The PIOGA Press
(by Kevin Garber, Jean Mosites and Esther Mignanelli)
In a case of first impression, the Pennsylvania Supreme Court rejected the Department of Environmental Protection’s untested legal theory that penalty liability under the Clean Streams Law continues as long as any constituents of a release remain in waters of the Commonwealth—days, months and years after the release has been stopped.
On March 28, the Supreme Court held “[t]he mere presence of a contaminant in a water of the Common – wealth or a part thereof does not establish a violation of Section 301, 307, or 401 of the Clean Streams Law, since movement of a contaminant into water is a predicate to violations.” EQT Prod. Co. v. Com., Dep’t of Envtl. Prot., 6 MAP 2017, slip op. at *37 (Pa. Mar. 28, 2018) (emphasis in original). In other words, a violation of these sections of the Clean Streams Law is based on the initial entry of pollutants into waters of the Commonwealth, not the presence or movement of constituents within such waters.
The Supreme Court’s opinion provides necessary clarification concerning the scope of liability for penal – ties under the Clean Streams Law for all persons, entities, businesses and industries that are responsible for remediation, those who would redevelop brownfield properties for reuse under Act 2, as well as any property owner with an historic contamination in groundwater that it did not cause. The decision reaffirms that penalty liability is distinct from cleanup liability and recognizes that penalties are neither appropriate nor effective in altering the time that may be necessary for full remediation.
The parallel proceedings between EQT and the department
The court’s statutory construction stemmed from a controversy between EQT Production Company and DEP regarding the liability and penalties that could be imposed for a release from an onsite pit at a Marcellus Shale well pad in Tioga County in 2012.
After the department presented EQT with a penalty demand of $1.2 million for the release, EQT filed a declaratory judgment action in the Pennsylvania Commonwealth Court in September 2014 to challenge the department’s use of a “continuing violation” theory to support its penalty calculation. EQT asked the court to rule on two issues: first, that a violation of the Clean Streams Law occurs only on a day in which a person allows an industrial waste to actually enter into waters of the Commonwealth, and second, that the mere presence of an industrial waste in waters of the Commonwealth does not, in and of itself, constitute a violation.
The department opposed EQT’s application for relief and argued that a violation of the Clean Streams Law occurs when industrial waste or a substance resulting in pollution flows from one water of the Commonwealth into another. The Supreme Court would later call this the department’s “water-to-water” theory. In earlier pleadings, the department also alleged that industrial waste from the pit remained in bedrock and soil beneath the impoundment’s liner for a period of time longer than the “actual discharge;” industrial waste can bind to the soil or perch above an aquifer, “continually polluting new ground water;” and this would continue for months or years at the site. EQT Prod. Co., 6 MAP 2017, slip op. at *5. The Supreme Court called this the department’s “soil-to-water” theory.
After EQT filed its declaratory judgment action, the department filed a civil penalty complaint with the Pennsylvania Environmental Hearing Board (EHB), seeking a penalty of $4.5 million for the release. EQT stopped the source of the release within 12 days of reporting it on May 30, 2012, and then entered the Act 2 program to clean up soil and groundwater. The post-hearing memo the department filed following a two-week hearing before the EHB in July 2016 asserted that a penalty of nearly $470 million could be assessed under DEP’s interpretation of the Clean Streams Law. On May 26, 2017, the board assessed a civil penalty of $1.1 million, including the department’s costs. The EHB found that “active releases” from the impoundment continued to the date of the hearing in July 2016, violating the Clean Streams Law daily, but assessed a penalty only through September 27, 2012 (i.e., the date of the excavation of the soils beneath the impoundment’s liner). Both parties appealed the adjudication for the Commonwealth Court to review. That appeal has been briefed and oral argument is scheduled for May 9.
Earlier, in the declaratory judgment case, on January 11, 2017, the Commonwealth Court held that Section 301 of the Clean Streams Law “prohibits acts or omissions resulting in the initial active discharge or entry of industrial waste into waters of the Commonwealth and is not a provision that authorizes the imposition of ongoing penalties for the continuing presence of an industrial waste in a waterway of the Commonwealth following its initial entry into the waterways of the Commonwealth.” EQT Prod. Co. v. Com., Dep’t of Envtl. Prot., 153 A.3d 424, 437 (Pa. Cmwlth. 2017), aff’d in part, vacated in part sub nom. EQT Prod. Co. v. Com., Dep’t of Envtl. Prot., 6 MAP 2017 (Pa. Mar. 28, 2018). The Commonwealth Court did not delineate the contours of the department’s multiple theories of continuous liability. The department appealed the January 11, 2017, decision.
By clarifying that civil penalties may only be assessed under the Clean Streams Law for the days of actual movement of a pollutant into waters of the Commonwealth, this precedential decision prevents the imposition of indefinite penalty liability for spills after the discharge into groundwater or surface water ends.
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The PIOGA Press
(by Jean M. Mosites and Abigail F. Jones)
On June 28, 2016, the U.S. Environmental Protection Agency (EPA) published a rule entitled “Effluent Limitation Guidelines and Standards for the Oil and Gas Extraction Point Source Category,” which prohibits the discharge of unconventional wastewater to publicly owned treatment works (POTWs). The rule went into effect on August 29, 2016.
The prohibition, now codified in 40 C.F.R. §§ 435.33 and 435.34, applies to “wastewater pollutants associated with production, field exploration, drilling, well completion or well treatment for unconventional oil and gas extraction.” The phrase “unconventional oil and gas extraction” (UOG) is defined in the rule to mean oil and natural gas produced from “a shale and/or tight formation (including, but not limited to, shale gas, shale oil, tight gas, tight oil).”
Subsequently, the rule was challenged in court and has been remanded to EPA for review and possible revision. The legal challenge to the rule, described in detail below, relates to its applicability to Pennsylvania-defined “conventional” oil and gas operators. However, EPA’s administrative review of the rule could affect oil and gas wastewater disposal options for both conventional and unconventional operators in Pennsylvania.
Implementation deadline extension
In the preamble to the publication of the final rule, EPA stated that no operators subject to the rule were currently discharging to POTWs. Based on this understanding, the rule was to go into effect within 60 days of publication. Following promulgation of the rule, EPA received letters indicating that there were facilities likely discharging UOG wastewater to POTWs in Pennsylvania. As a result, EPA issued a final rule on December 7, 2016, to extend the implementation deadline for existing sources that were lawfully discharging wastewater to POTWs between April 17, 2015, and June 28, 2016. For such existing sources, the compliance date for the rule is now August 29, 2019.
Legal challenge to the rule
At the time of publication, EPA stated that the rule was not intended to address standards for conventional oil and gas extraction facilities and that EPA would consider standards for the conventional industry in a future rulemaking.
In Pennsylvania, the rule’s definition of UOG (i.e., including “tight gas” and “tight oil”) likely draws in the majority of conventional oil and gas operations because EPA identified the Berea-Murrysville, Bradford-Venango Elk and Clinton/Medina-Tuscarora formations as “UOG resources.” Pennsylvania’s conventional operators have been extracting oil and natural gas from these formations for more than 100 years and are not considered to be part of the “unconventional oil and gas extraction” industry by the Pennsylvania Department of Environmental Protection (DEP). Conventional operators suddenly risked violating EPA’s effluent limitations for discharging to POTWs, despite the fact that such discharges were never considered by EPA during rule development and were being lawfully conducted under the oversight of DEP.
In November 2016, the Pennsylvania Grade Crude Oil Coalition (PGCC) filed a petition for review of the rule in the U.S. Court of Appeals for the Third Circuit. PGCC sought a revision of the rule’s definition (or other form of clarification) that would exclude tight oil and gas formations in Pennsylvania from the definition of UOG resources. Such an exclusion would be consistent with Pennsylvania law, which provides separate rules for Pennsylvania-defined conventional operators and unconventional operators. It also would allow Pennsylvania-defined conventional operators to continue discharging wastewater to POTWs, consistent with past practice and DEP approvals. In the lawsuit, PGCC argued that EPA made a number of fundamental errors in the rule’s development, including incorrectly finding that there were no existing discharges to POTWs by the entities subject to the rule and failing to consider costs and burdens imposed on small businesses affected by the rule.
Pennsylvania-defined conventional operators, some of whom had ongoing discharges to POTWs at the time the rule was finalized, were the impetus for EPA’s final rule extending the compliance date in December 2016. However, because the implementation extension applies only to operators who were discharging during a certain period of time (i.e., between April 17, 2015, and June 28, 2016), and because the ban remains in effect for those operators beginning in 2019, the extension does not address or alleviate concerns about the rule.
In August 2017, EPA filed a motion for a voluntary remand of the rule to the agency, without vacating the rule. The stated purpose of the remand was to allow EPA to “further develop the administrative record to consider new information received after the close of rulemaking.” The motion also noted that a remand would allow EPA to seek public comments on new information and “take other actions as appropriate.” Because the rule was not vacated as part of the remand, it remains in effect in its current form (with the delayed implementation date for a subset of operators) during EPA’s review.
Administrative review of the rule
According to status reports filed with the Third Circuit Court of Appeals, EPA’s administrative proceedings reviewing the rule are ongoing. In a February 2018 status report, EPA indicated that it was continuing “its data collection efforts.” In the same month, EPA sent out information request letters under Section 308 of the Clean Water Act to nine Pennsylvania conventional operators. The letters requested information about the operators’ wells, wastewater disposal methods and disposal costs. Responses are being compiled by EPA and will likely inform EPA’s review of the rule.
In addition to filing the lawsuit described above, PGCC also filed a petition with EPA in August 2017 requesting a rulemaking to reconsider and administratively stay the rule. EPA responded in December 2017, declining to commit to a rulemaking to stay the rule. Rather, EPA noted that there was “no imminent need for such a stay.” Because of the three-year compliance period allowed for existing facilities, EPA believes that it has “sufficient time to consider the new information” before compliance is required for operators currently discharging to POTWs.
PIOGA and other trade groups have also submitted requests to EPA related to the rule. In September 2017, the American Petroleum Institute, the Independent Petroleum Association of America and the American Exploration & Production Council submitted a joint letter to EPA supporting PGCC’s petition and arguing that a true pre-treatment rule is more appropriate than a ban, which forecloses the development of technologies that in the future may be more environmentally friendly than current disposal options. In December 2017, PIOGA submitted a request for rulemaking to EPA, asking that the agency reconsider the rule and administratively stay or suspend its enforcement for Pennsylvaniadefined conventional oil and gas operators. In response to all letters and petitions, EPA has engaged in meetings and conversations with various industry representatives.
The timeline for EPA’s administrative review of the rule remains uncertain, but it appears to be targeting August 2019, the extended compliance deadline, to complete its review and propose revisions, if any, to the rule. Opportunities for public comment may be forthcoming, and all stakeholders in both conventional and unconventional industries can assist or seek additional information through PIOGA’s Environmental Committee, which is closely monitoring the situation.
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Pittsburgh Post-Gazette
(by Patricia Sheridan)
The atmosphere was festive, the participants enthusiastic and the sun was shinning Sunday for the second annual UNcathlon at the Oval Sportsplex in Schenley Park.
The competitive event for athletes with intellectual disabilities supports and is presented by the Special Olympics of Pennsylvania.
