Table of Contents

• Paul Atkins Nominated as Chairman of the SEC
• SEC Division of Examinations Publishes Risk Alert Regarding Registered Investment Companies Review of Certain Core Areas and Associated Documents Requested
• SEC Announces Enforcement Results for Fiscal Year 2024 
• SEC Charges Adviser for Making Misleading Statements about Supposed Investment Considerations
• SEC Announces Charges Against Advisers in Connection with Form PF Reporting Failures

PAUL ATKINS NOMINATED AS CHAIRMAN OF THE SEC

On December 4, President-Elect Donald Trump nominated Paul Atkins (“Atkins”) as the next chairman of the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”). The current chairman, Gary Gensler, will step down and conclude his tenure on January 20, 2024, and if appointed, Atkins will replace him.

Atkins was previously an SEC commissioner for six years from August 2002 to August 2008 during the George W. Bush administration. Atkins also served on the staff of two former SEC chairmen, Richard C. Breeden and Arthur Levitt, from 1990 to 1994. Atkins is the founder and CEO of Patomak Global Partners, a fintech and financial consulting firm founded in 2009.

Atkins is known for his advocacy for de-regulation and promotion of the crypto industry.

SEC DIVISION OF EXAMINATIONS PUBLISHES RISK ALERT REGARDING REGISTERED INVESTMENT COMPANIES REVIEW OF CERTAIN CORE AREAS AND ASSOCIATED DOCUMENTS REQUESTED

On November 4, the Division of Examinations (“EXAMS” or the “Division”) of the SEC published a risk alert (the “Risk Alert”) regarding certain core focus areas and associated documents requested from registered investment companies as part of the Division’s examination of registered investment companies (“RICs”).

Examinations of RICs typically focus on whether funds: (i) have adopted and implemented effective written policies and procedures to prevent violation of federal securities laws and regulations; (ii) provide clear and accurate disclosures that are consistent with the funds’ practices; and (ii) promptly address compliance issues, when identified, and include reviewing three core areas: compliance programs, fund governance, and disclosure and regulatory reports. In the context of these core areas, examinations may consider other topics, such as portfolio management, brokerage and trading, valuation, service provider oversight, among others. Examples of areas that may be reviewed during examinations include: 

• Compliance policies and procedures (both of the funds and their service providers) for their effectiveness and whether they address certain risks, such as the risks associated with expense allocations between the adviser and the fund(s), or among funds and advisory clients;
• Board governance processes and the efficacy of board oversight of funds’ compliance programs (e.g., whether boards are getting information necessary to exercise their oversight responsibilities, boards are requesting and reviewing information necessary to understand the issues and make the associated approvals, and funds and their advisers are accurately disclosing information to the boards related to the funds’ fees, expenses, performance, conflicts of interest, or relevant risks);
• Funds’ investment advisory agreement approval process and the thoroughness of the board’s review of fund fees for consistency with disclosures (e.g. whether fund boards compared the services to be provided and the fees for such services against those under the adviser’s other advisory contracts or other advisers to RICs, such as peer groups, or other types of clients); and
• Fund disclosures in regulatory filings and investor communications for their consistency and appropriateness relative to fund operations, conflicts of interest, and actual portfolio management activities.

The Risk Alert also includes a discussion of examples of deficiencies or weaknesses observed by SEC staff (the “Staff”) related to funds’ and their advisers’ compliance programs based on a review of deficiency letters sent to funds during the most recent four-year period.

Fund Compliance Programs

With respect to Fund Compliance Programs, the Risk Alert identified five examples of deficiencies or weaknesses observed by the Staff:

• Funds did not perform required oversight or reviews as stated in their policies and procedures or perform required assessments of the effectiveness of their compliance programs, including funds that did not conduct required annual compliance reviews or compliance testing and funds that omitted material information from (or failed to document) annual compliance reports and did not review third party service providers’ policies and procedures for consistencies with contractual requirements and representations.
• Funds did not adopt, implement, update, and/or enforce policies and procedures, including where funds did not adopt and/or implement policies and procedures to prevent violations of federal securities laws in one or more critical areas, the policies and procedures adopted did not appear to be reasonably designed to prevent violations of law, or the policies and procedures did not appear to be effectively implemented.
• Policies and procedures were not tailored to the funds’ business model or were incomplete, inaccurate, or inconsistent with actual practices, for example, with respect to derivatives risk management programs, redemption requests, and compliance risks associates with investment strategies or approaches.
• •Funds’ Codes of Ethics were not adopted, implemented, followed, enforced, or did not otherwise appear adequate. The Risk Alert noted instances where funds did not appear to have effective policies and procedures to address compliance with their Codes of Ethics, which resulted in trading in restricted securities by access persons, non-reporting by certain conflicted individuals, and non-reporting of covered trades.
• CCOs did not provide requisite written annual compliance reports to fund boards, including where the funds did not have an appointed CCO or had an interim CCO who did not prepare the required report.

Fund Disclosures and Filings

Deficiencies and weaknesses observed by the Staff with respect to fund disclosures included instances where registration statements, fact sheets, annual reports, and semi-annual reports contained incomplete or outdated information or contained potentially misleading statements, sales literature and websites appeared to include untrue statements or omissions of material facts, and filings that were not made or not made on a timely basis. Examples included funds that disclosed investment processes or analyses that were not consistent with advisers’ practices, or repeatedly exceeded stated asset investment thresholds and funds that mischaracterized the use of environmental, social, and governance factors in their investment decision-making processes compared to their actual practices, among others.

Fund Governance Practices

Deficiencies and weaknesses observed by the Staff with respect to fund disclosures included instances where:

• Fund board approvals of advisory agreements appeared to be inconsistent with the Investment Company Act of 1940, as amended, and/or the funds’ written compliance procedures. For example, where advisory or sub-advisory agreements were not reviewed on a timely basis, where certain information to evaluate advisory agreements was not requested, and where material changes to the advisory agreement, such as changes of control or changes to advisory fees, were not considered.
• Fund boards did not receive certain information to effectively oversee fund practices, such as changes to compliance programs and information with respect to illiquid investments.
• Fund boards did not perform required responsibilities, including where boards did not make certain required determinations or adopt tailored policies and procedures.
• Fund board minutes did not fully document board actions, which also resulted in deficiencies under books and records requirements.

SEC ANNOUNCES ENFORCEMENT RESULTS FOR FISCAL YEAR 2024

On November 22, the SEC announced the results from enforcement actions for the SEC’s fiscal year ended September 30, 2024. According to the press release announcing the results (the “Press Release”), in 2024, the SEC filed 583 enforcement actions, reflecting a 26% decline from fiscal year 2023. Of those 583 enforcements, 431 represented “stand alone” enforcement actions, which was a 14% decrease from fiscal year 2023.

