Articles, Alerts & Perspectives

A Methane Mixed Bag: EPA Finalizes Methane Rule for New and Existing Oil and Gas Facilities

PIOGA eWeekly

(By Gary Steinbauer and Christina Puhnaty)

On December 2, 2023, the U.S. Environmental Protection Agency (EPA) released a pre-publication version of its final Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review (Final Rule). The Final Rule comes more than two years after EPA published its initial proposal on November 15, 2021 (Initial Proposal) and a supplemental proposal on December 6, 2022 (Supplemental Proposal) (collectively, the “Proposals”). According to EPA, the agency received over one million comments on the Proposals.  For information on the Proposals, please see our November 11, 2021 and December 12, 2022 articles. This Alert focuses on critical aspects of the Final Rule, including key changes that EPA made since issuing the Proposals.¹

Brief Overview of Methane Rule

The Methane Rule is comprised of four separate actions proposed under sections 111(b) and 111(d) of the Clean Air Act. EPA currently regulates emissions of volatile organic compounds (VOCs) and methane from oil and natural gas facilities under 40 C.F.R Part 60 Subparts OOOO² and OOOOa.³ First, through this Final Rule, EPA will regulate oil and natural gas facilities constructed, modified, or reconstructed after December 6, 2022, under a new Subpart OOOOb.  The requirements in OOOOb will apply to affected facilities 60 days after the rule is published in the federal register.  Second, under a new Subpart OOOOc, EPA finalized emissions guidelines that are intended to inform states in the development, submittal, and implementation of state plans to establish standards of performance for greenhouse gases (in the form of limitations on methane) from sources existing on or before December 6, 2022.  Under the Final Rule, states and tribes are required to submit plans to EPA for review within 24 months of the publication of the Final Rule in the Federal Register, with a compliance deadline for existing sources that is no later than 36 months after the deadline to submit the plan to EPA.  Third, the Final Rule amends OOOOa in response to Congress’ June 2021 revocation of regulatory amendments made by EPA under the Trump administration. Fourth, the Final Rule also includes “Appendix K,” a protocol for determining leaks using Optical Gas Imaging (OGI) that EPA now requires at natural gas processing plants regulated by OOOOb or OOOOc.

Key Requirements of Methane Rule

Significant changes from the existing OOOO and OOOOa regulatory frameworks include:

• Super Emitter Program: The Final Rule will allow certified third parties to monitor well sites, centralized production facilities, and compressor stations regulated by OOOO, OOOOa, OOOOb, or OOOOc using specific remote detection technologies for “super-emitter emission events,” which are defined as emission events resulting in 100 kilograms (220.5 pounds) per hour or more of methane. These third parties are required to submit notifications of super emitter events to EPA’s Super Emitter Program Portal within 15 calendar days of the observation. Upon receipt of a notification by a third party, owners and operators of these facilities would be required to initiate an investigation within five days and report the results of that investigation to EPA within 15 days. EPA plans to publish online the information that EPA receives through the Super Emitter Response Program, which will include an identification of the operator responsible for the super emitter event after giving the operator the opportunity to respond to EPA regarding the event.
• Storage Vessel Applicability Threshold Now Applies to Tank Batteries: EPA has finalized its proposed expansion of its regulation of oil and gas-related storage vessels under both Subparts OOOOb and OOOOc. Currently, Subpart OOOOa storage vessel regulations are limited to VOC emissions and based on a VOC potential to emit (PTE) of 6 tons per year (tpy) for a single storage vessel. Under Subpart OOOOb, EPA includes the same 6 tpy VOC PTE applicability threshold, adds a methane applicability threshold of 20 tpy, and applies these thresholds to a single storage vessel or the aggregate potential emissions from a “tank battery,” i.e., a group of storage vessels that are adjacent and receive fluids from the same operation or are manifolded together. As for storage vessels at existing facilities, EPA will regulate existing tank batteries meeting the 20 tpy methane threshold. For storage vessels meeting these threshold requirements, EPA requires a 95% reduction of VOC and methane by routing emissions through a closed vent system to a control device.
• Fugitive Emissions Monitoring Required at All Well Sites: At 40 CFR § 60.5397a(1), OOOOa currently excludes low-production well sites from fugitive emissions monitoring requirements. The Final Rule, however, requires fugitive emissions monitoring at all well sites, though the frequency and level of monitoring varies by site based on its configuration and the presence, if any, of production equipment. For example, single wellhead-only and small well sites must conduct quarterly audio, visual and olfactory (AVO) inspections, while multi-wellhead only well sites must do semiannual OGI inspections in addition to quarterly AVO inspections. Well sites with major production and processing equipment must conduct AVO inspections every other month and quarterly OGI inspections. Compressor stations are required to conduct monthly AVO inspections and quarterly OGI inspections.
• First-time Requirements for Oil Wells with Associated Gas: For the first time, EPA will require that associated gas from new, reconstructed, or modified oil wells be routed directly to a sales line. In situations where gas-producing oil wells do not have access to a sales line, associated gas would need to be used on-site as a fuel source, used for another purpose that a purchased fuel or raw material would service, or be routed to a flare or other control device achieving 95 percent reduction of methane and VOC emissions. The Final Rule separates new associated gas wells into multiple groups based on when construction is commenced to establish a two-year “phase-in” period for the application of the final standards. EPA requires that these same standards apply to existing oil wells with associated gas.
• Well Closure Plans: The Final Rule includes a new suite of well closure requirements. Under these requirements, owners and operators of well sites are required to submit a closure plan to EPA within 30 days of the cessation of production and a notification to EPA 60 days before well closure activities begin. The contents of the well closure plan would need to include the steps necessary to permanently plug all wells, a description of financial requirements and assurance to complete closure, and the schedule for completing closure. Well surveys using OGI are required at the well site following well closure activities.

Additional notable requirements include the use of zero-emission pneumatic controllers and pneumatic pumps, a “no identifiable emissions” standard for closed vent systems, and the use of best management practices aimed to minimize or eliminate VOC or methane emissions during well liquids unloading.

If you have any questions about the applicability of the Final Rule to your operations, please contact Gary E. Steinbauer at (412) 394-6590 or gsteinbauer@babstcalland.com or Christina Puhnaty at (412) 394-6514 or cpuhnaty@babstcalland.com.

1 The Final Rule is 1690 pages, which does not include the Regulatory Impact Analysis and other documents in the rulemaking record. A detailed evaluation of each potentially applicable requirement is warranted, and this Alert provides only a high-level summary of certain provisions.

2  Specified affected facilities constructed, reconstructed, or modified after August 23, 2011 and on or before September 18, 2015 are regulated under Subpart OOOO.

3 Specified affected facilities constructed, reconstructed, or modified after September 18, 2015 and on or before November 15, 2021 are regulated under Subpart OOOOa.

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Shapiro Administration Appeals Commonwealth Court Invalidation of RGGI

PIOGA Press

(By Kevin Garber and Jessica Deyoe)

On November 21, 2023, the Shapiro administration appealed, to the Pennsylvania Supreme Court, the Commonwealth Court’s November 1 ruling that the Regional Greenhouse Gas Initiative (RGGI) is an unconstitutional tax, and therefore is void and unenforceable. See Bowfin KeyCon Holdings, LLC et al v. Pennsylvania Department of Environmental Protection and Pennsylvania Environmental Quality Board (No. 247 M.D. 2022). The Commonwealth Court concluded that, to pass constitutional muster, Pennsylvania’s participation in RGGI “may only be achieved through legislation duly enacted by the Pennsylvania General Assembly” and not merely through the rulemaking promulgated by the Environmental Quality Board and the Department of Environmental Protection.

The Shapiro administration said it is appealing the decision because the “Commonwealth Court’s decision on RGGI—put in place by the prior administration—was limited to questions of executive authority, and our Administration must appeal in order to protect the important authority for this Administration and all future governors.”

The Governor’s decision to appeal the Commonwealth Court’s decision does not necessarily mean he supports RGGI, put in place by the previous Wolf administration. Even if the Shapiro administration wins on the appeal, it is unclear whether the Governor will enforce the regulation. In fact, the administration did not oppose the Bowfin KeyCon industry petitioners’ application to vacate the automatic stay that arises by law when the Commonwealth appeals a case. That means the RGGI regulation will continue to be ineffective and unenforceable while the appeal is pending.

The Shapiro administration is urging lawmakers to develop an alternative plan, stating in a press release that “should legislative leaders choose to engage in constructive dialogue, the Governor is confident we can agree on a stronger alternative to RGGI.” The Governor’s spokesperson Manual Bonder indicated that Governor Shapiro “stands ready and willing to implement the recommendations of the RGGI Working Group and he would sign legislation replacing RGGI with a Pennsylvania-based or PJM-wide cap-and-invest program, as they proposed.”

Shortly after taking office, Shapiro formed the RGGI Working Group consisting of a mix of labor, business, energy, and environmental leaders to determine whether RGGI would “protect and create energy jobs,” “take real action to address climate change,” and “ensure reliable, affordable power for consumers in the long-term.” The Working Group never endorsed RGGI. Rather, it stated in a September 23, 2023 press release announcing the availability of its Working Group Memorandum that it “reached broad consensus that reducing greenhouse gas emissions in Pennsylvania is both necessary and inevitable . . . [and] that any cap-and-invest program should include policy levers and investment strategies which help avoid any potential emissions leakage, higher localized pollution, increased energy costs, and job loss.”

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Reprinted with permission from the December 2023 issue of The PIOGA Press. All rights reserved.

EPA Finalizes New Suite of Clean Air Act Regulations for Oil and Gas Industry

Legal Intelligencer

(by Gary Steinbauer and Christina Puhnaty)

Pennsylvania oil and gas producers and midstream operators are faced with yet another suite of federal air regulations following the U.S. Environmental Protection Agency’s recent finalization of its far-reaching Methane Rule. On December 2, 2023, EPA released a 1690-page, pre-publication version of the Methane Rule or the Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review. The Methane Rule is aimed at strengthening existing and adding new regulations limiting emissions of methane and volatile organic compounds (VOCs) from the Crude Oil and Natural Gas industrial source category. These federal Clean Air Act (CAA) regulations will apply to a host of new and existing emission sources and activities within the oil and natural gas industry. With Pennsylvania producing more natural gas than any other state except Texas, oil and gas producers and midstream operators must contend with another slate of new, more stringent federal air requirements.

