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.
Babst Calland recently named Benjamin W. Milleville, Elena L. Rorabaugh and Nikolas E. Tysiak shareholders in the Firm.
Benjamin W. Milleville, a member of the Firm’s Corporate and Commercial Group, advises businesses and nonprofit organizations on corporate and transactional matters, including mergers and acquisitions, reorganizations, joint ventures, commercial contracts, governance matters, compliance, and real estate transactions. Mr. Milleville advises businesses of varying size and complexity, and at various points in their lifecycles. In his role as outsourced corporate counsel to a multinational public company, he counsels senior management in the U.S. and abroad on a broad range of legal matters. Mr. Milleville also advises entrepreneurs and startup businesses on the legal issues faced by emerging companies, including business structuring and protection of intellectual property. In his nonprofit practice, Mr. Milleville counsels clients, including charitable organizations and trade associations, on obtaining and maintaining tax-exempt status, nonprofit governance, and nonprofit mergers and strategic alliances.
Mr. Milleville is a 2008 graduate of the University of Pittsburgh School of Law.
Elena L. Rorabaugh, a member of the Firm’s Energy and Natural Resources Group, is experienced in assisting oil and gas companies navigate the legal obstacles involved with exploration and production. Her practice focuses on energy, oil, gas and mineral-related transaction matters, including title examination and title curative work. Ms. Rorabaugh also counsels clients with respect to the acquisition and disposition of oil and gas properties and has experience in all aspects of title due diligence. Ms. Rorabaugh also has experience representing E&P, midstream and other energy companies in mergers and acquisitions, and she counsels clients on a variety of business and corporate transactional matters.
Ms. Rorabaugh is a 2009 graduate of Duquesne University School of Law.
Nikolas E. Tysiak, a member of the Firm’s Energy and Natural Resources Group, practices in the areas of energy and real estate law, with a primary focus on transactions and ownership involving oil and gas, where he has extensive experience identifying and curing novel real estate title issues in West Virginia, Ohio and Pennsylvania.
Mr. Tysiak also maintains a general real estate practice, with experience conducting foreclosure proceedings, drafting complex retail and commercial leasing agreements, drafting deeds and other documents necessary to effectuate property transactions, conducting real estate closings, researching and writing title insurance policies and overseeing curative measures to finalize property transactions.
Mr. Tysiak is a 2005 graduate of Washington College of Law at American University.
Zephyr Currents
(by Meredith Odato Graham)
Draft permit review is an important part of the air permitting process. Careful evaluation of the draft permit enables the permittee to head off possible compliance issues and otherwise refine the permit before it becomes final. As the permittee, you will typically have at least two chances to comment on a draft permit—once on a pre-draft version and again during the official public comment period. Take advantage of these opportunities to craft an air permit that best suits your facility, and keep in mind the following tips as you prepare written comments for submission to the agency.
Establish an Internal Schedule: The very first thing you should do upon receiving the draft permit is confirm how much time is available for the review. Double check the comment deadline and plan to meet it. You’ll need ample time to review the relevant documents, gather internal input and prepare written comments. Make time to get feedback from the facility personnel who will actually implement the permit on a day-to-day basis. Mark the calendar and establish interim deadlines to keep the ball rolling. It may become necessary to request an extension, in which case you’ll want to show that a good faith effort was made to meet the original deadline.
Request the Draft Permit in a Writeable Format: Ideally, your submission will include a “marked up” or redlined version of the draft permit which clearly shows the changes you are requesting. This is much easier to do when the agency can provide the draft permit in a writeable format such as Microsoft Word. In situations where an existing permit is in effect, it will be helpful to make a comparison document showing the differences between the existing permit and the draft permit. Ask the permit writer to provide a list of the changes he or she made to the permit, but don’t relyon him or her to point out small changes that could have a big impact. Do your own side-by-side comparison of the permits.
Ask for the Review Memo: The permit writer will likely prepare an internal supporting memorandum in conjunction with the draft permit. This document may be referred to as the “review memo” or “Statement of Basis.” It can provide helpful clues about how the permit writer determined what requirements to include in the permit. Surprised by something you see in the permit? Consult the review memo for an explanation and confirm that the agency relied on accurate facts.
Check the Application and Other Permits: The draft permit should conform to the information presented in the application. To the extent that another air permit (e.g., construction approval) is being consolidated with the draft permit, confirm that they were appropriately combined.
Verify Rule Applicability: Federal and state air pollution control rules like New Source Performance Standards will appear in the permit. Some agencies will incorporate by reference only, whereas others will insist on including the relevant text of the regulation in the permit. Are affected facilities such as stationary emergency engines properly characterized in the permit, in terms of regulatory status? Consider documenting exemptions and nonapplicability determinations in the permit to take advantage of a permit shield.
