This article originally appeared in the Middle Market Growth 2025 Outlook Report, produced by the Association for Corporate Growth (ACG). 

The newly combined Troutman Pepper Locke officially debuted on January 1, the closing date for the combination of law firms Troutman Pepper and Locke Lord.

With more than 1,600 attorneys in 30+ offices across each of the Top 10 legal markets in the U.S., this is a powerful moment of growth for our firm. Within our private equity practice, we now have more than 200 lawyers advising private equity clients. The combination effectively doubled the number of clients we serve in the industry and the volume of deals we advise on across the middle and lower middle market.

As specialists in middle market private equity dealmaking, Troutman Pepper Locke is more equipped than ever to guide our clients through the entire PE life cycle, from fund formation and management to regulatory compliance, deal execution and beyond. Our goal is to be a Top 10 player in the country for private equity across the middle and lower middle market, and we are well on our way.

Ensuring company cultures are aligned is vital to the success of any merger. Troutman Pepper and Locke Lorde had similar values and philosophies on client services, among them a commitment to consistent partner-level involvement in all aspects of a transaction, making our combination a logical and highly complementary next step. Even before our combination, Troutman Pepper and Locke Lord shared strengths within our industry focuses. That overlap deepens our expertise across our core sectors: energy, financial services, healthcare and life sciences, insurance and reinsurance, real estate and, of course, private equity.

As Troutman Pepper Locke, our expertise is now amplified to support our clients across the breadth of transaction types, from early stage growth equity through larger buyout deals.

In today’s challenging dealmaking climate, lower middle market and middle market private equity dealmakers need M&A partners that can support all facets of transacting.

Our combined forces have created a vibrant fund formation practice to represent both GPs and LPs; support fund structuring as funds grow larger, more sophisticated and often industry-specific; and augment support with services like fund-level structuring, tax and compliance advice. Our growth also strengthens our expertise in representing SBIC investors.

As regulations evolve, our practice can address compliance needs with agility. Both legacy firms bring significant market knowledge and expertise in heavily regulated industries, especially energy, healthcare and insurance. This combination offers a uniquely powerful experience for our clients, who now benefit from our combined private equity strength and enhanced industry knowledge.

We know that judgments made by deal counsel are critical elements of the business decisions clients make themselves. With this merger, Troutman Pepper Locke has even more robust expertise to provide deal-doers with the definitive guidance they need at every critical stage of a transaction.

This article was reprinted in the April-May 2025 issue of Pratt’s Journal of Bankruptcy Law.

Pursuant to Section 503(b)(1)(A) of the Bankruptcy Code, “wages, salaries, and commissions for services rendered after the commencement of the case” are treated as administrative expense claims. Additionally, Section 507(a)(4) of the Bankruptcy Code grants priority status to “wages, salaries, or commissions, including vacation, severance, and sick leave” earned within 180 days of the bankruptcy case. While both sections aim to protect employees’ compensation in the event of an employer’s bankruptcy, they apply to different time periods and have different priority levels, thus affecting severance payments differently.

This article will discuss different scenarios in which bankruptcy can affect a severance payment. To access this article and read other insights from our Creditor’s Rights Toolkit, please click here.

Despite the significant benefits that are derived from “foreign private issuer” (FPI) status under US securities laws, most foreign issuers and US investment banks dealing with such foreign issuers disregard such status and almost always default to having such issuers file and report in the US on US domestic issuer forms, which have far more onerous requirements, rather than take advantage of the significant accommodations available to FPIs under US federal securities laws.

Click here to read the full article on IFLR.

Among President Donald Trump’s directives issued on his first day in office was a Presidential Memorandum targeting wind energy, which has been a significant source of new electricity generation in the United States over the past decade, totaling around 10% of utility-scale generation. Among other things, the Memorandum “temporarily” withdraws the entire ocean off the United States from further offshore wind leasing, pauses the issuance of new approvals or loans for onshore and offshore wind projects pending a cross-government review of wind development’s environmental and economic impacts, and encourages the Department of Justice to seek stays in any pending wind project litigation.

The Memorandum creates potential confusion for the wind industry regarding the president’s Executive Order, also issued on day one, that declared a national energy emergency; announced the need for immediate action to expand and secure the nation’s energy infrastructure to ensure a reliable, diversified, and affordable energy supply; and required federal agencies to review permitting procedures that accelerate or hinder approvals, including those under the Endangered Species Act (ESA). The Executive Order also places a freeze on the issuance of new regulations, requires federal agencies to withdraw any rules submitted to the Office of the Federal Register that have not yet been published, and directs federal agencies to re-evaluate any rules that have been published but have not yet taken effect.

