Pipeline & Gas Journal
A Conversation with Babst Calland Energy Attorney Keith Coyle.
P&GJ: What are you hearing from the pipeline industry in terms of its expectations on anticipated federal regulatory reforms resulting from President Trump’s executive actions? What are the financial and safety stakes at hand?
Coyle: The pipeline industry has been largely supportive of the actions taken by the new administration. The temporary regulatory freeze the White House imposed on Inauguration Day deferred several significant regulations that President Obama tried to issue at the end of his administration. President Trump’s approval of the Dakota Access and Keystone XL pipelines also fulfilled a key campaign promise and represented a sharp break from the policies pursued by his predecessor.
The recent executive orders on regulatory reform should have a positive impact on federal oversight of the pipeline industry during his administration. If President Trump is able to implement these reforms, the pipeline industry will be operating in a more efficient and effective regulatory environment, which should reduce unnecessary costs and encourage additional investment and development.
P&GJ: How could the Trump administration’s energy regulatory policies affect pipeline safety at the state level?
Coyle: The state agencies that regulate pipeline safety must adopt the minimum federal safety standards established by the Pipeline and Hazardous Materials Safety Administration (PHMSA). PHMSA initiated two rulemaking proceedings during the Obama administration that proposed significant changes to the safety standards for hazardous liquid and natural gas pipelines.
The new administration is going to have a lot of influence in determining whether and to what extent these regulatory changes become law in the near future. PHMSA is also required, under President Trump’s executive orders on regulatory reform, to identify obsolete or unnecessary regulations for revision or repeal. Both of these initiatives will have an impact on the federal pipeline safety regulations that state agencies are required to adopt and enforce.
P&GJ: What kind of reaction might the energy industry expect from environmentalists or activists as the Trump administration pursues its new energy regulatory agenda?
Coyle: Environmental and pipeline advocacy groups have already expressed strong opposition to the new administration’s regulatory agenda, and the energy industry should expect these groups to remain very active throughout the Trump presidency. Coordinated efforts to delay or block new projects, a trend that spread in the Obama administration, will continue and litigation will be used as a tool for pursuing policy objectives. Expect legal challenges to President Trump’s regulatory reform initiatives as well as citizen suits targeting specific pipeline operators, facilities, or projects.
P&GJ: Do you think the Trump administration’s new energy regulatory policies are impacting pipeline projects? If so, is that impact positive or negative?
Coyle: President Trump’s new energy regulatory policies produced two key victories in the early days of his administration – federal approval of the Dakota Access and Keystone XL pipeline projects. The temporary regulatory freeze that the White House imposed on Inauguration Day also deferred implementation of several significant regulations that would have adversely affected the pipeline industry. The impact of President Trump’s executive orders on regulatory reform will need to be evaluated over the long term, but the expectation is that federal agencies will focus more directly on ensuring that regulations affecting the energy industry are necessary and cost-effective under the new administration.
P&GJ: When do you expect new leadership at PHMSA to be in place? What do you think should be the top priority of the new regime?
Coyle: The Senate confirmed President Obama’s first PHMSA administrator approximately 10 months after Inauguration Day. The Senate confirmed President George W. Bush’s first administrator of PHMSA’s predecessor agency, the Research and Special Programs Administration, eight months after Inauguration Day. While the Senate’s ability to act on nominees often depends on the press of other business, and there are a lot of items of important legislative items on President Trump’s agenda, I hope the new PHMSA administrator will be in place by the fall as in past administrations, if not sooner.
The top priority of the new PHMSA leadership should be implementing the regulatory reforms outlined in President Trump’s executive orders. PHMSA should focus on revising or repealing unnecessary or obsolete regulations that impose undue burdens on the pipeline industry. PHMSA should also carefully review the changes proposed in the outstanding rulemaking proceedings initiated during the Obama administration to ensure consistency with President Trump’s new policies.
P&GJ: What is the status of the hazardous liquid pipeline safety rule that the Obama administration tried to issue in the days before President Trump’s inauguration?
Coyle: The Obama administration released a pre-publication version of the hazardous liquid pipeline safety final rule in mid-January 2017. However, the rule was not published in the Federal Register by Inauguration Day and got returned to PHMSA for further review under the White House’s regulatory freeze memo to ensure consistency with President Trump’s new policies. PHMSA has not provided any additional public information on the status of the rule.
An important issue to watch will be how PHMSA addresses President’s Trump executive order on regulatory reform. The order requires federal agencies to identify two regulations that will be repealed for every new significant regulation that is issued and imposes strict cost limitations for all regulatory actions taken by federal agencies during the current fiscal year, and allows the Office of Management Budget to set similar cost limitations for future fiscal years.
P&GJ: Do you expect the Trump Administration to make significant changes to the proposed mega-rule for gas gathering and transmission lines?
Coyle: The version of the mega-rule the Obama administration released in April 2016 had some very significant flaws, and many of the proposed changes directly conflict with the energy regulatory policies of the new administration. President Trump and the new PHMSA leadership will need to address these concerns during the next phase of the rulemaking process.
PHMSA should revise the gas transmission line proposals to align more closely with the congressional mandates in the 2011 Pipeline Safety Act and eliminate any provisions that do not satisfy the requirements in President Trump’s executive order on regulatory reform. As comments submitted by the pipeline industry show, the Obama administration’s proposed regulations for pipeline materials and maximum allowable operating pressure verification go well beyond the applicable congressional mandates, are unnecessarily burdensome and complex, and cannot be practicably implemented.
PHMSA should also obtain and review additional data before taking any further action to advance the Obama administration’s proposed changes to the gas-gathering line regulations. PHMSA acknowledged during the public comment period that the changes proposed by the previous administration contained significant drafting errors, and an analysis prepared for a pipeline trade association showed that PHMSA underestimated the costs of the gathering line proposals by more than $25 billion over the initial 15-year compliance period.
P&GJ: Will the Trump Administration’s new energy regulatory policies affect federal oversight and enforcement of the pipeline industry?
Coyle: Recent history suggests that oversight and enforcement do not change dramatically from administration to administration. For example, PHMSA initiated nearly 300 pipeline safety enforcement actions in 2005 during the George W. Bush administration, but only initiated about 160 enforcement actions in 2016 during the Obama administration. PHMSA proposed approximately $8.8 million in administrative civil penalties in 2008 during the Bush administration, an amount exceeded during only one year of the Obama administration, when PHMSA proposed approximately $9.8 million in civil penalties in 2013.
Civil penalty amounts may increase due to recent changes in PHMSA’s statutory authority and the methodology used in calculating civil penalties, but I expect federal oversight and enforcement will remain a top priority of the Trump administration.
P&GJ: Do you think industry can comply with the president’s directive to the secretary of Commerce to develop a plan for using U.S. steel in all new, repaired, or replaced pipelines?
Coyle: A lot will depend on the details of the plan that the secretary of Commerce is developing for President Trump. The secretary asked for public comment in mid-March on a set of detailed questions related to domestic steel availability, pipe inventories and materials, and federal permitting requirements. The information provided in response to that request should influence the approach that the secretary takes in the plan, which must be submitted to President Trump by July 23, 2017. The recent announcement that the Keystone XL pipeline will not be subject to the U.S. steel requirement is a positive development, showing that the administration is aware of the potential adverse impacts that might arise if the plan is applied to operators who have already acquired materials for projects under development.
P&GJ: What is the biggest potential challenge for regulatory reform in the pipeline industry?
Coyle: Change is not something that comes easily to the federal government, and the pipeline industry is receiving intense (and in many respects unfair) scrutiny from environmental organizations and other advocacy groups. Accomplishing an ambitious regulatory reform agenda will be extremely difficult in these conditions and will require a sustained commitment from the new administration in the face of significant opposition, at least from certain interest groups. The good news is that the pipeline industry has a strong base of support throughout the public and private sectors and a track record of success that shows that the reforms sought by President Trump can be achieved during his administration.
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James D. Miller, a shareholder in the Litigation and Construction groups at law firm Babst Calland, was selected by The Legal Intelligencer as a “2017 Lawyer on the Fast Track” in Pennsylvania.
The Legal Intelligencer asked the Pennsylvania legal community to submit nominations for the annual Lawyers on the Fast Track honors. After reviewing their results, a six-member judging panel composed of evaluators from all corners of the legal profession and the state selected 32 attorneys as the 2017 Lawyers on the Fast Track. This recognition is only given to attorneys under the age of 40 who have demonstrated excellence in four categories: development of the law; advocacy and community contributions; service to the bar; and peer and public recognition.
For the full article, click here.
PIOGA Press
The opening days of the Trump administration have seen a flurry of activity focused on regulations affecting the oil and gas industry. President Donald Trump has issued a series of executive orders and presidential memoranda aimed at reducing regulations that impact the energy industry. Congress has also used its authority under the Congressional Review Act (CRA) to repeal several recently issued regulations. While the industry has largely applauded these moves, environmental groups have signaled they intend to challenge these actions aggressively in court.
Executive actions and presidential memoranda
On January 20, the new White House chief of staff issued a regulatory freeze memo instructing executive branch agencies to (1) withdraw rules that had been sent to the Federal Register but had not yet been published; (2) refrain from sending new rules to the Federal Register for publication until a senior official appointed by the administration had reviewed the contents of the rule; and (3) extend the effective date for those rules that had been published prior to Inauguration Day but had not yet taken effect.