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The Legal Intelligencer
(by Blaine Lucas and Alyssa Golfieri)
Preservation of the commonwealth’s historically significant natural, scenic, cultural, and architectural features and resources is a rising priority among local municipalities—and for good reason. Historic preservation not only helps cultivate an aesthetically pleasing environment for residents and business owners to live, work, and play, but it can increase property values, generate new tourism/economic development opportunities, and encourage future development with high-quality site design and architectural patterns. Municipalities are vested with several options when it comes to historic preservation. The two most common are the utilization of their authority under the Pennsylvania Historic District Act, 53 P.S. Section 8001 et seq., (Historic District Act) and the Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq., (MPC).
The Historic District Act was enacted in 1961 and confers upon counties, third class cities—First and second class cities (i.e., Philadelphia and Pittsburgh) are expressly excluded from the Historic District Act’s grant of authority—boroughs, incorporated towns, and townships the authority to designate historic districts within their geographical limits. In order to create a historic district, a municipality must do two things. First, it must adopt an ordinance. While the Historic District Act does not command in great detail what content or subject matters the ordinance must cover, it should, at a minimum, express the municipality’s intent to create a historic district pursuant to the Historic District Act, delineate the historic district’s boundaries, establish a historical architectural review board (HARB), enumerate the powers and duties of the HARB, and set forth guidelines and the approval process applicable to the issuance of a certificate of appropriateness (COA). Next, the municipality must provide the Pennsylvania Historical and Museum Commission written notice of the ordinance’s enactment. The commission must then certify, by resolution, to the district’s historical significance. Only after such certification does the ordinance become effective.
Properties that fall within historic districts are subject to preservation restrictions and criteria, which the designating municipality is charged with creating, applying, and enforcing. To assist with the application and enforcement of the restrictions and criteria, a governing body may appoint a HARB. The HARB must be composed of at least five members—the Historic District Act does not impose a maximum membership cap on a HARB—one of whom must be a registered architect, one a licensed real estate broker and one a building inspector. The remaining members must be persons with knowledge of and interest in the preservation of historic districts. Unlike members of a municipality’s governing body, planning commission, zoning hearing board, and civil service commission, members of a HARB do not need to be residents of the municipality. The HARB’s primary responsibility is to provide advice to the governing body with respect to the appropriateness of a project to erect, reconstruct, alter, restore, demolish, or raze a building, in whole or in part, within a historic district.
Upon receipt of an application for a project within a historic district, members of the HARB should carefully review the application, discuss the project with the applicant, consider the effect the proposed project will have upon the general historic and architectural nature of the district, and assess the proposed structural changes using the municipality’s ordinances and supplemental guidelines. When doing so, the HARB only may consider and pass on the appropriateness of external architectural features visible from a public street or way, including general design, arrangement, texture, material, and color of a building or structure, and their relation to similar features or structures in the district. The HARB may not consider matters unrelated to the preservation of the historic aspect and nature of the district (e.g., internal design features).
After the HARB renders a recommendation, the governing body votes on the project’s historical appropriateness, and if it concludes that the project is, it issues a COA. Receipt of a COA is a prerequisite to an applicant’s ability to apply for and receive all other necessary permits and approvals (e.g., land use, building, grading, environmental, etc.).
If the governing body concludes a proposed project is not historically appropriate, it must vote to deny a COA. Upon doing so, the governing body must set forth its denial in writing. The written decision must list the reason(s) for denial and the changes that must be made to ensure the district’s historic character is protected. All written denial letters must be forwarded to the applicant, any third-party agency implicated by the application, and the Pennsylvania Historical and Museum Commission. If the applicant disagrees with the governing body’s denial, he has the right to appeal pursuant to the law or local ordinance governing the other necessary permits and approvals.
In addition to, or in conjunction with, the powers vested by the Historic District Act, municipalities can rely on historic preservation authority granted by the MPC, the state law establishing the framework for zoning and land use development regulations in Pennsylvania. The MPC not only mandates that municipalities plan for the preservation and protection of natural and historic features and resources, it also authorizes municipalities to partner with surrounding communities to create an intergovernmental plan for historic preservation, and incorporate regulations into their zoning ordinances for the purposes of regulating, restricting, and prohibiting activity that may impact natural and historic features and resources. More specifically, the MPC provides as follows:
- Section 301 mandates that a municipality’s comprehensive plan include a plan for the protection and preservation of natural and historic resources.
- Section 603 authorizes municipalities to protect natural and historic features and resources, regardless of whether they are located within a district designated pursuant to the Historic District Act, via zoning.
- Section 605 authorizes municipalities to create zoning districts with specific classifications for the purpose of regulating, restricting or prohibiting “uses and structures at, along or near … places having unique historical [or] architectural … interest or value.”
- Article XI, titled “Intergovernmental Cooperative Planning and Implementation Agreements,” authorizes municipalities to enter into intergovernmental cooperative agreements to develop, adopt, and implement a comprehensive plan for the entire county or for any area within the county in order to, among other things plan for the conservation and enhancement of the natural, scenic, historic and aesthetic resources within the area of the plan, and provide for the continuation of historic community patters.
Due to the variety of means by which a municipality can regulate and enforce historic preservation within its borders, one thing is evident—each municipality’s historic preservation approach will vary in function and form from the next. In light of the unavoidable difference between each municipality’s approach, it remains critical that buyers, developers, real estate agents, and municipal officials remain cognizant of local historic preservation goals, the steps necessary to satisfy the historic-specific regulations/assessment criteria, and the additional time that purchasing or developing property in a historic district or a historical-preservation area will add to the overall permitting and approval process.
*Reprinted with permission from the 4/16/18 issue of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The American Oil & Gas Reporter
(by Kevin Garber, Blaine Lucas, Keith J. Coyle, and Jay Hammond)
PITTSBURGH, PA.–Driven by demand growth in the industrial and electric generation sectors as well as expanding pipeline and liquefied natural gas export volumes, U.S. natural gas consumption is expected to reach record levels this year. However, production also is forecast to soar to new heights, partly as a result of increasing associated gas production in tight oil resource plays.
According to U.S. Energy Information Administration projections, dry natural gas production will increase by 6.7 billion cubic feet a day in 2018, outpacing estimated year over-year demand growth. Expecting surging supplies to likely translate into relatively low dry natural gas prices for some time, Appalachian Basin natural gas producers continue to work to reduce costs and improve efficiency, while taking advantage of attractive opportunities.
From a business perspective, oil field services remain a primary point of focus for Marcellus and Utica operators in their efforts to reduce costs and improve efficiency, with service providers delivering innovative products to make more productive wells at a lower cost per unit of production. Furthermore, shale gas producers remain focused on consolidating their activities geographically, including selling noncore assets to smaller (often largely debt-financed) operators looking for particular assets less attractive to larger operators (including shallow oil and, in certain circumstances, liquids from shale).
Consolidation continues apace in the shallow conventional natural gas production industry as well. Apart from joint ventures, acreage swaps and other traditional transactions, shale gas producers in the Appalachian region also are pursuing more novel operational strategies to reduce costs and increase profits despite relatively steady natural gas prices. These strategies include new makeup water delivery systems, pad sharing, colocation of facilities, and other efforts to reduce duplication of operational outlay.
At the same time, there continue to be significant legal developments in the courts and governmental agencies regarding environmental regulations of the oil and gas industry. The changing regulatory landscape potentially not only impacts drilling, completion and production activity, but also the development of the midstream and transportation infrastructure that is critical to Appalachian producers’ ability to market their gas production.
Landmark Court Ruling
In a landmark June 2017 decision, the Pennsylvania Supreme Court rejected a long-standing test for analyzing claims brought under the Environmental Rights Amendment (ERA) of the Pennsylvania Constitution (Article I, Section 27). In Pennsylvania Environmental Defense Foundation v. Commonwealth, 161 A.3d 911 (Pa. 2017) (PEDF), the Pennsylvania Supreme Court set aside the test from Payne v. Kassab that had been used since 1973, and held that the commonwealth’s oil and gas rights are “public natural resources” under the ERA and that any revenues derived from the sale of those resources must be held in trust and only may be expended to conserve and maintain public natural resources. Essentially, the court replaced a test that had been used for more than 40 years regarding constitutional challenges arising under the ERA with a standard based on the text of the ERA and underlying principles of Pennsylvania trust law.
The court’s decision in PEDF dealt with governmental owned assets, but did not provide a definitive test regarding how the ERA is to be applied in the permitting context. The Pennsylvania Environmental Hearing Board subsequently issued two opinions involving the ERA as it applies to environmental permits that examine the record to evaluate whether the Pennsylvania Department of Environmental Protection considered the actual or potential adverse effects of the permitted activity on the public and the environment.
The PEDF case will have significant implications for natural gas exploration and production and pipeline construction in Pennsylvania for the foreseeable future.
Emissions Rules
In November 2017, the Department of Environmental Protection announced the details of highly anticipated changes to its air permitting program for the oil and gas industry. DEP released in final draft form two air program general permits: “GP-5” and “GP-5A,” as well as a permit exemption known as “Exemption 38.” Plans to revise the air permitting framework were first announced in January 2016 as part of Governor Tom Wolf’s Methane Reduction Strategy for Pennsylvania.
The recently updated permits and exemption are not yet in effect or legally binding. DEP intends to finalize the permits and exemption in the first quarter of 2018. Also under discussion is a forthcoming rule making to reduce volatile organic compound emissions from existing oil and gas industry sources. DEP has until October 2018 to submit regulations to EPA for approval to meet EPA’s 2016 “control techniques guidelines” that recommend reductions of VOC emissions from equipment and processes used by the oil and gas industry. DEP also is proposing to increase air permit and program fees to address a funding deficit, which is likely to increase the cost of air permitting in the commonwealth.
Government agencies that review energy projects may take a harder look at anticipated greenhouse gas emissions following recent federal court decisions that call for a broader scope of environmental review. In one case from August 2017, a panel of the U.S. Court of Appeals for the District of Columbia circuit vacated a decision by the Federal Energy Regulatory Commission to approve a major interstate pipeline project, holding that FERC did not adequately consider GHG emissions emitted by burning the natural gas in downstream power plants. In Sierra Club v. FERC, 867 F.3d 1357 (D.C. Cir. 2017), the D.C. circuit faulted FERC’s failure to consider, under the National Environmental Policy Act, what the agency referred to as “speculative analyses” concerning the “relationship between the proposed project and upstream development or downstream end-use.”
The court held that FERC either should have quantified the downstream GHG emissions that will result from burning the natural gas being carried by the pipelines, or explained in more detail why it could not be done. This case, and others like it, presents the challenge regarding the question as to what extent climate change should be incorporated into environmental reviews for energy sector projects.
Environmental Regulations
The Marcellus Shale Coalition’s challenge to Pennsylvania DEP’s unconventional gas environmental regulations of 2016 (Chapter 78a) is still pending before the Pennsylvania Commonwealth Court (MSC v. DEP and Environmental Quality Board, Dkt. No. 573 M.D. 2016). A hearing may be held this summer.
