Environmental Alert
(by Lisa Bruderly)
On May 25, 2023, the U.S. Supreme Court issued a highly-anticipated decision that significantly narrows the extent of wetlands within the definition of “waters of the United States” (WOTUS), and, therefore, within the jurisdiction of the federal Clean Water Act (CWA). Under the majority opinion in Sackett v. EPA, the Court held that “waters” are limited to “only those relatively permanent standing or continuously flowing bodies of water” that are described as “streams, oceans, rivers, and lakes” and to “adjacent” wetlands that are “indistinguishable” from those bodies of water. Therefore, a wetland is only a WOTUS (and subject to CWA jurisdiction) if: (1) the adjacent body of water is a WOTUS (i.e., “a relatively permanent body of water connected to a traditional interstate navigable water”); and (2) the wetland has a “continuous surface connection” with that water “making it difficult to determine where the ‘water’ ends and the ‘wetland’ begins.” As Justice Samuel Alito stated: Federally regulated wetlands “must be indistinguishably part of a body of water that itself constitutes ‘waters’ under the CWA. . . . Wetlands that are separate from traditional navigable waters cannot be considered part of those waters, even if they are located nearby.”
The Sackett litigation involves Michael and Chantell Sackett, who have been unable to build a house because the U.S. Environmental Protection Agency (USEPA) and the U.S. Army Corps of Engineers (the Corps) determined that a wetland on their Idaho property was a WOTUS, requiring CWA Section 404 permitting. Both the U.S. District Court for the District of Idaho and the Ninth Circuit sided with the Agencies’ WOTUS determination, citing the “significant nexus” test introduced by Justice Anthony Kennedy in his concurring opinion in the U.S. Supreme Court’s seminal Rapanos v. U.S. decision. Under the “significant nexus” test, a wetland is broadly considered to be a WOTUS if it, alone or in combination with similarly situated lands in the region, significantly affects the chemical, physical and biological integrity of navigable waters.
On appeal, the U.S. Supreme Court agreed to examine whether the Ninth Circuit set forth the proper test to determine whether the Sacketts’ wetlands are WOTUS. The Court disagreed with the Ninth Circuit and, instead, upheld the plurality opinion of Rapanos (drafted by Justice Antonin Scalia), which stated that WOTUS should be limited to relatively permanent bodies of water connected to traditional interstate navigable waters and wetlands with a close physical connection to those waters, such that they are indistinguishable from those waters.
The Court’s majority opinion in Sackett was written by Justice Samuel Alito, with concurring opinions written by Justices Thomas Kavanaugh and Kagan. The Justices unanimously agreed that the wetlands on the Sacketts’ property were not WOTUS and that the “significant nexus” test should not be used to determine federally regulated wetlands. Justice Clarence Thomas’ concurring opinion focused on the meaning of “navigable,” and appeared to advocate for an even more narrowed scope of federal regulation. The two other concurring opinions disagreed with the majority regarding the meaning of “adjacent” and asserted that adjacent wetlands should also include wetlands that are “close to, neighboring or not widely separated” from the covered water. Justice Brett Kavanaugh stated that adjacent wetlands mean “more than adjoining wetlands and also includes wetlands separated from covered waters by man-made dikes or barriers, natural river berms, beach dunes or the like.”
The Sackett ruling has immediate, practical consequences. With the elimination of the “significant nexus” test, the extent of wetlands considered to be WOTUS will markedly decrease, thereby decreasing the need for Corps permitting for land development, pipeline construction and other earth disturbance activities. In addition, the Court’s ruling will likely provide more certainty to the regulated community, as to which wetlands are regulated. Generally speaking, a “continuous surface connection” (or the lack of one) is easier to identify than a “nexus” that was often subjectively determined. However, as acknowledged by the majority, “temporary interruptions in surface connection may sometimes occur because of phenomena like low tides and dry spells.” The Court also seemingly acknowledged and addressed a potential “loophole” for federal regulation by noting that “a landowner cannot carve out wetlands from federal jurisdiction by illegally constructing a barrier on wetlands otherwise covered the CWA.”
Even though Sackett pertains directly to wetlands, it also calls into question the tests used for determining whether “waters” are WOTUS. By rejecting the “significant nexus” test, the Court has effectively weighed in on the appropriate (and more narrow) test for determining whether streams and other waterbodies are federally regulated (i.e., whether the waterbody is relatively permanent).
