Pittsburgh Catholic
(by Paula A. Smith)
Dwayne Coleman, 24, speaking to a group of graduates at a college signing ceremony in May, said that if someone had told him as a teenager that he would travel to China and teach English he would have never believed them.
But with help from the Crossroads Foundation, his mother and the staff at Cardinal Wright Regional School, he came to believe in his academic abilities and potential for success.
Coleman, who was raised by a single mother with two younger children on Pittsburgh’s North Side, graduated from Central Catholic High School in 2012, thanks to assistance from Crossroads.
For the past nine months he worked with the Rand Corp. on the Phresh Project for Pittsburgh Hill/Homewood Research on Neighborhood Change and Health.
“Crossroads really fosters a sense of community,” Coleman said. “It’s easy for students like us to feel out of place because of having a lower socioeconomic background or for being disadvantaged students. But Crossroads provided financial support and tried to make sure the emphasis was on the whole person.”
The Crossroads Foundation is an organization like no other in Pittsburgh. It is a college preparatory program that began with 11 students in 1988 and recently celebrated its 30th academic year with 580 alumni.
Crossroads provides an integral approach committed to helping promising students of all ethnicities with a limited income to obtain a quality Catholic high school education and receive academic support to attend college. Students do not need to be Catholic.
Esther Mellinger Stief, executive director of Crossroads, said, “I make sure Crossroads keeps its commitment to every scholar of providing financial support, but more than that, the opportunities these young people need to fulfill their potential.
“Every young person has innate potential, but not every young person has a path for that potential,” she said. “We provide that path for them.”
Students are recommended to the scholarship program by their principals and teachers. A partnership is created with the student, family, school and community.
“Scholars will be most successful if their families are part of their journey,” Steif said.
The scholars are enrolled from the city of Pittsburgh and nearby suburbs. Acceptance is based on income, potential, significant obstacles that might interfere with a student’s academic pursuits and a need for support to achieve success. Three significant risk factors for students are poverty, neighborhoods with poorly performing public schools and personal circumstances.
Six Catholic high schools with outstanding academics and extracurricular opportunities are available for scholars to attend: Bishop Canevin, Oakland Catholic, Central Catholic, Seton LaSalle, Our Lady of the Sacred Heart and Serra Catholic.
The program assists with tuition costs since applicants come from low-income families. All families pay something, including personal expenses, lunches and social activities. Scholarship funds go directly to the schools for four years. Scholars never need to pay it back.
“What is truly unique is we’re not just about tuition support,” said Stief about the nonprofit organization. “We offer year-round holistic programming that includes summer workshops, college experiences and counselor support in school, which is unusual.”
Additional services include English and mathematics enrichment programs, SAT and ACT preparation classes, tutoring and peer mentoring.
Coleman went on to earn a bachelor’s degree in political science and international studies with a minor in Chinese language in 2016 from Case Western Reserve University in Cleveland, Ohio.
While an undergraduate, he studied abroad and received a certificate in Chinese language, culture and business from Capital University of Economics and Business in Beijing.
Following graduation, he worked for 14 months with Aston International Educational Co. in Xi’an, Shaanxi Province, and co-taught English and SAT preparation with a Chinese instructor to Chinese students and technical executives.
In August, Coleman plans to attend St. John’s University School of Law in Jamaica, Queens, New York. Thanks to a full-tuition scholarship, his career objectives are to pursue international studies in law, obtain a law degree, a master’s in business administration, and work in law and business.
The key to the overall success of the scholars is the counseling they receive through Crossroads.
St. Joseph Sister Sandy Kiefer, director of academics, was the first employee to be hired and is a former director of the organization. She has been ministering in the program for 29 years. The counselors provide guidance and work one-on-one with the students in their schools.
“I love it,” Sister Sandy said. “It’s very inspiring. When students come in, they’re nervous and not sure of a career path. Our team helps them begin to explore their own potential and envision themselves as college students and professionals.”
For the team, triumph is measured in the long term, she said. That means scholars pursue careers in which they are able to achieve personal goals and give back to the community. Scholars serve 20 hours a year in volunteer programs.
Stief credits Dean Calland, board president, as a crucial component in the success of Crossroads and its impact on young people.
“His visionary leadership has helped us build a sustainable organization,” she said.
There are 130 students enrolled in six Catholic high schools for the fall, with the largest class of 38 freshmen.
A recent study of Crossroads graduates from 2010-2018 indicates high rates of educational achievement:
- 100 percent high school graduation rate.
- 96 percent college enrollment rate; more than 90 percent in four-year degree programs.
- 72 percent college graduation rate within six years.
Collectively, 70 percent of the students are minorities and 70 percent are the first generation in their family to earn a college degree.
“This year, everyone is going to college,” Stief said.
Michele Betts is the mother of Nyla Betts, 18, who graduated this year from Oakland Catholic High School. Her daughter was one of 27 graduating scholars honored at Crossroads’ Annual Senior Recognition Dinner in April. Nyla received six college acceptances, and plans to attend Robert Morris University to pursue a degree in criminal justice.
“Crossroads has been very beneficial and supportive, especially in academic work and in sensitive subjects such as racial diversity, inclusion and financial support,” Michele said.
Crossroads was founded by Susie Gillespie and her father, Edward Ryan, businessman and founder of Ryan Homes. As a 16-year-old high school student in the 1960s, she tutored students weekly for two years at the former Epiphany School in Pittsburgh’s Uptown neighborhood and the former St. Richard School in the city’s Hill District.
Gillespie felt God planted a seed in her heart when she recalled driving home across the Fort Pitt Bridge after hearing stories from the students who were experiencing many obstacles in their lives. She realized she was living in “a very different world.”
When her father asked her in the 1980s what she wanted to do with her life, Gillespie remembered the children she tutored as a teenager. She met with four Catholic grade school principals: Mercy Sister Elizabeth Ann Herbert at St. Agnes in Oakland (who died June 22 at age 90); St. Joseph Sister Valerie Zottola, Holy Rosary in Homewood; St. Joseph Sister Margery Kundar, St. Benedict the Moor; and a former St. Joseph sister at St. Canice.
All of the principals had capable students with limited incomes who could benefit from a Catholic high school education, and they combined to form Crossroads’ first class.
“The sisters had such understanding hearts and knew how best to develop the students’ God-given talents and abilities,” said Gillespie, who recalled the first year of the program as a learning process for everyone. She worked with the organization for the first 25 years.
“We all need somebody to believe in us,” she said. “We knew these kids needed someone to believe in them. They deserve a good education, they can do it. When they believe in themselves they realize that, through the grace of God in their lives, nothing will be impossible.”
For the full article, click here.
Babst Calland congratulates our friends at LifeWhere on their successful exit. We are proud to have represented you from formation through exit. Resideo and the LifeWhere team are well-positioned to continue the growth opportunities afforded by the LifeWhere technology.
Chris Farmakis, Sara Antol and Michael Fink from Babst Calland’s Emerging Technologies Group represented LifeWhere in the sale.
For more information, click here.
Smart Business
(by Jayne Gest with Carl Ronald)
Intellectual property (IP) drives value, especially in industries like robotics or medical devices. However, engineers would rather be developing new products. They dislike spending time on invention disclosures. Carl Ronald, shareholder at Babst Calland, believes patent attorneys can help fill this gap in younger companies that have started taking on outside investors.
“Sometimes, I will get a call from an engineering manager who just approved an employee request to present a poster at a conference. They’re wondering, ‘Is this is something that could affect patentability? Can you look at it? The conference is in five days,’” Ronald says.
It’s better to be proactive and strategic, where an attorney works with your engineering team — reducing the barriers to getting disclosures on paper, identifying what you should patent and what you should keep secret.
Smart Business spoke with Ronald about developing relationships between engineers and attorneys to build up an IP portfolio.
