Articles, Newsletters & Advisories
April 11, 2019Babst Calland Nabs Ex-NHTSA Atty Who Led Takata Probe
(by Cara Salvatore)
Babst Calland has hired a former National Highway Traffic Safety Administration lawyer who played a lead role in the agency's work on the Takata air bag probe and other high-profile matters, the firm said Wednesday, the third former NHTSA staffer to join the firm's transportation practice in recent years.
For the full article, click here.
April 10, 2019EQB to consider cap-and-trade petition this month
The PIOGA Press
The Pennsylvania Environmental Quality Board (EQB) will consider a petition for a cap-and-trade regulation at its April 16 meeting. The Clean Air Council, Widener Commonwealth Law School Environmental Law and Sustain-ability Center, and others submitted the petition on February 28, asking EQB to promulgate a regulation that would create a multi-sector cap-and-trade system to reduce greenhouse gas (GHG) emissions to achieve carbon neutrality in Pennsylvania by 2052.
The petitioners initially submitted the petition to EQB on November 27, 2018. Under EQB’s Petition Policy (25 Pa. Code Chapter 23), the Department of Environmental Protection is to notify EQB and the petitioner within 30 days of DEP’s receipt of the petition whether the petition meets the policy’s eligibility criteria. DEP advised the petitioners on December 26 that the petition met the criteria and would be submitted to EQB for consideration at the first meeting of 2019.
However, DEP did not notify EQB members until, apparently, early February. Upon learning of the petition, Representative Daryl Metcalfe, chairman of the House Environmental Resources and Energy Committee, requested DEP on February 19 to have the petitioners resubmit their petition. The petitioners resubmitted the petition on February 28 with minor changes and additional signatories. DEP notified petitioners and the EQB on March 1 that DEP would review the petition to ensure it still meets the eligibility criteria. DEP has now done that and EQB scheduled the matter for consideration at its April 16 meeting.
The petition includes a fully drafted regulation that establishes a cap on covered GHG emissions, based on a 2016 base year, and reduces GHG emissions to carbon neutrality by 2052. The regulation borrows heavily from California’s cap-and-trade regulation, which is a multi-sector program that includes Ontario and Quebec. The California regulation, however, does...
March 28, 2019EPA Announces PFAS ‘Action Plan,’ While Pa. and Other States Chart Their Own Courses
The Legal Intelligencer
In a press conference on Feb. 14, 2019, the U.S. Environmental Protection Agency (EPA) announced its multifaceted “action plan” outlining steps the agency is taking to protect public health and the environment from per- and polyfluoroalkyl substances (PFAS). PFAS are a group of synthetic chemicals that have been in use since around the 1940s and have numerous commercial and consumer applications. They have been used in nonstick coatings for cookware and food containers, waterproofing for fabrics and textiles, the manufacture of plastics and resins, and the formulation of firefighting foams. Their widespread use and the discovery of PFAS chemicals in various environmental media across the United States has raised interest and concerns about their potential effects on human health and the environment.
PFAS in the Environment
PFAS chemicals have been found in, among other things, groundwater (which may be used for drinking water), surface water and sediments, as well as in wildlife and human blood. Human exposure may occur through ingestion of contaminated drinking water and consumption of animals and plants in which PFAS have bioaccumulated (or that have been exposed to PFAS in the course of preparing or cooking food for consumption). Studies have shown that exposure to PFAS chemicals may have negative health consequences, which has driven the EPA and other stakeholders to better understand the chemicals, the extent of their presence in the environment, their potential health effects and the best methods for containment and cleanup.
EPA's Action Plan
To develop its action plan, the EPA requested comments, visited with leadership and citizens of PFAS-affected communities, and hosted a PFAS National Leadership Summit in Washington, D.C. in May 2018. The input from these events informed the action plan’s four primary approaches to addressing PFAS: identifying and understanding PFAS; addressing current contamination; preventing...
March 22, 2019Read the fine print – Know what you’re getting into before you sign the loan papers
(by Jayne Gest with Christian Farmakis)
It’s not always easy for business owners to find financing. Most business owners will, at some point, turn to conventional bank lending to help finance their business or fund growth, like acquisitions. There are, however, many different types of financing products available in the commercial lending market. But whatever type of financing you settle on, it’s critical to know exactly what you’re risking.
“Business owners often focus more on ‘getting the loan’ than on the specific terms and covenants of the loan, which in many instances can hinder the ongoing operations of the business,” says Christian A. Farmakis, shareholder and chairman of the board at Babst Calland.
Smart Business spoke with Farmakis about the lending environment and legal risks to keep an eye on.
What are loan options for small and mid-sized business owners?
Since the Great Recession, traditional bank lending has competed with other forms of lending. For instance, business owners are increasingly turning to private equity funding and family office lending rather than traditional, asset-based lending. These options may require sacrificing significant ownership and control over the business.