Despite the decrease in the overall number of enforcement actions, the monetary number of fines significantly increased over fiscal year 2024. The total financial remedies for fiscal year 2024 increased 65.5% as compared to 2023 ($8.2 billion vs $4.9 billion in 2023). The $8.2 billion in financial remedies was comprised of approximately $6.1 billion in disgorgement and pre-judgment interest (the highest amount on record) and approximately $2.1 billion in civil penalties (the second highest amount on record). Approximately 56% of the $8.2 billion in financial remedies is attributable to a single monetary judgment obtained following the SEC’s jury trial win over Terraform Labs and Do Kwon, which required the defendants to pay a final judgment of more than $4.5 billion, representing the highest remedies ever obtained by the SEC following a trial.

According to the Press Release, the SEC distributed $345 million to harmed investors during fiscal year 2024 (a significant decrease from the $930 million distributed in 2023). The SEC also received 45,130 tips, complaints, and referrals in fiscal year 2024 (the most ever received in a single year), including more than 24,000 whistleblower tips, resulting in almost $255 million issued in whistleblower awards.

The SEC’s enforcement actions covered a variety of topics, but a few of the key enforcement areas for fiscal year 2024 included off-channel communications, the integrity of investment professionals, and the use of artificial intelligence (“AI”). 

Off-Channel Communications

In fiscal year 2024, recordkeeping cases for off-channel communications resulted in more than $600 million in penalties. Since 2021, more than 100 firms have been charged $2 billion in penalties, indicating that the SEC continues to focus its efforts on recordkeeping enforcement.

Integrity of Investment Professionals

In fiscal year 2024, the SEC brought numerous enforcement actions against investment professionals for fraud and other securities law violations. Of the enforcement actions, a few focused on false and misleading statements concerning funds’ holdings and returns and firms overvaluing the obligations held in their advisory accounts.

Use of Artificial Intelligence

In fiscal year 2024, the SEC was also focused on the use of AI. The SEC brought enforcement actions for false and misleading statements about the use of AI in the investment process and false claims promising 100% protection for clients’ funds despite the use of AI.

The Press Release also highlights the enforcement results during the final fiscal year with Gary Gensler as chairman of the SEC. During Gensler’s tenure as chairman, the amount of monetary fines (in billions) has nearly doubled as compared to the fines obtained during former-chairman Jay Clayton’s tenure.

SEC CHARGES ADVISER FOR MAKING MISLEADING STATEMENTS ABOUT SUPPOSED INVESTMENT CONSIDERATIONS

On November 8, the SEC announced a settlement with a registered investment adviser (the “RIA”) related to misleading statements about the percentage of the RIA’s company-wide assets under management (“AUM”) that integrated environmental, social, and governance (“ESG”) factors in investment decisions.

As detailed in the SEC’s order (the “Order”), between 2020 and 2022, the RIA told clients and included in its marketing materials that from 70%-94% of its parent company’s AUM were “ESG-integrated.” These percentages included the RIA’s passive ETFs, which accounted for a substantial portion of the RIA’s AUM, which, according to the Order, was misleading as many of the ETFs could not consider ESG factors in marking investment decisions as they were passive strategies and did not track an ESG-related index. In addition, the Order also found that the RIA did not have comprehensive written policies and procedures concerning how the RIA would determine the percentage of its firm-wide AUM that was ESG-integrated.”

As a result, the SEC’s Order stated that the RIA violated: (i) Section 206(2) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which includes that it is unlawful for any investment adviser to “engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client;” (ii) Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder, which among other things, includes prohibitions against directly or indirectly publishing, circulating or distributing an advertisement that contains any untrue statement of material fact, or which is otherwise false or misleading;[1] (iii) Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require registered investment advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder; and (iv) Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, which require make it unlawful for investment advisers to pooled investment vehicles to “make any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, to any investor or prospective investor in the pooled investment vehicle; or [o]therwise engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in the pooled investment vehicle.” 

Without admitting or denying the Order’s findings, the RIA agreed to cease and desist from violations of the charged provisions, be censured, and pay a $17.5 million civil penalty.

SEC ANNOUNCES CHARGES AGAINST ADVISERS IN CONNECTION WITH FORM PF REPORTING FAILURES

On December 13, the SEC announced settlements with seven SEC-registered investment advisers for failing to timely report on Form PF.

Pursuant to Rule 204(b)-1 under the Advisers Act, certain advisers to private funds, as well as certain commodity pool operators and commodity trading advisors, must file Form PF with the SEC. Broadly, Rule 204(b)-1 requires investment advisers that have at least $150 million in private fund assets under management (“AUM”) to file Form PF on a quarterly or annual basis; the frequency of filings and the Sections required to be completed is determined by the size and categorization of the type of private funds they advise.

The SEC uses the confidential information collected on Form PF data to monitor systemic risk in the private fund industry, inform its regulatory programs and rulemaking, assess and identify compliance risks, and determine targets for examinations and investigations. Moreover, Section 204(b)(11) of the Advisers Act requires the SEC to report annually to Congress on how the SEC has used Form PF data to monitor the markets for the protection of investors and the integrity of the markets.

The Form PF violations stemmed from failures on the part of the advisers to make the required Form PF filings over extended periods, many of whom had failed to make Form PF filings over multiyear periods. The seven advisers agreed to pay over $790,000 in combined civil penalties. During the SEC’s investigation, the advisers remediated their filing failures by making the necessary filings.

UPCOMING CONFERENCES

2025
Date	Host*	Event	Location
1/21	MFDF	AI and Fund Compliance	Webinar
1/22	MFDF	In Focus: Small Boards’ Use of Skills Matrices	Virtual
1/24	ICI/IDC	Learn About Legal and Compliance Career Opportunities in the Asset Management Industry	Virtual
1/27-29	MFDF	Directors’ Institute	Carlsbad, CA
2/3-5	ICI/IDC	ICI Innovate	Huntington Beach, CA
2/6	MFDF	In Focus: Understanding Distribution-What the Data Can Tell You	Virtual
2/10	MFDF	Director Discussion Series – Open Forum	Stuart, FL
2/11	MFDF	Director Discussion Series – Open Forum	Naples, FL
3/6-7	MFDF	Fund Governance & Regulatory Insights Conference	Washington, DC
3/12	MFDF	MFDF 15(c) White Paper Webinar Series: Part 3 – Gartenberg Factors Analysis and Challenges	Webinar
3/16-19	ICI/IDC	2025 Investment Management Conference	San Diego, CA
4/2	MFDF	Director Discussion Series – Open Forum	Atlanta, GA
4/15	MFDF	Director Discussion Series – Open Forum	Boston, MA
4/30 – 5/2	ICI/IDC	Leadership Summit	Washington, DC
4/30 – 5/2	ICI/IDC	Fund Directors Workshop	Washington, DC
5/22	MFDF	Mutual Fund Director Compensation: The MPI Annual Survey	Webinar
7/9	MFDF	Director Discussion Series – Open Forum	Chicago, IL
9/8-10	ICI/IDC	ETF Conference	Nashville, TN
10/5-8	ICI/IDC	Tax and Accounting Conference	Palm Desert, CA
10/27-29	ICI/IDC	Fund Directors Conference	Scottsdale, AZ
11/13	MFDF	Mutual Fund CCO Compensation: The MPI Annual Survey Update	Webinar
11/20	ICI/IDC	2025 Closed-End Fund Conference	New York, NY