Why is it important to involve a patent attorney early in the development pathway?
It is critical to set the tone early. Executives that position the business as an innovative company need to make sure their employees are educated about IP, and that the organization is utilizing patents, trade secrets and other forms of IP to protect that value.
Let’s say, a Ph.D. student working with a company wants to publish an article. Some magazines have confidentiality around peer reviewers and some do not. So, a submittal to peer review could be a disclosure that could destroy novelty, thus destroying patentability. While in the U.S., you can disclose something and still file a patent within a year, overseas that is not the case.
Some engineers know about IP but do not understand the nuances around publication or the differences between U.S. and foreign patent laws; others know very little. And some feel hopeless, that the idea will be stolen anyway. If a patent attorney is brought in early, he or she can educate the R&D team about the IP process and pitfalls, while helping establish invention disclosure and incentive programs. This also applies to companies with in-house counsel; they typically prefer to work with an expert who deals with IP every day when these issues arise.
What are invention disclosure and incentive programs? How can an attorney help?
Invention disclosure programs are an organized way to identify and evaluate IP. An invention disclosure document is usually completed by an engineer if the group thinks it has solved a problem in a novel way. This starts the process to see if it infringes on someone else’s IP and protects the advancement if the team is creating something new.
In incentive programs, employees are rewarded, through money or stock, if the company files a patent application that lists them as the inventor. Employees may get another reward if a patent issues. Once incentives are attached to disclosures, the number of disclosures typically increases.
Traditionally, a three- or four-page invention disclosure provides an explanation of the problem being solved, along with the proposed solution. Some members of an engineering team lack interest in finding time to take on the burden of completing this document; having a patent attorney the engineer already knows can help. The attorney can touch base at critical junctions, such as a sprint review, to see what problems have been solved and take verbal disclosures, if appropriate. Or, engineers could email minimal disclosures as they go, and the attorney reviews those with the engineering manager or chief technology officer.
If these procedures are easier to follow, and properly incentivized, then the R&D team and attorney can work together to ensure IP value is maximized.
Why aren’t more companies working closely with an IP attorney early in the product development lifecycle?
While some companies feel they can handle IP on their own, others are concerned about cost. Many law firms, however, are starting to think outside the box with alternative fee arrangements, such as a flat fee for service or a lower initial rate until an agreed-upon amount of capital is raised. If you have an innovative company in a competitive market, it’s never too early to introduce a patent attorney to your engineering team.
For the PDF, click here.
For the full article, click here.
The PIOGA Press
(by Blaine Lucas, Robert Max Junker and Jennifer Malik)
On May 14, the Pennsylvania Supreme Court entered an order denying the petition for allowance of appeal in Frederick v. Allegheny Township Zoning Hearing Board, et al., No. 449 WAL 2018 (Pa. 2019). The order concludes a battle of more than four years over the validity of the Allegheny Township, Westmoreland County, zoning ordinance. Previously in Frederick, the Commonwealth Court in a 5-2 en banc decision, rejected the contention that an unconventional natural gas well pad can be permitted only in an industrial zoning district, concluding that Pennsylvania law empowers municipalities to determine the location of oil and gas development and whether the same is compatible with other land uses within their boundaries. Frederick v. Allegheny Twp. Zoning Hr’g Bd., 196 A.3d 677 (Pa. Cmwlth. 2018).
Frederick is one of at least eight cases involving challenges to the validity of local zoning ordinances in Pennsylvania which authorize oil and gas development. Generally speaking, the challengers in these cases claim, based on the Pennsylvania Supreme Court’s decisions in Robinson Township v. Commonwealth, 83 A.3d 901 (Pa.2013) and Pennsylvania Environmental Defense Foundation v. Commonwealth, 161 A.3d 911 (Pa. 2017) that the zoning ordinances violate substantive due process and Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA), because they permit an allegedly industrial use in non-industrial zoning districts.
In Frederick, the Allegheny Township zoning ordinance authorized oil and gas operations as a permitted use by right in all zoning districts.1 After the township issued a zoning permit to an operator for an unconventional well pad, three residents filed an appeal with the zoning hearing board challenging both the permit and the validity of the zoning ordinance. Following multiple nights of hearings, the board dismissed these challenges. The board’s decision contained numerous findings of fact related to the qualities and characteristics of the township and its long history of oil and natural gas development. The board specifically accepted the testimony of an expert proffered by the operator on the interplay between the oil and gas industry and agricultural and rural communities in Pennsylvania. The board rejected the objectors’ claims that the well pad would have an adverse effect on public health, safety, welfare or the environment. The board likewise declined to accept the objectors’ reading of Robinson, concluding that the zoning ordinance was valid.
Both the Westmoreland County Court of Common Pleas and the Commonwealth Court affirmed the board’s decision. Addressing the objectors’ repeated use of the term “industrial” to describe natural gas wells, the Commonwealth Court observed that the objectors did not present any evidence to the zoning hearing board “on what they meant by ‘industrial’ or the significance of that term.” The court observed that oil and gas drilling, like farming, is not a heavy industrial use, but instead is a use traditionally exercised in agricultural areas, containing temporary components of an industrial use. As a result, the court agreed with the zoning hearing board that the zoning ordinance does not violate substantive due process.
Next, the Commonwealth Court addressed the objectors’ contention that the zoning ordinance violates the ERA. The objectors repeated their previous argument under the due process clause―hat oil and gas is an incompatible “industrial use” that degrades the local environment. The objectors also asserted that the Supreme Court’s interpretation of the ERA in Robinson required the township to engage in an undefined preaction environmental impact analysis before enacting the zoning ordinance.
In analyzing the ERA claims, the Commonwealth Court addressed the Pennsylvania Supreme Court’s 2017 decision in PEDF rejecting the three-part test for measuring compliance with the ERA first enunciated in the Commonwealth Court’s 1973 decision in Payne v. Kassab, 312 A. 2d 86 (Pa. Commw Ct. 1973) and instead ruled that challenges raised under the ERA should be decided in accordance with its text. Acknowledging that the “precise duties imposed upon local governments by the first sentence of [the ERA] are by no means clear,” the Commonwealth Court ascertained the relevant standard, based on Robinson and PEDF, to be whether the governmental action “unreasonably impairs” the environmental values implicated by the ERA. However, the court found that Robinson “did not give municipalities the power to act beyond the bounds of their enabling legislation” and that “[m]unicipalities lack the power to replicate the environmental oversight that the General Assembly has conferred upon [the Department of Environmental Protection] and other state agencies.”
The Commonwealth Court also observed that Section 3302 of the Oil and Gas Act preempts municipalities from regulating “how” drilling takes place, and that a municipality only may use its zoning powers to regulate “where” mineral extraction occurs. The court concluded that the objectors failed to prove that the township’s legislative decision expressed in the zoning ordinance allowing gas wells in all zoning districts unreasonably impairs their rights under the ERA, particularly when the record (and the zoning hearing board’s findings) showed how long natural gas development has safely coexisted within rural communities, how the land can be returned to its original state once the wells are completed and how energy extraction can support the agricultural use of land.
In its conclusion, the Frederick majority opinion recognized that municipalities, if they do elect to utilize their discretion to enact land use regulations in the first place, must balance the interests of landowners in the use and enjoyment of their property with the public health, safety and welfare. The objectors’ contention that the ordinance would result in oil and gas development anywhere and everywhere in the township is tempered by the significant setback requirements in Act 13 that remain in effect. In fact, the zoning hearing board found that these requirements eliminated shale gas development from more than 50 percent of the land mass of the township. The Commonwealth Court returned to the “where” versus “how” distinction declared by the Supreme Court and noted that a zoning ordinance expressing legislative decisions regarding where a land use can occur must be affirmed unless clearly arbitrary and unreasonable.