While Sackett narrowed federal regulation of wetlands, it is important to note that state stream/wetland and earth disturbance laws may still apply to specific projects and development. Typically, states broadly define the waters under their jurisdiction. In light of the broad-reaching implications of Sackett, states may seize this opportunity to develop and/or strengthen their stream and wetland permitting programs.
Other WOTUS Developments
The Sackett decision comes just two months after the Biden administration’s new definition of WOTUS (2023 Rule) became effective. The 2023 Rule defines WOTUS using both the Justice Scalia test for relatively permanent waters and adjacent wetlands, as well as the Justice Kennedy “significant nexus” test. The Biden administration expressed concern that the “Supreme Court’s disappointing decision” would take the country “backwards” with regard to the protection of water quality. In a statement issued just after the publication of the Sackett decision, President Joe Biden stated: “My team will work with the Department of Justice and relevant agencies to carefully review this decision and use every legal authority we have to protect our Nation’s waters for the people and communities that depend on them.” We will be watching to see how USEPA and the Corps react in light of Sackett.
The 2023 Rule has already faced three judicial challenges in Texas, North Dakota and Kentucky. These challenges have resulted in a nationwide split in the current definition of WOTUS, with 23 states using the 2023 Rule and 27 states relying on the WOTUS definition that was in effect prior to the 2023 Rule (i.e., the 1986 definition as influenced by the U.S. Supreme Court decisions from the 2000s, especially Rapanos). As a result, West Virginia and Pennsylvania, for example, currently rely on different WOTUS definitions to determine federal CWA jurisdiction.
Even without the extensive changes associated with Sackett, this nationwide split creates inconsistencies on how CWA jurisdiction is applied from state to state. A water may be regulated under the CWA based on the effective WOTUS definition in one state, while the same water would not be federally-regulated under the WOTUS definition effective in another state.
One thing is certain, the landscape for determining federally-regulated waters is changing again, and the regulated community must stay abreast of these changes.
Babst Calland will continue to stay up-to-date on the developments related to WOTUS and the Clean Water Act, in general. If you have any questions or would like any additional information, please contact Lisa Bruderly at (412) 394-6495 or bruderly@babstcalland.com.
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Pittsburgh Business Times
We all use them: consumer electronics, textiles, paper packaging, nonstick cookware, chrome plating, paints, varnishes, and stain repellents for carpeting and upholstery. However, such products – and the manufacturing processes used to make them – have incorporated per- and polyfluoroalkyl substances, or PFAS, manufactured chemicals that have been associated with various health and environmental impacts.
Not surprisingly, the U.S. Environmental Protection Agency (USEPA) and many state regulatory agencies are actively pursuing restrictive regulations to significantly reduce the most common PFAS compounds that may be present in water, air, soil, and many products, in an effort to mitigate any health-related risks that may come with them.
According to Jean Mosites, a shareholder with Pittsburgh law firm Babst Calland and a co-chair of the firm’s environmental practice group, businesses and industries are facing regulatory uncertainty, high costs of mitigation, and the potential for class-action litigation amidst increasing public awareness.
Mosites spoke on the uncertainties facing business and industry as federal and state governments try to address the issues of PFAS from a variety of angles.
“They’re not consistent at this point,” she said of the regulatory agencies’ efforts. “They’ve really been gathering their data and analysis needed to develop regulation for the past 10 years, and this process started with trying to figure out where these chemicals exist. As they realized [the PFAS] are in drinking water – something that we’re all exposed to – they’re trying to figure out what the problem is and what the health impacts are,” said Mosites.
Mosites doesn’t argue with the premise behind the ramped-up regulatory efforts to reduce PFAS.
“They are known as ‘forever chemicals’ because they are really persistent; they don’t degrade,” she said. “So, when they get into the environment, they stay there.” It is the breadth and cost, however, that presents practical limits to implementation of a multi-faceted regulatory approach with more stringent standards for PFAS than many known hazardous substances.
The EPA’s proposed clean water standards
Among the prominent recent government regulatory developments has been the USEPA’s March 2023 proposal of a first-ever national drinking water standard called the “National Primary Drinking Water Regulation.” The USEPA is accepting public comments until May 30. The federal agency, according to the USEPA’s website, anticipates passage of the proposed regulation applicable to public drinking water systems by the end of 2023.
