Institute for Energy Law Oil & Gas E-Report
(by Adam Speer)
On October 4, 2019, the Supreme Court of the United States granted certiorari to hear an appeal of the Fourth Circuit’s decision vacating the United States Forest Service’s special use permit authorizing the Atlantic Coast Pipeline (ACP) to cross beneath a segment of the Appalachian National Scenic Trail. In Cowpasture River Preservation Association v. Forest Service, 911 F. 3d 150 (4th Cir. 2018), a three-judge panel from the Fourth Circuit Court of Appeals ruled that the United States Forest Service lacked the statutory authority pursuant to the Mineral Leasing Act (MLA) to grant a pipeline right-of-way across the Appalachian Trail. The Fourth Circuit’s decision halted the construction of the ACP. If the decision stands, it could impede the completion of the ACP and affect other current and future pipeline projects along the east coast, like the Mountain Valley Pipeline, that would also cross the Trail.
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The Legal Intelligencer
(by Marc Felezzola and Benjamin Wright)
Two recent opinions from Pennsylvania’s Superior Court clarify aspects of the practice and procedure surrounding mechanics’ lien claims in the commonwealth—one case addressed whether a subcontractor may serve its formal notice of intent to lien upon an owner via FedEx and the other addressed when, if ever, grounds for statutory preliminary objections to a mechanics’ lien claim will be deemed waived.
- Superior Court permits service of subcontractor’s formal notice of intent to lien via FedEx.
In American Interior Construction & Blind v. Benjamin’s Desk, 206 A.3d 509 (Pa. Super. Ct. 2019), the Superior Court was asked to determine whether the procedural rules of the Mechanics’ Lien Law were to be interpreted strictly or whether substantial compliance would suffice.
In American Interior, Benjamin’s Desk had retained Brass Castle Building (Brass) as the general contractor for the construction of office space improvements. Brass retained American Interior Construction & Blind (AICB) as a subcontractor. AICB completed its work in December 2016 and AICB alleged that Brass failed to pay AICB in full. AICB served a timely notice of its intent to file a mechanics’ lien against Benjamin’s Desk. However, AICB used FedEx to deliver its notice of intent. AICB then filed its complaint to enforce the lien claim.
Benjamin’s Desk filed preliminary objections in the nature of a demurrer alleging AICB failed to comply with the service-of-notice requirements under the Mechanics’ Lien Law. In response, AICB filed a response arguing that personal service of the formal notice by FedEx is personal service by an adult in the same manner as a writ of summons in assumpsit and therefore was expressly permitted by section 501(d) of the Pennsylvania’s Mechanics’ Lien Act of 1963 (Lien Law), 49 P.S. Section 1501(d).
Section 501(d) of the Mechanics’ Lien Law of 1963 provides that formal notice of intent to lien “may be served by first class, registered or certified mail on the owner or his agent or by an adult in the same manner as a writ of summons in assumpsit or if service cannot be so made then by posting … the improvement.”
The trial court sustained the preliminary objections and struck AICB’s complaint for lack of proper notice. AICB timely appealed. The primary issue before the Superior Court was whether a subcontractor may properly serve its formal notice of intent to lien via FedEx.
The Superior Court looked to Pennsylvania Rule of Civil Procedure 400.1, which governs the service of original process for actions commenced in Philadelphia. This rule states in relevant part, “In an action commenced in the first Judicial District, original process may be served … within the county by the sheriff or a competent adult.” The Pennsylvania Supreme Court had previously interpreted Rule 400.1 as it related to the delivery of a praecipe to issue a writ of summons via certified mail. The Supreme Court had held that neither prior Pennsylvania cases nor the rules themselves contemplated punishing a plaintiff for technical missteps “where he has satisfied the purpose of the statute of limitations by supplying a defendant with actual notice.” See McCreesh v. City of Philadelphia, 888 A.2d 664 (Pa. 2005). Thus, pursuant to McCreesh as interpreted by the Superior court in American Interior, “technical noncompliance” with the Rules of Civil Procedure for original process may be excused “absent intent to stall the judicial machinery or actual prejudice.”
Applying that rule to the record before it, the Superior Court reversed and reinstated AICB’s complaint because “even if AICB failed to comply with the service requirements for original process, Benjamin’s Desk received actual notice and no party has alleged an intent to stall or actual prejudice.” The Superior Court’s reliance on McCreesh may implicitly suggest service of formal notice of intent to lien via FedEx is neither acceptable service by mail under Section 501(d) of the Lien Law nor acceptable service by competent adult under Rule 400.1(a)(1). However, the American Interior opinion makes clear that technical compliance with the lien law’s service-of-notice requirement will be excused and service of a formal notice of intent to lien will be upheld as long as the owner actually receives the notice, the manner was not intended to stall the judicial machinery, and the owner suffered no prejudice as a result of the technically improper service. Given this standard, service by FedEx was permissible in American Interior and likely will be in all other cases going forward.
- Superior Court declares that grounds for statutory preliminary objections to a mechanics’ lien claim are waived if not asserted in (or prior to the filing of) responsive pleading to the complaint to obtain judgment on the lien.
Section 505 of the Lien Law, 49 P.S. Section 1505, provides, “any party may preliminarily object to a mechanics’ lien claim upon a showing of an exemption or immunity of the property from lien, or for lack of conformity with this act … Failure to file an objection preliminarily shall not constitute a waiver of the right to raise the same as a defense in subsequent proceedings.” Thus, Section 505 seems to suggest that the statutory defenses to a lien claim (i.e., immunity of the property from lien or failure to perfect the lien in accordance with the requirements of the Lien Law) cannot be waived and may be asserted at any time to invalidate a mechanics’ lien. However, in Terra Firma Builders v. King, 215 A.3d 1002 (Pa. Super. Ct. 2019), the Pennsylvania Superior Court expressly rejected this interpretation of Section 505.
In Terra Firma Builders, the mechanics’ lien claimant failed to properly perfect its lien because it did not file an affidavit of service for the lien as required by Section 502(a)(2) of the Lien Law, 49 P.S. Section 1502(a)(2). However, the property owners did not file statutory preliminary objections seeking to strike the lien as improperly perfected, nor did they file preliminary objections to the claimant’s complaint to obtain judgment on the lien pursuant to the Pennsylvania Rules of Civil Procedure challenging the propriety of service.
After the close of pleadings, the lien action was consolidated with the claimant’s civil action for breach of contract and the consolidated cases went to trial. Following trial, judgment was entered in favor of the owners and the parties filed post-trial motions. With those post-trial motions pending, the owners filed a motion to strike the lien for failure to comply with the lien law due to failure to file an affidavit of service.
The trial court interpreted the owners’ motion to strike as a preliminary objection under Section 505, read that statutory section to allow an owner to file statutory preliminary objections at any time, even after the enforcement action and trial is over, and struck the lien for failure to comply with the Lien Law’s procedural requirements.
On appeal, a divided panel of the Superior Court reversed, with Senior Judge Dan Pellegrini and Judge Deborah A. Kunselman holding that that the word “preliminary” as used in Section 505 of the Lien Law must have some meaning. Thus, according to the majority, Section 505 must be construed as requiring an owner to assert Section 505 defenses “in the enforcement proceeding in accordance with the manner provided for in the applicable rules of civil procedure.” The majority went on to conclude that because “the lack of service defense to the claim was not raised by preliminary objection or new matter as required under the Rules of Civil Procedure in the enforcement proceeding,” the “owners’ motion to strike was untimely and the issue was raised.”
In dissent, Judge Mary P. Murray argued that “Section 505 unambiguously places no limit on when a party may raise a defense to the enforcement of the lien” and allows an owner to move to strike a lien at any time, even after the conclusion of enforcement proceedings. On March 10, the Pennsylvania Supreme Court agreed to hear the owners’ appeal of the Superior Court’s decision. Thus, in the coming months, we should expect more clarity on the proper interpretation of Section 505.
For the full article, click here.
Reprinted with permission from the March 26, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.
Pennsylvania’s Best Lawyers
(by Joseph Reinhart)
Much state environmental law is based on federal statutes. How can environmental-law attorneys help?
Environmental lawyers can be instrumental in sustaining rural communities and protecting natural resources by helping landowners and businesses understand the complex and interrelated laws and regulations governing so many aspects of economic development. Many municipalities in Pennsylvania have passed ordinances designed to protect residents in rural areas from environmental harm associated with natural-resource development. In some cases, these ordinances are issued with the intention of implementing Pennsylvania’s Environmental Rights Amendment. These ordinances may require approval prior to conducting activities as common as earth disturbance and road usage. Sorting out the laws and ordinances applicable to these activities, and determining which governmental authority has jurisdiction over them, are tasks well-suited to attorneys trained in environmental law.