The Methane Rule will become effective within 60 days of publication in the Federal Register. While EPA released it in a single package, the Methane Rule is comprised of four related regulatory actions: (1) updated new source performance standards regulating VOC and methane emission sources for certain emission sources and activities constructed, reconstructed, or modified after December 6, 2022, which will be promulgated at 40 CFR Part 60, Subpart OOOOb; (2) a set of emission guidelines for states to follow when adopting performance standards to limit methane emissions from specified existing air emission sources within the oil and gas industry, which will be promulgated at 40 CFR Part 60, Subpart OOOOc; (3) revisions to previously promulgated requirements codified at 40 CFR Part 60, Subpart OOOOa, stemming from Congress’ disapproval of changes that were made in 2022; and (4) a final protocol for performing optical gas imaging (OGI) inspections to detect leaks from equipment used in the oil and gas industry. This article focuses on the first two components of the Methane Rule, which include new VOC and methane emission and performance standards for oil and gas producers and midstream operators.

The Methane Rule is rich with detail and demands close review and analysis by potentially impacted oil and gas operations and companies. A summary of the new and likely more stringent requirements in the Methane Rule is provided below:

• Super-Emitter Program: For the first time in a Clean Air Act regulation, EPA has established a regulatory mechanism that allows third parties to use EPA-approved remote sensing technologies to monitor emissions from affected facilities under OOOO, OOOOa, OOOOb, and OOOOc, report this monitoring data to EPA, and force action by owner or operator for measured “super emission events” (i.e., methane emission events of 100 kilograms per hour or more). EPA gave itself a heightened role under this Program in the final rule. Under the final rule, EPA will certify third-parties, receive and evaluate the third-party monitoring data, and notify owners and operators when data qualifies as a super-emissions event. Notified owners and operators will then need to investigate and determine the source of the super-emissions, take timely and appropriate corrective actions including repairing any leaks, and report the results of the investigation to EPA. EPA will make information from the Program available publicly. It remains to be seen whether states will be allowed to develop different and more stringent notification procedures in their OOOOc plans.
• Fugitive Emissions Monitoring at Well Sites and Compressor Stations: For well sites, the Methane Rule will require fugitive emissions monitoring, commonly known as leak detection and repair (LDAR) requirements, at all well sites regardless of production. The frequency and type of fugitive emissions monitoring will depend on the configuration and number of wells at a site. Single wellhead only and small sites will be subject to quarterly audio, visual, and olfactory monitoring. Multi-wellhead only sites will be subject to quarterly AVO monitoring and semi-annual instrument- or camera-based monitoring. Well sites and centralized production facilities that contain major production and processing equipment will be subject to bi-monthly AVO monitoring and quarterly instrument- or camera-based monitoring. Fugitive emissions monitoring at all well sites, regardless of configuration, will need to continue until the site or facility is permanently closed in accordance with a newly required well closure plan. Lastly, compressor stations will be subject to monthly AVO monitoring and quarterly instrument- or camera-based monitoring.
• Storage Vessel Emissions Capture and Control Requirements: EPA’s Methane Rule will expand the scope of regulated storage vessels, as compared to the current federal CAA oil and gas regulations. Applicability continues to be based on the “potential to emit” or PTE from storage vessels, but the PTE-based applicability threshold now applies to a single storage vessel or a “tank battery,” which is defined as a group of storage vessels that are adjacent and receive fluids from the same operation or are manifolded together. Therefore, storage vessels within a “tank battery” may be regulated despite having PTEs below the 6 tons per year (tpy) VOC threshold under OOOOb or the 20 tpy of methane threshold under both OOOOb and OOOOc. Owners and operators will have the compliance option of maintaining actual emissions of VOC or methane below certain thresholds. When actual emissions of VOC and methane cannot be maintained below the applicable actual emission thresholds, emissions from storage vessels must be routed to a control device through a closed vent system that is designed and operated with “no identifiable emissions.” Control devices used for storage vessel emissions must reduce VOC and methane emissions by 95 percent.
• Process Controller Emission Standards: EPA has adopted a new term “process controller,” rather than the previously used term “pneumatic controller.” The substantive requirements for process controllers in the Methane Rule, however, continue to be the same – a zero-emission standard with limited exceptions. Owners and operators of process controllers that are subject to the OOOOb requirements will have one year following promulgation to meet the new zero-emission standards for OOOOb-affected process controllers.
• Centrifugal and Reciprocating Compressor Emission Standards: Under OOOOb and OOOOc, centrifugal and reciprocating compressors will be subject to new emissions control requirements. Centrifugal compressors using wet seals must control VOC and methane emissions from the wet seal fluid degassing systems by 95 percent through the use of a control device that is connected to the compressor through a regulated closed vent system or route the collected gas to a process using a regulated closed vent system. Affected reciprocating compressors will be subject to new requirements for collecting and controlling methane and VOC emissions from rod packing. Under OOOOb and OOOOc, dry seal compressors, which currently are not regulated under EPA emission standards, will be subject to flow rate restrictions.
• Requirements for Oil Wells with Associated Gas and Well Liquids Unloading: In another set of first-time requirements for the industry, EPA has finalized emissions control and performance standards for associated gas from oil well and well liquids unloading from gas wells. Owners and operators of affected oil wells will be required to route associated gas directly to a sales line, or if a sales line is inaccessible, to use such gas on-site as a fuel source, as a substitute for purchased fuel or raw material, or route such gas to a flare that reduces methane and VOC emissions by 95 percent. The Methane Rule provides a two-year “phase-in” period for these new associated gas requirements. Well liquids unloading, which is a common and often necessary practice within the industry, will be subject to new OOOOb and OOOOc standards requiring best management practices for minimizing or eliminating methane and VOC emissions.

Impacted oil and gas facilities and activities that may not be regulated under OOOOb will soon be subject to State plans developed to implement the OOOOc provisions, which in many respects mirror those established in OOOOb. States, like Pennsylvania, will have 24 months to develop and submit plans implementing the OOOOc provisions to EPA. According to the Methane Rule, these State OOOOc plans must require affected sources and activities to comply no later than 36 months following the deadline to submit the plans to EPA. In other words, existing oil and gas sources that are not otherwise subject to the new OOOOb requirements will have no longer than five years after EPA publishes the Methane Rule in the Federal Register to meet new state-implemented, OOOOc-based methane emission standards.

EPA has devoted significant resources towards regulating VOC and methane emission from the oil and gas industry. The Methane Rule is yet another suite of new, more stringent regulations for an industry that, in the last decade, has been the subject of several significant federal Clean Air Rule rulemakings establishing VOC and methane emission standards and requiring reporting of greenhouse gas emissions. It is imperative that Pennsylvania oil and gas operators fully evaluate the potential impact of the Methane Rule on their facilities and operations.

Gary Steinbauer is a shareholder and Christina Puhnaty is an associate in Babst, Calland, Clements and Zomnir’s environmental group. Their practices focus largely on matters arising under the Clean Air Act, analogous state clean air laws, and their implementing regulations. Contact them at gsteinbauer@babstcalland.com and cpuhnaty@babstcalland.com.

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Reprinted with permission from the December 14, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.

Global Connectivity

Pittsburgh Business Times

(By Daniel Bates featuring Nadya Kessler and Susanna Bagdasarova)

Peace on earth – perhaps wishful thinking during this holiday season in the midst of such extreme global turmoil. But not for the likes of the ever-optimistic GlobalPittsburgh and its local business supporters.

Together, they’re working hard these days to foster international peace and stability by bringing countries and cultures together right here in Pittsburgh, “one handshake at a time,” according to Nadya Kessler, director of GlobalPittsburgh, a nonprofit that has been serving the Pittsburgh community since 1959.

“For almost 65 years, GlobalPittsburgh has been developing and fostering educational, cultural, and business relationships between the Greater Pittsburgh community and international citizens,” said Kessler, a one-time attorney who emigrated from Russia in 2009 and has been leading the nonprofit for the past year. “GlobalPittsburgh is very important to the local business community because it creates long-lasting relationships between local and international community members, giving an opportunity for local businesses and academic institutions to meet international leaders whom they might have never had a chance to meet otherwise.”

Kessler shared the mission of GlobalPittsburgh, alongside Susanna Bagdasarova, an attorney with Pittsburgh-based law firm Babst Calland who serves on GlobalPittsburgh’s board of directors, during a recent interview with the Pittsburgh Business Times.

At ‘the same table’

The organization’s mission, Kessler said, couldn’t prove timelier today, as it “reaches across divides to bring people of diverse backgrounds and perspectives to the same table, forging opportunities for both the international and Pittsburgh communities to learn from and inspire each other.”

GlobalPittsburgh was founded in 1959 as the Pittsburgh Council for International Visitors. Early on, the United States Department of State designated the nonprofit as a regional liaison for the State Department’s International Visitor Leadership Program. With that designation came grant funding that continues to fund the organization today, along with support from local businesses and other local community members, as well as event sponsorships, according to Kessler.

In 2022 alone, GlobalPittsburgh hosted 344 representatives from 91 countries and brought them together with 460 local professionals for what the organization calls “Global Intersector events.” The topics of the visits range from entrepreneurship and economic development to cybersecurity to energy issues to higher education and much more.

Babst Calland’s Susanna Bagdasarova said that mission – and those Intersector events – are what drew her, an attorney focusing on emerging technologies, to the organization in the first place.

“GlobalPittsburgh does these really fantastic informal networking events where they have their delegates from other countries who are government cabinet members and executives come and essentially provide an opportunity for local businesspeople to meet and greet and just chat and connect over our similarities and our differences,” said Bagdasarova, who herself emigrated to the United States from Armenia as a small child with her family.

