.png)
From the Tax Court’s denial of an estate’s DSUE claim to the equitable rescission of a grantor-support agreement and the vacatur of the Federal Trade Commission’s click-to-cancel rule, we have recently seen significant developments in estate planning, elder and special needs law, and business law.
To ensure that you stay informed of these legal changes, we have highlighted some noteworthy developments and analyzed how they may impact your estate planning, elder law, and business law practice.
Estate Planning
Portability Elections Must Be Timely and Complete to Preserve Access to DSUE
Estate of Rowland v. Commissioner of Internal Revenue, T.C.M. (RIA) 2025-76 (2025)
Billy Rowland died in January 2018; his wife, Fay, had passed away in April 2016. Because Fay’s estate was valued at less than the basic exclusion amount, it had not been subjected to estate taxes and was therefore not required to file a Form 706; Billy’s estate, however, exceeded taxable thresholds. Therefore, Billy’s estate sought to port Fay’s deceased spousal unused exclusion (DSUE) amount by filing a Form 706 on Fay’s estate for portability only.
Generally, a Form 706 must be filed within nine months of the decedent’s death, but Fay’s executor had obtained an extension to file by July 2017. Fay’s Form 706 was not mailed until December 2017, however, and was not received by the Internal Revenue Service (IRS) until January 2, 2018, more than five months after the extended deadline had passed. Billy’s Form 706 was timely filed in April 2019 and reflected the addition of Fay’s DSUE in his reported applicable exclusion amount.
The IRS issued a notice of deficiency to Billy’s estate, asserting that no DSUE amount was available. It argued that Fay’s estate tax return was not timely filed by the deadline and did not qualify for the safe harbor set forth in Revenue Procedure 2017-34 (which would have rendered it timely had it been complete and properly prepared) because it failed to provide complete descriptions or information about the value of the assets, instead relying on an estimation of gross value. Under Treas. Reg. § 20.2010-2(a)(7)(ii), estimation is permissible for property that passes under a marital or charitable deduction, but Fay’s estate plan made additional distributions; her estate was therefore not eligible to use estimation.
The Tax Court granted partial summary judgment to the Commissioner. It agreed with the IRS that Fay’s estate tax return was not complete and properly prepared in accordance with Treas. Reg. § 20.2010-2(a)(7) because it did not provide valuation information regarding each asset reported on various schedules. The special rule set forth in Treas. Reg. § 20.2010-2(a)(7)(ii), which relaxes valuation reporting requirements, also did not apply to assets that did not pass to Billy or charity or where the value of the assets was needed to determine the value passing from the decedent to a recipient other than the recipient of the marital or charitable deduction property, as was the case here. In this case, 20 percent of Fay’s trust estate was to pass to a charitable family foundation, and one-fourth of her gross estate was to pass to Billy, with the residue passing to various grandchildren. Fay’s estate tax return incorrectly applied the relaxed valuation reporting to all the assets, and by the time the IRS performed its audit, the opportunity for the Rowland estate to seek a Private Letter Ruling (which could have permitted the estate to ask the IRS to accept a corrected return) had passed.
Takeaways: Reliance on portability as an estate planning tool for estate tax avoidance may be problematic. The Tax Court’s ruling is a stark reminder that substantial compliance with portability filings is generally not sufficient. It reaffirms that Form 706 must be carefully prepared and must include all itemization and valuation details when the relaxed valuation reporting requirements do not apply, for example, when there are bequests expressed as a percentage or fraction of the gross estate or the residuary and their value affects or is necessary to determine the value of property going to a recipient other than a recipient of the marital or charitable deduction property. Even when it seems that a surviving spouse may not need the benefit of portability, practitioners and advisors may wish to encourage survivors to consider a timely and complete portability filing because assets often grow later in life, and survivors may end up with larger estates than they anticipate. Failing to properly prepare and timely file Form 706 to elect portability at the first spouse’s death could be an expensive mistake if the surviving spouse’s estate does not have a sufficient basic exclusion amount available to cover the value of the estate.