Other loan types include U.S. Small Business Administration loans backed by the federal government but underwritten by banks, small business loans for real estate financing and equipment loans.
Credit unions and regional and community banks sometimes offer different and more flexible terms and do smaller loans because they service the loan in their portfolio, where a larger bank might have stricter underwriting requirements.
What legal issues could crop up in the term sheet and loan documents?
Loans can include affirmative and negative covenants, but it’s usually the negative ones that trip people up.
Most loans require you to give a personal guarantee, provide certain information on a yearly basis, keep you from spending above a particular threshold on capital expenditures...
Double the Trouble: Tax Sales of Duplicate Mineral Assessments in West Virginia
Institute for Energy Law Oil & Gas E-Report
(by Adam Speer)
Anyone dealing with land and title issues in West Virginia quickly learns the importance of real property assessments. The relative ease in which an interest in land, including mineral rights, can be lost in a tax sale means that landmen and title practitioners who fail to examine a property’s tax assessment history do so at their peril. Those histories are found in the volumes of “landbooks” maintained by each county assessor’s office. A relatively common and beguiling problem arises when the title examiner discovers that a property has been double assessed. Such duplicate assessments are rarely obvious, as assessed interests are often described by brief and vague notations and sometimes assessed in the name of a long-gone predecessor in title.
Recently, in Haynes v. Antero Resources Corporation, Hill v. Lone Pine Operating Company and L&D Investments Inc. v. Mike Ross, Inc., the Supreme Court of Appeals of West Virginia considered the validity of several tax deeds that stemmed from the duplicate assessment of certain oil and gas interests created by the Harrison County Assessor’s Office. In each of the cases, the court reaffirmed its long-standing precedent that holds that in the case of two assessments of the same land under the same claim of title, the state can only require one payment of taxes under either assessment. The cases highlight the potential consequences of duplicate tax assessments of severed mineral interests in West Virginia and the need to have interests properly assessed. The Haynes, Lone Pine and L&D Investment decisions should be maintained in any title practitioner’s toolkit for analyzing interests conveyed by a tax sale and determining the likelihood of a successful challenge to set aside a tax deed.
For the full article, click here.
For the full report,
March 21, 2019Reprise of Employment Law Issues in Pa.’s Medical Marijuana Act
The Legal Intelligencer
(by John McCreary)
The February 2017, issue of Pennsylvania Law Weekly published this author’s comments on the employment law issues created by the then-recently enacted Medical Marijuana Act (MMA). I identified some of the practical and legal problems presented by the continued illegality of marijuana under federal law, the conflict between statutory employment protections for medical marijuana patients and common employer policies prohibiting illegal drug use. I predicted that the “imprecision of the MMA’s statutory language” would “inject needless uncertainty into the employer-employee relationship” that “likely would not be resolved absent litigation.” Although to date there have been no cases reported under Pennsylvania’s MMA, several courts in other jurisdictions have considered employment issues arising under similar medical marijuana statutes. The uncertainty is lessening; the smoke is beginning to clear.
The 2017 article conjectured that the federal Drug Free Workplace Act (DFWA), which requires recipients of federal funds to maintain a drug-free workplace as described, see 41 U.S.C. Section 8102, might serve as a defense to a claim brought by a medical marijuana patient. Noffsinger v. SSC Niantic, 338 F.Supp.3d 78 (D.Ct. 2018), a case arising under Connecticut’s Palliative Use of Marijuana Act (PUMA), Conn. Gen. Stat. Sec. 21a-408 et seq.says otherwise. There, medical marijuana patient Noffsinger accepted a position as activities manager at the defendant’s health and rehabilitation facility. The plaintiff informed her prospective employer about her medical marijuana prescription. PUMA Section 21a-408p(b)(3) provides that “no employer may refuse to hire a person or may discharge, penalize or threaten an employee solely on the basis of such person’s or employee’s status as a qualifying patient” under PUMA. When Noffsinger’s pre-employment drug screen returned positive for marijuana the job offer was rescinded. A representative of the defendant articulated company policy: “medical marijuana is not an approved prescription, … we use federal law, which indicates that...
March 18, 2019Department of Labor Proposes Increase to Salary Threshold
The job duties tests will not change. This salary increase would mark the first increase in the salary threshold since 2004. The new rule would enable approximately one million more employees to earn overtime pay. A more drastic increase to the threshold was approved by the Obama administration and blocked by a federal judge in Texas shortly before it was to become effective. That increase would have doubled the salary threshold and enabled over four million additional employees to be eligible to earn overtime.
In addition to increasing the overtime salary threshold, the final rule would also:increase the total annual compensation requirement for highly compensated employees (HCE) from $100,000 to $147,414; maintain overtime protections for police officers, fire fighters, paramedics, nurses, and laborers including, non-management production-line employees and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and construction workers; and make a commitment to periodically review the salary threshold, although any update would not be automatic and would continue to require notice-and-comment rulemaking.