“It’s just a fantastic organization,” she added, “and I’m very excited as it moves into the future here.”

Cultural diversity

Bagdasarova was quick to note that Babst Calland was drawn to the organization because of the diversity of its own clients, which includes international clients as well as domestic clients with international business lines or affiliates.

“I think it’s very important both from a cultural and personal perspective to be well versed in communicating with the folks outside of the United States and to really be able to understand global trends in the law,” Bagdasarova said. “We’re in an ever more-connected society, and it’s only going to become more and more connected. Having that diversity of thought really allows you to have a different perspective on legal solutions and become more proactive in the kinds of legal services you can provide to your clients.”

Generally, though, Bagdasarova suggested that Pittsburghers should “look outside the region of Western Pennsylvania and really see how we can fit Pittsburgh into a greater global context. All of this is going to require more and more collaboration on a global scale.”

Citizen diplomacy

At the core of GlobalPittsburgh’s altruistic philosophy is what Kessler refers to as citizen diplomacy. It’s a concept that, when official relationships between countries are hard to foster, every citizen – every average individual – has the right and responsibility to be a representative of their country and help shape U.S. foreign relationships, as we like to say, one handshake at a time.

“Citizen diplomacy can be a vital tool of crafting those relationships, and anybody could be a citizen diplomat,” she continued. “It doesn’t mean that two parties have to negotiate directly. It could be a hosted meal. It could be attending a gathering and networking event, as well as having professional interactions. Bringing countries and cultures together contributes to peace and stability in the world and connects us all as a global community.”

Choosing delegations

Kessler also pointed out that local businesses can work with GlobalPittsburgh in ways that allow the organization to identify the right matches with regard to foreign delegations.

Our goal is not only to showcase Pittsburgh to visiting delegations, but we also have a way to select delegations that we bring to Pittsburgh,” Kessler said. “We would like to learn more about the needs and interests of local businesses. This way, we can help them meet their needs. We have these delegations already coming to Pittsburgh, so why don’t we do all the work for you, which doesn’t cost you anything to bring those emerging and established world leaders right to your doorstep? If anyone has any questions, I’m more than happy to talk more about it.”

Business Insights is presented by Babst Calland and the Pittsburgh Business Times.

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Compelling Arbitration: Slam Dunk or Blocked Shot?

Pretrial Practice & Discovery

American Bar Association Litigation Section

(by Jess Barnes)

Making a List, Checking it Twice: When Employees Resign, Employers Should Be Prepared

Legal Intelligencer

(by Steve Silverman and Steve Antonelli)

For many employers, it is also performance review season that is often accompanied by announcements concerning employees’ compensation for next year. As a result, this time of year can sometimes cause employees to consider a change of scenery. Employers should therefore be prepared for the possibility that an employee will voluntarily resign their employment and move on to another opportunity.

With the Holiday Season in full swing, many of us are busier than normal. We have parties to attend, shopping to finish (or in my case, start and finish), and year-end goals to accomplish, in addition to our “regular” work duties. This is also the time of year that many employers begin to wrap up financial matters and plan for the coming year by preparing goals, budgets, forecasts, and strategic plans. For many employers, it is also performance review season which is often accompanied by announcements concerning employees’ compensation for next year. As a result, this time of year can sometimes cause employees to consider a change of scenery. Employers should therefore be prepared for the possibility that an employee will voluntarily resign their employment and move on to another opportunity. Accordingly, employers should consider the following checklist if and when an employee announces their resignation:

• Employers should compile an inventory of the departing employee’s contractual obligations. If a departing employee is bound, for instance, by an enforceable restrictive covenant, employers should assess the potential for harm in the event of a violation. While the ever-broadening attempts to limit the use of post-employment, non-competition agreements have been well documented in the past year, reasonable restrictive covenants remain enforceable in Pennsylvania. Employers should have a full understanding of which employees are covered by such agreements as well as a full understanding of the terms of those agreements.
• Employers should determine whether the departing employee has access to trade secrets or other sensitive, proprietary information. If the employee does have access to such confidential information, the employer should ensure that appropriate steps are taken to protect the information. In many instances employers should suspend the departing employee’s continued access to sensitive information by prohibiting the employee’s access to the employer’s electronic files or computer system.
• Employers may also consider whether the departing employee’s continued access to sensitive information warrants continuing to pay the departing employee throughout the notice period contained in a restrictive covenant, even if the employee has already separated from the employer.
• If the departing employee has already misappropriated trade secrets or other confidential information, the employer should call its attorney, who will formulate a strategy for retrieving the information and any potential damages caused by the departing employee.
• Counsel will also help to determine whether the departing employee’s new employer should be contacted to inform them of the departing employee’s post-employment obligations and their obligation to preserve evidence, including metadata.
• In some circumstances, employers may decide to conduct a forensic review of the electronic devices and network access of the departing employee to confirm the misappropriation or the extent of the misappropriation. While not inexpensive, forensic evaluation often provides important evidence that can be pivotal in litigation.
• Employers should also determine whether, when, and how customers or other third parties should be notified of the employee’s departure and send appropriate notice to them. When doing so, employers should remain mindful of the fact that the departing employer may have developed personal relationships with these customers and third parties.
• Employers should compile an inventory of any other property that belongs to the employer but may be in the possession, custody, or control of the departing employee, whether inadvertently or intentionally. Employers should determine the location of the property—whether electronic devices, keys, equipment, tools, or passwords—and develop a plan to ensure its return.
• Employers should schedule (and follow through with actually conducting) an exit interview with the departing employee to:
  • Determine whether the departing employee has secured a new job and learn any pertinent details about the new position;
  • Remind the departing employee of any post-employment legal or contractual obligations related to trade secrets, confidentiality, non-competition, or non-solicitation of customers or former colleagues;
  • Arrange for the return of company property, including passwords to accounts or computer systems that may only be easily accessed by the departing employee;
  • Coordinate a plan for the departing employee to potentially assist the employer with transitioning the departing employee’s duties and responsibilities to a replacement;
  • Clarify the employer’s expectations of the departing employee prior to the departing employee’s last day of employment; and
  • Obtain constructive feedback from the departing employee regarding the employer, its management, policies, practices, and procedures.

This checklist is certainly not meant to imply that every resigning employee does so with ill intent. To be clear, that is not the case the vast majority of the time. Instead, this checklist is to help ensure that employers are not caught off guard by those rare situations in which a departing employee plans to retain information that does not belong to them. To the extent an employer is ever unsure about the motives of their departing employee, it should consult its attorney.

Steve Silverman is a shareholder in the Litigation and Employment and Labor groups of Babst Calland. Mr. Silverman devotes a significant amount of his practice to the defense and prosecution of theft of trade secret and non-compete suits. Contact him at 412-253-8818 or ssilverman@babstcalland.com.

Stephen A. Antonelli is a shareholder in the Employment and Labor and Litigation groups of Babst Calland. His practice includes representing employers in all phases of labor and employment law, from complex class and collective actions and fast-paced cases involving the interpretation of restrictive covenants, to single-plaintiff discrimination claims and day-to-day human resources counseling. Contact him at 412-394-5668 or santonelli@babstcalland.com.

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Reprinted with permission from the December 2, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.

Pa. Court’s Venue Ruling Is Likely To Worsen Forum Shopping

Law360

(by Stefanie Pitcavage Mekilo and Joseph Schaeffer)

On Nov. 22, the Pennsylvania Supreme Court issued its much-anticipated decision in Hangey v. Husqvarna Professional Products Inc. The majority opinion in Hangey claims to be a narrow one, providing clarification only regarding the standard for evaluating whether venue in any given Pennsylvania county is proper.[1]

That characterization is accurate so far as the legal principle goes: The court held as a matter of law that the percentage of a corporate defendant’s national revenue derived from a forum county alone is not sufficient to support a finding that the defendant does not “regularly conduct business” there for purposes of Pennsylvania’s venue rules.

But the court’s application of that principle to the facts before it — and its holding that the defendant’s de minimis sales in Philadelphia County were sufficient to establish proper venue there — has potential far-reaching consequences for corporate defendants sued in the commonwealth. Indeed, the plaintiffs’ lawyers in Hangey are already cheering the ruling as “one of if not the most impactful venue decisions in the last 20 years.”[2]

The facts of Hangey are uncomplicated. Ronald and Rosemary Hangey, residents of Wayne County, bought a Husqvarna-brand lawnmower from Trumbauer’s Lawn and Recreation Inc., in Bucks County.

Ronald Hangey suffered severe injuries when he was thrown off the lawnmower while operating it on his property in Wayne County. The Hangeys then sued Trumbauer’s, Husqvarna Professional Products Inc. and a handful of Husqvarna affiliates on various tort claims.

But rather than sue in Bucks County or Wayne County, the Hangeys sued in Philadelphia County — a venue with no connection to the underlying incident. Discovery in fact revealed that Husqvarna sold products through just two authorized dealers in Philadelphia County and derived only 0.005% of its national revenue from those business activities.

Husqvarna challenged the venue as improper under Pennsylvania Rule of Civil Procedure 2179(a), which provides that a suit against a corporation may be brought in, among other places, “a county where … the corporation or similar entity regularly conducts business.”[3]

The trial court applied Pennsylvania’s two-pronged “quality-quantity” test for evaluating whether a defendant was regularly conducting business in a county as required by Rule 2179(a). Under this test, the quality prong is met when a defendant’s activities in the forum directly further or are essential to the defendant’s business objectives, while the quantity prong is satisfied by activities that are “so continuous and sufficient to be general or habitual.”[4]

The trial court held that the quality prong was satisfied because Husqvarna’s placement of its products on the shelves of two authorized dealers in Philadelphia County furthered its business objectives.

On the quantity prong, however, the court held that the 0.005% of national revenue Husqvarna derived from Philadelphia County was de minimis, and not indicative of general and habitual contact, and so it transferred the case to Bucks County.

