[11] The bipartisan bill seeks to ensure that data center electricity consumption does not increase individual consumers’ utility rates and that residential customers receive priority access to the grid. The GRID Act would also require new data centers with demand of 20 MW or more to obtain power from sources other than the electric grid, with a 10-year off-ramp for existing data centers to find alternative power sources.

Takeaways

Between the Trump administration’s draft voluntary compact and the pursuit of legislative initiatives to manage data center power consumption at both the state and federal levels, new risks may be emerging for data center owners, operators, and financiers.

While the full effects of these initiatives will not be understood for some time, it is not too early for stakeholders to start evaluating their potential risks and developing risk mitigation measures for their current and future projects. Project participants may want to consider, among other things:

• Who will bear the potential costs of new power generation and transmission upgrades necessary to interconnect data centers to the grid, and whether traditional cost‑sharing assumptions remain valid in light of emerging laws and policies.
• How additional infrastructure costs and curtailment risks are allocated in both construction contracts and capacity lease agreements, including flow‑down to service‑level agreements with end customers.
• Strategies to manage the risk of data center load reductions or disconnections, such as behind-the-meter solutions (e.g., natural gas, renewables, or nuclear power), and how those solutions interact with emerging state requirements and potential federal mandates.
• How evolving regulatory requirements may affect financing terms, including lenders’ views on curtailment risk and mandatory off-grid sourcing.
• Where to build future data centers amid policy divergence among states, including whether to prioritize jurisdictions that have adopted clear, long‑term tariff structures over those still in early “study” phases.

Of course, each project brings with it unique circumstances, challenges, and risks, which may only be compounded as project stakeholders navigate an uncertain policy environment. Troutman Pepper Locke attorneys continue to monitor these developments and are well-positioned to advise clients on emerging market trends, evolving federal and state policy requirements, and practical strategies to structure projects and contracts in this rapidly changing landscape.

As AI continues to drive unprecedented demand for data center capacity, developers, owners, operators, and capital providers must revisit their project delivery, contracting, permitting, and stakeholder strategies. Traditional risk allocation and deal structures are antiquating under energy constraints, interconnection delays, supply chain pressure, and evolving federal and state regulatory frameworks around air, water, and large load power usage.

Troutman Pepper Locke construction, energy, environmental, and real estate attorneys are hosting a three-part webinar series to explore how these dynamics are reshaping the data center landscape in 2026 and beyond. Each session will provide practical perspectives on how market participants are reallocating risk, structuring contracts, and positioning projects to remain bankable and scalable in a rapidly changing environment. Click here to register and to learn more.

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[1] Sophia Cai et al., White House Eyes Data Center Agreements Amid Energy Price Spikes, Politico (Feb. 9, 2026, at 15:20 ET), https://www.politico.com/news/2026/02/09/trump-administration-eyes-data-center-agreements-amid-energy-price-spikes-00772024.

[2] See generally “Navigating Contractual Considerations in the AI Data Center Construction Boom” by Ryan Graham, Jamey Collidge, Jason Spang, and Christian Pirri; “EPA May Redefine ‘Begin Actual Construction’ in Permit Reform Intended to Expedite Construction of Emissions-Generating Developments” by Mack McGuffey, Jamey Collidge, Darby Koput, Christian Pirri, and Melissa Horne. This article frequently refers to data centers, which in essence, are warehouse-sized buildings that house powerful chips and severs for the development of AI technology. Id. However, it should not be overlooked that the issues addressed in this article are in large part equally applicable to other energy-intensive industries.

[3] Cai, supra note 1.

[4] Build or Lease? Inside the Billion-Dollar Dilemma Reshaping AI Infrastructure, Glob. Data Ctr. Hub (Oct. 15, 2025), https://www.globaldatacenterhub.com/p/build-or-lease-inside-the-billion.

[5] Politico Energy, Inside Energy Secretary Wright’s Playbook for Energy Dominance, at 22:43–23:14 (Apple Music, Feb. 9, 2026).

[6] State Data Center Policy 101, MultiState (last updated Dec. 4, 2025), https://www.multistate.us/resources/state-data-center-policy-101.

[7] S.B. 6, 89th Leg., Reg. Sess. (Tex. 2025) (amending or establishing, inter alia, Public Utility Regulatory Act (PURA) §§ 35.004, 37.0561, 39.002, 39.169 and 39.170). While SB 6 defines a “large load customer” as having a demand of 75 MW or greater, the Public Utility Commission of Texas, when implementing SB 6, has the ability to set a lower threshold. PURA § 37.0561(c).

[8] H.B. 3546, 83rd Leg. Assemb., Reg. Sess. (Or. 2025).

[9] 2025 Cal. Legis. Serv. Ch. 647 (S.B. 57); 2025 NJ Sess. Law Serv. Ch. 98 (Assemb. No. 5466).

[10] 2025 NJ Sess. Law Serv. Ch. 98 (Assemb. No. 5466).

[11] Guaranteeing Rate Insulation from Data Centers Act, 119th Cong. (2d Sess. Feb. 11, 2026) (proposed bill).