Christina Manfredi McKinley Joins Babst Calland as Shareholder

Christina Manfredi McKinley recently joined Babst Calland as a shareholder in the Litigation, Energy and Natural Resources, and Environmental groups.

Ms. McKinley provides business-oriented solutions to her clients and routinely serves as a general advisor, counseling clients on day-to-day legal and business matters on any number of issues. Her business-focused, proactive approach to problem-solving allows her to provide solutions to clients in a variety of industries, including manufacturing, retail, energy, chemicals, and environmental.

As a litigator who focuses on complex commercial matters, Ms. McKinley’s trial practice encompasses all phases of litigation, from early alternative dispute resolution through post-trial motions. She has concentrated experience in complex purchase agreement and commercial contracts disputes, protection of competitive interests (e.g., Lanham Act, unfair competition, tortious interference, trade secret protection, restrictive covenants), technology disputes (e.g., software services and license agreements), and director and officer defense.

An experienced appellate litigator, Ms. McKinley has practiced before the United States Supreme Court at every stage of the process, including the briefing and preparation of two merits cases that were argued before the Court. She also has briefed and prepared cases for argument before the United States Courts of Appeals for the Second, Third, Sixth, and D.C. Circuits, and she has argued numerous cases before the Pennsylvania intermediate appellate court.

Prior to joining Babst Calland, Ms. McKinley was a shareholder with Dentons Cohen & Grigsby. She is a graduate of The Catholic University of America, Columbus School of Law.

Medical Marijuana, Part 5: Practical Considerations in Employment Litigation

The Legal Intelligencer

(by John McCreary)

Within days of the publication in the August 16, 2021 Legal Intelligencer of the last installment of this occasional series on Pennsylvania’s Medical Marijuana Act (MMA), the Superior Court affirmed Judge William J. Nealon’s decision – discussed in that article — that the  MMA does provide for a private right of action by medical marijuana patients claiming discrimination in employment. Palmiter v. Commonwealth Health Systems, 260 A.3d 967 (Pa.Super. 2021). Rejecting the contention that exclusive jurisdiction over enforcement of the MMA lies with the Department of Health, the Court stated that “[a]lthough the General Assembly did not expressly create a private right of action on behalf of an employee whose employer discriminates against her for medical marijuana use, it proclaimed a public policy prohibiting such discrimination. See 35 P.S. § 10231.2103.” 260 A.3d at 973. Beyond acknowledging the existence of the claim, however, the Court did not provide any specific guidance to either patients or employers concerning their rights and obligations under the statute. It acknowledged generally that:

[T]he same section of the statute [that creates employment protections for patients] also explicitly sets forth the rights of employers, i.e., that an employer is not required to provide an accommodation for certified users and may discipline employees who are under the influence of medical marijuana in the workplace. See § 2103(b)(2). Thus, in the employment context, § 2103(b) of the MMA not only delineates the rights afforded employees who are certified users, but also sets forth the rights of employers to discipline employees who are in violation of the terms of certified use.

260 A.3d at 975. The Court also noted that the MMA does not provide a specific remedy, id. at 975, and with its affirmance of Judge Nealon’s decision it appears to have implicitly adopted that jurist’s conclusion that an aggrieved employee could “seek to recover compensatory damages from an employer that violates Section 2103(b)(1).” Id. at 972.

Ms. Palmiter’s victory now raises additional issues for counsel for patients and employers to grapple with. First, for both sides in the litigation, is how to determine the available remedies? The Superior Court noted the absence of statutory remedies, as did the author in the first installment of this series. The author in that same article also remarked on the absence of a fee shifting provision in the MMA; unlike most anti-discrimination enactments the successful MMA plaintiff must pay her lawyer out of the proceeds collected by settlement or judgment. In the author’s experience defending claims brought under the MMA usually means that plaintiffs are amenable to quick settlements.

Should the case not settle quickly, what damages are available? The Palmiter decisions suggest that “compensatory damages” are appropriate. What are compensatory damages in the context of a wrongful discharge (or refusal to hire) under the MMA? Carlini v. Glenn O. Hawbaker, Inc., 219 A.3d 629 (Pa.Super. 2019) provides some guidance. In that case the plaintiff sued for wrongful discharge in violation of public policy, claiming among other torts that she was terminated in retaliation for filing a workers’ compensation claim. Both sides appealed the damage verdict. With respect to the wrongful discharge claim, Superior Court concluded that Carlini was entitled to recover her economic loss, consisting of lost wages and benefits, and so affirmed the verdict for those damages. 219 A.3d at 645. The trial court, however, had refused to instruct the jury that it could award Carlini non-economic damages for emotional distress and embarrassment. Superior Court found this to be error and remanded for a new trial on this measure of damages:

“Compensatory damages that may be awarded without proof of pecuniary loss include compensation … for emotional distress.” Restatement (Second) of Torts § 905 (Am. Law Inst. 1975); see also  Bailets v. Pennsylvania Tpk. Comm’n, 645 Pa. 520, 181 A.3d 324, 333 (2018) (stating that “our jurisprudence has long recognized non-economic losses are actual losses” (citations omitted)). “Damages for nonpecuniary harm are most frequently given in actions for bodily contact and harm to reputation …, but they may also be given in actions for other types of harm[.]” Restatement (Second) of Torts § 905 cmt. a (citations omitted).

“In Pennsylvania[,] one who is liable to another for interference with a contract is liable for damages for the emotional distress which is reasonably expected to result from the wrongful interference.” Kilpatrick v. Delaware Cty. S.C.P.A., 632 F. Supp. 542, 550 (E.D. Pa. 1986) (citation omitted); see also  Pelagatti v. Cohen, 370 Pa.Super. 422, 536 A.2d 1337, 1343 (1987) (quoting the Restatement (Second) of Torts for the proposition that “actual damages” for interference with a contract include, among other things, emotional distress if it is reasonably to be expected to result from the interference). “The victim of a wrongful termination, therefore, also should be entitled to recover damages for emotional distress reasonably expected to result from the wrongful discharge.” Kilpatrick, 632 F. Supp. at 550.

219 A.3d at 644-645 (footnote omitted). The Court also recognized that punitive damages were available under appropriate circumstances but remanded for a new trial on this issue because of error in the trial court’s admission of evidence of the net worth of the defendant. Id.

With the availability of compensatory damages for economic and non-economic injuries, as well as punitive damages, employers and their counsel should be judicious with their management of employees or applicants who lawfully use medical marijuana. This means, at least under the present state of the law in Pennsylvania, that employment decisions should be based on a patient’s use of marijuana and not on her status as a medical marijuana patient. The distinction between status and actual use is, at present, significant under the (dictum?) of Harrisburg Area Community College v. PHRC, 245 A.3d 283 (Pa.Cmwlth. 2020) (HACC), which was discussed at length in the previous installment of this series. In brief, Commonwealth Court interpreted section 2103(b)(1) of the MMA in a manner that does not prevent the employer from terminating or refusing to hire because of use of marijuana. This in turn counsels care in drafting and explaining personnel decisions. HACC is at present the latest word on the issue from an appellate court in Pennsylvania. The author is confident that Commonwealth Court’s parsing of the statute is correct as a matter of interpretation but is less confident that the Supreme Court will accept a construction that would, in effect, render the employment protections of the MMA illusory.

Additionally, employers need to be cognizant of the MMA’s recognition, however ambiguous and uncertain, of the potential safety risks presented by employees who use medical marijuana. See 35 P.S. 10231.510. Employers should identify jobs that are “safety sensitive” and consider in advance whether medical marijuana use is consistent with safe job performance. Ideally, employers will obtain an opinion from an occupational medicine practitioner, substance abuse professional or safety expert to bolster their opinion that certain jobs should be off limits to medical marijuana patients. Cf. Action Industries, Inc. v. PHRC, 102 Pa.Cmwlth. 382, 388, 518 A.2d 610,613 (1986) (“in cases of disparate treatment based upon handicap or disability, an employer can have a good-faith defense which negates its intent to discriminate where it reasonably relies upon the opinion of a medical expert in refusing to hire an applicant”).

Finally, the Palmiter Court’s conclusion that a private cause of action is available to vindicate the public policy codified in the MMA’s anti-discrimination provision suggests an additional defense applicable to employees covered by a collective bargaining agreement or employment contract containing an arbitration provision. In Phillips v. Babcock and Wilcox, 349 Pa.Super. 351, 503 A.2d 36 (1986) Superior Court held that wrongful discharge actions to vindicate public policy (in that case, retaliation for filing a workers’ compensation claim) were not available to unionized employees:

Finally, in deciding not to extend the wrongful discharge action to employees who are otherwise protected by contract or statute, we must take into consideration the strong public policy which favors the right of parties to enter into contracts. In the instant case, the union and appellee in their agreement decided the remedies that would be available, and provided that those remedies would be final and binding. This intent is expressly set forth in the agreement and, therefore, the remedies available should be preclusive of any others. Aughenbaugh v. North American Refractories Company, 426 Pa. 211, 231 A.2d 173 (1967).