In Ohio, the Ohio Division of Oil & Gas Resources plans to develop draft rules on well spacing, and on oil and gas waste management facilities. The agency is evaluating whether to revise existing well spacing minimum acreage requirements for conventional wells to establish new setback distances for a new horizontal shale well from drilling unit boundaries and other horizontal wells.
For oil and gas waste management facilities, the agency is considering new rules for permitting and operating a facility that stores, recycles, treats and/or processes brine and other waste associated with oil and gas exploration and production operations, but that is not part of otherwise permitted well operations. These facilities currently are granted temporary authorization by an administrative order.
Local Government Regulation
The parameters of local government regulation of the oil and gas industry in Pennsylvania continue to be refined and left uncertain by the ongoing judicial fallout from the Pennsylvania Supreme Court’s 2013 decision in Robinson Township v. Commonwealth, 83 A.3d 901 (2013). In Robinson Township, the Pennsylvania Supreme Court invalidated two sections of Pennsylvania’s updated Oil & Gas Act (Act 13) that limited the authority of local governments to regulate oil and gas operations. The three-justice plurality decision was based on a reinvigorated interpretation and application of the ERA.
In September 2016, the Pennsylvania Supreme Court ruled that the portions of Act 13 giving the Public Utility Commission and the commonwealth court jurisdiction to review local zoning ordinances, withhold impact fee payments and award attorneys’ fees against municipalities were not “severable” from the previously invalidated sections of Act 13, and therefore also were invalid. The implications of Robinson Township in the municipal regulatory arena currently are being considered by the Pennsylvania Supreme Court. In Gorsline v. Board of Supervisors of Fairfield Township, 123 A.3d 1142 (Pa. Commw. Ct. 2015), petition for allowance of appeal granted, 139 A.3d 178 (Pa. 2016), the commonwealth court upheld a township’s conditional use approval for an oil and gas well in a residential agriculture (RA) district pursuant to a zoning ordinance’s “savings” or “catchall” provision. In doing so, the court found that the proposed well was similar to and compatible with other uses permitted in that district, and it rejected Robinson Township-ERA based arguments to the contrary. Although there is no appeal by right, the Supreme Court agreed to take the case. The court heard oral argument in March and a decision is still pending.
While the issues on appeal in Gorsline include case-specific questions concerning the ordinance language and applicable facts, of significance is the Supreme Court’s consideration of whether permitting a shale gas well in an RA district conflicts with Robinson Township. In particular, the question posed is whether natural gas development is an industrial activity that only can be permitted in industrial zoning districts, and therefore, is per se incompatible with agricultural and residential activities.
Although the court’s decision in Robinson Township was viewed as a victory for those advocating local control of oil and gas operations, industry opponents quickly sought to use that plurality decision as a sword to attack the validity of local ordinances permitting industry activity. They argue that these local ordinances violate the ERA because they do not regulate oil and gas development stringently enough, that ordinances cannot permit oil and gas uses in agricultural or residential districts, and that municipalities must engage in extensive environmental assessments when enacting regulations.
These Robinson Township arguments are being supplemented with references to the Supreme Court’s previously discussed 2017 decision in PEDF. To date, zoning hearing boards in a number of municipalities consistently have rejected these types of challenges, as have several county common pleas courts. In June 2017, the commonwealth court, in an unpublished opinion, affirmed the validity of one of the challenged ordinances in Delaware Riverkeeper v. Middlesex Township Zoning Hearing Board, 172 A.3d 142 (Pa. Commw. Ct. 2017). The Supreme Court ordered that its consideration of the objectors’ appeal be placed on hold pending its decision in Gorsline.
A case raising similar issues was argued before a three-judge panel of the commonwealth court in November 2016. After more than a year of inactivity, the commonwealth court in January 2018 ordered briefing and oral argument before the full court, directing the parties to address the implication of the PEDF decision (Frederick v. Allegheny Twp. Zoning H’rg Bd., No. 2295 CD 2015 [Pa. Commw. Ct. Jan. 3, 2018]).
Pipeline Safety Regulations
Having recently filled the two most important political appointments at the U.S. Department of Transportation’s Pipeline & Hazardous Materials Safety Administration, the Trump administration appears ready to take further action on two rule-making proceedings that could reshape the nation’s federal safety standards for hazardous liquid and natural gas pipelines.
On Oct. 30, Howard R. Elliott officially was sworn in as PHMSA’s administrator. Elliot brings more than four decades of experience in the freight rail industry to his new position, including expertise in the areas of hazardous material safety and security.
A few months earlier, on Aug. 7, Drue Pearce became PHMSA’s deputy administrator. Pearce previously served as an official in the George W. Bush administration and as a state legislator in Alaska. As the core of the agency’s new leadership team, Elliot and Pearce will play an important part in deciding the fate of a significant gas pipeline safety rule-making proceeding that PHMSA initiated during the previous administration.
In April 2016, PHMSA issued a notice of proposed rulemaking (NPRM) proposing extensive changes to the safety standards and reporting requirements for gas transmission and gathering lines. To address certain mandates in the 2011 reauthorization of the Pipeline Safety Act and related National Transportation Safety Board safety recommendations, PHMSA proposed new requirements, including:
• Verifying the maximum allowable operating pressure and documenting the materials in onshore steel gas transmission lines;
• New requirements for conducting integrity assessments of certain transmission lines in moderate consequence areas; and
• New corrosion control, pipeline repair and recordkeeping requirements, as well as changes to the integrity management requirements for gas transmission lines.
In addition to the proposals for gas transmission lines, PHMSA proposed significant changes to the regulations for onshore gas gathering lines, primarily to address the growth of new pipeline infrastructure in the nation’s shale plays. The proposed changes included new definitions for determining what qualifies as an onshore gas gathering line, new safety standards for regulated onshore gas gathering lines (which would apply to certain historically exempt onshore gas gathering lines in rural locations), and new reporting requirements for all gas gathering lines, whether regulated or not.
The pipeline industry responded by expressing significant concerns with many of the proposals in the NPRM. For example, the American Petroleum Institute submitted an economic analysis showing that PHMSA made numerous errors in developing the preliminary regulatory impact analysis for the NPRM.
API’s economic analysis also showed that PHMSA overestimated the benefits of the proposed rules by $2.9 billion$ 3.1 billion, and underestimated the potential costs by $32.8 billion. Despite the pipeline industry’s concerns, PHMSA held an initial meeting of the Gas Pipeline Advisory Committee (GPAC), the federal advisory committee that reviews its gas pipeline rule-making proposals, to begin considering the NPRM’s proposals in January 2017. PHMSA held two subsequent GPAC meetings in June and December 2017 and has scheduled a series of additional meeting for March and June 2018.
According to the Department of Transportation’s latest significant rule-making report, PHMSA expects to issue a final rule in August 2018. That schedule assumes PHMSA will present the final rule to the secretary’s office for consideration in March, a development that seems highly unlikely given the current pace of the GPAC’s review of the NPRM.
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PA Business Central
Family leave, sexual harassment, sexual orientation discrimination, overtime salary threshold and duties tests, employer health care insurance and related tax reporting requirements, mandatory drug testing, executive compensation, disability benefits claims procedure, contraceptive coverage, legal marijuana use, the proper classification of workers as independent contractors or employees, salaried or hourly, paid or unpaid interns: all are among the labor and employment issues that employers have long been grappling with.
Discrimination based on sexual orientation and gender identity
The latest change in employment law came on March 7 when The Sixth Circuit Court of Appeals in Cincinnati, Ohio, which covers Kentucky, Michigan, Ohio and Tennessee, held that discrimination against transgender/LBGTQ employees is discrimination based on sex, and therefore, it violates Title VII of the Civil Rights Act of 1964. The court held the opinion in the case EEOC v. R.G. & G.R. Harris Funeral Homes, Inc. of Detroit, Michigan.
When the plaintiff, Aimee Stephens, began working as a funeral director, he presented himself as a male and was named Anthony Stephens. Stephens was fired after she informed the funeral home that she would no longer be presenting as a male but would transition and dress as a female. The funeral home argued that Stephens’ continued employment would negatively impact its business clients, and the change in sexual orientation violated the Christian values of the funeral home’s owner. The three-judge panel concluded that the funeral home could not use the Religious Freedom Restoration Act to justify such discrimination, and decided in favor of Stephens.
Two weeks earlier, in a 10-3 decision, the Second Circuit Court of Appeals in NYC, whose territory covers Connecticut, New York and Vermont, ruled that Title VII of the Civil Rights Act of 1964 covered sexual orientation discrimination. In its case, Zarde v. Altitude Express, the plaintiff sued his former employer, Altitude Express, a skydiving business, alleging that he was fired based on his sexual orientation. The trial court dismissed Zarde’s Title VII claim, finding that it was not covered by the Act. Zarde appealed to the 2nd Circuit Court of Appeals, and after hearing the plaintiff’s case, the court issued an opinion in favor of the plaintiff.
The court provided three chief reasons why Title VII protects employees from discrimination based upon sexual orientation:
(1) The court found that “sexual orientation discrimination is motivated, at least in part, by sex and is thus a subset of sex discrimination” – meaning, a person’s sexual orientation can’t be defined without identifying their sex or gender.
(2) The Supreme Court had already ruled that Title VII bars employers from taking adverse actions against employees based upon their failure or refusal to conform to “gender norms.” The judges’ opinion noted that “homosexuality represents the ultimate case of failure to conform to gender stereotypes.” Consequently, discrimination against homosexual employees based on their sexual orientation amounts to “sex stereotyping,” a practice prohibited by Title VII.
(3) The courts have routinely held that “associational discrimination” is an illegal practice prohibited under Title VII. Consequently, that same prohibition should apply to discrimination against individuals based upon their association with partners of the same sex.
“The second and sixth circuits were only two federal courts of appeal out of 13 to hold the opinion that Title VII includes prohibition against sexual orientation discrimination there are other circuit courts that haven’t addressed the issue yet, and some that are sticking to the old standard, that Title VII does not include discrimination of the basis of sexual orientation,” said Stephen Antonelli, shareholder in the Employment and Labor Services Group and the Litigation Services Group of Babst Calland, headquartered in Pittsburgh.
“So, it’s certainly an issue that’s going to continue to be litigated in the courts, but while it’s being sorted out, many employers have already come out and said that they are not going to discriminate on the basis of sexual orientation — not every employer has done that, but many have taken the step and are trying to get out ahead of the law.”
Family and Medical Leave Act
Another pending employment law issue is the set of changes the Trump Administration plans to make to the Family and Medical Leave Act, which currently provides certain employees with up to 12 weeks of unpaid, job- protected leave per year and requires their group health benefits be maintained during the leave. FMLA was enacted to help employees balance their work and family responsibilities by letting them take “reasonable unpaid leave” for family and medical reasons. It also addressed concerns of employers about losing work days, and it promoted equal employment opportunity for men and women.
FMLA applies to all public agencies, public and private elementary and secondary schools and companies with 50 or more employees. These employers must provide eligible employees with up to 12 weeks of unpaid leave each year for any of the following reasons:
• for the birth and care of the newborn child of an employee
• for placement with the employee of a child for adoption or foster care
• to care for an immediate family member — spouse, child or parent — with a serious health condition
• to take medical leave when the employee is unable to work because of a serious health condition.