Nonclient Will Beneficiaries Have Standing to Bring Professional Negligence Claim Against Estate Planning Attorney for Failure to Properly Advise Client
Wisniewski v. Palermino, 330 A.3d 857 (Conn. 2025)
In April 2018, Edward Wisniewski hired attorney Anthony Palermino to draft a will that would transfer his interest in a TD Ameritrade account in five equal shares to his daughter, Joanna Cooper, his three grandchildren, and his friend, Barbara Saccardo. However, Edward had previously designated Joanna as the sole beneficiary on the account. Anthony advised Edward that no action other than properly executing the will stating his wishes was needed to ensure that the account would transfer according to the will’s terms.
Shortly after signing the will, Edward died. Ameritrade transferred the entire amount to Joanna because she was designated as the sole beneficiary of the account.
Two of Edward’s grandchildren and his friend Barbara sued Anthony asserting professional negligence and breach of contract as third party beneficiaries of Edward’s will. Anthony filed a motion to dismiss asserting that they lacked standing. The court ultimately dismissed both claims, and the plaintiffs appealed.
In a case of first impression, the Connecticut Supreme Court held that the plaintiffs had standing to bring a professional negligence claim against Anthony as third-party beneficiaries of Edward’s will based on their claim that Anthony had a duty to advise Edward that he must change the account’s beneficiary designation from Joanna to his estate in order for the assets in the account to transfer as stated in the will and that he had failed to so do, injuring them. The court emphasized that its holding was limited to situations involving clients who inform their attorney about the existence of an account or other asset that could be transferred by a beneficiary designation at the client’s death and instruct their attorney that they want to transfer the account’s assets according to the terms of an estate planning instrument. In those circumstances, the attorney must advise the client that they must designate the estate as the beneficiary of the account or asset for it to transfer to the client’s estate at death and that if such a designation is not made, the account or asset will not be transferred according to the terms of the estate planning document. The court ruled that the trial court erred in dismissing the third-party beneficiaries’ professional negligence claim for lack of standing.
The court further determined, however, that Anthony did not have a duty to ensure that Edward actually changed the beneficiary designation on the account; an attorney who provides proper advice to a client does not have a duty to take steps to ensure that the client acts on their advice. As a result, the plaintiffs, as third-party beneficiaries of Edward’s will, did not have standing to bring a claim for professional negligence on that ground.
The court also affirmed the trial court’s dismissal of the plaintiffs’ breach of contract claim, which did not sound in breach of contract: The plaintiffs did not allege that Anthony violated Edward’s instructions in preparing the will (in fact, they removed that allegation from a previous complaint) or failed to comply with specific provisions of a contract but essentially restated the allegations in their professional negligence claim.
Thus, the court reversed the trial court’s judgment only with respect to the plaintiffs’ professional negligence claim arising from Anthony’s failure to advise. The court affirmed the rest of the trial court’s judgment.
Takeaways: Estate planning attorneys must become familiar with the law in their jurisdiction regarding duties owed to nonclient beneficiaries. Although attorneys do not typically owe a duty of care to disappointed would-be beneficiaries, an attorney might owe a duty of care to a nonclient if their client had a clear intention to benefit the nonclient who was injured by the attorney’s failure to carry out the client’s intentions. The Wisniewski court noted that some jurisdictions have declined to extend this rule beyond liability stemming from errors in drafting or executing a will, but others have adopted its position that third-party beneficiaries of a will have standing to bring a claim against an attorney for failure to advise under similar circumstances, holding that “an attorney’s duty to third-party beneficiaries to advise their client will incentivize attorneys to give proper legal advice to their clients” about steps they must take to effectuate their intentions. Wisniewski v. Palermino, 330 A.3d 857, 868 (Conn. 2025).
In other jurisdictions, courts apply a strict privity rule limiting an attorney’s liability to nonclients to circumstances in which the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation. Further, some jurisdictions apply a rule that the attorney may be liable to a nonclient if the attorney knew or should have known that the nonclient would rely on their representations in circumstances in which the nonclients are not too remote from the attorneys to be entitled to protection.