More information about the proposed rule is available at www.dol.gov/whd/overtime2019. Babst Calland’s Employment and Labor Group will continue to keep employers apprised of further developments related to this and other employment and labor topics. If you have any questions or need assistance in...
March 14, 2019Opportunity now available to comment on proposed rule revising definition of ‘Waters of the United States’
The PIOGA Press
On February 14, the U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers opened a 60-day public comment period on the proposed rule to revise the definition of “waters of the United States” (WOTUS) under the Clean Water Act (CWA) by publishing the proposed rule in the Federal Register. The comment period is scheduled to end April 15, although this date may be extended. The publication comes more than two months after the agencies released the proposed revised definition of WOTUS to the public on December 11.
Comments provided on the proposed new WOTUS definition must be considered by the two agencies prior to promulgation of the new definition. Oil and gas companies as well as other regulated parties are encouraged to provide their input during the public comment process.
Less WOTUS would reduce federal permitting and compliance requirements
The agencies proposed the revised WOTUS definition to provide more predictability and certainty in identifying federally regulated waters. Overall, the proposed WOTUS definition is generally regarded as being less stringent than previously proposed definitions. For the oil and gas industry, the new proposed definition of WOTUS could reduce the federal CWA permitting and compliance obligations associated with the construction and maintenance of well sites and pipelines. Under the proposed new definition of WOTUS, only those waters or features with a “continuous surface connection” to an otherwise traditionally navigable water (i.e., river, lake, or other waterbody that supports or has supported navigation) would be subject to federal jurisdiction. The proposed definition of “tributary” would be limited to streams with perennial or intermittent flow during a “typical year,” and would exclude ephemeral streams and features that flow only in direct response to precipitation. In addition, wetlands would be federally...
Pa. EQB Petitioned to Implement Cap-and-Trade Regulation for Greenhouse Gases
PA Law Weekly
On Feb. 28, Clean Air Council and Widener Commonwealth Law School Environmental Law and Sustainability Center, among others, resubmitted a petition to the Pennsylvania Environmental Quality Board, asking it to promulgate a regulation that would create a multi-sector cap-and-trade system in Pennsylvania to reduce greenhouse gas (GHG) emissions to achieve carbon neutrality by 2052.
The petition includes a fully drafted regulation that establishes a cap on all reported GHG emissions, based on a 2016 base year. The cap would decline by 3 percent each year.
The petitioners acknowledge: “The proposed regulation will have an impact on all sectors of Pennsylvania’s economy, although the impact will vary among businesses and individuals, with some benefiting and some suffering adverse impacts.”
Capping GHG emissions means that the covered entities meeting certain thresholds—including producers of cement, glass, steel, lead and paper, any facility producing or importing electricity, and fossil fuel producers—all must obtain allowances, by auction or allocation, for each metric ton of reportable GHG emissions per year attributable to their operations in Pennsylvania. According to the EPA’s envirofacts database, close to 400 facilities in Pennsylvania report GHG emissions to the EPA.
The petition proposes that emissions from covered sources would be capped, with the cap declining each year by an amount equal to 3 percent of 2016 emissions. If the regulation becomes effective for 2020, the cap would be equal to 91 percent of 2016 emissions. Limited by the ever-declining cap and availability of allowances, each covered entity must reduce its GHG emissions over time to achieve carbon neutrality by 2052. Allowances under the proposed trading system would be priced at a minimum of $10 each in 2020, with the price increasing by 10 percent plus the rate of inflation each year. Any person may...
February 22, 2019A cautionary tale: The good and the ugly of convertible debt financing
(by Jayne Gest with Christian Farmakis and Justine Kasznica)
Convertible debt is a common investment vehicle by which early-stage companies raise capital, where an investor grants to a company a short-term, often interest-bearing loan that converts into equity of the company at a future date. The convertible debt investors agree to push the question of what the company is worth — the valuation — down the road until the company’s next priced funding round. In return, the investors receive certain advantageous terms at the time that the debt converts to equity.
What are the benefits for these investors?
As with any loan, the convertible debt note accrues interest until a defined maturity date. Unlike a standard promissory note, the convertible note often includes a conversion discount, valuation cap and other terms designed to mitigate the investor’s risk.
With the conversion discount, these investors receive a discount on the price per share at which their note converts to equity at a future priced round. Although discounts vary, it’s commonly set around 20 percent. Thus, if the price per share is set at $1, an investor’s convertible debt note would convert at a price of 80 cents per share.
With a valuation cap, (a) a maximum value of the company is established, solely for the purpose of calculating conversion of debt to equity; and (b) the investor’s price per share will be capped at the agreed upon number.