2026
Date	Host*	Event	Location
1/26	MFDF	2026 Directors’ Institute	Naples, FL
3/5	MFDF	2026 Fund Governance & Regulatory Insights Conference	Washington, DC
3/22-25	ICI/IDC	Investment Management Conference	Palm Desert, CA
4/29 – 5/1	ICI/IDC	Leadership Summit	Washington, DC
4/29 – 5/1	ICI/IDC	Fund Directors Workshop	Washington, DC
9/14-16	ICI/IDC	ETF Conference	Nashville, TN
9/27-30	ICI/IDC	Tax and Accounting Conference	Marco Island, FL
10/25-28	ICI/IDC	Fund Directors Conference	Scottsdale, AZ
11/10	ICI/IDC	Closed-End Fund Conference	New York, NY

*Host Organization Key: Mutual Fund Directors Forum (“MFDF”), Independent Directors Council (“IDC”), and Investment Company Institute (“ICI”)

© 2024, Davis Graham & Stubbs LLP. All rights reserved. This newsletter does not constitute legal advice. The views expressed in this newsletter are the views of the authors and not necessarily the views of the firm. Please consult with your legal counsel for specific advice and/or information.

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[1] This Rule was replaced by the Marketing Rule with an effective date of May 4, 2021 and a compliance date of November 4, 2022. The marketing related materials at issue predated the Marketing Rule’s compliance date.

CONTACT US
Peter H. Schwartz
Alena Prokop
Stephanie Danner
Martine Ventello
Mackenzie Coupens

On August 1, 2024, the U.S. Senate unanimously passed the bipartisan Good Samaritan Remediation of Abandoned Hardrock Mines Act (“Good Samaritan Act” or “Act”).[1] The House followed suit by passing the Act on December 10, 2024[2], and President Biden signed it into law on December 17, 2024.[3]

The Act is a response to the threat of ongoing contamination from historic abandoned mine lands (“AMLs”), which are often more than one hundred years old—so they predate modern cleanup and remediation requirements and frequently the companies responsible for the contamination no longer exist.[4] However, because AMLs pose environmental and health hazards, individuals and groups have long wanted to clean up these sites—despite having no legal or financial responsibility to do so. Until now, these well-intentioned Good Samaritans have been deterred from doing so because under existing environmental laws like the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.) (“Clean Water Act” or “CWA”) and the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.) (“CERCLA”), they would become legally responsible for all the pre-existing pollution from a mine site, even if they played no role in causing it. The Act seeks to address this problem by offering limited permits and legal protections for Good Samaritans willing to clean up these sites.[5]

According to the Government Accountability Office, there are at least 140,000 abandoned hardrock mine features across the country—over 60% of which pose or may pose safety or environmental hazards.[6] While this figure is staggering, federal officials estimate there could be more than 390,000 additional features on federal land they have yet to account for.[7] While federal agencies will often intervene to shoulder remediation costs when the mining company responsible for the mine no longer exists, there are more abandoned mines than funds to clean them up—which is where these Good Samaritans come in.[8]

Who can be a “Good Samaritan”?

A “Good Samaritan” can be any person—including a state agency, local government, nonprofit, and private organization (including a mining company)—so long as it: (i) is not a past or current owner or operator of the abandoned site (or a portion thereof); (ii) had no role in the creation of the historic mine residue; and (iii) is not potentially liable under any law for the remediation, treatment, or control of the historic mine residue under any federal, state, local, or Tribal law.[9]

Eligible Sites

The Act applies to “abandoned hardrock mine sites,” which are defined as abandoned or inactive hardrock mine sites (including any facility associated with the mine site) that were used for the production of a mineral (excluding coal) on non-federal land or on federal land under the Mining Law of 1872 (Revised Statutes §§ 2319–2352) and for which there is no responsible owner or operator who is potentially liable for environmental remediation under applicable laws.[10] This includes sites that were previously subjected to a final CERCLA response action or similar federal or state cleanup programs, including brownfields revitalization.[11] However, the Act excludes mines and associated facilities that: (i) are in a temporary shutdown; (ii) are on the National Priorities List; (iii) are undergoing planned or ongoing CERCLA or similar state or federal cleanup actions; (iv) have a responsible owner or operator[12]; or (v) actively mined or processed minerals after December 11, 1980.[13] 

Available Permits

The Act creates a seven-year pilot program during which the EPA Administrator (“Administrator”) may issue two types of permits: (i) Good Samaritan permits and (ii) investigative sampling permits.[14] However, during the pilot program period the Administrator may not grant more than 15 Good Samaritan permits in total and 15 investigative sampling permits at any one time.[15]

Good Samaritan Permit

To be eligible for a Good Samaritan permit, a person must submit an application containing detailed information on the site; plans for remediation, post-remediation, contingencies, and health and safety; the work schedule; a budget; and a list of the parties involved, including their legal rights to the site and expertise.[16] The applicant must also demonstrate that: (A) the site is located in the United States; (B) the purpose of the permit is remediation; (C) the proposed activities are designed to result in partial or complete remediation within the permit term; (D) the proposed project poses a low risk to the environment; (E) the applicant possesses the financial, other resources, experience, and capacity required to complete the permitted work and address any and all contingencies as identified in the permit; (F) the person meets the definition of a Good Samaritan (i.e., not liable for the contamination); (G) the person has made “reasonable and diligent efforts to identify” all responsible owners or operators; and (H) no responsible owner or operator exists.[17] By obtaining a Good Samaritan permit, the permittee is excused from obtaining other permits that would otherwise be necessary under the CWA, CERCLA, and state or tribal law.[18] Permits may be transferred if the transferee qualifies as a Good Samaritan, agrees to be bound by the permit terms and any additional conditions imposed by the Administrator, and the head of the relevant federal land management agency approves.[19]