Creditor of Decedent’s Estate Does Not Have Standing to Bring Claim for Breach of Fiduciary Duties Against Executor
In re Estate of Cheeley, Nos. A25A0034, A25A0035, 2025 WL 1805544 (Ga. Ct. App. July 1, 2025)
Joseph Cheeley Jr. executed a will giving all of his property to his children, including his son, Joseph Cheeley III. Joseph III was also named as coexecutor of the estate together with his aunt, Joseph Jr.’s sister Dorothy. After Joseph Jr. died in 2013, the coexecutors initiated a probate proceeding. In 2017, the coexecutors notified the probate court about disputes arising from Dorothy’s assertion that she had interests in two properties Joseph Jr. owned during his life. Because of conflicts of interest arising from their competing interests in the properties, Dorothy and Joseph III both petitioned the court to remove the other as executor. When Dorothy died later in 2017, Joseph III was left as the sole executor of Joseph Jr.’s estate. Dorothy’s son William was named executor of her estate.
In 2018, William filed a petition for damages against Joseph III, asserting that he owed fiduciary duties to the creditors of Joseph Jr.’s estate, including Dorothy (and her estate), and that Joseph III had breached those duties with regard to the disputed properties, leading to litigation and related expenses that would have to be paid by Dorothy’s estate. The probate court stayed the probate proceeding while the disputes over the properties proceeded in superior court. The superior court determined that Dorothy did own one of the properties but did not have the claimed life estate in the other property and that there was no actual controversy regarding it because of her death.
When the probate court resumed its proceedings, it determined that Joseph owed a fiduciary duty to the creditors of Joseph Jr.’s estate, including Dorothy’s estate, but that William, as executor of her estate, did not have standing in his capacity as a creditor to bring an action for breach of fiduciary duties. As a result, the probate court dismissed William’s claims. He appealed.
The Georgia Court of Appeals found that under section 53-7-1(a) of the Code of Georgia Annotated, a personal representative is a fiduciary who must act in the best interests of all persons who are interested in the estate and with due regard for their rights. It agreed with the probate court that William, as Dorothy’s executor and a creditor of Joseph Jr.’s estate, was a person interested in the estate and that Joseph III owed a fiduciary duty to him as a creditor of Joseph Jr.’s estate.
Nevertheless, the court also affirmed the trial court’s ruling that William did not have standing to bring a direct action against Joseph III for damages based on Joseph III’s alleged breach of fiduciary duty. The court held that section 53-7-54(a) of the Code of Georgia Annotated expressly provides a cause of action for breach of fiduciary duty against an estate representative to beneficiaries and heirs of an estate. Because that statute expressly mentioned heirs and beneficiaries but did not mention other interested persons, the court determined that the canons of statutory interpretation supported an inference that excluded categories, such as creditors, were intentionally omitted. Further, the legislature provided other remedies for interested persons, namely, in seeking revocation of letters testamentary or an accounting under section § 53-7-55 of the Code of Georgia Annotated or under Georgia’s Uniform Voidable Transactions Act, Ga. Code Ann. §§ 18-2-70 to 18-2-85.
Takeaways: Personal representatives of an estate are not typically liable to creditors for the debts of a decedent’s estate. As discussed in In re Estate of Cheeley, however, they generally have a fiduciary obligation to act in the best interests of all persons with an interest in the estate and with due regard for their rights. It is important for estate planning attorneys to become familiar with their state’s law, as there are variations regarding the duties of personal representatives and the circumstances in which they may be held personally liable. In general, a personal representative may be liable for mismanagement or misappropriation of the estate’s assets or failure to pay the estate’s debts prior to distributing assets to beneficiaries. In addition, if the personal representative distributes funds to the beneficiaries of the estate prior to paying creditors’ claims, the creditors may be entitled to seek the amount due from the beneficiaries.