Given the breadth of the Memorandum and the Executive Order (collectively, the Directives) and their similarity to executive actions under the Biden Administration targeting oil and gas production that were halted in court, we anticipate that many elements of the Directives will be litigated soon. The following is an overview of the most significant elements of the Directives and a brief discussion of some of the many questions that will need to be answered in the days, weeks, and months to come.

Offshore Wind Presidential Memorandum and Onshore Permitting Impacts

• Offshore Wind Leasing: The Memorandum directed the “temporary” withdrawal of all areas within the Outer Continental Shelf (OCS)[1] from wind energy leasing, from January 21, 2025, until the directive is revoked. Notably, while the president has the power under Section 12(a) of the Outer Continental Shelf Lands Act (OCSLA) to withdraw OCS areas from leasing, reinstating those areas requires an act of Congress – revocation of the Presidential directive is not sufficient.[2]

• Potential Revocation of Existing Leases: While existing leases are not yet affected, the Memorandum instructs the Secretary of the Interior to review the necessity of terminating or amending them. The Secretary of the Interior is directed, in consultation with the Attorney General, to “conduct a comprehensive review of the ecological, economic, and environmental necessity of terminating or amending any existing wind energy leases, identifying any legal basis for such removal, and submit[ting] a report with recommendations to the President.” Although issuance of these leases each required a NEPA review, and approval of a construction and operations plan to develop the leases would require additional and more extensive NEPA review, this provision explicitly directs the Secretary of the Interior to identify any legal basis to terminate or amend those leases.

Pause on Offshore and Onshore Wind Permitting:

• The Memorandum calls for a “temporary cessation and immediate review” of federal wind leasing and permitting—including for offshore and onshore wind. This directive covers “new or renewed approvals, rights of way, permits, leases, or loans for onshore or offshore wind projects,” although these terms are subject to interpretation, and it is unclear which subject areas are covered.

• The Memorandum states that this permitting pause is warranted due to various “alleged legal deficiencies” in federal wind leasing and permitting, including “potential inadequacies in various environmental reviews required by the National Environmental Policy Act [‘NEPA’]”—and cites potential “negative impacts on navigational safety interests, transportation interests, national security interests, commercial interests, and marine mammals.” The Memorandum does not provide any detail on the nature of those deficiencies or support for the allegation.

• According to the Memorandum, the pause will last until “the completion of a comprehensive assessment and review of federal wind leasing and permitting practices,” to be led by the Secretary of the Interior in consultation with several other agencies which shall focus on wildlife impacts, economic costs of wind energy generation, and the “effect of subsidies on the viability of the wind industry.”

• Unanswered Questions: The Memorandum does not provide a time limitation for the Secretary of the Interior to complete its review. It also does not provide any guidance on the alleged deficiencies in the NEPA process that are to be addressed. The Secretary of the Interior is already charged under the species statutes to review impacts to birds and marine mammals (particularly in the context of issuing Incidental Take Permits under the ESA and Incidental Take Authorizations under the Marine Mammal Protection Act). It is unclear whether and if the Memorandum is intended to alter this review. Finally, the Memorandum also raises uncertainty regarding whether any types of review and determinations may be exempt from the approval freeze– for example, self-implementing permits such as general permits for incidental take of eagles under the Bald and Golden Eagle Protection Act, or Army Corps of Engineers’ Nationwide Permits under Section 404 of the Clean Water Act.

Energy Emergency Executive Order and Environmental Review

Under this Executive Order, the federal agencies must use all relevant lawful emergency authorities to expedite the completion of authorized infrastructure, energy, environmental, and natural resources projects, including evaluating the following:

• Emergency Regulations and Permits:

• • Agencies and the Secretary of the Army must identify actions to facilitate energy supply subject to emergency treatment under the Clean Water Act and other statutes, including by utilizing nationwide permits.

• ESA Emergency Consultation and Exemptions:

• • Agencies must identify actions to facilitate energy supply subject to ESA emergency consultation regulations.

  • Agencies are directed to use ESA emergency regulations to the maximum extent permissible.

  • Convene the ESA Committee (or “God squad”) to quarterly review applications and exemptions from ESA obligations.

• Unanswered Questions: The permitting “streamlining” contemplated by the Executive Order is intended to provide approval efficiencies for energy projects, including electric or thermal generation. The Executive Order does not define ‘energy’ to exclude wind energy. Many of its requirements seem to be inconsistent with the Memorandum, raising a number of legal and administrative questions regarding its implementation. There may be some lag as federal agencies determine how to implement the Directives, and there are some clear legal vulnerabilities to the extent the Directives would require agencies to disregard their statutory obligations under NEPA, the ESA, or other implicated statutes.