How can convertible debt negatively impact the startup?
Convertible notes are intended to be short-term investments. But when a company doesn’t get to its priced round quickly — or may require more notes to generate sufficient capital to keep the company in...
February 19, 2019The Whereabouts of Weed: Zoning Implications of the Medical Marijuana Act
The Legal Intelligencer
In 2016, Pennsylvania joined several other states in enacting legislation legalizing the use or possession of medical marijuana within its borders. Inherent in adopting this legislation is the regulation of the various retailers and manufacturers charged with supplying legal green to licensed users of medical marijuana. Now that the commonwealth has legislated the “how” of medical marijuana use, local governing bodies are taxed with legislating the “where.” The following addresses state and local regulation concerning the zoning of the medical marijuana industry.
State Regulation of Medical Marijuana Organizations
The Medical Marijuana Act (the act), 35 P.S. Section 10231.101 et seq., authorizes the Pennsylvania Department of Health (the department) to issue permits to “medical marijuana organizations” (MMOs), bifurcated by the act into two categories—namely dispensaries and grower/processors. As the terms suggest, dispensaries are authorized by the department to dispense medical marijuana and grower/processors are permitted by the department to grow and process medical marijuana. The act required the department to divide the commonwealth into regions and to regulate the number of permits issued per region. As a result, the department essentially regulates the amount of medical marijuana grown, manufactured and sold in each region. (The act required the department to establish at least three regions and the department actually established six regions). The department is initially only permitted to issue 25 permits to growers/processors and 50 permits to dispensaries statewide. In addition to the limited number of permits available, stringent state-mandated application requirements and hefty fees (i.e, an initial application fee of $10,000 for grower/processors and $5,000 for dispensaries; a first-year permitting fee of $200,000 for grower/processors and $30,000 for dispensaries; and additional renewal permitting fees) further limit MMO locations in the commonwealth.
Under the act, grower/processors may only conduct their operations within...
EPA Announces its Action Plan to Address PFAS While States Push for Faster Response
On February 14, 2019, the U.S. Environmental Protection Agency (EPA) released its Action Plan for regulating and addressing risks concerning per- and polyfluoroalkyl substances (PFAS), comprising a group of synthetic chemicals with widespread consumer, commercial, and industrial applications. PFAS refers to a large collection of man-made chemicals that includes PFOA and PFOS (both specifically targeted in the Action Plan), as well as PFBS, perfluorononanoic acid (PFNA), and others referred to as GenX chemicals, and thousands of other compounds. Although there have been only limited widespread studies, evidence suggests that exposure to some PFAS chemicals can lead to adverse health effects. PFAS have been widely-used since as early as the 1940s, but public and governmental interest has grown, especially in the last decade, as concerns regarding the potential effects of exposure to PFAS have increased.
Although the Action Plan generally tends to focus on drinking water, EPA notes that exposure may occur through, among other things, consumption of plants and meat in which PFAS have bioaccumulated, consumption of food exposed to PFAS, exposure to commercial and consumer products such as non-stick cookware, stain-resistant carpet and clothing, and pizza boxes. According to EPA, the ubiquitous nature of PFAS means that most people have been exposed to PFAS chemicals. In the environment, PFAS have been found in dozens of states, as well as on military bases and tribal land.
EPA developed the Action Plan in response to more than 120,000 comments in the public docket and feedback from federal, state, and local stakeholders who attended the Agency’s two-day National Leadership Summit on PFAS in Washington, D.C. EPA also gathered input by visiting and engaging with members of PFAS-affected communities in several states. In a press conference to announce...
February 18, 2019Public Comment Period Now Open on Proposed Rule Revising Definition of “Waters of the United States
On February 14, 2019, the U.S. Environmental Protection Agency and Army Corps of Engineers’ proposed rule to revise the definition of “waters of the United States” (WOTUS) under the Clean Water Act (CWA) was published in the Federal Register. The publication begins a 60-day public comment period, which ends on April 15, 2019, and comes more than two months after the Agencies released the proposed revised definition of WOTUS to the public on December 11, 2018. A detailed description of the proposed revised definition of WOTUS was covered in our previous Environmental Alert.
The Agencies are seeking comments on all aspects of their proposal, including the six categories of waters that would categorically be considered to be WOTUS, the 11 categories of waters or features that would not be considered to be WOTUS, and the newly proposed definitions of the terminology referenced in the proposal, such as “tributary” and “adjacent wetland.” In addition, the Agencies have specifically requested comments on the following issues:Whether the “significant nexus” test must be a component of the proposed new definition of WOTUS. Whether the definition of “tributary” should be limited to perennial waters only and not those with intermittent flows. Whether “effluent-dependent streams” should be included in the definition of “tributary.” Whether the jurisdictional cut-off for “adjacent wetlands” should be within the wetland or at the wetland’s outer limits. Whether a ditch can be both a “point source” and a WOTUS under the CWA. Whether the Agencies should work with states to develop, and make publicly available, state-of-the-art geospatial data tools that could be used to identify the locations of WOTUS. The appropriate field methodologies for identifying perennial or intermittent flow and navigability.