Many states have developed their own climate-change plans. Do you think Pennsylvania will do that?
In 2018, Governor Tom Wolf issued an executive order establishing a Climate Action Plan for the commonwealth. The plan seeks to achieve, by 2025, a 26 percent reduction in greenhouse-gas emissions from 2005 levels. It includes a wide variety of proposed actions, including improvements in energy efficiency, increased use of electric vehicles, maintenance of nuclear generating capacity, and investment in solar development. The plan also contemplates development of a cap-and-trade program to limit carbon-dioxide emissions.
Will the passage of certain laws be necessary?
Wolf’s executive order requiring the development of a cap-and-trade program has been met by stiff resistance from parties concerned about the costs and potential adverse economic consequences associated with a carbon tax. In December 2019, members of the Pennsylvania House and Senate referred bipartisan companion bills, known as the Pennsylvania Carbon Dioxide Cap and Trade Authorization Act, to their respective environmental and energy committees. The proposed legislation provides that there is currently no statutory or constitutional authority allowing a state agency to impose a tax on carbon emissions, and requires the General Assembly, in consultation with the DEP and other agencies, to determine whether and how to do so. Regardless of the outcome, any laws dealing with a cap-and-trade program in Pennsylvania are likely to receive considerable attention and require input from environmental lawyers representing all interested parties.
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The PIOGA Press
(by Kevin Garber and Jean Mosites)
On February 13, the Department of Environmental Protection presented its preliminary draft proposed rulemaking to establish a carbon dioxide budget trading program to the Air Quality Technical Advisory Committee (AQTAC). The proposed trading program would apply to fossil fuel fired electricity generators of greater than 25 MW in Pennsylvania. The draft proposal reflects a first look at DEP’s vision for a cap-and-trade program as directed by Governor Tom Wolf’s October 3, 2019, Executive Order 2019-07.
The draft proposed rule, although still in development, parallels the model rule prescribed by the Regional Greenhouse Gas Initiative (RGGI). RGGI is a coalition of 10 states in the Northeast and Mid-Atlantic that participate in a regional CO2 cap-andtrade program for fossil fuel-fired electricity generating units that have a nameplate capacity of over 25 MWe.
Under the program, each member state has a budget of CO2 allowances, which it then allocates through setaside programs, offsets or periodic auctions. The number of allowances in each state’s CO2 budget that are allocated through auction varies widely among members. Each affected source (CO2 budget source) is required to hold sufficient CO2 allowances based on its CO2 emissions as determined from continuous monitoring. Each allowance is equal to one ton of CO2 emissions.
States’ CO2 budgets, and in turn available allowances, periodically reduce over time. This requires each CO2 budget source to either reduce CO2 emissions as measured by continuous monitoring, or obtain extra CO2 allowances to cover its emissions in excess of its allowance account. Under RGGI, auctions to obtain allowances generally occur quarterly, and may be open to qualified participants other than CO2 budget sources. The draft proposed rule explicitly mentions financial institutions and environmental groups as potential auction participants. The proposal specifies an annual rather than quarterly auction process.
Unlike the majority of RGGI state members, Pennsylvania DEP has indicated it does not intend to seek legislative authority to implement a CO2 trading program, but rather believes it has sufficient authority under the Pennsylvania Air Pollution Control Act. This position has been controversial, as some stakeholders contend that approval by the Pennsylvania General Assembly is necessary for such a trading program, including one that would involve other states. In November 2019, bills were introduced into the House (HB 2025) and Senate (SB 950) that would require General Assembly approval for any Pennsylvania carbon cap-and-trade program. This legal dispute is likely to give rise to significant ongoing challenges to the trading program rule.
DEP’s draft proposed rule contains a number of differences from the RGGI model rule, most notably including:
- The proposed rule states that it is designed to reduce CO2 emissions “in a manner that is protective of public health, welfare and the environment and is economically efficient,” while the RGGI model rule mentions only economic efficiency in its statement of purpose. Numerous concerns were raised at the AQTAC meeting regarding the overall cost-effectiveness of the trading program, an analysis of which will be required under Pennsylvania’s Regulatory Review Act, Commonwealth Attorneys Act and the Climate Change Act. DEP indicated it is still assessing costs and benefits of the trading program. The overall economic impact of the regulation will be a critical issue to a variety of stakeholders as the rulemaking progresses.
- The draft proposed rule does not require the establishment of multi-state allowance auctions, as performed within RGGI. Rather, the draft proposal gives DEP discretion to hold auctions only within Pennsylvania if it determines, among other things, that its participation in a multi-state auction process would not provide more benefits than costs to Pennsylvania versus a statewide auction. There is no established timeframe in the draft proposed rule for Pennsylvania DEP to determine which approach it will take.
DEP is operating on an accelerated timeframe to initiate and ultimately finalize the CO2 budget trading program rulemaking. It intends to present a proposed version of the regulation to AQTAC in April, at which point the committee will vote on whether to advance the proposal to the Environmental Quality Board (EQB). DEP anticipates submitting the proposal to the EQB by July as required by Executive Order 2019-07. Assuming the EQB votes to adopt the regulation as a proposed rulemaking, public comments will be solicited in fall of 2020, and the final rulemaking could be promulgated by fall 2021. DEP expects the regulation to be effective in the first quarter of 2022.
Owners and operators of fossil fuel-fired electricity generating units greater than 25MW will be directly affected by the CO2 budget trading program rulemaking if the rule is adopted in its currently proposed form. In addition, the energy industry, manufacturers and consumers in general are likely to be affected by the rulemaking based on the potentially far-reaching impacts to the nature of energy generation within Pennsylvania and regionally.
Babst Calland’s climate change attorneys are closely following this rulemaking. If you have questions about the proposed CO2 budget trading program, please contact Kevin Garber at 412-394-5404 or kgarber@babstcalland.com or Jean Mosites at 412-394-6468 or jmosites@babstcalland.com.
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Emerging Technologies Profile
Is there one thing you recall that influenced your career path? Yes, I started thinking about hands-free vehicles when I was just a kid. On a vacation back to the U.S., as my father accelerated the family station wagon onto the highway, I imagined something like a subway’s third-rail. Vehicles would connect to it and travel forward in a safe and graceful caravan. Drivers would be able to use their time how they pleased—maybe playing a game of cards with their daughters. When it was time to return to active driving, the vehicle would disconnect, and the driver would resume the controls. Even back then, the idea made so much sense to me.
What may surprise people about your background? As an attorney at the EPA, I was involved in rulemaking and enforcement for the first part of my career. In private practice, I represent companies that have been the focus of EPA’s regulations. Some of my friends tell me that my best skill is as an intermediary who can play on both sides of the regulatory fence.
What brought you to the nation’s capital? As the daughter of an American working abroad, I was raised all over Latin America. While growing up in countries still squarely under the thumb of charismatic caudillos, the idea of a country governed by law instead of one man’s whims seemed like a paradise. I’ve always been impressed by the predictability that stare decisis and precedent lend to our system. My law degree is from Georgetown, and from there I joined the EPA where the focus was on implementing the 1990 amendments to the Clean Air Act.
How do you ease your daily commute into/out of the District? Currently, while en route, I’m listening to the audiobook Go, Went, Gone by German novelist Jenny Erpenbeck. It’s a story about a widowed, retired professor in Berlin who experiences a transformation after he witnesses African refugees during a hunger strike and subsequently becomes involved in their immigrant community first as an academic pursuit and then as a friend.
Do you think AI will ever advance far enough to take over your complex job anytime soon? AI is already making our legal work more efficient. But, not yet to the point where it can replicate the high value logic and judgment that we aspire to every day. Nevertheless, when the time comes for technology to replace legal counsel, I’ve got a plan for what to do next.
So, what does that future plan include? If and when that happens, my plan is to travel extensively across Latin America where I grew up to see how it’s changed. When that’s done, it’ll be off to Australia for a couple of months.
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Smart Business
(by Jayne Gest with Chris Farmakis)
Vivak Gupta has hands-on experience with M&A — including his share of battle scars — after 36 years in the IT industry. Most recently, he was the president and CEO behind Mastech Digital’s $55 million deal for InfoTrellis in 2017.
No two acquisitions are the same, but he says he tries not to make the same mistakes twice.
