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PPP Loan Forgiveness Application: A Discussion of Recent Developments and Implications for Lenders

May 28, 2020

by Kenneth Logsdon, Steven T. Waterman, and Joseph Lynyak

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Due to economic uncertainty caused by COVID-19, Congress created the Paycheck Protection Program (the “PPP”) under sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  The PPP is administered by the Small Business Administration (the “SBA”) and provides that loans guaranteed by the SBA may be fully forgiven if borrowers use the proceeds to maintain their payrolls and pay certain specified eligible non-payroll expenses.

A significant amount of guidance has been provided by the SBA in respect of the PPP generally and on May 15, 2020, the SBA released the long-awaited Paycheck Protection Program Forgiveness Application, accompanied by detailed instructions (collectively, the “Application”).    Though the Application provides guidance to PPP loan borrowers on the details of loan forgiveness, the SBA indicates that it will continue to issue additional regulations and guidance to further assist borrowers as they complete their Applications, and provide lenders with guidance on their responsibilities in connection with the same. 

The following highlight some of the common questions and complexities regarding the forgiveness process that are answered by the Application and recent rules, together with a discussion of the implications and practical considerations for PPP lenders.

Time Period for Forgiveness 

PPP loan borrowers may be eligible to have loans forgiven if the proceeds are used for eligible expenses over the eight-week period commencing when the loan was first disbursed (the “Covered Period”).  For administrative convenience, the Application also provides an option for borrowers to calculate payroll costs using an “Alternative Payroll Covered Period” that aligns with a borrower’s regular payroll cycles in lieu of using the Covered Period.  The Alternative Payroll Covered Period is the eight-week period starting on the first day of the pay period immediately following loan disbursement.

When are Payroll and Non-Payroll Costs “Paid and Incurred”?

Under the CARES Act, PPP loan borrowers are generally eligible for forgiveness of payroll costs “paid and incurred during” the Covered Period (or Alternative Payroll Covered Period).  The Application addresses the ambiguity under the CARES Act regarding the timing of payroll  payments and incurrences.  Specifically, payroll costs are considered paid on the day that paychecks are distributed or funds are deposited into an employee’s account.  Payroll costs are considered “incurred” on the day that an employee’s pay is earned.  Payroll costs incurred but not paid during a borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.  Eligible non-payroll costs must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.  Note that eligible non-payroll costs must be tied to the Covered Period and not the Alternative Payroll Covered Period.  Finally, both payroll and non-payroll costs that are both paid and incurred can be counted only once.

Costs Eligible for Forgiveness 

Eligible payroll costs are the key factor to maximizing PPP loan forgiveness. No less than 75% of all eligible costs for forgiveness spent during the Covered Period/Alternative Payroll Covered Period must be eligible payroll costs.  For purposes of calculating forgiveness, compensation under “payroll costs” includes “gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the Covered Period (or the Alternative Payroll Covered Period).”

The SBA has determined that the CARES Act’s definition of the term “payroll costs” should be interpreted broadly to include compensation in the form of salary, wages, commission payments to furloughed employees, bonuses, hazard pay or similar compensation. If a borrower pays furloughed employees their salary, wages, or commissions during the Covered Period/Alternative Payroll Covered Period (even if those employees are not able to perform their day-to-day duties), then those payments are eligible for forgiveness.  Importantly, for purposes of calculating compensation for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the selected Covered Period or Alternative Payroll Covered Period.

Eligible non-payroll costs, per the Application consist of the following:

(a) Business mortgage interest payments (not including payment of principal and not including any advance payment of interest) during the Covered Period for any business mortgage obligation on real or personal property incurred before February 15, 2020;
(b) Business rent or lease payments during the Covered Period pursuant to lease agreements for real or personal property in force before February 15, 2020; and
(c) Business utility payments during the Covered Period for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access,  which service began before February 15, 2020.

Loan Forgiveness Reductions and Safe Harbors

A PPP loan borrower’s forgiveness amount can be reduced if: (i) the borrower has on average fewer “full-time-equivalent” (“FTE”) employees during the Covered Period/Alternative Payroll Covered Period as compared to the borrower’s chosen reference period (either (a) February 15, 2019 to June 30, 2019 or (b) January 1, 2020 to February 29, 2020) (the “FTE Reduction”); or (ii) any salary or hourly reductions (the “Salary/Hourly Reduction”) for specified employees (employees making less than $100,000 at an annualized rate during 2019) during the Covered Period/Alternative Payroll Covered Period by more than 25% compared to the calendar quarter ending March 31, 2020.

  • FTE Reduction and Exemptions and Exceptions

The FTE Reduction is calculated by dividing the Average FTE employees during the Covered Period/Alternative Payroll Covered Period by the Average FTE employees during the borrower’s chosen reference period (either: (i) February 15, 2019 to June 30, 2019; or (ii) January 1, 2020 to February 29, 2020).  Once the FTE Reduction is determined (which cannot be greater than 1), the borrower must then multiply that ratio by the total of all eligible costs paid/incurred during the Covered Period (or Alternative Payroll Covered Period).  However, a borrower is exempt from application of the FTE Reduction if both of the following conditions are met: (a) the borrower reduced its average FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (b) the borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the borrower’s pay period that included February 15, 2020.

For purposes of calculating the FTE Reduction, a borrower will not be required to include any employees in two circumstances. The first is the situation in which:  (a) the borrower made a good-faith, written offer to rehire an employee during the Covered Period (or the Alternative Payroll Covered Period) which was rejected by the employee; (b) the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours; (c) the borrower has maintained records documenting the offer and its rejection; and (d) the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.

The second situation is that instance in which any employee who during the Covered Period (or the Alternative Payroll Covered Period): (a) was fired for cause; (b) voluntarily resigned; or (c) voluntarily requested and received a reduction of their hours.  If a borrower wishes not to include employees in the preceding sentence for purposes of calculating the FTE Reduction, then records must be maintained demonstrating that each such employee was fired for cause, voluntarily resigned, or voluntarily requested a schedule reduction.

“Average FTE” during the Covered Period or Alternative Payroll Covered Period is calculated by taking the average number of hours worked per week divided by 40 (rounded to the nearest tenth). The maximum for each employee is capped at 1.0 and the Application allows for a borrower to use a simplified method that assigns a “1.0” for employees who work 40 hours or more per week and a “0.5” for employees who work fewer than 40 hours per week. Note that this is not the same formulation used by the IRS, which is a 30-hour week standard.)

  • Salary/Hourly Reduction

In addition to the FTE Reduction criteria described above, the Application includes a salary and hourly component pursuant to which the amount of loan forgiveness will be reduced, dollar for dollar, in an amount equal to the reduction of the salary or hourly wages of certain employees during the Covered Period (or the Alternative Payroll Covered Period) as compared to the calendar quarter ending March 31, 2020.  The Salary/Hourly Reduction calculation is performed on a per employee basis, not in the aggregate.  Nonetheless, the Salary/Hourly Reduction will not apply if: (i) the annual salary or hourly wage of an employee as of February 15, 2020 is greater than the average annual salary or hourly wage between February 15, 2020 and April 26, 2020; and (ii) the average annual salary or hourly wage of such employee as of June 30, 2020 is equal to or greater than the annual salary or hourly wage as of February 15, 2020.  In addition, the SBA has determined that, in order to ensure that a PPP borrower is not doubly penalized under the Salary/Hourly Reduction and the FTE Reduction, the Salary/Hourly Reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE Reduction. In other words, if a borrower merely reduces the hours of a full-time employee to below 40 hours per week, but does not reduce the hourly wage, then the reduction in the employee’s total wages is entirely attributable to the FTE Reduction. Therefore, the borrower is not required to conduct a Salary/Hourly Reduction calculation for such employee.