349 Pa.Super. at 355, 503 A.2d at 38. See also Ross v. Montour Railroad Co., 357 Pa.Super. 376, 516 A.2d 29 (1986) (same).

Palmiter answers the issue of whether patients can sue to vindicate their employment rights, but there still remain many unanswered questions under the MMA. Employees and employers need a final answer from the Pennsylvania Supreme Court as to whether use of medical marijuana is protected under the statute, or only status as a patient. Employers need an interpretation of the safety-related provisions of the act so that they can make employment decisions free from the ambiguities created by those provisions. The author is therefore confident that there will be a sixth installment of this series.

For the full article, click here.

Reprinted with permission from the January 28, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.

Mitigating Methane

Pittsburgh Business Times

(By Gary Steinbauer)

Babst Calland Shareholder Gary Steinbauer unpacks a series of proposed new EPA regulations that would further restrict methane gas emissions within the region’s oil and gas industry.

The region’s oil and gas industry is about to face yet another round of restrictive new federal and state regulations aimed at reducing the industry’s impact on the world’s climate. This time, the U.S. Environmental Protection Agency (EPA) has proposed a new set of rules under the Clean Air Act that would greatly restrict the emission of methane gas — known more commonly as greenhouse gas — into the air at gas wells, transmission stations and processing plants.

Likewise, the industry will soon have to contend with similar new regulations from the likes of the U.S. Pipeline and Hazardous Materials Safety Administration, the multi-state Regional Greenhouse Gas Initiative (RGGI), and the Pennsylvania Department of Environmental Protection, among others.

So what does this mean for the region’s already-heavily regulated oil and gas industry, which remains a target of the Biden administration and its climate-change initiatives?

“It’s going to be a busy year,” said Gary Steinbauer, a shareholder with Pittsburgh law firm Babst Calland and member of the firm’s environmental practice. “Let’s just say that, in 2022, when it comes to these federal Clean Air Act requirements particularly, we all should just buckle up and be prepared to invest the resources and time to really understand what this is going to mean for the future of air regulations that will impact the industry.”

In other words, the oil and gas industry should take action now about the proposed regulations for consideration.

“Companies,” he added, “should be reviewing, evaluating and considering how the proposal may impact their operations and also strongly consider participating in the rule-making process and submitting comments to the EPA.”

Steinbauer shared this summary of the current regulatory situation with the Pittsburgh Business Times recently as part of the law firm’s ongoing “Business Insights” video series, produced in partnership with the Pittsburgh Business Times. Babst Calland is one of the Pittsburgh region’s largest law firms.

Aiming for a 74% industry reduction?

As Babst Calland’s Steinbauer reported, the EPA claims that an estimated one-third of methane emissions in the U.S. come from the oil and gas industry. The federal regulatory agency also claims that the industry is the largest source of methane emissions in the country, emitting more than the total emissions of all greenhouse gases from a collective 164 countries.

Meanwhile, the proposed rule changes, Steinbauer said, purportedly would reduce methane emissions from regulated well sites and equipment by an estimated 74% in 2030, in comparison to 2005 levels. And that’s, coming from an administration seeking to set the country on a course to reduce greenhouse gas emissions to so-called net-zero by 2050. That means any gas emissions contributing to climate change would effectively be offset by countermeasures to remove such gases from the atmosphere.

Relative to the region’s oil and gas industry, are such new rules even necessary to drive President Biden’s net-zero goal? According to Steinbauer, the industry already has been making great strides in reducing emissions.

According to industry sources, while multiple steps remain in the rule-making process, Pennsylvania is already realizing significant air quality gains directly associated with natural gas and the industry-leading best practices being deployed by companies.

Political “ping-pong”

Targeting the oil and gas industry, Steinbauer said, is nothing new when it comes to regulating industries deemed to impact climate change.

“In the last decade, the oil and gas industry has been impacted by numerous federal Clean Air Act regulatory requirements that began with the Obama administration in 2011, and has continued through the Trump administration and now into the Biden administration,” Steinbauer said. “As you might expect, with different administrations and changes in policy priorities and the like, the EPA’s views and interpretations of the Clean Air Act requirements that apply to this industry have changed, and they’ve changed vastly over the course of the last decade, which from my perspective is a relatively compressed time frame.

“I think what we’re seeing,” he continued, “is this game of regulatory ping-pong where, based on the administration in power at the time and its own policy prerogatives and priorities and interpretations, we’re seeing vastly different outcomes and a shifting regulatory landscape as a result.”

5 key changes to consider

The current shift, Steinbauer said, mainly tightens restrictions already in place under the Clean Air Act’s federal air emission regulations — regulations known as a source category under EPA’s Section 111 Clean Air Act Program that created new source performance standards for the oil and gas industry. So it was already part of those requirements — what EPA has done in the last 10 years.

“What it’s proposing to do now,” he continued, “is to expand upon existing regulations, including new sources that are currently regulated and make more stringent the existing requirements that already apply to the oil and gas industry.”

That regulatory expansion, Steinbauer noted, is extensive. “There’s a lot,” he said. “The proposal itself is extremely voluminous, and there are numerous background documents that must be reviewed and considered.”

Still, Steinbauer summarized the proposal as containing what he described as five key changes.

“One, EPA is proposing, for the first time, to create federal emission guidelines that would require individual states to regulate existing sources within the oil and natural gas industry and, more specifically, regulate methane emissions from those existing sources,” he said.

The second proposed change, he said, is the metric in which the EPA determines whether a well site is subject to so-called leak detection and repair requirements.

“It’s moving away from production as the basis to determine whether a well site is regulated and toward a new standard that involves site-level baseline emissions,” he said.

Steinbauer said the third key is a proposal to expand existing requirements that apply to tanks or storage vessels.

“Those are used throughout the oil and gas industry, and, as a consequence we’re likely to see more tanks and storage vessels regulated,” he said.

Fourth, he said, is a proposal to expand upon and create new requirements for sources or activities that currently aren’t regulated within the industry.

“Fifth in this package, the EPA is asking for and soliciting comments on a number of items that aren’t explicitly addressed, and one of those is, the EPA is driving towards potentially creating regulations that would allow communities or third parties to play a role in monitoring emissions from sources within the oil and gas industry,” Steinbauer said. “I’m not aware of any current federal Clean Air requirements that do that, so that would be an entirely new thing for not only the oil and gas industry, but for Clean Air Act regulations themselves.”

Potential impacts

Steinbauer anticipates significant impacts on the oil and gas industry overall if those regulations are adopted.

“The potential impacts are undoubtedly going to create additional compliance burdens and costs for the industry,” he said. “Within the industry as a whole — there’s a lot of variety. I mean the size of the operator, the type of operations, the assets owned — all are different and vary widely among the industry.

“But what we’re dealing with is a one-size-fits-all federal regulatory approach that’s going to be manifested and impact industry participants differently,” he added. “But I think, undoubtedly, we’re likely to see higher compliance costs and additional regulatory burdens.”

An alignment of state and federal rules

Pennsylvania already had released and published its own methane emissions rule last year, and the state’s DEP announced in December that it intends to finalize the regulation of volatile organic compound emissions from existing oil-and-gas industry sources by mid-2022.

“That timing, in some respects, is a bit fortuitous, but what Pennsylvania is intending to do is specific to volatile organic compound emissions from existing sources within the industry,” Steinbauer said. “Methane is not defined as a volatile organic compound, so those are different requirements. They stem from different Clean Air Act programs and different Clean Air Act regulations.”

Steinbauer did suggest, though, that Pennsylvania’s methane regulations and the EPA’s proposed rules do offer some similarities.

However, he said, “The proposed methane rule, I would expect, will be more stringent than what Pennsylvania is likely to be doing later this year. When you look at it through the lens of the Biden administration, climate change is a significant policy priority… so, in many respects it’s targeting the industry and working on finalizing more stringent requirements, specifically those that address methane emissions because it sees a value in reducing those emissions.”

What the industry can do

The region’s industry already is trying to be proactive in reducing methane and other greenhouse gas emissions voluntarily, Steinbauer said. “Those efforts have been under way for many years and, in many respects, are independent of what the EPA is proposing and really what Pennsylvania is also likely to do later this year. Companies are being innovative, looking at innovative ways to reduce methane and greenhouse gas emissions, and many within the industry right now have voluntarily made commitments to reach and achieve net-zero by dates that aren’t too far in the future.”