Elder Law and Special Needs Law
Real Property Sales Agreement Containing Grantor-Support Agreement and Gift Deed Obtained by Undue Influence Properly Rescinded After Buyer’s Breach
Helvik v. Tuscano, 571 P.3d 1058 (Mont. 2025)
Brothers Sidney and Julian Helvik lived and worked at a ranch their family had owned since 1947. Sidney was 80 years old and was being treated for prostate cancer, and Julian suffered from Alzheimer’s disease. In 2018, Sidney began to think about the ranch’s future, and the brothers sold their sheep and cattle.
Their neighbors, Wesley and Karen Tuscano, and Wesley’s brother-in-law, Jackson Gardner, asked the Helviks if they could purchase part of their ranch. The Helviks agreed to sell a small portion of the ranch to a limited liability company Wesley was affiliated with. The Helviks signed the sale agreement in March 2018 but were not involved in preparing the agreement and were not represented or advised by an attorney.
In 2019, Julian’s condition worsened, and Sidney had the rest of the ranch appraised. Wesley visited occasionally, and Sidney told him about Julian’s deterioration. After injuring himself during a home repair, Sidney asked Wesley if he would like to buy the rest of the ranch. In April 2020, Wesley brought a sales agreement to the Helviks providing that he would execute a promissory note to them for $500,000 and make payments of $25,000 twice a year until both Helviks died or the debt was paid off. The agreement provided that the Helviks would sign a quitclaim deed granting the entire ranch to the Tuscanos but reserving a life estate for the Helviks in their home. The agreement also contained a provision acknowledging that the Helviks were both over 80 years old and had no immediate family and that the Tuscanos would assist them with end-of-life issues, including finding healthcare, assistance with tax preparation, estate planning, and, if necessary, another place to live. The Helviks remained responsible for paying for their own expenses and care. They were not involved in preparing the documents or represented by an attorney.
One week before the first payment to the Helviks was due under the sales agreement, Wesley told Sidney and Julian to sign a document that Sidney thought was the quitclaim deed. It was actually a gift deed purporting to transfer the ranch to the Tuscanos without any consideration and without the reservation of the life estate in the Helviks’ home. The Tuscanos later used the gift deed to obtain a $402,206 mortgage on the Helviks’ ranch. No payments were ever made to the Helviks.
After Sidney told his stepdaughter, Jacqueline Conner, that he had not received any payments, Jacqueline and her husband looked at the documents and discovered that Sidney had signed the gift deed instead of the quitclaim deed.
The Helviks filed a lawsuit against the Tuscanos, alleging that the agreement and gift deed were the result of undue influence and fraud and that the Tuscanos had breached the sales agreement. They sought a declaration that the agreement and gift deed were void and rescinded and that the Helviks owned the ranch.
The jury found that the Tuscanos had breached the sales agreement and awarded damages; it also found that the gift deed was invalid because of undue influence. The district court, however, concluded that the Helviks were entitled to rescission of the agreement as a matter of equity, quieted title of the ranch in their favor, and vacated the award of damages.
The Montana Supreme Court ruled that there are equitable exceptions in property law where legal remedies are inadequate, including the doctrine of equitable rescission in the context of grantor-support agreements, that is, agreements whereby elderly individuals convey property to those in whom they have trust and confidence, where the consideration is wholly or partially an agreement for future support and maintenance. Equitable remedies are available because the transferees owe fiduciary duties under grantor-support agreements. Because the Tuscanos breached the agreement, the court affirmed the district court’s judgment vacating the award of damages, rescinding the agreement, and returning the ranch to the Helviks unencumbered by the Tuscanos’ mortgage.
The court also affirmed the district court’s rulings prohibiting admission of evidence of an oral agreement to transfer land and evidence of an Adult Protective Service investigation. In addition, the court determined that by failing to raise the issue below, the Tuscanos had waived their argument that the jury had been improperly instructed on the law of undue influence and found that the district court had properly granted Jacqueline’s motion for summary judgment on their claim that she had engaged in tortious interference. However, it denied Jacqueline’s request for attorney fees.