A complex government action plan
Wrapped up in those and other new standards, though, are a complexity of issues for business and industry, Mosites explained.
“The Biden administration and previous [administrations] through the USEPA had developed an action plan that involves looking at PFAS from a variety of perspectives,” she said. “So, they’re looking at drinking water, discharges, and standards for cleanup.”
“If you have a Superfund cleanup that has PFAS, what do you do with the PFAS? Where do you send it? How do you dispose of it?” Mosites continued. “In recent years, USEPA had identified 180 Superfund sites with PFAS. And so that’s another aspect of it. It’s not just the drinking water, but it’s the cleanup sites as well.”
Mosites suggested that PFOA and PFOS – “two of the most-studied PFAS – are the two that are driving the regulations at this point, and there is a lot more to be learned.”
How companies are responding
Companies across all industries are trying to understand and anticipate “the regulations and their impacts,” Mosites said. “So, if they have wastewater discharges, they can anticipate permit changes that will impose new obligations. If they have cleanups, they will be looking at new standards for the cleanups with respect to PFAS.”
How Babst Calland is helping
Mosites and others at the firm have been working with a number of clients to consider a variety of ramifications from state and federal regulations and navigate solutions across the spectrum of issues, according to Mosites.
“We do track the regulations from a variety of levels because the states are acting differently and sometimes in advance of the federal government,” she said. “So, we need to keep track of those different levels. We provide advice on sampling strategies, permit modifications, and requests for information because the government can ask for a lot of information from companies to which they’re required to respond under a number of statutory obligations.”
In the end, she said, this evolving area of the law and the science is about risk management for those businesses and industries whose products and manufacturing processes create or use PFAS, as well as transactional and operational considerations for property owners and businesses that may simply be PFAS adjacent. Mosites sees the role of Babst Calland as both an educator and strategic partner in helping business and industry navigate such uncertainties, better understand any new rules and regulations, and effectively plan for and manage potential litigation.
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Business Insights is presented by Babst Calland and the Pittsburgh Business Times.
Legal Intelligencer
(by John McCreary)
Stare decisis is one of the fundamental principles of American jurisprudence. “It protects the interests of those who have taken action in reliance on a past decision.” Dobbs v. Jackson Women’s Health Organization, 597 U.S. ___, slip op. at 39 (2022). “’Precedent is a way of accumulating and passing down the learning of past generations, a font of established wisdom richer than what can be found in any single judge or panel of judges.’” Id. (quoting N. Gorsuch, A Republic, If You Can Keep It at 217 (Forum Books 2019). For the National Labor Relations Board (NLRB), however, stare decisis is often an impediment to desired outcomes, more honored in its breach than in the observance. The disregard for precedent likely results from the fact that the NLRB “is not a court whose jurisdiction over violations of private rights must be exercised. It is an administrative agency whose function is to adjudicate public rights in a manner that will effectuate the purpose of the [National Labor Relations] Act.” Guss v. Utah Labor Relations Board, 353 U.S.1, 13 (1957) (Burton, J. dissenting). The Supreme Court has recognized that administrative adjudication is a “’constant process of trial and error.’” NLRB v. J. Weingarten, Inc., 420 U.S. 251, 266 (1975) (quoting NLRB v. Seven-Up Co.,344 U.S. 344, 349 (1953). Indeed, the Court has observed that the trial and error approach “differentiates perhaps more than anything else the administrative from the judicial process.” Id.
The five members of the NLRB are appointed by the President, subject to Senate confirmation, and serve staggered terms of five years, “excepting that any individual chosen to fill a vacancy shall be appointed only for the unexpired term of the member whom he shall succeed.” 29 U.S.C. §153(a). The General Counsel of the NLRB is also appointed by the President with the advice and consent of the Senate to a 4-year term, and “is independent from the Board and is responsible for the investigation and prosecution of unfair labor practice cases ….” https://www.nlrb.gov/bio/general-counsel; 29 U.S.C. §153(d). Consequently, the members of the Board and the General Counsel change at regular intervals and their respective views of how to effectuate the “purpose of the Act” reflect the policy preferences of the Presidents who appoint them; the Board and the General Counsel change their views of what the labor law should be with some regularity, depending on which constituency – labor or management – holds the majority of the Board or has appointed the General Counsel. The current General Counsel, Jennifer Abruzzo, soon after being confirmed in office issued Memorandum GC 21-04, “Mandatory Submissions to Advice,” in which she identified nearly 60 areas where she intended to try to reverse or modify the existing law, including 11 specifically identified as “Cases Involving Board Doctrinal Shifts.” https://apps.nlrb.gov/link/document.aspx/09031d4583506e0c. General Counsel Abruzzo’s desire to reshape the labor law is different in kind but not in degree from those of her Republican-appointed predecessor. The NLRB and its General Counsel are fundamentally partisan.
