Articles, Alerts & Perspectives

States Continue to Adopt the “Continuous-Trigger” Theory of “Occurrence” Under Commercial General Liability Insurance Policies

Litigation Alert

(by Mychal Schulz and Erin Hamilton)

The Business of Law

(By Daniel Bates featuring Donald C. Bluedorn II)

Some things never change.

And that’s a good thing, according to Donald C. Bluedorn, II, managing shareholder of Pittsburgh law firm Babst Calland, who has devoted most of his career at the firm to championing a business model and culture that, he said, have fostered long-term, sustainable growth since the firm’s inception in 1986.

That business model and culture, Bluedorn said, are what attracted him to the firm in the first place as a young lawyer, only a year after Babst Calland was established. He also credits this with fueling the firm’s growth across five office locations, including Pittsburgh, Washington, D.C., Charleston, W.Va., State College, Pa., and Harrisburg, Pa., along with several remote “outpost” offices. Such growth also has made Babst Calland one of Pittsburgh’s top law firms.

“When I came to Babst Calland from another larger firm, there were two things that really impressed me and made me want to become part of Babst Calland,” Bluedorn said. “One was there was a lot of flexibility and a lot of ability to control your own destiny as a lawyer and become what you want to be – an opportunity to practice law, manage clients, and gain a lot of hands-on experience, and that really appealed to me as a young lawyer.”

The second factor, he continued, was – and still is – the firm’s culture. “I loved the culture. People were treated with mutual respect, and everyone worked together. And although we’ve grown in size and we’ve added lawyers and practice areas, I think those two attributes of the firm have really stayed the same. They’re part of what define us and are part of what we work to make sure we maintain because this is what differentiates us and makes us so successful in the marketplace.”

He added: “It allows us to retain and attract really sophisticated talent. There are opportunities at lots of other places, but our people choose to spend their careers with us.”

Bluedorn shared his insights on sustainability and the growth strategy that has built Babst Calland’s legacy as a successful law practice for more than three decades during a recent interview.

The strategy really begins with Bluedorn’s own philosophy about the practice of law, which goes back to his undergraduate engineering degree he earned before attending law school.

“My first engineering professor described engineering as solving unsolvable problems,” he said. “To me, that’s what the practice of law is, and I’ve always enjoyed that. I love taking on clients’ problems and working with them to find solutions.

Depth and collaboration

To “solve unsolvable problems really motivates me and keeps me coming in every day with a smile on my face,” Bluedorn explained, Babst Calland has taken a more focused approach to law, specializing largely in helping its clients navigate the legal and regulatory challenges of businesses today.

“Our business model is different than many of our competitors’,” Bluedorn said. “We don’t want to be all things to all people, and we don’t want to grow just to grow. Although we’ve been fortunate to grow in many ways, we put together teams in certain areas of law. We want to practice with as much depth and sophistication as anyone in the country.

“And we provide our legal services at a lower price point with a greater focus on client satisfaction,” he continued. “That’s what has allowed us to grow. That’s the external difference. The client never has to worry about not getting a returned phone call, which blows my mind when I hear clients talk about taking days to hear from lawyers. That just doesn’t happen with us.”

The cultural difference

The firm’s collaborative depth-and-sophistication approach wouldn’t succeed, though, without a strong internal culture, Bluedorn said.

“The internal difference is just as important as the external difference,” he said. “Every business in the country talks about culture. Culture is a really critically important lesson. The first thing we talk about as lawyers and the last thing we talk about – and all of our internal practices, all of our formal and informal methods of dealing with people, are based around fostering that culture.”

Here’s how he describes the Babst Calland culture: “A culture of mutual respect, a culture of teamwork, and a culture of support. We don’t have the silos and disconnectedness that you sometimes see in other organizations. Everyone wants to work together, and everyone is treated with respect. This has allowed us to grow in ways that we otherwise wouldn’t have been able to if we had a more traditional model.”

Bluedorn summed up the firm’s overall goal like this. “Our goal is to grow a strong and vibrant business by serving clients well and, in turn, providing a positive experience and opportunity for our people.”

Growth investments

To support the firm’s growth and culture, Babst Calland continues to invest substantially in its people, practice areas, and service delivery, Bluedorn said. Among its priorities are stronger infrastructure, new technology that helps people succeed and collaborate more efficiently, and leadership development.

“We encourage our people to step up for new challenges with a client or on one of the firm’s key initiatives,” he said. “This is happening at each of our office locations.”

Bluedorn credits the firm’s collaborative culture with getting the firm through the formidable challenges of the COVID pandemic, when Babst Calland had to shut down its offices and send people home to work remotely.

“We were fortunate because we had a strong culture and a strong history of working collaboratively to solve difficult issues,” he recalled. “So early on in the pandemic, we came together cohesively as shareholders – as a law firm – and said, ‘we’re going to get through this together, just like we always do, and we’re not going to implement draconian measures like massive pay cuts.’

“But the underlying theme, the constant thread throughout all of that was we wanted to come together, to work together, to take care of each other,” Bluedorn continued. “And in doing that, we wanted to be in a position where we could take care of our clients and each other, and we are proud to say we did that.”

Babst Calland’s hybrid future

Why the pandemic was so important, Bluedorn said, is that it set the firm up to provide more flexibility to its employees going forward, thanks to new technology proven to work during the pandemic, as well as to facilitate the collaborative culture moving forward. The result? A three-day-a-week hybrid work schedule for most employees, where the employees can choose which three days of the week they want to work in the office, and which two days they’ll work remotely.

“We came to that fairly early on in the return to office period, and we actually initiated it with a broad-based survey to all of our people, and we asked them to identify themselves (not by name but by position) so that we had an idea of our different constituencies and what their concerns were,” Bluedorn said. “And we’re investing in technology that makes us more productive at home and makes it more seamless in terms of communications.

“We continue to refine our practices to make it better for our people,” he continued, ‘so we have no intention of walking away from three days a week and in fact, we’re hoping to continue it forever.”

Strategic growth mode

Flexibility aside, Bluedorn said the firm’s lawyers maintain a strong affinity for Babst Calland because of the growth opportunities ahead.

“We are in strategic growth mode and looking toward the future. This is not a situation like some firms that maximize what they can do for the next six or seven years and then see where they are, and then get acquired. We’re growing and taking steps today, and we expect it to really pay off in the next 10 to 15 years.”

He added: “We’re taking a long-term view, and so it’s a great opportunity for someone to come in and be able to control their destiny, work with people they like, and have an organization that’s really looking toward future growth and opportunity for all of its people.”

Business Insights is presented by Babst Calland and the Pittsburgh Business Times.

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To view the full article and video, click here.

2023 Babst Calland Report—Legal & Regulatory Perspectives For The Energy Industry

The American Oil and Gas Reporter

(By Del Torkelson)

Featuring a Briefing from U.S. Senator John Barrasso

In “The 2023 Babst Calland Report—Legal & Regulatory Perspectives for the Energy Industry,” which offers updates on top legal and public policy matters confronting the country’s oil and natural gas industry, U.S. Senator John Barrasso, R-Wy., stresses the importance of permitting reform. The law firm’s annual report also explores several other major topics, including climate policy and ESG matters, as well as trends in litigation,

“The U.S. energy sector remains as dynamic as ever as Babst Calland offers its 13th annual perspective on the challenges and opportunities facing all parts of the energy value chain,” the report opens. “This year, U.S. natural gas production and demand is expected to reach record highs. Natural gas production has doubled since 2006 and increasing demand has turned the United States into a leading global natural gas producer. Investments in liquified natural gas infrastructure continue as the United States becomes the top LNG exporter in the world.”

Principles For Reform

Barrasso’s briefing appears in a short video introduced by Babst Calland attorneys A.A. Moore Capito, a shareholder in the Charleston, W.V., office, and Jim Curry, managing shareholder in the Washington office. They also close the video by reflecting on the senator’s remarks.

Barrasso opens by lamenting the extent to which the Biden administration’s energy policies have frustrated U.S. production of traditional energy sources.

When Barrasso began his Senate tenure in 2007, he recounts, the United States imported 29% of its energy, but by 2019, U.S. producers had transformed the country into a net energy exporter. Although growing domestic production has boosted the U.S. economy, secured its energy supply and assisted the country’s allies, Barrasso says Biden has staffed his administration with fossil fuel opponents and blocked traditional energy while pushing for an unrealistic energy transition.

“We are going to be forced to pay for resources and critical resources from China and even Russia; in the end, it is China and Russia that will rake in the green,” Barrasso predicts. “The president also is forcing American consumers to buy expensive new technologies that they don’t want and cannot afford. In doing so, the president is putting our economy and our industries at risk.”

The United States should resume the all-of-the-above energy policy that made it an energy superpower, the senator urges. “One way is to reform the horrendously complicated federal permitting system to speed up infrastructure and mining projects,” he suggests.

For blueprints on how to address the system’s worst flaws, Barrasso points to two bills: the “Spur Permitting of Underdeveloped Resources (SPUR) Act,” which he introduced, and the “Revitalizing the Economy by Simplifying Timelines and Assuring Regulatory Transparency (RESTART) Act,” by Senator Shelley Moore Capito, R-W.V.

“The current system moves in slow motion and—too often—in no motion at all,” he describes. “It takes an average of 41⁄2 years just to complete an environmental impact statement. In some cases, it can take a decade or more to get final approval. Any project that makes it through the regulatory quagmire inevitably will be challenged in court. It has gotten so bad that, in the last few years, we have canceled more miles of interstate gas pipelines than we have built. Project developers need a system that is predictable and delivers a timely answer.”

Earlier this year, the House of Representatives passed HR 1, the “Lower Energy Costs Act,” an event that Barrasso says gives the Senate an opportunity to consider meaningful reform. Unfortunately, he laments, the permitting bill pushed by Senate Majority Leader Charles Schumer, D-N.Y., preserves the system’s most dysfunctional aspects.