Takeaways: The presence of grantor-support provisions in the sales agreement whereby the transferee was obligated to provide care to the transferor of property led the Helvik court to find that the Tuscanos were in a fiduciary relationship with the Helviks. Equitable rescission rather than an award of damages was therefore appropriate. Based on Helvik, elder law attorneys have an additional avenue of relief in cases involving similar circumstances.
Nursing Facility Has Right to Due Process and Standing to Challenge Resident’s Adverse Medicaid Eligibility Decision
In re FT, SCWC-18-0000677, 2025 WL 2125219 (Haw. July 29, 2025)
In 2011, Aloha Nursing Rehab Center (Aloha Nursing), a skilled nursing facility, accepted FT as a permanent resident after Hawaii’s Department of Human Services (DHS) determined that she was eligible for Medicaid. FT’s husband, who was her authorized representative, signed an agreement authorizing the release of information and payment of FT’s Medicaid benefits to Aloha Nursing. FT’s husband was declared incapacitated in 2012. The Office of Public Guardian (OPG) was appointed as his guardian
In 2012, DHS terminated FT’s Medicaid benefits after determining that she had a house in a revocable trust and was over the Medicaid income limit. Before the termination of her benefits, FT was declared incapacitated, and the OPG was in the process of being appointed as her guardian. Aloha Nursing was not notified of the termination of FT’s benefits and only became aware of it because DHS ceased making payments to it for her care. The OPG submitted a new application for Medicaid benefits on FT’s behalf, but it was denied. It continued to provide care for FT until her death in 2014. The OPG did not appeal the eligibility determination.
From 2015 to 2016, Aloha Nursing unsuccessfully attempted to get assets from the trust as reimbursement for care it provided to FT between 2012 and 2014. In 2016, it contacted DHS requesting $121,831.99 in reimbursement, but DHS denied both the request and a request for consideration of its denial. Aloha Nursing unsuccessfully sought a hearing with the DHS Administrative Appeals Office (AAO). The circuit court and Intermediate Court of Appeals (ICA) affirmed the denial, ruling that Aloha Nursing lacked standing to challenge the Medicaid eligibility determination because it was not the resident or an authorized representative under section 346-12 of the Hawaii Revised Statutes. Aloha Nursing filed a petition for certiorari, which was granted by the Hawaii Supreme Court.
The Hawaii Supreme Court disagreed with the lower courts’ decisions. It ruled that although the applicable statute and DHS rules provide that only Medicaid applicants or recipients, or their authorized representatives, can challenge Medicaid eligibility decisions, nursing facilities have a constitutionally protected property interest in reimbursement for care provided to residents in reliance on DHS’s Medicaid eligibility determinations. This interest arises from DHS rules providing that DHS must reimburse nursing facilities for care provided to residents who are eligible for Medicaid benefits and begins when the notice of eligibility is issued. According to the court, nursing facilities’ entitlement to reimbursement is not severed when a resident’s eligibility is terminated during their stay. The court noted that nursing facilities are uniquely positioned to appeal adverse Medicaid decisions when the recipient, authorized representative, or public guardian is unable or unwilling to act.
Because Aloha Nursing had a protected property interest in payment for the Medicaid services it provided to FT in reliance on DHS’s initial eligibility determination, it had due process rights under article 1, section 5 of the Hawaii Constitution to notice of actions regarding her Medicaid eligibility that adversely affected its property interests and its appeal rights, as well as an opportunity to be heard.
The court determined that providing nursing facilities with notice of adverse decisions regarding their residents’ Medicaid eligibility does not impose an undue administrative burden on DHS because the information necessary to provide the notice is easily accessible. Further, the court noted that its ruling affected only a narrow category of Medicaid beneficiaries: applicants and beneficiaries already receiving care at a nursing facility. DHS’s failure to provide Aloha Nursing with the required notice violated its due process rights; therefore, its appeal was deemed to be timely.