Implications for the Wind Industry

While the offshore wind industry had been anticipating a pause in new leasing and potentially in permitting for existing leases, the Memorandum goes further than what most in the industry anticipated, and we anticipate that it will be challenged in court. The call for a review of existing leases appears to signal that the Trump Administration is looking for justifications to cancel existing leases, putting billions of dollars in investment at risk. However, the extension of the permitting freeze to onshore wind projects may be the most unexpected and surprising aspect of the Memorandum. Wind developers in both the offshore and onshore industries should think carefully about the impact of the Memorandum on their business and consider consulting with legal counsel regarding how to protect their projects and defend their interests.

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[1] The Memorandum erroneously referred to the ocean between 3 and 200 miles off the coast of the United States as the “Offshore Continental Shelf.”

[2] League of Conservation Voters v. Trump, 363 F. Supp. 3d 1013 (D. Alaska 2019).

On January 7, the U.S. Food and Drug Administration (FDA) finalized its October 2023 guidance document titled “Communications From Firms to Health Care Providers Regarding Scientific Information on Unapproved Uses of Approved/Cleared Medical Products” (the final guidance). This guidance finalizes the draft issued in October 2023, and while most of the concepts from the initial draft remain, the final guidance contains several important changes resulting from stakeholder comments (for more information regarding the draft guidance, please see our 2023 client alert). The final guidance is open for comment through February 21, and is not for current implementation, pending the Office of Management and Budget’s (OMB) review of collected information.

The final guidance conveys the FDA’s enforcement policy regarding the use of scientific information on unapproved uses (SIUU) of approved/cleared medical products in communications with health care providers (HCPs). The FDA notes that it is issuing this final guidance to “provide reassurance to firms that, if they choose to provide communications consistent with the recommendations” in the guidance document, the FDA will not use that communication, “standing alone, as evidence of a new intended use.”

Consistent with prior guidance documents, the FDA makes clear it is paramount that an SIUU communication be truthful and non-misleading, and that it should “provide and appropriately present all information necessary for HCPs to understand and evaluate the strengths and weaknesses, validity, and clinical utility of the scientific information.” The guidance also distinguishes between SIUU firm-generated presentations and source publications. Source publications, as referenced in the guidance, include scientific or medical publications generally available from independent publishers. Source publications serve as the basis for SIUU communications. These materials such as peer-reviewed journal articles, clinical practice guidelines, or reference texts provide foundational information and are expected to meet rigorous standards of scientific validity to ensure their reliability when informing clinical decisions. In contrast, firm-generated presentations refer to materials created by a firm that summarize or analyze source publications, often tailored for dissemination to HCPs alongside the original source publications.

What Changed Since 2023

The October 2023 draft guidance expanded on the FDA’s earlier stance regarding the dissemination of scientific and medical publications, allowing firms to proactively share “firm-generated presentations of scientific information” alongside source publications. The 2023 draft guidance required these source publications to be “scientifically sound and clinically relevant.” In the draft guidance, the FDA clarified: “To be clinically relevant, the studies or analyses, in addition to being scientifically sound, should provide information that is pertinent to HCPs engaged in making clinical practice decisions for the care of an individual patient.”

While the final guidance removed the explicit term “clinically relevant,” it introduced a stricter standard by requiring that SIUU communication be “scientifically sound” and not “likely to lead to direct or indirect patient harm when HCPs rely upon the communication to inform clinical decisions.” This represents a shift from clinical relevance to a focus on preventing harm through scientific soundness based on generally accepted scientific principles for design and methodology. For example, the FDA indicates that direct harm might occur if a source publication recommends a medical product for a population known to experience adverse effects from its use (such as the risk of severe birth defects when a drug is used by pregnant women). Indirect harm, on the other hand, could result from misleading information causing HCPs to prescribe an ineffective treatment, depriving patients of critical opportunities for effective care. The final guidance also emphasizes that firms should account for “existing scientific knowledge” in determining whether source publications are appropriate for inclusion in an SIUU communication and whether such knowledge refutes the source publication’s conclusion or corrects a long-held misunderstanding. Notably, the FDA has replaced the statement that real-world data and evidence can be scientifically sound and clinically relevant to simply point readers, in a footnote, to its prior thinking on real-world data and evidence.

The final guidance further provides additional context to the requirement that communications be both “truthful and non-misleading,” explaining that a firm-generated presentation should (1) be limited to scientific information on unapproved use(s) from appropriate source publication(s); (2) include the source publication(s); (3) provide all material information necessary to interpret any represented study results (e.g., relevant design, methodology, and limitations); and (4) include clear disclosures indicating it is firm-generated (e.g., ‘This presentation was developed by FIRM X’) and clearly identify which portions are firm-generated. It also specifies that a firm-generated presentation should not (1) imply broader or more-general experience with the product than is supported by the source publication; (2) include representations about safety or effectiveness for unapproved use(s) that are not consistent with the source publication; (3) present conclusions on safety or effectiveness without attribution to the source publication and immediate disclosure of any relevant author or contributor relationships; (4) present information from the source publication out of context; (5) use statistical methods or techniques not supported by the data to suggest clinical significance or validity; or (6) employ textual or graphic elements that obscure or distort the scientific content. A truthful, non-misleading presentation “should provide and appropriately present all information necessary for HCPs to understand and evaluate the strengths and weaknesses, validity, and clinical utility of the presented scientific information on unapproved use(s).”