Documentation and Review Process

  • Documentation

The Application states that certain documentation must be submitted and retained by borrower. Specifically, with its Application a borrower must submit documentation supporting payroll and FTE employee and non-payroll calculations.  Furthermore, a borrower must maintain for a period of not less than six years after the date the loan is forgiven or repaid in full, the following:

a. PPP Schedule A Worksheet or its equivalent and the following:

i) Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
ii) Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2, specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
iii) Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
iv) Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor”.

b. All records relating to a borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting such borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support a borrower’s loan forgiveness application, and documentation demonstrating a Borrower’s material compliance with PPP requirements.

PPP borrowers are required to make certain representations and certifications in the Application as to the information provided in the Application and supporting documentations.  For example, a borrower is required to attest that information provided in the Application and the information provided in all supporting documents is true and correct in all material respects, and a certification that the tax documents submitted to the lender are consistent with those the borrower has submitted/will submit to the IRS and/or state tax or workforce agency.  Lenders administering Applications are allowed to rely on a borrower’s certifications.  Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower. Nonetheless, lenders are expected to perform a good-faith review, in a reasonable time, of a borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness, which may create legal risk to the PPP lender if deemed unacceptable to the SBA (discussed further below).

Lenders must also comply with applicable SBA requirements for records retention, which for federally regulated lenders means compliance with the requirements of their federal financial institution regulator.

  • Application Review

If loan documentation submitted to the SBA by the lender or any other information indicates that the PPP borrower may be ineligible for a PPP loan or may be ineligible to receive loan forgiveness, the SBA will require the lender to contact the borrower in writing to request additional information. The SBA may also request information directly from the borrower, and the lender must provide to the SBA any additional information it receives from the borrower. The SBA will consider all information provided by the borrower in response to an inquiry. Failure to respond to the SBA’s inquiry may result in a determination that the borrower was ineligible for a PPP loan or loan forgiveness. If the SBA determines that a borrower is ineligible for the PPP loan or loan forgiveness, the SBA may (i) direct the lender to deny the loan forgiveness application in whole or in part, as appropriate or (ii) seek repayment of the outstanding PPP loan balance or pursue other available remedies.  The SBA intends to issue a separate interim final rule addressing a borrower’s right to appeal a determination that borrower was ineligible for a PPP loan or loan forgiveness. 

Implications for PPP Lenders

  • Review of Loan Forgiveness Applications

For the meantime, PPP lenders need to be prepared to review and make decisions regarding loan forgiveness and therefore should implement appropriate policies and procedures.  First, upon receipt of an Application, a lender will have 60 days to issue a decision to the SBA. That decision may take the form of an approval (in whole or in part), denial or (if directed by the SBA) a denial without prejudice due to a pending SBA review of the loan for which forgiveness is sought.  Unless the SBA determines that the borrower was ineligible for a PPP loan and in the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its Application for loan forgiveness.

If a PPP lender determines that a borrower is entitled to forgiveness, then the lender must request payment from the SBA at the time the lender issues its decision to the SBA. When the lender issues its decision to the SBA approving an Application (in whole or in part), it must include the calculation form, PPP Schedule A to the Application and the (optional) PPP Borrower Demographic Information Form (if submitted to lender).  The SBA, not later than 90 days after the lender issues its decision to SBA and subject to any SBA review of the loan or loan application, will remit the appropriate forgiveness amount to the PPP lender, plus any interest accrued through the date of payment, but deducting any EIDL advance (if applicable) [Note: the SBA has stated that it will issue additional procedures on the process for advance purchases of PPP loans].

If a PPP lender determines that a borrower is not entitled to forgiveness, then the lender must provide the SBA with the reason for its denial along with the calculation form, PPP Schedule A to the Application and the (optional) PPP Borrower Demographic Information Form (if submitted to lender).  The lender must also notify the borrower in writing that the lender has issued a decision to the SBA denying the loan forgiveness application. The SBA reserves the right to review the lender’s decision in its sole discretion. Within 30 days of notice from the lender, a borrower may request that the SBA review the lender’s decision.

In connection with the review of each Application, a lender must confirm:

(i) Receipt of the borrower certifications contained in the Application;
(ii) Receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the Application;
(iii) The borrower’s calculations on the Application, including the dollar amount of the cash compensation, non-cash compensation, and compensation to owners claimed on Lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A of the Application and business mortgage interest payments, business rent or lease payments, and business utility payments claimed on Lines 2, 3, and 4 on the calculation form submitted with the Application; and 
(iv) That the borrower made the calculations on Line 10 of such calculation form correctly, by dividing the borrower’s eligible payroll costs claimed on Line 1 by 0.75.

As noted above, lenders are expected to perform a good-faith review, in a reasonable time, of a borrower’s supporting documents. While the SBA has indicated that a lender does not need to independently verify a borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs, if the lender identifies errors in the borrower’s calculations or material lack of substantiation in the borrower’s supporting documents, then the lender should work with the borrower to remedy the issue.

If the SBA determines that a borrower was ineligible for the PPP loan, then the loan will not be eligible for loan forgiveness. If only a portion of the loan is forgiven, or if the forgiveness request is denied, then any remaining balance due on the loan must be repaid by the borrower on or before the two-year maturity of the loan.  If the amount remitted by the SBA to the lender exceeds the remaining principal balance of the PPP loan (because the borrower made scheduled payments on the loan after the initial deferment period), then the lender must remit the excess amount, including accrued interest, to the borrower. Importantly, the general loan forgiveness process described above applies only to loan forgiveness Applications that are not reviewed by the SBA prior to the lender’s decision on the forgiveness application.  In other words, the above is inapplicable to independent reviews of PPP loans by the SBA, which it may undertake at any time in its sole discretion.

  • Notice of Review by SBA

If a lender receives notice that the SBA is reviewing a loan, then the lender must notify the PPP borrower in writing within five business days of receipt and, within such time period, transmit to the SBA electronic copies of the following:

(a) The Borrower Application Form (SBA Form 2483 or lender’s equivalent form) and all supporting documentation provided by the borrower;
(b) The Application (SBA Form 3508 or lender’s equivalent form), and all supporting documentation provided by the borrower (if the lender has received such Application);
(c) Schedule A Worksheet to the Application;
(d) A signed and certified transcript of account;
(e) A copy of the executed note evidencing the PPP loan; and 
(f) Any other documents related to the loan requested by the SBA.

If the SBA has notified the lender that the SBA has commenced a loan review, then the lender shall not approve any Application for loan forgiveness for that loan until the SBA notifies the lender in writing that the SBA has completed its review.

  • Lender Fees

If the SBA conducts a loan review and determines that the borrower was ineligible for a PPP loan, then the lender is not eligible for a processing fee and any such fee that has been paid is subject to the SBA’s claimed clawback right. Specifically, if within one year after a PPP loan was disbursed the SBA determines that a borrower was ineligible for a PPP loan, then the SBA will seek repayment of the lender processing fee from the lender.