The doctrinal contests that result from the partisan nature of the Board are exemplified in the Board’s recent decision in Lion Elastomers, LLC, 372 NLRB No. 83 (May 1, 2023), where the Board overruled a decision from 2020 and reinstituted the rules that the 2020 decision had itself rejected. The cases all involved the frequently difficult issue of when employee activity otherwise protected by Section 7 of the National Labor Relations Act loses that protection because of misconduct. Section 7 of the Act grants employees the “right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all of such activities ….” 29 U.S.C. §157. Sections 8(a)(1) and (3) of the Act declare, respectively, that it is an unfair labor practice for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7” and “by discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization ….”
For years before 2020 the Board employed context-specific standards to assess whether employee misconduct vitiated Section 7 rights, thereby permitting the employer to discipline without running afoul of Sections 8(a)(1) and (3):
- Where the misconduct was directed at management in the workplace, the test articulated in Atlantic Steel test, 245 NLRB 814, 816 (1979) was used:
The decision as to whether the employer has crossed the line depends on several factors: (1) the place of the discussion; (2) the subject matter of the discussion; (3) the nature of the employee’s outburst; and (4) whether the outburst was, in any way, provoked by the employer’s unfair labor practice.
- Discipline imposed for picket line misconduct was judged by the Board using the standard established in Clear Pine Moldings, 268 NLRB 1044 (1984), which considered “whether the misconduct is such that, under the circumstances existing, it may reasonably tend to coerce or intimidate employees in the exercise of their rights under the Act [to refrain from striking].” 268 NLRB at 1046 (quoting NLRB v. W.C. McQuaide, Inc., 552 F.2d 519, 528 (3d Cir. 1977)).
- When considering the propriety of discipline imposed for the use of profanity and other offensive language among employees, or in social media postings, the Board employed a totality-of-the-circumstances test. g., Desert Springs Hospital Medical Center, 363 NLRB 1824, 1824 n.3 (2016) (use of profanity during conversation about union election with another employee protected); Pier Sixty, LLC, 362 NLRB 505, 506 (2015) (Facebook posting calling supervisor “nasty m—–f—–” and urging “yes vote” in upcoming union election protected because “comments were not so egregious as to exceed the Act’s protection”).
As can be deduced from the descriptions of these tests, they were largely subjective, requiring the Board to assess the severity of the misconduct and weigh it against its potential impact on the exercise of Section 7 rights.
The subjectivity of the context-specific approach was abandoned in the Board’s 2020 decision in General Motors, LLC, 369 NLRB No. 127 (July 21, 2020): “[t]hese setting-specific standards aimed at deciding whether an employee has or has not lost the Act’s protection [ ] have failed to yield predictable, equitable results … We believe that, by using these standards to penalize employers for declining to tolerate abusive and potentially illegal conduct in the workplace, the Board has strayed from its statutory mission.” Slip op. at 1. In place of the context-specific approach, the General Motors Board substituted the “familiar Wright Line standard.” Id. Wright Line, 251 NLRB 1083, enf’d, 662 F.2d 899 (1st Cir. 1981), cert. denied, 455 U.S. 989 (1982), approved in NLRB v. Transportation Management Corp., 462 U.S. 393 (1983), adopted the test for deciding the legality of “mixed motive” disciplinary action articulated by the Supreme Court in Mt. Healthy School District Board of Education v. Doyle, 429 U.S. 274 (1977):
Under the Mt. Healthy test, the aggrieved employee is afforded protection since he or she is only required initially to show that protected activities played a role in the employer’s decision. Also, the employer is provided with a formal framework within which to establish its asserted legitimate justification.