The final guidance also more directly addresses “persuasive marketing techniques” used by firms, a term that was not well-defined and the focus of industry feedback on the draft guidance, moving away from the term entirely to instead provide specific examples of correct and incorrect communications. Examples include:

• At gatherings like medical or scientific conferences, “where programming is not selected and determined by the conference organizers,” SIUU communications should be clearly and prominently identified and separated from promotional guidance. The FDA specifically recommends use of a separate space in a conference booth “where SIUU communications can be shared, separate from the booth space where promotional communications about approved uses are shared.”

• Where firms share information about both approved and unapproved uses on websites, SIUU communications should be on a distinct web page from any page displaying promotional communications and be clearly identified. The firm’s site should not link between the promotional and SIUU webpages.

• Where firms share information about both approved and unapproved uses via email, those sharing SIUU communications should be separate from those sharing promotional communications and be clearly identified.

• If SIUU communications are shared in-person between a firm and HCP, the SIUU communications should be separate from any promotional communications about approved uses and “not attached to or intermingled with” those promotional communications.

The FDA explains that any communication appearing promotional or attempting to persuade rather than inform would not fall under the guidance’s protections. While both the draft and final guidance state that “SIUU communications should be separate from promotional communications about approved uses of medical products,” the final guidance illustrates this separation with four examples — covering conferences, websites, emails, and in-person visits with HCPs. Of note, it provides explicit examples of permissible and impermissible communications, emphasizing the avoidance of promotional taglines, emotional appeals, and imagery designed to elicit nonscientific responses. It recommends presenting scientific information clearly and distinctly from promotional content, with appropriate disclosures to ensure health care providers can interpret the information accurately.

Additionally, the final guidance introduces “calls to value,” a concept absent from the 2023 draft. It distinguishes statements like “Click here to start improving your patients’ lives today,” which pre-judge a product’s benefits, from statements such as “Read now to learn more about this new data on medical product X,” which do not. The final guidance concludes by explaining the importance of presenting communications “in a manner that is unlikely to lead HCPs to base those decisions on conclusions about the safety and effectiveness of the unapproved use that are not in alignment with or that go beyond what is justified by the underlying scientific information.”

Key Takeaways

In short, the final guidance reflects the latest evolution of the FDA’s planned enforcement for SIUU communications, which opens up potential new opportunities for proactive communications of scientifically sound, truthful, non-misleading and non-promotional off-label information. If manufacturers have questions about the impact of the final guidance on their SIUU communications, we recommend consulting with legal counsel, including Troutman Pepper Locke.

At the end of the Biden administration, the Federal Trade Commission (FTC) announced a settlement with private equity firm Welsh, Carson, Anderson, and Stowe, and several of its affiliates (Welsh Carson), resolving what the FTC dubbed “a multi-year anticompetitive scheme.”[1] The settlement put an end to a potential administrative proceeding against Welsh Carson, following the FTC’s failed attempt to sue them in a 2023 federal court lawsuit.[2] The federal court granted Welsh Carson’s motion to dismiss, finding that the FTC lacked the authority to bring a case against the private equity firm, while allowing the case to proceed against its portfolio company, U.S. Anesthesia Partners (USAP).

The FTC’s administrative allegations parallel those made in its federal litigation, except that USAP is not a named respondent here. In essence, the FTC claims that Welsh Carson developed and executed a “scheme,” through USAP, to consolidate anesthesia practices, stifle competition, and drive up costs for patients in Texas. According to the FTC, Welsh Carson created USAP in 2012 to execute its roll-up strategy, including the purchase of large anesthesia practices in Texas and creating one dominant provider.[3] As often occurs with subsequent provider acquisitions, USAP allegedly raised the rates for each office it purchased to match USAP’s higher price point.[4] The FTC also alleged that USAP entered into or maintained several arrangements with other independent anesthesia groups, setting their rates and allocating markets.[5]

The FTC’s proposed consent agreement requires Welsh Carson to freeze its investment in USAP and reduces its board representation to a single, non-chair seat; obtain prior approval for any future investments in anesthesia and certain acquisitions by any Welsh Carson-controlled anesthesia group across the U.S.; and give 30-days’ advance notice for certain transactions involving other hospital-based practices such as pathology, anesthesia, or emergency medicine.[6]