Further, the court ruled that nursing facilities have a due process right to an opportunity to be heard in a DHS contested case hearing addressing an adverse eligibility determination if either the resident, as the applicant or beneficiary, or their authorized representative is unwilling or unable to appeal the decision. DHS is required to provide the Medicaid applicant or recipient with an administrative appeal of an adverse decision; thus, requiring it to provide a contested case hearing to a nursing facility is not an undue burden. Aloha Nursing therefore had a due process right to a contested case hearing.
The court also held that nursing facilities have standing to appeal adverse eligibility determinations affecting residents admitted with Medicaid benefits because of their protected property interest in reimbursement and due process right to a contested case hearing. Accordingly, Aloha Nursing had standing to request a contested case hearing addressing the termination of FT’s Medicaid benefits.
The court determined that its decision should be prospective but would also have limited retroactive effect, that is, it should apply to the parties in the decision and to all similarly situated nursing facilities with cases on direct review or not final as of the date of the decision.
The court vacated the lower court judgments and remanded the case to the AAO for a hearing on the merits.
Takeaways: Nursing facilities in similar circumstances should use In re FT as an example of how a facility may seek appeal and remedy for Medicaid recipients with an adverse eligibility decision when no authorized person is willing or able to challenge the decision. This may provide an avenue for nursing homes to safeguard their solvency, thereby providing a continuing source of care for Medicaid enrollees.
Deceased Policeman’s Unpaid Retirement Benefits Must Be Paid to His Estate in Absence of Explicit Beneficiary Designation
Issac v. Board of Trustees, No. 089370, 2025 WL 2165907 (N.J. July 31, 2025)
Keith Issac was a policeman in Newark, New Jersey, and a member of the Police and Fireman’s Retirement System (PFRS). In 2013, Keith applied for special retirement benefits, listing his wife, Roxanne, on the application in a section titled Marital/Survivor Information. He was terminated from the City of Newark in July 2014. The application was approved by the Board of Trustees of the PFRS (the Board) on September 12, 2016, but was effective on August 1, 2014, the first day of the month following his termination. At that time, Keith had accumulated unpaid benefits of $208,950.03. He died before they were disbursed. At Keith’s death, he was estranged from Roxanne. His brother was the executor of his estate.
In March 2017, the Division of Pensions and Benefits (the Division) notified Roxanne that she was entitled to all benefits that Keith would have received if he had not died. The Division paid her the $208,950.03 in unpaid benefits and a monthly survivors’ pension of $5,833.33 per month. No notice was provided to Keith’s estate of the payment of unpaid benefits, and in June 2018, the estate asked the Division to reconsider its decision to pay Roxanne the unpaid benefits. The Board responded that Keith had nominated and designated Roxanne as his beneficiary on his application and that the unpaid benefits had been correctly paid to her. Its decision was affirmed by the Office of Administrative Law, but the New Jersey Appellate Division remanded the case for a supplemental hearing to determine Keith’s probable intent regarding the disposition of the unpaid benefits because the record did not provide sufficient evidence that he had designated Roxanne to receive them. The estate petitioned the New Jersey Supreme Court for certification, contending that it was arbitrary, capricious, and unreasonable for the Board to pay Roxanne the unpaid benefits because she was not explicitly designated as the beneficiary as required by statute and that a supplemental hearing would constitute an unprecedented and improper expansion of the probable intent doctrine. The court granted its petition.
The New Jersey Supreme Court determined that under section 43:16A-12.2 of the New Jersey Statutes Annotated, a retiring police officer can, in writing on a form satisfactory to and filed with the retirement system, nominate anyone to receive their unpaid benefits; if no nomination is made, the funds are paid to the retirant’s estate. The retirement application Keith filed did not mention unpaid benefits or provide guidance about nominating a beneficiary for them. In contrast, the Marital/Survivor Information section where Keith had listed Roxanne’s name informed the Division only who should receive the survivors’ pension; Keith was not given the discretion to designate anyone else because the survivors’ pension was an automatic benefit intended to provide financial stability for a surviving spouse and children. Although the court agreed with the Appellate Division that it was arbitrary, capricious, and unreasonable for the Board to determine that the retirement application designated Roxanne as the beneficiary of Keith’s unpaid benefits, it disagreed with its order remanding the case for a supplemental hearing to determine Keith’s probable intent. The court reversed the Appellate Division’s judgment and ordered the unpaid benefits of $208,950.03 to be paid to Keith’s estate as required by the plain language of section 43:16A-12.2.