Importantly, however, the SBA’s determination of borrower eligibility will have no effect on the SBA’s guaranty of a loan if the lender has complied with its obligations and the document collection and retention requirements described in the lender application form (SBA Form 2484). Furthermore, if a PPP lender fails to satisfy the requirements applicable to lenders or the document collection and retention requirements described in the lender application form (SBA Form 2484), the SBA will seek repayment of the lender processing fee and may determine that the loan is not eligible for a guaranty.

In light of the above, lenders participating in the PPP and administering the review and processing of Applications should be sure to implement safeguards. Specifically, lenders should revisit their respective quality control guidelines to determine whether those guidelines should be updated or revised to encompass training for staff, procedures for spotting and handling clear errors or obvious misstatement of facts, a unique escalation process specific to PPP loan forgiveness related matters and a PPP loan forgiveness application checklist.

 

Firm Highlights

Insights

Alaska HB 126: What Changes for Alaska Native Corporations, Proxy Filings, and Annual Reports

Alaska House Bill 126 (HB 126), sponsored by Representative Neal Foster and passed by the 34th Alaska Legislature, is now law. The bill changes which Alaska Native Corporations (ANCs) must file proxy and annual report materials with the State of Alaska, and makes it easier to reinstate certain dissolved Village Corporations. For many smaller Village Corporations, the practical result is less public disclosure. For shareholders, advisors, and the public, it means some financial information that used to be available through the State will no longer be readily obtained. This eUpdate explains what HB 126 does in plain terms, walks through the practical trade-offs, and answers common questions. 1. What HB 126 Changes The old rule Under prior law (Alaska Statutes Sec. 45.55.139), an Alaska Native Corporation had to file its annual report, proxies, and proxy statements with the Alaska Division of Banking and Securities (the Division) if it had more than $1 million in assets and 500 or more shareholders on its current rolls. A filing ANC was also required to follow the Division’s proxy rules (3 AAC 08.305 through .365), which require specific disclosures such as top 5 executive compensation, and related-party transactions. Because these filings are treated as public records, they gave non-shareholders, including the public and the press, visibility into ANC financial information that is not filed with the SEC. The new rule HB 126 changes how the 500-shareholder test is measured. Now, the asset test is removed, and the shareholder count is based on how many shareholders the corporation originally enrolled when it was formed under the Alaska Native Claims Settlement Act (ANCSA), not how many it has today. As shares have passed down through families over the decades, some Village Corporations that started with fewer than 500 shareholders now have more than 500 recordholders. Under the old current-count test, when those corporations had crossed the threshold, they had to file. Under the new original-enrollment test, they do not. Who is affected Village Corporations that originally enrolled fewer than 500 shareholders are the main beneficiaries. They no longer have to file proxy and annual report materials with the Division or follow the Division’s proxy regulations at 3 AAC 08.305 through .365. Two groups must continue to file as before: all twelve ANCSA Regional Corporations, each of which enrolled more than 500 shareholders at creation, and all Village Corporations that originally enrolled 500 or more shareholders. As reported by the Alaska Beacon, when the bill was under consideration, the Division identified 59 corporations then filing, expected at least seven village corporations to become exempt, and was reviewing roughly 30 more. 2. Practical Analysis HB 126 reduces a real compliance burden for smaller Village Corporations, which now need not spend time and money on State filings. In coming years, the exempt Village Corporations may experience benefits associated with less public disclosure and less regulation. But at the same time, less public disclosure carries trade-offs. Benchmarking will become harder Publicly-filed proxy statements and annual reports have long served as a reference set. Shareholders, corporations, advisors, and counsel use them to compare governance practices, compensation, and financial results across similarly-situated ANCs. Since fewer of these materials will be filed publicly, there will be fewer comparable documents available, which will make benchmarking and market-checking more difficult for like-sized ANCs over time. Executive compensation transparency may be reduced The Division’s proxy rules require disclosure of the compensation of ANC’s top five most highly compensated individuals (3 AAC 08.345(b)(2)), related-party transactions above $20,000 (3 AAC 08.345(b)(3)), and audited financial statements and management’s discussion and analysis (3 AAC 08.365). When a corporation is no longer required to file these disclosures publicly, it becomes harder for shareholders and others to obtain the information, to understand how compensation is set for their corporate leadership, and how it compares across corporations of similar size and complexity. Transparency may matter more as ANCs grow Some ANCs have grown into large, complex enterprises with substantial revenue and many subsidiaries, even with fewer than 500 shareholders. For an ANC with a broad and dispersed shareholder base, public materials can be an important way for shareholders and other stakeholders to understand governance, compensation, and performance across ANCs. Reduced disclosure may carry more practical weight in those settings than for a small corporation whose shareholders are closely connected to the business. The ANCSA annual report obligation continues It is important not to overstate what HB 126 does. HB 126 changes the state filing proxy requirements. It does not remove the separate obligation under ANCSA itself. That obligation comes from ANCSA at 43 U.S.C. Sec. 1625(c), which requires a Native Corporation that would otherwise be subject to the Securities Exchange Act of 1934 to prepare and transmit to its shareholders an annual report containing substantially the information a company subject to that Act would include. Similarly, ANCs that solicit proxies for an annual meeting are still required to furnish shareholders with those proxy materials under general Alaska corporate law. However, ANCs are now no longer required to transmit proxy statements to the State. ANCs’ reporting obligations to their shareholders are unaffected by HB 126. Any corporation newly exempt from state filing still owes its shareholders a detailed annual report and a proxy statement, even though that report is no longer routed through the State and made public. Reinstatement of dissolved Village Corporations Separately, HB 126 amends AS 10.06.960(k) to remove the prior deadline (previously December 31, 2020) for reinstating an involuntarily dissolved Native Village Corporation. A dissolved Village Corporation may now apply to be reinstated under AS 10.06.633(e) at any time. Reinstatement still runs through the commissioner under AS 10.06.633(e). In general, that means the ANC must apply, cure the neglect or delinquency that led to dissolution, and pay the amounts owed, and the corporation’s name must be available or be changed to one that is. Once reinstated, the corporation and its shareholders are restored to the rights, privileges, liabilities, and obligations they would have had as if the dissolution had never occurred, and corporate and shareholder actions taken during the dissolution are treated as valid. If the previously-used corporate name is no longer available, the board alone may amend the articles to adopt a new name (without the necessity for shareholder approval). 3. Frequently Asked Questions What does HB 126 do? It changes how Alaska measures the 500-shareholder test that decides which ANCs must file proxy and annual report materials with the state. It removes the asset test, and it counts shareholders based on original enrollment rather than the current rolls. It also removes the deadline for reinstating an involuntarily dissolved Native Village Corporation. Which ANCs are affected? Village Corporations that originally enrolled fewer than 500 shareholders, because they may no longer need to file with the Division. Regional Corporations and Village Corporations that originally enrolled 500 or more shareholders must continue to file as before. Does HB 126 eliminate all reporting obligations? No. It changes the state filing requirement under AS 45.55.139, but it does not remove the separate ANCSA obligation (43 U.S.C. Sec. 1625(c)) to provide shareholders with an annual report, and general corporate law still calls for a proxy statement when the ANC solicits proxies. Corporations that remain subject to state filing requirements must also continue to comply with the Division's rules. We think we are now exempt. What should our ANC board and management consider? Confirm your ANC’s original enrollment number and whether your corporation falls below the new threshold. Watch for communications from the State on this topic as they proceed with their research. If your ANC is now exempt, decide how your corporation will meet its continuing ANCSA obligation to shareholders, review proxy and annual meeting materials and timelines, and consider what to communicate to shareholders about any change in how they will receive information. It is worth documenting the basis for any exemption. What should ANC shareholders watch for? Shareholders should watch for how and when they will continue to receive annual report and proxy statement information directly from their ANC, since some material that used to be available through the State’s online website will no longer be publicly filed. If something is unclear, shareholders can ask their ANC how it intends to meet its ANCSA reporting obligations. How Dorsey Can Help HB 126 lightens the State filing load for smaller Village Corporations, but it also raises practical questions: confirming who is exempt, meeting continuing ANCSA obligations to shareholders, keeping proxy and annual meeting processes on track, and maintaining benchmarking when public materials become less available. These are exactly the kinds of judgment calls that benefit from early planning. Dorsey’s attorneys work closely with Alaska Native Corporations and related stakeholders. If you have questions about HB 126, ANC governance, proxy filings, annual reports, disclosure obligations, or shareholder communications, please contact your Dorsey attorney, including the authors of this eUpdate.