“It’s a pretty complex process, and there is no shortcut but to actually learn from experience,” Gupta says. “It’s baptism by fire — you have to burn your fingers and then you really get to know what works and what doesn’t work.”
But even when Gupta isn’t actively looking to buy or sell a business, he keeps an eye on the dealmaking market — who is buying and selling companies and raising capital — because it’s a good indicator of what’s happening in the industry.
“Why is my competitor acquiring a company in, just as an example, the cloud space?” he says. “How is it connecting with their current strategy? Then, you watch how they complete the acquisition and how the market rewards them or penalizes them for that acquisition.”
Gupta isn’t alone in his feelings about the value of M&A. Many executives, investors and advisers see how mergers, acquisitions and dealmaking play a critical role in business today — both directly and indirectly. And those who ignore it run the risk of falling behind as their competitors scoop up a new technology, diversify into new geographies, raise growth capital and implement long-term exit plans that help them operate better.
You owe it to yourself to build your M&A knowledge and network, but don’t take our word for it. Here’s what some of Pittsburgh’s dealmakers had to say.
Take the initiative
M&A is done by different companies for different reasons, Gupta says, adding that you can get ideas from watching others, including honing your own strategy, because it’s important to agonize, from the beginning, about why you’re doing deals.
Many times, organizations are approached by someone looking to sell, such as founders looking to exit.
“That’s not a bad thing, but that’s more reactive,” he says.
It’s better to start at the drawing board and figure out your purpose for buying a company, Gupta says. Is it to bulk up or add new capabilities? Are you trying to diversify? Are you trying to realign the organization?
Gupta stays in touch with what’s going on in his industry by subscribing to numerous M&A reports and scrutinizing them to try to determine what his competitors’ objectives are and if they’re working out — and sometimes gets good ideas from his research.
Watching the dealmaking market isn’t just a way to gather ideas. It’s also a way to be ready for changing market conditions.
Chris Farmakis, shareholder and chairman of the board at Babst Calland, sees a lot of private equity capital in the marketplace chasing down middle-market deals. These firms are good at spotting regional or family-owned businesses, investing in one and then doing roll-up acquisitions to consolidate the industry.
“Business owners need to pay attention to this activity because what could happen is, you might be in an industry that consolidates and you’re the last standalone business,” he says. “You wait too long — you have no one to sell to or, at best, your purchase price is lower.”
Even if you’ve been successfully operating your business for 30 years, consolidation can add pricing or competitive pressures because your competitors now have scale.
“Business owners focus more on customer relationships and operations, as opposed to changing market conditions outside of their industry,” Farmakis says. “Sometimes, it’s important for them to lift their heads up and take a broader look at the market.”
Farmakis recommends utilizing trade associations as a resource, but doing so requires a different kind of networking than what business owners would normally be doing — which is mining customers, looking at new operations and other things that relate to operations.
For example, business owners can get a sense of market-based pricing for their industry, and people share things like, “The multiples are landing here,” or “This is what I heard they sold their company for.”
“Trade associations and industry associations can be a very good heartbeat or pulse as to what’s going on in the industry, and it’s a way to get direct and indirect information about people who have sold,” Farmakis says. “You can get a sense of, if you’re buying, what companies might cost and how they’re funded.”
Know your value
President and CEO Michael Wagner started Target Freight Management more than a decade ago. He did his first two deals in 2019 when he bought out his business partner and acquired his first company. However, he paid attention to M&A prior to that, as it helped him understand the market and how his company’s value was changing.
Wagner knew what multiples logistics businesses were selling for — and he even had larger corporations pitching to him and asking him to sell.
“I wasn’t looking to exit, but there were big numbers thrown around in my business in the last three or four years,” he says. “I think it’s slowed down a little bit, but it’s just good to understand and know what’s going on in your business from that standpoint.”
Wagner also already had a foundation of knowledge when his partner wanted to sell. Wagner, who has never worked in another industry, wasn’t ready to retire at age 40, and he didn’t want to work for somebody else or wait until a noncompete ran out.
“It was important for me to understand the value of the business, and what it was going to cost me to buy him out,” he says.
John Roppo believes that knowing your value is just the start. Preparing for a sale takes time — especially if you want to get the best price you can. The long-time CFO started his own firm, Roppotunity LLC, to help companies prep for sale, among other things.
“You can’t bring somebody in three to six months out and say, get the company ready for sale,” he says. “You can do it, but you’re not going to get the best value, or you’re going to have a higher risk of the deal falling apart.”
Dawn Fuchs Coleman and her family’s business, Weavertown Environment Group, is a good example of why it’s important to be prepared. They had been approached numerous times by venture capital groups and angel investors but were never really interested.
When Univar, however, came to the environmental services company in 2015, she decided to listen to its offer, and nine months later, the sale went through.
Her reasons were many, but the timing was right. Fuchs Coleman wasn’t sure if the next generation, which was still young, was interested in running the company. She also knew the company couldn’t continue to self-finance, so a large strategic buyer was appealing.
“I had an uncle that had a very successful family business in the second mortgage lending space,” she says. “He had an offer to sell his business. He turned it down, and years later, I think he always regretted it. So, I had that in the back of my mind, too.
“You can’t be naïve, and you can’t be ignorant. You’ve got to be willing to hear it. If it feels right, listen; don’t just stop and say, ‘I’m not interested.’ You have to be open-minded.”
Use all available growth tools
Sreekar Gadde, executive director at BlueTree Capital Group, has noticed that staying updated on the M&A market allows business leaders to better plan for the future.
“This allows leaders to make informed decisions about their business — basically making sure that they are moving with the market and not stagnating,” he says. “In addition, this allows leaders to keep an eye open for M&A opportunities.”
They may discover a strategically advantageous chance to merge or acquire companies at a low value that will improve the business’s future opportunities, Gadde says.
BlueTree Capital Group also tends to view all major decisions in the context of M&A, he says. What is the ROI? Can the venture capital firm see a way to get a 3x to 5x on the capital or resources spent?
“In view of that, most, if not all, parts of a growth strategy need to be considered within the context of the M&A market,” Gadde says.
Business owners may want to use a similar lens on their decisions, especially if there’s a possibility that they want their company to be acquired in the future.
“Business owners need to constantly be informed about the M&A ecosystem — both the current status and where the ecosystem is headed,” he says. “This informs every decision they make, from product roadmap, to hiring, to financing and, eventually, when to start the acquisition process and how to position their company to get the most favorable terms.”
The most effective business leaders use all available tactical and strategic tools to grow shareholder value, says Louis Testoni, a retired market managing partner with PricewaterhouseCoopers who serves on a number of corporate boards.
Buying companies or divesting assets is one of those tools.
“Divestitures can be a valuable tool to monetize underperforming assets and/or assets no longer aligned with the core business strategy,” he says.
They can also unlock intrinsic value sitting on the balance sheet to reinvest in alternative ways, or reduce debt or increase working capital to support other parts of the business’s growth strategy.
For the full article, click here.
The Legal Intelligencer
(by Alyssa Golfieri)
Zoning hearing boards have exclusive jurisdiction to hear and render final adjudications on nine discrete matters, ranging from substantive challenges to the validity of land use ordinances, to appeals from determinations of a zoning officer, to applications for variances and special exceptions from the terms of zoning and floodplain ordinances. See Section 909.1(a) of the MPC, 53 P.S. Section 10909.1(a). If a party to a land use matter is unhappy with a zoning hearing board’s final adjudication, he has 30 days to appeal the decision to the trial court. See Section 1002-A of the MPC, 53 P.S. Section 11002-A.
When rendering final adjudications, zoning hearing boards sit as fact finders. This means zoning hearing boards are the sole judge of the credibility of witnesses and the weight afforded evidence. See Tri-County Landfill v. Pine Township Zoning Hearing Board, 83 A.3d 488, 518 (Pa. Commw. Ct. 2014). As such, when a zoning hearing board’s decision is appealed to the trial court, the trial court should not, with one exception addressed below, engage in fact-finding or disturb the board’s credibility determinations. See Section 1005-A of the MPC, 53 P.S. Section 11005-A; see also Manayunk Neighborhood Council, 815 A.2d at 652 (Pa. Commw. Ct. 2002). Rather, the trial court must uphold a zoning hearing board’s determination so long as the board did not commit a manifest abuse of discretion—an abuse of discretion occurs only when a zoning hearing board’s findings are not supported by substantial evidence, which Pennsylvania courts have defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See Berman v. Manchester Township Zoning Hearing Board, 540 A.2d 8, 9 (Pa. Commw. Ct. 1988); Hertzberg v. Zoning Board of Adjustment, 721 A.2d 43, 46 (Pa. 1988)—or an error of law.