Other validity challenges pending in Commonwealth Court
With the Supreme Court’s denial of the petition for allowance of appeal in Frederick, there is now precedent supporting the validity of zoning ordinances authorizing oil and gas development in all zoning districts. Presumably the Frederick decision will have a significant impact on two other similar ordinance validity challenges currently pending before the Commonwealth Court.
Of particular note is Delaware Riverkeeper Network v. Middlesex Township Zoning Hearing Board, No. 2609 CD 2015 (Pa. Cmwlth. 2015). There, the township zoning hearing board denied a zoning ordinance validity challenge and well permit appeal brought by several residents and nongovernmental organizations. The challenged ordinance permits oil and gas wells as either a use by right or a conditional use in designated rural, residential and commercial districts, but not in all districts. In its decision, the board noted the history of oil and gas production in the township, found the balancing of residential and oil and gas interests in the challenged ordinance to be credible, and found challengers’ arguments would render the zoning ordinance exclusionary. On appeal, the Butler County Common Pleas Court affirmed. The Commonwealth Court, in an unpublished opinion, affirmed the zoning hearing board and the common pleas court. However, in doing so the Commonwealth Court applied the Payne v. Kassab test for measuring compliance with the ERA. Thirteen days later, the Pennsylvania Supreme Court rejected Payne v. Kassab in its PEDF decision. The objectors had filed a timely petition for allowance of appeal in Delaware Riverkeeper, and the Supreme Court subsequently entered an order vacating the Commonwealth Court decision and remanded the case back to the Commonwealth Court for reconsideration. The Commonwealth Court held oral argument on the remanded case on June 6 and a decision is pending.
Finally, in Protect PT v. Penn Township Zoning Hearing Board, 1632 CD 2018 (Pa. Cmwlth. 2018), a nongovernmental organization filed a substantive validity challenge to the Penn Township, Westmoreland County, zoning ordinance on the grounds that allowing oil and gas drilling as a special exception in the Mineral Extraction Overlay (MEO) district, which encompasses portions of the rural resource and industrial districts, violated substantive due process and the ERA. The township zoning hearing board elected not to schedule a hearing on the challenge, resulting in a deemed denial under applicable law.
On appeal, the Westmoreland County Court of Common Pleas heard the case de novo and upheld the validity of the zoning ordinance. The court observed that the township had an established history of oil and gas drilling. Further, the court found that while the MEO district encompasses 54 percent of the township’s land mass, natural gas development is only permitted in less than 10 percent of the township after applying setbacks. Relying on the testimony of an oil and gas operator’s expert witnesses, the court reasoned that natural gas development: (1) did not interfere with the expectations of township residents because historical ordinances were much less stringent concerning oil and gas; and (2) was consistent with and beneficial to the agricultural and residential uses in the rural resource district. Applying the standards set forth in Frederick, the court held that the objector failed to meet its burden that the zoning ordinance violated substantive due process or the ERA. The objector appealed to Commonwealth Court, and the parties have submitted their briefs. Oral argument is scheduled for the October session in Pittsburgh.
For more regarding issues relating to land use and municipal implications of the Frederick case, contact Blaine A. Lucas at 412-394-5657 or blucas@babstcalland.com, Robert Max Junker at 412-773-8722 or rjunker@babstcalland.com, or Jennifer L. Malik at 412-394-5490 or jmalik@babstcalland.com.
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The Legal Intelligencer
(by: Kevin Garber and Casey Snyder)
Background: Oil and Gas Produced Water Management
Drilling and operating oil and gas wells, especially unconventional wells, generates a significant amount of flowback and produced water that must be managed properly under federal and state environmental laws (for this article, “produced water” will refer to all oil and gas extraction water). There are multiple produced water management strategies—and trends in the industry vary. The EPA’s newly released draft study, “Study of Oil and Gas Extraction Wastewater Management Under the Clean Water Act,” EPA‐821‐R19‐001 (May 2019), collected stakeholder input on produced water management options nationwide as part of its effort to determine whether future actions are appropriate to permit additional options to manage produced water.
Reviewing current management practices nationally, the EPA determined that injecting produced water into underground injection control (UIC) wells is the most common disposal option. Injection may be for disposal (Class II-D wells) or for enhanced oil recovery (Class II-R wells). The EPA and states with delegated authority implement these programs pursuant to the Safe Drinking Water Act. Pennsylvania has not applied for and does not have primacy to implement the federal UIC program in the commonwealth. Other management options include using produced water to hydraulically fracture new wells; using evaporation ponds or seepage pits in some states to contain produced water and subsequently collect precipitated solids for disposal or sale; using produced water from conventional operations for dust suppression and deicing; treating produced water onsite in mobile treatment units or treating it off site at centralized water treatment facilities (CWTs); disposing produced water from conventional operations at publicly owned treatment works (POTWs); and, in states west of the 98th meridian, discharging to surface water where suitable for agriculture or wildlife.
Pennsylvania is a major producer of oil and gas, especially from unconventional operations in the Marcellus and Utica shale formations. Pennsylvania was the second largest natural gas producer in 2017 with 5,463,888 million cubic feet of gas produced, next only to Texas. A study of recent Pennsylvania Department of Environmental Protection (DEP) data tracking oil and gas waste management in Pennsylvania reported approximately 57 million barrels of liquid waste were produced in 2017, 95 percent of which was produced water.
Produced water management in Pennsylvania has changed over time. In 2012, operators in Pennsylvania transported 52% of produced water to out-of-state UIC disposal wells. However, in 2017, only 7% of liquid waste was disposed of out of state. Reuse is the primary management option in Pennsylvania for both conventional and unconventional operators. The Pennsylvania Department of Environmental Protection’s beneficial reuse general permit, known as the WMGR123 permit, allows produced water from one well to be used to develop or hydraulically fracture another well under certain circumstances. In the early years of the unconventional play in Pennsylvania, operators sent produced water to CWTs and even to a few POTWs for treatment and disposal, but by 2015, over 90 percent of unconventional operators reported reusing produced water as a water management strategy. Conventional operators sent an estimated 7.9 percent of their produced water to POTWs in 2017. A recent EPA rulemaking (discussed in Section III) is likely to end that practice in August 2019.
Produced Water Management Draft Study
Beginning in 2018, the EPA solicited comment on management options for produced water and held a public meeting for stakeholders on Oct. 9, 2018. to address an expected increase of oil and gas production coupled with water shortages experienced by a number of states. The EPA published the draft study in mid-May 2019. The public comment period closes on July 1. The EPA plans to evaluate this study as it determines the next steps for produced water management, suggesting additional consideration is ongoing.
Stated goals of the study were to analyze approaches to oil and gas produced water management at the state and federal levels and to determine whether additional onshore discharge options are necessary. The draft study summarizes applicable regulation and collects stakeholder input but does not reach a conclusion on whether or how the EPA might expand disposal or management options. State agency and industry stakeholders support additional discharge options and offer specific suggestions, including allowing discharges to augment surface and groundwater supply, allowing treatment and discharge options at or closer to well sites, creating a general permit for as-needed discharges, incentivizing CWT facilities that accept produced water from multiple production operations, and revising CWT effluent limitation guidelines (ELGs) to provide additional flexibility for treating oil and gas water, such as permitting CWTs to accept produced water via pipeline. Public interest stakeholders are concerned about constituents of produced water and whether current or expanded treatment options will adequately treat constituents of concern.