Insights

Proposed CMS Rule Ramps Up Potential Medicare Fraud Administrative Remedies

On July 6, 2026, the Centers for Medicare & Medicaid Services (“CMS”) proposed a rule that would expand its administrative remedies to combat potential fraud. The proposed rule is the latest in a round of administrative actions that signal CMS’s intent to aggressively pursue allegations of Medicare and Medicaid fraud and heighten the risk of fraud enforcement against even well-intentioned Medicare and Medicaid providers and suppliers. The proposed rule includes several changes to regulations that govern Medicare billing privileges. Providers and suppliers should be aware that these changes dramatically expand the flexibility afforded to CMS in enrollment and revocation actions, potentially leading to harsh consequences for ministerial and administrative errors. If finalized, moreover, the proposed rule could have material implications for providers and suppliers facing threatened revocation, including heightened risk of overpayment liability and increased hurdles to challenging revocations and denials of enrollment. Added Flexibility to Existing Revocation Grounds CMS has proposed to remove a number of factors that the regulations list as relevant to a determination of whether a provider has engaged in “abuse of billing privileges.” While acknowledging that the inclusion of these factors in the regulations was permissive (requiring consideration only where “as appropriate or applicable”), CMS stated that it must be afforded “the maximum flexibility to address all possible . . . scenarios without the rigid constraints of our existing factors.” CMS provided little guidance as to the outer bounds of what conduct could constitute an “abuse of privileges” that merits revocation of Medicare billing privileges. Instead, CMS noted that a “pattern of practice” of abuse of billing privileges might be established “by a simple finding that several of a provider’s claims do not meet Medicare requirements.” Similarly, CMS has proposed to expand the regulatory provision that permits revocation of enrollment if a provider certifies as “true” false or misleading information in Medicare enrollment application or renewal forms to include any scenario in which a provider submits “false or misleading information on or associated with any CMS Medicare enrollment-related form,” including materials submitted to Medicare contractors. CMS stated that it interprets this expanded rule to include anything related to Medicare enrollment, and not only those submissions that are “intended to gain or maintain Medicare enrollment.” If finalized, the proposed rule would add significant flexibility to CMS’s ability to pursue revocation of a provider’s enrollment. While CMS has assured providers that it would “invoke [the revised regulations]. . . only when legitimately warranted under the facts and circumstances and not as a matter of course,” such expanded flexibility threatens unpredictability in the event of even administrative or ministerial errors in submissions and claims. These changes would, moreover, make it more difficult for providers to challenge a revocation action. Expanded Revocation Grounds In addition to adding flexibility to existing grounds for revocation, CMS’s proposed rule adds to and expands CMS’s already broad authority to revoke provider and supplier enrollment. Such proposed changes include adding the following grounds for revocation: Denial of Enrollment Application. Where CMS could previously revoke a provider’s other enrollments if one enrollment is revoked, CMS would also be able to revoke a provider’s existing enrollments if an application for enrollment submitted by the provider is denied. High-Risk Enrollments. CMS would be able to revoke enrollment if it determines the provider or supplier (including owning/managing employees or organizations) poses a high risk of fraud, waste, or abuse due to “. . . an affiliation under [42 C.F.R.] § 424.519” or “the provider’s or supplier’s location within a limited geographic area that has an excessive number of providers and suppliers.” Certain Misdemeanor Convictions. CMS would be able to revoke enrollment if a provider or supplier—or its owners, managing employees, managing organizations, officers, or directors—are convicted of a “misdemeanor related to sexual assault or financial misconduct within the past 10 years that CMS deems detrimental to the best interests of the Medicare program and its beneficiaries.” Ownership Changes (HHA, Hospice, DMEPOS). CMS would have broad authority to revoke enrollment of home health agencies, hospices, and DMEPOS suppliers who do not comply with the regulations governing provider changes of ownership. These proposed, expanded grounds for revocation are notably broad, and CMS provides only limited guidance as to what conduct might result in revocation under these grounds. As with the proposed expansion of existing grounds for revocation, the open-ended nature of these proposed grounds for revocation may make it more difficult for providers and suppliers to challenge revocation actions. Expanded Grounds to Deny Medicare Enrollment As with revocations, CMS proposes to expand the grounds under which a provider’s application to enroll in Medicare can be denied. These expanded and additional grounds include many of the grounds added for revocations, but also include: Medicare Debt or Payment Suspension. CMS proposes expanding the ground to deny enrollment based on Medicare debt or payment suspension to include a provider or supplier’s “managing employee, managing organization, or individual or entity with any other form of business or financial relationship with the provider or supplier[.]” Significantly, this expansive definition (called an “associated party” under the proposed regulation) currently contains no material limitations, meaning almost any person or entity with whom an applicant does business could create denial liability. Sharing Locations with Denied/Revoked Providers or Suppliers. CMS would have authority to deny applications where a “provider’s or supplier’s practice location is in the same suite or office as another provider or supplier whose Medicare enrollment has been revoked or denied.” Hospices with Distant Medical Directors or Administrators. CMS would have discretion to deny hospice applications if the hospice’s medical director or administrator serves “multiple other hospices” or practices/is located “at such a distance (for example, in a different state) from the enrolling hospice that the medical director cannot realistically perform all medical director functions,” with a similar provision for administrators. In addition, CMS proposes applications denied for “other program termination or suspension,” may be applied to the provider or supplier in its own name or NPI or that of its owners, managing employees, or managing organization regardless of whether any appeals are pending. Retroactive Revocation CMS proposed to restructure and expand the regulatory grounds for retroactive revocation of billing privileges. Currently, Medicare regulations provide that revocations are, by default, prospective in nature: effective 30 days after CMS or the CMS contractor mails notice to the provider. Under certain circumstances, the regulations provide for revocations to be retroactive, such as when a provider is convicted of a felony, the date a professional license is suspended, revoked, or surrendered, or when a provider submits a false certification in their enrollment application. CMS has proposed to reframe the rule so as to default to retroactive revocation of billing privileges. CMS expressed concern that providers may collect payment from Medicare while remaining so non-compliant with enrollment requirements as to merit revocation. To address this concern, CMS proposed that all revocations be retroactive to the date of determined non-compliance.[1] As a result, providers suspected of misconduct or non-compliance are likely to face claims of retroactive overpayments in addition to the immediate concern no longer receiving Medicare payments while their enrollment is revoked. Reapplication Bar CMS’s proposed rule expands the grounds from which a provider may be prohibited from seeking reapplication as a Medicare provider. Under current regulations, CMS may prohibit prospective providers from enrolling in Medicare for up to 10 years if its enrollment application is denied because the applicant submitted false or misleading information in its application. Under the proposed rule, CMS will have the discretion to prohibit a provider from enrolling in Medicare if their enrollment application is denied for any reason. Conclusion As a part of the federal government’s increasingly aggressive push to combat real or perceived healthcare fraud, the proposed rule both broadens CMS’s authority to revoke and deny Medicare enrollment and raises the stakes for revocation and denial. What the proposed rule does not share is how CMS plans to exercise this expanded discretion: as a result, the proposed rule, if enacted, increases the unpredictability and potential ramifications of even technical noncompliance with CMS rules. As a result, Medicare providers should keep a close eye on potential revisions to these rules and their potential implementation and consider proactively evaluating their compliance under CMS standards. [1] In the proposed rule, CMS identifies, with respect to each ground for revocation, what it will consider to be the effective date of revocation.