The Hangeys appealed, and the Pennsylvania Superior Court, sitting en banc, reversed. The Superior Court sided with the Hangeys and held that the trial court had abused its discretion in relying almost exclusively on the percentage of revenue in its analysis of the quantity prong.[5] The court further concluded that the record before the trial court established that venue was proper in Philadelphia County.

Husqvarna petitioned the Pennsylvania Supreme Court for review, and the Supreme Court granted the petition. The parties’ briefs and arguments before the Supreme Court centered solely on the trial court’s quantity analysis; no party disputed the quality analysis.

The Supreme Court held that the trial court abused its discretion in focusing its quantity analysis exclusively on the percentage of national revenue Husqvarna derived from the Hangeys’ chosen venue. According to the court, the percentage of revenue alone does not control the quantity inquiry. Rather, it is but one of the data points the court may consider — if it deems the percentage relevant on the facts before it — in its broader assessment of how regular a defendant’s business activities are in the forum.[6]

The court identified potential nonrevenue data points, including the number of “days out of the year a business is open to the public, … units of product sold, [and] … hours billed by employees.”[7]

Importantly, however, the Supreme Court did not remand the case to the trial court for further review in light of its clarification of the law. Instead, the court evaluated the record evidence de novo, and determined Husqvarna’s contacts with Philadelphia County were sufficient to establish proper venue as a matter of law.

The court’s analysis makes no mention of the percentage of revenue, nor any of the other quantitative metrics it identified as potential data points. In holding venue was proper, the court noted only that Husqvarna’s marginal sales to its two authorized dealers in Philadelphia County had been consistent and without interruption during the relevant two-year period, and that, even if Husqvarna was not succeeding, it was “at least trying to make sales in Philadelphia, regularly and continuously.”[8]

The court concluded that so long as “a company maintains a constant physical presence in the forum county” to perform acts in furtherance of its business objectives — even if only through an authorized dealer and even if without much success — venue will be appropriate in that county as a matter of law.[9]

The Hangey decision significantly dilutes the quantity prong of Pennsylvania’s quality-quantity test and seems to write typical quantitative metrics out of the venue analysis entirely. Indeed, under the majority’s reasoning, it is hard to imagine a scenario in which quantity will not follow quality in lockstep.

Pennsylvania Supreme Court Justice Kevin Brobson suggested as much in his dissenting opinion: He agreed with the majority that percentage of revenue alone should not control the outcome in any case, but expressed concern that the majority opinion “could be construed as holding that, as a matter of law, a corporation’s mere presence in a county is sufficient to establish that venue is proper in that county.”[10]

The majority’s response to Justice Brobson — that its holding is limited to only those cases in which a defendant’s physical presence is constant — is unsatisfying given how minimal Husqvarna’s activities in Philadelphia County otherwise were.

The Supreme Court notably also gave no consideration to the consequences of its decision for Husqvarna’s codefendants. There was no evidence that Trumbauer’s, which sold the Hangeys the allegedly defective lawnmower, transacted any business in Philadelphia County. But because Pennsylvania law requires plaintiffs to satisfy venue only for a single defendant, Trumbauer’s must now defend itself in a forum with which it has no connection.

The decision is all the more concerning when considered alongside litigation patterns in the commonwealth — namely, the plaintiffs’ strategic channeling of lawsuits to notoriously plaintiff-friendly venues like Philadelphia and Allegheny County, and their success in achieving, and seeing appellate courts affirm, nuclear and thermonuclear verdicts returned in those venues.[11]

Also concerning are judicial trends winnowing available off ramps for corporate defendants hauled into Pennsylvania courts with little connection to the parties or the claims.

In its recent decision in Mallory v. Norfolk Southern Railway Co., the U.S. Supreme Court rejected a due-process challenge to Pennsylvania’s consent-by-registration statute, which requires out-of-state corporations to consent to general jurisdiction in the commonwealth as a condition of doing business. The court held that the statute broadly gives Pennsylvania personal jurisdiction over out-of-state corporations in suits brought by plaintiffs with no ties to Pennsylvania, for conduct occurring beyond the commonwealth’s borders.[12]

And while the doctrine of forum non conveniens once provided a reliable safety valve for defendants sued in forum-shopped venues, recent decisions from the Pennsylvania Superior Court have sown uncertainty into the once-settled doctrine, with some decisions appearing to increase the burden on defendants seeking transfer out of what they may consider oppressive and vexatious forums.[13]

Nonetheless, the final word has not yet been said on many of these jurisprudential shifts. Other potential challenges to the consent-by-jurisdiction statute, for example, remain pending: Litigants recently filed petitions for permission to appeal in the Pennsylvania Superior Court, raising a dormant commerce clause challenge to the consent-by-jurisdiction statute.

Appeals seeking clarity — and reaffirmance of the long-settled status quo — regarding forum non conveniens are making their way to Pennsylvania appellate courts. And it is too early to predict how Pennsylvania’s trial and intermediate appellate courts will read and apply Hangey. Although the majority did not factor the percentage of revenue into its own analysis, it authorized other courts to do so in appropriate cases, and it remains to be seen what lower courts will do, if anything, with that invitation.

In the immediate future, however, the Hangey decision will likely only exacerbate the forum-shopping problem already plaguing corporate defendants sued in Pennsylvania and overburdening Pennsylvania’s busiest trial courts. As a result, all businesses — and small businesses in particular — should proceed with caution in considering whether the potential revenue stream to be derived from placing products in Pennsylvania’s most plaintiff-friendly counties is worth the attendant litigation risk.

_____________

[1] Hangey v. Husqvarna Prof’l Prods. Inc. , No. 14 EAP 2022, slip op. at 44 n.23 (Pa. 2023).

[2] Aleeza Furman, Pa. High Court Rejects ‘Percentage of Revenue’ Venue Defense, The Legal Intelligencer (Nov. 22, 2023), https://www.law.com/thelegalintelligencer/2023/11/22/pa-high-court-rejects-percentage-of-revenue-venue-defense/.

[3] Pa. R. Civ. P. 2179(a)(2).

[4] Purcell v. Bryn Mawr Hosp. , 579 A.2d 1282, 1285 (Pa. 1990) (quoting Shambe v. Del. & Hudson R.R. CO. , 135 A. 755, 757 (Pa. 1927)).

[5] Hangey v. Husqvarna Prof’l Prods. Inc. , 247 A.3d 1136, 1143 (Pa. Super. Ct. 2021) (en banc).

[6] Hangey, slip op. at 39.

[7] Id.

[8] Id. at 45.

[9] Id. at 44.

[10] Hangey, slip op. at 4 & n.2 (Brobson, J., dissenting).

[11] See, e.g., Amagasu v. Mitsubishi Motors N. Am., No. 181102406 (Phila. Cnty. Ct. Com. Pl.) ($908 million Philadelphia jury verdict); Caranci v. Monsanto, No. 210602213 (Phila. Cnty. Ct. Com. Pl.) ($175 million Philadelphia verdict); see also Nuclear Verdicts Trends, Causes, and Solutions, U.S. Chamber of Com. Inst. for Legal Reform (Sept. 2022) (noting “[m]ore than half” of commonwealth’s nuclear verdicts are returned in Philadelphia County).

[12] For a more comprehensive discussion of Mallory and its potential implications, see Christina Manfredi McKinley & Joseph Schaeffer, Where Can a Corporation Be Sued for, Well, Anything? (An Evolving Test), Babst Calland Litigation Alert (July 18, 2023), https://www.babstcalland.com/news-article/where-can-a-corporation-be-sued-for-well-anything-an-evolving-test/.

[13] See, e.g., Ehmer v. Maxin Crane Works, L.P.,  296 A.3d 1202 (Pa. Super. Ct. 2023); Tranter v. Z&D Tour Inc., ___ A.3d ___, 2023 WL 6613731 (Pa. Super. Ct. 2023).

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Reproduced with permission. The article was first published on Law360, December 4, 2023.

Navigating environmental issues and liabilities in transactions

Smart Business

(By Sue Ostrowski featuring Ben Clapp)

When conducting corporate or real estate transactions, prospective buyers need to be aware of the environmental risks of the proposed acquisition, or they could find themselves on the hook for millions of dollars in remediation and compliance liabilities.

“Buyers need to work closely with an experienced environmental transactional attorney, sometimes in tandem with an environmental consultant, to ensure they are not acquiring environmental liabilities they didn’t intend to acquire,” says Ben Clapp, shareholder in the Environmental, Corporate and Commercial, and Energy and Natural Resources groups at Babst Calland. “Sellers also need to ensure they do not remain saddled with liabilities they didn’t intend to retain after a sale.”

Smart Business spoke with Clapp about the environmental diligence process in a sale and how to address environmental risks in contractual provisions.

What should potential buyers be aware of regarding environmental risk?

Purchasing a property without proper safeguards could put a buyer at risk of substantial liability should environmental contamination or compliance issues be discovered after purchase. Property owners are generally responsible for contamination, regardless of whether they caused it, including contamination that existed prior to taking ownership. Acquiring a business with undiscovered compliance issues can result in significant capital outlays for corrective actions and raises the possibility of becoming subject to enforcement actions and fines.

Environmental diligence is key to assessing the scope of environmental risk associated with a given transaction. However, the extent of diligence a buyer is permitted to perform can differ based on transaction structure and relative leverage of the parties.

How can buyers identify potential environmental issues?

A Phase I Environmental Site Assessment, performed by an environmental consultant, is often a good place to start. A Phase I combines a noninvasive investigation with a review of publicly available records and interviews of key personnel to determine whether contamination is likely to exist.

If a Phase I identifies the presence or likely presence of hazardous substances, a Phase II investigation may be performed, which involves environmental sampling. Phase IIs can also provide some insight into the extent of contamination, whether it is migrating from the property, and the cost and timing of remediation that may be required. If a Phase II is recommended, the seller and their counsel must consider whether it is in its best interest to allow one.

When assessing environmental compliance, attorneys generally evaluate materials provided by the seller in response to a diligence request, review public records and conduct interviews of EHS personnel and management. This can be supplemented by a formal compliance review, usually performed by an environmental consultant.