On January 24, President Trump issued memoranda calling for the expedited review and approval of the Keystone XL Pipeline and Dakota Access Pipeline projects, which had been blocked or stalled during the previous administration. The president also directed the secretary of commerce to develop a plan within 180 days for using materials and equipment produced in the United States in all new, repaired or replaced pipelines.
On January 30, the president issued an executive order entitled “Reducing Regulations and Controlling Regulatory Costs” (informally known as “the Two-for-One Order”). The Two-forOne Order requires agencies to identify two regulations for repeal for every new regulation the agency proposes or promulgates. The Two-for-One Order also establishes cost caps for regulatory action. The net incremental cost cap for the remaining portion of fiscal year 2017 is zero, and the Office of Management and Budget (OMB) is directed to set the cost caps for future fiscal years. In other words, federal agencies cannot advance a new rule between January 20 and September 30 (the end of the current fiscal year) without first identifying two regulations for repeal under the Two-for-One Order, and the net incremental costs for new regulations must be zero.
On February 2, the Office of Information and Regulatory Affairs (OIRA), a division of the OMB, issued interim guidance to agencies on how to implement the Two for One Order. OIRA made several clarifications in the interim guidance:
- The guidance narrowed the application of the Two-for-One Order to significant rulemakings and guidance documents.
- Agencies do not have to comply with the Two-for-One Order if a statute or court decision requires otherwise.
- The Two-for-One Order does not apply to independent agencies (i.e., the Federal Energy Regulatory Commission), but those agencies are encouraged to identify existing regulations that could be repealed or revised to reduce costs.
- Agencies can use the savings acquired from regulations repealed by an act of Congress (i.e., Congressional Review Act resolutions) to offset the costs of new rules.
- Agencies can pair two rules from different divisions within the agency to achieve the required cost-savings. The rules repealed do not have to bear a substantive connection to the one that is being issued.
- Agencies are prohibited from using the regulatory impact analysis (RIA) created during the original rulemaking process. The RIA used to support the costs or proposed savings must be based on ongoing costs.
On March 28, the president issued the “Promoting Energy Independence and Economic Growth” executive order. The president directed agencies to review existing regulations that potentially burden the “development or use of domestically produced energy resources.” Of particular note, the president directed the Environmental Protection Agency (EPA) to review the Clean Power Plan final rule and the Emission Standards for New, Reconstructed and Modified Sources final rule. The president also rescinded the Council on Environmental Quality’s August Trump environmental regulation: Continued from page 1 2016 final guidance, which urges agencies to consider the effects of greenhouse gas emissions in their National Environmental Policy Act reviews. Finally, the president rescinded the six technical documents that the previous administration had relied on to support the Social Cost of Carbon, the framework to determine the benefits of reducing carbon emissions. (See related article on page 4.)
Congressional Review Act
Congress has used its authority under the CRA to pass joint resolutions of disapproval nullifying regulations finalized in the waning days of the Obama administration. The CRA allows Congress to take expedited action to overrule regulations issued by federal agencies within the previous 60 legislative days. To date, Congress has introduced 15 joint resolutions seeking to overturn a regulation finalized between June 13, 2016, and January 3, 2017. Of the 13 joint resolutions that have passed both houses of Congress, President Trump has signed eight into law. By comparison, prior to 2017 Congress had successfully used the CRA only once.
Several of these resolutions are of interest to the energy industry. The president has withdrawn the Department of Interior’s Stream Protection Rule, which would have imposed new limitations on coal mining operations; an Occupational Safety and Health Administration rule that would have made recordkeeping requirements a continuing obligation; and a Securities and Exchange Commission rule that would have required oil companies to disclose operations in foreign countries.
In February, the House of Representatives passed a joint resolution withdrawing the Bureau of Land Management’s rule establishing emission limits on oil and gas companies operating on public land. However, the Senate has yet to pass this resolution. Congress is also reviewing the EPA’s final rule amending the accident prevention and emergency response requirements of the Risk Management Program. The March 30 deadline to introduce new joint resolutions has now passed; however, Congress has until approximately May 9 to vote on the remaining joint resolutions.
Environmental non-governmental organization response
Environmental groups have already instituted lawsuits challenging several of these presidential and congressional actions. On February 8, Public Citizen, Natural Resources Defense Council and the Communications Workers of America filed suit in the U.S. District Court for the District of Columbia seeking declaratory and injunctive relief from the Two-for-One Order. Other groups have expressed an interest in seeking judicial reviewing of some of the other recent actions, including the executive order related to the Clean Power Plan final rule.
If you have questions regarding the regulatory developments or challenges described in this article, please contact Brianne K. Kurdock at 202-853-3462 or bkurdock@babstcalland.com.
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The State Journal
The “law.” We all agree we need laws to be a civil society, but like other cornerstones of America’s political and social house — such as “liberty” and “freedom” and “equality” — the “law” is complex and can mean many different things.
For example, the law can mean the statutes found in the United States Code or the West Virginia Code that represents the formal laws passed by the Legislature and signed by the head of the executive branch of government. In West Virginia, the state Legislature — both the Senate and House — just concluded 60 days of crafting, debating, amending, rejecting and passing laws that will either by signed into law or vetoed by Gov. Jim Justice. Those that become a law will become part of West Virginia Code.
The law also means the regulations created by government agencies that are supposed to control the way something is done or the way people behave in order to ensure that the intent of the statute is followed. This law, which has the force and effect of a statute, is not considered or voted upon by elected legislators, which is why some believe that the proliferation of regulations from federal agencies must be checked.
The law also means the common law that forms the basis for many civil lawsuits. Whether a party is “negligent” or a product is “defective” is based upon the common law that has developed through court decisions over the years. The common law of West Virginia has been developed by the Supreme Court of Appeals of West Virginia since we became a state in 1863, and even then, West Virginia adopted the common law of Virginia, which had in turn adopted the common law of England.
The law can, in every context, be messy and unwieldy. One lobbyist mumbled to me when I recently walked into the state Capitol, “Welcome to the sausage factory.” Listening to a legislative committee or a floor session is a good reminder that the process by which a piece of legislation becomes a law can be messy indeed. Anyone caught up in the judicial system, whether criminal or civil, understands that the court system can be expensive and, at times, bewildering. And for those seeking to have a final decision rendered by the West Virginia Supreme Court, the time between the filing of a lawsuit or claim and a final decision can be lengthy.
Yet, the “rule of law” remains a bedrock principle of our democracy, even if, as Winston Churchill famously said, “Democracy is the worst form of government, except for all the others.” Without the law, our institutions, our federal, state and local governments and our society would fall apart. Recent events in Venezuela, where the Supreme Court under the control of President Nicolas Maduro effectively disbanded Congress for a few days before international pressure forced its reinstitution, remind us that President Dwight D. Eisenhower was correct when he observed, “The clearest way to show what the rule of law means to us in everyday life is to recall what has happened when there is no rule of law.” Certainly, news accounts from around the world — Syria, Afghanistan, South Sudan, Somalia — demonstrate that despotism and violence fill the vacuum when the rule of law is missing.
As the West Virginia Legislature ends its session, a session marked by emotional budget choices, bruising battles over water and environmental issues, as well as difficult and complex discussions about changes to our tax structure, it’s important to remember that in our state and in our country, the rule of law should be — must be — respected. And if you believe that the law should be changed, well, the “sausage factory” will be open again next year.
Mychal Schulz is an attorney in at Babst, Calland, Clements & Zomnir P.C. in Charleston focusing on energy, employment, and commercial litigation. He is a member of the West Virginia Business & Industry Council and sits on the Board of Directors of Leadership West Virginia.
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Oil & Gas Journal
Air emissions data from actual monitoring and testing contradict articles based on different methods claiming to have found health hazards related to oil and gas work. Data collected by objective parties in the northeastern US over the past 6 years indicate that air quality around oil and gas operations is, in fact, safe. This observation contrasts starkly with arguments made in a variety of published studies cited by opponents of domestic shale development.
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Pennsylvania Business Central
By R. Brock Pronko
Historically, one of the biggest policy differences between Republicans and Democrats has been over labor issues such as unions vs. “right-to-work”, minimum wage, the overtime rule, graduate students’ right to unionize, limiting litigation in EOEC cases, pay transparency, equal pay for women, employee health care benefits, retirement payouts and class action waivers.
As a businessman, sometimes Donald Trump has had an strained relationship with labor unions during the construction of his hotels and golf resorts, occasionally resulting in regulatory disputes and legal battles. A probusiness president and Republican-majority Congress are now in a position to “repeal and replace” pro-labor laws enacted by President Obama and Congressional Democrats.
The President appointed as acting chairman of the National Labor Relations Board Phillip Miscimarra, who has been characterized by Democrats as an “an anti-union lawyer.” The NLRB consists of three members from the President’s party and two members from the opposition. The board currently has two vacancies that will be filled by the President, giving pro-business members the majority.
In 2007, VP Mike Pence, then a U.S. representative from Indiana, voted against the Employee Non-Discrimination Act, which aimed to prevent job discrimination based on sexual orientation. He also voted against raising the minimum wage.