2016 Zero-Discharge Effluent Limitation Guideline
In a related development of a few years ago, the EPA amended the federal ELGs at 40 CFR part 435 for the oil and gas extraction point source category on June 28, 2016, to prohibit the discharge of wastewater from unconventional oil and gas extraction to POTWs, effective Aug. 29, 2016. The EPA defined “unconventional oil and gas” to include “crude oil and natural gas produced by a well drilled into a shale or tight formation (including, but not limited to, shale gas, shale oil, tight gas, tight oil).” The EPA concluded that its zero discharge limitation was technologically available and economically feasible because no operators were discharging wastewater to POTWs by 2016. However, that statement was incorrect because conventional operators were discharging to DEP-approved POTWs. In 2015-2016, approximately one million barrels of produced water from conventional operations were sent to POTWs. To the extent conventional operators are covered by the rule, the EPA’s record was incomplete. Recognizing that some POTWs were still receiving produced water from unconventional sources, as defined by the EPA to include conventional operators, the EPA extended the compliance deadline of the rule in December 2016 to Aug. 20, 2019.
The Pennsylvania Grade Crude Oil Coalition, a conventional industry trade group, filed a petition for review of the rule in U.S. Court of Appeals for the Third Circuit in November 2016, which is still pending. The conventional industry seeks to exclude tight oil and gas formations from the EPA’s definition of unconventional oil and gas, which would recognize the Pennsylvania industry’s historical distinction between conventional and unconventional operations. However, absent a revision to the rule, Pennsylvania conventional oil and gas operators may no longer send produced water to POTWs for treatment after Aug. 20, 2019.
Outlook
The EPA’s produced water study does not reach any conclusions on whether the EPA will expand produced water management options for oil and gas operators. The study’s purpose was to collect stakeholder opinion and current management options for reference in ongoing consideration. The EPA does not specify when a final decision is expected. However, the study suggests the EPA is considering whether to expand management options, which would be welcome news because additional flexibility to manage produced water while protecting and possibly benefiting the environment, especially improvements that are implemented at the state level, would promote development of oil and gas resources.
For the full article, click here.
The Legal Intelligencer
(by Carla Voigt and Molly Meacham)
Recent guidance from two federal agencies indicates a push by the current administration toward classifying gig economy workers as independent contractors under federal workplace laws. Last month, the Department of Labor’s Wage and Hour Division (WHD) and the National Labor Relations Board (NLRB) each authored guidance declaring certain workers in the gig economy independent contractors, rather than employees.
In an opinion letter issued on April 29, the WHD analyzed whether workers for an unnamed “virtual marketplace company” (VMC) are employees or independent contractors under the Fair Labor Standards Act (FLSA). In refining the definition of independent contractor, the WHD focused on the economic reality test, which considers the totality of the circumstances to determine the degree of economic dependence the worker has on his employer. The WHD opinion letter describes workers’ “economic dependence” on businesses as “the touchstone of employee versus independent contractor status” and evaluated the nature of the relationship using the existing six-factor test previously developed by the U.S. Supreme Court in Rutherford Food v. McComb, 331 U.S. 722, 729 (1947).
Shortly after the WHD issued its opinion letter, in May the NLRB published its own advice memorandum dated April 16, in which it declared a group of Uber drivers to be independent contractors under the National Labor Relations Act (NLRA). Applying the board’s SuperShuttle classification test, the NLRB determined that the drivers have “significant opportunities for economic gain and, ultimately, entrepreneurial independence.” Accordingly, the NLRB opined that the drivers were properly classified as independent contractors and therefore not eligible to unionize under the NLRA. These publications indicate a significant trend by the current administration in favor of classifying workers as independent contractors.
Guiding Federal Law Principles
The FLSA defines an employee for the purposes of minimum wage and overtime pay as any individual employed by an employer, meaning anyone an employer suffers or permits to work, see 29 U.S.C. Section 203(e)(1), (g). Independent contractors are not employees. As recognized by Rutherford Food, workers may be independent contractors when their work does not “in essence … follow the usual path of an employee.”
The determination as to whether a worker qualifies as an employee under the FLSA turns on a weighing of six factors derived from Rutherford Food. These factors include: the nature and degree of the employer’s control over the worker; the permanency of the worker’s relationship with the employer; the amount of the worker’s investment in facilities, equipment or helpers; the amount of skill, initiative, judgment or foresight required for the worker’s services; the worker’s opportunities for profit or loss; and the extent of integration of the worker’s services into the employer’s business. These factors are weighed “in order to answer the ultimate inquiry of whether the worker is ‘engaged in business for himself or herself,’ or ‘is dependent upon the business to which he or she renders service.’” Misclassification by an employer can result in substantial liability under the FLSA in the form of unpaid overtime, minimum wage violations and exposure for benefits that should have been provided to workers.
On the other hand, the NLRB’s recent analysis focused on workers’ ability to organize, which rests on a similar threshold determination of whether the workers are properly classified as employees or independent contractors. The NLRA empowers employees to unionize but does not extend this power to independent contractors. Section 2(3) of the NLRA explicitly excludes “any individual having the status of an independent contractor” from its definition of employees entitled to the act’s protection, see 29 U.S.C. Section 152(3). In evaluating whether workers are employees or independent contractors, the NLRB employs a qualitative application of the 10 nonexhaustive common-law factors enumerated in the Restatement (Second) of Agency, as adopted in the board’s recent SuperShuttle opinion. The inquiry in this context centers on a worker’s “entrepreneurial opportunity;” workers who have significant control over their profits and losses are likely independent contractors.
Federal Agency Guidance
Both the WHD and NLRB have made clear that the factors of their respective tests are to be applied qualitatively, not quantitatively. “The determination of employee status does not depend on such isolated factors but rather upon the circumstances of the whole activity.” As the WHD explained, the analysis of “whether a worker is economically dependent on a potential employer is a fact-specific inquiry that is individualized to each worker.”
Guidance as to the respective weight of the six factors in the economic reality test has varied from one administration to the next. In 2015, the former head of the WHD issued a guidance letter, administrator’s interpretation No. 2015-1 (2015 AI), which took an aggressive position regarding the classification of employees and suggested that most workers should be classified as employees under the FLSA. In applying the economic reality test, the interpretation letter de-emphasized the control factor in favor of a more expansive view of the employer-employee relationship. In 2017, the current administration reversed course, withdrawing the 2015 AI and signaling a move by the current administration toward a narrower view of employee classification. However, until the most recent opinion letter from the WHD, the administration offered little practical guidance as to what this change of course might mean for companies and their workers.
Now, nearly two years later in its April 29, opinion letter, the WHD has reiterated that the appropriate test for employee analysis is the six-factor economic realities test and, at least in the context of an unnamed virtual marketplace company in the gig industry, provided essentially a checklist of characteristics that weigh in favor of independent contractor status.
More specifically, the WHD letter responded to a question submitted by an unnamed VMC described as an “online or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting and household services.” Applying the six-factor Rutherford Food test, the WHD characterized the VMC as a “referral service” that “empowers service providers to provide services to end-market consumers” through the virtual marketplace, rather than receiving services itself. In this context, the company’s primary purpose was to “provide a referral system,” and its “operations effectively terminate at the point of connecting service providers to consumers.” The WHD determined that the providers had “complete autonomy” over their hours and type of work, and “significant flexibility” to pursue external economic opportunities, even with the company’s competition. The WHD further found that there was no permanent working relationship between the company and its service providers that would be indicative of an employer-employee relationship because the service providers maintain a high degree of freedom to exit the relationship at any time. Ultimately, the WHD opined that all six of the factors weighed in favor of independent contractor status.
In a similar vein, the NLRB stated in its recent advice memorandum that it will apply the test it set out in SuperShuttle when evaluating worker classification under the NLRA. This test weighs 10 nonexhaustive factors and, as with the economic dependence test applied by the WHD, “all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.” In the shared-ride and taxicab context, the NLRB explained that the board will give significant weight to two of these ten factors—the level of company control and the relationship between the company’s compensation and the amount of fares collected. To that end, the NLRB concluded that the group of Uber drivers “had significant entrepreneurial opportunity by virtue of their near complete control of their cars and work schedules, together with freedom to choose log-in locations and to work for competitors of Uber.” For the NLRB, the “important animating principle” is “whether the position presents the opportunities and risks inherent in entrepreneurialism.” Ultimately, workers who have significant control over their profits and losses are more likely to be classified as independent contractors under this test.