Investigative Sampling Permit

Prior to seeking a Good Samaritan permit, an interested person may apply for an investigative sampling permit to conduct an investigation of historic mine residue, soil, sediment, or water to determine baseline conditions and whether it is willing to perform remediation to address the historic mine residue.[20] The application requirements are less fulsome than those required for a Good Samaritan permit, but still require a description of the site, a list of the parties involved and their legal rights to the site and expertise, previously documented water quality data (if reasonably known), and health and safety and contingency plans.[21] An investigative permit may not allow reprocessing of mining residue, but it may authorize metallurgical testing of historic mine residue to determine whether reprocessing is feasible.[22] An investigative permit does not obligate the person to remediate the site, and the person will still receive the legal protections for the work conducted under the investigative permit.[23] However, if the permittee wishes to convert its investigative sampling permit to a Good Samaritan permit, it must do so within a year.[24]

Reprocessing / Recycling

The Act prohibits mining activities (i.e., mineral exploration, processing, and beneficiation).[25] However, the reprocessing or recycling of historic mine residue (i.e., re-mining) may be permitted if the materials only include historic mine residue, the reprocessing is approved as part of the remediation plan, the proceeds from the sale of the materials are used to defray the costs of the remediation and (if required by the permit) to reimburse the EPA or other federal land management agency, and any remaining proceeds from the sale are deposited into the Good Samaritan Mine Remediation Fund.[26]

Liability Protections

The Act provides protection from liability under the CWA and CERCLA—for both Good Samaritan permits and investigative sampling permits—during and after the permit term, so long as the permittee only carries out activities authorized under the terms of its permit.[27] And as noted above, investigative sampling permits that are not converted to a Good Samaritan permit still enjoy liability protections.[28] Good Samaritans and cooperating persons carrying out actions pursuant to and in compliance with a permit are also excused from compliance with several requirements under the CWA, including the need to obtain a permit under CWA §§ 402 or 404, as well as the remediation permit requirement of CERCLA § 121(e).[29] Thus, a Good Samaritan permittee does not need to obtain a federal, state, or local permit for any removal or remedial action conducted entirely onsite.

Importantly, however, if a violation of either permit causes a worsening of environmental conditions, the permittee must return the site to its prior condition or all liability protections will be revoked and the permittee will be subject to all applicable environmental laws, including citizen lawsuits under the CWA.[30] Additionally, if the Good Samaritan commingles the permitted discharge or waste with other mining waste or discharge that is not covered under the Good Samaritan Permit, the other waste or discharge is not protected, and full federal, state and local permitting requirements apply to that waste or discharge.[31]

Remediation Fund

The Act creates a Good Samaritan Remediation Fund for each federal land management agency that authorizes a Good Samaritan project, as well as the EPA, to assist with funding for approved projects.[32] In addition to the excess proceeds from reprocessing materials, the Fund is comprised of appropriated monies, collected financial assurance monies, any monies collected for long-term operations and maintenance of a completed project under an agreement with the applicable federal land management agency, and any donated monies.[33]

Public and Government Participation

The Act contains numerous requirements for public involvement, environmental review, public hearings and state, local, and tribal government consultation.[34] Additionally, the issuance or modification of a Good Samaritan permit (but not an investigative sampling permit), is considered a “major Federal action” for purposes of the National Environmental Policy Act (“NEPA”),[35] and such permits may only be issued for projects for which the NEPA lead agency issues a Finding of No Significant Impact (“FONSI”).[36]

Future of the Act

While the pilot program is limited to 15 lower-risk projects, when it sunsets, the Administrator must prepare a comprehensive report on the results of the program for Congressional review.[37] This report must incorporate recommendations on whether the program should be continued, including a description of any program modifications and amendments to existing law that should be made to continue the purposes of the Act.[38] Thus, while the 7-year pilot program will likely only achieve modest gains in cleaning up AMLs, given the magnitude of the AML issue and long-standing appetite for cleanup liability protection, it is likely that we will see some form of the program continue into the future.

If you have any questions, please contact Lindsay Dofelmier, Adam Cohen, or Joel Benson.

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[1] S. 2781, the “Good Samaritan Remediation of Abandoned Hardrock Mines Act of 2024.”

[2] H.R. 7779

[3] Pub. Law 118-155 (Dec. 17, 2024).

[4] The U.S. Environmental Protection Agency estimates that hardrock mines have contributed to the contamination of 40% of the country’s rivers and 50% of all lakes. Gov’t Accountability Office, From Gold Rush to Rot—The Lasting Environmental Costs and Financial Liabilities of Hardrock Mining (Feb. 22, 2023), https://www.gao.gov/blog/gold-rush-rot-lasting-environmental-costs-and-financial-liabilities-hardrock-mining.

[5] See Pub. Law 118-155.

[6] U.S. Gov’t Accountability Office, Abandoned Hardrock Mines: Information on Number of Mines, Expenditures, and Factors that Limit Efforts to Address Hazards 15 (Mar. 2020).

[7] Id. at 17.

[8] U.S. Gov’t Accountability Office, supra note 4.

[9] Pub. Law 118-155, § 2(8).

[10] Pub. Law 118-155, § 2(1)(A).

[11] Id. § 2(1)(B).

[12] A “responsible owner or operator” includes any person that is legally responsible under the CWA and financially able to comply with the CWA’s requirements, or a present or past owner or operator or other liable party under CERCLA who is financially able to comply with CERCLA’s requirements. Id. § 2(16).

[13] Id. § 2(1)(C).

[14] Id. § 2(6).

[15] Id. § 4(a)(1), (a)(3)(A), (d)(2).

[16] Id. § 4(c).

[17] Id. § 4(b), (m).

[18] Id. § 4(f)(1)(B).

[19] Id. § 4(i).

[20] Id. § 4(d)(1).

[21] Id. § 4(d)(3).

[22] Id. § 4(d)(4).

[23] Id. § 4(d)(6).

[24] Id. § 4(d)(5).

[25] Id. § 4(f)(4)(A).

[26] Id. § 4(f)(4)(B).

[27] Id. § 4(n).

[28] Id. § 4(d)(6)(B)(i).

[29] Id. § 4(n)(1)(B), (C).

[30] Id. § 4(d)(6)(B)(ii), (n).

[31] Id. § 4(f)(4)(C).

[32] Id. § 5(a).

[33] Id. § 5(b).

[34] Id. § 4(j)-(l), (m)(1)(B)-(D).

[35] Id. § 4(l)(2)(A).

[36] Id. § 4(l)(2)(F).

[37] Id. §§ 4(a)(1), 4(b)(1)(D); 4(l)(2)(F), 6.

[38] Id. § 6(b)(5).

A panel of the Fifth Circuit has reinstated the nationwide preliminary injunction blocking enforcement of the Corporate Transparency Act (the “CTA”). This decision comes just three days after another panel of the same court stayed the injunction. As a result of this newest ruling, Reporting Companies are once again not required to comply with the CTA’s reporting obligations, including the recently extended deadlines.