Republican governors have signed “right-to-work” laws. Last month, Missouri became the 28th state to pass a “right-to-work” law. “Right-to-work” laws prohibit labor unions from requiring workers to pay dues as a condition of employment, but by federal law unions are required to provide fair representation to all workers covered by a contract regardless if they pay dues.
If confirmed, Supreme Court justice nominee Neil Gorsuch will likely vote in favor of conservative Republican policies on labor cases that come before the court.
Pennsylvania Business Central reached out to experienced and attorneys College to look at how this sweeping regime change might impact workers and employers: Amy Marshall from Babst Calland and Phil Miles with McQuaide Blasko.
PBC: What issues championed by the NLRB under President Obama are likely to be overturned by appointees of the Trump administration?
Miles: When control of the NLRB changes parties we usually see subtle shifts more than vast sea changes. For example, the Obama NLRB reversed a prior ruling and allowed certain university graduate assistants to unionize. The Obama NLRB also broadened recognition of smaller unions often called micro-or mini-bargaining units, allowed employees to petition for union elections with electronic signatures and lowered the bar for establishing “joint employment.” For example, making it easier for employees of a fast food franchise to argue that they are jointly employed by the franchisee and the franchisor. I suspect the Trump NLRB will revisit some of these battlegrounds and generally take a narrower view.
PBC: Are we likely to see an impact on the EEOC such as gender issues in the workplace?
Miles: Trump proposed paid maternity leave on the campaign trail and he even mentioned paid family leave in his recent speech to Congress. I think this will happen.
Marshall: The President tried to address the transgender issue with bathrooms in schools by throwing it back to the states. The Supreme Court kicked that case back to the fourth circuit court and said it needed to re-examine the issue by looking at Title 9, the federal civil right law that prohibits sex discrimination in education.
It doesn’t mean that gender discrimination litigation won’t move forward if there’s a case filed against a school or an employer, it just might mean that the EEOC takes a different tact on what issues they want to push and what they don’t.
PBC: The Heritage Foundation, a conservative think tank, has said that America no longer needs unions because they do not reward workers based on individual merit but treat everyone the same through collectively bargaining, which stifles creativity and individual initiative, while also causing companies to move jobs out of the country to lower labor costs.
The argument from the other side is: Great companies don’t view employees as “inputs” or “costs,” and they don’t try to pay them as little as they can to keep them from quitting. They view employees as the extremely valuable assets. Most importantly, they share their wealth with them. Pro-union advocates argue that one of the factors in the growing income inequality in the U.S. is due to the biggest companies no longer sharing their wealth with rank-and-file employees.
What’s your take on these opposing views of unions?
Miles: Is it too much of a cop out to say they’re both right? The truth is that most unions reward seniority rather than merit and make it more difficult to terminate employees who just aren’t working out because the employer usually must have “just cause” and be able to prove it in arbitration. That said, unions provide a stronger voice at the bargaining table for groups of employees that would otherwise have very little bargaining power if going it alone. Collective bargaining facilitates “sharing the wealth” and mutually agreeing to other terms and conditions of employment.
Marshall: The whole point of a union is to speak as one to make sure employees get the benefits they deserve. It works well in some industries but in others, not so well, for example, the health care industry. I’ve had clients who were union employees and their union didn’t do anything when they needed them, even though they paid into the union for the better part of their employment. In other instances, the union was helpful. Grad students should certainly receive good health benefits especially since many of them have small children.
There’s still a good reason to have unions today, because you can see many larger industries where you’ve got a certain classification of employees that without protection, management could take all kinds of actions against them that would jeopardized their employment for no good reason other than management has made a bottom line decision.
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Breaking Ground
On Thursday, March 9, 2017, the Construction Services group of the law firm of Babst Calland Clements & Zomnir, P.C. held its annual Year in Review Seminar. Attended by over 100 construction professionals, Babst Calland’s Year in Review Seminar summarized and addressed the implications of the most noteworthy construction-related legal developments of 2016, including the latest amendments to Pennsylvania’s Mechanics’ Lien Law, labor and employment issues, cases interpreting Pennsylvania’s payment acts, construction claim damages, and a recent decision involving a jurisdictional dispute on a public construction project.
MECHANICS’ LIEN LAW AMENDMENTS
On October 14, 2014 then-Governor Tom Corbett approved legislation amending Pennsylvania’s Mechanics’ Lien Law. Commonly referred to as Act 142, the amendments established a structured procedure for owners, contractors, and subcontractors to receive and give notice of mechanics’ lien claims, as well as a central electronic repository under which these notices must be filed (the “Directory”). Act 142 was widely supported by both owners (along with construction lenders) and contractors as a means to better identify all subcontractors and material suppliers with lien rights on a project.
Act 142 became effective on December 31, 2016, and the new notice requirements apply only to “searchable projects” beginning after that date and costing at least $1.5 million. Specifically, Act 142 allows the following four notices to be filed with the Directory: (1) Notice of Commencement; (2) Notice of Furnishing; (3) Notice of Completion; and (4) Notice of Nonpayment. Use of the Directory is discretionary, but an owner must file a Notice of Commencement before any labor, work, or materials are furnished for the project if the owner wishes to avail itself of the Directory’s protections. If an owner files a Notice of Commencement, a subcontractor (defined as including first and second tier subcontractors or material suppliers) must file a Notice of Furnishing detailing the work it performed within 45 days of first performing that work or delivering materials to preserve its lien rights. Act 142 also permits – but does not require – an owner to file a Notice of Completion within 45 days of “actual completion” of work on the project, and allows a subcontractor to file a Notice of Nonpayment if it does not receive complete payment for its work or materials. The Directory can be accessed at http://www.scnd.pa.gov/.
EMPLOYMENT AND LABOR DEVELOPMENTS
On April 17, 2016, Governor Tom Wolf signed Pennsylvania’s medical marijuana program into law. The Medical Marijuana Act (“MMA”) “legalizes” marijuana in Pennsylvania for the treatment of certain chronic conditions, including cancer, Lou Gehrig’s disease, multiple sclerosis, and Crohn’s disease. While many patients needing medical marijuana will be physically incapable of working, those individuals who are diagnosed with MMA-eligible conditions such as chronic pain or post-traumatic stress disorder will present significant work-related issues.
Unfortunately, the plain language of the MMA creates conflicting rights for both employers and employees. Yet the MMA is unlikely to have significant impacts on the construction industry because it affirmatively states employers are not required to make any accommodations of the use of medical marijuana. As “zero tolerance” policies and negotiated drug-free workplace protocols are common in the industry, construction employers are unlikely to experience any serious disruptions from the MMA.
In other employment news, another attempt is being made to repeal Pennsylvania’s Prevailing Wage Act. Representative Ron Kaufman (R) introduced House Bill 260 based on the argument that prevailing wage rates have resulted in increased public construction costs. House Bill 260 last saw activity on January 31, 2017 when it was referred to the Labor and Industry Committee, and its future remains uncertain. Interestingly, West Virginia repealed its Prevailing Wage Law on February 4, 2016.
PAYMENT ACTS
After years of litigation, the Pennsylvania Supreme Court clarified in Scungio Borst & Assocs. v. 410 Shurs Lane Developers, LLC, whether an owner’s agent could be individually liable under the Contractor and Subcontractor Payment Act (“CASPA”). In Scungio Borst, the owner’s president and 50% shareholder authorized the general contractor to perform over $2 million in extra work. When the general contractor did not receive payment for this extra work, it brought suit against both the owner and its president individually under CASPA. The Pennsylvania Supreme Court held CASPA liability does not extend to an individual. In A. Scott Enterprises, Inc. v. City of Allentown, the Pennsylvania Supreme Court held that an award of interest and attorneys’ fees is not automatic under the Procurement Code, even when a public owner withholds payment in bad faith. While an award of penalties and fees is not mandatory in the presence of bad faith, the court did note that instances where such an award is not required will likely be rare.
CONSTRUCTION CLAIMS: RECOVERY OF DAMAGES
The United States District Court for the Eastern District of Pennsylvania addressed the importance of construction lien waivers and releases, and the practical importance of raising performance and interference issues in a timely fashion. In Bricklayers & Allied Craftworker Local 1 of PA/DE, et. al. v. ARB Construction, Inc. et. al, subcontractor ARB submitted along with each payment application a release of liens releasing all claims against general contractor EBS. Despite having an opportunity to do so, ARB never listed any claims on the reverse side of the release, or anywhere else. When the project encountered issues and ARB attempted to assert claims against EBS, the court reasoned ARB released all claims via the signed releases. ARB could have noted EBS’ failure to honor the terms of the contract, or could have refused to sign the releases. Overall, Bricklayers is a reminder that waivers will be enforced according to their terms, and are not automatically limited to mechanics’ lien rights.
JURISDICTION DISPUTE
In a recent and particularly important case, an appellate court overturned a 2016 decision by the Court of Common Pleas in Wheels Mechanical Contracting and Supplier v. West Jefferson Hills School District and Nello Construction. Specifically, on February 28, 2017, the Commonwealth Court held that challenges to bid specifications should be brought during the bid process or before contracts are awarded and/or construction commences. West Jefferson Hills School District solicited bids for a $100 million high school construction project. As with all public projects in Pennsylvania, the Separations Act required the School District to break out the Project’s electrical, plumbing, HVAC, and general construction contracts. Of relevance in this case, the Project’s specifications assigned all sanitary line, storm line, and water line installations inside the building and up to five feet outside of the building to the plumbing prime contractor. As is common in the industry, all site sanitary, site storm, and site waterline installation more than five feet from the building was assigned to the general prime contractor as “site utility” work because of the significant trenching and backfilling required. In January of 2016, the School District awarded the plumbing prime contract to Wheels Mechanical, and the general construction prime contract to Nello Construction.