Virtual Marketplace and Ride Share Companies
The WHD’s opinion letter and the NLRB’s advice memorandum are two apparent signals that this administration intends to find that the fast-growing virtual marketplace business model is staffed by independent contractors, not employees. Under both the “economic dependence” test and the SuperShuttle test, workers for at least two companies with gig business models were easily classified as independent contractors under the relevant tests that include a number of subjective factors.
This indication is not absolute, as the guidance to date is limited to the specific workers and circumstances presented to the agencies. While the WHD opinion letter and NLRB advice memorandum may be used by employers to support their decisions, it remains unclear what level of deference such guidance might receive by the courts. While persuasive and instructive, these publications do not bind any court or state agency and are susceptible to alteration by future administrations. Moreover, the analysis only applies to the two federal laws at issue—the FLSA and NLRA. Thus, it remains to be seen how these publications will influence future classifications of workers, particularly given the overlapping state and federal laws applicable to the workplace.
Conclusion
This administration’s recent guidance for gig economy workers provides a temporary road map for companies to consider when determining whether their workers are properly classified as independent contractors or employees. However, any business relying upon these publications in their decision-making should weigh the impact of future administration change on their strategic choices as to whether the gig economy workers they rely upon are properly classified as employees or independent contractors.
For the full article, click here.
Smart Business
(by Jayne Gest with Chris Farmakis)
Artificial intelligence (AI) is adding efficiencies and transforming businesses everywhere, and legal practices are no exception.
“General counsels and executives that are hiring lawyers need to understand that this technology is available now, so they can make sure their lawyers leverage the latest technology tools,” says Christian A. Farmakis, shareholder and chairman of the board at Babst Calland. “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.”
Smart Business spoke with Farmakis about the advancement of AI technology in the legal space, which business executives may want to take advantage of.
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 percent to 35 percent 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 those projects to be done faster and more efficiently. This includes:
- E-discovery.
- Due diligence.
- Research.
Law firms can already pass these savings on to clients, but this is only the beginning of the transformation.
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 is it 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.
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.
For the full article, click here.
The PIOGA Press
(by Keith Coyle)
On April 10, President Donald Trump signed an executive order, “Promoting Energy Infrastructure and Economic Growth.” In addition to outlining U.S. policy toward private investment in energy infrastructure and directing the U.S. Environmental Protection Agency to take certain actions to improve the permitting process under the Clean Water Act, the executive order instructs the U.S. Department of Transportation (DOT) to update the federal safety standards for liquefied natural gas (LNG) facilities.
The executive order notes that DOT originally issued those safety standards nearly four decades ago and states that the current regulations are not appropriate for “modern, large-scale liquefaction facilities[.]” Accordingly, the executive order directs DOT to finalize new LNG regulations within 13 months, or by no later than May 2020, an ambitious deadline given the complex issues involved and typical timeframe for completing the federal rulemaking process.
Why does dot regulate LNG safety?
The LNG industry has a long history in the United States. The first LNG plant went into service in West Virginia in the World War I era, and a commercial liquefaction plant in Cleveland, Ohio, went into operation in the 1940s. In 1944, the Cleveland plant experienced an LNG tank failure that led to a fatal explosion and fire and resulted in extensive property damage. The first commercial shipment of LNG by vessel occurred 15 years later, in 1959, when the Methane Pioneer sailed from Louisiana to the United Kingdom. Several large-scale LNG terminals were constructed during the late 1960s and 1970s in places like Alaska, Louisiana, Georgia, Maryland, and Massachusetts, a period that coincided with DOT’s initial efforts to establish federal safety standards for LNG facilities.
In the Natural Gas Pipeline Safety Act of 1968, Congress authorized DOT to prescribe and enforce minimum federal safety standards for gas pipeline facilities and persons engaged in the transportation of gas. Acting pursuant to the authority provided in the 1968 act, DOT promulgated interim federal safety regulations for LNG facilities in the early 1970s. The interim regulations required operators to comply with the 1972 edition of the National Fire Protection Association Standard 59A (NFPA 59A), a consensus industry standard for the production, handling and storage of LNG, as well as DOT’s new federal safety standards for gas pipeline facilities.
After issuing the interim regulations, DOT initiated a new rulemaking proceeding to establish permanent federal safety standards for LNG facilities. DOT relied on NFPA 59A in developing those standards, including the concept of requiring an operator or governmental authority to exercise control over the activities that occur within a specified distance of an LNG facility. These distances, known as “exclusion zones,” were designed to protect the public from unsafe levels of thermal radiation and vapor gas dispersion in the event of an LNG incident. DOT proposed to require that operators calculate the dimensions of an exclusion zone using certain mathematical models and other parameters.
While DOT’s LNG rulemaking proceeding was still underway, Congress passed the Pipeline Safety Act of 1979. In addition to expanding DOT’s authority to regulate hazardous liquid pipeline facilities, the 1979 law included a rulemaking mandate directing DOT to finalize the new regulations for LNG facilities. DOT satisfied that mandate in August 1980 by issuing the original version of federal safety standards for LNG facilities. The regulations, codified at 49 C.F.R. Part 193, incorporated the 1979 edition of NFPA 59A by reference and included siting requirements for LNG facilities based on the exclusion-zone approach. Other provisions addressed design, construction, operation, maintenance, security and fire protection.
DOT left the original Part 193 regulations in place for the next two decades as unfavorable market conditions significantly reduced domestic interest in LNG development, particularly for large-scale terminals. In 2000, DOT responded to a rulemaking petition from NPFA by repealing many of its substantive regulations and deferring to the comparable provisions in the 1996 edition of NFPA 59A. In subsequent industry standards updates, DOT incorporated the 2001 edition and 2006 editions of NFPA 59A into Part 193. No other significant changes to the LNG regulations have occurred since DOT issued the original federal safety standards in 1980.
Why is President Trump focusing on DOT’s LNG regulations?
DOT’s LNG-related activities have increased significantly in recent years, primarily in response to the rapid growth of U.S. natural gas resources and renewed interest in domestic LNG projects. In the Obama administration, DOT issued several significant letters of interpretation dealing with the Part 193 siting requirements and approved the use of two alternative vapor gas dispersion models for calculating exclusion zone distances. DOT also issued a series of frequently asked questions on its website providing operators with guidance on LNG issues and created a process for reviewing design spill determinations for proposed LNG projects. In August 2018, DOT and the Federal Energy Regulatory Commission (FERC), the federal agency that exercises economic regulatory and limited safety jurisdiction over LNG terminals and facilities under the Natural Gas Act of 1938, executed a Memorandum of Understanding (MOU) to improve interagency coordination. Under the MOU, DOT is responsible for issuing a letter of determination on whether a proposed FERC-jurisdictional LNG project complies with the Part 193 regulations.
The April 10 executive order seeks to build on these recent efforts by directing DOT to update the Part 193 regulations by no later than May 2020. DOT will need to consider several important issues during the rulemaking process, such as whether to incorporate more recent additions of NFPA 59A into Part 193 by reference, whether changes should be made to the exclusion zone approach in the siting regulations and whether to address a new rulemaking mandate for small-scale LNG facilities that Congress included in the 2016 reauthorization of the Pipeline Safety Act.
Finishing the rulemaking process by the deadline provided in the executive order will be extremely difficult. DOT has not yet issued a notice of proposed rulemaking, and the proceeding is likely to generate significant public interest. Industry has made tremendous technological advances in the four decades since DOT’s last comprehensive review of its LNG regulations, and public interest and other advocacy groups have also become very active in recent proceedings related to new LNG projects. These factors, when combined with the ordinary time horizon for completing DOT rulemaking proceedings and upcoming presidential election, suggest that extraordinary efforts would be needed to issue a final rule in the next 13 months.