Earlier this week, as discussed in our December 24, 2024 Legal Alert, a panel (the “motions panel”) of the Fifth Circuit Court of Appeals granted an order in favor of the government’s emergency motion to vacate the preliminary injunction issued by the U.S. District Court for the Eastern District of Texas, such that filing obligations again became mandatory. However, in an order filed December 26, 2024, a different panel of the Fifth Circuit (the “merits panel”) has vacated the motion panel’s stay of the nationwide preliminary injunction, reviving the injunction. As a result, the obligation for Reporting Companies to file beneficial ownership information reports (“BOIRs”) is once again non-mandatory unless and until the injunction is removed or overturned.

FinCEN issued a statement today recognizing the latest order, stating that “as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.” The statement can be found here, under the “Alerts” portion of the page.

Given the ongoing uncertainty surrounding the enforcement of the CTA, we recommend that Reporting Companies continue any analysis and preparation of BOIRs and remain prepared to file promptly if required.

Our team will continue to monitor developments and provide updates as they occur. If you have questions about your obligations under the CTA or how the injunction impacts your company, please contact your Davis Graham attorney.

For more information on the CTA’s reporting requirements, please refer to Davis Graham’s past CTA legal alerts:

• The Corporate Transparency Act – Basics That Every Business Formed or Registered in the U.S. Needs to Know
• Corporate Transparency Act – Reporting Deadline (January 1, 2025) for Established Reporting Companies Approaching
• Corporate Transparency Act – Nationwide Injunction Temporarily Stays Reporting Deadline
• Corporate Transparency Act – Reporting Again Required Following Stay of Preliminary Injunction

Please contact Nathan Goergen, Sheila Forjuoh, or Erin Mooney with any questions.

DENVER – December 24, 2024

On December 23, 2024, the Fifth Circuit granted the government’s motion to stay the preliminary injunction that was issued by the U.S. District Court for the Eastern District of Texas in the Texas Top Shop case. The injunction had temporarily suspended reporting requirements under the Corporate Transparency Act (the “CTA”). As a result of the Fifth Circuit’s order, the CTA’s mandatory reporting is back in effect, subject to short extensions of certain reporting deadlines, as detailed below.

As noted in our December 6, 2024 Legal Alert, a nationwide preliminary injunction was issued earlier this month that temporarily blocked the enforcement of the CTA and its implementing regulations and reporting deadlines. As a result of the injunction, “Reporting Companies” (i.e., companies that are obligated under the CTA to file beneficial ownership information reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”)) were not required to comply with the CTA while such injunction was in effect.

The government quickly filed an emergency motion with the Fifth Circuit to stay the preliminary injunction issued by the U.S. District Court for the Eastern District of Texas. On December 23, 2024, the Fifth Circuit ruled on that motion, finding that “the government has made a strong showing that it is likely to succeed on the merits in defending the CTA’s constitutionality,” and granted an order in favor of the government, removing the preliminary injunction. As a result of the order, the CTA and its regulations remain enforceable, and compliance is mandatory.

Shortly after the Fifth Circuit’s order was published, FinCEN issued an alert (available here) granting an extension to Reporting Companies for the following reporting deadlines:

Creation or Registration Date	Revised Deadline
Prior to January 1, 2024	January 13, 2025
On or after September 4, 2024 with an original filing deadline between December 3, 2024 and December 23, 2024	January 13, 2025
On or after December 3, 2024 and on or before December 23, 2024	Have an additional 21 days from their original filing deadline

The Fifth Circuit’s order did not include a ruling on the constitutionality of the CTA, which remains the subject of litigation pending in various courts across the country. Until such a determination is made with general applicability, we expect the CTA’s framework to remain in flux.

Nonetheless, as of the date of this alert, the CTA and its regulations are in effect and enforceable. Accordingly, Reporting Companies that have not already filed with FinCEN should review their filing obligations under the CTA.  If a report is required, such report should be filed within the applicable deadlines.

DENVER – December 16, 2024 

On December 12, 2024, the U.S. Fish and Wildlife Service (FWS) published a rule proposing to list the monarch butterfly as threatened under the Endangered Species Act (ESA), provide protective regulations under section 4(d) of the ESA, and designate critical habitat for the species (the “Proposed Rule”). FWS is accepting comments on the Proposed Rule until March 12, 2025.

FWS identified the monarch butterfly as a candidate for listing in 2020. In response to a federal lawsuit, FWS committed to make a listing decision for the monarch butterfly by September 2024, later extended to December 2024. The Proposed Rule follows.

The vast majority of monarch butterflies in North America are migratory, and the species’ North American range covers approximately 2.8 billion acres. For comparison, the land area of the continental United States land area is roughly 2 billion acres. In eastern North America, some monarchs travel over 2,000 miles between Canada and central Mexico. Monarchs in western North America generally migrate shorter distances, traveling from Canada to Baja California or the California coast.

FWS based its listing proposal on several threats to the species: loss and degradation of breeding, migratory, and overwintering habitat; exposure to insecticides; and effects of climate change.

With respect to habitat loss and degradation, FWS specifically emphasized the conversion of grasslands to agriculture as a key driver for past population declines. While monarchs require habitat with milkweed and nectar plants within their breeding and migratory range, FWS indicated that activities that may remove these plants but that do not result in conversion of grassland, shrubland, or forested habitats are not considered key population drivers. FWS also highlighted the importance of monarchs’ overwintering habitats, where the butterflies cluster in the fall and winter. These overwintering habitats are largely limited to central Mexico, Baja California, and California. FWS cited logging in Mexico and urban development in California as some of the primary stressors in these areas.

Regarding the use of insecticides, FWS recognized that insecticide use is most often associated with agricultural production. FWS noted, however, that any habitat where monarchs are found may be impacted by insecticide use—citing personal use by homeowners and treatment of forests and parks as examples.

Finally, FWS found that climate change may both directly and indirectly impact the species. FWS recognized increased storm frequency and extreme drought as potentially catastrophic events for the monarchs. Additionally, FWS cited changing precipitation patterns and temperatures as potentially detrimental to the specific microclimate that the monarchs require at their overwintering habitats. In addition to these and other direct impacts, FWS also identified the predicted loss of suitable overwintering trees and habitat caused by increased temperatures and rising sea levels as a threat to the species.  

What this means for Land Users—The Proposed Listing, 4(d) Prohibitions, and Critical Habitat Designation

FWS proposed to list the monarch butterfly as a threatened species. Section 4(d) of the ESA directs FWS to issue regulations deemed “necessary and advisable to provide for the conservation of [a threatened] species,” and authorizes FWS to prohibit any act that would be prohibited were the species listed as “endangered.”  These acts are detailed under section 9(a)(1) of the ESA, and include “take” of the species—which is defined as harming, harassing, and killing the listed wildlife, among other actions. “Take” also includes significant habitat modification or degradation if it kills or injures the wildlife by significantly impairing essential behavioral patterns.