251 NLRB at 1089. Application of the Mt. Health/Wright Line test involves shifting the burden of proof to the employer once the General Counsel has made out a prima facie case:
[W]e shall henceforth employ the following causation test in all cases alleging violation of Section 8(a)(3) or violations of Section 8(a)(1) turning on employer motivation. First, we shall require that the General Counsel make a prima facie showing sufficient to support the inference that protected conduct was a “motivating factor” in the employer’s decision.
Once this is established, the burden will shift to the employer to demonstrate that the same action would have taken place even in the absence of the protected conduct.
Id. (footnote omitted). Thus, General Motors discarded considerations of context in favor of a more objective examination of motive in all cases involving the exercise of Section 7 rights and employee misconduct. Its rationale for so doing was that “abusive conduct that occurs in the context of Section 7 activity is not analytically separate from the Section 7 activity itself.” General Motors, 369 NLRB No. 127, slip op. at 1. The General Motors Board concluded that “where causation is at issue” Wright Line should apply. Id. at 2.
Less than three years later, after substantial turnover of Board members and appointment of a new General Counsel, the Lion Elastomers Board restored the subjective, context-specific approach to deciding Section 8(a)(1) and 8(a)(3) cases. In its view “[t]here is a fundamental difference … between employee misconduct committed during Section 7 activity and misconduct during ordinary work.” 372 NLRB No. 83, slip op. at 2. The decision rejected General Motors’ focus on employer motive because, it contended, focus on motive ignored the res gestae of the protected activity:
[C]onduct occurring during the course of protected activity must be evaluated as part of that activity – not as if it occurred separately from it and in the ordinary workplace context. [This principle] reflects a policy choice. It ensures that adequate weight is given to the rights guaranteed to employees by Section 7 of the Act by ensuring that those rights can be exercised by employees robustly without fear of punishment for the heated or exuberant expression of advocacy that often accompanies labor disputes, whether they are exercised by participating in contract negotiations, or grievance meetings, or walking a picket line as strikers and confronting employees who cross the line, or in discussing workplace issues with their coworkers.
Id. at 3. Lion Elastomers “overrule[d] General Motors and return[ed] to the Board’s setting-specific standards … As the Board did for decades, with judicial approval, we strike a different balance from the General Motors Board between the Section 7 rights of employees and the legitimate interests of employers.” Id. Or stated more imperiously, “the Board – not employers – referees the exercise of protected activity under the Act.” Id. at 11.
In the end, therefore, context matters again. Words or actions that would otherwise be grounds for discipline may ultimately escape sanction if expressed or undertaken during labor contract negotiations, grievance meetings or any number of other contexts in which employees engage in activity protected by Section 7. General Motors’ attempt to establish a more objective standard for deciding all claims of violations of Section 7 rights has been rejected in favor of the gnostic approach of the Lion Elastomers majority: in the appropriate context, as ultimately determined by the Board, an employer’s uniform application of the rules pertaining to civility in the workplace can be illegal.
John A. McCreary, Jr. is a shareholder in the employment and labor and public sector groups of Pittsburgh law firm Babst Calland. His practice spans the full range of issues encountered in the employment setting, including labor contract negotiation and administration, grievance arbitration, benefit plan issues, disputes over hiring practices, wrongful termination claims, as well as litigation over pension and benefit entitlements. Contact him at 412-394-6695 or jmccreary@babstcalland.com.
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Reprinted with permission from the May 25, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.
Legal Intelligencer
(by Casey Alan Coyle and Ed Phillips)
In 1993, Bill Murray starred in the film Groundhog Day, a comedy about a TV weatherman who becomes trapped in a time loop, forcing him to relive Groundhog Day over and over again. The movie became a common reference during the height of the COVID-19 pandemic as people woke up, realized something was amiss, and then went on with a day that repeated the last. Ever since a two-judge Superior Court panel issued its decision in Spencer v. Johnson, 249 A.3d 529 (Pa. Super Ct. 2021), Pennsylvania tort law has been caught in what seems to be a never-ending, “Groundhog Day” scenario regarding the scope of the Fair Share Act, 42 Pa.C.S. §7102.