Takeaways: In Issac, the DHS’s failure to provide a beneficiary designation form for unpaid benefits led to the dispute. The Board indicated that the PFRS and the Division would create a beneficiary designation form for unpaid benefits to avoid similar problems in the future. In many cases, however, estate planning attorneys can help clients avoid unintended transfer and tax outcomes by recommending that they make beneficiary designations that are consistent with the goals and intentions of their estate plan.
Business Law
FTC Negative Option Rule Vacated by Eighth Circuit Court of Appeals
Custom Communications, Inc. v. Federal Trade Commission, 142 F.4th 1060 (8th Cir. 2025)
Industry associations and businesses (the petitioners) challenged the final “click-to-cancel” rule issued by the Federal Trade Commission (FTC) in October 2024 in multiple federal circuit courts. The Judicial Panel for Multidistrict Litigation consolidated the petitions for review in the Eighth Circuit Court of Appeals.
The final rule was promulgated pursuant to section 5 of the FTC Act (15 U.S.C. § 57a(a)(1)(B)), which prohibits unfair or deceptive practices. The final rule applies to negative option sellers, broadly defined as persons selling, offering, charging for, or otherwise marketing a good or service with a negative option feature. A negative option feature is a term or condition allowing sellers to interpret a customer’s silence or failure to act affirmatively as acceptance of an offer, for example, continuing to pay for a recurring subscription because they did not cancel it. The rule imposed various obligations on negative option sellers, including an obligation to provide consumers with a simple and easy-to-find mechanism for cancellation of the negative option feature through the same medium (online, telephone call, or in person) used to obtain their consent.
The Eighth Circuit Court of Appeals determined that section 22 of the FTC Act (15 U.S.C. § 57b-3(b)(1)) mandates that when the FTC publishes a notice of proposed rulemaking, it must issue a preliminary regulatory analysis relating to the proposed rule involved. Although amendments of a rule with an estimated annual economic effect under $100 million are excluded from that requirement, an administrative law judge in a previous proceeding had found that the rule’s annual effect on the national economy would exceed $100 million. Because the FTC never issued the preliminary regulatory analysis—which must include reasonable alternatives to the rule, including a cost-benefit analysis of those alternatives and an assessment of the effectiveness of the rule and each alternative—the petitioners were harmed by the lost opportunity to dissuade the FTC from adopting the rule. Although there was an informal hearing and a final regulatory analysis was issued, this did not remedy the lack of opportunity to discuss alternatives or challenge the FTC’s estimates at an earlier stage in the rulemaking process. The court held that the FTC’s rulemaking process suffered from fatal procedural deficiencies and that the petitioners had demonstrated prejudicial error. As a result, the court did not address the petitioners’ substantive challenges, namely, that the rule exceeded the scope of the FTC’s statutory authority under the FTC Act and was arbitrary and capricious under the Administrative Procedure Act. Because of the prejudice suffered by the petitioners and the breadth of the rule’s coverage, the court determined that vacatur of the entire rule was appropriate.
Takeaways: For additional discussion of the FTC final rule, see our November 2024 and June 2025 monthly recap. In May 2025, the FTC deferred compliance with certain provisions. But for the Eighth Circuit’s July 8 decision in Custom Communications, Inc., full compliance would have been required on July 14, 2025. It is not clear whether the FTC will appeal the decision. Businesses that would have been subject to the more specific requirements of the rule are still subject to the broader prohibition against unfair and deceptive practices under the FTC Act. In addition, some states, such as California and New York, have their own click-to-cancel rules; affected businesses in those states should still comply with their requirements.