The one exception to a trial court’s deferential standard of review is a circumstance where the trial court, upon motion by a party, concludes the zoning hearing board improperly excluded evidence. In such circumstances, the trial court may open the hearing record and accept additional evidence pursuant to Section 1005-A of the MPC, 53 P.S. Section 11005-A. Section 1005-A provides, in relevant part:
“If, upon motion, it is shown that proper consideration of the land use appeal requires the presentation of additional evidence, a judge of the court may hold a hearing to receive additional evidence, may remand the case to the body, agency or officer whose decision or order has been brought up for review, or may refer the case to a referee to receive additional evidence … if additional evidence is taken … the court shall make its own findings of fact based on the record below as supplemented by the additional evidence …”
To avoid its findings being disturbed on appeal, a zoning hearing board typically accepts all evidence presented before it, even when the evidence is arguably irrelevant. Then, when rendering its decision, the zoning hearing board uses its sole discretion to give the evidence the weight it deserves. While this practice does not eliminate a party’s right to request relief from the trial court under Section 1005-A, it does significantly limit the trial court’s ability to conclude a zoning hearing board improperly excluded evidence.
Since relief under Section 1005-A is rare, when a trial court does agree to take additional evidence, the next question often becomes—what is the trial court’s scope of review? Does the last line of Section 1005-A—“if additional evidence is taken … the court shall make its own findings of fact based on the record below as supplemented by the additional evidence”—mean the trial court must consider the entire matter de novo? What if the zoning hearing board rendered a decision on five, 10 or even 15-plus issues, but the trial court only takes additional testimony on one limited point? Under that scenario, should the trial court apply a deferential scope of review to the issues for which no additional evidence was taken? Before the Commonwealth Court’s July 29, 2019, decision in Sowich v. Zoning Hearing Board of Brown Township, 214 A.3d 775 (Pa. Commw. Ct. 2019), some argued that any time a trial court accepted additional evidence the court’s deferential standard of review transitions to de novo for all matters. The Commonwealth Court’s decision in Sowich clarified this is not, however, the case.
In Sowich, a landowner appealed a notice of violation to the Brown Township Zoning Hearing Board (the ZHB), challenging the township’s zoning official’s determination that the depositing, storing, and removing of fill, the grinding of stone, and the storing of concrete barriers on his property was not a legally nonconforming use. The ZHB upheld the zoning official’s decision in-part and overturned the decision in-part, finding the use of the property as a fill operation was a legally nonconforming use, but the crushing of stone and the storing of five or more concrete barriers was not. The landowner and several objecting neighboring property owners appealed the ZHB’s decision to the trial court.
On appeal, the landowner filed a motion pursuant to Section 1005-A to supplement the record on one limited point—whether the grinding and crushing of stone was an inherent part of the depositing, storing, and removal of fill activities. The trial court granted the landowner’s motion and remanded the matter back to the ZHB to take additional evidence. As instructed, the ZHB held a remand hearing and then forwarded the hearing transcript and exhibits to the trial court “for further proceedings.” The trial court then affirmed the ZHB’s decision. In doing so, the trial court applied a deferential scope of review to all matters, including the one for which additional evidence was accepted.
The landowner and objectors appealed to the Commonwealth Court, challenging, among other things, the scope of review applied by the trial court. The landowner contended that once the trial court accepted additional evidence, Section 1005-A required it to review the matter, in its entirety, de novo (i.e., the ZHB’s findings were no longer relevant or controlling). The Commonwealth Court disagreed.
Relying heavily on its previous decision in Cherry Valley Associates v. Stroud Township Board of Supervisors, 554 A.2d 149, 151 (Pa. Commw. Ct. 1989), the Commonwealth Court held, in relevant part, that a trial court’s decision to accept additional evidence, either itself or via remand to the zoning hearing board, does not automatically render the scope of review on all matters de novo. Rather, a trial court is required to make findings of fact on, and thus review de novo, only the limited point for which additional evidence was taken. Accordingly, a trial court should not disturb a zoning hearing board’s credibility determinations, the weight the board afforded the evidence or the board’s findings (so long as they were supported by substantial evidence) on matters for which no additional evidence is taken.
For the full article, click here.
Reprinted with permission from the February 13, 2020 edition of The Legal Intelligencer © 2020 ALM Media Properties, LLC. All rights reserved.
The Legal Intelligencer
(by Stephen Antonelli and Andrew DeGory)
On Jan. 16, the U.S. Department of Labor (DOL) released a final rule updating its interpretation of “joint employer” under the Fair Labor Standards Act (FLSA). The update represents the first “meaningful revision” of its interpretation, codified at 29 CFR Part 791, since the FLSA’s inception in 1958. The final rule takes effect on March 16 and carries meaningful significance for companies that rely on temporary staffing and subcontractors and franchise owners. It could also allow companies to exert more influence over temporary workers without being considered a “joint employer.” While not binding on the federal courts, the final rule will serve as the DOL’s official interpretation moving forward and guide its enforcement of this issue under the FLSA.
The FLSA has always recognized that an employee can have two or more employers who are jointly and severally liable for the wages of its workers. The act requires covered employers to pay their employees at least the federal minimum wage for every hour worked and overtime for every hour worked over 40 in a workweek. The FLSA defines the term “employer” to “include any person acting directly or indirectly in the interest of an employer in relation to an employee.”
Part 791 recognizes two scenarios where an employee may have joint employers. In the first scenario, and most commonly, an employee performs work for an employer while another person or entity “simultaneously benefits” from that work. Thus, the employee only works one “set” of hours in a given week. In the second scenario, “one employer employs an employee for one set of hours in a workweek, and another employer employs the same
employee for a separate set of hours in a workweek.”
The DOL’s final rule primarily addresses the first scenario and adopts a four-factor balancing test derived from the U.S. Court of Appeals for the Ninth Circuit’s 1983 holding, Bonnette v. California Health & Welfare Agency. To determine whether a party is potentially a joint employer, the test analyzes whether the person or entity:
The DOL touts the four-part test as providing “necessary uniformity, clarity, and certainty for businesses.” Of crucial importance, the employer must have an “actual exercise of control” over one of the test’s four factors to be considered a joint employer. No single factor is dispositive in determining joint employer status, and the appropriate weight to give each factor will vary depending on the circumstances. Additionally, the DOL stated that maintaining the employee’s employment records alone will not establish “joint employer” status. Finally, the DOL provided that additional factors may be considered if they indicate that a potential joint employer “exercises significant control over the terms and conditions of the employee’s work.”
The new rule will not impact the second scenario above, as the DOL’s interpretation will not change and the agency will continue to evaluate the “relationship” between the two employers. If the employers are in fact joint employers in this second scenario, they must “aggregate” the employees’ hours to ensure compliance with the act.
During the commenting period for the proposed final rule, supporters and critics were divided along employer and employee lines, respectively. Commenters representing employers opined that the rule would bring clarity to the varying opinions in the federal courts. On the contrary, those representing the interests of employee groups asserted that the rule ignores existing Supreme Court and circuit court precedent and should not receive judicial deference moving forward. The DOL did acknowledge that the rule may reduce the number of joint employers and therefore employees “will have the legal right to collect” wages from fewer employers.
As part of its update, the DOL also provides illustrative examples of scenarios where a joint employer analysis would be necessary. As with the updated rule in general, employers “overwhelmingly supported” the inclusion of the examples, whereas employee supporters criticized them as “inadequate.” Regardless, the examples offer insight for how the DOL would enforce its interpretation in certain situations.
Going forward, employers should consider the following implications and
advantages of Part 791:
• Hiring and firing: In one of its illustrative examples, the DOL states that acompany’s single request of a staffing agency to fire a temporary employee does not constitute “indirect control” over hiring and firing. Based on this interpretation, a company relying on temporary workers to round out its workforce can feel more comfortable if faced with an independent contractor that it believes should be terminated. If, however, a company exerts control over multiple termination decisions, it is perhaps more likely to be determined to be a “joint employer.”
• Codes of Conduct: Under the new rule, the potential joint employer can require another employer to comply with a contractual code of conduct. The code can even include requirements to provide hourly wages higher than the federal minimum without exercising control over rate or method of payment. This offers companies a tool to influence their employers or suppliers without becoming a “joint employer.”