Although the FTC vote to approve the consent agreement was unanimous, Commissioner Andrew Ferguson, who became FTC chair shortly after the inauguration, issued a concurrence “to pierce through this breathless rhetoric to make clear that this case is an ordinary application of the most elementary antitrust principles. Specifically, he took issue with the “suggest[ion] that this case is extraordinary because it involves ‘private equity’ and ‘serial acquisitions,’ and [the] hint at antipathy toward private equity.”[7] Commissioner Ferguson made clear that Welsh Carson’s private equity status is “irrelevant” to the antitrust analysis. The concurrence further noted the serial acquisition provisions of the 2023 Merger Guidelines played no special role. Rather, he wrote that the public should disregard the Democratic commissioners’ “clumsy attempt to make a run-of-the-mill enforcement matter seem like an avant-garde application of novel provisions of the 2023 Guidelines.”[8] While the concurrence suggests a change in tone and maybe even in process or priorities, it does not necessarily suggest less enforcement.

The Troutman Pepper Locke antitrust team closely monitors developments at the federal and state antitrust enforcement agencies and provides the legal guidance necessary to identify potential risks and efficiently realize the benefits of transactions.

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[1] Compl., Fed. Trade. Comm’n v. Welsh, Carson, Anderson & Stowe XI, L.P., No. 4:23-cv-03560, 2 (S.D. Tex. Sept. 21, 2023), US Anesthesia Partners Complaint.

[2] FTC Secures Settlement with Private Equity Firm in Antitrust Roll-Up Scheme Case, Fed. Trade. Comm’n (Jan. 17, 2025), FTC Secures Settlement with Private Equity Firm in Antitrust Roll-Up Scheme Case | Federal Trade Commission.

[3] Compl., supra note ¶¶1-3.

[4] Id. at ¶4.

[5] Id. at ¶¶22-23.

[6] Decision and Order, Welsh, Carson, Anderson & Stowe XI, L.P., FTC Matter No. 2010031 (Jan. 17, 2025) (consent order), Decision and Order.

[7] Concurring Statement of Commissioner Andrew N. Ferguson, In the Matter of U.S. Anesthesia Partners/Guardian Anesthesia, FTC Matter No. 2010031 (Jan. 17, 2025), Concurring Statement of Commissioner Andrew N. Ferguson Joined by Commissioner Melissa Holyoak In the Matter of US Anesthesia Partners/Guardian Anesthesia

[8] Id. at 2.

A side letter in the venture capital sector is an agreement between an investor and the company it is investing in that entitles the investor to certain contractual rights, which supplement and are in addition to other rights specifically provided to the investor as a holder of equity securities under the company’s governance documents – the documents negotiated and executed by the larger syndicate of investors as part of a venture capital financing transaction.

Side letters are further distinguishable from the company’s governance documents in that side letters are often only signed by the company and the underlying investor receiving rights under the side letter. Side letters have been (and continue to be) commonly used in the venture capital financing context; originally, they were primarily intended to grant follow-on investors participating in a subsequent or additional closing (a closing that occurs within a certain timeframe following the initial closing to fully subscribe the round) certain rights without the company having to amend the existing governance documents – a potentially costly and time consuming process often called reopening the documents.

Given the ebbs and flows of the venture capital market over the last several years, Our firm has seen a proliferation in not only the frequency of side letters, but also in the scope of rights included in them. Delaware’s recent technical scrutiny over governance rights in West Palm Beach Firefighters’ Pension v. Moelis & Co., and the subsequent amending of the Delaware General Corporation Law also serves as a springboard to explore the common and evolving use of venture capital side letters.[1] This article does not question the continued use of side letters or the role they play in venture capital financings, rather, it highlights the benefits of a sharper focus when reviewing and assessing the substantive provisions in side letters.

The side letters discussed in this article are specific to venture capital transactions in the emerging and growth equity financing context and are separate and distinct from side letters used by limited partners and general partners in the fund formation context. In the fund formation context, funds typically have governance documents granting the general partner broad latitude to execute side letters on behalf of the fund that are binding upon the fund and its limited partners. That framework facilitates fundraising and accepting capital over time on a rolling basis, a common practice in fund formation.

Venture-backed companies do not share the same governance structure. By way of example, a venture-backed company using standard National Venture Capital Association governance documents (e.g., Certificate of Incorporation, Investors’ Rights Agreement, Voting Agreement, and Right of First Refusal and Co-Sale Agreement) does not, by the terms of those documents, have the explicit right to enter into side letters that may affect other investors, as such documents are generally silent on the use of side letters. Viewing a venture-backed company through this lens, it is typically within the purview of a venture-backed company to grant rights via side letters that do not conflict with the underlying provisions of its governance documents and/or otherwise impact the rights, preferences or privileges of its equityholders. Of course, this is a general assumption, and careful consideration must be given to the proper approvals needed to grant such rights. For example, if a provision in a side letter either expressly or inherently conflicts with the company’s governance documents, the side letter may be viewed as an amendment to a substantive governance document that would require formal approvals from the board of the company and a subset of its equityholders.