According to Barrasso, the SPUR and RESTART acts incorporate a few fundamental principles.

“First, real reform must benefit the entire country, not a narrow range of special interests,” he emphasizes. “Instead of putting a thumb on the scale for politically favored technologies, our proposal is technology- and fuel-neutral. Second, real reform needs to include enforceable timelines for environmental reviews.

“Third, real reform must place time limits on legal challenges to prevent endless litigation, intended solely to kill projects. Finally, real reform must prevent the executive branch from hijacking the process to meet its own policy preferences.”

Reliable Power

Permitting reform also will allow domestic companies timely and efficient access to the United States’ considerable mineral deposits, Barrasso maintains. “They are worthless if you cannot get them out of the ground,” he considers. “Our competitors in China move much faster.”

The country should develop a domestic uranium supply chain for everything from mining to processing to reactors, the senator suggests, and stop prematurely shutting down existing fossil fuel electrical generation. Both the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation have raised concerns about the U.S. electric grid, he notes.

“Just 10 years ago, fossil and nuclear plants made up 82% of the electricity generating capacity in the lower 48 states; wind and solar accounted for just 6%,” Barrasso observes. “Today the figures are 70% and 19%, respectively. Electricity generation for coal, gas and nuclear power is being shut down faster than less reliable sources are coming on line. That is what members of both FERC and NAERC testified to the Senate Committee on Energy and Natural Resources. The way to restore balance to our electric grid is to restore balance to our energy policy.”

An all-of-the-above energy policy once yielded American energy independence and affordability, Barrasso indicates, and there should again be a place for all energy resources. “It is the key to a diverse, secure and affordable and reliable energy supply,” the senator argues. “It’s what Americans want. It’s what America needs. It is what Wyoming and the rest of America can deliver and will deliver if Washington will just get out of the way.”

In their remarks concluding the video, Curry and Capito note that permitting reform constitutes the central theme of Barrasso’s remarks. “Congress and the administration sort of made a down payment on permitting reform earlier this year,” Curry says in reference to the “Fiscal Responsibility Act” debt limit bill Biden signed in early June. “It sounds like those efforts will continue in earnest here in the fall.

“It’s clear the senator views all these issues not just through the lens of energy, domestically, but also as a national security and global competition issue,” he adds. “If we want to compete in the global energy marketplace, we really need to be able to make these things, domestically.”

In The Courts

In the report’s section on litigation trends, Babst Calland shareholders Timothy M. Miller and Jennifer J. Hicks consider a variety of novel lawsuits.

“Many law firms that traditionally focused on personal injury and tort claims have seen the impact of tort reform on their bottom line, and some defense firms are now taking more plaintiff cases for the same reason,” the section begins. “The influx of ‘new’ entrants to the energy litigation field, coupled with the perceived greener pastures in energy litigation, has resulted in many new suits asserting variations on traditional energy litigation themes. The following trends demonstrate a need for vigilance in lease drafting and contract administration and awareness of the new litigation risks.”

The report highlights variations on:

• Trespass claims;
• Royalty claims;
• Challenges to the lessee’s method of operations;
• Infrastructure challenges; and
• Private suits to bypass regulatory authorities.

Regarding trespass claims, the report indicates the Appalachian Basin’s typical title and lease instruments predate shale production. “Recent cases in Ohio and West Virginia have been based on the absence of broad grants of all minerals to claim drilling in formations that were not specifically leased constitutes a willful trespass,” it notes. “Claims like these need to be identified in the leasing and pre-drilling process, and where possible, corrective instruments or ratifications should be obtained.”

Meanwhile, it continues, much of the basin’s royalty litigation stems from West Virginia’s 2006 Estate of Tawney ruling that undermined the traditional rules of contract construction regarding post-production costs. Since that ruling, lessees have tended to draft leases that attempt to carefully detail post-production costs and deduction calculation methods, but litigation continues to proliferate, Babst Calland says.

The report details a couple cases as examples and concludes, “17 years after Tawney, numerous challenges to every variation of lease royalty clauses continue to be filed.”

Turning to operational methods, the report points to the basin’s longstanding rules regarding the “rule of capture” and operators’ discretion under the “prudent operator” standard. Nevertheless, the firm notes, lessors in a growing number of cases are challenging how units have been formed, how wells were drilled, and whether wells from adjoining units or properties may be causing gas to migrate away from the lease.

“One such suit alleges damages even though a well has been drilled and the lease is held by production,” the report notes. “The lessor alleges the operator should have nevertheless drilled all the potential laterals on the lease at the outset of lease operations to avoid the possibility that the reservoir pressure may be reduced by other units and wells on adjoining or nearby properties. While the lessor has asserted in amended pleadings claims that there has been some physical damage to the reservoir from fracturing on the adjoining properties, the claims appear to be a back-handed challenge to the rule of capture and operator discretion rules.

“While these cases would seem to clearly run afoul of longstanding jurisprudence in the basin, the search for new claim theories and test cases seems to be increasing,” Babst Calland assesses.

Regarding infrastructure lawsuits, the report predicts the basin’s multifaceted legal challenges to pipelines, compressors and other infrastructure will continue. “Only due to provisions in the Fiscal Responsibility Act has the Mountain Valley Pipeline been able to resume construction,” it notes. “Efforts to prevent construction of infrastructure include use of local governments to try and enact ordinances or regulations which have the effect of preventing construction of wells, compressor stations and related facilities. Climate-change-based advocates will continue to challenge every fossil fuel related project.”

As for private lawsuits that attempt to bypass regulatory authorities, the report acknowledges that operations regulated by state statutes and subject to state agency enforcement powers rarely give rise to private civil action enforcement. Nevertheless, it observes, litigants seeking novel ways to bring claims are asserting that state agencies have failed to fulfill their duties.

“An example are cases filed in Pennsylvania and West Virginia seeking to have declared that wells allegedly nearing end of life must be plugged and abandoned even though the state regulatory agencies with jurisdiction over enforcement of plugging and abandonment obligations have allowed the continued operation of the wells,” the report illustrates. “The determination of whether a well is at the end of its useful life is typically an operator and agency determination, but private lessors now seek to bypass the state agencies’ decisions that have been made and impose plugging and abandonment obligations by judicial decree.”

Nongovernmental organizations and other parties who disagree with regulators’ decisions have made similar claims in coal mining and other energy fields, the report indicates. “These cases are on the upswing and are being filed in venues where the claimants feel they have the most favorable chances of success,” Babst Calland maintains.

“In short,” the firm says, “there are sophisticated parties and law firms asserting new claims and theories testing the boundaries of traditional energy law in the basin, and clients are encouraged to be vigilant to detect and be prepared to defend these cases.”

To view the full article, click here.

Republished with permission from the November issue of The American Oil & Gas Reporter.

Appealing a Collateral Order? Fresh Guidance on Rule 313

Litigation Legal Perspective

(By Jenn Malik)

Pennsylvania Rule of Appellate Procedure 313 provides for appeals as of right from a collateral order of a trial court. 210 Pa.Code Rule 313(b) defines an appealable collateral order as “an order separable from and collateral to the main cause of action where the right involved is too important to be denied review and the question presented is such that if review is postponed until final judgment in the case, the claim will be irreparably lost.” The following is a summary of recent appellate decisions on the collateral order doctrine.

First, the Commonwealth Court, in Bethke v. City of Philadelphia, No. 406 CD 2022, 2023 WL 3295555 (Pa. Cmwlth., May 8, 2023) (memorandum), Bethke v. City of Philadelphia, 406 C.D. 2022, considered the collateral-order doctrine in a matter involving an untimely response to a Pennsylvania Right-to-Know Law (RTKL) request.  After the City did not respond to the request, resulting in a deemed denial, the requester appealed to the Pennsylvania Office of Open Records (OOR), which held that that there were no applicable exceptions under the RTKL and ordered the City to produce the records. Id. at 1.  After failing to timely appeal the OOR’s decision to the Court of Common Pleas, the City produced redacted documents; the requester then filed an action in mandamus seeking the unredacted records. Id.  Of note, the trial court ordered the City to file a motion nunc pro tunc to appeal retroactively the OOR’s determination, which order the requester appealed to the Commonwealth Court. Id. at 1-2.  On appeal, the Commonwealth Court held that the matter was immediately appealable as a collateral order and that the trial court lacked jurisdiction over an untimely appeal of the OOR’s determination, which could not be remedied by nunc pro tunc relief.

Practice Point: Trial court orders attempting to grant nunc pro tunc relief can be appealed under the collateral order doctrine.

In Chilutti v. Uber Technologies, Inc., 2023 PA Super. 126 (Pa. Super., July 19, 2023), Chilutti v. Uber Techs., 2023 Pa. Super. 126, the Superior Court considered the appealability of an order compelling arbitration based on the terms of a browse wrap agreement, in a negligence action against a ride-sharing company. Judge McCaffery, writing for the majority, first stated the three-part test for determining a collateral order’s appealability: (1) the order is separable from and collateral to the main cause of action; (2) the right involved is too important to be denied review; and (3) if review is postponed until final judgment, the right will be irreparably lost. Id. at 7, citing Cmwlth. v. Wells, 719 A.2d 729, 739 (Pa. 1998).  The Court’s analysis focused on the third prong, that an order compelling arbitration is appealable because postponing review would result in irreparable loss of the claim that the arbitration provision was unenforceable.  Chilutti, slip op. at 8. “We disagree that the collateral order doctrine as applied to arbitration agreements is impenetrable.  We reiterate there are times when a party is forced out of court because the arbitration provision either failed to meet basic contract principles or violated a party’s constitutional right to a jury trial…and where the arbitration award is deemed fair, and therefore unreviewable, even if there was no agreement to arbitrate between the parties, which would result in the irreparable loss to the party.” Id. at 12. Judge Stabile’s dissent disagreed, stating that an arbitrator’s decision to assert jurisdiction over objection, as opposed to an arbitration award itself, is subject to much broader judicial review than an award on the merits. Id. at 41.