• Resources and benefits: The DOL stated that a potential joint employer may provide benefits, such as training, educational opportunities, and benefit plan options without impacting their status. Therefore, companies seeking to provide worthwhile resources and benefits to temporary employees should not hesitate to do so out of a fear of changing employer status.
• Avoiding excessive overtime: Subcontracted hourly workers—in particular those in the oil and gas industry—often log significant overtime at wages considerably higher than the federal minimum. Under these circumstances, the implications of “joint employer” status are magnified as the overtime calculation on a relatively high regular rate may result in large overtime penalties if a subcontractor were to make an error when calculating overtime payments. The new interpretation should lessen the financial burden for companies that rely heavily on a subcontracted workforce.
A Look at the Courts
Although the DOL hopes the new rule will decrease litigation in the field, it remains unclear how much deference federal courts will grant the rule. Part 791 simply serves as the DOL’s official “interpretation” and guideline for enforcement of joint employer status under the FLSA. Therefore, courts are not mandated to follow the rule and only time will tell whether it receives widespread judicial support.
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Reprinted with permission from the February 6, 2020 edition of The Legal Intelligencer © 2020 ALM Media Properties, LLC. All rights reserved.
The Legal Intelligencer
(by Christian Farmakis)
Artificial intelligence (AI) is adding efficiencies and transforming businesses everywhere, and legal practices are no exception.
General counsels who are hiring lawyers need to understand that this technology is available now, so they can make sure their lawyers are leveraging the latest technology tools. AI can increase speed, increase efficiency and lower costs for clients—if the law firm has the right tools, but more importantly knows how to use those tools.
The following are some of the common questions about advancement of AI technology in the legal space.
• How is AI technology disrupting the legal industry?
AI is a term generally used to describe computers performing tasks normally viewed as requiring human intellect.
AI legal technology won’t replace lawyers, but these tools will drastically change the way lawyers provide services for their clients. While estimates vary, 23% to 35% of a lawyer’s job could be automated. As a result, lawyers will need to be more strategic and supervisorial, able to act as project managers and supervise the information being fed into systems, and knowledgeable about the assumptions underlying the machine learning algorithms.
So far, projects that classify data have been impacted the most, allowing projects such as e-discovery, due diligence, document management and research to be done faster and more efficiently.
Law firms can already pass these savings on to clients, but this is only the beginning of the transformation. Early law firm adopters are implementing artificial intelligence, machine learning and predictive analytics to legal contract review and document management, enhancing efficiency, intelligence and quality while reducing costs for clients.
For example, with the addition of artificial intelligence software, Babst, Calland, Clements and Zomnir can now deploy highly trained machine learning algorithms in its due diligence process resulting in faster, more intelligent contract or document review for clients. Whether the client has 100 or 100,000 documents for review, we can now rapidly review and identify key provisions within documents and agreements more quickly and accurately than ever before.
• What will be the next wave of AI legal technology?
The next generation, which is starting to hit the market now, will be document automation and legal research and writing tools, as well as predictive technology tools. For example, a contract can be put through an algorithm in order to identify how risky it is. It could be used to determine how likely it is to go into litigation or if it complies with the company’s internal contract procedures and policies.
Another use is analytic tools that can measure efficiency and pricing of the legal services. E-billing and practice management tools could measure whether a service contract should cost $2,500, not the $7,500 that’s being charged. In other instances, AI could help firms do estimates for alternative fee arrangements.
• Why is it so important for lawyers to use the right tool for the job?
AI technology is not going away. It’s here to stay, and it’s increasing exponentially. While the AI legal tech revolution is still in its infancy, the tipping point is around the corner. In 2016, the industry spent $8 billion on AI technology; that’s predicted to hit $46 billion by 2020.
However, many of these products are single-tasked products and not integrated tools that can perform multiple tasks. And many of the products’ pricing models do not yet meet the market needs.
While pricing adjustments are already starting to occur and integration should happen over the next five years, AI technology is nothing more than a tool. Just like other technology, purchasing the new tool is only a small part of what needs to happen to gain efficiency and lower prices. The organization has to be behind it, the employees need to know how to use it and the entire project must be managed properly.
For a variety of reasons, companies are demanding access to specialized services, greater efficiency and more insight from outside legal counsel, as well as more innovative resources to stay one step ahead in a time-sensitive, highly competitive marketplace. A state-of-the-art approach, along with a systematic process that applies artificial intelligence technology, provides clients with the latest, flexible solution customized to meet their specific legal and business needs.
Lawyers who have an open mind and an ability to use these new tools effectively are already passing cost efficiencies on to clients, and this should only increase in the future.
Babst Calland and its affiliated alternative legal service provider, Solvaire, is leveraging new AI technology and proven project management processes in its due diligence, discovery and document management projects resulting in faster, more intelligent contract or document review for clients.
Christian A. Farmakis is a shareholder, management committee member and chairman of the board of directors at Babst, Calland, Clements and Zomnir and president of its affiliated alternative legal service provider, Solvaire. If you have questions about the deployment of AI on large diligence, discovery or document management projects, contact Farmakis at 412-394-5642 or cfarmakis@babstcalland.com.
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Reprinted with permission from the January 31, 2020 edition of The Legal Intelligencer © 2020 ALM Media Properties, LLC. All rights reserved.
Smart Business
(by Jayne Gest with Boyd Stephenson)
The trucking industry is still adjusting to the final transition to electronic logging devices (ELDs). Some relief may be on the horizon, however, as federal regulators consider whether to relax the hours of service requirements.
“Every solution has unintended consequences, and that is exactly what we are seeing now,” says Boyd A. Stephenson, associate at Babst Calland. “The supply chain is like a balloon, where everything is interconnected. You push on one part and another piece will pop out.”
Paper logbooks are left to the discretion of the driver, while ELDs record driving time automatically to ensure driving hours are strictly followed. The idea is to make the roads safer. Effective now, strict enforcement of the ELD mandate applies to all drivers, unless they operate under the short-haul rule exemption.
The trucking industry is dealing with rising transportation costs and an overall driver shortage in an economic expansion. Freight volumes also grew more slowly in 2019, with trade conflicts and tariff increases taking a toll on growth.
An American Transportation Research Institute survey found that the top industry concerns for 2019 were driver shortages, hours of service, driver compensation and detention or delays at customer facilities. These obstacles increase trucking costs, which get passed on to shippers that need their goods transported.
Smart Business spoke with Stephenson about hours of service rules and other industry changes that businesses should be aware of in 2020.
Why did the Federal Motor Carrier Safety Administration (FMCSA) feel a need to change the hours of service rules?
With ELDs in place, drivers cannot adjust their logs. Difficulties like wait time while cargo is loaded or unloaded, weather and traffic have highlighted the need to adjust the hours of service and let drivers spend more time on the road. Based on strong industry feedback, the FMCSA proposed more flexible hours of service in August, which it hopes will alleviate some industry challenges.
The agency proposes to:
- Extend the short-haul exemption, where drivers are not required to keep logbooks. As of now, to be considered short haul, a driver must drive only within a 100 air-mile radius, start and return to the same location with 12 hours of duty time, drive no more than 11 hours and have 10 consecutive hours off between shifts. The updated exemption would apply to those who drive 150 air miles and allow short-haul drivers to be on duty for 14 hours.
- Give more flexibility for driver breaks and sleeper berth requirements.
- Allow one off-duty break, lasting between 30 minutes and three hours, that would allow the driver to pause the clock on his or her 14-hour window.
The majority of truck traffic operates under the short-haul exemption, and more liberalized hours of service should have wide-ranging effects on the overall supply chain, such as flexibility and lower costs.
With the comment period over, the FMCSA hopes get a final rule out this year.
What is the Beyond Compliance program, and what does it mean for fleet operators?
Regulators also would like to implement the Beyond Compliance program, which would give incentives to fleet operators that adopt proven safety tools, technologies or practices, such as collision warning. With the comment period closing in February 2020, the final rules have yet to be determined. However, short-haul drivers that use ELDs and implement the Beyond Compliance program may have one incentive, as they will be more likely to be sent on their way if a roadside inspection site is busy. Compliance with this program factors into the carrier and driver history that is already considered.
Businesses with truck fleets should be proactive with safety technology, as these investments can pay off. Not only will adopting these technologies deprioritize a truck’s chance of getting inspected, but the resulting improved safety performance makes the truck safer, which also lowers the required inspection rate and factors into insurance costs.