The U.S. is the only industrialized country that does not guarantee workers paid family leave. During his presidential campaign, Donald Trump became the first Republican ever to propose a paid family leave plan: six weeks of guaranteed paid maternity leave for birth mothers.
“We can provide six weeks of paid maternity leave to any mother with a newborn child whose employer does not provide the benefit,” said Trump at a campaign rally in Aston, Pennsylvania.
The plan, which was drafted by the president’s daughter, Ivanka, excluded fathers and adoptive parents, which some criticized as being unfair to working women. During his first State of the Union address in January, President Trump again called for a policy of paid family leave, which was met with loud applause and a standing ovation from many in attendance, including Vice President Mike Pence and House Speaker Paul Ryan.
The 2018 federal budget proposes an increase in mandatory spending of $19 billion during the next decade to establish a paid family leave program. If approved by Congress, all new parents, including those who adopt, will receive six weeks of paid family leave.
“Certainly, there are some employers who already provide their employees with paid leave, but currently they are not required to do so in the FMLA, and it doesn’t matter if it’s a new mother or a new father who wants to take an unpaid leave of absence after the birth of a child or a recent adoption,” said Antonelli.
“Employers who pay for such leaves do so as a benefit to attract good employees.”
Pre-employment Drug Testing
An average of 13 people died from drug overdoses each day in Pennsylvania in 2016. The opioid crisis has caused more Pennsylvania employers to drug screen job applicants. Out of every 100 Pennsylvania manufacturing job applicants, 32 either fail or refuse to take a drug test. A federal study estimated that prescription opioid abuse cost the economy $78.5 billion in 2013, but that figure does not include the broader impact on businesses from factors such as loss of talent, increased sick days and lost productivity.
“Some employers ask for a post-offer medical exam, and the clients I’ve been working with who require this do it for safety sensitive positions, and so there’s always been an emphasis on safety,” said Antonelli.
National Small Business Compliance Pulse Survey
To better understand the concerns small businesses have over workplace issues, the National Small Business Compliance Pulse Survey conducted phone interviews with 300 small business employers across the U.S. The participants were chiefly those responsible for employee recordkeeping and HR tasks in workplaces with 5-100 employees. Among the key findings, the study reported that nearly 74% of small businesses felt that federal, state and local employment laws were becoming increasingly complex. When looking only at the responses from business owners and CEOs, that number jumped to 86%.
Businesses owners have been turning to employment law attorneys to navigate the changing currents of employment law, to understand it and ensure that their companies come into compliance with the law.
“At least once a year, or when there’s a major shift in employment law, employers should take a fresh look at their policies and procedures and their handbook and update them accordingly as the law changes,” said Antonelli.
“Realistically, employee handbooks can’t always cover every situation or answer every question about an employer’s policies, so whenever employers are initially drafting their handbook or revising it, they should be sure to add a provision to the handbook, reserving the right to add or change or cancel the policies at any time.
“They should also maintain a copy of the handbook within each of their offices, and keep a copy on the internet so employees can also review it online.”
For the full article, click here.
Pipeline & Gas Journal
(by Keith Coyle)
Having recently filled the two most important political appointments at the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA), the Trump administration appears ready to take further action on two rulemaking proceedings that could reshape the nation’s federal safety standards for hazardous liquid and natural gas pipelines.
Howard R. Elliott was recently sworn in as PHMSA’s administrator. Elliot brings more than four decades of experience in the freight rail industry to his new leadership position, including expertise in the areas of hazardous material safety and security.
He previously received the Association of American Railroads (AAR) Holden-Proefrock Award for lifetime achievement for hazardous materials safety, served on AAR’s Risk Management Working Committee and Security Committee, and is a member of the American Society of Industrial Security and the FBI-DHS Domestic Security Alliance Council. Administrator Elliot’s background and experience suggests that he is well-positioned to lead PHMSA, the federal agency responsible for ensuring the safe transportation of energy products by truck, rail, vessel or pipeline.
The same can be said of Elliot’s new deputy, Drue Pearce, who became PHMSA’s newly appointed deputy administrator. Pearce previously served as the federal coordinator for Alaskan Natural Gas Transportation Projects and as an official in the Department of Interior during the George W. Bush administration.
She also served as a member of PHMSA’s Technical Pipeline Safety Standards Committee, the federal advisory committee that reviews PHMSA’s proposed pipeline safety regulations, and as a member of the Alaska House of Representatives and Alaska State Senate. Pearce’s prior public service and familiarity with the pipeline industry leaves her well-prepared to assume a significant role at PHMSA, particularly on pipeline safety matters.
As the core of the agency’s new leadership team, Elliot and Pearce will play an important part in deciding the fate of two important pipeline safety rulemaking proceedings. The Obama administration came close to finalizing the first proceeding for hazardous liquid pipelines in the days before President Trump’s inauguration.
The second proceeding for gas transmission and gathering lines is in an earlier stage of development, but could have a far more dramatic long-term effect on the industry. Several new executive orders issued by Trump relating to regulatory reform and domestic energy resources will affect the final outcome in both of these proceedings.
What Did PHMSA Propose?
In October 2015, PHMSA issued a notice of proposed rulemaking (NPRM) that offered significant changes to its hazardous liquid pipeline safety regulations.
The proposed changes included new reporting requirements for operators of gravity and unregulated rural gathering lines, new inspection requirements for pipelines affected by extreme weather, natural disasters, and other similar events.
Also addressed, new periodic assessment requirements for pipelines not covered by PHMSA’s integrity management (IM) program regulations, new leak detection requirements for non-IM pipelines, new pipeline repair criteria and a new mandate requiring operators to make pipelines in high-consequence areas (HCAs) capable of accommodating inline inspection tools within 20 years, unless the pipeline’s construction would not permit that accommodation.
Industry commenters expressed significant concerns with many of the proposed changes, including the American Petroleum Institute (API), which submitted an economic analysis indicating that the total annualized cost of the proposals would exceed $600 million (or more than 25 times the $22.4 million estimate that PHMSA provided in its preliminary regulatory impact analysis).
Shortly after Trump’s inauguration, the White House issued a memo stating that any final rules awaiting OFR publication should be withdrawn and returned to the originating agency for further review.
According to the Department of Transportation’s (DOT’s) latest significant rulemaking report, PHMSA expects to issue the Trump administration’s new version of final rule late in April 2018.
In April 2016, PHMSA issued an NPRM proposing extensive changes to the safety standards and reporting requirements for gas transmission and gathering lines.
To address certain mandates in the 2011 reauthorization of the Pipeline Safety Act and related National Transportation Safety Board safety recommendations, PHMSA proposed new requirements for verifying the maximum allowable operating pressure and documenting the materials in onshore steel gas transmission lines.
PHMSA also proposed new requirements for conducting integrity assessments of certain transmission lines in moderate consequence areas; new corrosion control, pipeline repair, and recordkeeping requirements; and changes to the IM requirements for gas transmission lines. In addition to the proposals for gas transmission lines, PHMSA proposed significant changes to the regulations for onshore gas gathering lines, primarily to address the growth of new pipeline infrastructure in the nation’s shale plays.
The proposed changes included new definitions for determining what qualifies as an onshore gas gathering line, new safety standards for regulated onshore gas gathering lines.
Industry expressed significant concerns with the proposals in the NPRM, which would dramatically alter PHMSA’s regulations for gas transmission and gathering lines. API also submitted an economic analysis showing that PHMSA made numerous errors in developing the preliminary regulatory impact analysis for the NPRM.
In January 2017, PHMSA held an initial meeting of the Gas Pipeline Advisory Committee (GPAC), the federal advisory committee that reviews its gas pipeline rulemaking proposals, to begin considering the NPRM’s proposals. PHMSA has held two subsequent GPAC meetings, in June 2017 and December 2017, since that time.
PHMSA has indicated that additional GPAC meetings will be held in 2018 to continue reviewing the NPRM. According to the DOT’s latest significant rulemaking report, PHMSA expects to issue a final rule in August 2018. That schedule assumes that PHMSA will present the final rule to the Secretary’s office for consideration in March 2018, which seems unlikely given the current pace of the GPAC’s review of the NPRM.
For the full article, click here.
The Legal Intelligencer
(by John McCreary)
The Tax Cuts and Jobs Act of 2017 inserted a new subsection (q) into Section 162 of the Internal Revenue Code which denies deductions for payments made in settlements of sexual harassment or sexual abuse cases, and “related” attorney fees, when those settlements are subject to a confidentiality agreement: “(q) Payments related to sexual harassment and sexual abuse. No deduction shall be allowed under this chapter for:
- Any settlement or payment related to sexual harassment or sexual abuse if such a settlement or payment is subject to a nondisclosure agreement, or
- Attorney fees related to such a settlement or payment.”
This provision was added by amendment in the Senate and accepted by the House in the final enactment.
The Conference Committee Report (the report) on the amendment does not disclose the rationale for the change, but it is safe to infer that it was inspired by the sordid revelations about widespread sexual harassment that were making headlines when it was passed on Dec. 20, 2017. See, e.g., https://www.ajc.com/news/world/from-weinstein-lauer-timeline-2017-sexual-harassment-scandals/qBKJmUSZRJqgOzeB9yN2JK/ (published on Dec. 19, 2017). The report contains no interpretive guidance on the meaning of “related to” as used in the statute, nor does it define what is meant by a “nondisclosure agreement.” The report simply notes that while Section 162 generally allows for the deduction of “ordinary and necessary” business expenses, various subsections disallow deductions for certain payments, such as portions of damages awarded under antitrust laws, illegal bribes or kickbacks, and criminal fines. In reaction to the headlines Congress has concluded that confidential payments resolving sexual harassment claims can no longer be considered “ordinary and necessary.”
As with many efforts by Congress to provide quick fixes to perceived problems, the unintended consequences of this quick fix will likely create more uncertainty and controversy than will be resolved. A moment’s reflection about the practical effects of Section 162(q) reveals a number of concerns that Congress does not appear to have contemplated.
When is a settlement payment or legal expense “related to” a claim of sexual harassment? The term “related to” is extremely broad. The U.S. Supreme Court has held that “in the normal sense of the phrase” it means “has a connection with or reference to” another thing, as in Shaw v. Delta Airlines, 463 U.S. 85, 96-97 (1983) (construing the term “relates to” as used in ERISA’s pre-emption provision, 29 U.S.C. Section 1144(a)). Consider in the light of the Shaw court’s definition, the problems arising from settlement of a case involving claims of harassment as well as breach of contract and Equal Pay Act violations. It is common when resolving employment cases to allocate settlement payments to different claims to minimize the tax consequences to both parties. In the hypothetical case it would be relatively easy to craft a settlement agreement allocating all payments to claims other than the harassment claim, thereby eliminating “reference to” it, but the payments would still arguably have a “connection to” the claim of harassment since that claim was part of the original suit. Do payments made to resolve other claims “relate to” the harassment claim that was part of the original suit? If they do, can any of those payments be deducted? What portion of the employer’s legal fees incurred in defense of the action will it be able to deduct? Will the employer’s attorneys be required to record the time spent working on each discrete issue? It would appear that such a practice is certainly advisable—it may even become a requirement imposed by the employer’s auditors. Moreover, and absurdly, the statute does not distinguish between legal fees incurred by employers and plaintiffs; a plaintiff who agrees to a confidentiality agreement is seemingly also unable to deduct his or her fees. IRC Section 62(a)(20) allows a deduction for attorney fees and court costs paid by an individual taxpayer in connection with any action involving a claim of unlawful discrimination. Section 162(q) disallows deductions “under this chapter.” Both Section 62 and Section 162 appear in Chapter 1 of the Internal Revenue Code. What factors will the Internal Revenue Service (IRS) use to evaluate whether a payment is “related to” a harassment claim? Will the IRS adopt the Supreme Court’s expansive definition, which after all was determined by the Court to be “the normal sense of the phrase”? There is no guidance for any of these issues.