How can contractual provisions help address risks?

It is critical that the purchase agreement allocates the responsibility for environmental risks clearly and with specificity so there is no confusion or ambiguity that could lead to litigation. Environmental representations and warranties can play an important role, as they require the seller to disclose known environmental issues. The scope of these provisions is often a key negotiation point. Depending on the transaction structure, other considerations include determining whether the seller will retain responsibility for pre-closing environmental issues, and whether, and to what extent, the seller will indemnify the buyer for environmental liabilities for events that occurred before closing. Because environmental laws establishing cleanup liability generally have no statute of limitations, sellers often want a sunset provision for the indemnity so they don’t remain on the hook in perpetuity for liabilities. Buyers, however, may seek an indemnity that survives as long as possible.

All it takes is one undiscovered environmental issue to significantly impact the economics of a transaction. Thorough diligence and thoughtful drafting and negotiation of contractual provisions can go a long way toward mitigating the risk of a party incurring unintended environmental liabilities.

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Chapter 91 Spill Notification Requirements for Unauthorized Discharges

FNREL Water Law Newsletter

(Lisa M. Bruderly, Mackenzie M. Moyer and Jessica Deyoe)

The Pennsylvania Department of Environmental Protection’s (PADEP) Policy Office presented at the September 21, 2023, Water Resources Advisory Committee (WRAC) meeting on PADEP’s proposed regulation setting notification requirements for unauthorized discharges to waters of the commonwealth under 25 Pa. Code ch. 91. See PowerPoint Presentation, PADEP, “Notification Requirements for Unauthorized Discharges to Waters of the Commonwealth—Draft Proposed Rulemaking” (Sept. 21, 2023). Currently, the Pennsylvania Clean Streams Law requires PADEP to “determine when a discharge constitutes pollution” and to “establish standards whereby and wherefrom it can be ascertained and determined whether any such discharge does or does not constitute pollution.” 35 Pa. Stat. § 691.1. According to PADEP, the proposed amendments to chapter 91 are intended to enable the Department to meet its statutory obligation and set straightforward requirements for the public, the regulated community, and PADEP.

Under Pennsylvania’s Clean Water Program, the location and characteristics of authorized discharges—discharges permitted under a National Pollutant Discharge Elimination Permit, for example—are known prior to discharge. Permits are designed to ensure that these discharges do not cause or contribute to pollution, but unauthorized discharges—spills, for example—are unknown and unplanned. Many site-specific factors could affect whether the unauthorized discharge will result in pollution. Thus, the responsible party makes the first determination as to whether a discharge will cause or contribute to pollution, then PADEP investigates and assesses whether the discharge did or did not constitute pollution. PADEP intends for the chapter 91 updates to provide clearer reporting guidance and more consistent reporting for unauthorized discharges.

The draft proposed amendments to 25 Pa. Code § 91.33 detail factors to determine whether an unauthorized discharge will endanger downstream users or otherwise result in pollution or create a danger of pollution of waters of the commonwealth. These factors include the characteristics of the substances, the proximity to waters, the proximity to downstream users, the characteristics of the nearest waters, and the relevant infrastructure presence and qualities. At the WRAC meeting, PADEP gave examples of unauthorized discharges where notification would not be required, might be required, and would be required. For example, minor spills or leaks onto the ground where contaminated soil can be immediately removed, and there is no possibility of the substance reaching waters of the commonwealth, including groundwater or surface waters, directly or indirectly, would not be reportable. On the other hand, unanticipated bypasses of raw or inadequately treated sewage to waters of the commonwealth would be reportable.

The proposed rule also requires unauthorized discharges involving a quantity of a substance greater than the reportable quantity listed in 40 C.F.R. § 117.3 to be immediately reported to PADEP. PADEP rejected suggestions to use the water quality standards to determine “reportable quantities.” If the risk of pollution is unknown, the party in charge of the substance or the owner of the facility from which the substance is discharged must immediately notify PADEP. If requested by PADEP, a party claiming that they did not need to notify PADEP of a discharge must explain in a signed statement why the incident would not harm downstream users or result in pollution.

The proposed amendments are still in the pre-publication phase. In conjunction with the rulemaking, PADEP also intends to update its “Guidance on Reporting Requirements for Spills, Discharges, and other Incidents of a Substance Causing or Threatening Pollution to Waters of the Commonwealth Under Pennsylvania’s Clean Streams Law” to be consistent with the chapter 91 amendments.

Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

Water Resources Advisory Committee Discusses Alternatives Analysis Guidelines, Water Quality Criteria for Copper, and Draft 303(d) Report

FNREL Water Law Newsletter

(Lisa M. Bruderly, Mackenzie M. Moyer and Jessica Deyoe)

On September 21, 2023, the Water Resources Advisory Committee (WRAC) for the Pennsylvania Department of Environmental Protection (PADEP) held a meeting to discuss several recent water law updates including chapter 105 alternatives analysis guidance (relating to dam safety and waterway management), aquatic life water quality criteria for copper, and Pennsylvania’s draft integrated water quality report for 2024.

Alternative Analysis

Final edits to the Chapter 105 alternatives analysis technical guidance are nearing completion and PADEP is prepared to publish the final document in the fourth quarter of 2023. The development of this guidance began in 2018 and resulted in an initial proposed draft opened for public comment on September 4, 2021. The final technical guidance document is based on the 93 comments received from six commentators for the 2021 proposal, all of which are addressed in PADEP’s “Guidance for Developing a Chapter 105 Alternatives Analysis—Comment and Response Document” (Aug. 5, 2023).

The guidance seeks to clarify the appropriate level of analysis required when evaluating alternatives for projects that trigger the need for an Individual Water Obstruction and Encroachment Permit under chapter 105 of PADEP’s regulations (25 Pa. Code ch. 105). Chapter 105 regulations require applicants encroaching on waters of the commonwealth to avoid and minimize impacts to those water resources. The permit application must include “[a] detailed analysis of alternatives to the proposed action, including alternative locations, routings or designs to avoid or minimize adverse environmental impacts.” 25 Pa. Code § 105.13(e)(1)(viii). Until now, detailed guidance has not been provided by PADEP. PADEP intends for this guidance to remove inconsistencies with staff review and result in permit efficiencies.

Notable changes from the 2021 to the 2023 technical guidance include a new section to clarify how costs may or may not factor into an alternatives demonstration in certain scenarios and clearer guidance on eminent domain. In addition, the name change from “Chapter 105 Alternatives Analysis Technical Guidance Document” (2021) to “Guidance for Developing a Chapter 105 Alternatives Analysis” (2023) conveys that analysis of alternatives is a developmental process that should be documented from the initial design phase through the final proposed project.

Aquatic Life Criteria for Copper

A pre-draft proposed rulemaking regarding Pennsylvania’s aquatic life criteria for copper was discussed at the WRAC meeting. This proposed rulemaking would update the aquatic life water quality criteria for copper by replacing the current hardness-based water quality criteria with the Biotic Ligand Model (BLM). BLM is a metal bioavailability model that utilizes receiving water body characteristics to develop site-specific water quality criteria, using the best available science. It is presently used for the development of site-specific criteria for copper in freshwater systems following the U.S. Environmental Protection Agency’s (EPA) “Aquatic Life Ambient Freshwater Quality Criteria – Copper” (2007 Revision). In 2007, the EPA replaced its 1984 hardness-based recommendation for copper in light of new data on copper’s toxicity to aquatic life. The current Pennsylvania hardness-based water quality criteria are based on the EPA’s 1984 guidance.

Draft Integrated Water Quality Report for 2024

An update on Pennsylvania’s Draft Integrated Water Quality Report for 2024 was presented at the WRAC meeting. Under sections 305(b) and 303(d) of the Clean Water Act (CWA), PADEP is required to submit a report to the EPA every two years that assesses the quality of surface waters in Pennsylvania and identifies streams and other bodies of water with “impaired” water quality. The reports include narrative descriptions of control and restoration programs managed by the PADEP, trends in water quality parameters, and the status of Pennsylvania surface waters.

Several notable updates are included in the Draft Integrated Water Quality Report for 2024, including an environmental justice/climate change section that covers nearly four million Pennsylvania residents living in environmental justice communities. In addition, major portions of the West Branch Susquehanna River and the Susquehanna River have been reassessed for aquatic life use. Approximately 3,200 miles of streams have been assessed for recreation, many of which were not previously assessed for recreation, and approximately 47 stream miles and 727 lake acres have been restored for at least one protected water use since 2022.

A 45-day public comment period opened on September 23, 2023, and ended on November 7, 2023. The final 2024 Integrated Water Quality Report for Pennsylvania is expected to be submitted to the EPA for approval by February 2024, meeting the federal mandate of final submission by April 1, 2024.

Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

Diversity Jurisdiction and the Unintended Consequences of Remote Employees

Pretrial Practice & Discovery

American Bar Association Litigation Section

(By Joseph Schaeffer and Christina Manfredi McKinley)

Corporations choose where to incorporate and maintain a principal place of business for many reasons; regulatory climate, availability of resources and a trained labor force, and logistics are just a few common considerations. Another increasingly common consideration is litigation risk. All things being equal, for instance, most corporations will prefer to avoid incorporating or maintaining principal places of business in jurisdictions known for sizeable jury awards against corporate defendants. But what corporations might not realize is that their best-laid plans can be upset by executives’ remote-work arrangements.

In Evans v. Cardlytics, Inc., for example, two California-based plaintiffs filed suit against their former employer in a California state court. No. 8:23-cv-00606-JWH-KES (C.D. Cal. Nov. 7, 2023). The defendant removed the suit to the Central District of California on the basis of diversity jurisdiction, alleging that it was incorporated in Delaware and maintained its principal place of business in Georgia. The plaintiffs moved to remand, however, on the grounds that the defendants’ principal place of business was not in Georgia, where the defendant maintained its corporate offices, but rather in California, where several of defendants’ officers resided and worked remotely.