Practice Point: An order compelling arbitration may be appealable under the collateral order doctrine if the arbitration provision in question fails to meet basic contract principles or violates the right to a jury trial. 

In Rivas v. Villegas, 2023 PA Super. 135 (Pa. Super., July 27, 2023), Rivas, M. v. Villegas, J. :: 2023 :: Pennsylvania Superior Court Decisions :: Pennsylvania Case Law :: Pennsylvania Law :: US Law :: Justia, the Superior Court considered whether, in a child custody action, a grandmother could appeal an order denying her petition for special relief, which petition sought specific fact-findings that would permit her grandchild to seek special immigrant juvenile status under the Immigration and Nationality Act.  Relying on Orozco v. Tecu, 284 A.3d 474, 476 (Pa. Super. 2022), the Court held that the order was appealable because: (1) it was separate and apart from the grandmother’s custody action; (2) it involved a right that was too important to be denied review, since deportation proceedings were pending against the child; and (3) the grandmother’s right to pursue special immigrant juvenile status for the child would be lost forever if relief were not granted. Rivas, slip at 19.

Practice Point: Orders in custody actions involving the child’s immigration status are immediately appealable collateral orders.

In Ford-Bey v. Professional Anesthesia Services, 2023 PA Super. 163 (Pa.Super., September 12, 2023), the co-defendant hospital appealed a discovery order to produce documents of its “root cause analysis” process regarding the plaintiff’s decedent’s decline after surgery, leading to a comatose state then death. The hospital claimed privilege under Pennsylvania’s Medical Care and Reduction of Error Act (MCARE). Noting that appeals of collateral orders raise a jurisdictional issue and a question of law, the Superior Court reiterated that they are given plenary review de novo. Ford-Bey, slip op. at 6, citing Calabretta v. Guidi Homes, Inc., 241 A.3d 436, 441 (Pa.Super. 2020). The discovery order in Ford-Bey, for documents protected by MCARE’s privilege and confidentiality terms, was appealable under Rule 313. Ford-Bey, slip op. at 10.

Two days later, in Betz v. UPMC Pinnacle West Shore Hospital, et al., 2023 PA Super. 1166 (Pa. Super., September 14, 2023), Betz, J. v. UPMC Pinnacle West Shore Hosp. :: 2023 :: Pennsylvania Superior Court Decisions :: Pennsylvania Case Law :: Pennsylvania Law :: US Law :: Justia, the Superior Court considered a comparable issue: a hospital’s appeal of a trial court order in a wrongful death and survival action directing it to identify the author of an anonymous report concerning the care and death of the decedent.   The hospital appealed on the basis that identifying the author would violate MCARE’s whistleblower protections. Betz, slip op. at 1-2.  After the trial court denied the hospital’s request to amend the order to allow an appeal by permission under 42 Pa.C.S. 702(b), the hospital appealed under the collateral order doctrine. Betz at 4, n. 2.  Quoting Farrell v. Regola, 150 A.3d 87, 95 (Pa. Super. 2016), the Court found that “[w]hen a party is ordered to produce materials purportedly subject to a privilege, we have jurisdiction under Pa.R.A.P. 313.” Betz at 2, n.1.

Practice Point:  Orders to produce privileged material are appealable collateral orders. 

Most recently, our Supreme Court, in J.C.D., III and A.M.D.  v. A.L.R. and T.A.D-R., No. 13 MAP 2023 (Pa., October 18, 2023), addressed an order on grandparents’ custody. A couple moved in with the wife’s parents. They had two children, but all four moved out after a family dispute. The grandparents sought shared legal and partial physical custody. The parents preliminarily objected, asserting that the grandparents lacked standing. Slip op. at 1-2. The trial court first agreed, then issued a Standing Order granting the grandparents standing to seek partial physical custody. On the parents’ appeal, the Superior Court issued a rule to show cause why the appeal should not be quashed, where claims remained pending in the trial court. After the parents responded, the Court quashed.

The parents then petitioned for discretionary appeal to the Supreme Court, which that Court granted, limited to the question whether it should grant appeal as of right under Rule 313. J.C.D. at 3-4. The Court noted that a party may seek permission to appeal an interlocutory order under Rule 312, J.C.D. at 5; it also cited Rule 1311 regarding appeal by permission of orders certified by the trial court under 42 Pa.C.S.A. §702. J.C.D. at 15. Here, the parents satisfied the first two prongs of the collateral-order test: the Standing Order was separable from the main cause of action – legal and physical custody – and involved the grandparents’ significant interest, as set forth in several Supreme Court decisions on parents’ and grandparents’ rights in custody matters. Id. at 6-8 (citations omitted). However, there was no irreparable harm, where the Standing Order did not indicate that it had to be appealed within 30 days, or that appeal could not be had after a final custody order. Id. at 10.

Justice Wecht concurred, stating that the time and cost burdens of custody litigation, while undeniable, did not result in irreparable harm. However, he noted K.W. v. S.L., 157 A.3d 498 (Pa.Super. 2017), where the Superior Court found appealable a collateral order granting standing to prospective adoptive parents. In K.W., the father did not know of the mother’s pregnancy nor her decision to place the child for adoption; he had the “right to be free of custody litigation involving third parties” such as the prospective adopters. (Justice Wecht’s concurring opinion discusses several United States Supreme Court and Pennsylvania decisions on parents’ and grandparents’ rights, and the federal and Commonwealth constitutional provisions applied in those cases.). Chief Justice Todd, joined by Justice Donohue, dissented, finding that the parents’ claim would be irreparably lost, citing parents’ constitutional right to direct the care, custody and control of their children, adversely affected by the financial and emotional burden, cost and strain of custody litigation, including strain on the children.

Practice Points: (1) All three elements of the collateral-order doctrine must be met; (2) would-be appellants should consider proceeding under Rule 312 and/or Rule 1311 and §702; and (3) in custody matters, counsel should research whether particular facts in the case, as in K.W., support an appealability argument.

If you have any questions about Pennsylvania Rule of Appellate Procedure 313, please contact Jenn Malik at 412.394.5490 or jmalik@babstcalland.com.

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Divided Commonwealth Court Holds Local Agencies are Prohibited from Adding Non-Emergency and Non-De Minimis Agenda Items to the Posted Agenda

Public Sector Alert

(By Max Junker and Anna Jewart)

On June 30, 2021, Governor Tom Wolf signed Senate Bill 554 into law as Act 65 of 2021 which amended the Pennsylvania Sunshine Act, 65 Pa.C.S. §§701-716, (Sunshine Act) to require that agencies subject to the Act make their meeting agendas available to the public, and set restrictions on taking official action on any item not listed on the agenda as published. These changes took effect on August 30, 2021.

Act 65 amended Section 709 of the Sunshine Act to require that agencies post a copy of the agenda for the meeting, including a listing of each matter of agency business that will be or may be the subject of deliberation or official action on its official website, at the meeting location, and at its principal office no later than 24 hours in advance of the time of the convening of the meeting. In addition, Act 65 added a new Section 712.1 which identified the instances in which official action could be taken on an item not included in the posted agenda. Early interpretations of Section 712.1 indicated that the new subsection (e) could be used to add any item to the agenda so long as it was added by majority vote and the agenda was revised and reposted within 24 hours of the meeting.  Schmidt v. Ringgold School District, No. 2022-0128 (Ct. Comm. Pls. Washington Co. Dec. 9, 2022).

However, in a reported decision issued November 8, 2023, the Commonwealth Court, in Coleman v. Parkland School District, No. 1416 C.D. 2022 (Pa. Cmwlth. Nov. 8, 2023) rejected this interpretation and determined that in order for official action to be taken on an item not included on the agenda posted in accordance with Section 709 of the Sunshine Act, the issue must meet one of the three enumerated exceptions identified in Sections 712.1(b),(c) or (d) of the Sunshine Act.

Under Coleman and Section 712.1(a) of the Sunshine Act, 65 P.S. §712.1(a), an agency may not take official action on a matter of agency business if that matter was not included in the posted agenda unless it qualifies as:

712.1(b): a matter that relates to a real or potential emergency involving a clear and present danger to life or property; or

712.1(c): a matter brought to the attention of the agency within the 24-hour period prior to the meeting, provided the matter is de minimis in nature and does not involve the expenditure of funds or entering into any contract or agreement; or

712.1(d): a matter raised by a resident or taxpayer at the meeting to be considered for the purposes of referring it to staff, researching it for inclusion at a later meeting, or for full consideration where it is de minimis and does not involve the expenditure of funds or entering into any contract or agreement.

The Court in Coleman clarified that in order for an agency to add an item to its agenda for official action it must first qualify under Sections 712.1(b), (c) or (d) and then the agency must vote to add the item to the agenda, by majority vote, in accordance with Section 712.1(e) which states:

Upon majority vote of the individuals present and voting during the conduct of a meeting, an agency may add a matter of agency business to the agenda. The reasons for the changes to the agenda shall be announced at the meeting before any vote is conducted to make the changes to the agenda. The agency may subsequently take official action on the matter added to the agenda. The agency shall post the amended agenda on the agency’s publicly accessible Internet website, if available, and at the agency’s principal office location no later than the first business day following the meeting at which the agenda was changed.

Impact and Considerations.

Many agencies have been operating under the interpretation that Section 712.1(e) is a “catch-all” provision allowing any item to be added to an agenda by majority vote, regardless of whether it meets Sections 712.1(b), (c), or (d). Based on the Court’s analysis in Coleman, this practice is now improper and can be considered a violation of the Sunshine Act.