Second, confidential settlements have long been used by employment lawyers on both sides to resolve litigation privately, thereby avoiding the publicity often attendant to salacious claims. It is not just employers concerned about public reputation who benefit from such privacy. With the notable exception of the controversies that stoke the headlines, privacy and confidentiality are typically valued by the parties to employment litigation, especially in sexual harassment claims, which frequently create emotional impacts on the families of victim and perpetrator alike. The victims of sexual harassment (and their families) in many cases want to put their experiences behind them. A confidential resolution permits them to move on with their lives and careers, either with the settling employer or elsewhere. Elimination of confidentiality therefore potentially exposes the employer to adverse publicity (which presumably was at least part of the motivation for including this provision in the tax code), but at the expense of subjecting the plaintiff and the plaintiff’s family to unwanted publicity about his or her claims.
Additionally, although the disallowance of deductions for confidential settlements is presumably targeted at “guilty” employers, not all employers who settle these types of claims are guilty. Cases settle for reasons other than the defendant’s actual culpability, such as the comparative cost of mounting a successful defense as opposed to resolving the case, or to avoid the disruptions to routine business caused by litigation. Marginal claims are often settled because it is cheaper and more convenient than litigating to conclusion. Confidentiality and the deductibility of the expense are factors that makes settlement of the marginal claim more likely. Removing these two advantages to the employer may mean that the marginal case gets litigated since the costs of resolution are now higher.
Another issue is presented by the ambiguity of the term “nondisclosure agreement.” What is required to be disclosed, or at least not kept confidential, in order to retain the deduction? Is it the details of the harassment claim itself, or the amount of settlement, or both that must be exposed? Can the deduction be preserved if the parties agree that every settlement provision except those that “relate to” the harassment claim will be confidential? Will a limited nondisclosure agreement, such as one that precludes the plaintiff from telling his or her co-workers but which permits plaintiffs counsel to disclose the fact of settlement (or vice versa), run afoul of Section 162(q)? Again, we are left to speculate and wait for the IRS and Treasury Department to weigh in with their guidance.
A final observation: the amendment to the Tax Code addresses the wrong issue. The problem that required remedy was not the deductibility of settlements for one type of discrimination claim, it was the complete failure of management oversight at the various organizations caught up in the harassment scandals of 2017. Section 162(q) will do little to improve the moral compass of those who lead these organizations. Section 162(q) also paints with too broad of a brush. The headlines to which Congress was responding were generated by conduct occurring at enterprises where the deductibility of a particular settlement will not materially impact tax liability. The same is not true for the vast majority of employers impacted by the change, who also are not likely to continue employing serial sexual harassers. For these employers, resolution of harassment claims just got more expensive.
*Reprinted with permission from the 3/22/18 issue of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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Trends
(by Gary Steinbauer)
On February 1, 2018, the U.S. Court of Appeals for the Ninth Circuit Court in Hawai’i Wildlife Fund v. County of Maui, No. 15-17447 (9th Cir.), held that the Clean Water Act (CWA or Act) regulates point source discharges that travel indirectly through groundwater to a jurisdictional surface water—that is, a navigable “water of the United States.” Maui is the first federal appellate court decision in a recent wave of citizen suits by environmental groups relying on the so-called “groundwater conduit” theory of CWA liability. The Fourth Circuit and Sixth Circuit are poised to weigh in next and, in the wake of the Maui decision, the U.S. Environmental Protection Agency (EPA) opened a 90-day public comment period on whether it should clarify or revise its own past statements on the theory and whether it is consistent with the text, structure, and purposes of the CWA. 83 Fed. Reg. 7126 (Feb. 20, 2018).
Ninth Circuit requires National Pollutant Discharge Elimination System permit for underground injection of wastewater
In Maui, environmental groups sued the county alleging that it violated the CWA when treated sanitary effluent it injected into four permitted underground injection wells traveled some distance through groundwater to the Pacific Ocean. The results of a tracer dye test performed by EPA, as well as other federal and state agencies, showed that 84 days after the dye was injected into two of the county’s four wells, the dye emerged from submarine seeps along the ocean floor a half-mile away. The county’s treated sanitary wastewater reportedly represented one out of every seven gallons of groundwater that entered the ocean near the wastewater treatment plant.
The Ninth Circuit affirmed the district court’s decision finding the county liable for an unauthorized discharge under the CWA. Although it disagreed with the district court and held that groundwater is neither a point source or a “water of the United States,” the Ninth Circuit found the county liable under the CWA because (1) it discharged pollutants from a point source, (2) the pollutants “are fairly traceable from the point source to a navigable water such that the discharge is the functional equivalent of a discharge into the navigable water,” and (3) more than a de minimis amount of pollutants reached the navigable water. The court held that the injection wells were point sources under the CWA. See 33 U.S.C. § 1362(12) (defining “point source” and including a “well” as an example).
Relying heavily on the results of the dye tracer test and the county’s concessions, the Ninth Circuit concluded that the treated sanitary wastewater reaching the Pacific Ocean was “fairly traceable” to the county’s injection wells. The fact that the treated wastewater reached the Pacific Ocean indirectly after traveling first through groundwater did not change the Ninth Circuit’s view. For support, the Ninth Circuit referred to statements by Justice Scalia in his plurality opinion in Rapanos v. United States, 547 U.S. 715 (2006). In Rapanos, Justice Scalia recognized that the CWA does not speak of prohibiting the “‘addition of any pollutant directly to navigable waters from any point source,’ but rather the ‘addition of any pollutant to navigable waters.’” Id. at 743 (emphasis in the original). The court refused to limit the CWA’s reach to direct discharges from a point source to jurisdictional surface waters. But the Ninth Circuit left for “another day the task of determining when, if ever, the connection between a point source and a navigable water is too tenuous to support liability under the CWA.” Any petitions for en banc review in the case are due March 19, 2018.
Will the Fourth and Sixth Circuits chart a different course?
On March 21, 2018, the Fourth Circuit is scheduled to hear the oral argument in Sierra Club v. Virginia Electric Power Company (VEPCO), a case involving alleged indirect discharges of arsenic from closed coal ash landfills through groundwater to a nearby river and creek. Similarly, an appeal of another case involving a closed coal ash landfill, Tennessee Clean Water Network v. Tennessee Valley Authority (TVA), is currently being briefed in the Sixth Circuit. The district courts in VEPCO and TVA both held that the coal ash landfills were points sources and unpermitted discharges of contaminated leachate traveling through groundwater to nearby surface waters violated the CWA.
Unlike the dye tracer test in Maui, the Fourth and Sixth Circuits’ appeals involve circumstantial evidence of a hydrologic connection. The district courts in VEPCO and TVA relied on samples taken from groundwater and surface water, hydrologic principles, and statements in reports prepared by the defendants to establish a direct hydrologic connection between the landfills and jurisdictional surface waters. The TVA case involved an epic battle of the experts, where each party presented five expert witnesses to testify on complex geologic and hydrologic concepts.
In Upstate Forever v. Kinder Morgan Energy Partners, L.P., currently pending before the Fourth Circuit, the district court refused to recognize the “groundwater conduit” theory. Upstate Forever involved a petroleum spill resulting from the rupture of an underground pipeline. The plaintiff’s complaint alleged that the gasoline released from the pipeline was contaminating groundwater and eventually migrating to jurisdictional surface waters. The Upstate Forever district court was persuaded by other federal district court and past federal appellate court decisions, holding that the CWA does not apply to discharges to groundwater, even if that groundwater is hydrologically connected to surface water. The Fourth Circuit heard oral argument in the Upstate Forever appeal in December 2017; a decision is expected this spring.
The appeals in Upstate Forever, VEPCO, and TVA have drawn interest from states and interest groups, resulting in the filing of numerous amicus briefs. More CWA citizen suits involving closed coal ash landfills could also be on the horizon. On January 31, 2018, an environmental group sent a pre-filing notice letter to a utility company in Illinois alleging point source discharges through hydrologically connected groundwater. Environmental groups have relied on the “groundwater conduit” theory to bring lawsuits against coal mining companies for unpermitted discharges from valley fill underdrains.
EPA looks to fill the void
Twenty days after the Ninth Circuit’s Maui decision, EPA published a notice in the Federal Register seeking comments on its previous statements regarding whether a point source discharge via groundwater that has a direct hydrologic connection to jurisdictional surface water is regulated by the CWA. At least one of EPA’s previous statements was in an amicus brief it filed in the Maui appeal, where it urged the Ninth Circuit to hold that discharges of pollutants to jurisdictional surface waters through groundwater must be covered by a permit to avoid liability under the CWA. The notice specifically requests input on whether the “groundwater conduit” theory is legally sound, whether such discharges would be better addressed under other federal or state authorities or permit programs, and whether EPA should use informal means or formal rulemaking to clarify or revise its previous statements.
The path ahead
The Ninth Circuit’s holding in Maui could significantly expand the National Pollutant Discharge Elimination System permit program and increase the risk of citizen suits under the CWA. With Fourth and Sixth Circuit decisions on the horizon, EPA weighing its options on how to shape the dialogue, and environmental groups continuing to rely on the theory, it does not appear that the controversy and litigation over the “groundwater conduit” theory will soon dissipate.
*Published in Trends March/April 2018, Volume 49, Number 4, ©2018 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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The Voice
(by Alana E. Fortna)
Contaminated water supplies are causing quite the stir and creating headlines in local newspapers across the country. The increased attention and scrutiny is due to the detection of unregulated substances that may pose a risk to human health or the environment, referred to as “emerging contaminants.” An “emerging contaminant” is a chemical or material characterized by a perceived, potential, or real threat to human health or the environment, or by a lack of a published health standard.
Emerging contaminants do not have a federal maximum contaminant level for drinking water, surface water, or groundwater under the Safe Drinking Water Act (SDWA). Maximum contaminant levels are one of the factors considered by the United States Environmental Protection Agency (EPA) when evaluating the appropriate remedial action at a contaminated groundwater site. Unless a state has promulgated a standard to address the particular emerging contaminant, water purveyors, companies performing remediation work, and environmental consultants can find themselves in a state of uncertainty regarding compliance for remediation projects.
So how does the EPA address emerging contaminants? Currently, the EPA issues non-binding health advisories that are sometimes used as default cleanup levels when there are no binding standards (i.e., maximum contaminant levels). There are problems with this approach, such as a lack of collaboration with states and municipalities when prioritizing contaminants for health advisories, a lack of communication with water purveyors, and a lack of clarification regarding the difference between a health advisory and a maximum contaminant level. In addition to health advisories, emerging contaminants are often placed on the contaminant candidate list, which is a list of unregulated contaminants that mayrequire regulation under the SDWA. However, the presence of these contaminants in the environment may already be widespread, and the promulgation process can be lengthy, as the regulators try to determine the safe level of exposure for these contaminants. The uncertainties that loom over emerging contaminants will likely lead to an increase in litigation over groundwater and drinking water contamination from emerging contaminants.