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Law Journal Newsletters
(by Christian A. Farmakis)
Babst Calland and our technology affiliate, Solvaire, have been performing complex due diligence, discovery, and document management projects for clients for more than 20 years. Our clients look to us for due diligence guidance in the areas of acquisitions and divestitures, as well as complex corporate, commercial and real estate transactions.
The firm has a long history of utilizing the latest technologies to enhance contract review. And, in the last few years, the firm has taken a deep look at AI-assisted review and its ability to enhance efficiency and reduce cost for clients. Saying that we have become “AI Believers” in the process is an understatement. After many AI tool evaluations, trials, and getting numerous AI projects under our belts, we have become our clients’ go-to resource in leveraging AI for their benefit.
Taking Off On an AI Journey
In today’s business climate, clients demand greater efficiency when it comes to contract review for many complex deals and transactions. We have found that the combination of deep legal expertise, coupled with embracing carefully researched and vetted technology, is the most effective means of delivering high quality and timely review in an increasingly competitive marketplace.
Over the last few years, our firm has embarked on an exhaustive search for tools that will help us deliver more value to our clients. We spent the first 36 months of our AI journey reviewing nine different well-known contract review tools. Within the last 12-18 months, we have incorporated specific tools into the firm’s due diligence and contract management processes. We are particularly excited about our selection of Diligen, which we find to be a high-performance contract review platform. In the end, we chose Diligen for its intuitive and flexible interface, robust performance, and its ability to handle large volumes of contracts.
Many of the other vendors we vetted did not consider the time constraints under which acquisitions have to take place. We found that Diligen was flexible, enabling us to implement the product quickly to meet even the most unreasonable diligence deadlines. Diligen is quickly becoming one of our core engines within our processes for driving even more effective and reliable client service delivery for contract review.
With our new intelligent tools and enhanced processes in place, we are now able to identify specific language — such as assignment, change of control, term, or termination provisions — in hundreds of thousands of contracts. This allows us to provide our clients with rapid and deep insight into their contracts, uncover potential risk, and provide informed legal advice on much shorter timelines.
Beyond ROI
While much of the return-on-investment for AI tools is measured in time and cost savings, there is also significant value in risk mitigation. AI-assisted review enables comprehensive client contract review rather than limiting the review to a smaller subset of documents due to time and budget constraints. Highly trained machine learning systems can act as an “early warning system” to ensure all contracts with potential issues are surfaced and tagged for careful human review much earlier in the project. In the M&A due diligence process, for example, being able to identify all the change of control provisions in a set of contracts early in the review (as opposed to finding them sequentially as the reviewers plow through a portfolio of documents), reduces the risk of uncovering serious red flags in contracts that otherwise may not be discovered until just before closing. It can mean having enough time earlier in a project to obtain a necessary consent, send out a notice, or otherwise comply with other deal-damaging obligations, rather than requiring a last-minute scramble that may ultimately allow issues to slip through the cracks. Being able to thoroughly review a new last-minute set of contracts provides additional peace of mind that all critical issues have been identified, even under tight timelines.
Here are some key takeaways we have after our first year of AI-powered review:
- AI due diligence triage: We are able to quickly sort documents by type and content to get a better overall sense of the scope of the review, what resources will be needed on our side, and which contracts to review first. We are then able to advise the client within the first 48-72 hours with an update on our anticipated review timelines.
- Relevancy means speed: Completing large scale contract review the old-fashioned way can be painstaking, particularly when utilizing attorneys who are inexperienced in a given subject matter. Legal teams that don’t leverage the right AI tools spend a high proportion of their time sifting through volumes of lower priority documents, looking for the most relevant language. Leveraging Diligen, for example, we were able to identify all of the assignment provisions in a set of 350,000 contracts as a starting point for our review. With the right tools and processes, we were able to produce detailed, high quality review on an aggressive timeline.
- Invisible AI: Well over a year into leveraging AI tools for our clients, we never hear “wow, we are so excited that you used AI”. Instead, we might get the occasional “I can’t believe how quickly you delivered that review, how did you do it?” For the most part, we have silently and effectively worked AI into our best practice service delivery.
- Processes and Methodologies Matter: Sound project management skills are still necessary to properly implement these types of projects. Effective setup, document intake and processing, project scheduling, employee management, and quality control are all heavily contributing factors to a successful project. Having these factors in addition to a robust AI tool are certainly the difference between an excellent and average (or below average) experience.
- (Self) Training makes perfect: Based on our evaluations and testing, only a small selection of tools on the market can be trained to recognize new types of clauses by the user. An even smaller number work well and quickly enough to be truly trustworthy and usable. This ability to train the tool to recognize new concepts extends our review capability by allowing the review team to quickly add to the library of pre-existing clause types that the tool can recognize when needed. This is especially critical when encountering varying subset types of documents within a portfolio.
- Thinking bigger with AI: Since deploying AI tools to help address our clients’ due diligence and review needs, we have been able to do thorough reviews far faster while offering pricing certainty. We can now take on bigger projects — and deliver them faster — thanks to our streamlined, best practices process.
After an extensive period of tracking the development of various contract review and other AI tools on the market we’ve selected best-in-class technology to work in tandem with our well-established processes for contract review. For law firms and legal teams, choosing the right tools — as well as having the right know-how to leverage them fully — is key to delivering high quality legal services effectively, affordably and on time.
Reprinted with permission from the January 2020 edition of Law Journal Newsletters. © 2020 ALM Media Properties, LLC. All rights reserved.
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The State Journal
(by Mychal S. Schulz)
In early August 2019, the West Virginia Department of Environmental Protection (WVDEP) announced that oil and natural gas production in West Virginia reached record levels in 2018, the latest of 10 straight years of production increases.
Just a few weeks later, the Business Roundtable, an association of CEOs for some of the largest companies in the United States, released a new Statement on the Purpose of a Corporation (“Statement”) signed by 181 of the association’s members.
How are these events related? And how, together, can they significantly shape the future of West Virginia?
By now, the natural gas within the Marcellus and Utica formations no longer represents a “potential” source of energy. That potential is being tapped, as represented by the announcement from the WVDEP that over 1.8 trillion cubic feet (Tcf) flowed from wells drilled in West Virginia in 2018, a 17% increase over the previous year.
The scramble on what to do with all that natural gas continues to play out throughout the region, from increasing the capacity to carry the gas away through the Mountain Valley and Atlantic Sunrise Pipelines, to the construction of a cracker facility in Beaver County, Pennsylvania, and (perhaps) Belmont County, Ohio, to the continued efforts to build large underground storage areas such as the Appalachian Storage Hub and the Mountaineer Storage Facility.
Each of those efforts, however, assumes something that is already happening — the production of a tremendous amount of natural gas beneath West Virginia’s surface.
Even a casual observer of West Virginia history sees parallels between this moment in time and the period when West Virginia produced coal that fueled American industrialization starting in the late 19th Century. With the benefit of hindsight, few West Virginians want to repeat the blueprint of development that left communities adrift and, in some cases, devastated when coal reserves became depleted.
One needs only to travel the backroads of Boone County or McDowell County to witness the failure of political, civil, and business leaders to adequately plan for life after coal.
That brings us to the Statement recently issued by the Business Roundtable. Starting in 1978, the Business Roundtable began to periodically issue Principles of Corporate Governance that outline what its members view as standards of corporate responsibility.
For decades, those principles reflected the words of Milton Friedman, who famously wrote in the New York Times in 1970 that “the social responsibility of business is to increase its profits.” Put more extremely in the 1987 movie Wall Street, Gordon Gekko declared, “Greed is good.”
The principles from the Business Roundtable through the years reflected these values by emphasizing that the primary purpose of a corporation was to maximize the value to shareholders — the so-called “shareholder primacy” ideology of corporate governance. In 1997, the Business Roundtable announced that “the paramount duty of management and of boards of directors is to the corporation’s stockholders.”
Apparently, times have changed.
Whether driven by increasing criticism of income inequality and excessive executive pay, shaken by an uptick in social activism from institutional investors, or sensitive to popular demands that businesses do more to address climate change or public health, the Business Roundtable’s Statement no longer pays homage to shareholder primacy.
Instead, the Statement emphasizes that, “[w]hile each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.” The Statement outlines exactly what those commitments are:
“Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
“Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
“Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
“Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”
While the Business Roundtable did not abandon its commitment to generating value for shareholders, the list of commitments in the Statement does not mention shareholders until the last bullet point — immediately after a commitment to support, respect, and protect communities, the people who live in those communities, and the environment in which those people live.