In the meantime, Steinbauer recommended that companies take the time to respond to the EPA during this current public comment period, which ends at the end of January.

That said, he did suggest that companies will find themselves at a disadvantage because the “EPA deviated from its standard practice here. When you’re talking about a proposal, what’s usually included in the proposal package is a set of proposed regulatory text that details the requirements that industry can review and comment upon. But right now, what we have is a rule-making package that didn’t include the proposed regulatory text.”

However, Steinbauer expects the EPA to release a supplemental proposal later this year that will provide additional “regulatory text” to enable a more comprehensive review and comment period.

“EPA is projecting to finalize these rules at the end of the year,” Steinbauer said, “and that will put into motion a whole host of regulatory actions that, for example, Pennsylvania will need to take to create plans to implement the emission guidelines.”

In the end, he added, “We just encourage clients and industry stakeholders to be proactive about their positions and their progress in reducing emissions.”

Babst Calland is closely tracking EPA’s proposed new methane requirements for the oil and gas industry. Regulated parties would be well-advised to prepare now to review, evaluate, and consider commenting on the new requirements. If you have any questions about these developments, contact Gary Steinbauer at gsteinbauer@babstcalland.com.

To view the PDF, click here.

To view the full article, click here.

Business Insights is presented by Babst Calland and the Pittsburgh Business Times. To learn more about Babst Calland and its environmental practice, go to babstcalland.com.

Infrastructure bill provides billions in funding for hydrogen and carbon capture, utilization, and storage

The PIOGA Press

(By Jim Curry and Chris Kuhman)

On November 15, 2021, President Biden signed the bipartisan $1.2 trillion Infrastructure Investment and Jobs Act (H.R. 3684). This Alert reviews the key provisions related to hydrogen and carbon capture, utilization, and storage (CCUS).

Hydrogen

Regional Clean Hydrogen Hubs (Sec. 40314): In perhaps the most impactful provision, the Bill authorizes an $8 billion program to support the development of at least four regional clean hydrogen hubs to network hydrogen producers, storage, offtakers and transport infrastructure. DOE must solicit proposals for regional clean hydrogen hubs by May 15, 2022, and select the four hubs by May 15, 2023. DOE will solicit at least one hub proposal for each of the following hydrogen production technologies: fossil fuels, renewables or nuclear. And, DOE will solicit at least one hub to provide hydrogen to each of the following sectors: power generation, industrial, residential and commercial heating, and transportation.

Clean hydrogen definition and production qualifications (Secs. 40312 & 40315): Defines “clean hydrogen” and “hydrogen” in a technology neutral way, and requires DOE and EPA to develop an initial carbon standard for projects to qualify as clean hydrogen production, eligible for the variety of incentives throughout the Bill. Clean hydrogen means “hydrogen produced with a carbon intensity equal to or less than 2 kilograms of carbon dioxide (CO2)-equivalent produced at the site of production per kilogram of hydrogen produced.” The standard must consider technological and economic feasibility and allow production from fossil fuels with CCUS, hydrogen carrier fuels, renewables, nuclear and other methods that DOE determines are appropriate.

Research and development program and national clean hydrogen strategy and roadmap (Secs. 40313 and 40314): Requires DOE to establish an R&D program with the private sector to commercialize clean hydrogen production in a variety of applications by May 15, 2022. This provision includes $500 million in grant funding for clean hydrogen manufacturing and recycling.

Clean hydrogen electrolysis program (Sec. 40314): Requires DOE to establish a program to improve the efficiency, increase the durability, and reduce the cost of producing clean hydrogen using electrolyzers (commonly called “green hydrogen”) and authorizes $1 billion for grants and demonstration projects. The goal is to reduce the cost of green hydrogen to less than $2 per kilogram by 2026.

Appalachian Regional Energy Hub (Sec. 14511): Provides the Appalachian Region Commission with $5 million to establish an Appalachian Region hub for natural gas, natural gas liquids, and hydrogen produced through steam methane reforming.

Grants for hydrogen fueling infrastructure (Sec. 11401): Authorizes the Federal Highway Administration to award $2.5 billion in grants for the acquisition or installation of publicly accessible electric vehicle charging, or hydrogen, propane, or natural gas fueling infrastructure along an alternative fuel corridor.

Carbon capture, utilization, and storage

Carbon utilization (Sec. 40302): Requires DOE, through its Carbon Utilization Program, to develop standards to facilitate the commercialization of carbon-based technologies. The Bill also requires DOE to establish a grant program for states and governmental entities to procure and use products that are derived from carbon and reduce greenhouse gas emissions. The Bill authorizes $310 million for this program.

Carbon capture technology (Sec. 40303): Authorizes $100 million for DOE grants under its Carbon Capture Technology Program, including an engineering and design program for CO2.

CO2 transportation infrastructure finance and innovation (Sec. 40304): Creates a CO2 transportation infrastructure finance and innovation (CIFIA) program in DOE and provides $2.7 billion in funding. CIFIA is a federal credit instrument that will provide funding for certain CO2 transportation projects anticipated to cost $100 million or more. In selecting projects, DOE will give priority to large-capacity common carrier pipeline projects, projects with clear demand, and projects sited adjacent to existing pipelines. Grants are also available for upsizing infrastructure to meet increase in future demand. All iron, steel, and manufactured goods used in a project must be produced in the U.S., with some exceptions.

Carbon storage validation and testing (Sec. 40305): Authorizes $2.5 billion for DOE to provide funding for large-scale carbon sequestration projects and associated transportation infrastructure.

Secure geologic storage permitting (Sec. 40306): Authorizes $25 million for EPA’s Class VI UIC well permit program for the geologic sequestration of CO2, and $50 million for grants to states seeking Class VI primacy.

Geologic carbon sequestration on the outer continental shelf (Sec. 40307): Allows DOI to grant a lease, easement, or right-of-way on the outer continental shelf for the injection of CO2 into sub-seabed geologic formation, for the purpose of long-term carbon sequestration. The Bill requires DOI to issue regulations by November 15, 2022.

Carbon removal (Sec. 40308): Authorizes $3.5 billion for a DOE program to develop four regional air capture hubs. The hubs will facilitate the deployment of direct air capture projects; have the capacity to capture, sequester, or utilize at least one million metric tons of CO2 annually; demonstrate the capture, processing, delivery, and sequestration of captured carbon; and have potential for developing a regional or inter-regional network to facilitate CCUS.

Carbon capture large-scale pilot projects (Sec. 41004(a)): Authorizes $937 million for DOE to carry out a large-scale CCUS technology program.

Carbon capture demonstration projects program (Sec. 41004(b)): Authorizes $2 billion for DOE to carry out CCUS demonstration projects.

Carbon removal (Sec. 41005). Authorizes $15 million for DOE to award a competitive technology prize for the precommercial capture of CO2 from dilute media and $100 million for commercial applications of direct air capture technologies.

If you have any questions about these developments, please contact Jim Curry at 202.853.3461 or jcurry@babstcalland.com or Chris Kuhman at 202.853.3467 or ckuhman@babstcalland.com.

For the full article, click here.

For the PDF, click here.

Reprinted with permission from the January 2022 issue of The PIOGA Press. All rights reserved.

Babst Calland Names Katrina Bowers a Shareholder

Babst Calland recently named Katrina N. Bowers a shareholder in the Firm.

Katrina Bowers is a member of the Corporate and Commercial, Litigation, and Energy and Natural Resources groups. Ms. Bowers currently serves as General Counsel to the West Virginia International Yeager Airport, and as general counsel and advisor to airports in West Virginia, on day-to-day legal and business matters, such as compliance with West Virginia and federal law, employment and litigation matters, corporate governance, and contract negotiations.

Ms. Bowers’ practice also includes representing oil and gas companies in litigation concerning a variety of matters including trespass, negligence, property damage, royalty payments, toxic torts, title disputes, breach of contract, preliminary and permanent injunctions, and fraud as well as advising them regarding proposed, pending, and enacted safety, health, and environmental regulations. Ms. Bowers has also represented coal operators in cases alleging adverse treatment, deliberate intent, and wrongful termination. Further, she has represented clients against civil penalties and violations issued by the Mine Safety and Health Administration and the Occupational Safety and Health Administration.

Ms. Bowers is a 2013 graduate of West Virginia University College of Law.