The Fair Share Act
The doctrine of joint and several liability is a relic of the English common law dating back to the 17th Century. See, e.g., Smithson v. Garth, 3 Lev. 324, 83 Eng. Rep. 711 (1691). Pursuant to the doctrine, when multiple tortfeasors cause an indivisible injury, each tortfeasor is liable for the full extent of the damages regardless of the percentage of liability assessed by the jury. The doctrine therefore allows the plaintiff to satisfy an entire judgment against any of the defendants—even when one defendant was responsible for only a small amount of the harm. That meant that a defendant found liable for 1% of the harm could be forced to pay 100% of the verdict. This anomaly incentivized plaintiffs to sue deep-pocket defendants to bankroll a much larger verdict than a jury might expect them to have to pay.
Until a decade ago, Pennsylvania was only one of eight states that had yet to alter or repeal joint and several liability. That changed on June 28, 2011, when Governor Tom Corbett signed the Fair Share Act into law. The Act provides that, apart from five exceptions, “a defendant’s liability shall be several and not joint.” 42 Pa.C.S. §7102(a.1)(2). In its place, the Act adopted a proportionate liability model that permits a jury to award damages based on a percentage of fault. Id. §7102(a.1)(1). Following its passage, courts consistently held that the Fair Share Act eliminated joint and several liability for multi-defendant cases—including actions for strict liability—unless the defendant was found liable for 60% or more of the total liability apportioned to all parties, or one of the other four statutory exceptions applied. See, e.g., Rost v. Ford Motor Co., 151 A.3d 1032, 1044 at n.7 (Pa. 2016) (“Pennsylvania has now eliminated joint and several liability in most cases through amendment of the Fair Share Act[.]”); see also Roverano v. John Crane, Inc., 226 A.3d 526, 527 (Pa. 2017) (applying the Act in the context of a strict liability asbestos action). In March of 2021, however, the scope of the Fair Share Act was cast into doubt by a two-judge panel decision.
Spencer v. Johnson
In Spencer, a pedestrian was struck by a motorist operating his wife’s company car and severely injured. The pedestrian sued the motorist, the motorist’s wife (who was authorized to use the car by her employer), and the wife’s employer. At trial, the jury found all three defendants were negligent and their negligence were each factual causes of the pedestrian’s harm. The jury allocated liability among the defendants as follows: the motorist (36%); the motorist’s wife (19%); and the wife’s employer (45%). The pedestrian then sought to mold the verdict to make the wife’s employer jointly and severally liable for her negligence—and, in turn, exceed the 60% threshold required to trigger one of the exceptions under the Fair Share Act. The trial court denied the motion.
On appeal, a two-judge Superior Court panel reversed, holding that the trial court erred by failing to grant the pedestrian’s motion. Spencer, 249 A.3d at 536, 551-52. The panel concluded that the jury’s general verdict warranted a finding that the wife’s employer was vicariously liable for her negligence and their combined liability exceeded 60%, and therefore, the theory of joint and several liability applied under the Act. Id. at 557. The panel then provided what it termed an “alternative basis” for its holding—that, even if vicarious liability did not apply, the trial court still erred because the pedestrian was never alleged or found to have contributed to the accident. Id. at 559. According to the two-judge panel, “[f]or the Fair Share Act to apply, the plaintiff’s negligence must be at issue in the case,” i.e., comparative negligence. Id.