The proposed new definition of WOTUS would replace the...
February 13, 2019Pennsylvania climate change initiatives
The PIOGA Press
On January 8, Governor Tom Wolf issued the first executive order (EO) of 2019 entitled: Commonwealth Leadership in Addressing Climate Change and Promoting Energy Conservation and Sustainable Governance. The six-page EO is the current administration’s most recent action to address climate effects from greenhouse gas (GHG) emissions.
The EO consists of the following four components, with the majority of the order applying only to Pennsylvania executive agencies:Committing Pennsylvania to a GHG emissions goal Setting energy performance goals for Pennsylvania agencies Reestablishing the GreenGov council Detailing specific responsibilities for Pennsylvania agencies to achieve the energy performance and GHG goals
Statewide climate reduction goals
The EO includes an important, statewide goal within an order that otherwise applies only to state agencies. The EO commits Pennsylvania to a goal to achieve a 26 percent reduction of GHG from 2005 by 2025 and an 80 percent reduction by 2050. The directive places Pennsylvania in a league with 20 other states with specific GHG reduction targets. Pennsylvania’s goal is more stringent in the short term compared to states like Michigan and less stringent in the long term than goals set by California and New York. Of the states with GHG reduction targets, Pennsylvania is the leading net energy producer and the leading natural gas producer, according to the U. S. Energy Information Agency.
The EO comes during a time when the Trump administration has been critical of climate change initiatives. President Trump announced in 2017 that the U.S. would withdraw from the Paris Accord, and the EPA under his administration is considering rolling back regulation of methane emissions from onshore natural gas production. States are free to commit to their own climate plans, but the EO does not specify precisely how the Commonwealth will achieve the...
Supreme Court of Appeals of West Virginia Scheduled to Decide Potential Landmark Oil and Gas Case
The DTCWV Defender
(by Jennifer Hicks)
The Supreme Court of Appeals of West Virginia will hear argument and issue a decision this year in EQT Production Company v. Crowder, et al., Appeal No. 17-0968, a case that could have far-reaching implications for oil and gas operators here.
In 2015, surface owners Beth Crowder and David Wentz filed suit alleging trespass and other claims arising when EQT Production entered the plaintiffs’ surface tract and drilled nine horizontal gas wells that extended into neighboring tracts. The parties’ predecessors had entered into an oil and gas lease in 1901 that was amended in 2011, after the surface and mineral estates were severed, to allow the pooling and unitization of the tract with the oil and gas from neighboring tracts. Plaintiffs argued that neither the lease nor the amendment gave EQT Production the right to use their surface to access and produce gas from neighboring tracts.
They claimed that despite having a valid oil and gas lease that allowed pooling, the producer did not have express permission to utilize the plaintiffs’ surface property to produce natural gas from neighboring mineral tracts. While the plaintiffs acknowledged that the mineral lessee is entitled to “reasonable use” of the surface to extract oil and gas, they argued that such “reasonable use” was limited to extraction from the subject tract only, not neighboring tracts.
Circuit Court Judge Timothy Sweeney agreed. In his summary judgment Order, Judge Sweeney found that because the mineral owners no longer owned the right to use the surface lands for exploration and production from neighboring tracts, they could not have given those rights to EQT Production in the lease amendment. Judge Sweeney found that only the surface owners or their predecessors could have expanded EQT Production’s rights to use the surface. Judge Sweeney concluded that the “reasonable use”...
February 7, 2019Examining the Shutdown’s Impact on the EEOC and Charges of Discrimination
The Legal Intelligencer
(by Stephen A. Antonelli)
By the time you are reading this, the federal government will have re-opened, at least temporarily. On Friday, Jan. 25, the president and Congress agreed to end a 35-day partial shutdown of the U.S. government—the longest in history—by passing a continuing resolution that will fund the government through Feb. 15.
Throughout the shutdown, there were numerous news stories concerning the deadlines by which federal courts were expecting to run out of money. As a result, employment litigators and other federal court practitioners questioned whether the shutdown would interfere with their clients’ filing deadlines and how it might affect their practices, generally. Early on, courts were expected to run out of operating funds by Jan. 18. That deadline was later extended to Jan. 25 and then to Feb. 1. Luckily, courts were able to maintain mostly normal operations until the shutdown ended.
Likewise, the shutdown did not affect the National Labor Relations Board (NLRB) or the U.S. Department of Labor (DOL). The same cannot be said for the Equal Employment Opportunity Commission (EEOC), which closed on Dec. 22 and did not reopen until Jan. 28. For the 37 days in between those dates, the EEOC did not process new charges of discrimination and it did not investigate pending charges.