PHMSA Releases Final Rule for Onshore Gas Gathering Lines

GO-WV News

(Keith Coyle, Ashleigh Krick and Chris Kuhman)

On November 15, 2021, the Pipeline and Hazardous Materials Safety Administration (PHMSA) released a final rule for onshore gas gathering lines. The final rule, which represents the culmination of a decade-long rulemaking process, amends 49 C.F.R. Parts 191 and 192 by establishing new safety standards and reporting requirements for previously unregulated onshore gas gathering lines. Building on PHMSA’s existing two-tiered, risk-based regime for regulated on-shore gas gathering lines (Type A and Type B), the final rule creates:

  • A new category of onshore gas gathering lines that are only subject to incident and annual reporting requirements (Type R); and
  • Another new category of regulated onshore gas gathering lines in rural, Class 1 locations that are subject to certain Part 191 reporting and registration requirements and Part 192 safety standards (Type C).

The final rule largely retains PHMSA’s existing definitions for onshore gas gathering lines but imposes a 10-mile limitation on the use of the incidental gathering provision. The final rule also creates a process for authorizing the use of composite materials in Type C lines and prescribes compliance deadlines for Type R and Type C lines. Additional information about these requirements is provided below.

Type R Lines:  The final rule creates a new category of reporting-only regulated gathering lines. These gathering lines, known as Type R lines, include any onshore gas gathering lines in Class 1 or Class 2 locations that do not meet the definition of a Type A, Type B, or Type C line.  Operators of Type R lines must comply with the certain incident and annual reporting requirements in Part 191. No other requirements in Part 191 apply to Type R lines.

Type C Lines:  The final rule creates a new category of regulated onshore gas gathering lines. These gathering lines, known as Type C lines, include onshore gas gathering lines in rural, Class 1 locations with an outside diameter greater than or equal to 8.625 inches and a maximum allowable operating pressure (MAOP) that produces a hoop stress of 20 percent or more of specified minimum yield strength (SMYS) for metallic lines, or more than 125 psig for non-metallic lines or metallic lines if the stress level is unknown.

Operators of Type C lines are subject to the same Part 191 requirements as Type A and Type B lines and must comply with certain Part 192 requirements for gas transmission lines, subject to the non-retroactivity provision for design, construction, initial inspection, and testing, as well as other exceptions and limitations that vary based on the outside diameter of the pipeline and whether there are any buildings intended for human occupancy or other impacted sites within the potential impact circle or class location unit for a segment.  The final rule also provides additional exceptions from certain requirements, including for grandfathered pipelines if a segment 40 feet or shorter in length is replaced, relocated, or otherwise changed.  A chart illustrating the applicable requirements is provided below.

In addition to prescribing these new requirements, the final rule authorizes the use of composite materials in Type C lines if the operator provides PHMSA with a notification containing certain information at least 90 days prior to installation or replacement and receives a no objection letter or no response from PHMSA within 90 days.

Deadlines: The effective date of the final rule is May 16, 2022. Operators of Type R and Type C lines must comply with the applicable requirements in Part 191 starting on May 16, 2022, although the first annual report is not due until March 15, 2023. Operators must also comply with the requirement to document the methodology used in determining the beginning and end-points of onshore gas gathering by November 6, 2022, and operators of Type C lines must comply with the applicable requirements in Part 192 by May 16, 2023. Operators may request an alternative to these 6- and 12-month compliance dead-lines by providing PHMSA with a notification containing certain information at least 90 days in advance and receiving a no-objection letter or no response from PHMSA within 90 days.

Other Considerations: Along with the final rule, PHMSA published its final regulatory impact analysis, which estimated that the final rule will regulate approximately 426,000 miles of gas gathering lines, of which 91,000 miles will be subject to new safety requirements. PHMSA also estimated that the annualized cost to implement the final rule is approximately $13.7 million. PHMSA determined that these costs are outweighed by the benefits of the rule, which include avoided injuries, evacuations, commodity loss, improved reporting processes, and a reduction in the number of pipeline incidents.  Notably, PHMSA did not address comments submitted by industry raising concerns regarding the costs of complying with the new regulations, but instead reiterated its findings from the preliminary regulatory impact analysis.

Administrative petitions for reconsideration must be filed with PHMSA within 30 days of the final rule’s publication in the Federal Register. Petitions for judicial review must be filed within 89 days of the final rule’s publication in the Federal Register or, if an administrative petition for reconsideration is filed, within 89 days of PHMSA’s decision on the petition.

Click here to view the article online in the January issue of GO-WV News.

Babst Calland Names Binker, Fink, Malik and Snyder Shareholders

Babst Calland recently named Mary H. Binker, Michael E. Fink, Jennifer L. Malik and Cary M. Snyder shareholders in the Firm.

Mary Binker is a member of the Corporate and Commercial, Energy and Natural Resources, and Real Estate groups. Her practice focuses primarily on corporate and transactional matters, including negotiation of commercial contracts and real estate transactions. Ms. Binker advises businesses of various sizes and complexity, in a broad range of industries including chemical, energy and real estate development, in their corporate contracting needs. She counsels clients on their day-to-day contracting needs such as procurement and service agreements. Ms. Binker also has experience assisting real estate clients in acquisitions, leasing, and management agreements. She is a 2010 graduate of the University of Pittsburgh School of Law.

Michael Fink is a member of the Corporate and Commercial and Emerging Technologies groups. Mr. Fink focuses his practice on assisting high-tech start-up ventures with both fundraising and general corporate or governance matters. He also counsels clients with technology transactions and licensing, and he works on both the buy-side and the sell-side in mergers and acquisitions in the technology, real estate, energy, and healthcare sectors. Entity selection and formation, preparation and programming of capitalization tables and distribution models, and corporate governance counseling are additional services Mr. Fink routinely provides clients. He is a 2011 graduate of the University of Pittsburgh School of Law.

Jenn Malik is a member of the Public Sector and Energy and Natural Resources groups. Ms. Malik’s practice focuses primarily on municipal and land use law, with an emphasis on zoning, subdivision and land development, and municipal ordinance construction and enforcement. She represents the Firm’s municipal clients on a wide array of local government issues, including developing and implementing zoning and land development ordinances, reviewing and overseeing the processing of Pennsylvania Municipalities Planning Code applications, such as applications for conditional uses and special exceptions, analyzing and responding to Pennsylvania Right-to-Know Law record requests, navigating public bidding procedures, assisting to identify and enforce property maintenance and zoning violations, and counseling clients to ensure compliance with both the Pennsylvania Sunshine Act and the Pennsylvania Public Official and Employee Ethics Act. Additionally, Ms. Malik represents corporations, and businesses before local governing bodies, zoning hearing boards, planning commissions and private landowners. In doing so, Ms. Malik assists private-sector clients in analyzing municipal zoning ordinances, obtaining land development approvals, filing Right-to-Know Law requests, defending against Notices of Violation, challenging the procedural and substantive validity of municipal zoning ordinances, and appealing the issuance or denial of local permits. She is a 2011 graduate of the University of Houston Law Center.

Cary Snyder is a member of the Litigation group. He primarily works in the areas of complex commercial litigation and appellate practice. Mr. Snyder has experience in all stages of litigation, from drafting complaints through dispositive motions, discovery, settlement, and trial. He also represents clients in matters before federal and state appellate courts. He is a 2011 graduate of the University of Minnesota Law School.

Veteran Attorney Harlan Stone Joins Babst Calland

Babst Calland today announced the lateral move of Harley Stone, who recently joined the Firm’s Pittsburgh office.

A shareholder in Babst Calland’s Public Sector and Energy and Natural Resources groups, Attorney Stone provides senior-level counsel in municipal, land use, environmental and energy law. He represents municipal governments, authorities and private developers in municipal permitting, planning, land use, and zoning. A seasoned trial lawyer, he also has many years of experience as a litigator in the areas of municipal law, employment law, and tax assessment appeals.

Commenting about Harlan’s lateral move to the Firm, Babst Calland Managing Shareholder Donald C. Bluedorn II said, “We are very pleased to welcome Harlan to our Firm. He is a natural fit for us as he shares our values, experience and philosophy in serving clients. Harlan is a highly-regarded attorney and supports our strategy to expand Babst Calland’s legal counseling team and capabilities to serve the needs of existing and new clients in the region.”

With significant experience in municipal, land use and zoning law, Mr. Stone will be joining forces with Babst Calland’s well-established and respected Public Sector team.

“Much deliberation went into my decision to join Babst Calland after practicing with various law firms over my 40+ year career,” said Mr. Stone. “Ultimately, I became convinced that Babst Calland represented the perfect fit for me and my practice.”