Seeking Damages for Breach of Noncompetition Covenant Does Not Transform It into a Forfeiture-for-Competition Provision: Reasonableness Review Still Required
Fortiline v. McCall, No. 2024-0211, 2025 WL 1783560 (Del. Ch. June 27, 2025)
The founder of Fortiline, Inc. (Fortiline) left and established a competing business, taking approximately one-half of Fortiline’s employees to work for his new company. The founder and many of the employees were subject to restrictive covenants contained in a stock option agreement that prohibited them from engaging in competing business anywhere in the United States or assisting or investing in anyone who competed with Fortiline (and affiliated companies) for one year after their employment terminated. They were also prohibited from soliciting customers, suppliers, and other employees of Fortiline.
Fortiline filed a lawsuit seeking a preliminary injunction restraining the defendants from competing with Fortiline and affiliated companies and soliciting employees from them. The court determined that the restrictive covenants were unreasonably broad and unenforceable and refused to blue-pencil them to apply only to Fortiline and not to its affiliate companies.
Fortiline and its affiliates amended their complaint, seeking damages instead of injunctive relief for the defendants’ breaches of their restrictive covenants. The defendants filed a motion for summary judgment, asserting that the restrictive covenants were unenforceable. Fortiline argued that where a claim for breach of restrictive covenant does not seek injunctive relief but only damages, it is not subject to a review for reasonableness, and they should instead be governed by recent decisions of the Delaware Supreme Court holding that forfeiture-for-competition provisions are not subject to a reasonableness review.
The court rejected their argument, noting that as a matter of public policy, Delaware upholds the freedom of contract and enforces contracts as written. Relying on Cantor Fitzgerald, L.P. v. Ainslie, 312 A.3d 674 (Del. 2024), and LKQ Corp. v. Rutledge, No. 110, 2024, 2024 WL 5152746 (Del. 2024), the court noted that forfeiture-for-competition provisions do not prohibit competition but instead allow a former owner or employee to compete at the cost of giving up a contingent benefit, unlike restrictive covenants, which deprive the bound party of their livelihood in their chosen field and result in financial hardship. In the present case, the restrictive covenants prohibited competition, and their unenforceability was not altered by the fact that Fortiline and its affiliates had amended their complaint to change the remedy sought to damages rather than an injunction; the restrictive covenants were subject to review for reasonableness, regardless of the remedy sought. Because the court had already determined that they were unreasonably overbroad and unenforceable, the court found that the defendants were entitled to judgment as a matter of law and granted their motion for summary judgment.
Takeaways: An increasing number of states have enacted statutes restricting or banning the use of noncompetition agreements. Those that continue to permit the use of noncompetition agreements often subject them to a reasonableness review, as in Fortiline. Alternatives such as nondisclosure, nonsolicitation, or forfeiture-for-competition agreements that are not extreme in duration or financial hardship are more likely to be enforceable and may enable businesses to adequately protect their interests, especially in situations involving former owners or key employees. For additional discussion of the Delaware Supreme Court’s decisions in Cantor Fitzgerald and LKQ Corp., see our March 2024 and February 2025 monthly recaps.
Florida Enacts Series LLC Statute
Fla. S.B. 316
On June 20, 2025, Governor Ron DeSantis signed Fla. S.B. 316, allowing the formation of series limited liability companies (LLCs) in Florida and allowing series LLCs formed in other states to operate in Florida. Series LLCs have a parent LLC and an unlimited number of series that can operate independently, hold assets, and have different members and purposes. In addition, the debts or obligations of each series are not enforceable against the parent LLC or the other series. The series are not separate legal entities and do not need to comply with state filing and reporting requirements or pay separate fees; only the parent LLC must comply with those state law requirements. The new law will take effect on July 1, 2026.
Takeaways: Florida’s new series LLC statute will enable it to provide more flexibility to businesses forming in the state. At present, a majority of states do not allow the formation of series LLCs, but some states, including California, allow series LLCs formed elsewhere to register to do business there despite not allowing their formation. Series LLC statutes vary, so it is important for business planning attorneys to become familiar with the relevant state statute.