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The PIOGA Press
(by Jean Mosites)
In May 2016, various environmental groups, including the Environmental Integrity Project and the Natural Resources Defense Council, filed a lawsuit in federal court alleging that the United States Environmental Protection Agency failed to evaluate its regulations for managing wastes associated with oil and gas development activities as non-hazardous under Subtitle D of the Resource Conservation and Recovery Act (RCRA). The suit alleged that EPA had a non-discretionary duty under RCRA to periodically review and, if necessary, revise its Subtitle D regulations for solid waste disposal facilities and state solid waste management plans with respect to oil and gas development wastes. It further alleged that EPA had not done so since 1988 and that EPA should be ordered to conduct a subsequent review. The 1980 Bentsen Amendment to RCRA had exempted oil and gas wastes from regulation under RCRA Subtitle C as hazardous waste and permits regulation of such wastes under Subtitle D as non-hazardous. Earlier, EPA had declined a 2010 petition by NRDC requesting E&P waste be regulated as hazardous under Subtitle C.
The May 2016 lawsuit was resolved in December 2016 through the entry of a consent decree in which EPA agreed to either propose revisions to its Subtitle D regulations for oil and gas wastes or make a determination that revision of such regulations is unnecessary by April 23, 2019. On April 23, EPA determined that revising its Subtitle D regulations was not necessary.
To arrive at its determination, EPA examined regulatory programs in states such as Pennsylvania accounting for the vast majority of oil and gas production in the United States. EPA reviewed current waste management practices, waste characteristics, and E&P waste release/spill incidents in these states. The agency found that: 1) uncontrolled releases of oil and gas wastes are uncommon; 2) human error, non-compliance with existing state regulations and equipment failure are the primary cause of releases; and 3) recent releases that had been identified were well contained and addressed onsite. Concluding that state regulations address E&P wastes appropriately and incorporate many of the criteria EPA believes are important components of waste management programs, EPA decided not to revise its Subtitle D regulations.
The environmental groups who originally filed suit in 2016 have since criticized EPA’s determination and might pursue judicial review of EPA’s determination.
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WASHINGTON, DC and PITTSBURGH, PA – May 13, 2019 – Babst Calland announced today the lateral move of Gina Falaschi, who joined as associate in the firm’s Washington, D.C. office in the Environmental, Mobility, Transport and Safety, and Litigation practice groups.
Ms. Falaschi’s move to Babst Calland, along with Julie Domike, another seasoned environmental attorney who recently joined Babst Calland as shareholder in late April, further represents the firm’s commitment to meet clients’ needs related to environmental and emissions mobile source services before EPA, the California Air Resources Board, and other regulatory agencies as a part of its best-in-class team.
Ms. Falaschi provides advice to clients in the energy, transportation, and technology sectors regarding environmental regulatory compliance. She has assisted companies with disclosure of regulatory violations to state and federal agencies, and has counseled clients in negotiations with the U.S. Department of Justice, U.S. EPA, and California Air Resources Board. In addition to counseling on compliance issues, she has worked with technology and energy companies in developing new projects and has advised clients on regulatory issues arising from joint ventures, mergers, and acquisitions.
She has litigated cases in federal court, represented clients in administrative cases before various federal agencies, and has experience with administrative rule challenges before the U.S. Court of Appeals for the District of Columbia Circuit. Ms. Falaschi is admitted to practice in the District of Columbia, California, U.S. Court of Appeals for the District of Columbia Circuit, and U.S. District Court for the Eastern District of California.
Ms. Falaschi earned her J.D. from Georgetown University Law Center in 2016 and her A.B., magna cum laude, from Georgetown University in 2013.
WASHINGTON, DC and PITTSBURGH, PA – May 6, 2019 – Law firm Babst Calland today announced the lateral move of Julie Domike, a veteran environmental attorney, who joined the firm’s Washington, D.C. office as shareholder, effective April 29.
Ms. Domike will provide senior-level legal counsel in key practice areas including Environmental, Mobility, Transport and Safety, and Litigation. Ms. Domike has represented numerous clients across the country in complex negotiations with the U.S. Department of Justice and EPA, resulting in global settlements affecting multiple company facilities. Much of Ms. Domike’s practice involves permitting and other issues under the Clean Air Act, addressing issues associated both with mobile and stationary sources. Ms. Domike has worked with companies engaged in developing new projects or modifying existing plants, and she has worked with clients on environmental audits and subsequent correction and disclosure to state and federal environmental agencies.
Having previously served as an attorney and manager at the United States Environmental Protection Agency (EPA) Headquarters, Ms. Domike understands the Agency’s enforcement approach and counsels clients to engage with EPA in rulemaking, and enforcement. She has represented a variety of companies that have been the focus of EPA’s regulations, including refineries, engine manufacturers, independent power producers, chemical plants, fuel producers, and construction and farm equipment makers.
Commenting about this lateral move to the Firm, Donald C. Bluedorn II, managing shareholder of Babst Calland, said, “We are very pleased to welcome Julie to our Firm and to our established team in Washington, D.C. She is a natural fit for us and her experience further complements the existing synergies that we offer clients, particularly in the Energy, Mobility, and Transportation industries.”
Julie Domike’s arrival at Babst Calland also represents sustained growth in the Mobility practice, led by Firm shareholder Tim Goodman, responding to our clients’ requests to provide environmental and emissions mobile source services before EPA, the California Air Resources Board (CARB), and other regulatory agencies as a part of our best-in-class team.
“As an attorney focused on environmental law, I am pleased to be joining a well-established, multidisciplinary legal team representing clients in the various industries where I have served ” said Attorney Julie Domike.
“Since opening Babst Calland’s Washington, D.C. office in 2016, we have grown to 10 professionals focused on serving clients in the energy, mobility, emerging technologies and transportation sectors. Julie brings a new dimension to our team, and allows the firm to better serve our clients throughout the country.” said James Curry, managing shareholder of the Washington, D.C. office.
The Legal Intelligencer
(by Molly Meacham)
One of the key questions for any dispute is forum. Most parties are limited to selecting from the available court or courts provided by state and federal law as a function of jurisdiction and venue. Some contracting parties choose the courts of a particular forum in advance as part of their agreements. Other businesses and individuals take it a step farther and choose to opt out of the courts entirely by agreeing to resolve some or all of their disputes through arbitration.
There are aspects of arbitration that may be advantages or disadvantages, depending upon your viewpoint: privacy, typically faster resolution and streamlined discovery, lack of a jury’s emotion in the verdict and limited appellate rights. In addition, arbitration can have significantly higher up-front forum costs in the thousands of dollars, as compared to the relatively low forum cost in the hundreds of dollars to file a complaint in the courts.
Given the higher forum costs, some plaintiffs—particularly those with smaller claims—may seek to bring their arbitrations as class claims. In recent years the U.S. Supreme Court has addressed several questions relating to arbitrability of class claims. In Stolt-Nielsen v. AnimalFeeds International, 559 U.S. 662 (2010), the Supreme Court prohibited class arbitration where the agreement is silent on whether the parties agreed to classwide arbitration. On April 24, the Supreme Court released its opinion in Lamps Plus v. Varela, No. 17-988, __ U.S. __ (2019), extending the holding of Stolt-Nielsen to also bar class claims where the agreement is ambiguous on whether the parties agreed to classwide arbitration.
In 2016, a malicious hacker used a phishing and social engineering scheme to convince one of the employees of Lamps Plus to send that hacker the W-2 forms of over 1,000 of the company’s employees. The company notified its employees of the data breach and offered them credit monitoring and counseling. After the data breach, employee Frank Varela learned that he was the victim of identity theft in the form of a fraudulent federal income tax return filed by someone else in his name.