Do a Practice Run: Some air permits (most notably Title V permits) require the permittee to certify compliance with each condition. For this reason, it is recommended that you locate the compliance certification forms you will eventually need to submit and do a practice run using the draft permit. Can you reasonably comply with each condition as written?
Speak with the Permit Writer: For the sake of efficiency, before submitting your written comments, it may be helpful to have a preliminary call with the permit writer to clarify agency intent and focus on the list of issues. Check for Typos: It goes without saying that you should take a hard look at the entire permit. Double check numerical limits, equipment specifications (e.g., throughput ratings), source descriptions and cross-references. Is the right stuff in the right place? All of this will become binding once the permit is finalized, at which point it may be difficult to make changes.
Establish a Basis for Appeal: A permittee generally has the right to appeal any unsatisfactory conditions once the permit is issued as final. You should comment to provide a complete administrative record that will be beneficial to any appeal that may be filed. This calls for vigilant review of the draft permit and a thoughtful presentation of the issues.
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The PIOGA Press
(by Stephen A. Antonelli)
It is officially that time of year again. The weather will soon be frightful, and if your place of employment is anything like mine, the first of many holiday parties is already in the rearview mirror. Please don’t worry, this is not another article about how to behave (or how not to behave) at an office party. No, this article is about a considerably less scandalous topic: whether and how employees and former employees may view their own personnel files. Please try to contain your enthusiasm, and demonstrate a bit of holiday charity by continuing to read.
Many employers use the month of December to wrap up financial matters and to plan for the coming year by preparing goals, budgets, forecasts and strategic plans. Many employers also use this time of year to conduct employee reviews and make determinations about employees’ compensation. Hopefully, most of your employees will receive good or even great reviews. Some may even receive yearend bonuses. (Side note: if paid to non-exempt employees, bonuses should either be (1) discretionary or (2) taken into consideration when calculating the regular rate for overtime purposes, but that is another article for another issue of The PIOGA Press).
Some employees receive a review that is the equivalent of a proverbial lump of coal. As you might imagine, employees who receive such reviews react in a number of different ways. Some react emotionally, others stoically. Some take constructive criticism to heart and address the problematic aspects of their review head-on, in a sincere attempt to improve upon their performance. Others immediately begin to search for a new place of employment. Most react somewhere in between.
Those employees who receive mediocre to problematic reviews may wish to review their personnel files. Pennsylvania employers should be mindful of the fact that the law entitles them to do so—within certain parameters.
Pennsylvania’s Inspection of Employment Records Law, 43 P.S. §§ 1321-24, (the “Personnel Files Act”) entitles employees (or an employee’s designated agent) to view their own personnel records once each calendar year, absent reasonable cause to do so more frequently. The law gives employees this right to review their own files for the purposes of determining “qualifications for employment, promotion, additional compensation, termination or disciplinary action.” As a result, employers must reasonably make the records available during regular business hours.
Employers can (and should) make and enforce rules concerning the manner in which employees can request and review personnel records. For instance, employers can require requesting employees to inspect the records on the employee’s free time, rather than while they are on the clock. Employers can also require requesting employees to fill out a form when requesting access to the files, and they can prohibit employees from removing the records from the employer’s premises. While employers may prohibit employees from copying the records, employers should allow employees to take notes about the content of the records. Moreover, employers should allow employees sufficient time to review the records, commensurate with the size of the file. Finally, employers have the right to protect their records, and therefore they may require employees to inspect the records in the presence of an official designated by the employer.
But what about those individuals who are no longer employees? What rights, if any, do they have to review their own personnel records? Suppose a performance review later this month results in either a termination or a resignation. Is the recently separated former employee entitled to review his or her own personnel file following the end of employment? Does the answer depend upon the length of time between the separation and the request to view the file? Earlier this year, the Pennsylvania Supreme Court clarified this very issue.
Prior to this summer, this area of the law was unclear. In 1996, the Pennsylvania Commonwealth Court held, in dicta, that former employees could review their personnel files if they made the request to do so contemporaneously with termination, or within a reasonable time immediately following termination. Beitman v. Dep’t of Labor & Indus., 675 A.2d 1300, 1302 (Pa. Cmwlth. 1996). Since then, the Pennsylvania Department of Labor and Industry developed a policy of allowing former employees to access their personnel records within a “reasonable” amount of time, which generally meant within 30 days of termination. That changed during the summer of 2017 with a ruling by the Pennsylvania Supreme Court.