On June 1, 2016, Wheels brought suit to stop certain work on the Project. Essentially, Wheels contended that all sanitary sewer, storm sewer, and water line work should have been included as part of the plumbing prime contract – regardless of whether the work was to be performed inside the building or further than five feet from the building. Wheels claimed the School District violated the School Code and Separations Act by failing to include all of this work in the plumbing package. The Laborers District Council of Western PA intervened on behalf of the School District and Nello, and the Plumbers Local Union No. 27 intervened in favor of Wheels.
In a decision that surprised many, the trial court sided with Wheels and granted injunctive relief. However, the Commonwealth Court reversed the trial court’s decision pursuant to the legal doctrine of laches. Simply put, laches refers to a lack of diligence and activity in making a legal claim, or moving forward with legal enforcement of a right. Here, the Commonwealth Court reasoned Wheels had a duty to recognize its claims during the bid process or immediately after contracts were awarded. Instead, Wheels waited nearly seven months after receiving the bid specifications to initiate the action. By that point, all contracts had been awarded and work at the project was well underway.
However, it is important to note that the Commonwealth Court’s ruling did not address the underlying issue of whether the disputed work should actually be included in the prime plumbing or general construction contract. This uncertainty makes this issue ripe for another challenge, and suggests that additional litigation on this topic may occur in the near future. We will also not be surprised if standard specifications are now revised in a way that attempts to avoid this potential jurisdictional dispute.
Matt Jameson chairs the Construction Services Group at Babst Calland and he is a shareholder at the firm. J.D. Mazzocco is an associate attorney is the Construction Services Group at Babst Calland. Please contact either of the authors if you would like a copy of the PowerPoint slides from the referenced seminar or if you would like to receive an invitation to next year’s Babst Calland Construction Law Year in Review seminar.
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The State Journal
West Virginia has a long history of watching most of its natural resources being harvested and sent to out-of-state users who add value to those resources. The same is happening with West Virginia’s natural gas, and we need to do something about it.
Whether it has been coal converted into electricity or timber fashioned into furniture, the value added to West Virginia’s natural resources has too often taken place outside of the state’s borders. Now, as noted in the 2017 Sustainable Energy in America Factbook, the United States has experienced a 79 percent increase in shale gas extraction since 2011, and a 12 percent jump in total gas production in the last five years. Much of this increase centers on the Marcellus and Utica shale plays, of which West Virginia is an important part.
Numerous groups rightly tout the potential for shale gas to provide a better future for both West Virginia and the region. As such, West Virginia must continue efforts to modernize its laws and regulations so natural gas can be economically and efficiently produced. Likewise, we must support the development and construction of intrastate and interstate pipelines that will only increase the demand for West Virginia’s natural gas and contribute to the country’s energy security.
But while production and transmission of natural gas are solid economic drivers for the state, each cubic foot of gas and each gallon of natural gas liquids that leaves West Virginia represents a lost opportunity to add value to that resource right here.
The only way to truly realize the full value of West Virginia’s natural gas is to adopt policies that attract and establish the activities that use — and add value to — that gas. For example, according to the Factbook, natural gas is now the largest source of power in the country, contributing 34 percent to the electricity mix in 2016. A number of natural-gas-fired power plants are being developed in Harrison, Marshall and Brooke counties, each of which will generate electricity that will be sold on the PJM wholesale power grid. The facility in Harrison County will be the first downstream user of natural gas in the county. More such opportunities for downstream use of natural gas within the state must be found.
At the top of the list should be efforts to facilitate the development and construction of an ethane cracker facility and — more importantly — the spinoff activity that necessarily surrounds such a facility. For instance, the cracker Shell Chemical announced in July 2016 would be built in Beaver County, Pennsylvania, will create an estimated 6,000 construction jobs and 600 permanent jobs. More importantly, the spinoff activity — the manufacturers expected to establish facilities to take advantage of the cracker’s products, the local businesses that support the plant directly and restaurants, hotels and shopping centers that benefit indirectly — is estimated to be several times the amount of Shell’s initial investment.
While West Virginia’s legislators have (rightly) been focused on trying to realign West Virginia’s budget, they cannot ignore the long-term need for economic development. The sobering fact is, regardless of how much taxes are (or are not) raised, or how much the state’s budget is (or is not) slashed, without good jobs created by the private sector, tax revenue — in whatever form taxes may take — will continue to fall. The road to economic health for West Virginia, therefore, ultimately must go through the creation of good jobs in the private sector.
What better place to create jobs than in the industries that add value to our natural resources? As Pennsylvania Gov. Tom Wolfe noted when Shell Chemical made its announcement, “The feedstock is here. The workforce is here. Let’s go.” The same is true of West Virginia.
While West Virginia has offered tax incentives in an attempt to lure a cracker facility, government and community leaders need to redouble their efforts, even while tackling difficult budget issues. In addition to tax incentives (the efficacy of which is debated by economists, but which companies insist upon), we must involve all stakeholders in these efforts, including leaders of communities where these facilities may be located, community and technical colleges that can train and supply the skilled labor necessary and utilities and other companies that will provide critical services for new businesses.
Only by adding value will West Virginia truly benefit from the promise held by the abundance of shale gas that lies under our state.
Mychal Schulz is an attorney in at Babst, Calland, Clements & Zomnir, P.C. in Charleston focusing on energy, employment, and commercial litigation. He is a member of the West Virginia Business & Industry Council and sits on the Board of Directors of Leadership West Virginia.
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PIOGA Press
The Pennsylvania Mechanics’ Lien Law, 49 P.S. § 1101 et seq, provides contractors a powerful legal remedy for recovering payment owed for work performed on a construction project; they can impose a lien against the property on which their work was performed, clouding the owner’s title. As a result of Act No. 142’s amendments to the lien law, effective December 31, 2016, project owners, general contractors, and subcontractors have been evaluating their business practices to ensure compliance with the amended lien law and the subsequent launch of the online State Construction Notices Directory.
Prior to the creation of the directory, there was no streamlined system for owners and general contractors to track subcontractors and suppliers on a project site. This created a lack of certainty with respect to what parties may have lien rights against a property site. The directory (located at www.scnd.pa.gov) helps owners and general contractors track work performed by subcontractors, sub-subcontractors and suppliers.
Required notices under the act
The act creates a more structured notice procedure for owners and contractors on “searchable projects” (projects consisting of the construction, alteration or repair of an improvement costing at least $1.5 million). Specifically, the act permits four new types of filings within the directory: (1) Notice of Commencement, (2) Notice of Furnishing, (3) Notice of Completion and (4) Notice of Nonpayment.
An owner (or an agent of the owner) is required to file a Notice of Commencement to trigger compliance with the act. A Notice of Commencement should be filed before any labor, work or materials are furnished for the project and must contain: (1) the full name, address and email address of the contractor; (2) the full name and location of the project; (3) the county in which the project is located; (4) a “legal description” of the property, including the tax identification number of each parcel included in the project; (5) the full name, address and email address of the project owner; (6) if applicable, the full name, address and email address of the surety for any performance and payment bonds, and the bond numbers; and (7) the “unique identifying number” assigned the notice by the directory.
The owner must post this notice on the project site, make reasonable efforts to ensure it remains posted during the project, and ensure the notice is made part of the contract documents provided to all subcontractors. Contractors must include a provision in each of their subcontracts warning their subcontractors that the failure to file a Notice of Furnishing will forfeit the right to file a mechanics’ lien.
If an owner files a Notice of Commencement, first- or second-tier subcontractors or suppliers must file a Notice of Furnishing within 45 days after first performing work or first providing materials on the job site, containing: (1) a general description of the labor or materials furnished; (2) the full name and address of the person supplying the services; (3) the full name and address of the person who contracted for the services; and (4) a description sufficient to identify the project. The directory will automatically send a copy of all Notices of Furnishing filed on a project to the project owner. The notices will be sent to the email address provided in the Notice of Commencement. The failure to timely file a Notice of Furnishing will result in a loss of lien rights. Just as important, the filing of a Notice of Furnishing does not absolve a subcontractor of strictly complying with the remaining requirements and deadlines for prosecuting a lien claim, as set forth in the lien law.
The act also permits (but does not require) an owner to file a Notice of Completion within 45 days of the “actual completion” of work on the project, for informational purposes. Additionally, subcontractors are permitted (but not required) to file a Notice of Nonpayment when they have not received payment in full for work or materials provided.
Practical implications of the amended lien law to oil and gas projects
The directory provides obvious benefits to owners and general contractors. Nevertheless, there is still much unknown with respect to how the act will impact energy infrastructure projects. Although the case law is not completely settled, it appears from the text of the lien law—and the body of case law developed from it to date—that many well pad development and pipeline construction projects are likely subject to the lien law. For example, a Pennsylvania appellate court has held that a “well for the production of gas, oil or other volatile or mineral substance” falls within the definition of a “structure or other improvement” governed by the lien law, so long as the well involves “the erection or construction of a permanent improvement.”