Mr. Stone is admitted to practice in Pennsylvania and before the Supreme Court of Pennsylvania, Supreme Court of the United States, United States Court of Appeals for the Third Circuit, and United States District Court for the Western District of Pennsylvania. He is a member of the Allegheny County Bar Association, Allegheny County & Western Pennsylvania Association of Township Commissioners (AC&WPTAC), Association of Municipal and School Solicitors, and the Local Government Academy. Mr. Stone is a past president of the Rodef Shalom Congregation, that oldest and largest reform Jewish congregation in southwest Pennsylvania. He has been rated by Martindale-Hubbell as AV Preeminent, Peer Rated for the Highest Level of Professional Excellence since 2009.

How to keep up with evolving COVID-related regulations and mandates

Smart Business

(by Sue Ostrowski featuring Molly Meacham)

Running a business presents a multitude of challenges, but the pandemic has added another layer of complexity as leaders struggle to stay compliant with ever-evolving laws and regulations regarding COVID-19.

“The biggest issues now facing employers are COVID-related — and not just operations and physical safety but complying with a host of local, state and federal laws and regulations,” says Molly Meacham, co-chair, Litigation Group, at Babst Calland. “Strategic planning is more important than ever, and you need to have a good grasp on the issues that may impact your business and be prepared to deal with them.”

Smart Business spoke with Meacham about issues impacting employers and the steps they can take to ensure compliance.

How can employers ensure compliance with local, state and federal regulations?

It can be a significant burden to monitor COVID-related local, state and federal government actions and court decisions. Employers have always had significant regulatory burdens, but they previously had more lead time to plan for compliance and implementation. COVID requires businesses to adapt, act quickly and be flexible. Unfortunately, COVID-related compliance can be expensive, with new laws requiring employers to provide items like additional paid leave, job-protected unpaid leave and regular COVID testing.

Understanding the current legal challenges and evaluating how they impact your business is key. And it’s not just local activity. COVID issues are developing quickly on the national stage. For example, a federal court in Georgia issued a stay effective across the country regarding the executive order requiring federal contractor employees to be vaccinated. Another court stayed the OSHA vaccinate-or-test requirement for companies with more than 100 employees, and yet another stayed the federal requirement for certain health care workers to be vaccinated. If those stays are lifted, impacted employers need to be ready to comply.

What steps should a business take to be prepared as things change?

It is risky to stand by until the court cases are decided, as that could leave you with a very short timeline for implementation of any necessary changes. Put policies and procedures in place in the background, which is typically possible at a reasonable cost, to prepare for the possibility of implementation. If you haven’t gone through that strategic planning and mandates are reinstated, it may be difficult to adjust on an abbreviated timeline, and your operations may be negatively impacted.

Put the building blocks in place so you understand the absolute minimum necessary for compliance. Your workplace policies may need to be adjusted, and you may need to source materials like COVID tests. A “wait-and-see” approach can be more expensive when you have to locate resources in a limited timeframe.

These issues don’t just impact in-person workforces. Many employers that went to a remote workforce during the pandemic are considering when, how and to what extent to resume in-person work. And employers accustomed to a Pittsburgh-based workforce may now have employees physically working in other locations and need to comply with employment laws in multiple states with different requirements.

How can an expert adviser help businesses prepare and stay in compliance?

Regularly check in with your advisers to make sure you understand the current state of COVID-related laws and regulations, how they impact your business and how different potential outcomes may impact your big picture. An attorney current on these issues will generally have a grasp of the overall landscape, so it is a worthwhile investment to have that issue-spotting conversation that will help you to know where your business stands.

These issues have the potential to significantly impact your organization. An informed adviser can help you navigate gray areas, maintain operations and minimize legal risk. You don’t have to implement your strategic plan regarding unresolved legal and regulatory issues, but engaging in the strategic planning process is critical so you are prepared to implement operational changes on short notice in response to future court decisions or government actions.

For the full article, click here.

For the PDF, click here.

Court: No Property-Specific Eminent Domain Power is Necessary to Implicate Inverse Condemnation

The Legal Intelligencer

(By Anna Jewart and Blaine Lucas)

Under the U.S. and Pennsylvania Constitutions, private property may not be taken for public use without payment of just compensation to the owners, see U.S. Const. amend. V; Pa. Const., art. I Section 10. This conversion of private property for a public purpose is interchangeably known as a “condemnation” or a “taking.” In Pennsylvania, the Eminent Domain Code, 26 Pa.C.S. Section 101 et seq., provides “a complete and exclusive procedure and law to govern all condemnations.” This includes de jure condemnations initiated by condemning bodies in compliance with statutory requirements, as well as de facto condemnations, initiated by property owners when entities cloaked with eminent domain powers substantially deprive them of the beneficial use and enjoyment of their properties without initiating and following the procedures set forth under the Eminent Domain Code.

Under the Eminent Domain Code, a property owner asserting that a de facto taking of property has occurred is authorized to bring an “inverse condemnation” action against the condemnor in order to receive adequate compensation for the loss. Generally, courts considering an allegation that a de facto taking occurred place a heavy burden on the property owner to show that:

  • The condemnor had the power to condemn the land under eminent domain procedures;
  • The property owner was substantially deprived of the use and enjoyment of the property through exceptional circumstances; and
  • The damages sustained were an immediate, necessary, and unavoidable consequence of the condemnor’s exercise of its eminent domain power.

Therefore, courts have required evidence that the taking resulted from the actions of an entity “clothed with the power of eminent domain.” Both public, and “quasi-public” entities, such as corporations or public utilities to whom special governmental powers have been delegated, may hold such a power. Recently, following a protracted appellate history, the Pennsylvania Supreme Court, in Hughes v. UGI Storage, No. 49 MAP 2021, No. 50 MAP 2021, (Pa. Nov. 29, 2021), considered whether or not a condemnor must possess the power to condemn the specific land in question, ultimately holding that that a public or quasi-public entity need not possess a property-specific power of eminent domain in order to implicate inverse condemnation principles.

In 2009, UGI Storage Co. (UGI) filed an application with the Federal Energy Regulatory Commission (FERC), seeking a certificate of public convenience and necessity to acquire and operate certain facilities related to the interstate transportation and sale of natural gas owned by UGI Central Penn Gas, Inc. (CPG), a company regulated by the Pennsylvania Public Utility Commission. These facilities included an underground storage field located in Tioga County, consisting of 1,216 acres (storage field), as well as an additional 2,980-acre protective zone around the storage field (buffer zone). UGI was a quasi-public entity invested with the power of eminent domain. FERC granted the application as to the storage field, but denied UGI’s request to certificate the full buffer zone, noting that CPG had not obtained all of the necessary property rights within the buffer zone, and that UGI had failed to contact the owners of the properties in the buffer zone as required by federal regulations.

In 2015, the owners of certain parcels located within the buffer zone (owners) filed petitions seeking appointment of a board of viewers to assess damages for an alleged de facto condemnation of their properties under Section 502(c) of the Eminent Domain Code, which establishes the procedural avenue for securing just compensation in inverse condemnation scenarios. The owners’ claims were based on their allegation that although the buffer zone was not certified in its entirety, UGI was utilizing the properties within the uncertificated segments in the same manner as those within the certificated areas as protection for the integrity and security of the storage field. The owners claimed that UGI had effectively prohibited all hydraulic fracturing activities on the properties within the buffer zone, depriving them of the financial benefits of any natural gas lying beneath their lands, and resulting in a de facto condemnation. For the next several years, the case went up and down on appeal, resulting in multiple trial court decisions, as well as two split Commonwealth Court opinions.

In 2020, the case returned on appeal to the Commonwealth Court, where members of the court disagreed as to whether the owners needed to prove that UGI had property-specific powers of eminent domain in order to prove a de facto condemnation had occurred. See Hughes v. UGI Storage, 243 A.3d 278 (Pa. Cmwlth. 2020) (en banc). The majority invoked the three-part test for de facto condemnation discussed above. While the majority did not require a property-specific inquiry as to the first prong as the trial court had, it found that because UGI was precluded from exercising eminent domain powers over the owners’ properties in the absence of FERC certification, the owners could not establish that any deprivation of their properties was the “immediate, necessary and unavoidable consequence of the exercise of the power to condemn” under the third prong of the test. Judges Leavitt (concurring and dissenting) and McCullough (dissenting) authored separate opinions, agreeing with the owners’ position that the argument asserted by UGI and accepted by the majority “conflated the elements of a de jure condemnation” lawfully initiated by a condemnor “with those of a de facto condemnation, which generally reflects a condemnor’s unlawful interference with property rights.” The Pennsylvania Supreme Court granted the owners’ subsequent petition for allowance of appeal.