According to the EEOC’s website, during the shutdown, most services were unavailable. Its toll-free phone numbers were unstaffed, its digital portals were inaccessible, and intake interviews were cancelled (unless a charging party was in danger of missing a filing deadline). In other words, unless a deadline was nearing, if parties to a charge of discrimination had questions about the status of a charge, those questions were likely unanswered during the shutdown.
Through a notice posted on its website, the EEOC provided information for potential charging parties as well as to those who...
January 25, 2019Find the middle ground: The corporate opportunity doctrine when your investors are competitors
(by Jayne Gest with Christian Farmakis and Sara Antol)
Consider this scenario: A startup in the artificial intelligence (AI) space develops a unique algorithm. A larger AI firm is interested in this algorithm but isn’t sure it’ll work. The larger company doesn’t want to buy the startup, but it wants a foot in the door on the new technology and is willing to invest. The startup needs funds but is concerned about the competitive issues created by giving the larger company a board seat and waiving the corporate opportunity doctrine.
“A smaller company is under pressure — in this scenario or others like it — to waive the corporate opportunity doctrine,” says Sara M. Antol, shareholder at Babst Calland. “Before you do that, stop and think about what this will mean. You need to determine whether there’s room to compromise with tailored language that serves the purposes of both the company and the investor.”
What is the corporate opportunity doctrine?
The corporate opportunity doctrine is part of the duty of loyalty imposed upon corporate fiduciaries. It’s not uncommon for a business owner or entity to invest in another company. If the investment is significant, the investor may demand a board seat to help influence the policies and operations of the company. If this person finds out about an opportunity as a board member, the corporate opportunity doctrine stops that director or officer from personally benefiting from an opportunity that would belong to the corporation, if it meets a four-pronged test:If the corporation is financially able to exploit the opportunity. If the opportunity is within the corporation’s line of business. If the corporation has an...
January 11, 2019Newly proposed definition of ‘waters of the United States’ could ease federal compliance burdens for oil and gas sector
The PIOGA Press
On December 11, the U.S. Environmental Protection Agency and Army Corps of Engineers released a much-anticipated proposed rule that would redefine “waters of the United States” (WOTUS) under the Clean Water Act (CWA).1 As compared to the WOTUS definition in the Obama administration’s 2015 “Clean Water Rule” (CWR) (currently applicable in Pennsylvania), the proposed rule would significantly reduce the federal government’s jurisdiction over surface water, including wetlands, nationwide. Should the proposed rule be finalized as writ ten, the oil and gas sector could see significant changes in CWA permitting/compliance obligations associated with well sites and pipeline construction.
Revised definition limits federal government’s CWA jurisdiction
The proposed rule’s WOTUS definition is intended to provide predictability and consistency in identifying federally regulated surface waters. The agencies state the proposed WOTUS definition is “straightforward” and cost-effective while still being protective of the nation’s navigable waters and respectful of state and tribal authority over their land and water resources.
The proposal focuses on surface waters that are “physically and meaningfully connected to traditional navigable waters,” and relies largely on the “relatively permanent water” jurisdictional test established in the late Justice Antonin Scalia’s plurality opinion in United States v. Rapanos, 547 U.S. 715 (2006). The proposed rule includes the following six categories of waters that are WOTUS and also includes 11 categories of waters or features that are not WOTUS:
WOTUS includesTraditional navigable waters, including territorial seas (TNWs) Tributaries that contribute perennial or intermittent flow to TNWs Ditches that (a) are TNWs, (b) are constructed in a tributary, (c) relocate or alter a tributary such that they are a tributary, or (d) are constructed in an adjacent wetland so long as they meet the definition of tributary Lakes and ponds that (a) are TNWs, (b) contribute...
Work It Out—Conflict Resolution for Business Owners
The Legal Intelligencer
(by Kevin K. Douglass)
Many closely-held business owners successfully ignore disagreements with co-owners for years or even decades. Understandably, there is always a more pressing and important business matter that merits immediate attention. Also, particularly in family-owned businesses, contentious issues may be “overlooked” to preserve family harmony. Unfortunately, issues that fester for years can suddenly and dramatically spiral out of control and result in expensive, harmful and sometimes embarrassing litigation. Even after litigation is threatened or commenced, or a controversy between owners otherwise escalates, business owners should remain open to the possibility of resolution through means other than litigation. These options, including mediation, are available for co-owners to address contentious issues quietly, economically and with dignity.
Recognizing There Is a Problem
A common refrain among business owners is that they were “blind-sided” when a co-owner turned aggressive, hired an attorney and began making demands that soon led to litigation. It can sometimes be difficult to pinpoint the underlying reasons for the disagreement and the triggering event that causes the controversy to bubble to the surface. This is especially true when owner animosity or even anger makes it more difficult to fully understand and resolve the underlying problem.