And it is here that the Statement should resonate for both businesses in the oil and natural gas industry and for those who live in West Virginia communities where such businesses operate.
Oil and natural gas producers should support and protect West Virginia communities by adopting best practices that limit impacts on roads, bridges, and the environment wherever drill pads, pipelines, compressor stations, and other such infrastructure are built.
They should respect the people who live in those communities by engaging in meaningful and constructive dialogue about their operations so that communities know and understand — as far in advance as possible — what is happening near their homes, near their businesses, and near their places of worship.
West Virginians, in turn, should appreciate those oil and natural gas businesses that seek to become better partners with their neighbors because the positive economic impact of this industry cannot be reasonably denied. And it’s not just about the money, as this partnership should be based upon respect and trust, not simply the payment of corporate largesse.
To be clear, the foundation for such a productive partnership can be seen in many parts of the state. Community groups benefit from the volunteer efforts of oil and natural gas workers.
Simply open a program for a local sports team, theatrical production, or other cultural event in the northern part of West Virginia to observe the monetary support of the industry for those local events. Municipal governments work closely with the industry on emergency response training for first responders and similar planning.
More, however, can be done, and more must be done before a true, mutually beneficial partnership can be established. The Business Roundtable has figured that out.
The oil and natural gas companies that do business in West Virginia, and the communities in which they operate, should figure this out, too.
Partnerships are built on trust, and everyone involved should consider tearing down walls and allow these partnerships to flourish.
Mychal Schulz is an attorney at Babst Calland in Charleston focusing on energy, employment and commercial litigation. He is a member of the West Virginia Business & Industry Council and sits on the Board of Directors of Leadership West Virginia and the West Virginia Defense Trial Counsel.
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The PIOGA Press
(by Kevin Garber and Jean Mosites)
On November 20, members of the Pennsylvania House and Senate referred bipartisan companion bills House Bill 2025 and Senate Bill 950, both known as the Pennsylvania Carbon Dioxide Cap and Trade Authorization Act, to their respective Environmental Resources and Energy Committees for consideration.
Sponsors Senator Joe Pittman (R-Armstrong) and Representative Jim Struzzi (R-Indiana) announced the bills in a press conference on November 19 in response to Governor Tom Wolf’s October 3 Executive Order 2019-07. That order directed the Environmental Quality Board to propose, by July 31, 2020, a carbon dioxide cap-and-trade program for fossil fuel-fired electric power generators which is at least as stringent as that developed under the Regional Greenhouse Gas Initiative (RGGI). (For more detail on RGGI, see the October issue of The PIOGA Press.)
The bills each provide a declaration of policy, procedures for the proper introduction of any program governing carbon dioxide emissions by the Pennsylvania Department of Environmental Protection and the process for submitting that program to the General Assembly for approval.
No current authority to regulate CO2 emissions
Section 2 of the bills finds there is currently no statutory or constitutional authority allowing a state agency to regulate or impose a tax on carbon emissions, and therefore the General Assembly, in consultation with DEP and other agencies, must determine whether and how to do so.
No rulemaking without specific statutory authority
Other than a measure required by federal law, Section 4 prohibits DEP from adopting any measure or taking any action to abate, control or limit carbon dioxide emissions (including joining or participating in RGGI or other state or regional greenhouse gas cap-and-trade program) or establishing a greenhouse gas cap-and-trade program unless the General Assembly specifically authorizes it by statute.
If DEP plans to propose such an action, Section 5 directs the agency to publish proposed legislation in the Pennsylvania Bulletin for at least 180 days and hold at least four public hearings in locations where regulated sources of carbon dioxide emissions would be directly economically affected by the proposal.
Following the public comment period, DEP must prepare a detailed report for both the Senate and House Environmental Resources and Energy Committees that addresses the ramifications of the proposal on affected facilities and Pennsylvania’s economy. The report must identify the individual facilities, by county, that would be subject to the proposed action and must include:
- The amount of carbon dioxide emitted from each facility;
- The estimated cost of compliance;
- The effect the proposed action would have on the price of electricity;
- A list of facilities that would be unlikely to continue operating;
- An assessment of the decrease of electricity that would be exported from Pennsylvania; and
- An assessment of any impact on the resilience and diversity of Pennsylvania’s electric generation fleet if an identified facility is forced to close.
The report must also address effects on the statewide economy, including:
- Direct and indirect costs to the Commonwealth, political subdivisions and the private sector;
- The wholesale and resale prices of electricity for residential, commercial, industrial and transportation consumers;
- Adverse effects on the prices of goods and services, productivity and competition; and
- The administrative, legal, consulting and accounting costs imposed by the proposal.
The report must also: i) estimate the net carbon dioxide reduction that the proposal would engender within PJM Interconnection (the regional transmission organization that coordinates the movement of wholesale electricity within Pennsylvania and 12 other states), considering electric generation in other PJM members that are not a part of RGGI or do not regulate or tax carbon dioxide emissions; ii) summarize and justify actions that would address leakage (an increase in emissions by facilities outside Pennsylvania in response to reductions in Pennsylvania); and iii) evaluate whether less costly or less intrusive alternative methods to achieve the goal of the proposed action have been considered for an employer or facility otherwise subject to the action.
Other implications
Although the sponsors centered the implications of their bills on the governor’s attempt to unilaterally join RGGI, the bills were written broadly enough to require a General Assembly review and authorization process for any proposed cap-and-trade program, which would include any rulemaking that would result from the economy-wide cap-and-trade petition currently under consideration by DEP or the Environmental Quality Board. (For more information on the cap-and-trade petition, see the April PIOGA Press.)
Next steps
The bills will be discussed and voted on by their respective committees before reaching the floor of each chamber. As of this writing, there are no Environmental Resources and Energy Committee meetings scheduled for either the House or Senate through the end of the year.
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Emerging Technologies Alert
(by Julie Domike and Gina Falaschi)
One of the hottest topics of discussion at the November 12, 2019, National Enforcement Conference held by the American Bar Association’s Section on Environment, Energy and Resources was enforcement concerning aftermarket defeat devices. The Environmental Protection Agency’s (EPA) recent efforts have resulted in a marked upswing in cases – both civil and criminal – against parts manufacturers and installers of the devices, including some entities that are less than obvious targets.
Aftermarket parts are replacement or additional vehicle or engine parts not made by the original equipment manufacturer. Most aftermarket parts do not violate the Clean Air Act, but some are designed to reduce or eliminate the effectiveness of required emissions controls on vehicles and engines. These are defeat devices, and there is a market for such devices as they can dramatically increase fuel efficiency or boost engine power. Among the most common users of these defeat devices are truck fleet owners and the shops that service them. Many of the recent enforcement cases have been against companies or individuals that produce or install “tuners” – engine control module reprogrammers that disable emission control systems with preloaded software (“tunes”). These defeat devices are obvious enforcement targets. However, other devices or software could also fall in this category, and therefore liability could extend to other aftermarket suppliers.
EPA’s Enforcement Against Aftermarket Defeat Devices
The EPA released its Fiscal Year 2020 – 2023 National Compliance Initiatives on June 7, 2019. The memorandum from Assistant Administrator for Enforcement and Compliance Assurance Susan Parker Bodine explains the agency’s selection of “Stopping Aftermarket Defeat Devices for Vehicles and Engines” as a new compliance initiative. The memorandum emphasizes that the Clean Air Act prohibits “tampering with emissions controls, as well as manufacturing, selling, and installing aftermarket devices intended to defeat those controls. The EPA has found numerous companies and individuals that have manufactured and sold both hardware and software specifically designed to defeat required emissions controls on vehicles and engines used on public roads as well as on nonroad vehicles and engines.” Enforcement focuses on “stopping the manufacture, sale, and installation of these defeat devices.”
During the national enforcement conference, Ms. Bodine and her enforcement staff informed participants that it is “astonishing how much noncompliance” is being found in the mobile source sector, confirming the need for this compliance initiative. According to the EPA, their enforcement efforts have uncovered at least half a million vehicles that have been tampered with, potentially increasing emissions by the equivalent of nine million additional trucks on the road.
Clean Air Act Liability
The EPA can take two approaches to enforcement under the Clean Air Act – criminal enforcement or civil enforcement. Although criminal enforcement has historically been less prevalent, the EPA has increased enforcement against vehicle and equipment manufacturers in recent years across both civil and criminal venues. Title II of the Clean Air Act, which addresses mobile sources, does not contain provisions for criminal enforcement. To find criminal liability, the EPA relies on Section 113 of the Clean Air Act, which allows for criminal prosecution of an individual who knowingly “falsifies, tampers with, renders inaccurate, or fails to install any monitoring device or method required to be maintained[.]” 42 U.S.C. §7413(c). If convicted, an individual may be subject to a fine or up to two years in prison for a first offense, or both.