Varela had signed an arbitration agreement at the beginning of his employment with the company, agreeing to submit “any and all disputes, claims or controversies” to arbitration. However, Varela chose to file a complaint in federal court bringing a lawsuit on behalf of a putative class of employees whose W-2s were compromised in the 2016 data breach. The company filed a motion to compel individual arbitration of Varela’s claim, not classwide arbitration, on the grounds that the arbitration agreement was silent on classwide arbitration and therefore did not allow it.
The lower court and the U.S. Court of Appeals for the Ninth Circuit ruled that under the terms of the agreement Varela’s complaint had to be arbitrated, but could proceed as a class claim in arbitration. The Ninth Circuit affirmed the lower court’s decision on the basis that the arbitration agreement was a contract to which California law applied, and California law required application of the principle of contra proferentem to construe ambiguities in the arbitration agreement against the company as the drafter. Applying that principle, the Ninth Circuit held that the arbitration agreement was ambiguous regarding classwide claims and under California law it must be read to include the possibility of class arbitration.
The Supreme Court reversed those decisions, holding in Lamps Plus that “neither silence nor ambiguity” can confer the right to classwide arbitration. Justice John Roberts, writing for the majority, emphasized that “arbitration is strictly a matter of consent.” Roberts held that California’s doctrine of contra proferentem is pre-empted by the Federal Arbitration Act, because construing ambiguities against the drafter does not determine whether the parties intended to consent to classwide arbitration. Instead, the doctrine is a default rule meant to apply where the court cannot ascertain the intent of the parties—fundamentally in conflict with “the foundational FAA principle that arbitration is a matter of consent.” Further, classwide arbitration is “markedly different” from individual arbitration under the Federal Arbitration Act, and it “undermines the most important benefits” of individual arbitration because it “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly and more likely to generate procedural morass than final judgment.” As a result, “more than ambiguity” is required to ensure that the parties consented to classwide arbitration. Effectively, following Lamps Plus only express and unambiguous consent to classwide arbitration will be sufficient to establish such a right.
Roberts’ 13-page opinion in Lamps Plus sparked more than 30 pages of dissent from the four justices in the minority. Justice Elena Kagan disagreed with the majority’s decision to disregard California law on contra proferentem on the basis that ambiguities in the agreement should be resolved against the company, which drafted the agreement and could have included language “expressly barring class arbitration if that was what it wanted.”
In another dissent, Justice Ruth Bader Ginsburg called out the decision as denying “employees and consumers effective relief against powerful economic entities,” as the decision serves to potentially deny judicial remedies in circumstances “when submission to arbitration is made a take-it-or-leave-it condition of employment or imposed on a consumer given no genuine choice in the matter.” Ginsburg pointed out the “proliferation” of arbitration agreements following the Supreme Court’s series of arbitration decisions, which have “hobbled the capacity of employees and consumers to band together in a judicial or arbitral forum” with the result that “mandatory individual arbitration continues to thwart ‘effective access to justice’ for those encountering diverse violations of their legal rights.”
Under the current state of the law, parties to arbitration agreements that do not contain an express consent to arbitration of classwide claims may have effectively waived the right to bring such claims. However, given the vehement dissents in Lamps Plus and the 5-4 decision, future Supreme Court decisions may alter or amend that holding. As a result parties entering into arbitration agreements should not rely on silence or ambiguity to determine the treatment of classwide claims. Instead, the parties should consider expressly addressing classwide claims in their arbitration agreements, so that a future court is not left to construe the vital question of whether or not the parties intended to consent to the arbitration of these claims.
For the full article, click here.
Smart Business
(by Jayne Gest with Kevin Wills)
Founders should understand that choosing a business entity isn’t one size fits all. That’s why founders should consult with legal and tax advisers to make sure that they choose the entity that works best for their circumstances.
“A big issue is that clients don’t always consult legal and tax advisers. They Google ‘start a company’ and go with one of the first links they find,” says Kevin T. Wills, shareholder at Babst Calland.
People also will call and say, ‘I want to start a company. Everyone says I should be a Delaware corporation,’ he says. That may be the case, but it’s important to talk it through first. A different structure may be better for your business.
Smart Business spoke with Wills about legal structures for startups.
What are some potential entity types?
When starting a business, most founders tend to consider three options.
- C corporation (C-corp). A traditional corporation that is run by a board of directors, owned by stockholders and subject to federal income taxation.
- Limited liability company (LLC). More of a contractual arrangement that is governed by an operating agreement and offers pass-through taxation.
- S corporation (S-corp). This is a corporation, but the company’s revenue passes directly through and is only taxed at the shareholder distribution level.
What about limited partnerships (LPs)?
LPs are still prevalent in certain industries, but LLCs have limited the utility of LPs. Generally, you can structure an LLC to operate like an LP, where a board of managers runs the company and members are passive investors who get distributions.
What are the advantages and disadvantages to each structure?
C-corps work well for startups that need to raise capital from professional investors or plan to give employees stock grants to supplement compensation. They can be more attractive for investors because many venture capital funds have tax-exempt members that cannot invest in entities with pass-through taxation.
One of the largest challenges with C-corps is the potential for double taxation, i.e., income taxes owed both at the corporate and shareholder distribution levels. However, in practice, when companies first start out, profits tend to be minor and often can be offset by expenses like salaries. Additionally, C-corps require more paperwork and cost more to set up.
For new companies, an LLC offers a lot of flexibility. There are fewer corporate formalities and it’s less expensive to form with less paperwork than a corporation.
An S-corp is a hybrid approach, with the structure of a corporation that avoids double taxation. S-corps are a good option if a limited number of people are starting a business. However, they only allow one class of stock to be issued and there are limitations on the number and nature of shareholders.
How hard is it to adjust the structure?
You can change corporate form as the business’s needs evolve, but there are costs associated with most conversions. Going from LLC to a corporation isn’t difficult, and S-corp status is a tax election, so you can convert either to a C-corp if the company enters a growth phase. If you start as a C-corp or S-corp and convert to an LLC, however, it can have adverse tax consequences.
It’s also not uncommon for third-party investors to require a particular structure before investing.
What other issues can pop up if the structure isn’t set up correctly?
You’ll want to work with your legal and tax advisers to curtail potential problems, which may include asking awkward questions. For example, stock and LLC membership interests are personal property, so you will want to make sure to account for what happens if one of the members gets divorced, passes away or wants to sell. Further, you will want to try to avoid requirements for unanimous consent because such requirements means one person can hold the business hostage.
Founders have numerous decisions they must make when starting their businesses, and it is important that they seek out professional advice to weigh the legal and tax considerations to ensure that they choose the best entity structure for their business.
For the PDF, click here.
For the full article, click here.
The Legal Intelligencer
(by Blaine Lucas and Alyssa Golfieri)
Defenses or claims based in equity have long been recognized by Pennsylvania courts in zoning and other land use matters. There are three main equitable theories, all of which bar a municipality from enforcing its land use regulations and permit property owners to continue a use or activity in violation of applicable ordinances—equitable estoppel, vested rights and variance by estoppel. Pennsylvania courts consider all three theories unusual remedies that should only be granted in the most extraordinary of circumstances, as in Lamar Advantage GP v. Zoning Hearing Board of Adjustment, 997 A.2d 423 (Pa. Commw. Ct. 2010). These three theories are closely related and the elements of each vary only subtly.
Equitable Estoppel
The doctrine of equitable estoppel applies when:
- The municipality intentionally or negligently misrepresented a material fact;
- The municipality knew or had reason to know that the property owner would justifiably rely on the misrepresentation; and
- The misrepresentation induced the property owner to act to his detriment because of his justifiable reliance, as in Cicchiello v. Bloomsburg Zoning Hearing Board, 617 A.2d 835, 837 (1992).