In this case, FWS proposes to use its Section 4(d) authority to prohibit all acts listed in section 9(a)(1), including take of the species, with the following specified exceptions:

• Activities that may maintain, enhance, remove, or establish milkweed and nectar plants within the breeding and migratory range that do not result in conversion of native or naturalized grassland, shrubland, or forested habitats. FWS specifically identifies certain activities as falling within the exception’s scope: livestock grazing and routine ranching activities; routine agricultural activities; fire management activities; maintenance, enhancement, removal or establishment of milkweed and nectar plants on residential and other developed properties; and “vegetation management activities” (including mowing and ground disturbance) that remove milkweed and/or nectar plants when conducted at times of year when monarchs are not likely present;
• Monarch mortality due to vehicle strikes;
• Non-lethal small-scale (less than 250 butterflies) collection; and
• Non-lethal scientific research and educational activities involving a limited number (less than 250) of monarchs.

Notably, there is no proposed exception for mortality from collisions with wind turbines. FWS has requested comments addressing whether an exception for such collisions, as well as other “direct impacts from transportation and energy infrastructure” should be included. 

To engage in land use activities that will result in prohibited incidental take of protected wildlife on private lands, land users must obtain a permit from FWS. To obtain a permit, the land user must have entered into a candidate conservation agreement with assurances (CCAA) with FWS prior to listing, or must develop an approved habitat conservation plan. FWS has approved a nationwide CCAA for the monarch butterfly that is specific to energy and transportation rights-of-way lands and covers the continental United States.

In addition to listing the monarch butterfly as threatened, FWS has proposed to designate critical habitat for the monarch butterfly under the ESA. Critical habitat designations do not affect activities by private landowners when there is no federal permit or federal funding involved in the activity.  Rather, federal agencies are prohibited from destroying or adversely modifying designated critical habitat. The proposed critical habitat designation for the monarch butterfly is limited to the monarchs’ overwintering habitat along the California coast. In total, approximately 4,395 acres in Alameda, Marin, Monterey, San Luis Obispo, Santa Barbara, Santa Cruz, and Ventura Counties, California, fall within the boundaries of the proposed critical habitat designation.

Finally, the ESA requires federal agencies to consult with FWS to ensure their actions do not jeopardize the continued existence of endangered or threatened species, in a process known as “section 7 consultation.” Section 7 consultation can lead to delay and additional conservation measures for any project that is on federal land, requires a federal permit, or is funded by federal agencies. Federal actions that do not affect listed species or critical habitat do not require section 7 consultation.

Public Participation and Next Steps

FWS is accepting public comment on the Proposed Rule until March 12, 2025. As noted, FWS has specifically requested comments addressing “[w]hether [FWS] should include an exception for direct impacts from transportation and energy infrastructure, including mortality from collisions with wind turbines.” FWS will also hold two public meetings followed by public hearings, to take place remotely on January 14, 2025 from 4:00 p.m. to 6:30 p.m. (mountain time), and January 15, 2025 from 6:00 p.m. to 8:30 p.m. (mountain time).

The ESA requires that FWS issue a final listing rule or withdraw the proposed rule within one year of publication of the proposed rule (i.e., by December 12, 2025). The ESA allows FWS to extend this deadline by six months if there is substantial disagreement regarding the sufficiency or accuracy of available data relevant to the proposed listing rule. To withdraw a proposed rule, FWS must make a finding, subject to judicial review, that there is not sufficient evidence to justify the proposed action.

Written by Kathleen Schroder and Stephen Snow. Please contact Katie Schroder with questions about the proposed listing rule or its effect.

DENVER – December 6, 2024 

As of the date of this alert, the Corporate Transparency Act, including the applicable reporting rules and the January 1, 2025, reporting deadline, have been enjoined pursuant to a preliminary injunction that applies to all Reporting Companies (as defined below).

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking the enforcement of the Corporate Transparency Act (the “CTA”), its implementing regulations and the associated reporting deadlines. As a result of the injunction, “Reporting Companies” (that is, companies that were under an obligation to file beneficial ownership information reports (“BOIRs”) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) pursuant to the CTA and its implementing regulations) need not comply with the CTA while such injunction is in effect. However, the injunction is only temporary and could be lifted or stayed at any time, thus reviving Reporting Companies’ reporting obligations.

Key Points:

• Immediate Impact of the Decision: The court enjoined enforcement of the CTA in its entirety, including FinCEN’s implementing regulations and the January 1, 2025, reporting deadline applicable to reporting companies formed prior to January 1, 2024. As a result, Reporting Companies are not required to submit BOIRs until the court’s decision is overturned or the preliminary injunction is lifted or stayed. For Reporting Companies that have already filed BOIRs with FinCEN, no action is required at this time.

• Temporary Relief: The preliminary injunction is based on the district court’s finding that federal enforcement of the CTA is “likely unconstitutional.” However, a determination has not been made that the CTA is unconstitutional. The injunction is therefore temporary in nature and is not the final say on constitutionality. The United States government filed an appeal on December 6, 2024. Should the injunction be lifted or the order reversed, Reporting Companies may have to make BOIR filings on short notice.  

• Actionable Steps for Reporting Companies: Reporting Companies should monitor the status of the injunction and remain in frequent contact with their advisors as to the status of the injunction and the CTA generally. We advise Reporting Companies to continue gathering necessary information for their BOIRs to be able to file on short notice if the injunction were to be lifted or the order reversed.

At the time of this publication, FinCEN has not announced how it plans to handle the injunction. Therefore, Reporting Companies should also stay informed about FinCEN updates in conjunction with the progress of the pending appeal of the injunction and other potential CTA-related court rulings.

If you have questions about your reporting obligations or the temporary preliminary injunction, please reach out to your Davis Graham attorney.

For more information on the CTA’s reporting requirements, please refer to Davis Graham’s past CTA legal alerts:

• The Corporate Transparency Act – Basics That Every Business Formed or Registered in the U.S. Needs to Know
• Corporate Transparency Act – Reporting Deadline (January 1, 2025) for Established Reporting Companies Approaching

Please contact Nathan Goergen, Sheila Forjuoh, or Erin Mooney with any questions.

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On November 7, 2024, the Office of Investment Security of the Department of the Treasury published a final rule (“Final Rule”) amending the regulations at 31 C.F.R. Part 802 to expand the authority of the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) to review transactions entered into on or after December 9, 2024, involving certain types of U.S. real estate. 89 Fed. Reg. 88,128 (Nov. 7, 2024).