For brevity we generally place side letter rights into three categories: (i) rights that the company has already granted to existing investors which, absent specific circumstances, do not impact other investors (e.g., standard information and access rights and board observer rights); (ii) rights that the company has already granted to existing investors that could impact the other investors (e.g., “major investor” status, preemptive rights, carve-outs to drag-along provisions); and (iii) novel rights that no existing investors have been granted under the governance documents.

First, consider those rights the company has previously granted to existing investors that, absent specific circumstances, do not impact other investors. Aside from the additional administrative burden on the company, the granting of standard information and access rights to an investor where existing investors have received such rights does not generally prejudice other investors. However, consider the scenario where the existing investors negotiated for a threshold number of securities that an investor needs to hold in order to be granted access and information rights. Situations often arise where a company conducts an initial closing and then looks to bring in additional investors over a period of time following the initial closing to fully subscribe the round. An additional investor is identified and does its diligence, but is adamant that, in order to comply with its internal policies and monitor its investment, it requires information and access rights regardless of whether it satisfies the minimum ownership threshold negotiated by the existing investors. It is possible to envision a scenario where existing investors who participated in the initial closing that also fall below the minimum ownership threshold would also have wanted information and access rights, but were denied their request. So, when do the concessions end? At what point does the company reopen the governance documents and amend the provision relating to the minimum ownership threshold rather than grant the rights in a side letter? Similar considerations should be given to not just the legal implications, but also the ever-important investor relations side of the coin.

Next, consider rights that the company has already granted to existing investors that could impact other investors. Take for example, preemptive rights. Holders of preemptive rights are typically granted the ability to purchase their pro-rata amount of new securities that the company offers in future financings. If an investor’s pro-rata amount is defined in the governance documents as the number of securities held by a specific investor divided by the number of securities held by a defined group of investors granted preemptive rights, the company granting preemptive rights to a new investor via a side letter – which increases the number of securities included in the denominator of the pro-rata calculation – effectively reduces the allocation of the existing investors and has the potential to alter their negotiated preemptive rights. Consider also, however, that absent contractual obligations to the contrary, a company is generally free to grant preemptive rights to the investors it desires. Attention must be given to these situations to avoid both future legal foot-faults and investor relations issues.

The last bucket is perhaps the most nuanced – granting novel rights via a side letter that no existing investors have been granted. For example, including a provision in a side letter that prohibits the company from using the investor’s name in press releases or other publications is likely not a material issue, but could the same be said about granting carve-outs to a drag-along provision that applies to all equityholders under the company’s governance documents? A drag-along provision is a provision in an agreement requiring all equityholders who executed such agreement to contractually agree to sell their securities on terms and conditions approved by the company’s board and/or a subsets of its equityholders. Assume an investor, via a side letter, negotiates certain carve-outs or conditions to the applicability of the drag-along against that individual investor while no other investors with the same class of security receives the benefit of such carve-outs or conditions. In those instances, in addition to investor relations considerations, both the company and the investor must consider whether the provisions in the side letter are enforceable, and the risks associated with them. If the parties are considering granting rights in a side letter that are substantive enough to be material to the company or potentially violate or contradict the governance documents, then the side letter may not be enforceable absent additional board and equityholder approvals to amend the applicable underlying governance document(s). Further, certain items that are requested in a side letter may be items that are required to be in an agreement signed by the company and its equityholders. Take for instance a provision in a side letter stating that certain restrictions on transfer set forth in the governance documents do not apply to the side letter investor. Could other investors claim that all restrictions on transfer (or exceptions) need to be set forth in the underlying governance documents among those investors? In such instances, the purpose of the side letter, namely, to save time and expense by avoiding the reopening of documents, is no longer served.

When viewing the entry into side letters through the company lens, it is important to holistically evaluate the full breadth of the impact of the rights granted through a side letter. It may not be enough to solely assess and measure the company’s appetite for granting the rights to the individual investor via a side letter as there are instances, as detailed above, where a side letter is impactful enough that reopening the documents should be considered. Certainly, if the side letter expressly conflicts with the terms of the governance documents, then the side letter needs to be approved by the board and the requisite equityholders. If, after considering all impacts to its current and future governance documents and investors, a company decides that granting side letter rights is in its best interest, then it should make sure to integrate the letter into its governance framework. All side letters should be reviewed each time the primary governance documents are reviewed to ensure the company adheres to the rights and restrictions it granted in the side letter(s).