In Thomas Jefferson University Hospitals, Inc. v. Pennsylvania Department of Labor and Industry, —- A.3d —— (2017), 2017 WL 2651980, the Pennsylvania Supreme Court overruled Beitman when it held that the plain language of the Personnel Files Act applies only to current employees, including those who have been laid off with re-employment rights, and those who are on leaves of absence. In its opinion, the court characterized the Commonwealth Court’s definition of the term “current” as strained and stated that “the term ‘currently employed’ cannot mean both presently employed and formerly employed. Id. at 6. The court then held that “former employees, who were not laid off with re-employment rights and who are not on a leave of absence, have no right to access their personnel files pursuant to the act, regardless of how quickly following termination they request to do so.” Id. at *8.
Whether in the context of upcoming performance reviews or otherwise, employers should be mindful of this recent change in the law.
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The Legal Intelligencer
(by Molly E. Meacham and Sean R. Keegan)
Over the past 20 years, the Equal Employment Opportunity Commission (EEOC) has annually received anywhere between 75,000 and 100,000 charges of discrimination (charges). In Fiscal Year 2016, the EEOC received 91,503 charges, responded to more than 585,000 calls and received more than 160,000 inquiries in field offices. In that same time period, EEOC legal staff filed 86 lawsuits alleging discrimination–less than one-tenth of 1 percent of the total charges received. Those lawsuits included 55 individual suits and 31 suits involving multiple individuals or discriminatory policies. Given the volume of demand for its assistance and the fractional number of lawsuits it pursues, the EEOC issues a multi-year strategic enforcement plan to maximize its use of resources and provide direction to its staff.
In October 2016, the EEOC released its strategic enforcement plan for Fiscal Years 2017-2021, which followed the conclusion of its strategic enforcement plan for Fiscal Years 2012-2016, see U.S. Equal Employment Opportunity Commission Strategic Enforcement Plan, Fiscal Years 2017-2021, available at https://www.eeoc.gov/eeoc/plan/sep-2017.cfm. Both plans list “eliminating barriers in recruitment and hiring” as the first national substantive priority. The 2017-2021 plan continues the EEOC’s focus on discriminatory hiring practices and pledges to “focus on class-based recruitment and hiring practices that discriminate against racial, ethnic and religious groups, older workers, women, and people with disabilities.” The 2017-2021 plan names “the growth of the temporary workforce, the increasing use of data-driven selection devices, and the lack of diversity in certain industries and workplaces” as “areas of particular concern,” and notes that this priority “typically involved systemic cases” but may also be included “if it raises a policy, practice or pattern of discrimination.” As the EEOC embarks on its 2017-2021 plan, it is also significantly increasing the number of suits it filed in 2016. In Fiscal Year 2017 the EEOC filed approximately 190 lawsuits, more than 80 of which were filed in the last month of the fiscal year (September 2017). By nearly doubling its lawsuits from the prior year, the EEOC may be signaling a return to its levels of litigation from the early 2000s, when the EEOC typically filed between 200 and 400 lawsuits per year.
The EEOC has recently filed several lawsuits focused on the discriminatory hiring practices prioritized by its strategic enforcement plan, including in Pennsylvania. On Sept. 27, the EEOC filed a discriminatory hiring practices claim against Norfolk Southern Corp. and Norfolk Southern Railway Company (Norfolk Southern) in the U.S. District Court for the Western District of Pennsylvania. EEOC v. Norfolk Southern, No. 17-01251 (W.D. Pa. filed Sept. 27, 2017). The EEOC alleges Norfolk Southern violated the Americans with Disabilities Act of 1990 (ADA) and the Civil Rights Act of 1991 when it failed to hire job applicants or medically disqualified employees from further employment because of their disabilities. According to the EEOC, Norfolk Southern “subjected a class of individuals to unlawful discrimination on the basis of their actual disabilities, records of disability, or because they were regarded as disabled; denied reasonable accommodations to individuals with disabilities, engaged in unlawful disability-related inquiries/examinations, and used qualification standards that screened out or tended to screen out individuals with disabilities.” Norfolk Southern concerns one of the specific discriminatory hiring practices the EEOC expressly intends to target in the near future, namely discriminatory medical policies that apply to a class of job applicants.