The Central District of California granted the remand motion. It found that four of the defendants’ seven officers were residents of California. And while the court was persuaded by the numerical majority of the defendant’s officers, even more so, the court was particularly persuaded by the roles filled by those four officers: chief executive officer, chief operating officer, chief technology officer, and chief product officer. Comparing a corporation’s principal place of business to its “brain,” the court likened the CEO and COO to its “prefrontal cortex and hippocampus, i.e., the parts most responsible for decision-making.” Id. at *7.

The Evans court’s reasoning and conclusion offer at least two lessons for practitioners. First, counsel advising corporate clients should consider the jurisdictional implications of remote-work arrangements for corporate executives. And second, neither plaintiffs’ counsel nor defense counsel should take a corporation’s identification of its principal place of business at face value. In an environment where remote work is increasingly prevalent, the facts might support or defeat diversity jurisdiction in unexpected (and perhaps unintended) ways.

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© 2023. Diversity Jurisdiction and the Unintended Consequences of Remote Employees, Pretrial Practice & Discovery, American Bar Association Litigation Section, October 31, 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Environmental Justice

PIOGA Press

(By Sean McGovern and Amanda Brosy)

Federal Action

Environmental Justice (EJ) efforts continue to expand as a programmatic priority for federal and state governing bodies. On April 21, 2023, President Joe Biden passed a new Executive Order on Revitalizing Our Nation’s Commitment to Environmental Justice for All (E.O. 14096) that builds upon a series of similar orders he signed over the last three years. E.O. 14096 specifically says the Biden administration will pursue a “whole-of-government” approach to EJ.

Accordingly, the Order directs each agency to make achieving EJ a part of its mission and, among other things, take proactive steps to address inequities in federal policies and practices. Notably, the Order also sets forth a new, broader definition of EJ than the EPA’s current definition, specifically including “Tribal affiliation” and “disability” within the list of protected groups. To advance EJ initiatives and coordinate the development of “policies, programs, and partnerships to achieve the policies” described in E.O. 14096, the Order establishes a new White House Office of EJ within the Council on Environmental Quality (CEQ). In addition, to “address the need for a coordinated federal strategy to identify and address gaps in science, data, and research” related to EJ, the Order directs the creation of an EJ Subcommittee of the National Science and Technology Council. This Subcommittee is tasked with preparing a Research Plan (updated biennially) to provide recommendations to the CEQ and federal agencies on data collection, research techniques, and public accessibility of information, with the goal of advancing EJ.

Following clear and consistent directives from President Biden, EJ funding has increased as a result of the 2022 Inflation Reduction Act (IRA). Through the IRA, Congress made about $3 billion in funding available for EJ grants. Earlier this year, the administration announced two new grant programs that will collectively provide a total of $650 million to community-based non-profit organizations, state governments, and other entities to support EJ efforts. In an effort to help communities access these new federal resources, EPA recently launched its Community, Equity & Resiliency initiative and began hosting virtual meetings regarding various EJ topics. And in March, EPA’s 2024 Fiscal Year Budget in Brief revealed that the administration’s ask for a total of $1.9 billion in EPA funding includes $369 million for EJ and $31 million for civil rights activities. This amounts to nearly $267 million more for EJ and $18 million more for civil rights than the FY23 enacted levels. While adoption of the EPA’s proposed budget is far from guaranteed, it does further demonstrate the current administration’s persistence in funding EJ efforts.

The administration’s efforts to utilize Title VI of the Civil Rights Act to pursue EJ have been mixed. In early May, the Department of Justice resolved its first EJ investigation by entering into a settlement agreement with the Alabama Department of Public Health (ADPH) pursuant to which ADPH agreed to take certain steps to remedy the inequitable enforcement of its sanitation laws. In October, EPA agreed to accept a Title VI petition on behalf of Alabama residents that alleges the state rules governing distribution of Clean Water State Revolving Fund (SRF) monies discriminate against minority residents. Alternatively, on June 27, 2023, EPA closed two civil rights investigations into Louisiana officials’ permitting practices spurred by Title VI complaints after state officials argued that EPA’s actions were unconstitutional and moved for an injunction preventing the investigations. While EPA pointed to other “significant actions” (outside of the Title VI probe) it had taken and plans to take to address the complaints, the threat of litigation may have been a significant motivator to drop the investigations as well. Either way, this area of EJ efforts is proving to be one to watch.

Pennsylvania Developments

In Pennsylvania, recent personnel and staffing updates demonstrate a continued commitment to EJ efforts. In late March, Department of Environmental Protection (PADEP) Secretary Negrin announced that he had named Fernando Treviño to the new position of Special Deputy Secretary for Environmental Justice. The Secretary indicated that Mr. Treviño will be sup-ported by additional EJ staff, as he plans to place an EJ coordinator in each of DEP’s regional offices across the Commonwealth. As of this writing, the Office of Environmental Justice appears to be fully staffed, as Regional Coordinators, Regional Directors, and Assistant Regional Directors (among others) have been assigned to each of PADEP’s six regional offices.

Meanwhile, in accordance with Former Governor Tom Wolf’s Executive Order 2021-07, PADEP released its interim final EJ Policy in August, along with a link to the latest EJ mapping tool (“PennEnviroScreen”) and an explanatory Methodology Document. The Policy took effect on September 16, 2023, when official notice of the Interim Final rulemaking was published in the Pennsylvania Bulletin. PADEP began using PennEnviroScreen on September 16th to determine whether facilities are located in environmental justice areas (EJ areas) based on 32 environmental, health, and socioeconomic indicators. The publication date was also the start of a public comment period that runs until November 30, 2023. During the comment period, DEP will accept both written and verbal comments on both the Interim Final Policy and the Methodology Document. Receipt and review of public comments on the Interim Final Policy will be yet another “critical benchmark towards the final EJ Policy,” which is due from DEP in 2024.

The Interim Final Policy describes detailed public participation requirements for facilities in EJ areas and indicates that non-compliant facilities may be subject to inspections, enforcement, and even civil penalties. Interestingly, the Interim Final Policy, which is expected to result in lengthier permitting proceedings, may be at odds with the Shapiro Administration’s newly launched PAyback program, a part of the Governor’s promise to establish standard processing times. PAyback is a money-back guarantee system that allows entities to check their eligibility for a refund of permit, license, or certification application fees and request that refund if they believe they are eligible.

On a related front, in April PADEP’s Energy Programs Office hosted meetings with leaders and residents in EJ communities around the state to learn how PADEP can assist EJ communities to become more sustainable and prepare for the effects of climate change. Sessions were held in Meadville, Pittsburgh, Scranton, Reading, Harrisburg, Norristown, and Philadelphia, and also provided for virtual attendance. Discussions covered a wide range of topics including fuel source strategies, land use regulations and building codes, infrastructure, and public health. Community feedback was synthesized into a Stakeholder Engagement Report, which is now available on PADEP’s website.

During its Philadelphia session, the PADEP Energy Programs Office representative indicated that PADEP plans to be more intentional about the inclusion of EJ in the Pennsylvania Climate Action Plan, which is updated every three years (the last update was released in 2021). In addition, what they learn from the meetings will inform other program development, such as grants. Lastly, the Energy Programs Office plans to incorporate community feedback from the meetings to create a strategy for equitable implementation of climate actions in the Commonwealth with federal funding, in alignment with federal Justice40 guidance.

Although PADEP has spearheaded the Commonwealth’s recent EJ efforts the Pennsylvania House’s Environmental Resources and Energy Committee recently passed HB652, which calls for heightened permitting standards in designated “Environmental Justice Areas” for certain new types of facilities. Permit applicants in these designated areas would have to submit a report assessing the environmental impact of the proposed new facility together with the cumulative impacts on the EJ area. Following a public hearing, PADEP will evaluate revisions or conditions to the permit that may be necessary to reduce adverse impacts to public health or the environment in the EJ area and may even deny the application based on cumulative environmental impacts. The bill now heads to the full House of Representatives before consideration by the Republican-controlled Senate.

HB652 is said to be modeled after New Jersey’s pioneering EJ rules, which became effective on April 17, 2023. These rules implement the state’s Environmental Justice Law, adopted in September 2020, and they allow New Jersey’s DEP to deny an application for a new facility if that facility cannot avoid imposing disproportionate impacts on an overburdened community (OBC). Notably, however, a facility that does cause such disproportionate impacts can still be permitted where it demonstrates that it will serve a compelling public interest in the OBC. For any members of New Jersey’s regulated community considering new projects or expansions of existing facilities, additional cost and time should certainly be factored into the permitting process.

This article is an update of the Environmental Justice section of The 2023 Babst Calland Report. To request a copy of the full report, click here:
https://reports.babstcalland.com/energy-2

Link to similar article of interest:
https://www.spotlightpa.org/statecollege/2023/11/pennsylvania-environmental-justice-dep-health-risks-safety/

Link to EPA EJScreen/Mapping Tool:
https://www.epa.gov/ejscreen

To view the full article, click here.

To view the PDF, click here.