Chemicals such as 1,4-dioxane, and perfluorinated compounds, such as perfluorooctanoic acid (PFOA), and perfluorooctane sulfonate (PFOS), are continuing to gain attention in the regulatory community. The first—1,4- dioxane—is a likely contaminant at many sites contaminated with certain chlorinated solvents, such as TCA, because of its widespread use as a stabilizer in degreasers. It leaches readily from soil to groundwater, migrates rapidly in groundwater, and is relatively resistant to biodegradation in the subsurface. Its high solubility complicates treatment, and conventional pump-and-treat remediation is not effective for 1,4-dioxane. For example, 1,4-dioxane will not be removed by pumping and treating groundwater using an air stripper system.
The compounds PFOA and PFOS are water and lipid resistant because of their chemical properties. Historically, PFOA and PFOS were used in the United States in carpets, leathers, textiles, upholstering, paper packaging, and coating additives as waterproofing or stain-resistant agents. They are stable in environmental media because they are resistant to environmental degradation processes, such as biodegradation and hydrolysis. Because of their persistence, they can be transported long distances in air or water. Similar to 1,4-dioxane, conventional treatment that targets particulate contaminants is not generally effective. Granular activated carbon (GAC) treatment can be effective depending on the design of the system and type of carbon used.
There is no maximum contaminant level for 1,4-dioxane, PFOA, or PFOS, but the EPA has issued health advisories for all three contaminants. The compounds PFOA and PFOS are extremely persistent in both the human body and the environment, so the EPA concluded that the lifetime health advisory is applicable both to short-term and chronic risk-assessment scenarios. The EPA’s position is that a maximum contaminant level is not necessary to determine a cleanup level, which creates uncertainty over what the cleanup standard will be for a groundwater remediation project. Some states are filling the void by promulgating water quality standards for these contaminants. On January 16, 2018, the New Jersey Department of Environmental Protection (NJDEP) enacted groundwater quality standards for 1,4-dioxane (0.4 ug/L), and perfluorononanoic acid (PFNA), another perfluorinated compound. In November 2017, the NJDEP issued an updated drinking water guidance value for PFOA and announced that it would accept the recommended health-based maximum contaminant level of 14 parts per trillion. Also in November 2017, California added PFOA and PFOS to its Proposition 65 list of substances, due to their expected reproductive toxicity. Governor Cuomo of New York appointed a 12-member Drinking Water Quality Council to discuss the risks posed by 1,4-dioxane, PFOA, and PFOS. Meetings took place in October and November of 2017, to discuss recommendations for state maximum contaminant levels for these contaminants in light of the EPA’s failure to adopt any federal levels.
In short, these contaminants are persistent in the environment, difficult to treat, and can cause health effects that are not fully understood. Treatment data is thin, so emerging contaminant remediation projects will likely require treatability studies and pilot studies. More and more stories about contaminated public water supplies are splashing across local newspapers around the country. This will lead to a lot more litigation from people who have been exposed to these chemicals, as well as litigation regarding the costs for remediating contaminated groundwater and installing expensive treatment systems. Emerging contaminants can also create issues on remediation projects that are already underway, or even those close to completion. The detection of 1,4-dioxane, PFOA, or PFOS at levels that exceed state guidance or new state standards can send private parties and their consultants back to the drawing board on an appropriate remedial action.
*Reprinted with permission from the February 21, 2018 issue of The Voice.
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The Legal Intelligencer
(by Krista-Ann M. Staley and Amie L. Courtney)
Whether you are a property owner interested in offering a room as a short-term rental, a resident opposed to short-term rentals in your neighborhood, or a municipal official hearing from concerned residents of either opinion, you should be aware that unclear zoning regulations can cause significant roadblocks for all sides of the debate.
Whether you are a property owner interested in offering a room as a short-term rental, a resident opposed to short-term rentals in your neighborhood, or a municipal official hearing from concerned residents of either opinion, you should be aware that unclear zoning regulations can cause significant roadblocks for all sides of the debate. The Pennsylvania Commonwealth Court has addressed these roadblocks in several cases, recently adding Reihner v. City of Scranton Zoning Hearing Board, No. 256 C.D. 2017 (Pa. Commw. Ct. 2017) to its growing line of cases involving the application of ambiguous zoning regulations to short-term residential rentals. The uptick in these cases reflects the increased popularity of the trend, expanded by online sites such as Air BnB, VRBO, and HomeAway that connect travelers with local residents or homeowners that want to rent rooms or residences for short-term stays.
Reihner, along with its predecessors, originated with a notice of violation issued in response to neighbor complaints about the use of a single-family home, or portion thereof, as a short-term rental property. Critically, in each of these cases, the municipality had not amended its zoning ordinance to address short-term rentals. Rather, each municipality relied on existing regulations and terms as the basis for enforcement. In each case, the Commonwealth Court determined that the treatment of the newly popular rental activity was ambiguous under the existing applicable zoning regulations, and that Section 603 of the Pennsylvania Municipalities Planning Code requires interpretation of ambiguous terms in a zoning ordinance to be in favor of the property owner, i.e. in a manner that allows the broadest use of the property. While the specific definitions and regulations at issue in each case are unique to each municipality’s ordinance, the court’s application of the rules of interpretation to address the evolving use is relevant throughout the state.
The Commonwealth Court first addressed a zoning notice of violation for a short-term rental in Marchenko v. Zoning Hearing Board of Pocono Township, 147 A.3d 947 (Pa. Commw. Ct. 2016). There, a property owner rented her primary residence in the R-1 Low Density Residential Zoning District on weekends; she resided at the property for 114 of the first 185 days she owned the property, and rented it out the remaining 71 days. The township’s notice of violation indicated that she was using the property for commercial purposes (a vacation rental) in violation of the zoning ordinance.
The owner appealed the notice of violation to the zoning hearing board, which found that the zoning ordinance neither referenced nor defined vacation rental. In fact, neither the definition for single-family dwelling nor that of any other term addressed short-term rentals of single-family homes. Therefore, the board apparently sought the closest match for the use in the zoning ordinance, deciding on “lodge.” The zoning ordinance used lodge as one of several examples of the undefined use “transient dwelling accommodation,” but did not define either term. Therefore, the zoning hearing board relied on a dictionary definition of lodge to determine it to be the appropriate use category for the short-term rental. The board then upheld the notice of violation because the zoning ordinance only permitted the umbrella “transient dwelling accommodation” use category in the RD recreational district, not the R-1 district where the subject property was located. The owner appealed to the trial court, which agreed with the board’s designation of the use as a lodge and upheld the board’s decision.
On appeal, the Commonwealth Court overturned the board’s decision, finding that the property owner’s short-term rental of her primary residence was consistent with the permitted “single-family dwelling” use. The zoning ordinance defined “single-family dwelling” as “a detached building designed for and occupied exclusively by one family.” The court found that one family (i.e., the property owner) exclusively occupied the residence most of the time, that the definition did not prohibit rental activity on the property, and that the use did not satisfy the dictionary definition of a lodge. The court noted that the board should have broadly construed single-family dwelling, rather than straining to classify the use as an undefined lodge.
The Commonwealth Court next addressed a zoning notice of violation for a short-term rental in Shvekh v. Zoning Hearing Board of Stroud Township, 154 A.3d 408 (Pa. Commw. Ct. 2017). In addition to addressing a different zoning ordinance with unique terms, this case deviated from the facts in Marchenko because here the property owners only occupied the subject property about one week per month. The notice of violation in this case indicated that the property owners were operating a “tourist home,” which was not permitted in the S-1 Special Recreational Zoning District where the subject property was located. The ordinance defined tourist home as “a dwelling in which at least one but no more than six rooms are offered for overnight accommodation for transient guests for compensation.”
The property owners appealed the notice to the zoning hearing board, which determined that the short-term rental was the equivalent of a tourist home and upheld the decision. The trial court affirmed and property owners appealed to the Commonwealth Court. The Commonwealth Court rejected the broad interpretation of tourist home, which the zoning officer indicated was a use where a property owner rents out less than an entire dwelling. As in Marchenko, the court found that the use of a residence for short-term rentals fell within the definition of “single-family dwelling,” albeit under a slightly different definition (namely, “a detached building, designed for or occupied exclusively by one family …”). Here the controlling factor was not that the owners used the property as their primary residence, because they did not, but that the property was “designed for use by one family.” Because the use fit the ordinance’s definition of single-family dwelling, and the ordinance did not prohibit owners of single-family dwellings from renting them out, the Commonwealth Court reversed the decision. The court again noted that the municipality could not effectively amend the zoning ordinance by shoe-horning short-term rentals into the tourist home category of uses.
Next, in Slice of Life v. Hamilton Township Zoning Hearing Board, 164 A.3d 633 (Pa. Commw. Ct. 2017), the Commonwealth Court considered a third short-term rental scenario, in which the cited property owner never resided at the subject property. Instead, a limited liability company whose sole member resided in Brooklyn, New York owned and operated the property. The township’s notice of violation identified the short-term rental use as a “hotel and/or other types of transient lodging, rental of single family residential dwelling for transient tenancies,” a use not permitted on the subject property.
The property owner appealed, arguing that the notice improperly established the “transient lodging” and “transient tenancies” uses, which the zoning ordinance did not define. After eight hearings, the zoning hearing board upheld the notice. The trial court affirmed the decision. On appeal, the Commonwealth Court noted the distinction between the owner’s lack of residence at the property in this case and the residency of the owners in Shvekh andMarchenko, concluding that this factor was not outcome-determinative. Instead, the court focused its analysis on the ordinance language, noting, as it had in the previous cases, that the board is bound by the ordinance as-written and cannot attempt to amend the ordinance by shoe-horning a new use into an existing defined term of the ordinance. Finding that the ordinance did not prohibit the cited rental, the court overturned the notice of violation.
The Commonwealth Court reviewed each of these cases in its recent Reihner decision. In Reihner, the city of Scranton issued a notice of violation against property owners who rented rooms in their home for a maximum of four nights at a time. The owners continued to live in their house during the rental periods. They did not provide any meals to their guests, but did have a kitchen available for guests to use. The city’s zoning officer determined that the property owners were operating a “bed and breakfast” in violation of the city’s zoning ordinance and issued a notice of violation. The city’s zoning ordinance defined a “bed and breakfast” as: “the use of a single family detached dwelling and/or accessory structure which includes the rental of overnight sleeping accommodations and bathroom access for a maximum of 10 temporary guests at any one time (except as otherwise provided for in this ordinance), and which does not provide any cooking facilities or provision of meals for guests other than breakfast. This use shall only include a use renting facilities for a maximum of 14 consecutive days to any person(s) and shall be restricted to transient visitors of the area.”
The zoning hearing board upheld the notice of violation on appeal, finding that the rental activity fit the definition of “bed and breakfast.” The trial court agreed, finding that the definition does not require that breakfast is served, but, rather, prohibited owners from serving other meals.