In Norfolk Southern, the EEOC attacks Norfolk Southern’s hiring practices in several ways. First, it alleges that a job applicant receiving chemotherapy treatment for lymphoma was denied a conductor position due to Norfolk Southern’s policy of barring job applicants for certain positions who are receiving certain medical treatments, until they have been treatment-free for a particular period of time. According to the EEOC, Norfolk Southern improperly failed to consider how the chemotherapy actually affected the applicant’s ability to safely perform the essential functions of the conductor job or in the alternative, failed to provide reasonable accommodation in the form of an exemption from its blanket policy. Second, the EEOC extends the claim to a class of unidentified job applicants who were allegedly similarly denied employment because they were receiving chemotherapy treatment for cancer. The EEOC brings similar individual and class claims concerning Norfolk’s Southern’s hiring practices of job applicants with diabetes or related elevated glucose levels, arthritis, nonparalytic orthopedic impairments, cardiopulmonary or cardiovascular impairments, and post-traumatic stress disorder.
The EEOC also attacks Norfolk Southern’s policy regarding hiring applicants receiving drug addiction treatment, alleging that Norfolk Southern improperly applied medical standards that barred job applicants and employees from working certain positions if they were taking prescribed medications for drug addiction treatment. Norfolk Southern’s policy barred applicants if at the time of their medical evaluation by Norfolk Southern, it had been less than one year since they last took such medication. Again, the EEOC alleges this was done regardless of the actual effect of such medication or the time period being off such medications had on the individual job applicants’ or employees’ ability to safely perform the essential functions of the jobs at issue. Employers in the commonwealth who have not already examined their policies and practices relating to applicants and employees in drug treatment may want to address these issues pre-emptively, as ADA issues relating to drug addiction and treatment can be particularly complex. The Pennsylvania Department of Health describes the “prescription opioid and heroin overdose epidemic” as “the worst public health crisis in Pennsylvania,” and such a widespread issue is likely to appear in the workforce in proportion to its impact on the general population.
Outside of Pennsylvania, the EEOC also filed a suit on Sept. 25, against Dolgencorp, which conducts business as Dollar General Stores, Inc. (Dollar General), claiming Dollar General violated the ADA, the Genetic Information Non-Discrimination Act of 2008, and the Civil Rights Act of 1991 by rescinding job offers to applicants whose post-offer medical examinations revealed they had disabilities, as in EEOC v. Dolgencorp, No. 17-01649 (N.D. Al. filed Sept. 25). The suit, filed in the U.S. District Court for the Northern District of Alabama, alleges Dollar General discriminated against a job applicant and a class of applicants with vision difficulties when it failed to hire them for warehouse positions. After receiving a job offer, the individual applicant’s offer was rescinded when it was revealed that the applicant had monocular vision. Dollar General disqualified the applicant from the job because its standard required its applicants have at least 20/50 vision in both eyes. The EEOC maintains that Dollar General’s refusal to hire the applicant, and others with vision difficulties, constituted discrimination on the basis of disability since Dollar General’s qualification standards and selection criteria operated as blanket policies that went beyond the essential job functions and unlawfully screened out qualified individuals.
Although the individual job applicant’s medical issue was vision difficulties, in Dolgencorp the EEOC expanded the lawsuit to target some of Dollar General’s other hiring policies related to medical issues and examinations. For example, the EEOC alleges Dollar General unlawfully screened out people whose blood pressure exceeded 160/100. The EEOC charges that this and other standards screened out applicants with a variety of conditions even when those impairments would not prevent the applicant from safely performing the job. In addition, the EEOC also alleges that during the medical examinations, applicants were unlawfully asked to provide detailed information about their family medical history, including answering questions about family incidences of cancer, heart disease and diabetes.
Both Norfolk Southern and Dolgencorp serve as examples of how a complaint to the EEOC that may begin with one individual can develop into a detailed examination of the entirety of an employer’s hiring policies, practices, and decisions. The EEOC’s investigation may expand to encompass policies and hiring decisions unrelated to the original individual’s particular circumstances, leaving an employer to defend multiple employment policies and decisions. Based on the focus of the EEOC’s current strategic enforcement plan and the recent litigation the EEOC has initiated both here in Pennsylvania and in other parts of the country, employers should be mindful of their own hiring policies and practices. In particular, employers should examine any policies or practices that relate to medical issues, physical qualifications, reasonable accommodation, medical examinations or questionnaires, and employees or applicants undergoing treatment for drug addiction. The related hiring policies and actions that are permissible under the ADA are limited and may depend upon an employer’s industry and the specific duties of the job in question. An employer can reduce the potential that it will be the future focus of an EEOC lawsuit or investigation regarding hiring policies, practices or decisions by pre-emptively identifying and mitigating areas of concern, in conjunction with providing related training to all individuals with hiring authority.
*Reprinted with permission from the 11/9/17 issue of The Legal Intelligencer. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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