From a legal standpoint, even before a conflict arises, it is important to analyze the rights of each owner, including the terms of applicable agreements and documents (e.g., shareholder, partnership or operating agreements, employment agreements, buy/sell agreements, by-laws, minutes, confidentiality and noncompete provisions), as well as the statutory and common law rights each may have. It is not unusual for disgruntled owners to raise a myriad of complaints and claim damages for alleged injuries suffered directly by the owner or derivatively to the business itself. The possible allegations may include the breach of the terms of the various agreements between the owners, lack of...
January 10, 2019EPA and Army Corps Again Propose to Redefine ‘Waters of the United States’
The Legal Intelligencer
(by Lisa M. Bruderly)
On Dec. 11, the U.S. Environmental Protection Agency and Army Corps of Engineers (collectively, the agencies) released a long-awaited proposed rule that would redefine “waters of the United States” (WOTUS) under the Clean Water Act (CWA) and dramatically alter the federal government’s jurisdiction over surface water, including wetlands, throughout the United States. The Trump administration’s proposed rule is intended to replace the Obama administration’s 2015 rule defining WOTUS, known as the “Clean Water Rule” (CWR). The purpose of the 253-page proposed rule is to provide clarity, predictability and consistency in identifying federally regulated waters. The public comment period on the proposed rule will be open for 60 days after formal publication in the Federal Register.
Earlier WOTUS Actions by the Trump Administration
Since taking office, President Donald Trump has prioritized rolling back the CWR’s definition of WOTUS, which is widely regarded as expanding the scope of federal CWA jurisdiction. In February 2017, the president’s Executive Order 13778 directed the agencies to publish a proposed rule rescinding or revising the CWR and to consider defining WOTUS in a manner consistent with the narrower interpretation of WOTUS adopted in Justice Antonin Scalia’s plurality opinion in Rapanos v. United States, 547 U.S. 715 (2006). Scalia’s opinion limits WOTUS to include only relatively permanent, standing or flowing bodies of water. In contrast, the CWR relied heavily on Justice Anthony Kennedy’s concurring opinion in Rapanos, which adopted a “significant nexus” test for CWA jurisdiction. These actions and others by the Trump administration and related judicial decisions have resulted in the current, unique and confusing situation in which the CWR is enjoined in 28 states but in effect in 22 others, including Pennsylvania.
Proposed WOTUS Rule
The agencies describe the proposed rule as “straightforward” and cost-effective, while still protective of navigable waters and consistent with statutory authority....
January 2, 2019Surviving PADEP and USEPA Environmental Inspections
PA Chamber™ Pennsylvania Environmental Laws and Regulations Guidebook
This white paper describes a combined legal/technical approach to help companies minimize potential liabilities that can result from environmental inspections. This approach has been followed successfully by the authors and their clients at many industrial manufacturing facilities. The need for an organized response to enforcement eﬀorts remains a high priority for facilities in light of the changing enforcement priority designations by the Pennsylvania Department of Environmental Protection (“PADEP”) and the U.S. Environmental Protection Agency (“USEPA”) and the potential severity of civil and/or criminal enforcement actions that can be initiated based on ﬁndings resulting from environmental inspections.
In order to survive a PADEP and/or USEPA inspection, facilities must: be prepared in advance of the inspection; fully participate in the inspection in a courteous, organized manner; and promptly follow up on the inspection results. Success largely depends on what facilities do during all three phases of the inspection process, not just during the on-site inspection phase itself. The magnitude of any proposed civil penalties can be greatly reduced by following the three-phased approach described in detail below and by applying as much eﬀort, and in many cases more eﬀort, into preparing for the inspection and on following up after an inspection as facilities do during the on-site inspection itself. Facilities are best prepared to survive an inspection if it is assumed that an inspection could occur at any time. In order to limit potential exposure arising from an environmental inspection, it is prudent to put a proactive plan in place today. Such a plan should include actions taken well in advance of receiving notiﬁcation of an upcoming inspection, as well as actions to be taken during and immediately following the inspection.
Financing for founders: A primer on SAFEs and their use in early-stage financing
(by Jayne Gest with Christian A. Farmakis)
In 2013, San Francisco seed accelerator Y Combinator created a Simple Agreement for Future Equity (SAFE), which can be used in lieu of a convertible note. SAFEs spread throughout the California investment community. Now they’re entering regions like Pittsburgh. Investors, however, haven’t always embraced SAFEs as a reasonable vehicle for seed investment. They may be hesitant or uncomfortable with them.
“I didn’t know much about it at the time. I initially thought, ‘How is this different than a convertible note?’” he says. “I read it and thought: ‘If the investment goes well, I’m largely in the same position. If the investment doesn’t go well, I will never be repaid, but I never expected to be.’ So, I signed it.”