CFIUS, a committee comprising representatives of various federal agencies and chaired by the Secretary of the Treasury, reviews inbound foreign investments in the United States to evaluate risks to U.S. national security. If CFIUS identifies national security risks relating to a particular transaction, it may recommend that the President order cancelation or modification of the transaction or, if the transaction has already concluded, divestment.

CFIUS has broad authority to review (a) “covered control transactions,” which involve a foreign person acquiring control over a U.S. business; (b) “covered investments,” which involve non-controlling investments by a foreign person in a U.S. business involved in critical technologies, critical infrastructure or sensitive personal data; and (c) “covered real estate transactions,” which involve a foreign person acquiring certain property rights commonly associated with leasehold and ownership interests in “covered real estate” located within a specified distance of the national security-related facilities and installations enumerated on Appendix A to 31 C.F.R. Part 802.

More specifically, “covered real estate” means real estate that is located within (a) certain airports and seaports, (b) close proximity (i.e., a one-mile radius) of any military installation, facility or other property of the U.S. government listed on Part 1 of Appendix A, (c) the extended range (i.e., a 100-mile radius) of any military installation listed on Part 2 of Appendix A, (d) any county or other geographic area identified in connection with the locations listed on Part 3 of Appendix A (i.e., locations in the western United States near underground missile silos), and (e) any offshore range or operating area described on Part 4 of Appendix A (to the extent within the limits of the territorial sea of the United States.)

The Final Rule significantly expands the list of military installations that dictate the definition of “covered real estate”, meaning that, after December 9, 2024, the Committee will have jurisdiction to review a larger number of real property-related transactions. (See the updated Appendix A here.) The Final Rule does the following:

• Adds 40 additional military installations to Part 1 (the 1-mile radius list)
• Adds 19 additional military installations to Part 2 (the 100-mile radius list)
• Moves eight military installations from Part 1 to Part 2

This broadened range of CFIUS’s authority has implications for any person doing projects related to land, including clean energy developers, mining companies, and oil and gas operators, as the listed locations cover real estate across the country and, at times, in areas of potential development, including federal public lands. It might not be obvious to project proponents that a foreign investment transaction could have national security risks, but in the “covered real estate” areas, the risk is based on the location rather than the type of business. Indeed, in May of 2024, President Biden issued the first real estate-related divestment order based on CFIUS’s recommendation after a Chinese cloud computing company purchased land within one mile of a U.S. Air Force Base. In that case, the transacting parties did not notify CFIUS; instead, CFIUS received a tip from the public regarding the transaction and investigated, then required the parties to file a notice and ultimately recommended that the President order divestment.  This serves as an example of the possible consequences of failing to be cognizant of CFIUS’s reach, which may become increasingly relevant to real estate developers across the country as the nation approaches a change in presidential administration.  

Please contact Almira Moronne or Alexandra Burton with any questions.

In Marin Audubon Society v. Federal Aviation Administration, No. 23-1067, a majority of a three judge-panel of the U.S. Court of Appeals for the DC Circuit held that the Council on Environmental Quality (CEQ) lacks authority to enact regulations that bind other federal agencies.  In an opinion written by Judge Randolph and joined by Judge Henderson, the court held CEQ’s regulations at 40 C.F.R. part 1500 implementing the National Environmental Policy Act (NEPA) to be ultra vires.  The decision upends more than 40 years of federal agency practice and creates considerable uncertainty for proponents of projects requiring federal permits.

The case involved a challenge to an air tour management plan issued by the National Park Service (NPS) and the Federal Aviation Administration (FAA) governing tourist flights over four national parks near San Francisco, California.  The agencies did not prepare an environmental impact statement or environmental assessment prior to approving the plan; instead, they relied on a categorical exclusion in the NPS’s regulations as allowed by the CEQ regulations.  Citizen groups challenged the plan.

None of the parties questioned the validity of the CEQ regulations implementing NEPA, some version of which has been in effect since 1978.  Nonetheless, Judge Randolph sua sponte decided to evaluate the validity of these regulations.  The court determined that CEQ lacked authority to issue regulations that bind federal agencies because neither NEPA nor another statute conferred such authority.  The court further dismissed as “stray remarks” statements by the Supreme Court that CEQ has the power to issue regulations and that such regulations are entitled to “substantial deference.”  The court instead found that CEQ had “no lawful authority” to promulgate its regulations.

Further, the court found that the Department of the Interior (DOI) and Department of Transportation (DOT) regulations implementing NEPA did not independently incorporate or adopt the CEQ regulations.  The court observed that DOI’s regulations are intended to be used “for compliance with” and only “in conjunction with” the CEQ regulations; similarly, the court observed that DOT’s rules are “not a substitute for” and merely “supplement[]” the CEQ regulations.  Accordingly, the court held that the DOI and DOT regulations were not a permissible exercise of rulemaking authority to implement NEPA.

Notably, Chief Judge Srinivasan dissented from this holding.

Having found the CEQ regulations to be ultra vires, the court vacated the air tour management plan.  The court advised that the agencies would “need to take a completely different tack to complete their NEPA review”—but offered no direction on what such tack would be.  The court also acknowledged that the parties may move for a stay of its mandate. 

By invalidating regulations that had been in place for more than 45 years, in some form or fashion, this decision is an earthquake in NEPA law.  The effects of the decision are not fully known, and aftershocks still may come.  In the short term, the decision creates considerable uncertainty for federal agencies and project proponents, with multiple questions to be resolved over the coming months:

• Will the DC Circuit affirm the decision after the inevitable en banc review?  Will any party seek review by the Supreme Court?
• How will agencies that do not have their own independent NEPA regulations comply with NEPA in the coming months?  Will agencies stall decision-making as a result of Marin Audubon?  If not, are such decisions vulnerable to legal challenge?
• How will the decision impact midnight agency actions by the outgoing Biden Administration, if at all?
• Will agencies in either the outgoing Biden Administration or incoming Trump Administration promulgate temporary rules as stop-gap measures to allow approvals to continue?
• Will the incoming Trump Administration see an opportunity to revamp NEPA regulations?
• Even if ultra vires, what influence will the CEQ regulations continue to have on agencies or the courts?

Given these uncertainties, project proponents should coordinate with agencies regarding any effect of Marin Audubon on their projects.  And, project proponents should stay tuned as to what lies ahead.

Please contact Katie Schroder or Lindsay Dofelmier with any questions.

The January 1, 2025 filing deadline for reporting companies formed prior to January 1, 2024, is fast approaching, and businesses should begin preparations for such filings now to provide sufficient time to gather the necessary information and timely file any required BOI Reports. 