As an initial matter, the Supreme Court noted that as a matter of statutory construction it would construe the Eminent Domain Code in a manner most consistent with constitutional norms. It then looked to the text of the Eminent Domain Code, finding that the relevant definitions suggested no requirement of any nexus between the power of eminent domain and a specific property. More specifically, looking at the Eminent Domain Code’s definition of to “condemn,” (to “take, injure or destroy property by authority of law for a public purpose,”) the court found that it closely adhered to the constitutional conception of a taking, defined as “when government action directly interferes with or substantial disturbs the owner’s use and enjoyment of the property.” Although the court noted that the definition of “condemnor,” “interjects the concept of an ‘acquiring agency,” in turn defined as any “entity … vested with the power of eminent domain,” it found the reference to eminent domain solely depicted an attribute of an “acquiring agency,” and did not suggest any requirement of a nexus between that power and a specific property.

The court further noted that Section 502(c)(2) of the Eminent Domain Code, which describes the actionable conduct necessary to support an inverse condemnation claim, said nothing about a power of eminent domain, and that in order to effect an actionable taking it was enough that the condemnor has proceeded by authority of law for a public purpose. Consequently, the court held that the plain terms of the code do not signify a requirement of a property-specific power of eminent domain, an interpretation it found to be most consonant with both federal and state constitutional law. The court therefore held that “a public or quasi-public entity need not possess a property-specific power of eminent domain in order to implicate inverse condemnation principles.” Although the court based its decision on its interpretation of the Eminent Domain Code, it also pointed to the long line of U.S. Supreme Court decisions finding that government actions constituting regulatory takings have not “parsed through whether or not each offending agency has a power of eminent domain. The court cited as an example the Supreme Court’s landmark decision in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) (Finding that conditioning issuance of a permit on the conveyance of an uncompensated easement constituted a taking). The court also quoted from the U.S. Court of Appeals for the Eleventh Circuit in Foundation v. Metropolitan Atlanta Rapid Transit Authority, 678 F. 2d 1038, 1043-44 (11th Cir. 1982) “([W]e disagree with the basic premise … that an inverse condemnation action will not lie against [a government agency] because it does not have the power of eminent domain. A taking occurs when a public entity substantially deprives a private party of the beneficial use of this property for a public purpose.”)

Although the Supreme Court ultimately remanded the case to the Commonwealth Court to address a waiver issue, its holding in UGI Storage underscores the need for state and local regulatory authorities (and private entities possessing eminent domain power) to proceed cautiously when taking actions impacting private property rights, even if the no formal declaration of taking is being filed against a specific property.

For the full article, click here.

Reprinted with permission from the December 23, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.

Legislative & Regulatory Update

The Wildcatter

(By Nikolas Tysiak)

Hello MLBC friends, family and colleagues! This time around, you get a DOUBLE dose of statutes, regulations and cases because your friendly, neighborhood Legislative and Regulatory Committee Chair was too busy to get an article finalized for the last issue of the Wildcatter. Luckily for us, there has not been a lot of activity to report on, so hopefully this article will fill in the gap in your life with fascinating legal and legislative developments.

PENNSYLVANIA
In Pennsylvania Environmental Defense Foundation v. Commonwealth (255 A.3d 289 (Pa. 2021)), the Pennsylvania Supreme Court was asked to determine if allocations of bonuses, yearly rentals and interest penalties for late payments under oil and gas leases on state forest and game lands were improperly allocated to the Commonwealth General Fund under the Environmental Rights Amendment (“ERA”) to the Pennsylvania Constitution (Art. I, Sec. 27). In a prior decision, the Supreme Court had determined that the ERA created a public trust subject to private trust principles, and that royalty revenue streams generated by the sale of gas extracted from Commonwealth lands represented the sale of trust assets that had to be returned to trust fund principal.

In that prior decision, it was determined that not enough information existed in the record to determine whether the bonuses, rentals and interest penalties were also improperly allocated. The issue regarding the non-royalty payments had been remanded to the Commonwealth Court, which decided these non-royalty revenue streams did not constitute the sale of trust assets and were instead “income” and were not required to be returned to the trust fund principal. The Supreme Court relied on contract principles to determine that the non-royalty payments were not compensation for trust assets (oil and gas in the ground), and therefore did not have to be returned to the trust fund principal in kind. Instead, the court designated the non-royalty payments as income streams. However, the court still found that the allocation of income streams to the general fund based on private trust principles and the language of the documents establishing the duty owed by the Commonwealth as fiduciary. In short, the Supreme Court found that the Pennsylvania constitution holds that the ERA effectively establishes a trust for conservation and environmental purposes for the benefit of all Pennsylvanians, whether currently living or not yet born. As such, all principal and income of the trust must be used for the stated purposes (conservation and maintenance of public natural resources), and cannot be allocated to the Commonwealth general fund, stating “to hold otherwise would permit the Commonwealth to use trust income to advance a non-trust purpose, an outcome we previously rejected.” The Supreme Court ordered that the trust income assets (non-royalty payments under the leases) be returned to the trust, accordingly.

On September 14, 2021, the Sierra Club, PennFuture, Clean Air Council, Earthworks and other groups (Petitioners) submitted two parallel rulemaking petitions to Pennsylvania’s Department of Environmental Protection (DEP) asking the Environmental Quality Board (EQB) to require full-cost bonding for conventional and unconventional oil and gas wells, for both new and existing wells. The petitions do not address or consider the permit surcharges and other funding mechanisms for plugging wells, including the federal infrastructure bill that is expected to provide millions of dollars to plug abandoned wells.

The Pennsylvania General Assembly addressed and increased bonding in 2012. Under Act 13, well owners/operators are required to file a bond for each well they operate or a blanket bond for multiple wells. Currently, the bond amount for conventional wells is$2,500 per well, with the option to post a $25,000 blanket bond for multiple wells. 72. P.S. §1606-E. For unconventional wells, the current bond amount required varies by the total well bore length and the number of wells, and is limited under the statute to a maximum of $600,000 for more than 150 wells with a total wellbore length of at least 6,000 feet. 58 Pa.C.S. §3225(a)(1)(ii). EQB has statutory authority to adjust these amounts every two years to reflect the projected costs to the Commonwealth of plugging the well.

Per the EQB Petition Policy, as set forth in the regulations at 25 Pa. Code Chapter 23, DEP has 30 days from receipt of the petitions to determine whether the petitions are complete and if they request an action that can be taken by the EQB that does not conflict with federal law. If the DEP determines the petitions meet the above conditions, the EQB will be informed of the petition for rulemaking and the nature of the request. At the next EQB meeting occurring at least 15 days after the Department’s determination, the Petitioners may make a brief oral presentation and DEP will make a recommendation whether the EQB should accept the petition.

OHIO
A public hearing on HB 152, designed to amend Ohio’s forced pooling statutes and accompanying regulations, was held on June In Estella Roberts v. Roy C. Roberts, 2021-Ohio-3857 (6th Dist. Ct. App. 2021), the Court of Appeals was asked to adjudicate a dispute arising from an 1895 oil and gas lease in Sandusky County, Ohio. The lease had been in continuous operation until approximately 1979, after which production ceased until Roy C. Roberts re-commenced operations and sent royalty checks to Estella Roberts, which were accepted and cashed. In 2015, Estella asserted that the lease had expired and was operating the wells in question without a valid lease, requesting the negotiation of a new lease. At trial, it was determined that the lessee held a fee interest (fee simple determinable) the parties presented arguments on whether the interest created in 1895 constituted a lease that had expired due to lack of production, or whether the interest was saved by the Dormant Mineral Act. The trial court declined to decide on the nature of interest (fee vs. lease) but held that the Dormant Mineral Act applied and the interest held by Roy was saved by actual production. The Court of Appeals agreed with the trial court’s analysis. It appears that Estella also failed to properly argue the Ohio’s lease forfeiture law, ORC 5301.332, applied, as the Court indicated that the record contained insufficient allegations or pleadings that would allow for a decision on that basis. The Court upheld the trial court decision that Dormant Mineral Act preserved the Roy Roberts interest, but overturned on issues regarding payment of attorneys’ fees by Estella.

