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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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
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
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.
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
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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.
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.
(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.
To view the PDF, click here.
To view the full article and video, click here.
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.”
To view the full article, click here.
Republished with permission from the November issue of The American Oil & Gas Reporter.
Abigail M. Reecer recently joined Babst Calland as an associate in the Energy and Natural Resources Group and Pipeline and HazMat Safety Practice. Ms. Reecer represents client in pipeline safety matters before the Pipeline and Hazardous Materials Safety Administration (PHMSA), state agencies, and federal courts.
Prior to joining Babst Calland, Ms. Reecer was an associate with Hollingsworth LLP. He is a 2021 graduate of Georgetown University Law Center.
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Oil & Gas
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Matthew C. Wood)
In August 2023, the University of Pittsburgh School of Public Health and the Pennsylvania Department of Health (DOH) released three “observational epidemiological” studies presenting findings of potential health impacts from human exposure to unconventional natural gas development (UNGD) activities. The studies, which were conducted in eight counties in southwestern Pennsylvania, excluding the City of Pittsburgh, focused on three specific health issues: (1) asthma, (2) birth outcomes, and (3) certain childhood cancers.
In the Asthma Study, researchers reviewed medical treatment for asthma (categorized by severity), as well as how close the patient lived to UNGD activities (considering the number of wells, production volume, and the phase of well development, i.e., preparation, drilling, hydraulic fracturing, and production). The study found no relationship between asthma exacerbations and proximity to wells during the well pad preparation, drilling, or hydraulic fracturing phases, but found an increase during the production phase. The increases were fairly consistent in the lower, moderate, and higher exposure groups and therefore, the expected dose/response relationship (i.e., more asthma exacerbations with more exposure) was not found. See Univ. of Pittsburgh Sch. of Pub. Health, “Hydraulic Fracturing Epidemiology Research Studies: Asthma Outcomes” (July 31, 2023); DOH, “PA Health and Environment Study: Asthma” (Aug. 15, 2023).
For the Birth Outcomes Study, researchers reviewed birth records and the distance mothers lived from UNGD activities and other industrial activities. Researchers for the Birth Outcomes Study considered the number of wells, production volume, and the phase of well development, in addition to potential exposure from certain facilities, i.e., impoundment ponds, facilities accepting oil and gas waste, compressor stations, Superfund sites, and industrial sites with a toxic release inventory. Additionally, the study looked at exposure to fine particulate matter (PM2.5) and birth outcomes. The study found next to no statistically significant association for small for gestational age (SGA) births and preterm births. The study reported a one-ounce decrease in birthweight associated with proximity to wells during the production phase and proximity to compressor stations, which they acknowledge presented little health risk. Although there were some increased risks for SGA in exposed groups, the results were inconsistent among exposure groups and did not support the expected dose/response relationship. The study found no association between exposure to PM2.5 (from any source) and SGA or decreased birthweight, but found a statistically significant increased risk of preterm birth. These findings for PM2.5 are inconsistent with the findings for proximity to wells and to other facilities. See Univ. of Pittsburgh Sch. of Pub. Health, “Hydraulic Fracturing Epidemiology Research Studies: Birth Outcomes” (July 31, 2023); DOH, “PA Health and Environment Study: Birth Outcomes” (Aug. 15, 2023).
The Childhood Cancer Study included a review of health records of children diagnosed with leukemia, lymphoma, central nervous system tumors, and bone cancers (including Ewing sarcoma). The study looked at associations between proximity to UNGD activities, Superfund sites, industrial facilities, and uranium tailing sites and these cancers in a group of persons who were surveyed to determine their proximity to the sites, and in a group of persons whose residence information was compiled from the birth addresses from their medical records. For the medical record group, no information about subsequent addresses was used in the study and the birth addresses were assumed to be their addresses through the date of cancer diagnosis. The study found no association between well proximity and leukemia, central nervous system cancers, or malignant bone tumors, including Ewing sarcoma. The study also found no association between compressor stations, impoundments, Superfund sites, industrial facilities, and waste facilities and these cancers. On the other hand, an association between uranium tailings sites and central nervous system tumors was found, but with a wide confidence interval. The study found an association between proximity to wells and rare childhood lymphomas (which risk was increased from 0.0012% to between 0.006% and 0.0084% for children living within one mile of a well) only in the group whose birth address was used and not in the group where more specific address information was obtained from surveys. See Univ. of Pittsburgh Sch. of Pub. Health, “Hydraulic Fracturing Epidemiology Research Studies: Childhood Cancer Case-Control Study” (Aug. 3, 2023); DOH, “PA Health and Environment Study: Childhood Cancer” (Aug. 15, 2023).