Under Section 713 of the Act, a challenge to any violation must be filed within 30 days from the date of the meeting at which the alleged violation occurred (or 30 days from the date the violation was discovered if the meeting was not open to the public). In no instance can a legal challenge be commenced more than one year from the date of that meeting. Therefore, agencies do not need to cure any defective actions taken at open meetings prior to October 8, 2023. However, agencies should consider ratifying any action taken on an item added by majority vote in the past 30 days by adding the ratification motion to the agenda of their next public meeting.

Any member of an agency who participates in a meeting with the intent and purpose of violating the Sunshine Act may be found to have committed a summary offense and may be sentenced to fines of up to $1,000 for a first offense or $2,000 for a second. In addition, under Section 713, if a court determines that a meeting did not meet the requirements of the Sunshine Act, it may in its discretion find that any or all official action taken at that meeting was invalid. Therefore, it is important that any agency subject to the Act prepare to put in place procedures for posting its agendas in advance of any public meeting, and only take official action on business included in the agenda posted at least 24 hours prior to the meeting unless one of the exceptions above are met.

If you have questions about Sections 712.1(b),(c) or (d) of the Sunshine Act, please contact Robert (Max) Junker at 412-773-8722 or rjunker@babstcalland.com or Anna Skipper Jewart at 412-253-8806 or ajewart@babstcalland.com.

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Trick or Treat? EPA Tightens Reporting Requirements for PFAS and other Chemicals of Special Concern

Environmental Alert

(By Joseph Schaeffer and Jessica Deyoe)

In a final rule published in the Federal Register this Halloween, which we previewed at the time of proposal, Environmental Protection Agency (EPA) increased the reporting requirements for per-and-polyfluoroalkyl substances (PFAS) and other chemicals of special concern under the Emergency Planning and Community Right-to-Know-Act, 42 U.S.C. §§ 11001-11050 (EPCRA), and the Pollution Prevention Act, 42 U.S.C. §§ 13101-13109 (PPA). 88 Fed. Reg. 74360. EPA believes that these changes will provide regulators, industry, and the public with more insight into the presence of these chemicals. The rule will take effect on November 30, 2023, and will apply to the reporting year beginning on January 1, 2024.

EPCRA § 313 establishes a toxics release inventory (TRI) that requires certain facilities manufacturing, processing, or using chemicals above certain threshold amounts to report environmental releases and waste management activities for those chemicals on an annual basis. PPA § 6607 requires facilities to report pollution prevention and recycling data for chemicals listed on the TRI, as well. Among the chemicals listed on the TRI, EPA has designated certain chemicals as “chemicals of special concern.” See 40 C.F.R. 372.28. Chemicals of special concern are excluded from de minimis exemptions, as well as the use of simplified reporting forms and range reporting. Historically, chemicals of special concern were those that EPA had identified as persistent, bioaccumulative, and toxic.

As part of the National Defense Authorization Act for Fiscal Year 2020 (NDAA), Congress established two methods for adding PFAS to the TRI. Section 7321(b) of the NDAA added 14 PFAS by name or Chemical Abstract Service Registry Number and other PFAS that met specified criteria. Section 7321(c) of the NDAA provided that additional PFAS would be automatically added to the TRI effective January 1 of the calendar year subsequent to the occurrence of one of the following enumerated triggers: (1) EPA finalizes a toxicity value for the PFAS; (2) EPA makes a covered determination for the PFAS, i.e., a determination made by rule under the Toxic Substances Control Act (TSCA) section 5(a)(2) that a use of a PFAS or a class of PFAS is a significant new use; (3) the PFAS is added to a list of substances covered by a covered determination; or (4) the PFAS to which a covered determination applies is added to the list published under section 8(b)(1) of TSCA and is designated as an active chemical substance under TSCA § 8(b)(5)(B). Section 8(b) of TSCA requires EPA to compile a list of each chemical substance manufactured, processed, or imported in the United States. To date, 189 PFAS have been added to the TRI.

The final rule designates all PFAS listed, or to be listed, on the TRI as chemicals of special concern. This means that PFAS are no longer eligible to rely on the de minimis exemption that allows facilities to exclude small concentrations of chemicals in mixtures or other trade name products from release and waste management calculations. It also means that facilities can no longer rely on reporting ranges for releases or waste management transfers of less than 1,000 pounds but must, instead, report whole numbers. And it means further that facilities can no longer use the simplified Form A, which does not require reporting of release or waste management volumes, but must instead use the more detailed Form R.

In addition to designating PFAS as chemicals of special concern, EPA also eliminated a de minimis exemption in Supplier Notification Requirements that exempted suppliers from providing notifications for chemicals of special concern in mixtures or trade name products if the chemicals of special concern were present at concentrations below 1% of the mixture (or 0.1% for carcinogens). Because the de minimis exemption was based on concentration rather than amount, a mixture could include chemicals of special concern in excess of reporting thresholds without the purchaser being aware. A 100,000 pound mixture with a 0.9% concentration of PFAS, for instance, would include 900 pounds of PFAS—nine times the reporting threshold established under the NDAA—without imposing supplier notification requirements. Notably, elimination of this de minimis exemption affects not only PFAS but all chemicals of special concern.

The final rule will significantly increase visibility into the use of PFAS. By eliminating the de minimis exemption for chemicals of special concern in Supplier Notification Requirements, purchasers will have information about PFAS concentrations in mixtures and other trade name products used in their own businesses. And by eliminating the de minimis reporting exemption, as well as the availability of other burden reduction tools for chemicals of special concern, both the number and accuracy of reports should increase.

As for the burden of this increased visibility, EPA estimates that it will affect between 623 to 2,015 entities (of which 486 to 1,333 are estimated to be small businesses) and cost between $3.32-$10.73 million in the first reporting year and between $1.58-$5.11 million in each subsequent reporting year. EPA projects that the average cost per small firm will be $7,413-$7,520, depending on discount rate, and will not exceed 1% of annualized cost impacts for even the smallest firms.

Opinions on the reasonableness of the final rule, and particularly its cost estimates, are likely to diverge widely, and litigation challenging the final rule is always possible. What the final rule signals, however, is that EPA under the current administration has identified PFAS as a priority area for regulation, and industry should plan accordingly. Indeed, under its 2021 PFAS Strategic Roadmap (available here), EPA has taken a “whole-of-the-agency approach” to address PFAS with primary directives to (1) research; (2) restrict; and (3) remediate PFAS.

As the federal and state governments continue to take action to address PFAS across many program areas, Babst Calland attorneys continue to track these developments and are available to assist you with PFAS-related matters. For more information on this development and other remediation matters, please contact Joseph V. Schaeffer at (412) 394-5499 or jschaeffer@babstcalland.com, Jessica L. Deyoe at (202) 853-3489 or jdeyoe@babstcalland.com, or any of our other environmental attorneys.

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Abigail Reecer Joins Babst Calland

Abigail M. Reecer recently joined Babst Calland as an associate in the Energy and Natural Resources Group and Pipeline and HazMat Safety Practice. Ms. Reecer represents client in pipeline safety matters before the Pipeline and Hazardous Materials Safety Administration (PHMSA), state agencies, and federal courts.

Prior to joining Babst Calland, Ms. Reecer was an associate with Hollingsworth LLP. He is a 2021 graduate of Georgetown University Law Center.

CAA Gag Clause Attestation Deadline Soon Approaching

Employment Alert

(By Jenn Malik)

Employers and plan sponsors: December 31, 2023 is the deadline for submission of the inaugural Section 201 Gag Clause Prohibition Compliance Attestation (Attestation) to the Departments of Labor, Health and Human Services, and the Treasury (collectively, the Departments). The federal government passed the Consolidated Appropriations Act in 2020 (CAA) with the goal of improving price and quality transparency in healthcare. Specifically, Section 201 of the CAA prohibits employers/plan sponsors from entering into contractual arrangements that contain “gag clauses”, i.e. contractual provisions that would prevent a plan from accessing provider cost and quality information for plan participants. To ensure compliance, Section 201 requires that plans submit an annual attestation that the plan did not enter any agreements that contain gag clauses. This requirement applies to ERISA plans, non-federal governmental plans, church plans, grandfathered group health plans, and plans sold on the health insurance marketplace.

The Attestation can be completed online on CMS’s website either by the plan, on its own behalf, or a third party – typically, a TPA or health insurer. Submissions require an authentication code generated by the federal government to access the webform where the attestation can be made which is available here: https://hios.cms.gov/HIOS-GCPCA-UI.

The individual submitting the Attestation (Submitter), whether it be an authorized representative of the plan or a third-party, should be prepared to provide the following information to complete the Attestation:

• Submitter’s name and contact information;
• The Reporting Entity’s, i.e. Plan’s, information including a point of contact that can respond to the Departments’ questions about compliance with the prohibition on gag clauses;
• A certification that the Reporting Entity is in compliance with the prohibition on gag clauses and has not entered into an agreement with a provider, network, or association of providers, TPA, or other service provider offering access to a network of providers that would directly or indirectly restrict Reporting Entity from disclosing information on cost, quality of care data, and certain other information to participants, beneficiaries or enrollees.¹

Thereafter, plans must file an Attestation annually by December 31. Now is the time to confirm with your TPA or health coverage issuer(s) if they will be filing the Attestation on your plan’s behalf or to make arrangements to make the filing on behalf of your health plan. If you have any questions about the Section 201 reporting requirements in the CAA, please contact Jenn Malik at 412.525.6755 or jmalik@babstcalland.com.

¹ If they have not done so already, Plan Sponsors should immediately review their agreements with their TPAs and carriers to ensure that their contracts do not contain gag clauses.  To the extent that an agreement contains a gag clause, immediate steps should be taken to have those provisions removed so that the Plan Sponsor may comply with the Section 201 Attestation requirement. 