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Dorsey Recognized in IP STARS 2026 Asia Pacific Rankings

Dorsey & Whitney LLP is proud to announce that the firm has been recognized in the IP STARS 2026 Asia Pacific rankings as a Trusted Talent Firm for Intellectual Property in Hong Kong SAR. In addition, Partner Janet Wong has been recognized as a Trademark Star. IP STARS, published by Managing IP, is a leading guide to intellectual property firms and practitioners worldwide. Its rankings are based on extensive research conducted by Managing IP analysts, including firm submissions, client and peer feedback, interviews, and independent research. The Trusted Talent Firms designation recognizes firms with one or more ranked practitioners who have been researched and recognized by the IP STARS team. In addition, a Trademark Star is recognized as an intellectual property practitioner who has been recommended by peers and clients and is integral to the success of their firm. Janet is the head of Dorsey's Hong Kong office and the head of the firm's Greater China Intellectual Property group. With more than 20 years of experience, she advises local and multinational clients on intellectual property matters, including trademark protection, enforcement, commercialization, and related disputes, as well as commercial litigation, financial fraud matters, and corporate transactions.

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Patent Partners Al Araiza and Lena Petrovic Join Dorsey in Palo Alto

Patent partners Al Araiza and Lena Petrovic have joined Dorsey & Whitney LLP in Palo Alto, the international law firm announced today. Al Araiza works with clients to develop and implement patent strategies that align with corporate objectives, supporting growth initiatives, financing efforts, and successful exits, including initial public offerings and acquisitions. He advises on building, managing, and optimizing patent portfolios across a broad range of emerging and frontier technologies, with depth in wireless communications, artificial intelligence, and energy innovation. Before practicing law, Al gained engineering experience in the defense industry, working on energy system modeling and communications circuitry design. He also conducted biomedical research, with findings published in peer-reviewed journals. He has been recognized in the IAM Patent 1000 for his work advising clients on patent strategy and portfolio development. Al received his J.D. from Duke University School of Law, his M.E. in Biomedical Engineering from Tulane University, and his B.S. in Electrical Engineering from UCLA. Lena Petrovic works across the software and hardware industries to develop clear, well-supported patent applications. She guides clients through the prosecution process and advises on global trademark and copyright matters, including licensing and portfolio management. Lena regularly supports clients developing technologies such as artificial intelligence and machine learning, fintech, cryptography, interactive and immersive experiences, and digital media, and works with companies in entertainment, gaming, and sports. Before practicing law, Lena spent a decade at Pixar, where she contributed to major films including The Incredibles, Ratatouille, WALL‑E, and Brave. Lena received her J.D. from Santa Clara University School of Law, her M.S. in Computer Science from Princeton University, and her B.S. from California Institute of Technology. “Al and Lena bring a practical, technical, and business-focused approach informed by extensive experience working with technology companies, startups, and investors,” said Gina Cornelio, Patent Practice Group Co-Leader. “We are thrilled to welcome them to the Patent team and our growing Palo Alto office.” “Dorsey’s Patent practice is dedicated to understanding each client's business deeply, tailoring patent strategies that directly advance their goals,” said Al Araiza. “We are proud to join this outstanding team and look forward to driving success for our clients.”

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Real Estate Attorney Alexis Olsen Joins Dorsey in Phoenix

Attorney Alexis Olsen has joined Dorsey & Whitney LLP as Of Counsel in the Real Estate group in Phoenix, the law firm announced today. Alexis focuses her practice on large-scale residential, mixed-use, and multi-asset development projects as well as multi-state commercial leasing transactions. She guides clients through sophisticated acquisitions, dispositions, leasing, entity structuring, investment strategies, and due diligence matters. She has structured co-investment arrangements that drive capital deployment into housing subdivisions nationwide and has represented both landlords and tenants in commercial leasing transactions involving office, retail, industrial, and specialty-use properties, including cannabis dispensaries. Alexis received her J.D. from Sandra Day O’Connor College of Law and her B.A. from the University of Arizona. Alexis comes to Dorsey from Squire Patton Boggs. “Alexis strengthens Dorsey’s real estate capabilities at a time when Phoenix remains one of the fastest-growing and most dynamic real estate markets in the country,” said Scott Jenkins, Dorsey’s Phoenix office head. “Her addition further enhances our deep bench of 12 real estate attorneys in Phoenix and reflects our continued investment in serving clients throughout Arizona and supporting their real estate transactions and objectives across the country. We are thrilled to welcome Alexis to Dorsey.” “Joining a firm with such a deep bench of experienced attorneys in the Phoenix office, especially in the Real Estate group, presents an exciting opportunity not just for my own professional growth, but for the clients we service,” said Alexis Olsen. “I look forward to building on this strong foundation, growing our national practice, and delivering top-tier service to our clients.”

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37 Dorsey Attorneys Named 2026 Top Lawyers by Minnesota Monthly

Minnesota Monthly has recognized 37 Dorsey attorneys across 27 practice areas as 2026 Top Lawyers in Minnesota. Honorees are selected through a peer nomination process and a curated survey of practicing attorneys in Minnesota, who identify leading lawyers across a range of practice areas. Administrative / Regulatory Law Jennifer Coates Antitrust Law Michael Lindsay Banking & Financial Service Law Peter Nelson Copyright Law  Jeffrey Cadwell Corporate Law  Robert Hensley Robert Rosenbaum Criminal Defense: White-Collar  Beth Forsythe Edward Magarian RJ Zayed Health Care Law  Claire Topp Immigration Law  J. Mike Sevilla Insurance Law  Daniel Brown Intellectual Property and Patent Law  Stuart Hemphill International Trade Law  Jonathan Van Horn Labor and Employment Law  Edward Magarian Ryan Mick Melissa Raphan Land Use & Zoning  Jay Lindgren Marcus Mollison Litigation – Antitrust  Michael Lindsay F. Matthew Ralph Jaime Stilson Litigation – Commercial  Michael Lindsay Litigation – Construction  Eric Ruzicka Litigation – Intellectual Property  Peter Lancaster RJ Zayed Litigation – Labor Employment Benefits  Ryan Mick Melissa Raphan Litigation – Trusts and Estates  William J. Berens Theresa Bevilacqua Bridget Logstrom Koci Mass Tort Litigation / Class Actions  James K. Langdon Mergers & Acquisitions Law  Keith Ahlgren Rachel Benedict Brian Burke Morgan Helme John Jorgenson Brian Moore Robert Rosenbaum Jonathan Van Horn Bri Whiting Municipal Law Jay Lindgren Nonprofit/Charities Law Claire Topp Securities / Capital Markets Law Cam Hoang Robert Rosenbaum Securities Regulation Theresa Bevilacqua James K. Langdon Tax Law William J. Berens Trusts and Estates Jennifer Ede Bridget Logstrom Koci Sonny Miller Kiley Petty Henry