Critics of the studies have alleged methodological flaws, e.g., focusing on proximity instead of identifying actual exposure pathways, and highlighted that the reports did not demonstrate causation from UNGD activities to any of the studied health risks. See, e.g., “Pitt Studies Contain Serious Methodological Flaws,” Marcellus Shale Coal. Blog (Aug. 25, 2023). After release of the studies, DOH posted an online form allowing citizens to confidentially contact the agency about environmental health concerns (including concerns beyond the scope of the three studies).
Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Oil & Gas
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Matthew C. Wood)
On August 23, 2023, a coalition of environmental groups filed a petition for review in the Commonwealth Court of Pennsylvania in which they challenged the constitutionality of Act 96 of 2022, 58 Pa. Cons. Stat. Ann. §§ 2801–2826. See Verified Petition for Review, Clean Air Council v. Pennsylvania, No. 379 MD 2023 (Pa. Commw. Ct. Aug. 23, 2023). Act 96 amended Title 58 to provide for oil and gas well plugging oversight, bonding, and well plugging funds, and requires an operator to obtain a bond to cover the well and well site in the event the operator fails to remediate the site and plug the well.
Act 96 removed authority from the Environmental Quality Board (EQB) to adjust well bonding amounts for conventional wells for 10 years from the effective date (July 19, 2022) and reserved that authority to the Pennsylvania General Assembly. The Act set the bonding amount for a conventional well at $2,500 and allows operators to obtain blanket bond coverage for multiple wells for $25,000, which must be increased by $1,000 for each additional well drilled, with the total blanket bond not to exceed $100,000. The environmental groups—Clean Air Council, Earthworks, Citizens for Pennsylvania’s Future, Protect PT, and Sierra Club—allege that the statutory bond amounts are inadequate and do not cover the actual costs of remediation and plugging. As a result, they argue, operators are not incentivized to promptly clean up and remediate oil and gas wells, leaving the costs of addressing abandoned wells to the Pennsylvania taxpayers.
Among the claims for relief, the environmental groups are seeking declarations from the court that (1) unplugged abandoned wells pollute the environment and harm Pennsylvania’s natural resources, (2) the Commonwealth has a trustee obligation to ensure that conventional oil and gas wells permitted by the Commonwealth are promptly plugged and remediated upon abandonment, and (3) wells not plugged in accordance with statutory deadlines violate Pennsylvania citizens’ environmental right to a clean environment guaranteed by the Pennsylvania Constitution’s Environmental Rights Amendment.
Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
Legal Intelligencer
(by Casey Coyle, Stefanie Mekilo and Austin Rogers)
1995 was a watershed year. Michael Jordan returned to the NBA after a two-year hiatus, Brad Pitt was named Sexiest Man Alive by People magazine, and the world met Buzz Lightyear for the first time. Today, Buzz remains a constant fixture in pop culture, thanks largely to his signature catchphrase: “To Infinity and . . . Beyond!” Indeed, Buzz himself may use that phrase to describe the Pennsylvania Supreme Court’s recent decision in Bert Co. v. Turk, 298 A.3d 44 (Pa. 2023), which calls into question the presumptive constitutional limit for punitive damages awards.
Background
In 2017, four employees with non-solicitation agreements left their employment with The Bert Company d/b/a Northwest Insurance Services and joined First National Insurance Agency, LLC. They moved as part of what is known in business parlance as a “lift-out,” a practice in which a group of employees from one company are hired by a competitor. Northwest filed suit and obtained a preliminary injunction enforcing the agreements. At the ensuing trial, the jury exonerated three employees from any liability and exonerated the corporate defendants on two claims. While they found the remaining employee and corporate defendants liable on other claims, the jury only awarded Northwest $250,000 of the roughly $4 million in compensatory damages sought; the award was joint and several. However, the jury awarded Northwest $2.8 million in punitive damages—representing an 11.2:1 ratio of punitive-to-compensatory damages on a per-judgment basis.