As detailed in a previous Davis Graham Legal Alert*, the Corporate Transparency Act (the “CTA”) requires all “reporting companies” – entities that have filed formation or registration documents with a U.S. state (or Indian tribe) – to file a beneficial ownership information report (“BOI Report”) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), unless one of 23 enumerated exemptions is available. A reporting company’s BOI Report must identify “beneficial owners” of the reporting company and, if formed on or after January 1, 2024, its “company applicants.”

The filing deadline for a reporting company’s initial BOI Report depends on the entity’s formation/registration date:

Formation/registration date	Filing deadline
Before January 1, 2024	January 1, 2025
January 1, 2024, to December 31, 2024	Within 90 days of formation
On or after January 1, 2025	Within 30 days of formation

To be in a position to file on time, all businesses and organizations should promptly:

• Identify all U.S. entities in their structure and all non-U.S. entities that do business in the U.S. to determine whether such entities are “reporting companies” for purposes of the CTA
• Determine whether any exemptions from reporting apply to any such entities
• If no exemption applies:
  • Identify all beneficial owners of the entity and, if the entity was formed after January 1, 2024, all company applicants, each as defined in the CTA;
  • Gather required information from all beneficial owners and, if applicable, company applicants (which may involve requesting that beneficial owners apply for FinCEN Identifiers through the FinCEN ID Application page, and provide such FinCEN Identifier to the reporting company); and
  • Compile and submit the BOI Report electronically through the FinCEN BOI Report E-Filing page, or engage a third-party service provider (such as your registered agent) to assist in the compilation and submission of your BOI Report; and
• Establish internal processes to ensure timely updates to the initial BOI Report.

FinCEN has published a number of resources on its Small Business Resources page, including the FinCEN Small Entity Compliance Guide, which provides additional guidance in analyzing the reporting exemptions, identifying beneficial owners and company applicants, and otherwise interpreting the CTA rules.

It is important to note that while legal challenges to the CTA are ongoing in the U.S. courts, reporting companies should proceed with filing their BOI Reports as and when required, as the general validity and enforceability of the CTA has not, to date, been impacted by such legal challenges.** Civil and criminal penalties may apply to a person who willfully violates the CTA reporting requirements (including by willfully failing to file a BOI Report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information).

If you have any questions about your entity’s reporting obligations or the BOI Report filing process, feel free to reach out directly to a Davis Graham Partner.  

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*Please note that FinCEN has published additional guidance and rules since the publishing of the November 16, 2023 Davis Graham Legal Alert, and such Legal Alert has not been updated to include such guidance and rules.

** See the March 4, 2024 FinCEN News Release following the decision in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), where FinCEN stated that “[o]ther than the particular individuals and entities subject to the court’s injunction… reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”

On September 26, 2024, Judge Phillip Brimmer of the U.S. District Court for the District of Colorado issued an unpublished opinion holding that Colorado’s Construction Anti-Indemnification Statute, C.R.S. § 13-21-111.5(6)(b) applies to repair work conducted near a well site and that certain indemnification provisions requiring a contractor to indemnify an operator for its own negligence under a master service contract (“MSC”) were void as a result. BKV Barnett, LLC v. Elec. Drilling Tech., LLC, Case No. 23-CV-00139-PAB-SBP (D. Colo. Sept. 26, 2024).  The following summarizes key aspects of this decision.

Case Background:  BKV Barnett, LLC (“BKV”) is an operator of an onshore oil and gas well site in Texas that lost power due to a lightning strike.  BKV contracted with Electric Drilling Technologies, LLC (“EDT”) to supply electric power to the well site and to provide related rental equipment pursuant to an MSC. 

The MSC included a customary “regardless of fault” indemnity structure providing that EDT would indemnify, defend, release, protect, and hold harmless all members of Company (BKV) Group from all claims made or asserted by, or arising in favor of, any member of Contractor (EDT) Group, except to the extent that the claims are caused by, result from, or arise out of the gross negligence or willful misconduct of Company Group.  Generally, each party’s Group included all contractors of any tier and their employees, among others. 

There was no dispute between the parties that the injured individual was a member of Contractor Group or that Colorado law applied pursuant to the express terms of the MSC.

EDT engaged a subcontractor to repair the electric facilities and restore power to the well site.  The subcontractor’s employee alleged that he was injured from an electric arc flash during the repair effort and filed a lawsuit against several parties, including BKV and EDT.  BKV asked EDT to indemnify and defend BKV pursuant to the MSC.  When EDT refused, BKV filed a declaratory judgment action against EDT in Colorado seeking to enforce the indemnify and defense obligations in the MSC.

EDT moved to dismiss BKV’s claims asserting that the indemnity and defense provisions were invalid under Colorado’s Anti-Indemnification Statute, C.R.S. § 13-21-111.5(6)(b), which provides that any provision in a “construction agreement” that “requires a person to indemnify, insure, or defend in litigation another person against liability for damage arising out of death or bodily injury to persons or damage to property caused by the negligence or fault of the indemnitee or a third party under the control or supervision of indemnitee is void as against public policy and unenforceable.”  The statute also defines “construction agreement” as “a contract, subcontract, or agreement for materials or labor for the construction, alteration, renovation, repair, maintenance, design, planning, supervision, inspection, testing, or observation of any building, building site, structure, highway, street, roadway, bridge, viaduct, water or sewer system, gas or other distribution system, or other work dealing with construction or for any moving, demolition, or excavation connected with such construction.”  C.R.S. § 13-21-111.5(6)(l).  EDT claimed that Colorado’s Anti-Indemnification Statute applied because the work at the well site giving rise to the injuries involved “the repair of a structure.” In contrast, BKV argued the contracted scope of work involved providing electricity to the site and drilling operations and that any repairs to a structure were merely incidental.

The Decision:  On EDT’s motion to dismiss, the court held as follows:  (a) the language of the submitted invoice described the repair work as installing a pole, overhead wires, above ground cable and drive-overs, setting pad mounted switches, and repairing cable, (b) these activities constituted “repair of a structure,” (c) Colorado’s Anti-Indemnification Statute lacks an express carveout for “incidental” work,  (d)  the MSC was a construction agreement, and (e) the indemnification and defense provisions were void because they required EDT to indemnify BKV for its own negligence.  The court also issued an order to show cause as to why summary judgment should not be issued in favor of the EDT.  BKV’s deadline to respond to the court’s order to show cause is October 28, 2024.

The Takeaway:  While the opinion arguably is limited to the facts presented, it could have broad ramifications for MSCs with “no fault” indemnity provisions and Colorado choice of law provisions.  Colorado’s Anti-Indemnification Statute may void such provisions to the extent that they are viewed as a “construction agreement” and injuries or damages occur during the course of performing work on a structure. Operators should assess current risks in existing MSC programs. 

If you have questions about the content of this legal alert, please get in touch with Brian Annes, Jon Bergman, Jennifer Allen, or Stephanie Morr.