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Dorsey Partner Melissa Raphan Elected a Fellow of the College of Labor & Employment Lawyers

International law firm Dorsey & Whitney LLP is pleased to announce that Partner Melissa Raphan has been elected a Fellow of the College of Labor & Employment Lawyers (CLEL) as part of its 2026 class. “Melissa’s election to this prestigious fellowship comes as no surprise to those of us who have had the privilege of working with her,” says Peter Nelson, Dorsey’s Managing Partner.  “She is an exceptional employment lawyer, a trusted advisor, and a leader whose impact extends far beyond her matters. Clients rely on her deep knowledge, strategic counsel, and ability to navigate complex workplace disputes and sensitive employment matters with both confidence and compassion. She has helped shape our firm, strengthen our profession, and opened doors for countless others through her commitment to mentorship and diversity. We are incredibly proud of her accomplishments and delighted to see her receive this recognition.” CLEL is a nonprofit professional association that honors the nation’s leading attorneys in the field of labor and employment law. Originally established to recognize excellence in the profession, CLEL has evolved into a respected intellectual and practical resource for the legal community and its many audiences. Its mission centers on recognizing individuals who have made significant contributions to the field, fostering the exchange of knowledge and delivering value to academia, government, the judiciary, and the broader public. Election as a fellow represents the highest level of peer acknowledgment, reflecting sustained achievement, integrity, and a commitment to advancing the profession. Melissa’s career reflects CLEL’s mission. She has been recognized both regionally and nationally for her advocacy, leadership, and achievements both inside and outside of the courtroom. Her employment litigation experience spans class actions, collective actions, and high-stakes individual disputes in state and federal courts, as well as arbitration forums including the American Arbitration Association and the Financial Industry Regulatory Authority (FINRA). She is also a trusted advisor on a full range of workplace issues, from hiring and performance management to sensitive terminations and organizational change. She brings decades of experience representing clients across the financial services, healthcare, food and agriculture, and energy sectors. Melissa will be formally inducted during CLEL’s installation ceremony held in conjunction with the American Bar Association’s Labor & Employment Law Conference in Washington, D.C., on November 7.

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State Affordability Infrastructure Districts (SAIDs) — A Financing Tool for Taiwanese Investment in Arizona Science and Technology Parks

If you have developed a facility inside one of Taiwan's science or technology parks, you are accustomed to the one-stop-shop of government planning the park and delivering the roads, water, power, and other infrastructure before your building is even constructed. In the United States, including Arizona, land development generally does not work that way. In Arizona, the cost of infrastructure such as water, sewer, stormwater, roads, power, and the digital backbone, typically falls on the private landowner and is incurred up front before operations generate revenue to offset that cost. For a company entering the Arizona market, this is often the largest and earliest capital burden of the entire project. Arizona recently created a tool that provides a more cost-effective way for landowners and developer to finance some of that infrastructure. House Bill 2999, signed into law June 2026 and codified at Chapter 40 of Title 48 of the Arizona Revised Statutes, establishes the creation of a State Affordability Infrastructure District (SAID). How a SAID Works Landowners are now able to use a SAID to finance public infrastructure such as water, sewer, stormwater, roads, parking, lighting, communications, rail sidings and signalization, and similar improvements, through tax-exempt bonds. The bonds are repaid over up to 30 years and secured solely by the property within the SAID. No city, county, or state credit is pledged, and no obligation falls on other taxpayers, and therefore no city, county, or state approval other than from the Arizona Finance Authority (AFA). In effect, a SAID lets you spread the cost of horizontal infrastructure over the life of the asset instead of funding it entirely at the outset. And tax-exempt bonds often offer a lower interest rate than taxable or other types of financing. How a SAID is Formed A SAID is formed upon the filing of a petition with the AFA. The petition must include the finance plan, general plan, estimated costs, maximum tax rate, appraisal, bond counsel certificate, consultant list, petitioner experience, legal description, title report, and other materials. While the landowner is required to provide notice to the local governing jurisdiction, local governing jurisdiction does not have the right to approve or deny. The petition is reviewed administratively by the AFA through a standards-based process. For an inbound investor without long-standing local relationships, an objective, criteria-driven process is a meaningful advantage to the overt political process associated with other financing districts in Arizona. Formation requirements. A SAID requires consent from 100% of landowners within the proposed district; public infrastructure costs must exceed $5 million (easily met at any real scale); the district property must all be in the same county and need not be contiguous provided that noncontiguous property is located within five miles of the district's other property; and the board is initially appointed by the forming owners of the SAID district, later transitioning to election as ownership diversifies. Actual bond issuance requires an election of the SAID property owners. Ownership and corporate structure. Consent rights and board seats run with title. If you hold the Arizona land through a U.S. blocker beneath your Taiwan parent, the standard model for Taiwanese/Arizona real estate and operating investment, the U.S. property-holding entity, rather than it’s corporate parent, is the landowner of record for the district. Before formation, our Dorsey team will confirm that you have the proper corporate structure and board mechanics to be compliant.  Board composition has no citizenship or residency requirement. This is a common concern for foreign investors, and the statute answers it cleanly. Under A.R.S. § 48-7004, a director must either hold fee title to real property in the district or be an individual designated or appointed by a fee-title owner. Corporations, partnerships, and other business entities are expressly permitted to be those owners, to vote as owners, and to designate an individual to serve. There is no requirement that a director be a U.S. citizen or resident. So your U.S. property-holding entity, as landowner of record, can appoint whichever of your principals you choose, including a Taiwan-based individual, as the three-member board.  Power infrastructure limitation. The enacted definition of "public infrastructure" in A.R.S. § 48-7001 does not include electrical power generation or transmission. The reference to electrical facilities appears only as components of lighting and traffic-control systems, and the Legislature removed broader energy infrastructure from the definition during the Senate amendments. A SAID will likely not finance the high-load power infrastructure required for semiconductor fabrication, data storage, or heavy manufacturing.  Water infrastructure within a current utility CC&N. Where water, sewer, or wastewater facilities fall within a regulated utility's certificated service territory, the SAID cannot build or own them without the utility's written consent and must convey them to the utility on completion. Entitlements and zoning: The determination of entitlements, zoning, and other land use permitting, as well as construction permitting for a technology or manufacturing facilities remain with the local jurisdiction and run on a separate track. Our Dorsey team will help you coordinate the financing and entitlement timelines together. Our Dorsey team works regularly with Taiwanese and other Asia-Pacific companies entering the Arizona market. If a SAID fits your project, we can structure it for your cross-border ownership.