Appellants challenged the punitive damages award as unconstitutional. Under U.S. Supreme Court precedent, courts must consider three guideposts when determining if a punitive damages award comports with the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded and the civil penalties authorized or imposed in comparable cases. BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 575 (1996); State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003). Appellants invoked all three guideposts, contending: (1) the degree of reprehensibility could not sustain the $2.8 million punitive damages award because, inter alia, Northwest only alleged economic harm and the challenged conduct “had [no] impact on the health or safety of others;” (2) a punitive-to-compensatory ratio over 10:1 “grossly exceeds the 4:1 guideline established by the Supreme Court;” and (3) the disparity between the jury’s punitive damages award and penalties imposed in other cases necessitated remittitur.
The trial court upheld the award. Quoting State Farm, the court acknowledged “[f]ew awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” The court nevertheless affirmed the award because, “[w]hile the individual ratios clearly fall within the single-digit ratio explained in State Farm, the global ratio only slightly exceeds this standard,” and “there is no explicit ratio that a punitive damages award may not surpass.” The court only briefly touched on the first Gore guidepost (though it confined its analysis to Appellants’ “malicious intent” without discussing the other reprehensibility factors the U.S. Supreme Court articulated in State Farm) and did not address the third Gore guidepost at all.
A divided Superior Court panel affirmed the punitive damages award on appeal. Bert Co. v. Turk, 257 A.3d 93 (Pa. Super. Ct. 2021). Preliminarily, the majority limited its entire analysis to the second Gore guidepost. The majority determined that, “‘[a]s a matter of law,’ the Supreme Court has expressly not established any bright-line ratio which a punitive damages award cannot exceed.” Treating the absence of a bright-line rule the same as there being no limitation at all, the majority held that a punitive damages award over 11 times greater than the compensatory damages award is not presumptively unconstitutional where, as there, the compensatory damages award is substantial. The majority cited just two cases to support this conclusion—both statutory bad-faith cases involving low compensatory damages awards and, thus, implicating one of the two exceptions to a single-digit multiplier.
The majority then turned to how to calculate the constitutionally permissible ratio of compensatory-to-punitive damages in a multiple-defendant case. Absent U.S. Supreme Court guidance, the majority examined cases from other jurisdictions. Finding the combined reasoning of the Ninth Circuit and Texas Supreme Court persuasive, the majority held that computation of damages ratios in multi-defendant cases is on “a per-defendant basis, rather than by aggregating all … compensatory and punitive damages on a per-judgment basis.” Notably, neither the Ninth Circuit nor the Texas Supreme Court had reconciled their holdings with the problem of “double counting” (or more), under which the same compensatory damages are counted multiple times in calculating the constitutionally permissible ratio—even though it is logically impossible in joint-tortfeasor cases that each tortfeasor will pay the full amount of compensatories. Regardless, the majority held that, because Appellants used a per-judgment basis to derive their damages ratio, “that ratio is erroneous as a matter of law.”
The majority, though, seemed to question the propriety of its ratio calculation. Instead of concluding its opinion after calculating what it believed to be the constitutionally permissible ratio in multi-defendant cases (which resulted in a single digit ratio of punitives-to-compensatories for each Appellant), the majority took a belt-and-suspenders approach and considered the potential harm Northwest could have suffered by Appellants’ conduct. The majority found that the potential harm “far exceeded” the $250,000 in actual harm sustained since the potential harm included the company’s remaining value—which the majority calculated on a cold record to be $9.15 million—for a total of $9.4 million. The majority then held: “[g]iven the total disregard for the rule of law that these four tortfeasors displayed, the punitive damages that the jury awarded are light years away from the outer limits of the Due Process Clause.”