In 4 Quarters, LLC v. Hunter, 2021-Ohio-3586 (7th Dist. Ct. App. 2021), the Court of Appeals heard (yet another) claim relating to the Ohio Marketable Title Act. In 1922, Hunter conveyed a tract of 78.9 acres in Belmont County to Carpenter, effectively reserving a ½ non-participating royalty interest. In August of 2019, 4 Quarters obtained the surface to the 78.9 acres and immediately filed a complaint under the MTA to extinguish the Hunter reservation. In October of 2019, Ruble, purported to be the sole successor to Hunter, was informed that he may be the sole successor to Hunter. In March of 2020, Ruble received notice from an oil and gas operator selected by 4 Quarters that his interest had been granted to 4 Quarters by default judgment and that royalties had been disbursed to 4 Quarters. In July 2020, Ruble brought an action to vacate the prior judgment in favor of 4 Quarters, which was denied. At issue on appeal was the reasonableness of 4 Quarters attempts to locate heirs or successors of Hunter for notice purposes as required by the MTA. The Court found that the search for Hunter and successors was reasonable under existing Ohio law and guidelines. Although Ruble claims there was ample evidence of his succession from Hunter in Marshall County, WV (adjacent to Belmont County) the Court found no evidence in the Belmont County records that Hunter, or any of his heirs, successors or assigns, may be found in a different locality. Consequently, a search limited to Belmont County was reasonable. Ruble’s contentions were found without merit, and the trial court decision affirmed.

A similar fact pattern arose, also in Belmont County, in Mammone v. Reynolds, 2021-Ohio-3248 (7th Dist. Ct. App. 2021). In 2013, surface owners sought to regain title to severed oil and gas under their land but were unable to locate current owners of the interest (also known as the “Huddleston heirs”). Notice of the proceedings was served on the Huddleston Heirs by publication. Because the Huddleston Heirs never responded to the lawsuit, the trial court granted default judgment in September 2013 to the surface owners. In 2020, the Huddleston Heirs sought to have the 2013 judgment vacated, which was overruled by the trial court. On appeal by the Huddleston Heirs, the Court of Appeals agreed with the trial court and affirmed its judgment.

WEST VIRGINA
The West Virginia Supreme Court of Appeals has accepted four questions certified to it by The United States District Court for the Northern District of West Virginia in Charles Kellam, et al. v. SWN Production Company, LLC, et al., No. 5:20-CV-85. The Court will hear oral argument during the January 2022 term. The Court will address four questions: (1) Is Estate of Tawney v. Columbia Natural Resources, LLC, 219 W.Va. 266, 633 S.E.2d 22 (2006) (Tawney) still good law in West Virginia; (2) What is meant by the “method of calculating” the amount of post-production costs to be deducted; (3) Is a simple listing of the types of costs which may be deducted sufficient to satisfy Tawney; and (4) If post-production costs are to be deducted, are they limited to direct costs or may indirect costs be deducted as well?

At the time of the District Court’s certification in Kellam, defendants’ Motion for Judgment on the Pleadings asserting that the Kellams’ lease complied with Tawney and that the District Court was bound by the decision in Young v. Equinor USA Onshore Properties, Inc., 982 F.3d 201 (4th Cir. 2020) was pending. In Young, the 4th Circuit Court of Appeals reversed Judge Bailey and held the lease clearly and unambiguously allowed the deduction of post-production expenses and noted that “Tawney doesn’t demand that an oil and gas lease set out an Einsteinian proof for calculating post-production costs. By its plain language, the case merely requires that an oil and gas lease that expressly allocates some post-production costs to the lessor identify which costs and how much of those costs will be deducted from the lessor’s royalties.” Young, 982 F.3d at 208. Moreover, the 4th Circuit noted recent criticism of Tawney by the West Virginia Supreme Court of Appeals. See Leggett v. EQT Prod. Co., 239 W. Va. 264, 800 S.E.2d 850 (2017).

Until next time,

MLBC Legislative and Regulatory Committee
Nik Tysiak, Chair

To view the full article, click here.

To view the PDF, click here.

Reprinted with permission from MLBC of the December 2021 issue of The Wildcatter. All rights reserved.

PHMSA Releases Long-Awaited Final Rule for Onshore Gas Gathering Lines

PIOGA Press

(By Keith Coyle, Ashleigh Krick and Chris Kuhman)

On November 15, the Pipeline and Hazardous Materials Safety Administration (PHMSA) released a final rule (tinyurl.com/phmsa-gathering-rule) for onshore gas gathering lines. The final rule, which represents the culmination of a decade-long rule-making process, amends 49 C.F.R. Parts 191 and 192 by establishing new safety standards and reporting requirements for previously unregulated onshore gas gathering lines. Building on PHMSA’s existing two-tiered, risk-based regime for regulated onshore gas gathering lines (Type A and Type B), the final rule creates:

  • A new category of onshore gas gathering lines that are only subject to incident and annual reporting requirements (Type R); and
  • Another new category of regulated onshore gas gathering lines in rural, Class 1 locations that are subject to certain Part 191 reporting and registration requirements and Part 192 safety standards (Type C).

The final rule largely retains PHMSA’s existing definitions for onshore gas gathering lines but imposes a 10-mile limitation on the use of the incidental gathering provision. The final rule also creates a process for authorizing the use of composite materials in Type C lines and prescribes compliance deadlines for Type R and Type C lines. Additional information about these requirements is provided below.

Type R lines
The final rule creates a new category of reporting-only regulated gathering lines. These gathering lines, known as Type R lines, include any onshore gas gathering lines in Class 1 or Class 2 locations that do not meet the definition of a Type A, Type B, or Type C line. Operators of Type R lines must comply with the certain incident and annual reporting requirements in Part 191. No other requirements in Part 191 apply to Type R lines.

Type C lines
The final rule creates a new category of regulated onshore gas gathering lines. These gathering lines, known as Type C lines, include onshore gas gathering lines in rural, Class 1 locations with an outside diameter greater than or equal to 8.625 inches and a maximum allowable operating pressure (MAOP) that produces a hoop stress of 20 percent or more of specified minimum yield strength (SMYS) for metallic lines, or more than 125 psig for non-metallic lines or metallic lines if the stress level is unknown.

Operators of Type C lines are subject to the same Part 191 requirements as Type A and Type B lines and must comply with certain Part 192 requirements for gas transmission lines, subject to the non-retroactivity provision for design, construction, initial inspection and testing, as well as other exceptions and limitations that vary based on the outside diameter of the pipeline and whether there are any buildings intended for human occupancy or other impacted sites within the potential impact circle or class location unit for a segment. The final rule also provides additional exceptions from certain requirements, including for grandfathered pipelines if a segment 40 feet or shorter in length is replaced, relocated, or otherwise changed.

In addition to prescribing these new requirements, the final rule authorizes the use of composite materials in Type C lines if the operator provides PHMSA with a notification containing certain information at least 90 days prior to installation or replacement and receives a no-objection letter or no response from PHMSA within 90 days.

Deadlines
The effective date of the final rule is May 16, 2022. Operators of Type R and Type C lines must comply with the applicable requirements in Part 191 starting on May 16, 2022, although the first annual report is not due until March 15, 2023. Operators must also comply with the requirement to document the methodology
used in determining the beginning and endpoints of onshore gas gathering by November 6, 2022, and operators of Type C lines must comply with the applicable requirements in Part 192 by May 16, 2023. Operators may request an alternative to these six- and 12-month compliance deadlines by providing PHMSA with a notification containing certain information at least 90 days in advance and receiving a no-objection letter or no
response from PHMSA within 90 days.

Other considerations
Along with the final rule, PHMSA published its final regulatory impact analysis, which estimated that the final rule will regulate approximately 426,000 miles of gas gathering lines, of which 91,000 miles will be subject to new safety requirements. PHMSA also estimated that the annualized cost to implement the final rule is approximately $13.7 million. PHMSA determined that these costs are outweighed by the benefits of the rule, which include avoided injuries, evacuations, commodity loss, improved reporting processes and a reduction in the number of pipeline incidents. Notably, PHMSA did not address comments submitted by industry raising concerns regarding the costs of complying with the new regulations, but instead reiterated its findings from the preliminary regulatory impact analysis.

Administrative petitions for reconsideration must be filed with PHMSA within 30 days of the final rule’s publication in the Federal Register. Petitions for judicial review must be filed within 89 days of the final rule’s publication in the Federal Register or, if an administrative petition for reconsideration is filed, within 89 days of
PHMSA’s decision on the petition.

For the full article PDF, click here.

Reprinted with permission from the December 2021 issue of The PIOGA Press. All rights reserved.

 

A Field Guide to the Compensation Disclosure Requirements Under Section 202 of the Consolidated Appropriations Act

 

Field Guide

(By Jenn Malik and Robert (Max) Junker)

HIGHLIGHTS

  1. Covered service providers must disclose, in writing, any and all direct and indirect compensation in excess of $1,000.00 they receive for providing services to the plan.
  2. Covered service providers include brokers and consultants which provide services ranging from third party administration, pharmacy benefits management, plan design, to recordkeeping services.
  3. Responsible plan fiduciaries must review Section 202 disclosures for reasonableness.
  4. Section 202 disclosures are applicable to all contracts, renewals, and/or extensions with covered service providers entered into on or after December 27, 2021.