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University of Pittsburgh and Pennsylvania Department of Health Release Studies Exploring the Relationships Between Unconventional Natural Gas Development and Specific Health Issues in Southwestern Pennsylvania

The Foundation Mineral and Energy Law Newsletter

Pennsylvania – Oil & Gas

(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Matthew C. Wood)

In August 2023, the University of Pittsburgh School of Public Health and the Pennsylvania Department of Health (DOH) released three “observational epidemiological” studies presenting findings of potential health impacts from human exposure to unconventional natural gas development (UNGD) activities. The studies, which were conducted in eight counties in southwestern Pennsylvania, excluding the City of Pittsburgh, focused on three specific health issues: (1) asthma, (2) birth outcomes, and (3) certain childhood cancers.

In the Asthma Study, researchers reviewed medical treatment for asthma (categorized by severity), as well as how close the patient lived to UNGD activities (considering the number of wells, production volume, and the phase of well development, i.e., preparation, drilling, hydraulic fracturing, and production). The study found no relationship between asthma exacerbations and proximity to wells during the well pad preparation, drilling, or hydraulic fracturing phases, but found an increase during the production phase. The increases were fairly consistent in the lower, moderate, and higher exposure groups and therefore, the expected dose/response relationship (i.e., more asthma exacerbations with more exposure) was not found. See Univ. of Pittsburgh Sch. of Pub. Health, “Hydraulic Fracturing Epidemiology Research Studies: Asthma Outcomes” (July 31, 2023); DOH, “PA Health and Environment Study: Asthma” (Aug. 15, 2023).

For the Birth Outcomes Study, researchers reviewed birth records and the distance mothers lived from UNGD activities and other industrial activities. Researchers for the Birth Outcomes Study considered the number of wells, production volume, and the phase of well development, in addition to potential exposure from certain facilities, i.e., impoundment ponds, facilities accepting oil and gas waste, compressor stations, Superfund sites, and industrial sites with a toxic release inventory. Additionally, the study looked at exposure to fine particulate matter (PM_2.5) and birth outcomes. The study found next to no statistically significant association for small for gestational age (SGA) births and preterm births. The study reported a one-ounce decrease in birthweight associated with proximity to wells during the production phase and proximity to compressor stations, which they acknowledge presented little health risk. Although there were some increased risks for SGA in exposed groups, the results were inconsistent among exposure groups and did not support the expected dose/response relationship. The study found no association between exposure to PM_2.5 (from any source) and SGA or decreased birthweight, but found a statistically significant increased risk of preterm birth. These findings for PM_2.5 are inconsistent with the findings for proximity to wells and to other facilities. See Univ. of Pittsburgh Sch. of Pub. Health, “Hydraulic Fracturing Epidemiology Research Studies: Birth Outcomes” (July 31, 2023); DOH, “PA Health and Environment Study: Birth Outcomes” (Aug. 15, 2023).

The Childhood Cancer Study included a review of health records of children diagnosed with leukemia, lymphoma, central nervous system tumors, and bone cancers (including Ewing sarcoma). The study looked at associations between proximity to UNGD activities, Superfund sites, industrial facilities, and uranium tailing sites and these cancers in a group of persons who were surveyed to determine their proximity to the sites, and in a group of persons whose residence information was compiled from the birth addresses from their medical records. For the medical record group, no information about subsequent addresses was used in the study and the birth addresses were assumed to be their addresses through the date of cancer diagnosis. The study found no association between well proximity and leukemia, central nervous system cancers, or malignant bone tumors, including Ewing sarcoma. The study also found no association between compressor stations, impoundments, Superfund sites, industrial facilities, and waste facilities and these cancers. On the other hand, an association between uranium tailings sites and central nervous system tumors was found, but with a wide confidence interval. The study found an association between proximity to wells and rare childhood lymphomas (which risk was increased from 0.0012% to between 0.006% and 0.0084% for children living within one mile of a well) only in the group whose birth address was used and not in the group where more specific address information was obtained from surveys. See Univ. of Pittsburgh Sch. of Pub. Health, “Hydraulic Fracturing Epidemiology Research Studies: Childhood Cancer Case-Control Study” (Aug. 3, 2023); DOH, “PA Health and Environment Study: Childhood Cancer” (Aug. 15, 2023).

Critics of the studies have alleged methodological flaws, e.g., focusing on proximity instead of identifying actual exposure pathways, and highlighted that the reports did not demonstrate causation from UNGD activities to any of the studied health risks. See, e.g., “Pitt Studies Contain Serious Methodological Flaws,” Marcellus Shale Coal. Blog (Aug. 25, 2023). After release of the studies, DOH posted an online form allowing citizens to confidentially contact the agency about environmental health concerns (including concerns beyond the scope of the three studies).

Environmental Groups Challenge the Constitutionality of Act 96
On August 23, 2023, a coalition of environmental groups filed a petition for review in the Commonwealth Court of Pennsylvania in which they challenged the constitutionality of Act 96 of 2022, 58 Pa. Cons. Stat. Ann. §§ 2801–2826. See Verified Petition for Review, Clean Air Council v. Pennsylvania, No. 379 MD 2023 (Pa. Commw. Ct. Aug. 23, 2023). Act 96 amended Title 58 to provide for oil and gas well plugging oversight, bonding, and well plugging funds, and requires an operator to obtain a bond to cover the well and well site in the event the operator fails to remediate the site and plug the well.

Act 96 removed authority from the Environmental Quality Board (EQB) to adjust well bonding amounts for conventional wells for 10 years from the effective date (July 19, 2022) and reserved that authority to the Pennsylvania General Assembly. The Act set the bonding amount for a conventional well at $2,500 and allows operators to obtain blanket bond coverage for multiple wells for $25,000, which must be increased by $1,000 for each additional well drilled, with the total blanket bond not to exceed $100,000. The environmental groups—Clean Air Council, Earthworks, Citizens for Pennsylvania’s Future, Protect PT, and Sierra Club—allege that the statutory bond amounts are inadequate and do not cover the actual costs of remediation and plugging. As a result, they argue, operators are not incentivized to promptly clean up and remediate oil and gas wells, leaving the costs of addressing abandoned wells to the Pennsylvania taxpayers.

Among the claims for relief, the environmental groups are seeking declarations from the court that (1) unplugged abandoned wells pollute the environment and harm Pennsylvania’s natural resources, (2) the Commonwealth has a trustee obligation to ensure that conventional oil and gas wells permitted by the Commonwealth are promptly plugged and remediated upon abandonment, and (3) wells not plugged in accordance with statutory deadlines violate Pennsylvania citizens’ environmental right to a clean environment guaranteed by the Pennsylvania Constitution’s Environmental Rights Amendment.

Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

To Infinity and Beyond? Pa. Supreme Court Casts Doubt Upon Presumptive Constitutional Limit for Punitive Damages

Legal Intelligencer

(by Casey Coyle, Stefanie Mekilo and Austin Rogers)

1995 was a watershed year.  Michael Jordan returned to the NBA after a two-year hiatus, Brad Pitt was named Sexiest Man Alive by People magazine, and the world met Buzz Lightyear for the first time.  Today, Buzz remains a constant fixture in pop culture, thanks largely to his signature catchphrase: “To Infinity and . . . Beyond!”  Indeed, Buzz himself may use that phrase to describe the Pennsylvania Supreme Court’s recent decision in Bert Co. v. Turk, 298 A.3d 44 (Pa. 2023), which calls into question the presumptive constitutional limit for punitive damages awards.

Background

In 2017, four employees with non-solicitation agreements left their employment with The Bert Company d/b/a Northwest Insurance Services and joined First National Insurance Agency, LLC.  They moved as part of what is known in business parlance as a “lift-out,” a practice in which a group of employees from one company are hired by a competitor.  Northwest filed suit and obtained a preliminary injunction enforcing the agreements.  At the ensuing trial, the jury exonerated three employees from any liability and exonerated the corporate defendants on two claims.  While they found the remaining employee and corporate defendants liable on other claims, the jury only awarded Northwest $250,000 of the roughly $4 million in compensatory damages sought; the award was joint and several.  However, the jury awarded Northwest $2.8 million in punitive damages—representing an 11.2:1 ratio of punitive-to-compensatory damages on a per-judgment basis.

Appellants challenged the punitive damages award as unconstitutional.  Under U.S. Supreme Court precedent, courts must consider three guideposts when determining if a punitive damages award comports with the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded and the civil penalties authorized or imposed in comparable cases.  BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 575 (1996); State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003).  Appellants invoked all three guideposts, contending: (1) the degree of reprehensibility could not sustain the $2.8 million punitive damages award because, inter alia, Northwest only alleged economic harm and the challenged conduct “had [no] impact on the health or safety of others;” (2) a punitive-to-compensatory ratio over 10:1 “grossly exceeds the 4:1 guideline established by the Supreme Court;” and (3) the disparity between the jury’s punitive damages award and penalties imposed in other cases necessitated remittitur.

The trial court upheld the award.  Quoting State Farm, the court acknowledged “[f]ew awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”  The court nevertheless affirmed the award because, “[w]hile the individual ratios clearly fall within the single-digit ratio explained in State Farm, the global ratio only slightly exceeds this standard,” and “there is no explicit ratio that a punitive damages award may not surpass.”  The court only briefly touched on the first Gore guidepost (though it confined its analysis to Appellants’ “malicious intent” without discussing the other reprehensibility factors the U.S. Supreme Court articulated in State Farm) and did not address the third Gore guidepost at all.

A divided Superior Court panel affirmed the punitive damages award on appeal.  Bert Co. v. Turk, 257 A.3d 93 (Pa. Super. Ct. 2021).  Preliminarily, the majority limited its entire analysis to the second Gore guidepost.  The majority determined that, “‘[a]s a matter of law,’ the Supreme Court has expressly not established any bright-line ratio which a punitive damages award cannot exceed.”  Treating the absence of a bright-line rule the same as there being no limitation at all, the majority held that a punitive damages award over 11 times greater than the compensatory damages award is not presumptively unconstitutional where, as there, the compensatory damages award is substantial.  The majority cited just two cases to support this conclusion—both statutory bad-faith cases involving low compensatory damages awards and, thus, implicating one of the two exceptions to a single-digit multiplier.

The majority then turned to how to calculate the constitutionally permissible ratio of compensatory-to-punitive damages in a multiple-defendant case.  Absent U.S. Supreme Court guidance, the majority examined cases from other jurisdictions.  Finding the combined reasoning of the Ninth Circuit and Texas Supreme Court persuasive, the majority held that computation of damages ratios in multi-defendant cases is on “a per-defendant basis, rather than by aggregating all … compensatory and punitive damages on a per-judgment basis.”  Notably, neither the Ninth Circuit nor the Texas Supreme Court had reconciled their holdings with the problem of “double counting” (or more), under which the same compensatory damages are counted multiple times in calculating the constitutionally permissible ratio—even though it is logically impossible in joint-tortfeasor cases that each tortfeasor will pay the full amount of compensatories.  Regardless, the majority held that, because Appellants used a per-judgment basis to derive their damages ratio, “that ratio is erroneous as a matter of law.”

The majority, though, seemed to question the propriety of its ratio calculation.  Instead of concluding its opinion after calculating what it believed to be the constitutionally permissible ratio in multi-defendant cases (which resulted in a single digit ratio of punitives-to-compensatories for each Appellant), the majority took a belt-and-suspenders approach and considered the potential harm Northwest could have suffered by Appellants’ conduct.  The majority found that the potential harm “far exceeded” the $250,000 in actual harm sustained since the potential harm included the company’s remaining value—which the majority calculated on a cold record to be $9.15 million—for a total of $9.4 million.  The majority then held: “[g]iven the total disregard for the rule of law that these four tortfeasors displayed, the punitive damages that the jury awarded are light years away from the outer limits of the Due Process Clause.”

The Pennsylvania Supreme Court affirmed the punitive damages award on further review.  Bert, 298 A.3d at 48.  The Court held that a per-defendant calculation of the Gore ratio—dividing individualized punitive damages by total compensatory damages—was appropriate “under the circumstances,” adding it “generally endorse[s]” that approach as being “consistent with” due-process considerations.  The Court then rejected as moot Appellants’ argument regarding a ratio in excess of a single digit since that ratio was based on a per-judgment calculation.  Nonetheless, the Court addressed Appellants’ argument in dicta.  The Court stated that double-digit ratios “may trigger judicial scrutiny” and “require[] a closer examination of the justification” for the award, but expressly rebuffed any presumption of unconstitutionality.  The Court also held that, under the facts presented, “it was appropriate to consider the potential harm that was likely to occur from the concerted conduct of the defendants in determining whether the measure of punishment was both reasonable and proportionate.”

Impact

Much like Buzz Lightyear’s flightpath, Bert’s trajectory is uncertain.  The majority of courts have held based on State Farm and its progeny that, absent extraordinary circumstances, there is a presumptive 9.99:1 cutoff for punitives-to-compensatories when the compensatory damages award is substantial.  However, Pennsylvania courts may cite Bert for its proposition that a double-digit ratio is not presumptively unconstitutional, even though Bert’s language to that effect is dicta and inferior courts are bound by the U.S. Supreme Court’s interpretation of the U.S. Constitution.  Such a change in the law would have significant consequences, particularly given the recent trend of nuclear verdicts across the Commonwealth.

Moreover, by endorsing a “general” (as opposed to categorical) approach to calculating the constitutionally permissible ratio of punitive-to-compensatory damages, Bert leaves open the possibility that a per-judgment approach may be appropriate under certain circumstances.  Though it suggested a punitive damages award against a “single corporate entity” is one such instance, the Court provided no test or other guidance for selecting between the two approaches.  Nor did the Court indicate what standard of review will be applied by a reviewing court—or, if allocatur is granted, the Pennsylvania Supreme Court—in evaluating that selection.

Further, by sanctioning the Superior Court’s consideration of potential harm in the absence of a jury finding regarding same and where the trial court had issued an injunction eliminating such harm, Bert appears to authorize a reviewing court to consider potential harm in every case involving the constitutionality of a punitive damages award.  While the Supreme Court seems to rein in that possibility in Bert’s penultimate paragraph, suggesting consideration of potential harm is only appropriate when “the record includes evidence of the potential harm intended by the Defendants” and the jury is instructed it can consider potential harm, this remains an issue to watch.

Finally, Bert creates tension regarding the continued viability of the Gore guideposts in Pennsylvania.  The Supreme Court affirmed the finding that the punitive damages award was constitutional without applying the first or third guidepost or the intermediate appellate court doing the same.  Yet, all three guideposts remain the standard for assessing the constitutionality of a punitive damages award until the U.S. Supreme Court holds otherwise.

—————-

Casey Alan Coyle is a shareholder at Babst, Calland, Clements and Zomnir, P.C and Co-Chair of the firm’s Appellate Practice Group.  He focuses his practice on appellate law and complex commercial litigation.  Casey is also a former law clerk to Chief Justice Emeritus Thomas Saylor of the Pennsylvania Supreme Court.  He represented the appellants in Bert during the allocatur and merits briefing stage.  Contact him at 267-939-5832 or ccoyle@babstcalland.com

Stefanie Pitcavage Mekilo is a litigation associate at the firm.  She focuses her practice on complex commercial disputes involving theft of trade secrets, breach of noncompete and nonsolicitation agreements and other restrictive covenants, and related business torts.  She is a former law clerk to the Honorable Christopher C. Conner and the Honorable John E. Jones III of the U.S. District Court for the Middle District of Pennsylvania.  Contact her at 570-590-8781 or smekilo@babstcalland.com.

 Austin D. Rogers is a litigation associate at the firm.  He practices in a variety of litigation practice areas, including commercial, employment and labor, environmental, and energy and natural resources.  Contact him at 681-265-1368 or arogers@babstcalland.com.

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Reprinted with permission from the November 2, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.

Court Holds Pennsylvania’s RGGI Rule Unconstitutional

Environmental Alert

(by Kevin Garber and Jessica Deyoe)

On November 1, 2023, the Commonwealth Court of Pennsylvania held that the Pennsylvania Department of Environmental Protection’s CO₂ Budget Trading Program Regulation is an unconstitutional tax, declared the rule to be void, and enjoined DEP from enforcing it. See Bowfin KeyCon Holdings, LLC et al v. Pennsylvania Department of Environmental Protection and Pennsylvania Environmental Quality Board (No. 247 M.D. 2022). The Regulation would have linked Pennsylvania’s cap-and-trade program to the Regional Greenhouse Gas Initiative (RGGI), which is the regional, market-based cap-and-trade program designed to reduce carbon dioxide emissions from fossil-fuel-fired electric power generators with a capacity of 25 megawatts or greater that send more than 10 percent of their annual gross generation to the electric grid.

The Court reaffirmed its earlier July 8, 2022 opinion in which it preliminarily enjoined the Regulation as an unconstitutional tax. In this November 1 decision on the merits, the Court held that the Regulation constitutes a tax imposed by DEP in violation of the Pennsylvania Constitution.

Undisputed facts of record established that only 6 percent of RGGI auction proceeds are necessary to cover the cost of administering the program and that the annual revenue anticipated from RGGI would be three times greater than the total amount allocated to DEP from the General Fund in a single year. The Court found that the money to be generated by Pennsylvania’s participation in RGGI would be “grossly disproportionate” to the costs of overseeing participation in the program and DEP’s annual needs. Relying on the Pennsylvania Supreme Court’s opinion in Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947), which found that

[n]o principle is more firmly established in the law of Pennsylvania than the principle that a revenue tax cannot be constitutionally imposed upon a business under the guise of a police regulation, and that if the amount of a ‘license fee’ is grossly disproportionate to the sum required to pay the cost of the due regulation of the business the ‘license fee’ act will be struck down,

the Commonwealth Court concluded that Pennsylvania’s participation in RGGI “may only be achieved through legislation duly enacted by the Pennsylvania General Assembly, and not merely through the Rulemaking promulgated by DEP and EQB.

For more information, please contact Kevin Garber at (412) 394-5404 or kgarber@babstcalland.com, Jessica Deyoe at (202) 853-3489 or jdeyoe@babstcalland.com, or any of our other environmental attorneys.

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Babst Calland Ranked in 2024 Best Law Firms®

Babst Calland has been recognized in the 2024 edition of Best Law Firms®, ranked by Best Lawyers®, nationally in 8 practice areas and regionally in 31 practice areas:

• National Tier 1
  • Environmental Law
  • Litigation – Environmental
• National Tier 2
  • Land Use & Zoning Law
  • Natural Resources Law
  • Oil & Gas Law
• National Tier 3
  • Energy Law
  • Litigation – Construction
  • Mining Law
• Regional Tier 1
  • Pittsburgh
    • Bet-the-Company Litigation
    • Commercial Litigation
    • Construction Law
    • Corporate Law
    • Energy Law
    • Environmental Law
    • Information Technology Law
    • Land Use & Zoning Law
    • Litigation – Construction
    • Litigation – Environmental
    • Litigation – Land Use & Zoning
    • Municipal Law
    • Natural Resources Law
    • Water Law
  • Charleston-WV
    • Commercial Litigation
    • Energy Law
    • Environmental Law
    • Litigation – Environmental
    • Oil & Gas Law
• Regional Tier 2
  • Pittsburgh
    • Admiralty & Maritime Law
    • Labor Law – Management
  • Charleston-WV
    • Mining Law
    • Natural Resources Law
  • Washington, D.C.
    • Energy Law
    • Environmental Law
    • Litigation – Environmental
    • Oil & Gas Law
• Regional Tier 3
  • Pittsburgh
    • Mergers & Acquisitions Law
  • Charleston-WV
    • Bet-the-Company Litigation
    • Litigation – ERISA
    • Real Estate Law

Firms included in the 2024 Best Law Firms^® list are recognized for professional excellence with persistently impressive ratings from clients and peers. To be considered for this milestone achievement, at least one lawyer in the law firm must be recognized in the 2024 edition of The Best Lawyers in America^®.

Achieving a tiered ranking in Best Law Firms^® on a national and/or metropolitan scale signals a unique credibility within the industry. The transparent, collaborative research process employs qualitative and quantitative data from peer and client reviews that is supported by proprietary algorithmic technology to produce a tiered system of industry-led rankings of the top 4% of the industry.

Receiving a tier designation represents an elite status, integrity and reputation that law firms earn among other leading firms and lawyers. The 2024 edition of  Best Law Firms^® includes rankings in 75 national practice areas and 127 metropolitan-based practice areas. Additionally, one “Law Firm of the Year” was named in each nationally ranked practice area.

Click here to view Babst Calland’s profile.

Pennsylvania Commonwealth Court Holds RGGI Rule Unconstitutional

The Foundation Mineral and Energy Law Newsletter

Pennsylvania – Mining

(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Christina M. Puhnaty)

On November 1, 2023, the Commonwealth Court of Pennsylvania held that the Pennsylvania Department of Environmental Protection’s (PADEP) CO₂ Budget Trading Program Regulation (RGGI Rule) is an unconstitutional tax, declared the rule to be void, and enjoined PADEP from enforcing it. See Bowfin KeyCon Holdings, LLC v. PADEP, No. 247 M.D. 2022, 2023 WL 7171547 (Pa. Commw. Ct. Nov. 1, 2023).

After a lengthy rulemaking process, the RGGI Rule was published in the Pennsylvania Bulletin. See 52 Pa. Bull. 2471 (Apr. 23, 2022). The RGGI Rule would have linked Pennsylvania’s cap-and-trade program to the Regional Greenhouse Gas Initiative (RGGI), which is the regional, market-based cap-and-trade program designed to reduce carbon dioxide emissions from fossil-fuel-fired electric power generators with a capacity of 25 megawatts or greater that send more than 10% of their annual gross generation to the electric grid.

Two days after the RGGI Rule was published, a group of stakeholders filed a petition for review of the rule and an application for preliminary injunction in the commonwealth court. The court held a hearing on the preliminary injunction on May 10 and 11, 2022, and in a July 8, 2022, opinion, the court preliminarily enjoined the regulation as an unconstitutional tax.

In its November 1 decision on the merits, the court reaffirmed its earlier July 8, 2022, opinion, holding that the RGGI Rule constitutes a tax imposed by PADEP in violation of the Pennsylvania Constitution. Undisputed facts of record established that only 6% of RGGI auction proceeds are necessary to cover the cost of administering the program and that the annual revenue anticipated from RGGI would be three times greater than the total amount allocated to PADEP from the General Fund in a single year. The court found that the money to be generated by Pennsylvania’s participation in RGGI would be “grossly disproportionate” to the costs of overseeing participation in the program and PADEP’s annual needs, and thus was an illegal tax. In coming to its ruling, the court relied on the Pennsylvania Supreme Court’s opinion in Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947), which found that it is a firmly established principle of Pennsylvania law that a revenue tax cannot be constitutionally imposed upon a business under the guise of a police regulation, and that if the amount of a “license fee” is grossly disproportionate to the sum required to pay the cost of the due regulation, it should be struck down. The commonwealth court concluded that Pennsylvania’s participation in RGGI may only be achieved through legislation duly enacted by the Pennsylvania General Assembly, and not merely through a rulemaking promulgated by PADEP and the Environmental Quality Board. The Commonwealth has not publicly stated whether it will appeal the decision, but would have until November 30, 2023, to do so.

Pennsylvania’s RGGI Working Group Concludes Work
Prior to the Commonwealth Court of Pennsylvania’s ruling discussed above, on September 29, 2023, Governor Shapiro’s office released the RGGI Working Group Memorandum and a corresponding press release announcing that the RGGI Working Group had concluded its work. See Press Release, “RGGI Working Group Concludes Its Work, Co-Chairs Hail Collaborative Process That Brought Diverse Group Together & Reached Consensus on a Number of Key Issues” (Sept. 29, 2023). Governor Shapiro established the RGGI Working Group in April 2023 and tasked it with evaluating the merits of the commonwealth’s participation in Regional Greenhouse Gas Initiative (RGGI) in the context of a three-part test: (1) protect and create energy jobs, (2) take real action to address climate change, and (3) ensure long-term, reliable, affordable power to consumers.

The RGGI Working Group was chaired by Jackson Morris of the Natural Resources Defense Council and Mike Dunleavy of the International Brotherhood of Electrical Workers Local 5 in Pittsburgh. Other members included representatives from organized labor, the energy industry (including fuel production, electric utilities, and coal, natural gas, and nuclear generation), environmental groups, and consumer advocates.

The Working Group reached a consensus that (1) greenhouse gas (GHG) emissions reductions are both necessary and inevitable and (2) a revenue-generating cap-and-invest carbon regulation for the power sector supporting the commonwealth’s energy transition would meet Governor Shapiro’s emissions reduction goals. The memorandum did not include a recommendation as to the form that a cap-and-invest program should take.

The Working Group further reached a consensus on the following recommendations:

• Maximizing job creation and other benefits of federal funding from the Inflation Reduction Act and other appropriations;
• Initiating dialogue and cooperation with neighboring states and other PJM states;
• Legislative codification as the preferred method of implementing any initiatives;
• Creating new councils and collaboratives to guide policymaking;
• Utilizing the RGGI program to satisfy proposed federal Clean Air Act GHG emission reduction standards if the program is otherwise adopted;
• Convening a bipartisan process to evaluate the recommendations of the new collaboratives to develop a statewide energy and climate plan that addresses jobs, reliability, consumer protection, and tangible emissions reductions;
• Implementing this energy and climate plan and seeking a PJM-wide cap-and-invest program through legislation;
• Ensuring the preservation of existing nuclear generation and other clean energy resources in the commonwealth; and
• Protecting Pennsylvania energy jobs and ensuring that consumers do not unreasonably shoulder cost associated with the clean energy transition.

PADEP’s Interim Final Environmental Justice Policy Now in Effect
The Shapiro administration recently released its Interim Final Environmental Justice Policy (Interim Final Policy) and latest Environmental Justice Mapping and Screening Tool (PennEnviroScreen). The Policy took effect on September 16, 2023, when official notice of the interim final rulemaking was published in the Pennsylvania Bulletin. See 53 Pa. Bull. 5854 (Sept. 16, 2023).

The Commonwealth first adopted an environmental justice policy (EJ Policy) in 2004 to provide citizens in EJ communities enhanced public participation opportunities during certain Pennsylvania Department of Environmental Protection (PADEP) permit application processes. In 2018, PADEP circulated a draft revised policy for public comment, but ultimately withdrew the proposed revisions in 2020 following receipt of public comments. After conducting further outreach in 2021, PADEP proposed an updated policy that would refine and expand the scope of the withdrawn 2018 revisions. On March 12, 2022, PADEP released a draft of the EJ Policy for public comment, and subsequently received more than 1,200 comments during the comment period.

The Interim Final Policy is the latest version of the EJ Policy to have been released by PADEP since the comment period closed last spring. Although PADEP had previously indicated that it was working to prepare a Comment Response Document in tandem with the Interim Final Policy, it has yet to release such a document. The Interim Final Policy will likely have a tangible impact on permitting and enforcement processes for various industries going forward.

The Interim Final Policy requires use of the PennEnviroScreen tool, which will replace PADEP’s current EJ Areas Viewer tool. PennEnviroScreen is currently live and fully accessible to the public. PADEP began using the tool on September 16, 2023, to determine whether facilities are located in EJ areas based on 32 environmental, health, socioeconomic, and demographic indicators. Industry should be aware that PADEP plans to regularly update the criteria used to evaluate areas where the Interim Final Policy applies (EJ areas). To allow for a level of certainty, however, the Interim Final Policy states that “the EJ Areas in effect at the key decision point of the project will follow that project.” Interim Final Policy § III; see also id. at Appendix B, “Environmental Justice Area Criteria.”

PADEP regulated activities that are listed as “Trigger Projects” in Appendix C of the Interim Final Policy automatically require application of the Policy’s provisions. Examples include various mining permits (bituminous and anthracite underground and surface mines), waste permits (landfills, transfer stations, commercial incinerators), and air permits (new major source of hazardous pollutants or criteria pollutants). Id. at Appendix C, “Public Participation Trigger Projects.” While the 2022 Draft Policy had classified oil and gas unconventional well permits as Trigger Projects, the Interim Final Policy does not; however, various types of unconventional oil and gas projects are listed as “Opt-In Projects.” Other Opt-In Projects include resource recovery facilities, scrap metal facilities, and “other projects as identified by the community.” Id. After receiving a request from the community or a PADEP staff member to apply the Interim Final Policy to Opt-In Projects, PADEP may decide to do so using its “discretion and expertise.” Id. § V(A)(2).

PADEP plans to form an Enforcement and Compliance Team to

prioritize inspection and monitoring at sites which have multiple authorizations, multiple on-record complaints, habitual violations sites with high volume generation or unique permit conditions, EJ communities, and sites of significant geographic location and to ensure timely and appropriate responses to violations, implement an efficient criminal referral protocol, and ensure effective collaboration.

Id. § VI(B)(1). The Interim Final Policy also indicates that PADEP interprets impacts to the environment or the public health and safety at an EJ area to be a relevant factor in the calculation of penalties for violations, and may include a dollar figure in the penalty amount for such a violation “provided there is adequate evidence to support a factual finding that the violation caused harm and the penalty amount fits within the statutory limits.” Id. § VI(B)(2).

The Interim Final Policy’s publication date was also the start of a formal public comment period that ran until November 30, 2023. Receipt and review of public comments on the Interim Final Policy will be yet another “critical benchmark towards the final EJ Policy,” which is due from PADEP in 2024.

PADEP Finalizes General Operating Permit for Coal-Mine Methane Enclosed Flares
On September 23, 2023, PADEP published in the Pennsylvania Bulletin notice that the agency finalized its General Plan Approval and/or General Operating Permit for Coal-Mine Methane Enclosed Flares (GP-21). See 53 Pa. Bull. 6005 (Sept. 23, 2023). New or modified coal-mine methane enclosed flares in Pennsylvania are now subject to GP-21. Coal-mine methane enclosed flares with actual emission rates less than the following are exempted from GP-21’s permitting requirements:

• 4 tons per year (tpy) of carbon monoxide (CO) from a single enclosed flare or 20 tpy of CO from multiple enclosed flares;
• 1 tpy of nitrogen oxides (NOx) from a single enclosed flare or 5 tpy of NOx from multiple enclosed flares;
• 1.6 tpy of the oxides of sulfur (Sox) from a single enclosed flare or tpy 8 of the SOx from multiple enclosed flares;
• 0.6 tpy of particulate matter with a diameter of 10 microns or less (PM₁₀) from a single enclosed flare or 3 tpy of PM₁₀ from multiple enclosed flares;
• 1 tpy of volatile organic compounds (VOCs) from a single enclosed flare or 5 tpy of VOCs from multiple enclosed flares; and
• 0.5 tpy of a single hazardous air pollutant (HAP) from a single enclosed flare or 1 tpy of multiple HAPs from multiple enclosed flares. The HAPs may not contain Polychlorinated Biphenyls (PCBs), Chromium (Cr), Mercury (Hg), Lead (Pb), Polycyclic Organic Matter (POM), Dioxins, or Furans.

Those coal-mine methane enclosed flares that are not exempt from GP-21’s requirements will have to meet the best available technology (BAT) compliance requirements established in GP-21. These requirements include operating the enclosed flare to (1) limit NOx emissions to less than or equal to 0.08 lb/MMBtu, (2) limit CO emissions to less than or equal to 0.30 lb/MMBtu, and (3) limit visible emissions to periods not to exceed an aggregate total of 60 seconds during any 15-minute period. GP-21 also requires that permittees sample and conduct a fractional gas analysis at the “inlet gas stream to the enclosed flares” on a quarterly basis to determine VOC, methane, and ethane concentrations, and the heat content of the inlet gas stream.

The Pennsylvania Department of Environmental Protection (PADEP) issued GP-21 in accordance with section 6.1(f) of Pennsylvania’s Air Pollution Control Act, 35 Pa. Stat. § 4006.1(f), and 25 Pa. Code ch. 127, subch. H. Industry groups have appealed PADEP’s issuance of GP-21 to Pennsylvania’s Environmental Hearing Board.

Copyright © 2023, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

Babst Calland Opens Harrisburg Office

Babst Calland today announced the opening of its office in Harrisburg, Pa., and the addition of two experienced litigation attorneys, Michael Libuser and Stefanie Pitcavage Mekilo.

Led by Shareholder Casey Alan Coyle, who joined the firm in August 2022, the Harrisburg office provides legal counsel for local, regional, and national businesses, industry sectors, and trade associations with focused practices in litigation, energy and natural resources, environmental, and legislative and regulatory affairs, among others.

The Harrisburg team of attorneys offers deep litigation experience in matters pending before state and federal appellate courts, with a particular emphasis on appeals before the Pennsylvania Supreme Court. They also represent clients in disputes pending before the U.S. District Court for the Middle District of Pennsylvania and state trial courts throughout Central Pennsylvania and matters brought before the Pennsylvania Commonwealth Court as part of its original jurisdiction.

“It is an exciting time for Michael and Stefanie to join Babst Calland and open a new office in Harrisburg,” said Mr. Coyle. “The Harrisburg office is uniquely poised to offer its clients the best of both worlds—pairing the service and pricing of a litigation boutique with the deep-bench expertise and resources of a law firm with more than 35 years of experience serving clients ranging from Fortune 100 companies to small and mid-sized businesses nationwide.”

Mr. Libuser represents clients in state and federal trial and appellate courts, with a particular emphasis on cases before the United States District Court for the Middle District of Pennsylvania. He served as a law clerk to the Honorable Yvette Kane, Senior United States District Judge for the Middle District of Pennsylvania, where he drafted opinions for the Third and Ninth Circuit Courts of Appeals and handled a wide range of district court matters involving complex civil litigation, commercial contracts, administrative law, trade secrets, and various statutory claims. Before that, he served as a law clerk to the Honorable Karoline Mehalchick, Chief United States Magistrate Judge for the Middle District of Pennsylvania, and previously served as the Principal Law Clerk to the Honorable Jeanette Rodriguez-Morick, an Acting Supreme Court Justice and Judge of the New York State Court of Claims.

Mr. Libuser earned his J.D. from Benjamin N. Cardozo School of Law in 2012. He graduated with honors from Stony Brook University in 2006.

Ms. Mekilo is a civil litigator who concentrates her practice in state and federal trial courts, with particular emphasis on cases before the U.S. District Court for the Middle District of Pennsylvania. Ms. Mekilo draws on more than a decade of trial-court experience in the federal judiciary to guide clients through all aspects of the litigation process. She focuses her practice on complex commercial disputes involving theft of trade secrets; breach of noncompete and nonsolicitation agreements and other restrictive covenants; breach of fiduciary duties, tortious interference, and related business tort claims; labor and employment; and emergency injunction litigation. Ms. Mekilo also has experience in antitrust, environmental, securities, trademark infringement, product liability, class action, and multidistrict litigation. Prior to joining Babst Calland, Ms. Mekilo served as a judicial law clerk in the United States District Court for the Middle District of Pennsylvania for 12 years—first as a term law clerk to Judge John E. Jones III, then as the managing law clerk to Judge Christopher C. Conner.

Ms. Mekilo received her J.D. from Widener University Commonwealth Law School in 2011, graduating summa cum laude at the top of her class. She earned her B.A. in Business Administration from Bloomsburg University of Pennsylvania in 2008. Ms. Mekilo is an active member of the greater Harrisburg community. She currently serves as Secretary of the Middle District Chapter of the Federal Bar Association, as well as Vice President and President-Elect of the Junior Board of the YWCA of Greater Harrisburg.

Commenting on these moves and the opening of the Harrisburg office, Managing Shareholder Donald C. Bluedorn II said, “We are very pleased to welcome this fine team of attorneys to Babst Calland and are thrilled to open a new office in Harrisburg to work collaboratively across our other offices to serve the needs of existing and new clients in the region.”

A Quick Lesson on Responding to (and Avoiding) Inadvertent Document Productions

Pretrial Practice & Discovery

American Bar Association Litigation Section

(by Joseph Schaeffer)

Whether attorneys have encountered an inadvertently produced privileged document in their own practice, it is a common enough occurrence that the procedure is well established: Suspend further review, sequester the document, and notify opposing counsel. What is not well-established is what attorneys should do when they encounter inadvertently produced non-privileged documents. A New York trial court recently dealt with this situation in a case of first impression.

In Pursuit Credit Special Opportunity Fund, L.P. v. Krunchcash, LLC et al., No. 615070/2022 (N.Y. Sup. Ct. Oct. 4, 2023), the plaintiff’s financial consultant had responded to a subpoena from the defendants by producing multiple emails with a Dropbox link in the message body. As the defendants discovered early in their review, the Dropbox link not only was “live,” it provided access to a bevy of the plaintiff’s sensitive internal files—including folders named “Legal,” “Tax,” and “Financial.” Rather than immediately notify plaintiff’s counsel, though, the defendants reviewed the Dropbox (with the exception of the “Legal” folder) and sent the plaintiff a letter about a week later that referenced the internal documents as part of a demand for voluntary dismissal of the litigation. The plaintiff responded by moving the trial court to order the defendants to show cause why they should not be sanctioned for accessing the Dropbox files.

The trial court granted the plaintiff’s motion and entered a sanction against the defendants of nearly $156,000, representing the plaintiff’s costs in bringing the motion. Though acknowledging the absence of directly applicable authority, the trial court found guidance in Rule 4.4 of the New York Rules of Professional Conduct. That rule imposes a notification obligation on New York attorneys who receive documents, writings, or electronically stored information that they reasonably should know to have been inadvertently produced—notably without providing for any limitation to privileged documents. The trial court found that the defendants should reasonably have known that the plaintiff could not have intended to provide access to its internal file system through a Dropbox link contained in email messages found by a third party. From there, the trial court concluded fairly easily that the defendants had failed to properly notify the plaintiff of the inadvertent production and, in fact, exacerbated matters by leveraging the inadvertent production as the basis for demanding voluntary dismissal of the litigation.

There are several lessons to be drawn from this case. One lesson is that the entire matter could have been avoided had the plaintiff implemented stronger security measures from the outset. Indeed, the plaintiff’s maintenance of internal files on an “open” Dropbox, which it then shared with third parties using non-expiring links, seems nothing short of negligent. But another lesson is that attorneys have a duty to notify opposing parties of documents that reasonably appear to have been inadvertently produced—no matter how negligent the inadvertent production. The parties’ failure to follow those respective lessons here led to an expensive (and embarrassing) series of events that they now surely wish to have avoided.

Joseph Schaeffer is a shareholder at Babst Calland in Pittsburgh, Pennsylvania.

To view the article published online by the American Bar Association Litigation Section, click here.

© 2023. A Quick Lesson on Responding to (and Avoiding) Inadvertent Document Productions, Pretrial Practice & Discovery, American Bar Association Litigation Section, October 31, 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.