If we flip the coin and view the entry into side letters from an investor perspective, investors should consider including in the side letter a representation or statement from the company that the company’s entry into the letter agreement and its obligations and duties thereunder have been duly authorized by all necessary action on the part of the company and do not conflict with or breach the company’s obligations and other restrictions under its governance documents. We acknowledge that the inclusion of this representation or statement can be a sticky point of side letter negotiations; a true battle of expedience versus the importance of explicit enforceability. The inclusion of such a representation or statement is not always a “must have” for every investor, and the lack of such a representation or statement does not, on its own, eliminate the benefits of entering into the side letter. Rather, it means that as part of its overall investment thesis, the investor is aware the enforceability of certain provisions of the side letter could be called into question.

Whether you are an investor or a company, if you would like to learn more about the nuances and trends associated with drafting, negotiating and implementing side letters, the Troutman Pepper Locke team is here to help.

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[1] For further discussion and analysis see: Delaware Court of Chancery Invalidates Common Governance Rights in Stockholder Agreement and “Market Practice” 2024 DGCL Amendments Become Effective.

Brad Weber, a partner in Troutman Pepper Locke’s Business Litigation Practice Group, co-authored The Foundation for Natural Resources and Energy Law in the Proceedings of the 70th Annual Natural Resources and Energy Law Institute article, “The Real Ethics of Artificial Intelligence – Considerations for Legal Professionals.”

On January 9, a federal judge in the Eastern District of Kentucky entered an order vacating the 2024 Title IX regulations (the Final Rule). The case is Tennessee, et al. v. Cardona (Civil Action No. 2: 24-072).

Published in April 2024, the Final Rule, among other things, clarified that discrimination “on the basis of sex” for purposes of Title IX “includes discrimination on the basis of sex stereotypes, sex characteristics, pregnancy or related conditions, sexual orientation, and gender identity.” The Final Rule also redefined the term “sexual harassment” to encompass both “sexual harassment and other harassment on the basis of sex,” including the bases previously mentioned. It also expanded protections for students and applicants based on “past, current, or potential parental, family, or marital status” and pregnancy or related conditions, and required schools to provide certain accommodations for lactating students and students who are pregnant or have pregnancy-related conditions.

The plaintiffs in Tennessee v. Cardona included the states of Tennessee, Ohio, Indiana, and West Virginia, and the Commonwealths of Kentucky and Virginia, joined by intervenors Christian Educators Association International (Christian Educators) and A.C., a 15-year-old female student athlete. They asserted that the U.S. Department of Education exceeded its lawful authority in implementing the Final Rule, and that the Rule was contrary to law. The district court agreed and invalidated the Final Rule on the basis that it exceeded the agency’s authority, violated the Constitution, and was the result of arbitrary and capricious agency action.

The district court found the Department exceeded its statutory authority in issuing the Final Rule by expanding the definition of “on the basis of sex” to include “gender identity.” The district court found “there is nothing in the text or statutory design of Title IX to suggest that discrimination ‘on the basis of sex’ means anything other than it has since Title IX’s inception—that recipients of federal funds under Title IX may not treat a person worse than another similarly-situated individual on the basis of the person’s sex, i.e., male or female.” The district court also found the Final Rule suffered from several constitutional infirmities, including: (a) violating the First Amendment by requiring Title IX recipients, including teachers, to use names and pronouns associated with a student’s asserted gender and punished the violation under a de minimis standard; (b) being vague and overbroad because it uses vague terms in regulations that render Title IX recipients unable to predict what conduct violates the law; and (c) violates the Spending Clause by conditioning receipt of federal funding on the prohibition of discrimination on gender identity, when Title IX does not unambiguously condition the receipt of funds on the prohibition of gender identity discrimination.

Instead of vacating just the portions of the Final Rule that it deemed problematic, the district court vacated it in its entirety. The court did not address the implications of doing so, leaving University administrators scratching their heads about what they need to do with their current Title IX policies. This alert seeks to provide some initial guidance.

First, the court’s action in vacating the Final Rule does not mean that no Title IX regulations are in place. Instead, vacating the Final Rule means that the prior Title IX regulations, implemented in 2020 (the 2020 Rule) once again are the applicable regulations. Numerous courts of appeal—including in the Sixth Circuit, which includes Kentucky—have addressed the consequences of vacating regulations and concluded that “[v]acating or rescinding invalidly promulgated regulations has the effect of reinstating prior regulations.”[1]