The Commonwealth Court has consistently held that the theory of equitable estoppel cannot be relied upon to provide relief when the property owner asserting it “knew or should have known that the alleged promisor was without authority to effectuate the alleged promise,” as in DiSanto v. Board of Commissioners, 172 A.3d 139 (Pa. Commw. Ct. 2017). For example, a property owner cannot reasonably rely on the statement of an appointed official when the property owner knew, or should have known, that the official does not have the authority to bind the municipality with his statements. See, e.g., Strunk v. Zoning Hearing Board of Upper Milford Township, 684 A.2d 682, 685 (Pa. Commw. Ct. 1996) (landowners could not justifiably rely on a zoning officer’s statements regarding the adequacy of a sewage disposal system where the zoning officer expressly directed landowners to the sewage enforcement officer before proceeding).
Vested Rights
The vested rights doctrine permits a property owner to use his property in a manner contradictory to applicable zoning regulations where a permit is issued in error by the municipality. In order to prove the existence of a vested right, a property owner must show:
- His due diligence in attempting to comply with the law;
- His good faith throughout the proceedings;
- The expenditure of substantial unrecoverable funds;
- The expiration of the permit appeal period with no appeal; and
- Neither individual property rights nor the public health, safety or welfare will be adversely affected by the use or activity authorized by the permit, as in Petrosky v. Zoning Hearing Board, 402 A.2d 1385, 1387 (Pa. 1979).
In Petrosky, a township issued zoning, building and use permits for the construction of a garage on land that the Petroskys had an option to purchase. Upon receipt of the permits, the Petroskys purchased the land and constructed the garage, expending more than $15,000. During construction, the township’s inspector visited the property three times and at no point informed the Petroskys that a problem existed. Approximately seven months after the garage was completed, the township realized that it had erred by allowing construction within the minimum required setback. The township subsequently revoked the Petroskys’ permits and ordered the garage to be removed or relocated in compliance with the zoning ordinance. Based on the foregoing, and the lack of any evidence in the record that the Petroskys’ reliance on the permit was in bad faith, the court concluded that they had acquired a vested right and were entitled to continue using the garage as-is, even though the setbacks were considerably less than required by the township’s zoning ordinance.
Similarly, the Commonwealth Court determined it was inequitable to enforce applicable zoning regulations against a property owner in Three Rivers Youth v. Zoning Board of Adjustment for Pittsburgh, 437 A.2d 1064 (Pa. Commw. Ct. 1981). There, the city’s zoning officer erroneously issued a building permit for the construction of an office building in a residential district (i.e., a use that violated the city’s zoning ordinance), there was no evidence in the record to indicate the property owner’s reliance on the permit was not in good faith, and the city acquiesced to the obvious commercial use of the property for seven years before taking action to remediate the violation.
Variance by Estoppel
The theory of vested rights applies where a municipality issues a permit in error. In instances where a permit has not been issued, a property owner may be able to assert a defense to an enforcement action based on the theory of variance by estoppel, the elements of which are:
- There was a long period of time during which the municipality knew or should have known of an ordinance violation, but failed to enforce the implicated ordinance;
- The municipality actively acquiesced to the illegal use/activity;
- The property owner acted in good faith and relied innocently upon the validity of the use or activity throughout the proceedings;
- The property owner made substantial expenditures in reliance upon their belief that the subject use or activity was permitted; and
- The denial of the variance would impose an unnecessary hardship on the property owner, as in Skarvelis v. Zoning Hearing Board of Dormont, 679 A.2d 278, 281 (Pa. Commw. Ct. 1996).
In analyzing the theory of variance by estoppel, the Pennsylvania Commonwealth Court has stressed that the mere passage of time does not, in and of itself, entitle a property owner to such relief. Moreover, the court has held that a property owner has a duty to check a property’s zoning status, and failure to do so undermines the property owner’s argument that he relied innocently and in good faith on the legality of the particular use or activity.
Municipal action or inaction triggering a property owner’s right to relief from ordinance enforcement often embodies elements of more than one of these three equitable doctrines (e.g., municipal inaction coupled with the issuance of a permit or the negligent misrepresentation of a material fact). As a result, the rigid labels given to the various theories often cause confusion for zoning hearing boards and the courts alike. However, in the majority of instances where Pennsylvania courts have granted equitable relief in a zoning or other land use dispute, the municipalities have done more than passively stand by while an illegal use or activity occurs. Typically, they have taken an affirmative action, such as granting a permit or making a representation or statement, which has reasonably led the property owner to conclude that the use or activity authorized thereby was permitted, and then waited years to take action against the property owner for the violation.
For the full article, click here.
WASHINGTON, DC, April 15, 2019 – Babst Calland announced that Arija Flowers has joined the Firm as an attorney in the Mobility, Transport and Safety Group in the Firm’s Washington, D.C. office.
Ms. Flowers, a former NHTSA attorney well-known in the industry, served as a Senior Trial Attorney with the NHTSA Office of Chief Counsel. There, she was the lead U.S. federal enforcement attorney for a number of matters addressing some of the most significant issues in the industry. Ms. Flowers’ joining the Firm continues to enhance its best-in-class capabilities to meet the developing needs of mobility and transport clients and other companies with emerging technologies. The practice provides strategic leadership with business and legal advice for manufacturers, suppliers, start-ups, technology companies and government entities in the full-spectrum of transportation regulatory, safety, product quality, and automation matters, including automated/autonomous driving systems.
“Arija Flowers’ joining our team represents a consolidation at Babst Calland of several recent former NHTSA and DOT senior staff and leadership with the freshest and deepest understanding of NHTSA/DOT’s current decision-makers and technical analysis approach,” said Babst Calland’s Managing Shareholder Donald C. Bluedorn II. “The continued outreach to us for services from companies – even those who are well represented at present – has really spoken to the success of our vision,” he added.
Ms. Flowers will join Will Godfrey, Babst Calland’s Director, Mobility, Automation and Safety, and a former General Motors engineer and senior NHTSA regulatory chief, and Tim Goodman, the leader of Babst Calland’s Mobility, Transport and Safety Group, and former NHTSA chief legal officer for enforcement and U.S. federal senior executive.
Ms. Flowers will help companies navigate the full-spectrum of mobility, vehicle safety and related regulatory matters, including self-certification of standards, homologation, regulatory compliance, automated/autonomous driving systems, innovative mobility and safety approaches, best practices and emerging trends, standards enforcement, defects investigations, government inquiries and enforcement proceedings, and recall implementation.
“The industry knows and respects Arija, and I’m delighted she’s rejoining me and Will Godfrey,” said Tim Goodman. “The sheer number of companies we advise – from OEMs to suppliers, from start-ups and ride-sharing companies and e-commerce enterprises – is objective evidence of our organic growth, and Arija will be a force-multiplier on our team.”
At NHTSA, among other things, Ms. Flowers served as lead counsel for the agency’s investigation and ongoing oversight of the largest motor vehicle recall in U.S. history (Takata air bag inflators, involving 19 automotive manufacturers and an estimated 65-70 million inflators in 40-50 million vehicles in the U.S. market). She provided insight and leadership in agency investigations of vehicle and equipment manufacturers concerning safety-related defects, noncompliance with federal safety standards, and other violations of the Vehicle Safety Act and regulations. Ms. Flowers also supported DOT’s U.S. Supreme Court and federal appellate litigation practice on a number of cases.
Ms. Flowers has a background in public service. Prior to the Department of Transportation, she served as a judicial law clerk, and before law school served as the Scheduler and Executive Assistant to a senior U.S. Senator and staff to a Senator in the Washington state legislature.
Ms. Flowers earned her J.D., magna cum laude, from American University Washington College of Law. She graduated from the University of Washington with dual Bachelor of Arts degrees in History and in Communications and Political Science.