¹ Executive Order 14096, “Revitalizing Our Nation’s Commitment to Environmental Justice for All,” section 3(a) (available at Executive Order on Revitalizing Our Nation’s Commitment to Environmental Justice for All | The White House).
² Executive Order 14096, “Revitalizing Our Nation’s Commitment to Environmental Justice for All,” sec-tion 2(b). In addition, the definition specifically identifies the following as adverse human health and environmental effects that people should be fully protected from: “the legacy of racism or other structur-al or systemic barriers.” Id.
³ Executive Order 14096, “Revitalizing Our Nation’s Commitment to Environmental Justice for All,” sec-tion 8(b).
⁴ Executive Order 14096, “Revitalizing Our Nation’s Commitment to Environmental Justice for All,” sec-tion 5(a)(iii).
⁵ More information about EPA’s “Virtual Open House,” which runs from November 6 to November 14, is available at its new Community, Equity & Resiliency webpage: https://www.epa.gov/community-equity-resiliency.
⁶ “FY 2024 EPA Budget in Brief,” United States Environmental Protection Agency, March 2023 (avail-able at https://www.epa.gov/system/files/documents/2023-03/fy-2024-epa-bib.pdf.
⁷ Secretary Negrin submitted his resignation on October 26, and will be taking a medical leave of absence until the resignation becomes effective on December 9, 2023. Former Executive Secretary Jessica Shirley will serve as Interim Active Secretary, effective immediately.
⁸ DEP Newsroom, Shapiro Administration Expands Environmental Justice Protections with Updated Policy and Improved Mapping Tool (Aug. 29, 2023), https://www.ahs.dep.pa.gov/NewsRoomPublic/arti-cleviewer.aspx?id=22337&typeid=1.
⁹ https://www.dep.pa.gov/Citizens/climate/Pages/Climate-Action-for-Environmental-Justice-Communities.aspx.
¹⁰ Available at Bill Information – House Bill 652; Regular Session 2023-2024 – PA General Assembly (state.pa.us). The proposed bill would apply to certain water, air, waste, mining, oil and gas develop-ment, and power plant permits, among others. See HB652 § 4302 (definition of “Facility”).
¹¹ N.J.A.C. 7:1C (available at njac7_1c.pdf).

Reprinted with permission from the November 2023 issue of The PIOGA Press. All rights reserved.

Court Holds Pennsylvania RGGI Rule Unconstitutional

PIOGA Press

(By Kevin Garber and Jessica Deyoe)

On November 1, 2023, the Commonwealth Court of Pennsylvania held that the Pennsylvania Department of Environmental Protection’s CO₂ Budget Trading Program Regulation is an unconstitutional tax, declared the rule to be void, and enjoined DEP from enforcing it. See Bowfin KeyCon Holdings, LLC et al v. Pennsylvania Department of Environmental Protection and Pennsylvania Environmental Quality Board (No. 247 M.D. 2022). The Regulation would have linked Pennsylvania’s cap-and-trade program to the Regional Greenhouse Gas Initiative (RGGI), which is the regional, market-based cap-and-trade program designed to reduce carbon dioxide emissions from fossil-fuel-fired electric power generators with a capacity of 25 megawatts or greater that send more than 10 percent of their annual gross generation to the electric grid.

The Court reaffirmed its earlier July 8, 2022 opinion in which it preliminarily enjoined the Regulation as an unconstitutional tax. In this November 1 decision on the merits, the Court held that the Regulation constitutes a tax imposed by DEP in violation of the Pennsylvania Constitution.

Undisputed facts of record established that only 6 percent of RGGI auction proceeds are necessary to cover the cost of administering the program and that the annual revenue anticipated from RGGI would be three times greater than the total amount allocated to DEP from the General Fund in a single year. The Court found that the money to be generated by Pennsylvania’s participation in RGGI would be “grossly disproportionate” to the costs of overseeing participation in the program and DEP’s annual needs. Relying on the Pennsylvania Supreme Court’s opinion in Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947), which found that

[n]o principle is more firmly established in the law of Pennsylvania than the principle that a revenue tax cannot be constitutionally imposed upon a business under the guise of a police regulation, and that if the amount of a ‘license fee’ is grossly disproportionate to the sum required to pay the cost of the due regulation of the business the ‘license fee’ act will be struck down,

the Commonwealth Court concluded that Pennsylvania’s participation in RGGI “may only be achieved through legislation duly enacted by the Pennsylvania General Assembly, and not merely through the Rulemaking promulgated by DEP and EQB.

For more information, please contact Kevin Garber at kgarber@babstcalland.com, Jessica Deyoe at jdeyoe@babstcalland.com.

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Reprinted with permission from the November 2023 issue of The PIOGA Press. All rights reserved.

The Business of Law

(By Daniel Bates featuring Donald C. Bluedorn II)

Some things never change.

And that’s a good thing, according to Donald C. Bluedorn, II, managing shareholder of Pittsburgh law firm Babst Calland, who has devoted most of his career at the firm to championing a business model and culture that, he said, have fostered long-term, sustainable growth since the firm’s inception in 1986.

That business model and culture, Bluedorn said, are what attracted him to the firm in the first place as a young lawyer, only a year after Babst Calland was established. He also credits this with fueling the firm’s growth across five office locations, including Pittsburgh, Washington, D.C., Charleston, W.Va., State College, Pa., and Harrisburg, Pa., along with several remote “outpost” offices. Such growth also has made Babst Calland one of Pittsburgh’s top law firms.

“When I came to Babst Calland from another larger firm, there were two things that really impressed me and made me want to become part of Babst Calland,” Bluedorn said. “One was there was a lot of flexibility and a lot of ability to control your own destiny as a lawyer and become what you want to be – an opportunity to practice law, manage clients, and gain a lot of hands-on experience, and that really appealed to me as a young lawyer.”

The second factor, he continued, was – and still is – the firm’s culture. “I loved the culture. People were treated with mutual respect, and everyone worked together. And although we’ve grown in size and we’ve added lawyers and practice areas, I think those two attributes of the firm have really stayed the same. They’re part of what define us and are part of what we work to make sure we maintain because this is what differentiates us and makes us so successful in the marketplace.”

He added: “It allows us to retain and attract really sophisticated talent. There are opportunities at lots of other places, but our people choose to spend their careers with us.”

Bluedorn shared his insights on sustainability and the growth strategy that has built Babst Calland’s legacy as a successful law practice for more than three decades during a recent interview.

The strategy really begins with Bluedorn’s own philosophy about the practice of law, which goes back to his undergraduate engineering degree he earned before attending law school.

“My first engineering professor described engineering as solving unsolvable problems,” he said. “To me, that’s what the practice of law is, and I’ve always enjoyed that. I love taking on clients’ problems and working with them to find solutions.

Depth and collaboration

To “solve unsolvable problems really motivates me and keeps me coming in every day with a smile on my face,” Bluedorn explained, Babst Calland has taken a more focused approach to law, specializing largely in helping its clients navigate the legal and regulatory challenges of businesses today.

“Our business model is different than many of our competitors’,” Bluedorn said. “We don’t want to be all things to all people, and we don’t want to grow just to grow. Although we’ve been fortunate to grow in many ways, we put together teams in certain areas of law. We want to practice with as much depth and sophistication as anyone in the country.

“And we provide our legal services at a lower price point with a greater focus on client satisfaction,” he continued. “That’s what has allowed us to grow. That’s the external difference. The client never has to worry about not getting a returned phone call, which blows my mind when I hear clients talk about taking days to hear from lawyers. That just doesn’t happen with us.”

The cultural difference

The firm’s collaborative depth-and-sophistication approach wouldn’t succeed, though, without a strong internal culture, Bluedorn said.

“The internal difference is just as important as the external difference,” he said. “Every business in the country talks about culture. Culture is a really critically important lesson. The first thing we talk about as lawyers and the last thing we talk about – and all of our internal practices, all of our formal and informal methods of dealing with people, are based around fostering that culture.”

Here’s how he describes the Babst Calland culture: “A culture of mutual respect, a culture of teamwork, and a culture of support. We don’t have the silos and disconnectedness that you sometimes see in other organizations. Everyone wants to work together, and everyone is treated with respect. This has allowed us to grow in ways that we otherwise wouldn’t have been able to if we had a more traditional model.”

Bluedorn summed up the firm’s overall goal like this. “Our goal is to grow a strong and vibrant business by serving clients well and, in turn, providing a positive experience and opportunity for our people.”

Growth investments

To support the firm’s growth and culture, Babst Calland continues to invest substantially in its people, practice areas, and service delivery, Bluedorn said. Among its priorities are stronger infrastructure, new technology that helps people succeed and collaborate more efficiently, and leadership development.

“We encourage our people to step up for new challenges with a client or on one of the firm’s key initiatives,” he said. “This is happening at each of our office locations.”

Bluedorn credits the firm’s collaborative culture with getting the firm through the formidable challenges of the COVID pandemic, when Babst Calland had to shut down its offices and send people home to work remotely.

“We were fortunate because we had a strong culture and a strong history of working collaboratively to solve difficult issues,” he recalled. “So early on in the pandemic, we came together cohesively as shareholders – as a law firm – and said, ‘we’re going to get through this together, just like we always do, and we’re not going to implement draconian measures like massive pay cuts.’

“But the underlying theme, the constant thread throughout all of that was we wanted to come together, to work together, to take care of each other,” Bluedorn continued. “And in doing that, we wanted to be in a position where we could take care of our clients and each other, and we are proud to say we did that.”

Babst Calland’s hybrid future

Why the pandemic was so important, Bluedorn said, is that it set the firm up to provide more flexibility to its employees going forward, thanks to new technology proven to work during the pandemic, as well as to facilitate the collaborative culture moving forward. The result? A three-day-a-week hybrid work schedule for most employees, where the employees can choose which three days of the week they want to work in the office, and which two days they’ll work remotely.

“We came to that fairly early on in the return to office period, and we actually initiated it with a broad-based survey to all of our people, and we asked them to identify themselves (not by name but by position) so that we had an idea of our different constituencies and what their concerns were,” Bluedorn said. “And we’re investing in technology that makes us more productive at home and makes it more seamless in terms of communications.

“We continue to refine our practices to make it better for our people,” he continued, ‘so we have no intention of walking away from three days a week and in fact, we’re hoping to continue it forever.”

Strategic growth mode

Flexibility aside, Bluedorn said the firm’s lawyers maintain a strong affinity for Babst Calland because of the growth opportunities ahead.

“We are in strategic growth mode and looking toward the future. This is not a situation like some firms that maximize what they can do for the next six or seven years and then see where they are, and then get acquired. We’re growing and taking steps today, and we expect it to really pay off in the next 10 to 15 years.”

He added: “We’re taking a long-term view, and so it’s a great opportunity for someone to come in and be able to control their destiny, work with people they like, and have an organization that’s really looking toward future growth and opportunity for all of its people.”

Business Insights is presented by Babst Calland and the Pittsburgh Business Times.