As in the previous cases, the Commonwealth Court overturned the notice of violation. The court recognized the property owners’ and city’s competing interpretations of the “bed and breakfast” definition. Because it would actually limit the use of the subject property, the court ultimately rejected the city’s interpretation that a rental could be a “bed and breakfast” even if breakfast was not served, as long as no other meal was served. The court identified the property owner’s interpretation, which required a “bed and breakfast” to serve breakfast without providing guests access to cooking facilities to prepare breakfast, as more reasonable. The interpretation in favor of the broadest use of property compelled the court to find the cited short-term rental did not qualify as a “bed and breakfast” under the city’s zoning ordinance. The court did not determine whether the use was a permitted single-family detached dwelling because the only question before it was whether the use was a bed and breakfast.
As demonstrated by these cases, complications can arise when municipalities do not amend their zoning ordinances to reflect new and evolving uses. One potential result is language that pre-dated a new or newly popular use becoming ambiguous when applied to that use. The resulting ambiguities can create confusion within municipal governments and among their residents, risking financial loss and delay by all parties. Accordingly, property owners and municipalities alike should seek clear zoning parameters that balance owners’ use of their property and the health, safety, and welfare of others. In fact, the Commonwealth Court specifically noted in Reihner that a municipality has the legislative authority to fill gaps in ordinances to address shot-term rentals. Until a municipality takes this action, the Commonwealth Court has made it clear that a municipality cannot cure a gap by “shoe-horning” the new use into existing use categories.
*Reprinted with permission from The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The PIOGA Press
(by Lisa M. Bruderly and Gary E. Steinbauer)
On February 6, the U.S. Environmental Protection Agency (EPA) and Army Corps of Engineers published a final rule delaying implementation of the Obama administration’s 2015 Clean Water Rule (CWR)— a landmark rule revising the definition of “waters of the United States” (WOTUS) that arguably expanded the scope of the federal government’s authority under several regulatory programs, including those associated with wastewater discharges and dredge/fill activities under the Clean Water Act (CWA).
The February 6 final rule delays implementation of the CWR until February 6, 2020. 83 Fed. Reg. 5200. The final rule delaying implementation of the CWR is a significant step in the Trump administration’s efforts to reconsider the Obama administration’s revised definition of WOTUS. Meanwhile, the pre-2015 WOTUS regulatory regime, which has been criticized by many as inefficient and inconsistent, remains in place.
Supreme Court decision forced agencies to quickly delay applicability of CWR
The agencies’ rule delaying implementation of the CWR was finalized less than two weeks after the U.S. Supreme Court’s decision in National Association of Manufacturers v. Department of Defense, et al., No. 16-299 (Jan. 22, 2018) (NAM), which started a countdown for the expiration of a nationwide judicial stay of the CWR. In NAM, the Supreme Court held that federal district courts, as opposed to federal appellate courts, were the appropriate forums for the legal challenges to the CWR. Once the Supreme Court’s decision takes effect, the nationwide stay of the CWR, imposed by the U.S. Court of Appeals for the Sixth Circuit in October 2015, will be lifted and more than a dozen federal district lawsuits challenging the CWR will be revived.
After it was finalized in June 2015, more than 100 parties, including industry groups and 31 states, filed lawsuits challenging the CWR in both federal district courts and federal appellate courts across the country. Many of the challengers argued that the federal district courts had jurisdiction to hear the lawsuits, while the agencies and other parties took the position that lawsuits over the CWR belonged in federal appellate court. These legal challenges temporarily proceeded on separate tracks, leading one federal district court judge in North Dakota to stay the CWR in 13 states west of the Mississippi River. North Dakota v. U.S. EPA, No. 3:15-cv-59 (D.N.D. August 27, 2015) (staying the CWR in Alaska, Arizona, Arkansas, Colorado, Idaho, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota and Wyoming). The Sixth Circuit issued its nationwide stay of the CWR on October 9, 2015, and subsequently issued a split decision holding that it had exclusive jurisdiction to hear the lawsuits challenging the CWR. In re: U.S. Dept. of Defense and U.S. EPA Final Rule: Clean Water Rule, 817 F.3d 261 (6th Cir. 2016).
In NAM, the Supreme Court reversed the Sixth Circuit’s decision and found that specific language of the CWA required the legal challenges to the CWR to be heard in federal district courts. The Supreme Court’s decision turned primarily on its interpretation of specific language in the CWA governing judicial review of certain EPA actions. 33 U.S.C. § 1369(b)(1). Rejecting the federal government’s proposed interpretations of the CWA, the court held that the CWR did not fall within the eight categories of EPA actions that can be challenged directly in federal courts of appeal. Although the Supreme Court acknowledged that its decision could lead to conflicting outcomes in the federal district courts, it held that the applicable statutory language was clear, and the justices were unpersuaded by the federal government’s judicial efficiency and national uniformity arguments.
Rule delaying implementation of the CWR gives agencies time for rollback plan
The agencies justified the rule delaying implementation of the CWR based on concerns that, without a delay, the federal district court challenges to the CWR would likely lead to inconsistencies, uncertainty, and confusion among regulated parties and the public. According to the agencies, the rule delaying implementation of the CWR “establishes a framework for an interim period that avoids these inconsistencies, uncertainty, and confusion,” while the agencies reevaluate the CWR as required by a February 28, 2017, executive order issued by President Donald Trump. President Trump’s executive order required the agencies to withdraw the CWR and rescind or revise the CWR’s definition of WOTUS as appropriate and consistent with the law.
The agencies are engaged in a two-step process to review and potentially revise the CWR. Step One of this process would rescind the CWR and replace it with the previous regulatory text. On July 27, 2017, the agencies issued a proposed rule that would complete Step One. The public comment period for the Step One rule closed on September 27, 2017, resulting in what the agencies described as a “large volume” of comments. The agencies currently are reviewing these comments and have not yet finalized the Step One rule. In addition, the agencies have indicated that Step Two of the process will include a proposed rule addressing, and requesting public comment on, potential substantive changes to the definition of WOTUS. The agencies have not yet proposed a rule that would start Step Two of the review process.
Within hours of its issurance, environmental groups and a multistate coalition filed lawsuits asking federal district courts in New York and South Carolina to vacate the agencies’ final rule delaying implementation of the CWR. The specific language and justification for the final rule delaying implementation of the CWR has sparked debate among legal scholars on whether it will hold up in court. The lawsuits challenging the delay in implementing the CWR almost certainly will be followed by litigation by environmental groups, states, and potentially other parties over the rules issued by the agencies to complete Step One and Step Two of the agencies’ review process.
Expect continued regulatory uncertainty
While the agencies and challengers continue to battle over the Trump administration’s efforts to roll back the CWR, industry and other regulated parties will be subject to a pre-2015 WOTUS regulatory regime that previously contributed to significant uncertainty over the scope of the agencies’ authority under CWA programs that impact industry, including oil and gas. As the agencies noted in the final rule delaying implementation of the CWR, the prior WOTUS regulatory regime was implemented through the agencies’ applicable guidance documents and was based on two tests established by the Supreme Court in a fractured 2006 decision in United States v. Rapanos, 547 U.S. 715 (2006). Many are critical of the pre-2015 regulatory regime for its case-by-case approach to determining whether an activity (e.g., construction activities related to oil and gas exploration, processing and transmission) is subject to review and approval by the agencies. Complicating matters further, federal courts throughout the country have interpreted the Rapanos decision differently and disagreed on the appropriate test that must be used to define a WOTUS. As the Trump administration proceeds with its efforts to roll back the CWR and potentially redefine WOTUS, industry and other regulated parties will be forced to continue operating in an uncertain legal landscape.
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The Legal Intelligencer
(by Stephen L. Korbel)
For Pennsylvania employers, Gov. Tom Wolf’s recent announcement regarding sweeping changes to Pennsylvania’s overtime pay regulations is déjà vu all over again. Most employers will recall the concern, confusion and litigation that followed the Obama administration’s attempt in 2016 to nearly double the federal minimum salary levels exemption from overtime pay from $23,360 to $47,476. On Jan. 17, 2018, Wolf announced that the Pennsylvania Department of Labor and Industry will issue proposed regulations in March that will increase the minimum salary level to determine overtime eligibility and will “clarify” the duties test for executive, administrative and professional employees. If the proposed regulatory changes become final, it will be the first time in more than 40 years that Pennsylvania has updated its overtime regulations.
Wolf directed the department to phase in regulatory changes to the minimum salary levels over four years. If enacted, the first stage will raise the salary level to determine overtime eligibility for most workers from the federal minimum of $455 per week, $23,660 annually, to $610 per week, $31,720 annually. The first stage will take effect on Jan. 1, 2020. The minimum salary level will increase to $39,832 on Jan. 1, 2021, followed by an increase to $47,892 in 2022. The Wolf administration estimates that the salary level changes will extend overtime eligibility to 370,000 workers in 2020 and up to 460,000 workers in 2022. Also, following the implementation of the final phase of the new salary level to $47,892 in 2022, the Wolf administration proposed that the minimum salary level automatically update every three years. The first automatic increase would not likely occur until Jan. 1, 2025. At this point, the Wolf administration has not provided any indication as to the manner in which the automatic salary level increase will be calculated or otherwise determined. The department will likely detail how the automatic salary level increase will be determined when it issues the proposed regulations in March.
Beyond the proposed salary level changes, employers must also pay close attention to any proposed regulations that “clarify” the duties test for executive, administrative and professional employee exemptions. If the proposed regulations provide true clarity to the existing duties test regulations, the new regulations will make it much easier for employers to determine if an employee qualifies for an exemption under the duties test. However, if the “clarification” makes material changes to the duties test, the new regulations could result in great uncertainty for employers, particularly because the true meaning of the changes would not be known for several years until the issues are litigated and the new duties test is fleshed out.
Once the department completes its internal process to produce the proposed regulations, the department will publish a notice of proposed rulemaking in the Pennsylvania Bulletin. Thereafter, the department must allow for “sufficient time” for public comment and review before taking any final action. A typical public comment period could last between 30 to 90 days. Once the public comment period ends, the department must review and consider the public comments received. The department is permitted to hold public hearings if it chooses to do so. This process can be lengthy. However, the department could complete the rulemaking process before the end of 2018.
Additionally, any final regulations issued by the department could also be the subject of litigation to prevent the final regulations from becoming effective. Litigation over the implementation of the Obama administration’s attempts to increase the minimum salary level exemption is what eventually prevented those proposed regulations from becoming effective.
Specifically, the Obama administration proposed increasing the minimum salary level exemptions from the current federal level of $23,360 to $47,476. Following the issuance of the final regulations, the U.S. Department of Labor (DOL) was sued in two separate actions by 21 states and several business advocacy groups. The lawsuit sought a preliminary injunction to halt the implementation of the final federal rule. The suits were filed in federal district court of the Eastern District of Texas (district court). The district court issued a preliminary injunction holding the final regulation issued by the DOL was unlawful because the final regulation “creates a de facto salary only test to be exempt from overtime, and it did not consider whether employees also had executive, administrative or professional duties as required by federal law. The DOL filed an interlocutory appeal to the district court’s decision to issue a preliminary injunction to the U.S Court of Appeals for the Fifth Circuit. While that the DOL’s appeal was pending with the Fifth Circuit, the district court issued a final injunction preventing the implementation of the final federal regulation on Aug. 30, 2017. Because of the district court’s ruling, the DOL filed a motion which asked the Fifth Circuit to dismiss the DOL’s appeal as moot. The Fifth Circuit granted the DOL’s motion and the case is now over.