Additionally, lien rights can attach to subsequent “substantial additions” to an existing improvement (i.e., a previously constructed well pad or pipeline). Another Pennsylvania court opinion held the addition of plastics-making machinery to a preexisting plant was a “substantial” enough addition for the associated work to be covered by the lien law. This suggests that activities such as the installation of additional surface facilities or the erection of infrastructure necessary to tie a well into a pipeline are subject to the lien law.
For owners of oil and gas projects, the greatest amount of confusion to arise from the act will likely relate to providing a “legal description” of the property in the Notice of Commencement, and complying with the act’s posting requirements. In the directory, many owners have merely provided a single address as the “legal description.” This approach may not be practical or feasible for a pipeline construction project, where numerous parcels, deeds and easement agreements or eminent domain condemnations contribute to the scope of the “legal description” of the property. For these projects, owners might consider drafting a description of the property that includes the start and end points of the pipeline and provide a complete list of counties within which the pipeline will be situated. Additionally, owners should carefully consider how to comply with the act’s requirement to “conspicuously post” a copy of the Notice of Commencement at the project site. Given the transient nature of a given work site on a pipeline construction project, owners may consider posting the Notice of Commencement in their office trailers and any trailers belonging to their contractor.
As for their contracts, owners should contractually require contractors (and their subcontractors) to include a provision in each of their subcontracts, and for any subsequent subcontracts entered, warning their subcontractors that the failure to file a Notice of Furnishing will forfeit the right to file a mechanics’ lien. Contractors should require their subcontractors to include the same warning in their contracts with sub-subcontractors.
Given the current new face of the lien law and some of the uncertainties with respect to the lien law’s application to oil and gas projects, it is impossible to predict with certainty how courts will treat some of the filings submitted in the directory, and the representations made therein. Nevertheless, owners and contractors should take steps to ensure their business practices and construction contracts strictly conform to the act’s new requirements.
For additional information about developments described in this article, contact David E. White at 412-394-5680 or dwhite@babstcalland.com or Esther Soria Mignanelli at 412-394-6422 or emignanelli@babstcalland.com.
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SNL Energy
The Trump administration is expected to scale back at least one major safety rulemaking for the natural gas transmission and gathering industries, and possibly alter other recent proposals from the U.S. Pipeline and Hazardous Materials Safety Administration.
“Elections have consequences. These guys are going to be more averse to aggressive regulation than the previous [administration],” said Jeff Wiese, former associate administrator of PHMSA.
PHMSA’s 550-page proposed gas gathering and transmission pipeline safety rule is primed for revision under the new administration, Wiese and other pipeline safety experts familiar with the inner workings of PHMSA said in recent interviews. The sprawling regulation, which has been in the works for years, incorporates congressional mandates, National Transportation Safety Board recommendations and other initiatives. The parts that are not statutorily ordered may be the first to go.
“I do believe there will be adjustments made to the gas rule. … A lot of those parts are NTSB items,” said Wiese, who left PHMSA in 2016 and is now consulting group TRC Companies Inc.’s vice president and national practice leader for pipeline integrity services. “I think there are going to be some compromises made on items that are not statutory mandates.”
Keith Coyle, an attorney with Babst Calland, said he expects PHMSA to substantially walk back the gas transmission and gathering rule proposal under the Trump administration. He agreed that fulfilling NTSB recommendations, although they often form the basis for congressional mandates, will likely drop on PHMSA’s priority list. For instance, the proposed rule’s guidance for verifying the maximum allowable operating pressures and materials of pipelines goes beyond what is covered under Congress’ mandate to the agency, Coyle said.
PHMSA’s decision to regulate gathering lines was not also congressionally mandated, and Coyle said the agency may set that aspect of the rulemaking aside entirely for the time being.
Questions also remain about the future of PHMSA’s hazardous liquids pipeline safety rule, which was finalized but did not make it into the Federal Register before President Donald Trump froze pending new regulations, and the agency’s underground gas storage regulation. Coyle said he expects some simplifications to the hazardous liquids regulation, especially if PHMSA finds it subject to the two-for-one executive order, and that the agency may put on hold a planned second phase of underground gas storage rules.
Richard Kuprewicz, Accufacts Inc.’s president and a pipeline safety expert, warned that limiting pipeline safety oversight could backfire for an administration that is looking to expand the nation’s oil and gas infrastructure. Kuprewicz questioned the utility of broad-strokes executive orders.
“If you’re trying to accelerate the siting of new pipelines in the United States, and try to create the argument that more regulation is bad on the safety side, you could generate a tremendous amount of opposition as failures start going up because you’ve gutted certain changes that were important in pipeline safety regulation,” Kuprewicz said. “Are you [fighting] this [new regulation] because you’re in the camp that all regulation is bad, or because there really is an issue here?”
PHMSA declined to comment on the specifics of what changes might be made to regulations or processes under the Trump administration, saying only that the issue was the subject of PHMSA’s ongoing regulatory review and that the agency would issue updates when decisions are made.
Depending on the incoming leadership at PHMSA, Wiese said he expects there also may be a subtle shift toward collaboration between regulators and industry in lieu of prescriptive regulation. He noted that that shift was already in the works to some extent with growing emphasis on pipeline safety management systems, an industry recommended practice for risk management. Some regulators, particularly at the state level, have already begun working aspects of the voluntary recommended practice into enforcement settlements with companies.
When PHMSA does choose to increase regulation, Coyle said he expects Trump’s two-for-one executive order to alter the way PHMSA does rulemaking. It may encourage PHMSA to propose a smattering of less ambitious regulations, rather than focusing on a handful of large rulemakings. While this may seem counter intuitive, the executive order is expected to apply to rules that meet certain industry cost thresholds, said Coyle, who was previously an attorney adviser for PHMSA.
“They can pull out some things that maybe are non-significant so they don’t have to run through the two-for-one. And then the things they know are going to be significant, no matter how they try, … they can come up with the ‘twofers’ that they need to try to zero out some of the costs,” Coyle said.
It may also force the agency to pare down its priorities and “think long and hard” before moving forward on new rules, he added.
In looking for past rules to rescind to balance out the costs for new regulations, Trump’s executive order appears to create an incentive for agencies to exaggerate the costs of existing standards to make it seem as though eliminating them offers a greater cost savings, Coyle added.
“It’s an interesting dynamic. In most rulemaking proceedings, agencies try as best as they can to minimize the cost of new regulations. … I think they might have an incentive to go in the other direction and overstate the savings that would be [generated],” he said.
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The Legal Intelligencer
The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101, et seq., (MPC), the state law establishing the framework for zoning and land use development regulations in Pennsylvania, authorizes a municipality to adopt a zoning ordinance containing provisions permitting uses of land by special exception administered by the zoning hearing board. Pennsylvania courts have consistently explained that a “special exception is neither special nor an exception,” but rather a use of property expressly contemplated by a local governing body to be consistent with the overall zoning plan and the health, safety and welfare of the community, as in Freedom Healthcare Services v. Zoning Hearing Board of New Castle, 983 A.2d 1286 (Pa. 2009).
The law in Pennsylvania concerning the evidentiary standards applicable to special exception applications is well-settled. An applicant for a special exception has both the initial presentation duty and the ultimate persuasion burden as to whether the application: falls within the special exception provision of the zoning ordinance; and satisfies the specific objective criteria set forth in the zoning ordinance, as in Bray v. Zoning Board of Adjustment, 410 A.2d 909 (Pa. 1980).
Once the applicant establishes that the objective criteria of the zoning ordinance have been met, “a presumption arises that the use is consistent with the health, safety and general welfare of the community,” as in MarkWest Liberty Midstream & Resources v. Cecil Township Zoning Hearing Board, 102 A.3d 549 (Pa. Commw. Ct. 2014). At this point, the burden shifts to objectors to present evidence and persuade the zoning hearing board that there is a high degree of probability that the proposed use will have a detrimental impact on the surrounding community above and beyond that which is normally generated by the type of use proposed. Thus, an applicant does not have the burden of establishing “general, nonspecific or nonobjective requirements,” an objector does. Although the ordinance terms can place the ultimate persuasion burden for these general requirements on the applicant, it cannot shift the initial presentation duty.
An objector’s burden cannot be met by a showing of mere speculation of possible harm, potential problems, or generalized fear, as in Manor Health Care v. Lower Moreland Township Zoning Hearing Board, 590 A.2d 65 (Pa. Commw. Ct. 1991). Thus, an objector’s own bald assertions, personal opinions, and perceptions are insufficient, as in Commonwealth v. Pittsburgh, 532 A.2d 12 (Pa. 1987).
The Commonwealth Court most recently reiterated this burden-shifting standard in Allegheny Tower Associates v. City of Scranton Zoning Hearing Board, 2017 Pa. Commw. LEXIS 4 (Pa. Commw. Ct. 2017), where it reversed a zoning hearing board’s denial of a special exception application for a communication tower. There, Allegheny Tower Association applied to the Scranton Zoning Hearing Board for a special exception to construct a 140-foot-high monopole communications tower in the city’s I-L Light Industrial District. The city’s zoning ordinance authorized commercial communications towers in the I-L district by special exception, subject to the satisfaction of specific objective and general standards and criteria. The board held a public hearing on the application, during which Allegheny Tower’s representative testified that the proposed tower would replace an existing 120-foot guy tower, the subject property is surrounded by commercial and industrial uses, and the proposed tower would meet all applicable setback and screening requirements, not disturb the surrounding neighborhood, and comply with all Federal Communications Commission regulations.