The Pennsylvania Supreme Court affirmed the punitive damages award on further review. Bert, 298 A.3d at 48. The Court held that a per-defendant calculation of the Gore ratio—dividing individualized punitive damages by total compensatory damages—was appropriate “under the circumstances,” adding it “generally endorse[s]” that approach as being “consistent with” due-process considerations. The Court then rejected as moot Appellants’ argument regarding a ratio in excess of a single digit since that ratio was based on a per-judgment calculation. Nonetheless, the Court addressed Appellants’ argument in dicta. The Court stated that double-digit ratios “may trigger judicial scrutiny” and “require[] a closer examination of the justification” for the award, but expressly rebuffed any presumption of unconstitutionality. The Court also held that, under the facts presented, “it was appropriate to consider the potential harm that was likely to occur from the concerted conduct of the defendants in determining whether the measure of punishment was both reasonable and proportionate.”
Impact
Much like Buzz Lightyear’s flightpath, Bert’s trajectory is uncertain. The majority of courts have held based on State Farm and its progeny that, absent extraordinary circumstances, there is a presumptive 9.99:1 cutoff for punitives-to-compensatories when the compensatory damages award is substantial. However, Pennsylvania courts may cite Bert for its proposition that a double-digit ratio is not presumptively unconstitutional, even though Bert’s language to that effect is dicta and inferior courts are bound by the U.S. Supreme Court’s interpretation of the U.S. Constitution. Such a change in the law would have significant consequences, particularly given the recent trend of nuclear verdicts across the Commonwealth.
Moreover, by endorsing a “general” (as opposed to categorical) approach to calculating the constitutionally permissible ratio of punitive-to-compensatory damages, Bert leaves open the possibility that a per-judgment approach may be appropriate under certain circumstances. Though it suggested a punitive damages award against a “single corporate entity” is one such instance, the Court provided no test or other guidance for selecting between the two approaches. Nor did the Court indicate what standard of review will be applied by a reviewing court—or, if allocatur is granted, the Pennsylvania Supreme Court—in evaluating that selection.
Further, by sanctioning the Superior Court’s consideration of potential harm in the absence of a jury finding regarding same and where the trial court had issued an injunction eliminating such harm, Bert appears to authorize a reviewing court to consider potential harm in every case involving the constitutionality of a punitive damages award. While the Supreme Court seems to rein in that possibility in Bert’s penultimate paragraph, suggesting consideration of potential harm is only appropriate when “the record includes evidence of the potential harm intended by the Defendants” and the jury is instructed it can consider potential harm, this remains an issue to watch.
Finally, Bert creates tension regarding the continued viability of the Gore guideposts in Pennsylvania. The Supreme Court affirmed the finding that the punitive damages award was constitutional without applying the first or third guidepost or the intermediate appellate court doing the same. Yet, all three guideposts remain the standard for assessing the constitutionality of a punitive damages award until the U.S. Supreme Court holds otherwise.
—————-
Casey Alan Coyle is a shareholder at Babst, Calland, Clements and Zomnir, P.C and Co-Chair of the firm’s Appellate Practice Group. He focuses his practice on appellate law and complex commercial litigation. Casey is also a former law clerk to Chief Justice Emeritus Thomas Saylor of the Pennsylvania Supreme Court. He represented the appellants in Bert during the allocatur and merits briefing stage. Contact him at 267-939-5832 or ccoyle@babstcalland.com
Stefanie Pitcavage Mekilo is a litigation associate at the firm. She focuses her practice on complex commercial disputes involving theft of trade secrets, breach of noncompete and nonsolicitation agreements and other restrictive covenants, and related business torts. She is a former law clerk to the Honorable Christopher C. Conner and the Honorable John E. Jones III of the U.S. District Court for the Middle District of Pennsylvania. Contact her at 570-590-8781 or smekilo@babstcalland.com.
Austin D. Rogers is a litigation associate at the firm. He practices in a variety of litigation practice areas, including commercial, employment and labor, environmental, and energy and natural resources. Contact him at 681-265-1368 or arogers@babstcalland.com.
To view the full article, click here.
Reprinted with permission from the November 2, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.