Smart Business spoke with Farmakis about what entrepreneurs and investors need to understand about SAFEs.
What are the similarities and differences between SAFEs and convertible notes?
A SAFE is essentially a warrant (a contractual right to purchase equity upon the occurrence of a future triggering event, like a later priced investment round), but with the purchase price paid upfront.
SAFEs are like convertible notes in many ways. They can (a) include a discount on the per share price — a 20 percent discount would provide the investor 125 shares rather than 100; (b) include a valuation cap, capping the investor dilution when the triggering event occurs; and (c) give pricing protection for early investors. Because both are early-stage investment vehicles, the price per equity unit is not determined because the company has no company valuation.
A convertible note is a debt instrument. A SAFE is a contract. As such, a convertible note typically earns...
Babst Calland Names Calfe, Cooper, Fortna and James Shareholders
Meredith Calfe, a member of the Firm’s Energy and Natural Resources Group, concentrates her practice on counseling oil and gas clients on mineral-related transaction matters, including title examination, due diligence and curative work.
Ms. Calfe is a 2009 graduate of the University of Pittsburgh School of Law.
Kate Cooper, a member of the Firm’s Corporate and Commercial Group, counsels for-profit and non-profit entities in connection with mergers, acquisitions and divestitures, and a broad range of general corporate matters, including business planning and structuring, commercial contracts, securities law matters and governance issues.
Ms. Cooper is a 2010 graduate, cum laude, of Boston College Law School.
Alana Fortna is a member of the Firm’s Litigation, Environmental, Employment and Labor, and Emerging Technologies groups. Ms. Fortna represents clients in complex commercial litigation with a focus primarily on environmental litigation, including large-scale cost recovery actions under CERCLA and state law statutes, actions seeking injunctive relief under RCRA, and citizens’ suits brought under various federal statutes and regulatory programs. She also leverages her litigation experience to help companies and other entities with emerging technologies strike a balance between innovation and risk management.
Ms. Fortna is a 2010 graduate, magna cum laude, of Duquesne University School of Law.
Rachel James, a member of the Firm’s Energy and Natural Resources Group, represents energy clients on oil, gas and mineral-related transaction matters, including title examination, due diligence activities, curative work and the acquisition and disposition of oil and gas fee and leasehold assets.
Ms. James is a 2009 graduate of the University of Pittsburgh School of Law.
January 1, 2019Oil and Gas Development in West Virginia Involving Unknown or Unleased Parties
Institute for Energy Law Oil & Gas E-Report
West Virginia law presents unique challenges regarding jointly owned property in situations where a minority owner cannot be identified, is not available or refuses to join in the leasing of oil and gas. It is not uncommon for oil and gas rights in West Virginia to be owned by members of the same family for several generations, and the result is that an operator may need to approach multiple parties to lease a single parcel. Historically, West Virginia law has placed strict requirements on a lessee in leasing cotenants and required the consent of all parties before oil and gas operations could commence. However, when leasing all cotenants in an oil and gas property is not feasible, there are several statutory options available in West Virginia that may provide relief to an operator, including a new Cotenancy Modernization and Majority Protection Act that was passed this year.
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December 20, 2018Municipal Regulation of Agricultural Operations in Pennsylvania
The Legal Intelligencer
Pennsylvania municipalities are “creatures of the state” and thus may only exercise those powers expressly and implicitly delegated to them by the General Assembly. One area in which municipalities have been delegated authority is the regulation of land uses. The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq., establishes the framework for zoning and subdivision and land development regulation in Pennsylvania. However, a municipality’s powers are not without limitation. The General Assembly, by statute, has constrained the manner and degree to which municipalities can regulate certain types of land use. The Pennsylvania Right-to-Farm Act, 3 P.S. Section 951 et seq., (RTFA) and the Pennsylvania Agricultural, Communities and Rural Environment Act, 3 Pa.C.S. Section 311 et seq., (ACRE) are two such examples.
The RTFA was enacted in 1982 for the purpose of limiting the circumstances under which “normal agricultural operations” may be the subject matter of nuisance suits and zoning regulations. Specifically, the RTFA mandates that every municipality regulating a public nuisance exempt from its scope “normal agricultural operations” as long as the operations do not have a “direct adverse effect on the public health and safety.” It also requires municipalities to permit the direct sale of agricultural commodities on property owned and operated by a landowner who produces 50 percent or more of the commodities sold, regardless of applicable zoning regulations.
In 2005, the General Assembly recognized that owners and operators of normal agricultural operations needed a cost and time efficient way to challenge local regulatory actions running afoul of the RTFA and, in response, enacted ACRE. ACRE provides a means for those engaged in these activities to challenge and seek the invalidation of unauthorized ordinances or enforcement actions related to those ordinances. If an owner or operator believes a...