Once Allegheny Tower rested its case-in-chief, two objectors testified in opposition to the proposed tower. The objectors raised concerns related to the width of the proposed tower, noting that the existing guy tower is only two feet wide while the proposed tower will be approximately eight feet wide. Additionally, the objectors testified that the proposed tower may lead to increased flooding in the area, be unsightly to residential neighbors located in a near-by zoning district, cause a decline in property values, and fall on an adjacent gas station.
At the conclusion of the public hearing, the four-member board reached a split decision, resulting in a denial of the special exception application, as in Giant Food Stores v. Zoning Hearing Board of Whitehall Township, 501 A.2d. 353 (Pa Commw. Ct. 1985). In its written decision, the board explained that under the city’s zoning ordinance the tower is only permitted if the board finds adequate evidence in the hearing record that the zoning ordinance’s specific objective and general standards and criteria were met. The board concluded that Allegheny Tower did not satisfy one of the zoning ordinance’s general standards because it failed to prove that the proposed tower will not “significantly negatively affect the desirable character of an existing residential neighborhood.”
Allegheny Tower appealed the board’s denial to the trial court, which, without taking new evidence, affirmed. Allegheny Tower then appealed to the Commonwealth Court, arguing that the board improperly placed upon it the burden of proving that the proposed tower will not have a generally detrimental effect on the surrounding neighborhood, a burden that is to be borne by objectors, and the objectors, relying solely upon speculation and unfounded personal opinions, failed to satisfy their burden.
Agreeing with Allegheny Tower, the Commonwealth Court reversed. In doing so, the Commonwealth Court found that the board erred in concluding that Allegheny Tower bore the burden of proving a general standard—that the proposed tower will not significantly negatively affect the desirable character of the existing residential neighborhood—because the objector bore both the initial evidence presentation duty and the persuasion burden regard this general standard. The Commonwealth Court explained that “where a zoning ordinance has not expressly placed the burden of persuasion regarding general detrimental effects to the health, safety and welfare on an applicant, the applicant only has the burden of persuasion as to specific, objective requirements, while objectors have the burden as to all general detrimental effects.”
The Commonwealth Court concluded that the board’s reliance on the objectors’ testimony was insufficient to justify denial of Allegheny Tower’s special exception application. The court explained that objectors’ lay testimony, based solely on their personal opinions, bald assertions and speculation regarding the alleged adverse effects of the proposed tower—increased flooding risk, aesthetic concerns, decreased property values, fall risk—was insufficient to prove that the proposed tower would generate adverse effects greater than those normally expected from this type of use. The court concluded that the protection of aesthetics and property values alone cannot serve as the basis for a zoning hearing board to deny a special exception application, and the objectors offered no clear explanation as to how the proposed tower would exacerbate the pre-existing flooding issues or attempt to substantiate its concerns regarding the tower’s fall risk.
The Commonwealth Court’s decision in Allegheny Tower Associates is an excellent reminder for local governing bodies, zoning hearing boards and landowners with regard to the parties’ respective evidentiary burdens in special exception proceedings. These same principles apply to conditional-use applications heard by municipal governing bodies.
*Reprinted with permission from the 2/16/17 issue of The Legal Intelligencer. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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The Voice
The United States Environmental Protection Agency (EPA) published a final rule, effective February 8, 2017, adding vapor intrusion as an exposure pathway for consideration under the Hazard Ranking System. 82 Fed. Reg. 9754 (Jan. 9, 2017). The Hazard Ranking System is the screening mechanism used by the EPA to determine whether to place sites on the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) National Priorities List—the list of priority sites warranting further investigation and possible remediation under the Superfund program. The rule and its potential implications at current and future sites are addressed in this article.
Vapor Intrusion
Vapor intrusion occurs when vapor-forming chemicals from a subsurface source, such as soil or groundwater, migrate into an overlying building through cracks in the foundation or utility lines. Volatile chemicals are most susceptible to vapor intrusion because they evaporate easily. Common examples of vapor-forming chemicals include volatile organic compounds (i.e., trichloroethylene and benzene), semivolatile organic compounds (i.e., naphthalene), and pesticides.
The New Rule
Adding vapor intrusion to the Hazard Ranking System arose out of a May 2010 report of the Government Accountability Office (GAO) concluding that if vapor intrusion is not assessed, there is a concern that sites posing a serious human health risk will not be addressed. The GAO asked the EPA to consider adding vapor intrusion and the effect that it may have on the number of sites that it might add to the National Priorities List. On January 31, 2011, the EPA published a notice asking for public comments on the potential addition of vapor intrusion. In the rationale, the EPA noted that there are contaminated sites that did not qualify for listing on the National Priorities List under the current Hazard Ranking System, but they may be listed if the exposure threat from vapor intrusion is included in the ranking system. Before the new rule, the Hazard Ranking System evaluated four exposure pathways: (1) groundwater migration, (2) soil exposure, (3) surface water migration, and (4) air migration. None of these exposure pathways captured threats from vapor intrusion.
On February 29, 2016, the EPA published a proposed rule to add vapor intrusion, and it received comments from 15 parties. The commenters included state and federal agencies, industry associations, community groups, consultants, and private citizens. The EPA made no conceptual or structural changes based on the comments received. Many of the comments addressed the sampling methods to be used during the site investigation. The EPA explained that it cannot determine actual exposure for all possible receptors, or perform a site-specific, quantitative risk assessment at each candidate site. The Hazard Ranking System is not designed to require that level of site specific data. The EPA will consider the need for future guidance on implementation of the vapor intrusion component, and it will likely examine the existing procedures used by states.
A number of comments asked about reevaluation of sites previously assessed under the Hazard Ranking System but not placed on the National Priorities List. The EPA said that it does not plan to reevaluate sites categorically to determine whether placement on the National Priorities List is now appropriate. However, sites not on the National Priorities List, whether under oversight of federal agencies or not, may need to be reevaluated if new information or consideration of vapor intrusion threat indicates that the overall threat at the site may be unacceptable. In response to a comment on resource implications, the EPA acknowledged that by adding vapor intrusion to the Hazard Ranking System, the number of National Priorities List-qualifying sites may increase, and thus, the number of sites in the CERCLA inventory may increase.
After considering public comments, the EPA published the final rule on January 9, 2017. The new vapor intrusion component expands the number of available options for the EPA and state and tribal organizations to evaluate actual and potential threats from releases of hazardous substances. Vapor intrusion is added as a component of the preexisting soil exposure pathway. The amended pathway is called the “soil exposure and subsurface intrusion pathway,” and it considers exposure through direct contact with contaminated soil and inhalation of gas vapors from subsurface contamination. It identifies two areas in which exposure to vapor intrusion exists or is likely to exist: (1) areas of observed exposure; contaminant intrusion into regularly occupied structures has been documented; and (2) areas of subsurface contamination; subsurface contamination underlying regularly occupied structures has been documented, but indoor intrusion has not been confirmed. An area of subsurface contamination is an area where subsurface contamination exists at levels significantly above background concentrations, and the increase is attributed at least in part to the site. Therefore, the vapor intrusion component considers observed exposure and potential exposure. Evaluating potential exposure involves predicting the probability of exposure based on structural features of the building, a hazardous substance’s physical and chemical properties, and the physical subsurface properties that influence the probability of intrusion. Factors considered include structure containment, depth to contamination, vertical migration, and vapor migration potential. With respect to targets for exposure, the evaluation includes individuals living, attending school or daycare, or working in a regularly occupied structure. Workers are weighted to reflect that their exposure is limited to the time present in the workplace. There is no similar limitation for individuals attending school or daycare, likely because children are a vapor intrusion-sensitive population.
Practical Implications
The potential effects of the new rule are (1) more sites being listed on the National Priorities List; (2) increased costs at sites being remediated under CERCLA, the Resource Conservation and Recovery Act (RCRA) or a similar state statute; (3) increased toxic tort lawsuits alleging exposure to vapor intrusion; and (4) increased due diligence costs in real estate transactions in which the buyer or lessee demands investigation and mitigation.
While the EPA downplayed some of these practical implications in its response to comments and the final rule, these concerns are not unwarranted. For example, a site with groundwater contamination from volatile compounds may not have a Hazard Ranking System score warranting listing on the National Priorities List (28.5 or higher) based on the groundwater pathway alone. However, such a site also may have vapor intrusion concerns. The combination of Hazard Ranking System scores for groundwater and vapor intrusion could qualify a site for listing. Further, CERCLA § 121 requires a five-year reevaluation of remediated sites where hazardous substances remain on site to determine if the remedy is and will continue to protect human health and the environment. Sites that already have a final remedy in place may require vapor intrusion evaluation or remedial action as part of the five-year review process.
Lastly, while the Trump administration could have an effect on the EPA’s resources and the level of regulation, the focus on vapor intrusion is sure to pique the interests of environmental groups and plaintiffs’ attorneys, who are expected to be more active under the new administration.