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2023 Babst Calland Report—Legal & Regulatory Perspectives For The Energy Industry

The American Oil and Gas Reporter

(By Del Torkelson)

Featuring a Briefing from U.S. Senator John Barrasso

In “The 2023 Babst Calland Report—Legal & Regulatory Perspectives for the Energy Industry,” which offers updates on top legal and public policy matters confronting the country’s oil and natural gas industry, U.S. Senator John Barrasso, R-Wy., stresses the importance of permitting reform. The law firm’s annual report also explores several other major topics, including climate policy and ESG matters, as well as trends in litigation,

“The U.S. energy sector remains as dynamic as ever as Babst Calland offers its 13th annual perspective on the challenges and opportunities facing all parts of the energy value chain,” the report opens. “This year, U.S. natural gas production and demand is expected to reach record highs. Natural gas production has doubled since 2006 and increasing demand has turned the United States into a leading global natural gas producer. Investments in liquified natural gas infrastructure continue as the United States becomes the top LNG exporter in the world.”

Principles For Reform

Barrasso’s briefing appears in a short video introduced by Babst Calland attorneys A.A. Moore Capito, a shareholder in the Charleston, W.V., office, and Jim Curry, managing shareholder in the Washington office. They also close the video by reflecting on the senator’s remarks.

Barrasso opens by lamenting the extent to which the Biden administration’s energy policies have frustrated U.S. production of traditional energy sources.

When Barrasso began his Senate tenure in 2007, he recounts, the United States imported 29% of its energy, but by 2019, U.S. producers had transformed the country into a net energy exporter. Although growing domestic production has boosted the U.S. economy, secured its energy supply and assisted the country’s allies, Barrasso says Biden has staffed his administration with fossil fuel opponents and blocked traditional energy while pushing for an unrealistic energy transition.

“We are going to be forced to pay for resources and critical resources from China and even Russia; in the end, it is China and Russia that will rake in the green,” Barrasso predicts. “The president also is forcing American consumers to buy expensive new technologies that they don’t want and cannot afford. In doing so, the president is putting our economy and our industries at risk.”

The United States should resume the all-of-the-above energy policy that made it an energy superpower, the senator urges. “One way is to reform the horrendously complicated federal permitting system to speed up infrastructure and mining projects,” he suggests.

For blueprints on how to address the system’s worst flaws, Barrasso points to two bills: the “Spur Permitting of Underdeveloped Resources (SPUR) Act,” which he introduced, and the “Revitalizing the Economy by Simplifying Timelines and Assuring Regulatory Transparency (RESTART) Act,” by Senator Shelley Moore Capito, R-W.V.

“The current system moves in slow motion and—too often—in no motion at all,” he describes. “It takes an average of 41⁄2 years just to complete an environmental impact statement. In some cases, it can take a decade or more to get final approval. Any project that makes it through the regulatory quagmire inevitably will be challenged in court. It has gotten so bad that, in the last few years, we have canceled more miles of interstate gas pipelines than we have built. Project developers need a system that is predictable and delivers a timely answer.”

Earlier this year, the House of Representatives passed HR 1, the “Lower Energy Costs Act,” an event that Barrasso says gives the Senate an opportunity to consider meaningful reform. Unfortunately, he laments, the permitting bill pushed by Senate Majority Leader Charles Schumer, D-N.Y., preserves the system’s most dysfunctional aspects.

According to Barrasso, the SPUR and RESTART acts incorporate a few fundamental principles.

“First, real reform must benefit the entire country, not a narrow range of special interests,” he emphasizes. “Instead of putting a thumb on the scale for politically favored technologies, our proposal is technology- and fuel-neutral. Second, real reform needs to include enforceable timelines for environmental reviews.

“Third, real reform must place time limits on legal challenges to prevent endless litigation, intended solely to kill projects. Finally, real reform must prevent the executive branch from hijacking the process to meet its own policy preferences.”

Reliable Power

Permitting reform also will allow domestic companies timely and efficient access to the United States’ considerable mineral deposits, Barrasso maintains. “They are worthless if you cannot get them out of the ground,” he considers. “Our competitors in China move much faster.”

The country should develop a domestic uranium supply chain for everything from mining to processing to reactors, the senator suggests, and stop prematurely shutting down existing fossil fuel electrical generation. Both the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation have raised concerns about the U.S. electric grid, he notes.

“Just 10 years ago, fossil and nuclear plants made up 82% of the electricity generating capacity in the lower 48 states; wind and solar accounted for just 6%,” Barrasso observes. “Today the figures are 70% and 19%, respectively. Electricity generation for coal, gas and nuclear power is being shut down faster than less reliable sources are coming on line. That is what members of both FERC and NAERC testified to the Senate Committee on Energy and Natural Resources. The way to restore balance to our electric grid is to restore balance to our energy policy.”

An all-of-the-above energy policy once yielded American energy independence and affordability, Barrasso indicates, and there should again be a place for all energy resources. “It is the key to a diverse, secure and affordable and reliable energy supply,” the senator argues. “It’s what Americans want. It’s what America needs. It is what Wyoming and the rest of America can deliver and will deliver if Washington will just get out of the way.”

In their remarks concluding the video, Curry and Capito note that permitting reform constitutes the central theme of Barrasso’s remarks. “Congress and the administration sort of made a down payment on permitting reform earlier this year,” Curry says in reference to the “Fiscal Responsibility Act” debt limit bill Biden signed in early June. “It sounds like those efforts will continue in earnest here in the fall.

“It’s clear the senator views all these issues not just through the lens of energy, domestically, but also as a national security and global competition issue,” he adds. “If we want to compete in the global energy marketplace, we really need to be able to make these things, domestically.”

In The Courts

In the report’s section on litigation trends, Babst Calland shareholders Timothy M. Miller and Jennifer J. Hicks consider a variety of novel lawsuits.

“Many law firms that traditionally focused on personal injury and tort claims have seen the impact of tort reform on their bottom line, and some defense firms are now taking more plaintiff cases for the same reason,” the section begins. “The influx of ‘new’ entrants to the energy litigation field, coupled with the perceived greener pastures in energy litigation, has resulted in many new suits asserting variations on traditional energy litigation themes. The following trends demonstrate a need for vigilance in lease drafting and contract administration and awareness of the new litigation risks.”

The report highlights variations on:

• Trespass claims;
• Royalty claims;
• Challenges to the lessee’s method of operations;
• Infrastructure challenges; and
• Private suits to bypass regulatory authorities.

Regarding trespass claims, the report indicates the Appalachian Basin’s typical title and lease instruments predate shale production. “Recent cases in Ohio and West Virginia have been based on the absence of broad grants of all minerals to claim drilling in formations that were not specifically leased constitutes a willful trespass,” it notes. “Claims like these need to be identified in the leasing and pre-drilling process, and where possible, corrective instruments or ratifications should be obtained.”

Meanwhile, it continues, much of the basin’s royalty litigation stems from West Virginia’s 2006 Estate of Tawney ruling that undermined the traditional rules of contract construction regarding post-production costs. Since that ruling, lessees have tended to draft leases that attempt to carefully detail post-production costs and deduction calculation methods, but litigation continues to proliferate, Babst Calland says.

The report details a couple cases as examples and concludes, “17 years after Tawney, numerous challenges to every variation of lease royalty clauses continue to be filed.”

Turning to operational methods, the report points to the basin’s longstanding rules regarding the “rule of capture” and operators’ discretion under the “prudent operator” standard. Nevertheless, the firm notes, lessors in a growing number of cases are challenging how units have been formed, how wells were drilled, and whether wells from adjoining units or properties may be causing gas to migrate away from the lease.

“One such suit alleges damages even though a well has been drilled and the lease is held by production,” the report notes. “The lessor alleges the operator should have nevertheless drilled all the potential laterals on the lease at the outset of lease operations to avoid the possibility that the reservoir pressure may be reduced by other units and wells on adjoining or nearby properties. While the lessor has asserted in amended pleadings claims that there has been some physical damage to the reservoir from fracturing on the adjoining properties, the claims appear to be a back-handed challenge to the rule of capture and operator discretion rules.

“While these cases would seem to clearly run afoul of longstanding jurisprudence in the basin, the search for new claim theories and test cases seems to be increasing,” Babst Calland assesses.

Regarding infrastructure lawsuits, the report predicts the basin’s multifaceted legal challenges to pipelines, compressors and other infrastructure will continue. “Only due to provisions in the Fiscal Responsibility Act has the Mountain Valley Pipeline been able to resume construction,” it notes. “Efforts to prevent construction of infrastructure include use of local governments to try and enact ordinances or regulations which have the effect of preventing construction of wells, compressor stations and related facilities. Climate-change-based advocates will continue to challenge every fossil fuel related project.”

As for private lawsuits that attempt to bypass regulatory authorities, the report acknowledges that operations regulated by state statutes and subject to state agency enforcement powers rarely give rise to private civil action enforcement. Nevertheless, it observes, litigants seeking novel ways to bring claims are asserting that state agencies have failed to fulfill their duties.

“An example are cases filed in Pennsylvania and West Virginia seeking to have declared that wells allegedly nearing end of life must be plugged and abandoned even though the state regulatory agencies with jurisdiction over enforcement of plugging and abandonment obligations have allowed the continued operation of the wells,” the report illustrates. “The determination of whether a well is at the end of its useful life is typically an operator and agency determination, but private lessors now seek to bypass the state agencies’ decisions that have been made and impose plugging and abandonment obligations by judicial decree.”

Nongovernmental organizations and other parties who disagree with regulators’ decisions have made similar claims in coal mining and other energy fields, the report indicates. “These cases are on the upswing and are being filed in venues where the claimants feel they have the most favorable chances of success,” Babst Calland maintains.

“In short,” the firm says, “there are sophisticated parties and law firms asserting new claims and theories testing the boundaries of traditional energy law in the basin, and clients are encouraged to be vigilant to detect and be prepared to defend these cases.”

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Republished with permission from the November issue of The American Oil & Gas Reporter.