Second, even though the district court vacated the Final Rule, including regulations that explicitly prohibited harassment on the basis of gender identity, that does not mean no protections for gender identity exist under the law. The Cardona decision vacated the Rule, but only the Department of Education was a party to that case and the case’s broader holdings are not binding on colleges and universities—it is but one of multiple interpretations of the issue by a single district court. The U.S. Supreme Court held in Bostock v. Clayton County, Ga., 590 U.S. 644 (2020) that Title VII bars employment discrimination based on sexual orientation and gender identity, concluding that “homosexuality and transgender status are inextricably bound up with sex,” id. at 660–61, and “discrimination based on homosexuality or transgender status necessarily entails discrimination based on sex,” id. at 669. Although the district court found Bostock’s holding was limited to the Title VII employment context and did not bear on the interpretation of Title IX, numerous courts of appeal have taken the opposite view, acknowledging that courts “construe Title VII and Title IX protections consistently.” Grabowski v. Arizona Bd. of Regents, 69 F.4th 1110, 1116 (9th Cir. 2023).[2] Applying Bostock, courts have found that Title IX bars discrimination based on sexual orientation or gender identity under Title IX, irrespective of any agency rule.[3] We also note that state laws also may offer protections similar to those provided in the now-invalidated Final Rule. By way of example, New Jersey provides protections against discrimination on the basis of sex and gender identity.[4] And, Cardona does not forbid schools—particularly private schools—from having their own policies prohibiting various types of gender discrimination, as Title IX provides a floor, not a ceiling.

Finally, although vacating the Final Rule eliminated certain regulations expressly providing protections for students who are pregnant, lactating, or have conditions related to pregnancy, protections similar to those found in the invalidated Final Rule still exist in Title VII—including the Pregnancy Discrimination Act, which bars discrimination on the basis of “pregnancy, childbirth, or related medical conditions.” In addition, all but four states (South Dakota, Mississippi, Alabama and North Carolina) have laws that provide some protections for pregnancy.

But schools do need to take action. In particular, the procedural protections set forth in the 2020 Rule, such as requiring live hearings and cross examination in a multitude of cases, need to be reinstated. If your school switched to a “single investigator” model for issues previously covered by the live hearing requirement, you will likely need to switch back. Schools should inventory the changes that they made last summer on procedural issues and determine whether those changes would be permitted under the 2020 Rule. If not, they will need to be adjusted.

As higher education institutions wait to see if there will be an appeal of the district court’s decision—unlikely with the new administration—or if the Department of Education will issue guidance on Title IX in light of the decision, they should revert to their prior Title IX policy, at least with respect to necessary procedural issues, and should be vigilant in consulting both federal and state law to determine what obligations, if any, exist when addressing issues involving alleged harassment on the basis of gender identity and pregnancy status.

Troutman Pepper Locke has a team of attorneys experienced in handling Title IX issues. If you have any questions about Title IX, the implications of the Final Rule or this alert, please feel free to contact the authors or any member of the firm’s Higher Education Group.

 

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[1] See PJM Power Providers Grp. v. FERC, 88 F.4th 250, 266 (3d Cir. 2023), amended sub nom. PJM Power Provisers Grp. v. FERC, No. 21-3068, 2024 WL 259448 (3d Cir. Jan. 24, 2024), and cert. denied sub nom. Pub. Utilities Comm’n of OH v. FERC, No. 23-1069, 2024 WL 4426548 (U.S. Oct. 7, 2024) (“While these potentially “disruptive consequences” may militate toward less drastic solutions, such a remedy is nonetheless within the scope of our statutory authority.”); Mason Gen. Hosp. v. Sec’y of Dep’t of Health & Hum. Servs., 809 F.2d 1220 (6th Cir. 1987); Action on Smoking and Health v. CAB, 713 F.2d 795, 797 (D.C. Cir. 1983) (per curiam); Menorah Medical Center v. Heckler, 768 F.2d 292, 297 (8th Cir.1985); Organized Vill. of Kake v. U.S. Dep’t of Agric., 795 F.3d 956, 970 (9th Cir. 2015); Lloyd Noland Hosp. & Clinic v. Heckler, 762 F.2d 1561, 1569 (11th Cir. 1985).

[2] Accord Grimm v. Gloucester Cnty. Sch. Bd., 972 F.3d 586, 616 (4th Cir. 2020), as amended (Aug. 28, 2020).

[3] See Grimm, 972 F.3d at 616 (“After the Supreme Court’s recent decision in Bostock . . . we have little difficulty holding that a bathroom policy precluding [plaintiff] from using the boys restrooms discriminated against him “on the basis of sex.”); A.C. by M.C. v. Metro. Sch. Dist. of Martinsville, 75 F.4th 760, 769 (7th Cir. 2023), cert. denied sub nom. Metro. Sch. Dist. of Martinsville v. A. C., 144 S. Ct. 683, 217 L. Ed. 2d 382 (2024) (same); Grabowski, 69 F.4th at 1116 (9th Cir. 2023) (“The Court held that discrimination ‘because of’ sexual orientation is a form of sex discrimination under Title VII. We conclude that the same result applies to Title IX.”).

[4] See N.J.S.A. 10:5-12.