Alana E. Fortna is a litigation attorney and associate with Babst Calland Clements & Zomnir PC in Pittsburgh, Pennsylvania. Her practice focuses on complex commercial litigation in the environmental and tort context, and she has defended clients in jurisdictions across the country. Ms. Fortna has experience litigating cost-recovery actions under CERCLA, RCRA, and state statutes, as well as citizens’ suits under the Clean Water Act. She is a member of the DRI Toxic Torts and Environmental Law Committee and admitted to practice in Pennsylvania and the District of Columbia and Seventh Circuits.
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PIOGA PRESS
Your company has worked hard to stay competitive in the oil and gas industry—developing a robust customer list, inventing cutting-edge industry techniques and strategizing to ensure successful reactions to rapidly-changing market conditions. Jane is a valued member of your organization, an important leader in your sales group and a part of your strategic planning team. One day, Jane walks into your office and asks for a few minutes of your time. Jane informs you that she is pursuing other opportunities and gives her two weeks’ notice.
You thank Jane for her efforts on behalf of the company and wish her well, but after she leaves you begin to feel panicked. You’ve trusted Jane with your customers and with confidential company information. What happens if she goes to work with a competitor? If she then calls your customers and asks them to move their business to her new employer? If she discloses confidential information, allowing her new employer to steal your competitive advantage?
Advance planning increases business protection and employer control
Now imagine that in response to Jane’s resignation you thank her and wish her well, and then remind her of her post-employment obligations as contained in the non-compete and confidentiality agreement she signed when she began working at the company. Jane may respond that she’s moving forward with the agreement in mind and tell you about her exciting new opportunity in a different field.
If instead Jane expresses her intent to violate the agreement or gives a non-committal response, you are prepared. You immediately develop a course of action to protect your company, by engaging with Jane and/or her new employer and enforcing your rights under the agreement.
Having an agreement like Jane’s in place requires advance planning. In Pennsylvania, restrictive covenants such as noncompetition and non-solicitation agreements are enforceable if they are (1) part of an employment relationship between the parties and supported by adequate consideration; (2) reasonably necessary to protect the business interests of the company; and (3) reasonably limited in duration and geographic scope.
Although confidentiality agreements are frequently included as part of employer-employee agreements, they are not technically considered restrictive covenants. As a result, Pennsylvania courts have held that companies may require employees to enter into confidentiality agreements without consideration and without regard for the reasonableness of the agreement’s geographic scope or duration.
No universal approach
Restrictive covenant agreements offer companies a valuable tool to protect their business interests, but there is no one-size-fits-all approach regarding the specific restrictions an agreement will contain. The most common types of provisions in employeremployee agreements are non-competition, non-solicitation and non-disclosure or confidentiality provisions.
As a general matter, non-competition provisions place restrictions on the type and location of an employee’s future work and future employers, for a specified period of time. Non-solicitation provisions prevent employees from contacting or doing business with entities such as customers or suppliers for a specified period of time. Nondisclosure or confidentiality provisions restrict employees from using or disclosing confidential business information such as customer lists, financial data, trade secrets and business processes or methods— essentially any business information that is not publicly available and provides a company with a competitive advantage. Although Pennsylvania and federal law provide certain protections to trade secrets, confidentiality provisions can protect information a business considers to be confidential that does not necessarily qualify as a trade secret.
Companies may want to use different agreements for different types of employees. For example, a company may choose to have all employees sign a basic confidentiality agreement, but utilize an additional agreement containing restrictive covenants for key employees who have contact with customers and suppliers, access to financial data and strategic planning or access to proprietary industrial and scientific information. Restrictive covenant agreements are not just for employees who have an employment contract for a particular term, but are equally available for at-will employees.
Restrictions must be reasonable and relate to protectable business interests
Pennsylvania courts will not uphold a restrictive covenant agreement to prevent a former employee from competing simply for a company’s economic advantage. Employers should approach restrictive covenant agreements by examining what protectable business interests are at stake and what type of agreement is reasonable to protect those interests. Some examples of protectable business interests in Pennsylvania are trade secrets, confidential information and customer goodwill.
A restrictive covenant agreement must also be reasonably limited in geographic scope and duration. Although a court will make its decision based upon the facts of each particular case, Pennsylvania courts have upheld non-competition agreements that are closely tied to the geographic area of the employee’s duties and the company’s customers. Non-solicitation provisions are typically given more geographic latitude, because non-solicitation agreements only prevent an individual from engaging in business with specific customers and entities. As to duration, Pennsylvania courts have generally upheld restrictive covenants with a post-employment term of one year to two years as reasonable and depending on the particular circumstances may uphold a longer post-employment term.
Although they are frequently a part of employer-employee agreements that contain restrictive covenants, non-disclosure or confidentiality agreements are not themselves technically considered “restrictive covenants” in Pennsylvania. Rather, they are agreements that protect the property rights of a company in its business information. Therefore they are not limited by the reasonableness criteria (geographic scope and duration) that apply to non-competition or non-solicitation provisions.
Employee must receive consideration for entering into restrictive covenant agreement
Courts in Pennsylvania will also refuse to enforce a restrictive covenant agreement containing non-competition and non-solicitation provisions if the employee did not receive adequate consideration in exchange for signing the agreement. Pennsylvania considers entering into a restrictive covenant as part of the commencement of employment (i.e., as a condition of hiring) to be adequate consideration.
Unlike some other states, Pennsylvania does not view continued employment alone as sufficient consideration. Therefore, companies who wish to enter into restrictive covenants with existing employees must provide those employees with additional consideration. The adequacy of that consideration is evaluated based upon the specific facts of a particular case, but is usually composed of some combination of a raise, promotion and/or bonus.
No consideration required for confidentiality agreements
Non-disclosure or confidentiality agreements are not restrictive covenants, and new or existing employees need not be provided with consideration in exchange for signing such agreements. Companies can require employees to sign confidentiality agreements at any time during the employment relationship. In fact, in 2016 the Commonwealth Court of Pennsylvania ruled that one company’s existing employees who were terminated after refusing to sign a confidentiality agreement were ineligible to receive unemployment compensation benefits.
In Greenray Indus. v. Unemployment Comp. Bd. of Review, a company informed its employees that continued refusal to sign a confidentiality agreement would result in termination of their employment. The Commonwealth Court held that the employees’ refusal to sign amounted to a refusal to accept an offer of continued employment, equivalent to a resignation, and denied them unemployment compensation on the basis the employees had voluntarily left work without cause “of a necessitous and compelling nature.”
The future applicability of the Greenray ruling will depend on the particular facts and circumstances of each individual case. However, companies should strongly consider using confidentiality agreements to emphasize to employees (1) what information a company considers as confidential business information and (2) that the company explicitly expects all employees to maintain the confidentiality of that information.
Best practices
If they do not have one already in place, companies should consider requiring existing employees to sign a confidentiality and non-disclosure agreement. Such an agreement can then be integrated into a new employee on-boarding process so that all employees are covered, with the goal of maintaining the confidentiality of a company’s confidential business information.
Companies should also consider whether non-competition and/or non-solicitation restrictive covenants are appropriate for new or existing employees, particularly key employees. Any employer-employee restrictive covenant should be tailored to the particulars of your company’s business, and consideration is easiest to establish at the time new employees are hired. Prospective employees should be notified during the hiring process if a noncompetition or non-solicitation agreement will be required as a condition of employment. Restrictive covenants may not prevent employee departures, but when employees like Jane depart such agreements can help protect a company’s customer relationships, confidential information and trade secrets.
Molly E. Meacham is a shareholder in the Employment and Labor, Litigation, and Energy and Natural Resources groups of law firm Babst Calland. For more information about employment and labor challenges in the oil and gas industry, contact her at 412-394-5614 or mmeacham@babstcalland.com.
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The Public Record
On November 21, 2016, Governor Tom Wolf signed Act 172 of 2016 (Act 172) into law. Act 172 authorizes municipalities to offer tax credits against the earned income and real estate tax liability of certified fire company and nonprofit emergency medical services agency (EMS) volunteers. The purpose of the law is to incentivize current fire and EMS volunteers to remain active and increase recruitment of new volunteers.
Under Act 172, municipalities may establish, by ordinance, an earned income tax credit up to the full amount of the volunteer’s municipal income tax liability, and a real property tax credit up to 20 percent of the volunteer’s municipal real estate tax liability. In this ordinance, the municipality must, among other things, set forth the total amount of the tax credit that will be offered to a volunteer, a process to reject a request by a volunteer who does not satisfy the criteria for a tax credit, and a procedure by which a volunteer can appeal a rejected request.
In order to qualify for a tax credit authorized by Act 172, a volunteer must be an active volunteer, subject to the tax of a municipality that has authorized a credit pursuant to Act 172, and certified pursuant to the municipality’s established “volunteer service credit program.”
Once a municipality authorizes an earned income and/or real estate tax credit, it must create a “volunteer service credit program” with annual volunteer certification requirements. Pursuant to this program, municipalities must consider the following factors when determining a volunteer’s certification eligibility: (1) the number of emergency calls to which the volunteer responds; (2) the volunteer’s level of training and participation in formal training and drills; (3) the amount of time the volunteer spends on administrative and other support services in aid of the fire company or EMS; and (4) the amount of time the volunteer spends on other events and activities that aid the financial viability, emergency response or operational readiness of the fire company or EMS.