Introduction

If you sponsor a group health plan, do you know how your broker will be compensated if you follow their recommendation for a new program for your members? Although these types of disclosures are commonplace for pension and retirement plans, these questions were largely unanswerable in the healthcare benefits industry until this year.

The Consolidated Appropriations Act, 2021 (CAA), enacted by Congress in December 2020, defines a compendium of transparency, disclosure, and reporting requirements that group health plans and plan sponsors must navigate to fulfill their fiduciary responsibilities to plan beneficiaries. Prior to the enactment of the CAA, group health plans were often limited by healthcare industry practices preventing the disclosure of claims and pricing data necessary to effectively design and administer health plans. Congress’s enactment of the CAA seeks to improve the market by placing the onus on group health plans and plan sponsors to avoid contracting with entities and health benefits issuers whose business practices prevent plan sponsors from making prudent decisions in the administration of health plans.

This Field Guide addresses one area of these new transparency requirements. Section 202 of the CAA, applicable to group health plans governed under the Employee Retirement Income Security Act of 1974, as amended, (ERISA), prohibits covered plans from entering into a contract, renewal, or extension of services for the plan with “covered service providers” without first requiring the covered service provider to disclose, in writing, any and all direct and indirect compensation in excess of $1,000.00 they receive for providing services to the plan. Section 202’s disclosure requirements apply to all contracts, renewals, or extensions provided by a covered service provider on or after December 27, 2021. A covered plan’s failure to obtain the required disclosures from a covered service provider under Section 202 is considered a prohibited transaction under ERISA and the Department of Labor can assess fees in accordance therewith. The following is a brief overview of the applicability and required disclosures of Section 202.

Who Is a “Covered Service Provider”?

A “covered service provider” is defined by the CAA as a service provider (including affiliates and subcontractors of the service provider) who reasonably expects to receive $1,000.00 or more in direct or indirect compensation to provide brokerage or consulting services to a covered plan. The CAA defines direct compensation as payment for services received directly by the covered plan. Indirect compensation is any compensation received from any source other than the plan, the plan sponsor, the covered service provider, or an affiliate of the covered service provider. Examples of indirect compensation include, but are not limited to, commissions, finder’s fees, and incentive payments, received by a covered service provider by an entity other than the plan, plan sponsor, or an affiliate of the covered service provider. Indirect compensation from a subcontractor of a covered service provider must be disclosed unless it is received in connection with services performed under a contract or arrangement with the subcontractor.

The CAA defines brokerage and consulting services broadly to include the following:

  • Selection of insurance products (including dental and vision);
  • Development or implementation of plan design;
  • Recordkeeping services;
  • Medical management vendors;
  • Benefits administration (including dental and vision);
  • Stop-loss insurance;
  • Pharmacy benefit management services;
  • Wellness design and management services;
  • Transparency tools and vendors;
  • Group purchasing organization preferred vendor panels;
  • Disease management vendors and products;
  • Compliance services;
  • Employee assistance programs; and/or
  • Third-party administration services.

What Must Be Disclosed and to Whom?

Covered service providers must disclose, in writing, the following, to a responsible plan fiduciary in reasonable advance of the date the contract or agreement is expected to be executed, extended, or renewed:

  • A description of the services to be provided;
  • A statement that the covered service provider, an affiliate, or a subcontractor will provide the services pursuant to the contract or arrangement directly as a fiduciary under Section 3(2) of ERISA, if applicable;
  • A description of all direct compensation either in the aggregate or by service;
  • A description of all indirect compensation that the covered service provider, an affiliate, or a subcontractor expects to receive in connection with the services, including compensation from a vendor to a brokerage firm based on a structure of incentives not solely related to the contract with the covered entity;
  • A description of the arrangement between the payer and the covered service provider, an affiliate, or a subcontractor, as applicable, pursuant to which the indirect compensation is paid;
  • Identification of the services for which indirect compensation is received;
  • Identification of the payer of the indirect compensation;
  • A description of any compensation paid among the covered service provider, an affiliate, or a subcontractor if such compensation is set on a transaction basis, i.e. commissions; and
  • A description of any compensation that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with termination of a contract or arrangement including calculation of refunds for prepaid amounts.

Repercussions for Failing to Provide Section 202 Disclosures

Generally, ERISA prohibits plans from entering into transactions with parties-in-interest, which include service providers such as brokers and consultants. An exception to this general rule is that a plan may enter into contracts for various services as long as those contracts are reasonable. The disclosures listed above, specifically the disclosures regarding indirect compensation, are designed to aid responsible plan fiduciaries in determining the reasonableness of the agreements with consultants and brokers.

Covered service providers must notify the responsible plan fiduciary in writing of any changes in the disclosures no later than 60 days from the date the covered service provider is informed of the change. Additionally, while covered service providers are required to provide responsible plan fiduciaries with the disclosures on their own accord, the CAA also empowers plan fiduciaries to request Section 202 disclosures from covered service providers. The failure of a covered service provider to make the required disclosures within 90 days of a written request obligates the plan fiduciary to notify the Department of Labor within 30 days of the covered service provider’s failure to respond. Additionally, a responsible plan fiduciary should avoid contracting with brokers or consultants who fail to provide Section 202 disclosures as to do so may subject the plan to penalties.

If you have any questions about Section 202 disclosures or CAA compliance generally, please contact Jenn Malik at 412.525.6755 or jmalik@babstcalland.com or Robert Max Junker at 412.773.8722 or rjunker@babstcalland.com.

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21 Babst Calland Attorneys Names Pennsylvania Top Rated Lawyer

The Legal Intelligencer and Martindale-Hubbell®, the company that has long set the standard for lawyer ratings, have announced the Pennsylvania Top Rated Lawyers®.  To view the list of Babst Calland lawyers who have achieved an AV® Preeminent™ Peer Review Rating, click here.

How artificial intelligence is changing the mergers and acquisitions process

Smart Business

(by Sue Ostrowski featuring Dane Fennell and Chris Farmakis)

Artificial intelligence is revolutionizing the way attorneys approach due diligence, saving clients money, speeding up the review process and creating budget certainty.

“For a long time, AI was an alternative method to the usual approach of manually reviewing documents during an M&A transaction,” says W. Dane Fennell, an associate in the Corporate & Commercial Group at Babst Calland. “But now, clients expect ever-more efficient, accurate and speedy diligence results. To deliver, AI has become a critical tool in the due diligence process for deals of all sizes.”

Smart Business spoke with Fennell and Christian A. Farmakis, shareholder and chairman of the board at Babst Calland, about how AI is transforming due diligence in the legal marketplace.

What are some benefits of implementing AI in due diligence?

The amount of available data is growing at an exponential rate, creating pressure on those leading the M&A team. Just a few years ago, attorneys had months to work on a due diligence project, combing through what could be thousands of documents to gather and analyze data. The review timeframe has been drastically condensed as buyers and sellers both push to close deals faster.

Several years ago, we assisted with an acquisition that required three months of pre-closing diligence, and 18 months of post-closing confirmatory diligence. With a similar project earlier this year, we did the same work and reviewed the same number of documents in three weeks. Our AI tools allowed us to provide more cost-effective, accurate results in weeks instead of months, and oftentimes at a fraction of the price of a manual review.

Today, buyers need to have a better sense of the ‘game-changing’ issues that will guide their deal-making decisions. With AI, we can isolate ‘high-value’ issues from a large volume of raw data earlier in the diligence process.

As the deal process continues toward completion, we can home in on the relevant operational, legal and financial terms pertinent to the deal structure, eliminating the need to review every letter of every document in the data room.

How can using AI create budget certainty for clients?

By using AI, a law firm has the ability to aggregate metrics regarding previously completed projects that are similar in size, scope and complexity, and have comparable delivery windows. This enables a law firm to make business decisions regarding the size of the team needed for the project, as well as the total number of hours required for completion. All of this factors into providing the client a more accurate estimate of the expected cost of its deal diligence.

Will AI eliminate the role of attorneys in the due diligence process?

With machines doing the work formerly done manually by groups of contract attorneys, the fear is that attorneys will be out of work in the near future. But that is not the case. There is a very important human component to the process that will not be going away anytime soon.

Due diligence still requires human interpretation and gut feelings of experienced attorneys. Legal experience, coupled with deal experience, will continue to be required for all diligence projects to determine the type of AI tool to use and how to implement the AI to best deliver the desired results for a client.

AI helps speed up the process and lower costs, but the human element far outweighs a computer; it takes that human intervention to provide absolute certainty in reporting the diligence results. AI can be a fantastic tool for those who accept it and understand both its virtues and its shortcomings.

For the full article, click here.

For the PDF, click here.