It will certainly be interesting to see if the Wolf administration’s approach to this issue, which is materially different than the Obama administration’s approach, is enough to withstand the scrutiny that is sure to follow by Pennsylvania’s courts.
While Pennsylvania employers eagerly await the proposed regulations, they should not be caught flatfooted. It is premature for Pennsylvania employers to make any drastic changes to their policies, salary structures or employee classification. Instead, they should dust off the plans that were considered at the time of the Obama administration’s proposed regulations. Additionally, Pennsylvania employers can begin to review their employee classifications and employee salaries to assess the potential impact these proposed changes of the Wolf administration could have on their business. Finally, employers should also consider whether it makes sense to submit comments to the department regarding the impact the proposed regulations will have on their business.
*Reprinted with permission from the 2/1/18 issue of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The PIOGA Press
(by Nicholas J. Habursky)
On October 30, Governor Tom Wolf signed House Bill 74, which amended the Pennsylvania Fiscal Code. The 90-page bill included Section 1610-E, entitled “Temporary Cessation of Oil and Gas Wells,” which codified certain rights of oil and gas lessors and lessees to extend leases during periods of temporary cessation of production. This article explores how traditional savings clauses found in leases and existing legal precedent may be impacted by Section 1610-E, and provides an analysis of potential challenges arising out of the application of this new law.
The new law provides:
Section 1610-E: Temporary Cessation of Oil and Gas Wells
“(a) General rule.–An oil and gas lessor shall be deemed to acknowledge that a period of nonproduction under an oil and gas lease is a temporary cessation insufficient to terminate the lease and the lessor waives his right to seek lease termination upon those grounds if, prior to claiming the lease has terminated:
(1) production is recommenced and the lessor accepts royalty payments for the production. Any first royalty payment following recommencement of production after a period of more than one year of inactivity shall be accompanied by an explanation, in plain terms, that acceptance of the royalty payment shall constitute acknowledgment of an existing lease with the operator; or (2) the operator, after notifying the lessor of its intent to drill a new well and giving the lessor 90 days within which to object, drills a new well under the lease.
(b) Lease provisions.–Nothing in this section is intended to waive lease requirements related to commencement of operations during a lease’s primary term or affect a lease provision expressly providing for lease termination following a fixed period of nonproduction.”
Savings clauses preventing lease termination
Traditional Pennsylvania oil and gas leases typically terminate upon the: i) expiration of the primary term unless the lease entered its secondary term; or ii) cessation of production and/or other operations provided for in the lease, once the lease has entered its secondary term. However, more modern leases include savings clauses, such as shut-in clauses, cessation of production clauses and continuous drilling operations clauses, which can prevent lease termination during a stoppage in production.
A shut-in clause allows a lessee to maintain a lease without actual production when and if a well has been drilled which is capable of producing gas in paying quantities but which is temporarily shut-in. 8-S Williams & Myers, Oil and Gas Law Scope. Similar to Section 1610-E, a shut-in clause is designed to prevent automatic termination of a lease due to non-production. Additionally, a cessation of production clause provides a lessee the right to preserve a lease during periods of non-production under certain circumstances, such as during well maintenance or an elapsed time between completion or abandonment of one well and the beginning of operations for the drilling of a subsequent well. 8-C Williams & Meyers, Oil and Gas Law Scope. Furthermore, aside from modern lease form language, courts have held that “a temporary cessation of production is not sufficient to terminate a lease.” Cole v. Philadelphia Co., 345 Pa. 315 (Pa. 1942).
In certain circumstances, Pennsylvania courts have upheld a lessee’s usage of these savings clauses to continue the lease’s enforceability. Many modern lease forms include savings clauses, which Section 1610-E(b) acknowledges. Therefore, it is possible that the Legislature intended Section 1610-E to apply where a savings clause is not present or applicable, as opposed to limiting the application of contractual savings clauses.
Legal precedent for lease termination due to nonproduction
The Pennsylvania Supreme Court has admitted that “the traditional oil and gas ‘lease’ is far from the simplest of property concepts.” Brown v. Haight, 255 A.2d 508 (Pa. 1969). As evidenced by the above savings clauses and the case law described below, non-production of an oil and gas lease is not necessarily the end of the life for the lease or the existing relationship between the lessee and lessor in Pennsylvania. In this way, Section 1610-E may not differ significantly from existing case law. Pennsylvania courts and the Legislature have established the relationship between a lessor and lessee and have dictated how termination of a lease can be formalized.
Early Pennsylvania cases defined the relationship between a lessor and lessee after production ceases as a tenancy at will. A tenancy at will is a tenancy for an uncertain period of time that can be terminated by either party. 30 P.L.E. Landlord and Tenant § 74. If a lessor did not “enter and repossess himself of the premises demised” after a period of non-production, a tenancy at will was created. Cassell v. Crothers, 44 A. 446 (Pa. 1899); See also Brown v. Haight, 255 A.2d 508 (Pa. 1969). Unless a lessor or lessee exhibited an action evidencing intent to terminate the lease and the tenancy at will, a non-producing lease could be continued under Pennsylvania law. However, it is unclear whether the tenancy at will and right to recommence production would exist in perpetuity or just for a reasonable amount of time after a period of non-production begins.
More recent Pennsylvania cases hold that if oil and gas is produced “a fee simple determinable is created in the lessee, and the lessee’s right to extract the oil or gas becomes vested.” T. W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261 (Pa. 2009). Upon the occurrence of a specific event, the fee simple determinable estate automatically reverts back to the lessor. Id. at 267. See also Seneca Res. Corp. v. S & T Bank, 122 A.3d 374 (Pa. Super. Ct. 2015). The specific event would be determined by the lease terms.
Pennsylvania also provides a statutory framework for the formal release or forfeiture of a lease. Within 30 days of termination, expiration or cancellation, the lessee is required to deliver to the lessor a surrender document in recordable form. 58 P.S. § 903(a). Similarly the lessor can provide notice of termination to the lessee, and if no challenge is received within 30 days, the lessor can record an affidavit of termination. 58 P.S. §§ 901- 905.
Impact and scope of Section 1610-E
Based upon Section 1610-E, non-production alone is insufficient to definitively terminate an oil and gas lease.
Despite the parameters set forth in Section 1610-E preventing the automatic termination of an oil and gas lease, the law explicitly defers to the terms of the oil and gas lease that deal with termination after a specific period of non-production. Thus, the practical scope of the law may be limited to older oil and gas leases whose secondary term is commonly defined as “…and so long thereafter as oil and gas is producing in paying quantities…” and which do not contain numerous savings clauses. Many modern oil and gas leases contain language that more broadly defines a secondary term, such as a period when a well located on the leased land is capable of production. Additionally, modern leases are more likely to include savings clauses such as cessation of production clauses or continuous drilling operations clauses whereby Section 1610-E would likely be inapplicable. Therefore, Section 1610-E likely will have a greater impact on older held-by-production leases requiring production in paying quantities for the lease to remain in effect.
Potential issues with the application of Section 1610-E
In the event a temporary cessation of production occurs, and if the lease does not contain terms regarding rights or obligations of the lessee and lessor as to the force and effect of the lease, then Section 1610-E may provide curative rights. These curative rights are available only if neither the lessor nor the lessee has terminated the lease. Section 1610-E may be utilized if one of two criteria exists: (1) lessee must recommence production and lessor must accept a royalty payment for this production; or (2) if after providing 90 days’ notice of its intent to drill a new well, and absent objection, the lessee drills a new well. Both steps require either an affirmative action by the lessor and lessee or acquiescence to drilling on the part of a notified lessor. The new law does not provide an affirmative right of the lessee to continue operations without first either confirming the lessor will not object to new drilling or risk recommencing production dependent upon the lessor accepting future royalty payments.
As a result, the new law does not provide any greater certainty or clarity as to the effectiveness of leases with historical production. This is especially true if the lessor or lessee do not provide record notice that the lease has expired or terminated. Section 1610-E does not define what is meant by its usage of the phrase “prior to claiming the lease has terminated.” Unless a lease is terminated pursuant to statutory provisions, it is not always clear what action is required to claim lease termination. Therefore, a lessor may disagree as to whether Section 1610-E is even applicable. This can lead to further litigation between lessors and lessees in the event of a temporary cessation of production.
It is also unclear whether the “period of non-production” discussed in the statute has any limit. The law acknowledges the period can be more than a year, but does not definitively state a limit to the application of the law to revive a lease for non-production, beyond the use of the term “temporary” cessation. Additionally, there could be a conflict between a lease and the application of the new law if a lease contains a shut-in limitation regulating the length of time a well can be shut-in.
As Section 1610-E is utilized in the future, it is likely that these issues will be addressed by lessors, lessees and the courts.
For more information, contact Nicholas Habursky at 412- 253-8859 or nhabursky@babstcalland.com.
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Legal Services for Incorporation and Standard Business Agreements
The Pittsburgh Life Sciences Greenhouse (PLSG) has partnered with local law firm Babst Calland to offer startup companies in the PLSG portfolio access to legal assistance regarding certain corporate governance work and drafting of certain standard business agreements, under a flat fee arrangement*. This
Flat Fee Program is available to individuals and entities that come through PLSG for investment and development.
Under the Flat Fee program, Babst Calland can assist with:
• Incorporating a business, including preparing and filing with the Department of State the Articles of Incorporation, as well as preparation of other required documents.
• Assisting with the establishment of a single-member limited liability company, including the preparation and filing of a Certificate of Organization with the Department of State, and the preparation of an Operating Agreement.
• Preparing certain standard business agreements, including: (1) confidentiality agreement/non-disclosure agreement; (2) employment agreement/noncompete agreement.
“Our team can provide efficient and effective legal assistance to help companies new and old navigate the day-to-day issues commonly faced by businesses, and we look forward to working with PLSG and its exciting portfolio of emerging life sciences companies,” said Alana Fortna of Babst Calland. “The life sciences space is essential to the continued growth of our region.”
“PLSG believes in the mission of helping regional life sciences companies achieve successful commercialization, and Babst Calland’s offer to bring its legal expertise and insight to bear on behalf of our startups for a flat fee is both incredibly valuable and very much appreciated,” said Jim Jordan, PLSG President and CEO. “By developing this Flat Fee Program with Babst Calland, we can make sure that our companies have experienced counsel at a predictable cost.”
The PLSG kicks off this new program by giving away one free legal service* at a drawing during its B2B event, “Start-ups: Why and when to hire a lawyer?” scheduled from 5:30 to 6:30 p.m., Thursday, January 25, at PLSG offices on the South Side, featuring guest speakers Alana Fortna and Ben Milleville from Babst Calland. Please see the PLSG website for details and registration (www.PLSG.com).
* Any provision of legal services would require a formal engagement letter between Babst Calland and the client in accordance with the Pennsylvania Rules of Professional Conduct.