In conjunction with the establishment of a volunteer service credit program, a municipality, with advice from the fire chief and/or EMS supervisor, must adopt guidelines necessary to implement the credit program. The guidelines must include an application form for certification. A volunteer becomes certified and thus eligible for the tax credit(s) after the fire chief and/or EMS supervisor approves his or her application pursuant to these guidelines. In order to remain qualified for the tax credit(s), a certified volunteer must obtain re-certification from the municipality annually. If a volunteer is injured during a response to a call and his or her injury prevents service as an active volunteer, the volunteer remains eligible for the tax credit(s) for five tax years following the injury.
Once a tax credit program is in effect and volunteers are certified to receive tax credit(s), Act 172 requires that the fire chief and/or EMS supervisor maintain a log documenting the activities carried out by the certified volunteers. These logs are subject to review by the State Fire Commissioner, the Auditor General and the governing body or bodies where the fire company or EMS is located and/or provides service.
A municipality considering the adoption of an ordinance providing tax credits to qualified volunteers must provide public notice of its intent to adopt the ordinance at least thirty days prior to adoption. The municipality must also hold at least one public hearing, pursuant to public notice, on the ordinance prior to adoption. Finally, upon adoption of an ordinance establishing a tax credit, the municipality must notify the State Fire Commissioner.
Act 172 took effect on January 13, 2017. If you have any questions about enacting a tax credits in your municipality, please contact Stephen L. Korbel at 412-394-5627 or skorbel@babstcalland.com or Alyssa Golfieri at 412-773-8701 or agolfieri@babstcalland.com.
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The Legal Intelligencer
Act 16 of 2016, the Medical Marijuana Act (MMA), 35 Pa.C.S.A. §10231.101, et seq., effective May 17, 2016, puts Pennsylvania among the growing number of states permitting the use of marijuana for prescribed medicinal purposes. The MMA, like all state laws purporting to “legalize” marijuana use, squarely conflicts with federal law, which still considers marijuana to be a Schedule 1 substance under the Controlled Substances Act with no legitimate medical uses, see 21 U.S.C. Sections 812(b)(1)(A)-(C); 844(a). The MMA acknowledges: “Nothing in this act shall require an employer to commit any act that would put the employer or any person acting on its behalf in violation of federal law.” The MMA creates uncertainty with respect to the application and enforceability of employer “zero tolerance” and similar policies against the use of illegal drugs, injects new risks into the workplace and adds still more potential claims to the ever-growing list of employment-related causes of action.
Overview
The MMA permits appropriately credentialed physicians to prescribe and certify marijuana treatment in various forms—but not in dry leaf or plant for—to patients for any one of 17 chronic “serious medical conditions,” most being debilitating. MMA also establishes the licensing criteria for becoming a certified grower/processor and dispenser of medical marijuana; criminal and civil penalties for diversion of medical marijuana by a grower, dispensary, patient or care giver; and an advisory board to oversee operation of the act. The Pennsylvania Department of Health has issued interim regulations to implement some of the provisions of the MMA and is in the process of drafting more permanent rules.
Employment Provisions of the MMA
Although many of the conditions for which marijuana may be prescribed are disabling, the act addresses the rights and obligations of employees who may be able to work while certified to receive medicinal marijuana. These provisions are often ambiguous, creating uncertainty where clarity is required.
• Employment restrictions in the MMA.
Section 510 of the MMA prohibits medical marijuana patients from performing certain dangerous jobs and permits employers to restrict such users from performing other jobs. In Section 510(1) employees are prohibited from: working with chemicals requiring a state or federal permit; and working with high voltage electricity or any other public utility while “under the influence with a blood content of more than 10 nanograms of active [THC] per milliliter of blood,” 35 Pa.C.S.A. Section 10231.510(1)(i)&(ii). Sections 510(2)(3)&(4) also make it unlawful “while under the influence of medical marijuana,” for an employee to work at heights or in a confined space; permit employers to restrict a marijuana patient “from performing any task which the employer deems life-threatening,” to either the employee or other employees; and allow the employer to prohibit an employee from performing any job “which could result in a public health or safety risk.”
The precision with which the phrase is defined in Section 510(1)—by reference to an objective concentration of THC in the employee’s blood—is not useful, because the MMA does not explicitly provide any method for the employer to determine whether his employee is “under the influence” as defined. Nor does it mandate that employees disclose their THC levels to their employers. How is the employee or the employer to know whether work is prohibited? It is apparently incumbent on employers to require drug testing of employees who work in the regulated occupations in order to comply with the act.
Note also that “under the influence” is defined only in subsection 510(1) and not in Section 103, the general definitional section of the MMA. Whether the definition in Section 510(1) was intended to apply to the six other instances where the term is used throughout the MMA is not clear, and the failure of the legislature to make it clear creates an unnecessary ambiguity.
The absence of a definition applicable to the entire statute suggests that the precise definition in Section 510(1) is not applicable to the other sections where the term is used, see 1 Pa.C.S.A. Section 1933 (“Whenever a general provision in a statute shall be in conflict with a special provision in the same or another statute, the two shall be construed, if possible, so that effect may be given to both”). It is arguable and justifiable, although not free from doubt, that the legislature’s use of the term “under the influence” means different things in different sections of the MMA. As discussed below, a relaxed definition saves the MMA from conflict with federal law and many existing employer policies, and comports with the act’s stated intent of excusing employers from conduct violative of federal law and accommodation of the use of medical marijuana “on the property or premises of any place of employment.”
• Employee and employer protections
In Section 2103(b), 35 Pa.C.S.A. Section 10231.2103(b), the legislature has enacted provisions intended to prevent employment discrimination against certified medical marijuana users, while at the same time insulating employers from the obvious consequences of permitted use. This effort to satisfy all constituents has resulted in ambiguous statutory language leaving the rights and obligations of the parties uncertain. However, close analysis of the statutory language suggests that the MMA does not invalidate employer policies prohibiting the use of marijuana.
Section 2103(b) provides:
“Employment.
• No employer may discharge, threaten, refuse to hire or otherwise discriminate or retaliate against an employee regarding an employee’s compensation, terms, conditions, location or privileges solely on the basis of such employee’s status as an individual who is certified to use medical marijuana.
• Nothing in this act shall require an employer to make any accommodation of the use of medical marijuana on the property or premises of any place of employment. This act shall in no way limit an employer’s ability to discipline an employee for being under the influence of medical marijuana in the workplace or for working while under the influence of medical marijuana when the employee’s conduct falls below the standard of care normally accepted for that position.
• Nothing in this act shall require an employer to commit any act that would put the employer or any person acting on its behalf in violation of federal law.”
Although subparagraph (b)(1) protects employees from employment actions based “solely” on their “status as an individual who is certified to use medical marijuana,” it says nothing about employment actions based on actual use pursuant to such certification. It would have been a simple matter for the legislature to have protected use pursuant to certification: “No employer may discharge, etc., an employee solely on the basis of such employee’s use of medical marijuana in accordance with a valid certification,” but it did not do so. The failure to provide protection for actual use of prescribed marijuana suggests that no such protection was intended by the legislature, but that is not the only possible reading of the act.
Employer rights have been similarly obfuscated by the MMA. Many employers have implemented “zero tolerance” or “no use” policies to address the use of drugs by their employees. For example, some federal contractors and all federal grantees are required by the Drug Free Workplace Act to establish and enforce policies forbidding “unlawful … possession, or use of a controlled substance” in the workplace,” 41 U.S.C. Section 8102(a)(1)(A). It is common for such employer policy statements to define as “use” or being “under the influence” as when the employee has any detectable trace of the banned substance in his system. Because MMA may define “under the influence” differently, it injects ambiguity into enforcement of these policies. Is an employer’s disciplinary action permitted only when the employee’s blood THC level exceeds 10 nanograms per milliliter, or is it more likely that because marijuana remains illegal under federal law any use prohibited by employer policy can result in discipline? Because MMA Section 2103(b)(2) states affirmatively that employers are not required “to make any accommodation of the use of medical marijuana on the property or premises” it is certainly arguable, even probable, that employers do not have to relax “zero tolerance” or “no use” policies for medical marijuana users. Support for this interpretation is also found in subsection (b)(3), which excuses employers from “committing any act that would put the employer … in violation of federal law.”
Conclusion
The imprecision of the MMA’s statutory language addressing employment injects needless uncertainty into the employer-employee relationship, which likely will not be resolved absent litigation. A close reading of the MMA, however, suggests that the statute does not dramatically alter the heretofore well-established rules applicable to marijuana in the workplace. This conclusion is consistent with the holding of Coats v. Dish Network, 350 P.3d 849 (Co. 2015), in which the Colorado Supreme Court ruled that Colorado’s medical marijuana law did not confer a “right” to use marijuana: “Having decided this case on the basis of the prohibition under federal law, we decline to address the issue of whether Colorado’s Medical Marijuana Amendment deems medical marijuana use ‘lawful’ by conferring a right to such use.”
*Reprinted with permission from the 2/9/17 issue of The Legal Intelligencer. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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