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Litigation Privilege Does Not Automatically Protect Communications with Funders: The Commercial Court Clarifies the Limits of Privilege in the Context of Litigation Funding

In Uber London Ltd & Ors v Garry White & Ors; Mishcon de Reya LLP [2026] EWHC 1610 (Comm), the Commercial Court held that documents created to help a funder decide whether to invest in a claim will not ordinarily attract litigation privilege. This means that information a firm gathers while acting for a funder can later fall within the control of the claimants it goes on to represent in the same matter. Background The Claimants (a claim group of over 10,000 individual London black cab drivers and the assignee of two former minicab operators) alleged that the Defendants (three companies in the Uber group) obtained and retained their private hire operator's licence through an unlawful means conspiracy alleged to involve fraud. Because the claims were issued outside the ordinary six-year limitation period, the Claimants relied on section 32 of the Limitation Act 1980, contending they could not, with reasonable diligence, have discovered the fraud before June 2018. A preliminary issue trial was listed to determine the question of whether the Claimants discovered, or could have discovered with reasonable diligence, the alleged fraud and/or deliberate concealment only after June 2018. The Claimants were represented by Mishcon de Reya ("MdR"). However, before MdR’s engagement with the individual drivers had begun, in late 2017 it was engaged by the litigation funder Harbour to investigate the merits and value of the potential claim. During that stage, MdR corresponded extensively with Harbour and with the Licensed Taxi Drivers' Association ("LTDA"), a black cab drivers' trade association. MdR was not formally engaged by the Claimants until October 2018 onwards. Once the proceedings had started, the Defendants sought disclosure of communications exchanged between MdR and Harbour before the engagement of MdR by the Claimants (the "Harbour Communications"). This included correspondence between MdR and Harbour, communications with the LTDA, and documents held on MdR's file opened in Harbour's name in connection with the potential claim. The Claimants resisted disclosure on four grounds: (i) that the documents were not relevant; (ii) on the grounds of litigation privilege; (iii) that the documents were outside their control; and (iv) that disclosure occurring so close to trial would be disproportionate. Judgment (i) Were the Harbour Communications relevant to the preliminary issue? The Court held that the Harbour Communications were likely to contain relevant material, on two bases. First, where the Claimants or the LTDA had communicated directly with MdR, that material could shed light on individual Claimants' actual knowledge of the alleged facts. Secondly, what MdR and Harbour had discovered during their investigation could inform the question of what a Claimant could reasonably have discovered at the time (even though the Defendants accepted that MdR's knowledge could not simply be imputed to the Claimants). (ii) Were the Harbour Communications protected by litigation privilege? As set out in the classic cases of Three Rivers (No. 6) [2005] 1 AC 610 and WH Holding Ltd v E20 Stadium LLP [2018] EWCA Civ 2652, communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged when the following conditions are satisfied: Litigation must be in progress or in reasonable contemplation. The communications must have been made for the sole or dominant purpose of conducting litigation. The litigation must be adversarial, not investigative or inquisitorial. The Court rejected the Claimant’s claim to be able to withhold the Harbour Communications on the basis of litigation privilege. The Court confirmed that litigation privilege protects only communications created for the dominant purpose of conducting litigation. The Court found that Harbour had instructed MdR so that Harbour could decide whether to fund the proceedings. As such, the dominant purpose of the communications was in relation to funding, not the conduct of litigation. This was distinguished from the situation where an individual litigant who takes its own funding decision. In that situation, the decision whether to fund and the decision whether to litigate are one and the same, made by the person who will actually be the claimant, and so it forms a part of that person's conduct of their own litigation. In contrast, a third-party funder's commercial decision whether to fund someone else's claim is not necessarily part of conducting that litigation. The fact that litigation privilege can, in principle, be claimed by a non-party funder (as recognised in the case of Al Sadeq v Dechert [2024] EWCA 28) did not assist Harbour, since there was no evidence it intended to play any role in the litigation itself beyond funding it. Communications between Harbour and MdR did remain capable of attracting another kind of privilege: legal advice privilege, because of the solicitor-client relationship between Harbour and MdR. But communications with third parties such as the LTDA were not automatically protected in the same way. (iii) Were the Harbour Communications within the Claimants' control? The Court also rejected the argument that the Harbour Communications sat outside the Claimants' control because they belonged to Harbour and not the Claimants. The Court’s reasoning was that once the individual Claimant drivers became MdR's clients, MdR also owed them a duty to disclose material information. That included information that MdR had originally acquired while acting for Harbour. As held in the case of Hilton v Barker Booth & Eastwood (a firm) [2005] 1 WLR 567, a solicitor owing duties to two clients cannot simply prefer one over the other, and it was unrealistic to suppose MdR would investigate the same claims for Harbour, then represent the Claimants, while disregarding everything it had already learned. The obvious commercial expectation was that this earlier work would be used to advance the Claimants' case. MdR sought to rely on a confidentiality clause in a 2024 retainer agreement between it and RGL Management Ltd (a claims management company acting on behalf of the Claimants) to argue that it was relieved of any duty to disclose information obtained while acting for other clients. The provision stated that MdR may "have acted for persons in the same or similar sector as yours and by agreeing to the terms of this letter you agree that will have no duty to disclose to you any confidential information that we have obtained, or might in the future obtain, from acting for such persons or which is derived from any other source". The Court rejected this on several grounds. Claimants who had already become MdR's clients had an existing right to information in the Harbour Communications where it was relevant to their claims before the 2024 retainer agreement. If they were to surrender that right, it would have required their informed consent (also required under the SRA Code of Conduct). The Court found no evidence that such informed consent had been given. The terms had simply been made available to the Claimants through a portal, with no indication that Claimants understood they were giving up existing rights to relevant information. The Court found that even if the terms had been contractually binding, that would not have amounted to informed consent. In addition, the wording of the clause was not sufficiently clear to show that the Claimants had agreed to waive access to this information. (iv) Was disclosure reasonable, proportionate, and necessary at this stage? The Claimants argued that it was neither reasonable nor proportionate for disclosure to be given at such a late stage (approximately two weeks before the start of the preliminary issue trial) and that it was not necessary for the just disposal of the proceedings. The Court rejected this, but it drew a distinction between two categories of documents within the Harbour Communications: Documents bearing on the actual knowledge of the individual drivers, including communications with the LTDA, were not privileged, likely straightforward to review, and directly relevant to the preliminary issue. Their disclosure was ordered as reasonable, proportionate, and necessary. Documents reflecting only MdR's or Harbour's own assessment of the merits were of more marginal, indirect relevance and largely likely to fall under legal advice privilege. A review to isolate the smaller pool of non-privileged material in this category would be time-consuming for limited benefit, so this was excluded from the order. Key Points to Note The judgment is an important reminder of several practical points: However closely a funder is involved in evaluating a claim's merits, litigation privilege will only apply to communications where the sole or dominant purpose of the communication is the conduct of litigation, not the funder's own decision on whether to finance it. Unless that communication separately attracts legal advice privilege, it may need to be disclosed. The same considerations apply to other communications. For example, in RBS Rights Litigation [2017] 1 WLR 3539 the argument that an After the Event (ATE) policy was subject to litigation privilege was rejected on a similar basis. Whilst in this case, there was no dispute as to whether litigation was in contemplation, it is important to note that litigation privilege will not automatically apply to the investigative stages of a claim, i.e. before litigation is in contemplation. Even where litigation is reasonably contemplated, the dominant purpose test must still be satisfied. Material created primarily for fact-finding, risk assessment, or other investigative purposes will not attract litigation privilege unless those activities are actually undertaken for the dominant purpose of conducting the litigation. (See The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB)). When engaging a law firm, clients should ensure that they understand whether the firm has previously obtained information about their claim while acting for another party (for example, a funder or another interested party) and how that information will be handled. Any restrictions on the firm’s ability to share relevant information with the client should be explained clearly at the outset, including what information may be withheld and why. If this decision raises questions about your own funding arrangements, disclosure strategy, or privilege position, please get in touch with our Commercial Litigation team.