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FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Christina M. Puhnaty)
On September 23, 2023, PADEP published in the Pennsylvania Bulletin notice that the agency finalized its General Plan Approval and/or General Operating Permit for Coal-Mine Methane Enclosed Flares (GP-21). See 53 Pa. Bull. 6005 (Sept. 23, 2023). New or modified coal-mine methane enclosed flares in Pennsylvania are now subject to GP-21. Coal-mine methane enclosed flares with actual emission rates less than the following are exempted from GP-21’s permitting requirements:
- 4 tons per year (tpy) of carbon monoxide (CO) from a single enclosed flare or 20 tpy of CO from multiple enclosed flares;
- 1 tpy of nitrogen oxides (NOx) from a single enclosed flare or 5 tpy of NOx from multiple enclosed flares;
- 1.6 tpy of the oxides of sulfur (Sox) from a single enclosed flare or tpy 8 of the SOx from multiple enclosed flares;
- 0.6 tpy of particulate matter with a diameter of 10 microns or less (PM10) from a single enclosed flare or 3 tpy of PM10 from multiple enclosed flares;
- 1 tpy of volatile organic compounds (VOCs) from a single enclosed flare or 5 tpy of VOCs from multiple enclosed flares; and
- 0.5 tpy of a single hazardous air pollutant (HAP) from a single enclosed flare or 1 tpy of multiple HAPs from multiple enclosed flares. The HAPs may not contain Polychlorinated Biphenyls (PCBs), Chromium (Cr), Mercury (Hg), Lead (Pb), Polycyclic Organic Matter (POM), Dioxins, or Furans.
Those coal-mine methane enclosed flares that are not exempt from GP-21’s requirements will have to meet the best available technology (BAT) compliance requirements established in GP-21. These requirements include operating the enclosed flare to (1) limit NOx emissions to less than or equal to 0.08 lb/MMBtu, (2) limit CO emissions to less than or equal to 0.30 lb/MMBtu, and (3) limit visible emissions to periods not to exceed an aggregate total of 60 seconds during any 15-minute period. GP-21 also requires that permittees sample and conduct a fractional gas analysis at the “inlet gas stream to the enclosed flares” on a quarterly basis to determine VOC, methane, and ethane concentrations, and the heat content of the inlet gas stream.
The Pennsylvania Department of Environmental Protection (PADEP) issued GP-21 in accordance with section 6.1(f) of Pennsylvania’s Air Pollution Control Act, 35 Pa. Stat. § 4006.1(f), and 25 Pa. Code ch. 127, subch. H. Industry groups have appealed PADEP’s issuance of GP-21 to Pennsylvania’s Environmental Hearing Board.
Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Christina M. Puhnaty)
On November 1, 2023, the Commonwealth Court of Pennsylvania held that the Pennsylvania Department of Environmental Protection’s (PADEP) CO2 Budget Trading Program Regulation (RGGI Rule) is an unconstitutional tax, declared the rule to be void, and enjoined PADEP from enforcing it. See Bowfin KeyCon Holdings, LLC v. PADEP, No. 247 M.D. 2022, 2023 WL 7171547 (Pa. Commw. Ct. Nov. 1, 2023).
After a lengthy rulemaking process, the RGGI Rule was published in the Pennsylvania Bulletin. See 52 Pa. Bull. 2471 (Apr. 23, 2022). The RGGI Rule 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% of their annual gross generation to the electric grid.
Two days after the RGGI Rule was published, a group of stakeholders filed a petition for review of the rule and an application for preliminary injunction in the commonwealth court. The court held a hearing on the preliminary injunction on May 10 and 11, 2022, and in a July 8, 2022, opinion, the court preliminarily enjoined the regulation as an unconstitutional tax.
In its November 1 decision on the merits, the court reaffirmed its earlier July 8, 2022, opinion, holding that the RGGI Rule constitutes a tax imposed by PADEP in violation of the Pennsylvania Constitution. Undisputed facts of record established that only 6% 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 PADEP 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 PADEP’s annual needs, and thus was an illegal tax. In coming to its ruling, the court relied on the Pennsylvania Supreme Court’s opinion in Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947), which found that it is a firmly established principle of Pennsylvania law 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, it should 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 a rulemaking promulgated by PADEP and the Environmental Quality Board. The Commonwealth has not publicly stated whether it will appeal the decision, but would have until November 30, 2023, to do so.
Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado