Articles, Alerts & Perspectives Archive

Federal Court Directed to Rule on Challenge to WV Pooling Statute

Energy Alert

(by Robert Stonestreet and Austin Rogers)

A federal appeals court has instructed a lower court to resolve a pending suit challenging the constitutionality of West Virginia’s oil and gas pooling and unitization law. The federal district court previously declined to resolve certain constitutional issues presented in the suit on the grounds that those issues should be decided by a state court instead of a federal court.

In 2022, the West Virginia Legislature enacted Senate Bill 694 to revise West Virginia law governing the pooling and unitization of oil and gas formations associated with horizontal well development. Pooling and unitization essentially involves combining separately owned properties into a single “unit” through which one or more horizontal wells are drilled. The oil and gas produced from the horizontal well is then allocated among all the properties in the unit for purposes of calculating production royalties payable to the mineral owners.

Prior to Senate Bill 694 becoming effective on June 7, 2022, formation of a pooled unit for a horizontal well drilled through “shallow” oil and gas formations, which includes the Marcellus Shale, required consent of 100% of the mineral owners for all the properties to be included in the unit. This 100% consent requirement did not apply to horizontal wells drilled through “deep formations” such as the Utica Shale. One of the more significant changes made by SB 694 was to allow the West Virginia Oil and Gas Conservation Commission to approve units for shallow formations where at least 75% of the mineral owners consent, provided other requirements are also satisfied. This means that up to 25% of a unit could potentially include properties for which the mineral owner did not consent to being part of a unit.

Before Senate Bill 694 became effective, a pair of mineral owners (Scott Sonda and Brian Corwin) filed a lawsuit in the federal District Court for the Northern District of West Virginia seeking to preclude the law from taking effect. Governor Jim Justice was the only defendant named in the case. In their suit, Sonda and Corwin alleged that the law was illegal for several reasons, including the claim that the law authorizes the unconstitutional taking of private property without just compensation and deprives landowners of due process of law.

Federal Judge John Preston Bailey initially dismissed all of their claims for two reasons. First, Judge Bailey concluded that Sonda and Corwin lacked standing to bring the challenge because (a) their property had not been pooled into a unit without their consent and no operator had sought approval of a unit to include their property without their consent; and (b) the Commission, not the Governor, has the power to directly enforce Senate Bill 694.

Second, Judge Bailey ruled that, even if Sonda and Corwin established standing, Governor Justice had constitutional immunity from the suit because he had no direct authority to implement Senate Bill 694. Rather, the Commission has the authority to implement the law.

Instead of dismissing their suit entirely, Judge Bailey granted leave for Sonda and Corwin to amend their complaint to name the Commission as a defendant instead. Sonda and Corwin did so, and also named as defendants each person who serves on the Commission. The amended complaint still does not allege that mineral properties owned by Sonda or Corwin were pooled into a unit without their consent. Instead, the amended complaint attempts to address the standing issue by alleging that Senate Bill 694 effectively eliminates their ability to challenge whether they are being fairly compensated for oil and gas produced from their property that was pooled into a unit with their consent.

The Commission moved to dismiss the amended complaint for various reasons, including Sonda’s and Corwin’s lack of standing to bring the case. Judge Bailey did not address the standing issue, but agreed with the Commission with respect to three of the five claims asserted by Sonda and Corwin. Judge Bailey then abstained from addressing the Commission’s arguments for dismissal of the other two claims, which asserted constitutional violations, because he believed that those issues were more appropriate for resolution by a state court instead of a federal court.

The Commission appealed Judge Bailey’s decision to abstain from addressing the arguments for dismissal of the constitutional claims. By opinion issued on January 31, 2024, the Fourth Circuit Court of Appeals ruled that Judge Bailey should not have abstained. The appellate court also directed Judge Bailey to first address the standing issue before addressing any other pending issue. The opinion does not specify a deadline for Judge Bailey to rule on those issues. If Judge Bailey finds that Sonda and Corwin continue to lack standing to assert their claims, the case will presumably be dismissed on that ground alone. If Judge Bailey concludes that Sonda and Corwin have established standing, Judge Bailey will likely address the merits of the Commission’s other arguments for dismissal.

If you have questions about this lawsuit or West Virginia law governing pooling and unitization, please contact either of the following attorneys to learn more: Robert Stonestreet at rstonestreet@babstcalland.com or 681.265.1364 or Austin Rogers at arogers@babstcalland.com or 681.265.1368.

Forum Non Conveniens – Pennsylvania’s Jurisdiction Jigsaw Puzzle

Legal Intelligencer

(by Carla Castello and Casey Alan Coyle)

Few concepts are more steeped in Pennsylvania law than the doctrine of forum non conveniens. Memorialized in Pennsylvania Rule of Civil Procedure 1006, the doctrine provides defendants a “necessary counterbalance to a plaintiff’s choice of forum to insure [sic] fairness and practicality.” Bratic v. Rubendall, 99 A.3d 1, 6 (Pa. 2014) (cleaned up). Historically, to establish forum non conveniens, a defendant had to show the plaintiff’s chosen forum is either oppressive or vexatious without any particular form of proof. Through a series of recent decisions, however, the Pennsylvania Superior Court has sown uncertainty in the once-settled area of the law, subjecting some litigants to new, more rigid requirements and others to the traditional, flexible standard that has existed under Pennsylvania law for over a quarter century. With each new decision, the intermediate appellate court reveals another piece of the puzzle. But as a fragmented image takes shape, litigants and trial courts are looking to the Pennsylvania Supreme Court to solve the puzzle.

Background

Forum non conveniens was once a reliable tool for defendants to transfer a case to a more appropriate forum in the Commonwealth if litigating in the plaintiff’s chosen forum would be oppressive or vexatious. In applying the doctrine, the Pennsylvania Supreme Court has consistently emphasized the necessity of a fact-specific assessment, refusing to impose a specific standard of proof and instead focusing on the totality of the circumstances with considerable discretion granted to trial courts. Bratic, 99 A.3d at 6-8; Cheeseman v. Lethal Exterminator, Inc., 701 A.2d 156 (Pa. 1997).

But at least two Superior Court panels have imposed new, more rigid requirements holding defendants to a specific level of proof for a forum non conveniens challenge. Ehmer v. Maxin Crane Works, L.P., 296 A.3d 1202 (Pa. Super. Ct. 2023); Tranter v. Z&D Tour, Inc., 303 A.3d 1070 (Pa. Super. Ct. 2023). The heightened standard requires movants to establish that potential witnesses claiming burden or hardship are “key witnesses” possessing testimony “relevant and necessary” to the defense. Yet, the Superior Court subsequently issued two additional decisions on this subject, both of which fail to acknowledge the purported change in law or to clarify when one standard applies over the other. See Smith v. CMS W., Inc., 1002 EDA 2022, 2023 WL 7119812 (Pa. Super. Ct. Oct. 30, 2023); Austin v. Amazon.com, Inc., 756 EDA 2023, 2023 WL 7273842 (Pa. Super. Ct. Nov. 3, 2023). A recent article summarized the issue as a “war of words” in which trial courts are asked to decide whether the plaintiff’s selected forum is vexatious or oppressive, or merely inconvenient to the defendant. “Forum Selection—Forum Non ‘Convenience’: No Need for ‘Corrective Action,’” The Legal Intelligencer (Dec. 1, 2023). But without consistency or a clear standard, the bench and the bar are deprived of uniform guidance as to how a case may be transferred out of an oppressive venue.

The Ehmer-Tranter Standard

Parties seeking a change of venue bear a heavy burden to justify the request under the new Ehmer–Tranter standard—a burden which includes the need to demonstrate their claimed hardships on the record when applied. In Ehmer, for example, the site of the relevant accident, the fact witnesses expected to be called at trial, all records related to the plaintiff’s medical treatment, and the plaintiff himself were all located more than 100 miles from Philadelphia County where the case was filed. The trial court transferred the case but the Superior Court reversed, finding the trial court erred by not first determining whether the testimony from the affiants and potential witnesses were “relevant and necessary” to the defense. Ehmer, 296 A.3d at 1207-08. Without recognizing the novel standard that it announced or its break from precedent, the panel proclaimed that a transfer request based on an allegation of witness hardship must (1) identify the allegedly encumbered witness and (2) make a general statement of what testimony that witness will provide. “Only after the defendant has placed detailed information on the record establishing that the witness possesses information relevant to its defense should the trial court proceed to consider the alleged hardship posed to the witness,” the panel held.

The Superior Court augmented the new standard further in Tranter. There, the accident giving rise to the claims occurred over 250 miles from Philadelphia County; none of the plaintiffs reside in or received medical care there; none of the defendants reside or maintain a principal place of business in Philadelphia County; and of the dozens of potential witnesses, including emergency, medical, police, and investigating officers, none work or reside there and many reside no closer than 240 miles from Philadelphia County. The only arguable connection with Philadelphia is the fact that some of the defendants conduct business there—but that is irrelevant to a forum non conveniens analysis. The trial court agreed and granted the petitions to transfer to Westmoreland County.

Writing on the heels of Ehmer, the Superior Court panel held that, to satisfy the forum non conveniens standard, a defendant must establish that the potential witness is “‘key’ to the defense.” The panel then proceeded to apply a de novo standard of review and probe the facts relied upon by the trial court. The result was the panel vacating the transfer orders and discounting 11 affidavits and 32 statements from potential witnesses who worked and resided 240 or more miles from Philadelphia County, on the basis that the movants failed to establish these witnesses were “key” witnesses whose testimony is “relevant and necessary” to the case.

Ehmer and Tranter mark a clear departure from precedent, which makes clear that no particular form of proof is required to establish that a forum is oppressive under forum non conveniens. Rather, “[a]ll that is required is that the moving party present sufficient factual basis for the petition.” Bratic, 99 A.3d at 9. These holdings also diverge from other Superior Court decisions affirming transfer, including two subsequent decisions (Smith and Austin) that make no attempt to reconcile the inconsistent standards. Petitions for allowance of appeal are currently pending before the Pennsylvania Supreme Court in both Ehmer and Tranter.

Impact

The notable lack of consistency among recent Superior Court decisions on forum non conveniens leaves litigants to grapple with an unpredictable standard at a time when forum non conveniens has become increasingly vital. Earlier this year, the U.S. Supreme Court rejected a due-process challenge to Pennsylvania’s consent-by-registration statute in Mallory v. Norfolk Southern Railway Co., 600 U.S. 122 (2023), where a nonresident brought a lawsuit against an out-of-state corporation. Although other potential challenges to that statute remain pending, as it currently stands, corporate defendants who are not “at home” in Pennsylvania now face the real prospect of suit in the Commonwealth for claims arising in any jurisdiction by a plaintiff with no ties to Pennsylvania. Then, in Hangey v. Husqvarna Professional Products, 278 A.3d 301 (Pa. 2023), the Pennsylvania Supreme Court held that venue could lie over a defendant who does only 0.005% of its annual business in forum. Thus, a corporation may be sued in a venue even if they have a de minimis amount of business in the county. When read together, Mallory and Hangey make forum non conveniens a defendant’s last line of defense (no pun intended) against forum shopping. But where forum non conveniens once operated as a safety net to protect defendants from oppressive or vexatious forum shopping, the Ehmer–Tranter standard makes it even more likely that Pennsylvania disputes will be adjudicated wherever they are filed—regardless of the burden on the parties and witnesses—exacerbating the Commonwealth’s burgeoning forum-shopping problem. Mallory, 600 U.S. at 153-54 (Alito, J., concurring in part and concurring in the judgment) (noting that Philadelphia is a venue that is “reputed to be especially favorable to tort plaintiffs”).

The irony of the new, heightened standard is it will harm Pennsylvania’s busiest trial court by causing more cases to remain in the Philadelphia County Court of Common Pleas at a time when it is already overburdened with an influx of cases resulting from the repeal of Pennsylvania’s medical malpractice venue rule. Caseload issues aside, meeting the “key witness” requirement is practically impossible for litigants. Forum non conveniens is raised on a petition to transfer at the preliminary stages of litigation—before discovery and before the parties have fully developed their claims and defenses for trial. Even when venue discovery occurs, inquiry into the lawsuit’s merits is often precluded or limited, so it is difficult if not impossible to establish a witness’s relevance at such a preliminary stage. It is therefore unreasonable, unworkable, and inefficient to mandate at this early stage that defendants establish certain witnesses (including third-party witnesses) as key witnesses and identify with precision the relevance and necessity of each witness’s testimony for purposes of forum non conveniens. Indeed, if the defendants in Tranter cannot satisfy the Ehmer–Tranter standard, it is difficult to imagine any set of facts that could, making plaintiff’s chosen forum virtually unassailable.

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Carla Castello is a shareholder at Babst Calland. She focuses her practice on complex commercial litigation and class actions. Carla is a former law clerk to the Honorable Nora Barry Fischer of the U.S. District Court for the Western District of Pennsylvania. Contact her at 412-394-6516 or ccastello@babstcalland.com.

Casey Alan Coyle is a shareholder at Babst Calland and Co-Chair of the firm’s Litigation Group. He focuses his practice on appellate law and complex commercial litigation. Casey is a former law clerk to Chief Justice Emeritus Thomas Saylor of the Pennsylvania Supreme Court. Contact him at 267-939-5832 or ccoyle@babstcalland.com.

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Public Advertising Cheat Sheet: A Local Government Guide to Mandatory Advertising and Posting Requirements

Legal Intelligencer

(by Steve Korbel, Anna Jewart and Anna Hosack)

Last week, thousands of newly elected public officials took office across Pennsylvania and began their duties. Whether beginning a first or fifth term, those in public office must review their obligations regarding open meetings and public engagement. Several statutes in Pennsylvania impose open meeting, public comment, and advertising requirements. This “cheat sheet” will focus on the most common requirements for local governments, and specifically will address two key statutes: the Pennsylvania Sunshine Act, 65 Pa.C.S. § 701–716 (the “Sunshine Act”) and the Pennsylvania Municipalities Planning Code, 53 P.S. § 10101 et seq, (the “MPC”), which local government officials are likely to come across in their duties.

The Sunshine Act is the primary “open meetings” law for the Commonwealth of Pennsylvania. Its intent is to promote the right of the public to be present at all meetings of public agencies and to witness the deliberation, policy formulation, and decision-making of those agencies. In general, it requires that agencies, including local governing bodies and their committees, take official action at a public meeting. The MPC is the statute that authorizes local zoning and other land use regulations. It sets additional requirements for actions involving zoning, subdivision, and land development.

The Sunshine Act and MPC are not the only statutes that regulate how official action is taken. Municipal enabling legislation such as the Borough Code, 8 Pa.C.S. §101 et seq., First Class Township Code, 53 P.S. §55101 et seq., and Second Class Township Code, 53 P.S. §65101 et seq., impose advertising and other requirements for the approval of ordinances, bidding processes, approval of budgets, and other matters. Local officials should consult with their solicitor to confirm they have considered all relevant requirements before taking official action on a matter.

A. The Sunshine Act and Regular Public Meeting Requirements.
The following requirements apply to every meeting at which an agency wishes to take official action or deliberation, regardless of the subject matter.

1. 1. Official Action and deliberations by a quorum of the members of an agency shall take place at a meeting open to the public unless closed under § 707 of the Sunshine Act.
    With certain limited exceptions, every decision, vote, recommendation, establishment of policy, or action on any motion, proposal, resolution, rule, regulation, ordinance, report, or order must occur at a “public meeting.” Any discussion of agency business held for the purpose of making a decision must occur at a public meeting.

1. 1. All Public Open Meetings Require Advance Public Notice in a Print Newspaper of General Circulation in the Municipality and Posting of the Municipal Office or Meeting Location.
    For a meeting to be considered an open meeting under the Sunshine Act, the agency must give advance “public notice” of the meeting. “Public Notice” means publication of a notice of the place, date, and time of the meeting in a newspaper of general circulation in the political subdivision where the meeting will be held, and posting of the notice prominently at the principal office of the agency holding the meeting or at the public building in which the meeting is to be held.

1. 1. Regular Meetings May be Advertised Annually, no less than 3 Days in Advance of the First Meeting.
    The “regular meetings” of an agency are those set annually for the remainder of the year. The Sunshine Act requires that all agencies give “public notice” of its first regular meeting of each calendar year not less than three (3) days in advance of the meeting as well as public notice of the schedule of its remaining public meetings for that year.

1. 1. Special Meetings and Rescheduled Regular Meetings Must be Advertised no less than 24 Hours in Advance of the Start of the Meeting.
    “Special meetings,” (those scheduled by an agency after its regular schedule of meetings has been established) or changes to the regular schedule must be advertised at least 24 hours in advance of the start of the meeting.

1. 1. An Agenda Listing Every Item on Which the Agency Will Take Official Action Must be Posted on the Agency Website and at the Meeting Location at Least 24 Hours in Advance of the Meeting.
    In 2021, the Sunshine Act was amended to require that in addition to public notice, all agencies are now required to provide notification of agency business to be considered at all open meetings by posting an agenda. The agenda must list each matter of agency business that will or may be the subject of deliberation or official action at the meeting. With limited exceptions, agencies cannot take official action on matters not included on the posted agenda. The agency is required to post its agenda on its public website and at the meeting location no later than 24 hours prior to the start of the meeting. In addition, agencies must make paper copies of the agenda available to individuals in attendance at the meeting.

1. 1. Adoption of Ordinances, Generally, Require Public Notice at least 7 Days and not more than 60 days Prior to Adoption.
    Ordinances (of a non-zoning nature) typically require additional public notice prior to consideration and adoption. These requirements are established by the relevant municipal enabling legislation. Typically, one must publish every proposed ordinance, or a summary prepared by the solicitor, at least once in a newspaper of general circulation no more than 60 days and no less than 7 days prior to enactment. Depending on the subject matter of the ordinance at issue, additional requirements may apply.

B. The MPC and Requirements for Public Hearings on Zoning Ordinances and Applications.
Municipalities that have adopted, or are considering adopting, zoning ordinances must also consider the requirements of the MPC. The MPC imposes additional requirements for certain actions of the municipal governing body, planning commission, and zoning hearing board related to zoning, subdivision, and land development within their borders. These requirements can be complex, but a brief overview of some frequent issues follows.

1. 1. Adoption of Zoning and Subdivision and Land Development Ordinances Requires a Public Hearing Subject to Public Notice Under the MPC.
    When a municipality wants to adopt an ordinance that involves zoning, subdivision, or land development it must also follow requirements established by the MPC. Adoption of an ordinance that involves these matters requires the municipal governing body to hold a “public hearing” before adoption. A “public hearing” is a formal meeting held pursuant to “public notice” as defined by the MPC, not the Sunshine Act. When an MPC ordinance is involved, “public notice” requires notice, stating the time and place of the hearing and the text of the ordinance or a summary, prepared by the solicitor which sets forth all provisions in reasonable detail. The notice must be published once each week for two successive weeks in a newspaper of general circulation. The first advertisement must run not more than 30 days prior to the public hearing. The second advertisement must run not less than 7 days prior to the public hearing.

1. 1. Ordinances Changing the Zoning Map Typically Require that the Impacted Properties be Posted 1 Week in Advance of the Public Hearing and Mailed to the Property Owners 30 days in Advance.
    In addition to the public notice described above, when a proposed zoning ordinance amendment involves a change to the zoning map, notice of the public hearing must be posted conspicuously along the tract at issue at least one week in advance. The municipality must also mail notices to the addresses to which real estate tax bills are sent for each impacted property at least 30 days before the public hearing. These requirements do not apply if the changes constitute “comprehensive rezoning.”

1. 1. Public Hearings on Zoning Applications Must be Held Subject to Public Notice, Written Notice Must be Given to the Applicant, and the Property Must be Posted.
    The MPC also requires that a public hearing be held on applications for conditional use approval (heard by the governing body) variances, special exceptions, or appeals of a zoning officer’s determination (heard by the zoning hearing board) as well as certain other matters. The same MPC “public hearing” advertising requirements utilized for hearings on zoning ordinances apply to these hearings. The impacted property must also be posted conspicuously at least one week in advance of the public hearing.

While some find these requirements redundant or trivial, they must be carefully reviewed and followed. Members of an agency who participate in a meeting with the intent of violating the Sunshine Act may be found guilty of a summary offense and sentenced to fines up to $1,000 for a first offense and $2,000 for a second or subsequent offense. A failure to follow the requirements of the MPC can be challenged in court and, in some instances, can invalidate the action taken by the governing body.

Stephen L. Korbel is a shareholder in the Public Sector Services and Employment and Labor groups of Babst Calland Clements & Zomnir. Contact him at skorbel@babstcalland.com or 412-394-5627. Anna S. Jewart is an associate in Babst Calland’s Public Sector Services group and focuses her practice on zoning, subdivision, land development, and general municipal matters. Contact her at ajewart@babstcalland.com. Anna R. Hosack is an associate in Babst Calland’s Public Sector Services group and focuses her practice on zoning, subdivision, land development, and general municipal matters. Contact her at ahosack@babstcalland.com.

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MindShare: Developments in Data Privacy

TEQ Magazine

(By Ember Holmes)

Earlier this year, Pennsylvania’s Breach of Personal Information Notification Act (BPINA), underwent its first major update since it was signed into law in June 2006.

The Amended BPINA¹, which went into effect on May 2, 2023, affects all Pennsylvania entities that store information belonging to Pennsylvania residents, but has the most significant impact on state agencies and entities that contract with state agencies.

BPINA was designed to set security parameters and standards for entities that maintain, store or manage computerized data containing the Personal Information (as defined below) of Pennsylvania residents. BPINA sets forth specific requirements for notifying residents of security system breaches. The Amended BPINA creates new definitions for previously undefined terms in BPINA, amends existing term definitions, and bolsters notification and security requirements for state agencies, state agency contractors, counties, public schools, and municipalities.

As a state agency, the Pennsylvania Department of Environmental Protection (PADEP) will be subject to this higher level of scrutiny with regard to its handling of personal information. In addition, any entity that contracts with the PADEP or maintains data on behalf of the PADEP or any other state agency is also subject to these more stringent requirements and should be familiar with the updates as applicable to their notification, reporting and encryption practices.

Expanded Definition of “Personal Information” and Related Notification Requirements

The original BPINA definition of “Personal Information” included: (i) Social Security numbers; (ii) driver’s license numbers or state identification card numbers issued in lieu of driver’s licenses; and (iii) financial account numbers and credit or debit card numbers, in combination with any required access codes or passwords that would permit access to an individual’s account.
The Amended BPINA expands “Personal Information” to include medical information, health insurance information, and username or email address information in combination with a password or security question. This change applies to all entities that collect and store information of Pennsylvania residents and will most significantly impact companies that contract with third-party vendors to provide services such as online payments, health portals and banking. These services almost always involve use of a username and password, and exposure of this information will now trigger response and notification protocols.
The Amended BPINA also added “electronic notice” as a valid means of notifying individuals that their information may have been materially compromised. This can be accomplished by directing the individual to promptly change their password and security question or take any other steps that may be appropriate to protect their information.

Notification and Security Requirements for State Agencies, State Agency Contractors, Counties, Public Schools and Municipalities

With regard to state agencies, state agency contractors, counties, public schools and municipalities, the Amended BPINA redefines the scope of notification requirements and imposes a variety of heightened, new notification requirements on these entities. The term “State Agency Contractor” is defined for the first time as “a person, business, subcontractor, or third-party subcontractor that has a contract with a state agency for goods or services that require access to personal information for the fulfillment of a contract.”
Under the Amended BPINA, entities that maintain, store or manage computerized data containing Personal Information on behalf of the Commonwealth are required to utilize encryption or other adequate security measures to protect Personal Information from view or access by an unauthorized party. These entities must also maintain a policy governing encryption or other security measures, and a policy relating to data storage and retention.

Federal Regulation Compliance

The Amended BPINA provides a “safe harbor” for entities, state agencies, and state agency contractors that comply with federal notification requirements imposed by a functional federal regulator – such entities are deemed to comply with BPINA. For example, any entity that is subject to and in compliance with the privacy and security standards under the Health Insurance Portability and Accountability Act of 1996² (HIPAA) or the Health Information Technology for Economic and Clinical Health Act³(HITECH) are deemed to comply with the Amended BPINA.

The Amended BPINA also provides that any entity that complies with the notification requirements or procedures pursuant to the rules, regulations, procedures, or guidelines established by the entity’s primary state or functional federal regulator is deemed to comply with the Amended BPINA. Entities that are not currently in compliance with any such federal requirement must actively ensure compliance with the BPINA.

Next Steps

All entities that do business in Pennsylvania, maintain data belonging to Pennsylvania residents, or do business with the Commonwealth or its agencies should familiarize themselves with the new requirements, and should review their data-related policies, practices and incident response plans to ensure compliance with the Amended BPINA.

¹ Breach of Personal Information Notification Act-Omnibus Amendments, Act of Nov. 3, 2022, P.L. 2139, No. 151.

² Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191 (Aug. 21, 1996).

³ Health Information Technology for Economic and Clinical Health Act, Pub. L. 111-5, Title XIII (Feb. 17, 2009).

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U.S. EPA Releases Second Annual Progress Report Updating its PFAS Strategic Roadmap, Highlighting Progress, Delays, and Future Actions

Environmental Alert

(By Matt Wood)

On December 14, 2023, the U.S. Environmental Protection Agency (EPA) released its Second Annual Progress Report to its 2021 PFAS Strategic Roadmap, summarizing updates on the agency’s actions and goals to address per- and polyfluoroalkyl substances, also known as PFAS. Although beyond the scope of this Alert, it is notable that many of EPA’s actions and proposed actions described below have faced opposition by various parties.

PFAS, which have garnered increased attention from state and federal regulators over the last few years, are a group of thousands of manmade chemicals that have been widely used for decades in various consumer, commercial, and industrial applications. Some of the most common PFAS applications include manufacturing water-, stain-, and heat-resistant products and as ingredients in aqueous film forming foams (AFFF) used to extinguish certain kinds of chemical fires.

The 2021 Roadmap highlights EPA’s “whole-of-agency” approach to PFAS, which, with the two Progress Reports, includes proposed actions across multiple program offices focusing on the PFAS “lifecycle,” i.e., manufacturing, processing, distribution in commerce, use, and disposal, as well as addressing PFAS in the environment. Informing EPA’s focus on the PFAS lifecycle are the 2021 Roadmap’s three central directives: (1) Research; (2) Restrict; and (3) Remediate. Some of the major highlights from the Second Progress Report include:

In January 2023, EPA released its 15th Effluent Limitations Guidelines (ELG) Plan for setting technology-based standards to address PFAS discharges by industry. Among other things, EPA announced in the ELG Plan that it will be pursuing a rulemaking to address discharges from landfills and implementing a study of influent from Publicly Owned Treatment Works to identify industries that warrant PFAS ELGs. This rulemaking has not been proposed yet.
On March 29, 2023, EPA published a proposed rule to regulate six PFAS under the Safe Drinking Water Act. This proposed rule would establish enforceable individual maximum contaminant levels (MCLs) for perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS), the two most common and well-studied PFAS (4 parts per trillion each) and a hazard index MCL for mixtures containing one or more of four other PFAS. Subject to an implementation period, this proposed rule would require public water systems to monitor for each of the six PFAS, notify the public of exceedances, and take action to reduce PFAS exceedances in drinking water. This rule is currently targeted to be finalized in Q1 2024.
On October 11, 2023, EPA published a final rule setting reporting and recordkeeping requirements under the Toxic Substances Control Act (TSCA) for PFAS. The final rule requires those who manufacture (or import) or have manufactured (or imported) PFAS or PFAS-containing articles since January 1, 2011, to report certain information on their PFAS uses, production volumes, disposal, exposures, and hazards.
On October 31, 2023, EPA published a final rule adding increased reporting requirements for PFAS under the Emergency Planning and Community Right-to-Know-Act’s Toxics Release Inventory (TRI) and the Pollution Prevention Act. This final rule designates all PFAS listed, or to be listed, on the TRI as “chemicals of special concern” that are no longer eligible for a 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. EPA also eliminated a de minimis exemption from Supplier Notification Requirements that exempted suppliers from providing notifications for chemicals of special concern present in mixtures or trade name products at concentrations below 1% of the mixture (or 0.1% for carcinogens). This rule became effective on November 30, 2023, and will apply to the reporting year beginning on January 1, 2024.

Some of EPA’s actions, e.g., PFAS MCLs for drinking water, have been delayed beyond their originally anticipated timelines. This includes EPA’s proposed rule to designate PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which would provide EPA and other CERCLA-delegated agencies additional authority to clean up PFOA and PFOS in the environment. Such authority includes: (1) responding to PFOA/PFOS releases without making an imminent and substantial danger finding; (2) requiring potentially responsible parties (PRPs) to clean up PFOA/PFOS contamination; and (3) recovering cleanup costs from PRPs (private parties could also recover cleanup costs from other PRPs if they meet certain requirements). The final rule was originally set to be published in 2023 but is currently targeted to be finalized in Q1 2024.

EPA is also developing proposed rulemakings to regulate PFAS under the Resource Conservation and Recovery Act (RCRA) that would designate four PFAS as “hazardous constituents” subject to RCRA corrective action and revise RCRA regulations to address PFAS that are not regulatory “hazardous wastes,” but otherwise meet the definition of “hazardous waste” under RCRA section 1004(5), 42 U.S.C. § 6903(5). More information on the development of these proposed rules is available here and here.

Other actions touted by EPA include releasing its PFAS Analytic Tools, which provide data and resources regarding PFAS manufacturing, releases, and other information, and investment in research and analysis to better understand and inform decisions regarding PFAS. EPA noted that its researchers published more than 40 papers on PFAS, presenting new information on measuring PFAS, analyzing human health and ecological effects of PFAS, and other topics. One of the questions common to certain stakeholders is how to properly dispose of PFAS waste. At the time of writing, EPA planned to update its “Interim Guidance on Destroying and Disposing of Certain PFAS and PFAS-Containing Materials That Are Not Consumer Products” by December 2023. EPA reiterated in the Second Progress Report that continued research, sampling, and coordination between governments, industry, academia, and communities is necessary to better understand the PFAS lifecycle.

Broadly, the 2021 Roadmap and its two Progress Reports highlight the breadth of EPA’s actions and goals to address PFAS and regulatory actions and enforcement measures should be expected to increase as EPA and stakeholders learn more about PFAS. Understandably, these EPA documents do not account for specific actions that states have taken or plan to take to address PFAS, including developing their own drinking water MCLs and cleanup standards, banning the use of PFAS-containing AFFF, and/or banning the use of PFAS in other products. Given the differences between how states and the federal government have addressed PFAS, it will continue to be important for affected parties to understand their potentially separate obligations under federal and state law.

As the federal government and states continue to take action to address PFAS across many program areas, Babst Calland attorneys will track these developments and are available to assist you with PFAS-related matters. For more information on this development or related matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, or any of our other environmental attorneys. For additional resources and more information on other PFAS developments, please visit Babst Calland’s PFAS Perspectives page, here.

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A Methane Mixed Bag: EPA Finalizes Methane Rule for New and Existing Oil and Gas Facilities

PIOGA eWeekly

(By Gary Steinbauer and Christina Puhnaty)

On December 2, 2023, the U.S. Environmental Protection Agency (EPA) released a pre-publication version of its final Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review (Final Rule). The Final Rule comes more than two years after EPA published its initial proposal on November 15, 2021 (Initial Proposal) and a supplemental proposal on December 6, 2022 (Supplemental Proposal) (collectively, the “Proposals”). According to EPA, the agency received over one million comments on the Proposals. For information on the Proposals, please see our November 11, 2021 and December 12, 2022 articles. This Alert focuses on critical aspects of the Final Rule, including key changes that EPA made since issuing the Proposals.¹

Brief Overview of Methane Rule

The Methane Rule is comprised of four separate actions proposed under sections 111(b) and 111(d) of the Clean Air Act. EPA currently regulates emissions of volatile organic compounds (VOCs) and methane from oil and natural gas facilities under 40 C.F.R Part 60 Subparts OOOO² and OOOOa.³ First, through this Final Rule, EPA will regulate oil and natural gas facilities constructed, modified, or reconstructed after December 6, 2022, under a new Subpart OOOOb. The requirements in OOOOb will apply to affected facilities 60 days after the rule is published in the federal register. Second, under a new Subpart OOOOc, EPA finalized emissions guidelines that are intended to inform states in the development, submittal, and implementation of state plans to establish standards of performance for greenhouse gases (in the form of limitations on methane) from sources existing on or before December 6, 2022. Under the Final Rule, states and tribes are required to submit plans to EPA for review within 24 months of the publication of the Final Rule in the Federal Register, with a compliance deadline for existing sources that is no later than 36 months after the deadline to submit the plan to EPA. Third, the Final Rule amends OOOOa in response to Congress’ June 2021 revocation of regulatory amendments made by EPA under the Trump administration. Fourth, the Final Rule also includes “Appendix K,” a protocol for determining leaks using Optical Gas Imaging (OGI) that EPA now requires at natural gas processing plants regulated by OOOOb or OOOOc.

Key Requirements of Methane Rule

Significant changes from the existing OOOO and OOOOa regulatory frameworks include:

Super Emitter Program: The Final Rule will allow certified third parties to monitor well sites, centralized production facilities, and compressor stations regulated by OOOO, OOOOa, OOOOb, or OOOOc using specific remote detection technologies for “super-emitter emission events,” which are defined as emission events resulting in 100 kilograms (220.5 pounds) per hour or more of methane. These third parties are required to submit notifications of super emitter events to EPA’s Super Emitter Program Portal within 15 calendar days of the observation. Upon receipt of a notification by a third party, owners and operators of these facilities would be required to initiate an investigation within five days and report the results of that investigation to EPA within 15 days. EPA plans to publish online the information that EPA receives through the Super Emitter Response Program, which will include an identification of the operator responsible for the super emitter event after giving the operator the opportunity to respond to EPA regarding the event.
Storage Vessel Applicability Threshold Now Applies to Tank Batteries: EPA has finalized its proposed expansion of its regulation of oil and gas-related storage vessels under both Subparts OOOOb and OOOOc. Currently, Subpart OOOOa storage vessel regulations are limited to VOC emissions and based on a VOC potential to emit (PTE) of 6 tons per year (tpy) for a single storage vessel. Under Subpart OOOOb, EPA includes the same 6 tpy VOC PTE applicability threshold, adds a methane applicability threshold of 20 tpy, and applies these thresholds to a single storage vessel or the aggregate potential emissions from a “tank battery,” i.e., a group of storage vessels that are adjacent and receive fluids from the same operation or are manifolded together. As for storage vessels at existing facilities, EPA will regulate existing tank batteries meeting the 20 tpy methane threshold. For storage vessels meeting these threshold requirements, EPA requires a 95% reduction of VOC and methane by routing emissions through a closed vent system to a control device.
Fugitive Emissions Monitoring Required at All Well Sites: At 40 CFR § 60.5397a(1), OOOOa currently excludes low-production well sites from fugitive emissions monitoring requirements. The Final Rule, however, requires fugitive emissions monitoring at all well sites, though the frequency and level of monitoring varies by site based on its configuration and the presence, if any, of production equipment. For example, single wellhead-only and small well sites must conduct quarterly audio, visual and olfactory (AVO) inspections, while multi-wellhead only well sites must do semiannual OGI inspections in addition to quarterly AVO inspections. Well sites with major production and processing equipment must conduct AVO inspections every other month and quarterly OGI inspections. Compressor stations are required to conduct monthly AVO inspections and quarterly OGI inspections.
First-time Requirements for Oil Wells with Associated Gas: For the first time, EPA will require that associated gas from new, reconstructed, or modified oil wells be routed directly to a sales line. In situations where gas-producing oil wells do not have access to a sales line, associated gas would need to be used on-site as a fuel source, used for another purpose that a purchased fuel or raw material would service, or be routed to a flare or other control device achieving 95 percent reduction of methane and VOC emissions. The Final Rule separates new associated gas wells into multiple groups based on when construction is commenced to establish a two-year “phase-in” period for the application of the final standards. EPA requires that these same standards apply to existing oil wells with associated gas.
Well Closure Plans: The Final Rule includes a new suite of well closure requirements. Under these requirements, owners and operators of well sites are required to submit a closure plan to EPA within 30 days of the cessation of production and a notification to EPA 60 days before well closure activities begin. The contents of the well closure plan would need to include the steps necessary to permanently plug all wells, a description of financial requirements and assurance to complete closure, and the schedule for completing closure. Well surveys using OGI are required at the well site following well closure activities.

Additional notable requirements include the use of zero-emission pneumatic controllers and pneumatic pumps, a “no identifiable emissions” standard for closed vent systems, and the use of best management practices aimed to minimize or eliminate VOC or methane emissions during well liquids unloading.

If you have any questions about the applicability of the Final Rule to your operations, please contact Gary E. Steinbauer at (412) 394-6590 or gsteinbauer@babstcalland.com or Christina Puhnaty at (412) 394-6514 or cpuhnaty@babstcalland.com.

1 The Final Rule is 1690 pages, which does not include the Regulatory Impact Analysis and other documents in the rulemaking record. A detailed evaluation of each potentially applicable requirement is warranted, and this Alert provides only a high-level summary of certain provisions.

2 Specified affected facilities constructed, reconstructed, or modified after August 23, 2011 and on or before September 18, 2015 are regulated under Subpart OOOO.

3 Specified affected facilities constructed, reconstructed, or modified after September 18, 2015 and on or before November 15, 2021 are regulated under Subpart OOOOa.

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Shapiro Administration Appeals Commonwealth Court Invalidation of RGGI

PIOGA Press

(By Kevin Garber and Jessica Deyoe)

On November 21, 2023, the Shapiro administration appealed, to the Pennsylvania Supreme Court, the Commonwealth Court’s November 1 ruling that the Regional Greenhouse Gas Initiative (RGGI) is an unconstitutional tax, and therefore is void and unenforceable. See Bowfin KeyCon Holdings, LLC et al v. Pennsylvania Department of Environmental Protection and Pennsylvania Environmental Quality Board (No. 247 M.D. 2022). The Commonwealth Court concluded that, to pass constitutional muster, 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 the Environmental Quality Board and the Department of Environmental Protection.

The Shapiro administration said it is appealing the decision because the “Commonwealth Court’s decision on RGGI—put in place by the prior administration—was limited to questions of executive authority, and our Administration must appeal in order to protect the important authority for this Administration and all future governors.”

The Governor’s decision to appeal the Commonwealth Court’s decision does not necessarily mean he supports RGGI, put in place by the previous Wolf administration. Even if the Shapiro administration wins on the appeal, it is unclear whether the Governor will enforce the regulation. In fact, the administration did not oppose the Bowfin KeyCon industry petitioners’ application to vacate the automatic stay that arises by law when the Commonwealth appeals a case. That means the RGGI regulation will continue to be ineffective and unenforceable while the appeal is pending.

The Shapiro administration is urging lawmakers to develop an alternative plan, stating in a press release that “should legislative leaders choose to engage in constructive dialogue, the Governor is confident we can agree on a stronger alternative to RGGI.” The Governor’s spokesperson Manual Bonder indicated that Governor Shapiro “stands ready and willing to implement the recommendations of the RGGI Working Group and he would sign legislation replacing RGGI with a Pennsylvania-based or PJM-wide cap-and-invest program, as they proposed.”

Shortly after taking office, Shapiro formed the RGGI Working Group consisting of a mix of labor, business, energy, and environmental leaders to determine whether RGGI would “protect and create energy jobs,” “take real action to address climate change,” and “ensure reliable, affordable power for consumers in the long-term.” The Working Group never endorsed RGGI. Rather, it stated in a September 23, 2023 press release announcing the availability of its Working Group Memorandum that it “reached broad consensus that reducing greenhouse gas emissions in Pennsylvania is both necessary and inevitable . . . [and] that any cap-and-invest program should include policy levers and investment strategies which help avoid any potential emissions leakage, higher localized pollution, increased energy costs, and job loss.”

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EPA Finalizes New Suite of Clean Air Act Regulations for Oil and Gas Industry

Legal Intelligencer

(by Gary Steinbauer and Christina Puhnaty)

Pennsylvania oil and gas producers and midstream operators are faced with yet another suite of federal air regulations following the U.S. Environmental Protection Agency’s recent finalization of its far-reaching Methane Rule. On December 2, 2023, EPA released a 1690-page, pre-publication version of the Methane Rule or the Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review. The Methane Rule is aimed at strengthening existing and adding new regulations limiting emissions of methane and volatile organic compounds (VOCs) from the Crude Oil and Natural Gas industrial source category. These federal Clean Air Act (CAA) regulations will apply to a host of new and existing emission sources and activities within the oil and natural gas industry. With Pennsylvania producing more natural gas than any other state except Texas, oil and gas producers and midstream operators must contend with another slate of new, more stringent federal air requirements.

The Methane Rule will become effective within 60 days of publication in the Federal Register. While EPA released it in a single package, the Methane Rule is comprised of four related regulatory actions: (1) updated new source performance standards regulating VOC and methane emission sources for certain emission sources and activities constructed, reconstructed, or modified after December 6, 2022, which will be promulgated at 40 CFR Part 60, Subpart OOOOb; (2) a set of emission guidelines for states to follow when adopting performance standards to limit methane emissions from specified existing air emission sources within the oil and gas industry, which will be promulgated at 40 CFR Part 60, Subpart OOOOc; (3) revisions to previously promulgated requirements codified at 40 CFR Part 60, Subpart OOOOa, stemming from Congress’ disapproval of changes that were made in 2022; and (4) a final protocol for performing optical gas imaging (OGI) inspections to detect leaks from equipment used in the oil and gas industry. This article focuses on the first two components of the Methane Rule, which include new VOC and methane emission and performance standards for oil and gas producers and midstream operators.

The Methane Rule is rich with detail and demands close review and analysis by potentially impacted oil and gas operations and companies. A summary of the new and likely more stringent requirements in the Methane Rule is provided below:

Super-Emitter Program: For the first time in a Clean Air Act regulation, EPA has established a regulatory mechanism that allows third parties to use EPA-approved remote sensing technologies to monitor emissions from affected facilities under OOOO, OOOOa, OOOOb, and OOOOc, report this monitoring data to EPA, and force action by owner or operator for measured “super emission events” (i.e., methane emission events of 100 kilograms per hour or more). EPA gave itself a heightened role under this Program in the final rule. Under the final rule, EPA will certify third-parties, receive and evaluate the third-party monitoring data, and notify owners and operators when data qualifies as a super-emissions event. Notified owners and operators will then need to investigate and determine the source of the super-emissions, take timely and appropriate corrective actions including repairing any leaks, and report the results of the investigation to EPA. EPA will make information from the Program available publicly. It remains to be seen whether states will be allowed to develop different and more stringent notification procedures in their OOOOc plans.
Fugitive Emissions Monitoring at Well Sites and Compressor Stations: For well sites, the Methane Rule will require fugitive emissions monitoring, commonly known as leak detection and repair (LDAR) requirements, at all well sites regardless of production. The frequency and type of fugitive emissions monitoring will depend on the configuration and number of wells at a site. Single wellhead only and small sites will be subject to quarterly audio, visual, and olfactory monitoring. Multi-wellhead only sites will be subject to quarterly AVO monitoring and semi-annual instrument- or camera-based monitoring. Well sites and centralized production facilities that contain major production and processing equipment will be subject to bi-monthly AVO monitoring and quarterly instrument- or camera-based monitoring. Fugitive emissions monitoring at all well sites, regardless of configuration, will need to continue until the site or facility is permanently closed in accordance with a newly required well closure plan. Lastly, compressor stations will be subject to monthly AVO monitoring and quarterly instrument- or camera-based monitoring.
Storage Vessel Emissions Capture and Control Requirements: EPA’s Methane Rule will expand the scope of regulated storage vessels, as compared to the current federal CAA oil and gas regulations. Applicability continues to be based on the “potential to emit” or PTE from storage vessels, but the PTE-based applicability threshold now applies to a single storage vessel or a “tank battery,” which is defined as a group of storage vessels that are adjacent and receive fluids from the same operation or are manifolded together. Therefore, storage vessels within a “tank battery” may be regulated despite having PTEs below the 6 tons per year (tpy) VOC threshold under OOOOb or the 20 tpy of methane threshold under both OOOOb and OOOOc. Owners and operators will have the compliance option of maintaining actual emissions of VOC or methane below certain thresholds. When actual emissions of VOC and methane cannot be maintained below the applicable actual emission thresholds, emissions from storage vessels must be routed to a control device through a closed vent system that is designed and operated with “no identifiable emissions.” Control devices used for storage vessel emissions must reduce VOC and methane emissions by 95 percent.
Process Controller Emission Standards: EPA has adopted a new term “process controller,” rather than the previously used term “pneumatic controller.” The substantive requirements for process controllers in the Methane Rule, however, continue to be the same – a zero-emission standard with limited exceptions. Owners and operators of process controllers that are subject to the OOOOb requirements will have one year following promulgation to meet the new zero-emission standards for OOOOb-affected process controllers.
Centrifugal and Reciprocating Compressor Emission Standards: Under OOOOb and OOOOc, centrifugal and reciprocating compressors will be subject to new emissions control requirements. Centrifugal compressors using wet seals must control VOC and methane emissions from the wet seal fluid degassing systems by 95 percent through the use of a control device that is connected to the compressor through a regulated closed vent system or route the collected gas to a process using a regulated closed vent system. Affected reciprocating compressors will be subject to new requirements for collecting and controlling methane and VOC emissions from rod packing. Under OOOOb and OOOOc, dry seal compressors, which currently are not regulated under EPA emission standards, will be subject to flow rate restrictions.
Requirements for Oil Wells with Associated Gas and Well Liquids Unloading: In another set of first-time requirements for the industry, EPA has finalized emissions control and performance standards for associated gas from oil well and well liquids unloading from gas wells. Owners and operators of affected oil wells will be required to route associated gas directly to a sales line, or if a sales line is inaccessible, to use such gas on-site as a fuel source, as a substitute for purchased fuel or raw material, or route such gas to a flare that reduces methane and VOC emissions by 95 percent. The Methane Rule provides a two-year “phase-in” period for these new associated gas requirements. Well liquids unloading, which is a common and often necessary practice within the industry, will be subject to new OOOOb and OOOOc standards requiring best management practices for minimizing or eliminating methane and VOC emissions.

Impacted oil and gas facilities and activities that may not be regulated under OOOOb will soon be subject to State plans developed to implement the OOOOc provisions, which in many respects mirror those established in OOOOb. States, like Pennsylvania, will have 24 months to develop and submit plans implementing the OOOOc provisions to EPA. According to the Methane Rule, these State OOOOc plans must require affected sources and activities to comply no later than 36 months following the deadline to submit the plans to EPA. In other words, existing oil and gas sources that are not otherwise subject to the new OOOOb requirements will have no longer than five years after EPA publishes the Methane Rule in the Federal Register to meet new state-implemented, OOOOc-based methane emission standards.

EPA has devoted significant resources towards regulating VOC and methane emission from the oil and gas industry. The Methane Rule is yet another suite of new, more stringent regulations for an industry that, in the last decade, has been the subject of several significant federal Clean Air Rule rulemakings establishing VOC and methane emission standards and requiring reporting of greenhouse gas emissions. It is imperative that Pennsylvania oil and gas operators fully evaluate the potential impact of the Methane Rule on their facilities and operations.

Gary Steinbauer is a shareholder and Christina Puhnaty is an associate in Babst, Calland, Clements and Zomnir’s environmental group. Their practices focus largely on matters arising under the Clean Air Act, analogous state clean air laws, and their implementing regulations. Contact them at gsteinbauer@babstcalland.com and cpuhnaty@babstcalland.com.

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Recent Developments in Artificial Intelligence Governance

Emerging Technologies Alert

(By Susanna Bagdasarova, Mary Binker, Chris Farmakis and Justine Kasznica)

As the development of artificial intelligence (AI) systems accelerates globally and the benefits and risks of their use become evident, calls for government regulation in the U.S. and abroad have accelerated. Two significant governmental developments occurred in the past month to respond to these calls. In an executive order issued at the end of October, President Joe Biden revealed a comprehensive set of guidelines and policy goals for the future of AI development and regulation. Less than a month later, the U.S., U.K., and more than a dozen other countries unveiled the first international agreement on AI safety and security. Though differing in scope and actionable initiatives, the two documents reflect an international acknowledgment of the global impact and risks posed by AI systems, as well as an urgency to create proactive policies for their regulation.

Key Takeaways

President Biden issued Executive Order 14110 on “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence” on October 30, 2023, with the goals of establishing standards for AI safety and security; protecting privacy, consumer, and worker rights; advancing equity; promoting global innovation and competition; and advancing American leadership around the world.
The Order sets forth various policy goals, tasks, and guidance for federal agencies to implement in the next year.
Federal agencies are directed to use their regulatory powers to monitor and mitigate risks, create guidelines to shape industry standards, develop uses for AI technology, and implement such technologies safely.
On November 27, 2023, the U.S., U.K., and 16 other countries entered into a landmark international agreement on cybersecurity in AI, emphasizing a “secure by design” approach to AI systems development.
The non-binding agreement consists of a set of guidelines addressing four key areas of the AI system development life cycle (secure design, secure development, secure deployment, and secure operation and maintenance) and outlines recommendations to reduce overall risk.
The first of its kind, the agreement recognizes the importance of international collaboration in guiding AI development and establishing a cohesive framework for responsible AI practices.

White House Executive Order on Artificial Intelligence

On October 30, 2023, President Biden issued Executive Order 14110 on “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence,”¹ taking a significant step toward shaping the future of AI² and its regulation. The Order, which reflects growing calls for federal guidance on AI from public and private stakeholders, focuses on establishing a framework for safe, secure, and trustworthy AI development, focusing on ethical innovation, national security, and global cooperation. The Order builds on the White House’s October 2022 “Blueprint for an AI Bill of Rights”³ and the National Institute of Standards & Technology’s (NIST) January 2023 “Artificial Intelligence Risk Management Framework.”⁴

The Order is broad in scope, covering a spectrum of industries and issues, including the establishment of new standards for AI safety and security; protection of privacy; advancement of equity and civil rights; support of consumers, patients, and employees; and promotion of innovation and competition.

Although the Order is primarily applicable to federal agencies, it reflects a vision and roadmap for AI regulation intended to guide both industry standards and future federal legislation.

The Order sets out eight principles and priorities to guide policymaking on AI systems:

AI must be safe and secure, requiring robust, reliable, repeatable, and standardized evaluations of AI systems, as well as mechanisms to test, understand, and mitigate risks.
The U.S. should promote responsible innovation, competition, and collaboration through investments in AI-related education, training, development, research, and capacity as well as by opposing monopolies and unlawful collusion with respect to key assets.
The responsible development and use of AI require a commitment to supporting American workers through job training and education, both to prevent AI systems from being deployed in ways that negatively impact employee rights and to use AI in ways that increase human productivity.
AI policies must be consistent with the Biden administration’s policy of advancing equity and civil rights and be structured to prevent deepening inequities, new types of harmful discrimination, and online and physical harms.
The federal government must enforce existing consumer protection policies and enact appropriate safeguards against fraud, bias, discrimination, and privacy infringement to protect Americans who are increasingly using AI and AI-enabled products, particularly in critical fields such as healthcare, financial services, education, housing, law, and transportation.
Policies and tools must be developed to protect Americans’ privacy and civil liberties to ensure that personal data collection, use, and retention is done in a lawful and secure manner that mitigates privacy and confidentiality risks.
The risks arising from the federal government’s own use of AI must be mitigated, and it must increase its ability to internally regulate, govern, and support responsible use of AI including, but not limited to, the recruitment of AI professionals.
The U.S. should be a global leader for societal, economic, and technological progress, and responsibly deploy technology through engagement with its international allies and partners to develop an AI governance framework and ensure that AI benefits the world rather than increasing or exacerbating existing harms and inequities.

Building on this foundation, Sections 4 through 11 of the Order each correspond to one of the eight guiding principles, setting out a host of practical policy goals, tasks and guidance for federal agencies to implement in the next year. The lengthy Order contains directives for nearly all 15 executive departments to use their regulatory powers to monitor and mitigate risks, develop uses for AI technology, and implement such technologies safely. Certain directives are highlighted below:

The Order tasks NIST with establishing a series of guidelines for AI use and development, including (i) best practices to promote industry standards for safe, secure and trustworthy AI systems, (ii) a companion to the AI Risk Management Framework for generative AI, (iii) a companion to the Secure Software Development Framework for generative AI and dual-use foundation models,⁵ (iv) AI auditing and evaluation guidelines with a focus on cybersecurity and biosecurity, and (v) procedures and processes for AI developers to conduct red-team testing⁶ of dual-use foundation models.
The Order imposes recordkeeping and reporting requirements on developers of dual-use foundation models, including reporting of red-team safety test results and other critical information on model training and physical and cybersecurity measures. Developers will also be required to report the acquisition, development, or possession of large-scale computing clusters, including their location and the total amount of computing power available in each. Infrastructure as a Service (IaaS) products tested or sold by foreign persons will also be subject to recordkeeping and reporting requirements.
Various agencies with regulatory authority over critical industries are directed to assess and develop mitigation strategies for AI-related critical infrastructure vulnerabilities, including critical failures, physical attacks and cyberattacks.
The Department of Commerce is tasked with creating guidance for content authentication and watermarking of AI-generated content in government communications, in order to increase transparency and public trust and encourage adoption of such standards by the private sector.
The Department of Labor is instructed to create best practices for employers to mitigate AI risks and maximize AI benefits in the workforce, paying careful attention to the intersection of AI and worker protections.
The State Department and Department of Commerce must establish international frameworks for AI regulation, and the White House plans to collaborate with international partners and organizations for global and consistent AI regulation. The initial results of such collaboration are evident in the international agreement recently entered into by the U.S., as discussed below.
The Order also calls on Congress to enact federal data privacy legislation and establishes a White House Artificial Intelligence Council to coordinate the implementation of AI-related policies by executive agencies.

Sweeping in its scope, the Order seeks to be comprehensive and consistent in addressing topics and sectors most keenly affected by the development and use of AI systems. Such directives will inevitably impact federal procurement policy and requirements for government contractors, a historically powerful tool to develop industry standards, even without legislative action. Given the constant and evolving nature of AI development, governments around the world are struggling to legislatively address the risks posed by this technology at a speed that matches AI development. By presenting a coherent set of guidelines and practical and strategic goals, as well as implementation deadlines for federal agencies and departments (some as short as 90 to 270 days), the Order proactively seeks to mitigate risks before the potential harms of AI technology become entrenched. Federal agencies are already working on executing their directives under the Order, with the White House Office of Management and Budget releasing a draft policy⁷ on Advancing Governance, Innovation, and Risk Management for Agency Use of Artificial Intelligence on November 1 and the U.S. Cybersecurity and Infrastructure Security Agency (CISA) releasing its implementation plan, “Roadmap for Artificial Intelligence”⁸ on November 14.

International Agreement on Guidelines for Secure AI System Development

On November 27, 2023, the U.S., U.K., and 16 other countries⁹ entered into a landmark international agreement on cybersecurity in AI systems.¹⁰ The 20-page document titled “Guidelines for Secure AI System Development” is a non-binding series of general guidelines and recommendations emphasizing a “secure by design” approach to AI systems development. The Guidelines were collaboratively developed by CISA, the U.K. National Cyber Security Center, and cybersecurity agencies from each signatory nation, in partnership with industry experts, including Amazon, Google and OpenAI, and other organizations such as the Software Engineering Institute at Carnegie Mellon University. The Guidelines reaffirm an increasing understanding that international collaboration in guiding AI development and the creation of a cohesive framework for responsible AI practices are necessary for international cybersecurity.

The release of the Guidelines follows the AI Safety Summit hosted by the U.K. in early November, which was attended by Vice President Kamala Harris, as well as other international leaders, technology executives, and industry experts. The Summit established the Bletchley Declaration on AI Safety.¹¹ Signed by leaders of 29 countries, the Bletchley Declaration affirms a joint commitment to developing AI safely and responsibly and acknowledges a shared responsibility in addressing the risks posed by AI. Although China was a signatory to the Bletchley Declaration, it is notably absent from the Guidelines themselves.

The Guidelines identify four key areas of the AI system development life cycle: secure design, secure development, secure deployment, and secure operation and maintenance. AI developers are to consider the Guidelines along with industry best practices in the areas of cybersecurity, risk management, and incident response. The use of both the Guidelines and best practices is the international community’s effort to ensure AI systems “function as intended, are available when needed, and work without revealing sensitive data to unauthorized parties.” Cybersecurity is therefore both a pre-condition to AI system safety and also a necessary component of the development process from beginning to end. This approach places the responsibility for downstream security outcomes on the providers of AI components.

Each of the four key areas are supported by a series of “considerations and mitigations” intended to reduce overall risk in AI system development. These considerations include monitoring of AI systems for potential threats and abuse (including hacking), securing of the AI supply chain and vetting of hardware and software components developers, identification of AI vulnerabilities and data tampering opportunities, development of robust incident management procedures, the release of AI products to users only after security testing, and collaboration across the global AI-ecosystem to share best practices across industry, academia, and government.

The significance of the Guidelines is summarized by CISA Director Jen Easterly:

“The release of the Guidelines for Secure AI System Development marks a key milestone in our collective commitment—by governments across the world—to ensure the development and deployment of artificial intelligence capabilities that are secure by design…The domestic and international unity in advancing secure by design principles and cultivating a resilient foundation for the safe development of AI systems worldwide could not come at a more important time in our shared technology revolution. This joint effort reaffirms our mission to protect critical infrastructure and reinforces the importance of international partnership in securing our digital future.”¹²

This landmark agreement seemingly marks the first of many international commitments to development of consistent AI-systems standards, providing the basic cybersecurity component of an international framework on AI.

1 Full text available at Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.
2 The definition of “artificial intelligence,” or “AI,” is as set forth in 15 U.S.C. 9401(3): “a machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations or decisions influencing real or virtual environments.” The Order is therefore broad in scope, applying to any machine-based system that makes predictions, recommendations or decisions, not only generative AI.
3 Full text available at Blueprint for an AI Bill of Rights.
4 Full text available at Artificial Intelligence Risk Management Framework.
5 Defined as “an AI model that is trained on broad data; generally uses self-supervision; contains at least tens of billions of parameters; is applicable across a wide range of contexts; and that exhibits, or could be easily modified to exhibit, high levels of performance at tasks that pose a serious risk to security, national economic security, national public health or safety, or any combination of those matters…”
6 Defined as “a structured testing effort to find flaws and vulnerabilities in an AI system, often in a controlled environment and in collaboration with developers of AI…[it] is most often performed by dedicated “red teams” that adopt adversarial methods to identify flaws and vulnerabilities, such as harmful or discriminatory outputs from an AI system, unforeseen or undesirable system behaviors, limitations, or potential risks associated with the misuse of the system.”
7 Full text available at Proposed Memorandum for the Heads of Executive Departments and Agencies.
8 Full text available at Roadmap for Artificial Intelligence.
9 Australia, Canada, Chile, Czechia, Estonia, France, Germany, Israel, Italy, Japan, New Zealand, Nigeria, Norway, Poland, the Republic of Korea, and Singapore.
10 Full text available at Guidelines For Secure AI System Development.
11 Full text available at The Bletchley Declaration.
12 See DHS/CISA and UK NCSC Release Joint Guidelines for Secure AI System Development.

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A Methane Mixed Bag: EPA Finalizes Methane Rule for New and Existing Oil and Gas Facilities

Energy Alert

(by Gary Steinbauer and Christina Puhnaty)

On December 2, 2023, the U.S. Environmental Protection Agency (EPA) released a pre-publication version of its final Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review (Final Rule). The Final Rule comes more than two years after EPA published its initial proposal on November 15, 2021 (Initial Proposal) and a supplemental proposal on December 6, 2022 (Supplemental Proposal) (collectively, the “Proposals”). According to EPA, the agency received over one million comments on the Proposals. For information on the Proposals, please see our November 11, 2021 and December 12, 2022 Alerts. This Alert focuses on critical aspects of the Final Rule, including key changes that EPA made since issuing the Proposals.[1]

Brief Overview of Methane Rule

The Methane Rule is comprised of four separate actions proposed under sections 111(b) and 111(d) of the Clean Air Act. EPA currently regulates emissions of volatile organic compounds (VOCs) and methane from oil and natural gas facilities under 40 C.F.R. Part 60 Subparts OOOO[2] and OOOOa.[3] First, through this Final Rule, EPA will regulate oil and natural gas facilities constructed, modified, or reconstructed after December 6, 2022, under a new Subpart OOOOb. The requirements in OOOOb will apply to affected facilities 60 days after the rule is published in the Federal Register. Second, under a new Subpart OOOOc, EPA finalized emissions guidelines that are intended to inform states in the development, submittal, and implementation of state plans to establish standards of performance for greenhouse gases (in the form of limitations on methane) from sources existing on or before December 6, 2022. Under the Final Rule, states and tribes are required to submit plans to EPA for review within 24 months of the publication of the Final Rule in the Federal Register, with a compliance deadline for existing sources that is no later than 36 months after the deadline to submit the plan to EPA. Third, the Final Rule amends OOOOa in response to Congress’ June 2021 revocation of regulatory amendments made by EPA under the Trump administration. Fourth, the Final Rule also includes “Appendix K,” a protocol for determining leaks using Optical Gas Imaging (OGI) that EPA now requires at natural gas processing plants regulated by OOOOb or OOOOc.

Key Requirements of Methane Rule

Significant changes from the existing OOOO and OOOOa regulatory frameworks include:

Super Emitter Program: The Final Rule will allow certified third parties to monitor well sites, centralized production facilities, and compressor stations regulated by OOOO, OOOOa, OOOOb, or OOOOc using specific remote detection technologies for “super-emitter emission events,” which are defined as emission events resulting in 100 kilograms (220.5 pounds) per hour or more of methane. These third parties are required to submit notifications of super emitter events to EPA’s Super Emitter Program Portal within 15 calendar days of the observation. Upon receipt of a notification by a third party, owners and operators of these facilities would be required to initiate an investigation within five days and report the results of that investigation to EPA within 15 days. EPA plans to publish online the information that EPA receives through the Super Emitter Response Program, which will include an identification of the operator responsible for the super emitter event after giving the operator the opportunity to respond to EPA regarding the event.
Storage Vessel Applicability Threshold Now Applies to Tank Batteries: EPA has finalized its proposed expansion of its regulation of oil and gas-related storage vessels under both Subparts OOOOb and OOOOc. Currently, Subpart OOOOa storage vessel regulations are limited to VOC emissions and based on a VOC potential to emit (PTE) of 6 tons per year (tpy) for a single storage vessel. Under Subpart OOOOb, EPA includes the same 6 tpy VOC PTE applicability threshold, adds a methane applicability threshold of 20 tpy, and applies these thresholds to a single storage vessel or the aggregate potential emissions from a “tank battery,” i.e., a group of storage vessels that are adjacent and receive fluids from the same operation or are manifolded together. As for storage vessels at existing facilities, EPA will regulate existing tank batteries meeting the 20 tpy methane threshold. For storage vessels meeting these threshold requirements, EPA requires a 95% reduction of VOC and methane by routing emissions through a closed vent system to a control device.
Fugitive Emissions Monitoring Required at All Well Sites: At 40 CFR § 60.5397a(1), OOOOa currently excludes low-production well sites from fugitive emissions monitoring requirements. The Final Rule, however, requires fugitive emissions monitoring at all well sites, though the frequency and level of monitoring varies by site based on its configuration and the presence, if any, of production equipment. For example, single wellhead-only and small well sites must conduct quarterly audio, visual and olfactory (AVO) inspections, while multi-wellhead only well sites must do semiannual OGI inspections in addition to quarterly AVO inspections. Well sites with major production and processing equipment must conduct AVO inspections every other month and quarterly OGI inspections. Compressor stations are required to conduct monthly AVO inspections and quarterly OGI inspections.
First-time Requirements for Oil Wells with Associated Gas: For the first time, EPA will require that associated gas from new, reconstructed, or modified oil wells be routed directly to a sales line. In situations where gas-producing oil wells do not have access to a sales line, associated gas would need to be used on-site as a fuel source, used for another purpose that a purchased fuel or raw material would service, or be routed to a flare or other control device achieving 95 percent reduction of methane and VOC emissions. The Final Rule separates new associated gas wells into multiple groups based on when construction is commenced to establish a two-year “phase-in” period for the application of the final standards. EPA requires that these same standards apply to existing oil wells with associated gas.
Well Closure Plans: The Final Rule includes a new suite of well closure requirements. Under these requirements, owners and operators of well sites are required to submit a closure plan to EPA within 30 days of the cessation of production and a notification to EPA 60 days before well closure activities begin. The contents of the well closure plan would need to include the steps necessary to permanently plug all wells, a description of financial requirements and assurance to complete closure, and the schedule for completing closure. Well surveys using OGI are required at the well site following well closure activities.

_______________

[1] The Final Rule is 1690 pages, which does not include the Regulatory Impact Analysis and other documents in the rulemaking record. A detailed evaluation of each potentially applicable requirement is warranted, and this Alert provides only a high-level summary of certain provisions.

[2] Specified affected facilities constructed, reconstructed, or modified after August 23, 2011 and on or before September 18, 2015 are regulated under Subpart OOOO.

[3] Specified affected facilities constructed, reconstructed, or modified after September 18, 2015 and on or before November 15, 2021 are regulated under Subpart OOOOa.

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Global Connectivity

Pittsburgh Business Times

(By Daniel Bates featuring Nadya Kessler and Susanna Bagdasarova)

Peace on earth – perhaps wishful thinking during this holiday season in the midst of such extreme global turmoil. But not for the likes of the ever-optimistic GlobalPittsburgh and its local business supporters.

Together, they’re working hard these days to foster international peace and stability by bringing countries and cultures together right here in Pittsburgh, “one handshake at a time,” according to Nadya Kessler, director of GlobalPittsburgh, a nonprofit that has been serving the Pittsburgh community since 1959.

“For almost 65 years, GlobalPittsburgh has been developing and fostering educational, cultural, and business relationships between the Greater Pittsburgh community and international citizens,” said Kessler, a one-time attorney who emigrated from Russia in 2009 and has been leading the nonprofit for the past year. “GlobalPittsburgh is very important to the local business community because it creates long-lasting relationships between local and international community members, giving an opportunity for local businesses and academic institutions to meet international leaders whom they might have never had a chance to meet otherwise.”

Kessler shared the mission of GlobalPittsburgh, alongside Susanna Bagdasarova, an attorney with Pittsburgh-based law firm Babst Calland who serves on GlobalPittsburgh’s board of directors, during a recent interview with the Pittsburgh Business Times.

At ‘the same table’

The organization’s mission, Kessler said, couldn’t prove timelier today, as it “reaches across divides to bring people of diverse backgrounds and perspectives to the same table, forging opportunities for both the international and Pittsburgh communities to learn from and inspire each other.”

GlobalPittsburgh was founded in 1959 as the Pittsburgh Council for International Visitors. Early on, the United States Department of State designated the nonprofit as a regional liaison for the State Department’s International Visitor Leadership Program. With that designation came grant funding that continues to fund the organization today, along with support from local businesses and other local community members, as well as event sponsorships, according to Kessler.

In 2022 alone, GlobalPittsburgh hosted 344 representatives from 91 countries and brought them together with 460 local professionals for what the organization calls “Global Intersector events.” The topics of the visits range from entrepreneurship and economic development to cybersecurity to energy issues to higher education and much more.

Babst Calland’s Susanna Bagdasarova said that mission – and those Intersector events – are what drew her, an attorney focusing on emerging technologies, to the organization in the first place.

“GlobalPittsburgh does these really fantastic informal networking events where they have their delegates from other countries who are government cabinet members and executives come and essentially provide an opportunity for local businesspeople to meet and greet and just chat and connect over our similarities and our differences,” said Bagdasarova, who herself emigrated to the United States from Armenia as a small child with her family.

“It’s just a fantastic organization,” she added, “and I’m very excited as it moves into the future here.”

Cultural diversity

Bagdasarova was quick to note that Babst Calland was drawn to the organization because of the diversity of its own clients, which includes international clients as well as domestic clients with international business lines or affiliates.

“I think it’s very important both from a cultural and personal perspective to be well versed in communicating with the folks outside of the United States and to really be able to understand global trends in the law,” Bagdasarova said. “We’re in an ever more-connected society, and it’s only going to become more and more connected. Having that diversity of thought really allows you to have a different perspective on legal solutions and become more proactive in the kinds of legal services you can provide to your clients.”

Generally, though, Bagdasarova suggested that Pittsburghers should “look outside the region of Western Pennsylvania and really see how we can fit Pittsburgh into a greater global context. All of this is going to require more and more collaboration on a global scale.”

Citizen diplomacy

At the core of GlobalPittsburgh’s altruistic philosophy is what Kessler refers to as citizen diplomacy. It’s a concept that, when official relationships between countries are hard to foster, every citizen – every average individual – has the right and responsibility to be a representative of their country and help shape U.S. foreign relationships, as we like to say, one handshake at a time.

“Citizen diplomacy can be a vital tool of crafting those relationships, and anybody could be a citizen diplomat,” she continued. “It doesn’t mean that two parties have to negotiate directly. It could be a hosted meal. It could be attending a gathering and networking event, as well as having professional interactions. Bringing countries and cultures together contributes to peace and stability in the world and connects us all as a global community.”

Choosing delegations

Kessler also pointed out that local businesses can work with GlobalPittsburgh in ways that allow the organization to identify the right matches with regard to foreign delegations.

Our goal is not only to showcase Pittsburgh to visiting delegations, but we also have a way to select delegations that we bring to Pittsburgh,” Kessler said. “We would like to learn more about the needs and interests of local businesses. This way, we can help them meet their needs. We have these delegations already coming to Pittsburgh, so why don’t we do all the work for you, which doesn’t cost you anything to bring those emerging and established world leaders right to your doorstep? If anyone has any questions, I’m more than happy to talk more about it.”

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

To view the PDF, click here.

To view the full article and video, click here.

Compelling Arbitration: Slam Dunk or Blocked Shot?

Pretrial Practice & Discovery

American Bar Association Litigation Section

(by Jess Barnes)

Contractual provisions providing for dispute resolution via arbitration are fairly common. In fact, federal policy generally favors arbitration. However, your case still may find its way to litigation over a few typical issues that arise regarding the enforceability of arbitration provisions. Recently, the Toronto Raptors and New York Knicks hit not only the court but the courtroom. These professional basketball teams seek a decision from a New York federal district court on whether their intellectual-property dispute belongs before a judge or the NBA commissioner as arbitrator. In New York Knicks, LLC v. Maple Leaf Sports & Entertainment Ltd. d/b/a Toronto Raptors et al., Case No. 23-CV-7394 (JGLC) (S.D.N.Y 2023), the Toronto Raptors moved the court to compel the action to arbitration. The Raptors argued that both teams are parties to the National Basketball Association (NBA)’s constitution and by-laws. The Raptors explained that the NBA Constitution is a contract among the members of the NBA. Moreover, the NBA Constitution provides an arbitration provision that the NBA commissioner has exclusive jurisdiction over disputes involving two or more members of the NBA.

When reviewing this request to compel arbitration, the court must answer two questions: (1) is there a valid agreement to arbitrate, and (2) if so, whether a court or arbitrator should decide if the underlying dispute is arbitrable.

Here, both parties at minimum conceded that a valid agreement to arbitrate existed between the parties in the NBA Constitution. The Knicks, however, argued that this case, contemplating intellectual-property theft, did not fall within the arbitration provision.

Initially, the Knicks claimed that the court, and not the NBA commissioner, should determine whether the case is arbitrable, because the NBA Constitution itself does not explicitly provide the procedure for resolving questions of arbitrability. Thus, the Knicks argued that when an arbitration agreement does not clearly and unmistakably elect to have the arbitrator decide arbitrability, the question is one for judicial determination. The Raptors, on the other hand, argued that the broad language of the arbitration clause shows the clear intent that such questions should go to the NBA commissioner.

If the court finds that arbitrability is its question to decide, the parties laid out their positions on the merits. The Raptors argued that the arbitration provision is clear and must be enforced—if a dispute (any dispute) involves two or more members of the NBA, the commissioner has exclusive, full, complete, and final jurisdiction. The Knicks, on the other hand, argued that the arbitration clause at issue constitutes an “infinite” arbitration clause that courts have refused to enforce; arbitration would prevent the Knicks from vindicating their statutory rights; and under these circumstances, arbitration before the NBA commissioner would be unconscionable and unfair.

The court has yet to decide the winner of this matchup over the applicability of the NBA’s arbitration provision. However, there are a couple of lessons to be learned from this case:

Practitioners and parties to contracts should carefully consider the benefits and challenges presented with including an arbitration clause in their agreement.
If an arbitration clause is to be included, it should be carefully negotiated to reflect the parties’ intentions regarding scope of applicability and any conditions on submitting disputes to arbitration.

While arguments surrounding the enforceability of arbitration provisions are likely to continue, careful evaluation and negotiation of these contract terms may minimize such battles.

Jessica Barnes is an associate at Babst Calland in Pittsburgh, Pennsylvania.

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

© 2023. Compelling Arbitration: Slam Dunk or Blocked Shot?, Pretrial Practice & Discovery, American Bar Association Litigation Section, December 29, 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.

Making a List, Checking it Twice: When Employees Resign, Employers Should Be Prepared

Legal Intelligencer

(by Steve Silverman and Steve Antonelli)

For many employers, it is also performance review season that is often accompanied by announcements concerning employees’ compensation for next year. As a result, this time of year can sometimes cause employees to consider a change of scenery. Employers should therefore be prepared for the possibility that an employee will voluntarily resign their employment and move on to another opportunity.

With the Holiday Season in full swing, many of us are busier than normal. We have parties to attend, shopping to finish (or in my case, start and finish), and year-end goals to accomplish, in addition to our “regular” work duties. This is also the time of year that many employers begin to wrap up financial matters and plan for the coming year by preparing goals, budgets, forecasts, and strategic plans. For many employers, it is also performance review season which is often accompanied by announcements concerning employees’ compensation for next year. As a result, this time of year can sometimes cause employees to consider a change of scenery. Employers should therefore be prepared for the possibility that an employee will voluntarily resign their employment and move on to another opportunity. Accordingly, employers should consider the following checklist if and when an employee announces their resignation:

Employers should compile an inventory of the departing employee’s contractual obligations. If a departing employee is bound, for instance, by an enforceable restrictive covenant, employers should assess the potential for harm in the event of a violation. While the ever-broadening attempts to limit the use of post-employment, non-competition agreements have been well documented in the past year, reasonable restrictive covenants remain enforceable in Pennsylvania. Employers should have a full understanding of which employees are covered by such agreements as well as a full understanding of the terms of those agreements.
Employers should determine whether the departing employee has access to trade secrets or other sensitive, proprietary information. If the employee does have access to such confidential information, the employer should ensure that appropriate steps are taken to protect the information. In many instances employers should suspend the departing employee’s continued access to sensitive information by prohibiting the employee’s access to the employer’s electronic files or computer system.
Employers may also consider whether the departing employee’s continued access to sensitive information warrants continuing to pay the departing employee throughout the notice period contained in a restrictive covenant, even if the employee has already separated from the employer.
If the departing employee has already misappropriated trade secrets or other confidential information, the employer should call its attorney, who will formulate a strategy for retrieving the information and any potential damages caused by the departing employee.
Counsel will also help to determine whether the departing employee’s new employer should be contacted to inform them of the departing employee’s post-employment obligations and their obligation to preserve evidence, including metadata.
In some circumstances, employers may decide to conduct a forensic review of the electronic devices and network access of the departing employee to confirm the misappropriation or the extent of the misappropriation. While not inexpensive, forensic evaluation often provides important evidence that can be pivotal in litigation.
Employers should also determine whether, when, and how customers or other third parties should be notified of the employee’s departure and send appropriate notice to them. When doing so, employers should remain mindful of the fact that the departing employer may have developed personal relationships with these customers and third parties.
Employers should compile an inventory of any other property that belongs to the employer but may be in the possession, custody, or control of the departing employee, whether inadvertently or intentionally. Employers should determine the location of the property—whether electronic devices, keys, equipment, tools, or passwords—and develop a plan to ensure its return.
Employers should schedule (and follow through with actually conducting) an exit interview with the departing employee to:
- Determine whether the departing employee has secured a new job and learn any pertinent details about the new position;
- Remind the departing employee of any post-employment legal or contractual obligations related to trade secrets, confidentiality, non-competition, or non-solicitation of customers or former colleagues;
- Arrange for the return of company property, including passwords to accounts or computer systems that may only be easily accessed by the departing employee;
- Coordinate a plan for the departing employee to potentially assist the employer with transitioning the departing employee’s duties and responsibilities to a replacement;
- Clarify the employer’s expectations of the departing employee prior to the departing employee’s last day of employment; and
- Obtain constructive feedback from the departing employee regarding the employer, its management, policies, practices, and procedures.

This checklist is certainly not meant to imply that every resigning employee does so with ill intent. To be clear, that is not the case the vast majority of the time. Instead, this checklist is to help ensure that employers are not caught off guard by those rare situations in which a departing employee plans to retain information that does not belong to them. To the extent an employer is ever unsure about the motives of their departing employee, it should consult its attorney.

Steve Silverman is a shareholder in the Litigation and Employment and Labor groups of Babst Calland. Mr. Silverman devotes a significant amount of his practice to the defense and prosecution of theft of trade secret and non-compete suits. Contact him at 412-253-8818 or ssilverman@babstcalland.com.

Stephen A. Antonelli is a shareholder in the Employment and Labor and Litigation groups of Babst Calland. His practice includes representing employers in all phases of labor and employment law, from complex class and collective actions and fast-paced cases involving the interpretation of restrictive covenants, to single-plaintiff discrimination claims and day-to-day human resources counseling. Contact him at 412-394-5668 or santonelli@babstcalland.com.

To view the full article, click here.

Hangey v. Husqvarna Professional Products: Pennsylvania Supreme Court Closes Another Off-Ramp for Corporate Defendants Sued in Pennsylvania

Litigation Alert

(By Joseph Schaeffer and Stefanie Pitcavage Mekilo)

Last week, the Pennsylvania Supreme Court issued its much-anticipated decision in Hangey v. Husqvarna Professional Products, Inc., No. 14 EAP 2022 (Pa. 2023).[1] The Court held that the percentage of a corporate defendant’s national revenue derived from a forum county is not sufficient, on its own, to support a finding that the defendant does not “regularly conduct business” there for purposes of Pennsylvania’s venue rules. The decision has potential far-reaching consequences for corporate defendants sued in the Commonwealth. Indeed, the plaintiffs’ lawyers in Hangey already are cheering the ruling as “one of if not the most impactful venue decisions in the last 20 years.”[2]

The background of Hangey is straightforward. Ronald Hangey was injured while using a Husqvarna lawnmower purchased in Bucks County on his property in Wayne County. The Hangeys thereafter sued Husqvarna Professional Products, Inc. (HPP), and others on various tort claims in Philadelphia County. Discovery revealed that HPP sold products through just two authorized dealers in Philadelphia County and derived only 0.005% of its national revenue from those business activities.

HPP challenged venue under Pennsylvania Rule of Civil Procedure 2179(a), which provides that suit against a corporation may be brought in “a county where…the corporation or similar entity regularly conducts business.” Under Pennsylvania’s two-pronged “quality-quantity” test for evaluating whether a defendant is regularly conducting business in the forum county, the “quality” prong is met when a defendant’s activities in a county “directly…further[]” or are “essential to” the defendant’s business objectives, while the “quantity” prong is satisfied by activities that are “so continuous and sufficient to be general or habitual.”[3] The trial court held the quality prong was satisfied because HPP’s sale of its products to two authorized dealers in Philadelphia County furthered its business objectives. On the quantity prong, however, the trial court held that the 0.005% of national revenue HPP derived from those sales was “de minimis,” and not indicative of “general” and “habitual” contact, so it transferred the case to Bucks County. The Hangeys appealed, and the case made its way to the Pennsylvania Supreme Court.

The Supreme Court held that the trial court abused its discretion in focusing its quantity analysis exclusively on the percentage of national revenue HPP derived from Philadelphia County. According to the Court, percentage of revenue does not alone control the quantity inquiry; rather, it is but one “data point” a court may consider—if it deems the percentage relevant—in a broader assessment of how “regular” a defendant’s business activities are in a forum.[4] The Court identified potential non-revenue data points to include the number of “days out of the year a business is open to the public,…units of product sold, or…hours billed by employees.”[5]

Importantly, rather than remanding the case to the trial court for further review, the majority applied its gloss of the quality-quantity test to hold that venue was proper for HPP in Philadelphia County as a matter of law. The majority notes only that HPP’s sales to two authorized dealers in Philadelphia County had been “consistent” and without “interruption” during the relevant period, and that HPP was “at least trying to make sales in Philadelphia, regularly and continuously.”[6] The majority concluded that so long as “a company maintains a constant physical presence in the forum county” in furtherance of its business objectives—even if only through an authorized dealer and without much success—venue is appropriate in that county as a matter of law.[7] Notably, the majority does not mention percentage of revenue, nor any of the other quantitative metrics it had identified, in its analysis.

It is fair to wonder what (if anything) remains of the “quantity” prong of the quality-quantity test after Hangey. Indeed, under the majority’s reasoning, it is hard to imagine a scenario in which quantity will not follow quality in lockstep. Justice Kevin Brobson suggested as much in dissent. He agreed that percentage of revenue is not alone dispositive, but he believed the proper approach would have been a remand to the trial court for further review given that clarification. Justice Brobson also expressed “concern[]” that the majority opinion “could be construed as holding that, as a matter of law, a corporation’s mere presence in a county is sufficient to establish that venue is proper in that county.”[8]

The decision is all the more concerning when considered alongside litigation patterns in the Commonwealth—namely, plaintiffs’ strategic channeling of lawsuits to notoriously plaintiff-friendly venues like Philadelphia and Allegheny County, and their success in achieving (and seeing appellate courts affirm) nuclear and thermonuclear verdicts in those venues[9]—and judicial trends winnowing available “off ramps” for corporate defendants haled into Pennsylvania courts. In its recent decision in Mallory v. Norfolk Southern Railway Co., 600 U.S. 122 (2023), the U.S. Supreme Court rejected a due-process challenge to Pennsylvania’s consent-by-registration statute, holding that the Due Process Clause allows states to require corporations to consent to their general jurisdiction as a condition of doing business there; the decision green-lights lawsuits filed in the Commonwealth by plaintiffs with no ties to Pennsylvania, for conduct occurring beyond its borders. And while the doctrine of forum non conveniens once provided a reliable safety valve for defendants sued in forum-shopped venues, recent decisions from the Pennsylvania Superior Court have sown uncertainty into the doctrine, with some decisions appearing to increase the burden on defendants seeking transfer out of oppressive and vexatious forums.[10]

Nonetheless, the final word has not yet been said on many of these jurisprudential shifts. Other challenges to the consent-by-jurisdiction statute, remain pending; appeals seeking clarity (and reaffirmance of the long-settled status quo) regarding forum non conveniens are making their way to Pennsylvania appellate courts; and it is too early to predict how Pennsylvania courts will read and apply Hangey. In the immediate future, however, the Hangey decision likely will only exacerbate the forum-shopping problem already plaguing corporate defendants sued in Pennsylvania and overburdening Pennsylvania’s busiest trial courts. As a result, all businesses—and small businesses in particular—should proceed with caution in considering whether the potential revenue stream to be derived from placing products in Pennsylvania’s most plaintiff-friendly counties is worth the attendant litigation risk.

If you have questions about the Hangey decision, or its implications for your business, please contact Stefanie Pitcavage Mekilo at 570-590-8781 or smekilo@babstcalland.com or Joseph V. Schaeffer at 412-394-5499 or jschaeffer@babstcalland.com.

To read the full Law360 Expert Analysis, click here.

To view the PDF, click here.

[1] Hangey v. Husqvarna Prof’l Prods. Inc., No. 14 EAP 2022, slip op. at 44 n.23 (Pa. 2023).
[2] Aleeza Furman, Pa. High Court Rejects ‘Percentage of Revenue’ Venue Defense, The Legal Intelligencer (Nov. 22, 2023), https://www.law.com/thelegalintelligencer/2023/11/22/pa-high-court-rejects-percentage-of-revenue-venue-defense/.
[3] Purcell v. Bryn Mawr Hosp., 579 A.2d 1282, 1285 (Pa. 1990) (quoting Shambe v. Del. & Hudson R.R. CO., 135 A. 755, 757 (Pa. 1927)).
[4] Hangey, slip op. at 39.
[5] Id.
[6] Id. at 45.
[7] Id. at 44.
[8] Hangey, slip op. at 4 & n.2 (Brobson, J., dissenting).
[9] See, e.g., Amagasu v. Mitsubishi Motors N. Am., No. 181102406 (Phila. Cnty. Ct. Com. Pl.) ($908 million Philadelphia jury verdict); Caranci v. Monsanto, No. 210602213 (Phila. Cnty. Ct. Com. Pl.) ($175 million Philadelphia verdict); see also Nuclear Verdicts Trends, Causes, and Solutions, U.S. CHAMBER OF COM. INST. FOR LEGAL REFORM (Sept. 2022) (noting “[m]ore than half” of Commonwealth’s nuclear verdicts are returned in Philadelphia County).
[10] See, e.g., Ehmer v. Maxin Crane Works, L.P., 296 A.3d 1202 (Pa. Super. Ct. 2023); Tranter v. Z&D Tour, Inc., ___ A.3d ___, 2023 WL 6613731 (Pa. Super. Ct. 2023).

Pa. Court’s Venue Ruling Is Likely To Worsen Forum Shopping

Law360

(by Stefanie Pitcavage Mekilo and Joseph Schaeffer)

On Nov. 22, the Pennsylvania Supreme Court issued its much-anticipated decision in Hangey v. Husqvarna Professional Products Inc. The majority opinion in Hangey claims to be a narrow one, providing clarification only regarding the standard for evaluating whether venue in any given Pennsylvania county is proper.[1]

That characterization is accurate so far as the legal principle goes: The court held as a matter of law that the percentage of a corporate defendant’s national revenue derived from a forum county alone is not sufficient to support a finding that the defendant does not “regularly conduct business” there for purposes of Pennsylvania’s venue rules.

But the court’s application of that principle to the facts before it — and its holding that the defendant’s de minimis sales in Philadelphia County were sufficient to establish proper venue there — has potential far-reaching consequences for corporate defendants sued in the commonwealth. Indeed, the plaintiffs’ lawyers in Hangey are already cheering the ruling as “one of if not the most impactful venue decisions in the last 20 years.”[2]

The facts of Hangey are uncomplicated. Ronald and Rosemary Hangey, residents of Wayne County, bought a Husqvarna-brand lawnmower from Trumbauer’s Lawn and Recreation Inc., in Bucks County.

Ronald Hangey suffered severe injuries when he was thrown off the lawnmower while operating it on his property in Wayne County. The Hangeys then sued Trumbauer’s, Husqvarna Professional Products Inc. and a handful of Husqvarna affiliates on various tort claims.

But rather than sue in Bucks County or Wayne County, the Hangeys sued in Philadelphia County — a venue with no connection to the underlying incident. Discovery in fact revealed that Husqvarna sold products through just two authorized dealers in Philadelphia County and derived only 0.005% of its national revenue from those business activities.

Husqvarna challenged the venue as improper under Pennsylvania Rule of Civil Procedure 2179(a), which provides that a suit against a corporation may be brought in, among other places, “a county where … the corporation or similar entity regularly conducts business.”[3]

The trial court applied Pennsylvania’s two-pronged “quality-quantity” test for evaluating whether a defendant was regularly conducting business in a county as required by Rule 2179(a). Under this test, the quality prong is met when a defendant’s activities in the forum directly further or are essential to the defendant’s business objectives, while the quantity prong is satisfied by activities that are “so continuous and sufficient to be general or habitual.”[4]

The trial court held that the quality prong was satisfied because Husqvarna’s placement of its products on the shelves of two authorized dealers in Philadelphia County furthered its business objectives.

On the quantity prong, however, the court held that the 0.005% of national revenue Husqvarna derived from Philadelphia County was de minimis, and not indicative of general and habitual contact, and so it transferred the case to Bucks County.

The Hangeys appealed, and the Pennsylvania Superior Court, sitting en banc, reversed. The Superior Court sided with the Hangeys and held that the trial court had abused its discretion in relying almost exclusively on the percentage of revenue in its analysis of the quantity prong.[5] The court further concluded that the record before the trial court established that venue was proper in Philadelphia County.

Husqvarna petitioned the Pennsylvania Supreme Court for review, and the Supreme Court granted the petition. The parties’ briefs and arguments before the Supreme Court centered solely on the trial court’s quantity analysis; no party disputed the quality analysis.

The Supreme Court held that the trial court abused its discretion in focusing its quantity analysis exclusively on the percentage of national revenue Husqvarna derived from the Hangeys’ chosen venue. According to the court, the percentage of revenue alone does not control the quantity inquiry. Rather, it is but one of the data points the court may consider — if it deems the percentage relevant on the facts before it — in its broader assessment of how regular a defendant’s business activities are in the forum.[6]

The court identified potential nonrevenue data points, including the number of “days out of the year a business is open to the public, … units of product sold, [and] … hours billed by employees.”[7]

Importantly, however, the Supreme Court did not remand the case to the trial court for further review in light of its clarification of the law. Instead, the court evaluated the record evidence de novo, and determined Husqvarna’s contacts with Philadelphia County were sufficient to establish proper venue as a matter of law.

The court’s analysis makes no mention of the percentage of revenue, nor any of the other quantitative metrics it identified as potential data points. In holding venue was proper, the court noted only that Husqvarna’s marginal sales to its two authorized dealers in Philadelphia County had been consistent and without interruption during the relevant two-year period, and that, even if Husqvarna was not succeeding, it was “at least trying to make sales in Philadelphia, regularly and continuously.”[8]

The court concluded that so long as “a company maintains a constant physical presence in the forum county” to perform acts in furtherance of its business objectives — even if only through an authorized dealer and even if without much success — venue will be appropriate in that county as a matter of law.[9]

The Hangey decision significantly dilutes the quantity prong of Pennsylvania’s quality-quantity test and seems to write typical quantitative metrics out of the venue analysis entirely. Indeed, under the majority’s reasoning, it is hard to imagine a scenario in which quantity will not follow quality in lockstep.

Pennsylvania Supreme Court Justice Kevin Brobson suggested as much in his dissenting opinion: He agreed with the majority that percentage of revenue alone should not control the outcome in any case, but expressed concern that the majority opinion “could be construed as holding that, as a matter of law, a corporation’s mere presence in a county is sufficient to establish that venue is proper in that county.”[10]

The majority’s response to Justice Brobson — that its holding is limited to only those cases in which a defendant’s physical presence is constant — is unsatisfying given how minimal Husqvarna’s activities in Philadelphia County otherwise were.

The Supreme Court notably also gave no consideration to the consequences of its decision for Husqvarna’s codefendants. There was no evidence that Trumbauer’s, which sold the Hangeys the allegedly defective lawnmower, transacted any business in Philadelphia County. But because Pennsylvania law requires plaintiffs to satisfy venue only for a single defendant, Trumbauer’s must now defend itself in a forum with which it has no connection.

The decision is all the more concerning when considered alongside litigation patterns in the commonwealth — namely, the plaintiffs’ strategic channeling of lawsuits to notoriously plaintiff-friendly venues like Philadelphia and Allegheny County, and their success in achieving, and seeing appellate courts affirm, nuclear and thermonuclear verdicts returned in those venues.[11]

Also concerning are judicial trends winnowing available off ramps for corporate defendants hauled into Pennsylvania courts with little connection to the parties or the claims.

In its recent decision in Mallory v. Norfolk Southern Railway Co., the U.S. Supreme Court rejected a due-process challenge to Pennsylvania’s consent-by-registration statute, which requires out-of-state corporations to consent to general jurisdiction in the commonwealth as a condition of doing business. The court held that the statute broadly gives Pennsylvania personal jurisdiction over out-of-state corporations in suits brought by plaintiffs with no ties to Pennsylvania, for conduct occurring beyond the commonwealth’s borders.[12]

And while the doctrine of forum non conveniens once provided a reliable safety valve for defendants sued in forum-shopped venues, recent decisions from the Pennsylvania Superior Court have sown uncertainty into the once-settled doctrine, with some decisions appearing to increase the burden on defendants seeking transfer out of what they may consider oppressive and vexatious forums.[13]

Nonetheless, the final word has not yet been said on many of these jurisprudential shifts. Other potential challenges to the consent-by-jurisdiction statute, for example, remain pending: Litigants recently filed petitions for permission to appeal in the Pennsylvania Superior Court, raising a dormant commerce clause challenge to the consent-by-jurisdiction statute.

Appeals seeking clarity — and reaffirmance of the long-settled status quo — regarding forum non conveniens are making their way to Pennsylvania appellate courts. And it is too early to predict how Pennsylvania’s trial and intermediate appellate courts will read and apply Hangey. Although the majority did not factor the percentage of revenue into its own analysis, it authorized other courts to do so in appropriate cases, and it remains to be seen what lower courts will do, if anything, with that invitation.

In the immediate future, however, the Hangey decision will likely only exacerbate the forum-shopping problem already plaguing corporate defendants sued in Pennsylvania and overburdening Pennsylvania’s busiest trial courts. As a result, all businesses — and small businesses in particular — should proceed with caution in considering whether the potential revenue stream to be derived from placing products in Pennsylvania’s most plaintiff-friendly counties is worth the attendant litigation risk.

_____________

[1] Hangey v. Husqvarna Prof’l Prods. Inc. , No. 14 EAP 2022, slip op. at 44 n.23 (Pa. 2023).

[2] Aleeza Furman, Pa. High Court Rejects ‘Percentage of Revenue’ Venue Defense, The Legal Intelligencer (Nov. 22, 2023), https://www.law.com/thelegalintelligencer/2023/11/22/pa-high-court-rejects-percentage-of-revenue-venue-defense/.

[3] Pa. R. Civ. P. 2179(a)(2).

[4] Purcell v. Bryn Mawr Hosp. , 579 A.2d 1282, 1285 (Pa. 1990) (quoting Shambe v. Del. & Hudson R.R. CO. , 135 A. 755, 757 (Pa. 1927)).

[5] Hangey v. Husqvarna Prof’l Prods. Inc. , 247 A.3d 1136, 1143 (Pa. Super. Ct. 2021) (en banc).

[6] Hangey, slip op. at 39.

[7] Id.

[8] Id. at 45.

[9] Id. at 44.

[10] Hangey, slip op. at 4 & n.2 (Brobson, J., dissenting).

[11] See, e.g., Amagasu v. Mitsubishi Motors N. Am., No. 181102406 (Phila. Cnty. Ct. Com. Pl.) ($908 million Philadelphia jury verdict); Caranci v. Monsanto, No. 210602213 (Phila. Cnty. Ct. Com. Pl.) ($175 million Philadelphia verdict); see also Nuclear Verdicts Trends, Causes, and Solutions, U.S. Chamber of Com. Inst. for Legal Reform (Sept. 2022) (noting “[m]ore than half” of commonwealth’s nuclear verdicts are returned in Philadelphia County).

[12] For a more comprehensive discussion of Mallory and its potential implications, see Christina Manfredi McKinley & Joseph Schaeffer, Where Can a Corporation Be Sued for, Well, Anything? (An Evolving Test), Babst Calland Litigation Alert (July 18, 2023), https://www.babstcalland.com/news-article/where-can-a-corporation-be-sued-for-well-anything-an-evolving-test/.

[13] See, e.g., Ehmer v. Maxin Crane Works, L.P., 296 A.3d 1202 (Pa. Super. Ct. 2023); Tranter v. Z&D Tour Inc., ___ A.3d ___, 2023 WL 6613731 (Pa. Super. Ct. 2023).

For the full article, click here.

Reproduced with permission. The article was first published on Law360, December 4, 2023.

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