By contrast, Title II of the Clean Air Act expressly defines prohibited acts against which the EPA can initiate civil enforcement, including the manufacture, sale, or installation of aftermarket defeat devices. Section 203 of the Clean Air Act prohibits any person from rendering inoperative or removing any emissions control devices on a motor vehicle prior to or after its sale to the ultimate purchaser, and prohibits any person from manufacturing, selling, offering to sell or installing any part or component intended for use on a motor vehicle where the principal effect of the part is to bypass, defeat, or render inoperative any emission controls. 42 U.S.C. §7522. The statute thus authorizes the EPA to hold liable anyone who knows or should know that a part or component is being sold or installed for such use. Id. Civil penalties for violations of this section could be as high as $4,735 per unit produced or $47,357 per vehicle altered; one recent settlement required payment of $1.1 million in penalties, in addition to other injunctive relief. Resolution of violations in the civil context does not prevent criminal prosecution.
Who could be liable?
The Clean Air Act creates a broad scope of potentially liable parties. The EPA has historically taken enforcement against manufacturers and retailers of tuners and those individuals who install them in motor vehicles. The EPA has also taken enforcement against those individuals who remove emissions control systems from vehicles, especially trucks, after they are delivered to the ultimate purchaser. Other activities giving rise to liability may be less obvious. Those who modify fleets of vehicles with additional equipment may violate the Clean Air Act by causing excess emissions due to vehicle weight increases, causing the vehicle to operate outside of its manufacturer certified parameters. The agency views this activity as tampering.
With the EPA’s current emphasis on enforcement, liability risk can extend beyond the manufacturers and installers of tuners and other defeat devices. Retailers who neither manufacture nor install defeat devices could also be subject to civil enforcement for selling aftermarket defeat devices in their stores or online. Additionally, those who manufacture and sell devices that they know or should know are being used as defeat devices to tamper with emissions control equipment could also find themselves the target of an EPA enforcement action. This additional liability could even extend to manufacturers of equipment that is known to be used improperly as a defeat device but has other legitimate uses, as well as to authors of software programs that could alter the manufacturer-installed software as certified by the EPA.
California: Liability and Compliance
EPA’s increased enforcement activity against manufacturers and sellers of aftermarket parts, as well as individuals who utilize or install those parts, follows decades of similar enforcement by California’s Air Resources Board (CARB).
Section 27156 of the California Vehicle Code states that “[n]o person shall install, sell, offer for sale, or advertise any device, apparatus, or mechanism intended for use with, or as a part of, a required motor vehicle pollution control device or system that alters or modifies the original design or performance of the motor vehicle pollution control device or system.” Unlike the Clean Air Act, however, California allows for CARB review of aftermarket parts and the grant of exemptions in the form of Executive Orders, allowing for the sale of parts that are certified not to increase vehicle emissions. As part of recent settlements, EPA has required companies to demonstrate that their future products do not alter vehicle emissions by obtaining such Executive Orders from CARB.
For a more detailed assessment of these provisions or assistance in determining any potential liability, please contact a Julie Domike at 202-853-3453 or jdomike@babstcalland.com or Gina Falaschi at 202-853-3483 or gfalaschi@babstcalland.com
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The PIOGA Press
(by Boyd Stephenson and James Curry)
On October 24, the Pipeline and Hazardous Materials Safety Administration (PHMSA) published a notice of proposed rulemaking (NPRM) amending the Hazardous Materials Regulations (HMR) to allow the bulk transport of liquefied natural gas (LNG) in DOT-113C120W (DOT-113) specification railcars.
PHMSA issued the NPRM in response to a petition for rulemaking filed by the Association of American Railroads (AAR). Also, an April 10 Executive Order directed PHMSA to issue a final rule on bulk transportation of LNG by rail by May 2020. Comments on the NPRM are due by December 23.
Over the last decade, the number of LNG facilities and total storage and vaporization capacities have drastically increased. And, according to PHMSA, total liquefaction capacity increased by 939 percent due to new LNG export terminals. With this growth, PMHSA has recognized there may be a need for greater flexibility in the modes of transporting LNG.
While LNG is already authorized for transportation by highway and in maritime vessels, LNG may be transported by railcar only with a special permit from PHMSA or in smaller, portable tanks loaded onto a railcar. However, other cryogenic liquids that are chemically similar to LNG already are authorized to be transported by rail under the HMR.
Currently, there is a pending special permit renewal application to transport bulk LNG in DOT-113 specification railcars using requirements identical to those proposed in the NPRM. The comment period ended August 7, with PHMSA receiving nearly 3,000 comments. The agency has not yet acted on the application.
Proposed changes
In the NPRM, PHMSA proposes to:
• Amend the LNG entry on the Hazardous Materials Table (UN 1972, Methane, refrigerated liquid (cryogenic liquid), 2.1) to allow transportation of bulk LNG in rail tank cars under the terms of 49 C.F.R. § 173.319
• Amend the railcar provisions in the cryogenic liquid table in 49 C.F.R. § 173.319, to add the following requirements for bulk railcars transporting LNG:
― Using a DOT-113 specification rail tank car.
― A start-to-discharge pressure valve setting of 75 psig.
― A design service temperature of -260˚F.
― Maximum pressure when offered for transportation of 15 psig.
― A filling density of 32.5 percent by weight.
PHMSA did not propose any changes to the DOT-113 tank car design for transporting bulk LNG, or for handling bulk LNG in transit, but the agency solicits comments about:
• Whether there is a reason to set a maximum length PHMSA proposes allowing liquefied natural gas transport by rail November 2019 | The PIOGA Press 13 of trains transporting LNG and, if so, what that maximum length should be.
• Whether there is a reason to limit the number of LNG railcars that can be in one consist (the lineup or sequence of cars in a unit) or to limit where LNG tank cars may be placed within the train.
• Whether PHMSA should apply its high-hazard flammable train (HHFT) rules to trains transporting bulk LNG, including:
― Speed restrictions and tightened speed restrictions in high-threat urban areas.
― Two-way end-of-train devices for faster air brake deployment in emergency situations.
• Whether PHMSA should adopt the AAR’s Circular
OT-55, “Recommended Railroad Operating Practices for Transportation of Hazardous Materials,” which all Class I and II freight railroads operating in the United States currently observe, into the rules for transporting bulk LNG
• Whether the additional route analysis requirements currently applied to HHFTs and to trains transporting explosives, toxic inhalation hazards or radioactive cargo should also be applied to trains transporting bulk LNG
Questions and commentary
Canada already allows the transport of bulk LNG in DOT-113 railcars, but, according to the NPRM, Mexico “does not provide explicit authorization for bulk transportation of LNG in rail tank cars.” Yet, PHMSA cites increased Mexican demand for LNG as one reason why rail transport demand is rising.
Ethylene is a cryogenic liquid that is already approved to be transported in the same type of DOT-113 specification railcars proposed for LNG. But, according to AAR data, only 356 ethylene tank car movements originated in 2015. PHMSA notes that “the numbers of DOT-113 tank cars in operation under the proposed regulatory change could increase well beyond the numbers of DOT-113 tank cars currently in operation.”
In addition to the DOT-113C120W railcar proposed for transporting bulk LNG, AAR’s petition requested PHMSA also authorize the DOT-113C140W (140W) railcar. The 140W is not widely deployed and PHMSA elected not to include it in the NPRM due to a paucity of safety data. Rather, the agency proposes to further study the 140W tank car’s technical standards and performance. The 140W better insulates the tank car’s inner compartment from thermal creep and is designed to allow the railcar to travel for longer periods before the cryogenic liquid can vaporize into gas. Would also authorizing the 140W expand shippers’ options for exporting LNG directly instead of delivering for transfer to a vessel at a maritime port?
PHMSA states that the NPRM does not impose costs or provide benefits exceeding $100 million annually, but the Office of Management and Budget chose to designate it a significant rulemaking, subject to additional review, anyway. At the same time, an executive order mandates PHMSA take final action considering allowing bulk LNG by rail by May 2020. With such an accelerated timeline, will PHMSA be able to resolve public comments and conduct the necessary economic analysis?
The proposed rulemaking can be found at www.govinfo.gov/content/pkg/FR-2019-10-24/pdf/2019-22949.pdf.
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