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The Long-Awaited Public Infrastructure Financing Solution for Development in Arizona

Every developer who has taken raw Arizona ground to a finished project knows the largest upfront cost other than the land price is almost always the cost to install the public infrastructure. Water, sewer, stormwater, streets, dry utilities, and the fiber backbone all have to be in the ground before a single lot closes or a building opens. That capital is deployed early and generates no return for years. For decades the standard workaround has been the Community Facilities District (CFD). That tool has grown materially harder to use, for reasons cited below, and House Bill 2999, signed in June 2026 and now codified as Chapter 40 of Title 48, is Arizona's response. Some Background I have spent a good part of my career on the other side of this problem. In the 1990s and early 2000s I served as general counsel of SunCor Development Company, one of Arizona's most active master-planned community developers, where we used Community Facilities Districts to finance hundreds of millions of dollars of major infrastructure across Arizona in cities such as Goodyear, Phoenix, Tempe, Litchfield Park, and Prescott Valley. For its time the CFD was an effective structure, and a great deal of what is now on the ground in those communities was financed with this tool. Unfortunately, CFDs have over time become considerably harder to use. Successive legislative amendments have layered on tax-rate ceilings, homebuyer disclosure obligations, and added procedural steps. Another drag on the use of CFDs is that formation of them runs through the municipality, where approval can turn as much on local politics as on the merits of a project. Developers now routinely are asked to absorb delay and uncertainty that a project's economics cannot support, which is a large part of why Arizona has fallen behind Colorado, Texas, and Utah in getting infrastructure financed. A better tool was needed, and Chapter 40 is it. How a SAID Improves on a CFD A State Affordability Infrastructure District (SAID) keeps what worked about the CFD: tax-exempt, property-secured, non-recourse infrastructure financing — while shedding much of what made the CFD cumbersome. Its principal advantages over a traditional CFD: Administrative formation. A SAID is formed by the Arizona Finance Authority against fixed statutory criteria, through a yes-or-no compliance review on a sixty-day clock, rather than through the discretionary approval of a city council or a board of supervisors. Insulation from municipal politics. Because formation is a state-level compliance determination, a meritorious project is far less exposed to local political headwinds than it is under the CFD process. Landowner control of the board. A SAID is governed by a board of the landowners — appointed at formation, then elected on an acreage basis. In a typical municipal CFD, the city council sits as the district board; here, the developer controls governance. Advance funding of impact fees. A SAID can use bond proceeds to advance-pay municipal development impact fees, unlike CFDs, removing one of the largest upfront cash burdens in a project. A uniform, statewide process. The criteria are the same regardless of jurisdiction, replacing the municipality-by-municipality variation that has made CFD outcomes hard to predict. Flexible boundaries. A district may include noncontiguous parcels in the same county within five miles of one another, which fits phased and multi-tract development. Capped cost and a fixed timeline. Authority fees to form a district are capped at $15,000, and a complete petition must be acted on within sixty days. The full range of bonds. A SAID may issue general obligation, special assessment, revenue, and refunding bonds, secured solely by district property and creating no obligation for any other taxpayer. What is a SAID A SAID is a special taxing district that the owners of a development form to finance public infrastructure with tax-exempt bonds: general obligation bonds, special assessment bonds, and revenue bonds. The bonds are secured only by the property inside the district and are repaid over the long term, with terms up to 30 years. They do not affect the credit of the city, the county, or the State, and they create no obligation for any taxpayer outside the district. In practical terms, a SAID lets you finance horizontal infrastructure over the life of the asset instead of writing the check at the front end. The maximum ad valorem rate securing general obligation bonds is capped by statute at $5.00 per $100 of net assessed limited property valuation, with a limited step-up to cover a debt-service shortfall. SAIDs Work for Commercial as Well as Residential Development The SAID bill drew most of its press as a housing-affordability measure, and it appears to be a strong one. It is the first Arizona district statute to let bond proceeds advance-fund municipal development impact fees, which pulls one of the largest upfront cash burdens off a homebuilder's pro forma. But the statute's eligible infrastructure categories apply with equal force to commercial, industrial, and mixed-use projects. An industrial or logistics project can finance roads, rail crossings, sidings, and grade separations. A life-sciences or technology campus can finance its water, sewer, roads, and broadband the same way a subdivision can. Read Chapter 40 as a general-purpose infrastructure finance platform, not a subdivision-only device. How Formation Works A SAID is formed administratively by the Arizona Finance Authority. The Authority reviews the petition for compliance with the statute; it is a yes-or-no review against fixed criteria, not a discretionary negotiation with a city council or a board of supervisors, and it runs on a sixty-day clock once a complete petition is filed. Formation requires the written consent of 100% of the landowners in the proposed district and an engineer's certification that public infrastructure costs will exceed $5 million. The district may include noncontiguous parcels so long as they lie in the same county and within five miles of the district's other property, which accommodates phased and multi-tract development; if any part of the district sits inside a municipality, the whole district must stay within that municipality's limits or planning area. The Authority's fees to form a district are capped at $15,000. Issuing bonds requires a district election. Governance Simplified A SAID is run by a three-member board. The initial directors are named in the petition; after that, directors are elected by the landowners on an acreage basis as ownership diversifies. Board service runs with ownership; a director must either hold fee title inside the district or be an individual designated by a fee-title owner; and corporations, partnerships, and other entities may hold that ownership, vote as owners, and designate the individual who serves. A district has no power of eminent domain and no zoning authority, and directors may not be officials or employees of the municipality in which the district sits. What a SAID Does Not Do It finances; it does not entitle. Zoning, platting, rezonings, use permits, and the specialized approvals a manufacturing or life-sciences facility may need all remain with the local jurisdiction and proceed on their own track. The financing and entitlement timelines should be coordinated with formation of the SAID, but they are separate processes. Two substantive limits are worth flagging at the planning stage. First, electric power is largely outside the tool: the statutory definition of public infrastructure does not reach power generation or transmission, and broader energy infrastructure was removed from the bill during the Senate amendments. A power-intensive user should not assume a SAID will carry its electrical load. Second, where water, sewer, or wastewater facilities fall within a regulated utility's certificated service territory, the district cannot build or own them without the utility's written consent and must convey them to the utility upon completion. Our Take For most master-planned residential work, and for a wide range of commercial and industrial development, a SAID will be the most efficient infrastructure-financing structure Arizona has offered. The right time to evaluate it is early in the acquisition and pre-development process, while the capital stack, the development agreement, and the entitlement strategy are still being set. Once the district's boundaries, general plan, and financing parameters are set, it is cumbersome at best to bring those into conformance later. Our Dorsey team has begun advising our developer clients on SAID formation on residential, commercial, and industrial projects statewide. If you would like us to assess whether a SAID fits a project you are working on, please reach out.