The wife, the wife’s employer, and 19 amici timely moved for reargument, contending, among other things, that:
- Neither the parties nor the amicus curiae argued that the Fair Share Act only applied in instances of comparative negligence, meaning that the two-judge panel raised the issue sua sponte. That practice is disfavored because it is at odds with the core principles underlying appellate law. See, g., Danville Area Sch. Dist. v. Danville Area Educ. Ass’n, PSEA/NEA, 754 A.2d 1255, 1259 (Pa. 2009);
- In setting forth its alternative reasoning, the panel purported to undertake a statutory analysis of the Fair Share Act and determined that the Act applies only “where a plaintiff’s own negligence may have or has contributed to the incident.” Spencer, 249 A.3d at 559. But the panel’s reading of the statute conflicts with the terms of the Act and at least four other Superior Court decisions interpreting the same. Adams v. Rising Sun Med. Ctr., 257 3d 26, 42 (Pa. Super. Ct. 2020); Veneesa, Inc. v. Stevenson, 237 A.3d 491 (Table), at *6 n12 (Pa. Super. Ct. 2020); Roverano v. John Crane, Inc., 177 A.3d 892, 905 (Pa. Super. Ct. 2017) (per curiam), rev’d in part on other grounds, 226 A.3d 526 (Pa. 2020); Fratz v. Gorin, No. 969 EDA 2012, 2013 WL 11266146, at *2 n.3 (Pa. Super. Ct. Apr. 10, 2013); and
- The panel asserted that, in enacting the Fair Share Act, “there is no indication the legislature intended to make universal changes to the concept of joint and several liability outside of cases where a plaintiff has been found to be contributorily negligent.” Spencer, 249 A.3d at 559. Yet, the legislative history reflects that, although proponents and opponents of the legislation disagreed on the merits, they all agreed on one thing: that the Fair Share Act abolished joint and several liability except for five classes of cases. House Legislative Journal, Apr. 11, 2011, at 546, 549, 557, 563; Senate Legislative Journal, June 20, 2011, at 691-93; House Legislative Journal, June 27, 2011, at 1553.
Notwithstanding these arguments, the Superior Court denied reargument.
Ensuing Confusion
In the 26 months since the decision was issued, “[t]here has been a lot of confusion . . . as to whether or not defendants are subject to joint and several liability for a judgment, regardless of their proportionate share of liability.” Ace v. Ace, No. 6242 CIVIL 2020, slip op. at 8 (Monroe Cnty. Ct. Com. Pl. 2023). Such confusion stems from the fact that courts and commentators are split as to whether two-judge panel’s “alternative basis” in Spencer constitutes a holding or dicta. In Snyder v. Hunt, No. 81 EDA 2020, 2021 WL 5232425 (Pa. Super. Ct. Nov. 10, 2021), a Superior Court panel referred to Spencer’s reading of the Fair Share Act as a “holding.” Id. at *6. Likewise, in Anderson v. Motorist Mutual Insurance Co., 608 F. Supp. 3d 214 (W.D. Pa. 2022), a federal district court called the two-judge panel’s “alternative basis” an “alternative holding.” Id. at 223.
In contrast, in Ace v. Ace, the trial court found that Spencer’s interpretation of the Fair Share Act constituted dicta, adding: “To say the legislature enacted a statute to address what was perceived as an unfair result to a big-pocket defendant following finding of minimal fault against them for injury caused by multiple defendants only in cases where a plaintiff is also contributorily negligent, seems like an absurd result. It makes more sense that the legislature would have enacted this measure in all cases of multiple defendants, even where the plaintiff has no contributory negligence.” No. 6242 CIVIL 2020, slip op. at 11-12. A number of commentators have expressed a similar view. See, e.g., Curt Schroder, 10-Year Anniversary of Pa.’s Fair Share Act Marred by Continued Attacks, The Legal Intelligencer (Aug. 12, 2021).
To date, however, neither the en banc Pennsylvania Superior Court nor the Pennsylvania Supreme Court have weighed in on the issue post-Spencer. As a result, litigants and practitioners are experiencing déjà vu, as the uncertainty over the scope of the Fair Share Act persists. Will the Pennsylvania Superior Court, sitting en banc, or Pennsylvania Supreme Court break this proverbial time loop like Bill Murray’s character did at the end of the film? Or are litigants and practitioners destined to relive, in perpetuity, the ongoing battle over the reach of the Act? Only time will tell. For now, in non-comparative negligence cases—which are the vast majority of all negligence cases—joint tortfeasors should beware that their liability may be far greater than their fair share.
Casey Alan Coyle is a shareholder at Babst, Calland, Clements & Zomnir, P.C. and Co-Chair of the firm’s Appellate Practice Group. He focuses his practice on appellate law and complex commercial litigation. He 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.
Edward D. Phillips is an associate at Babst, Calland, Clements & Zomnir, P.C and focuses his practice on complex commercial litigation. Contact him at 412-394-6553 or ephillips@babstcalland.com.
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Reprinted with permission from the May 25, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.
Pipeline Safety Alert
(by Brianne Kurdock, Jim Curry, Gary Steinbauer and Lee Banse)
On May 5, 2023, the Pipeline and Hazardous Materials Safety Administration (PHMSA) released the pre-publication version of a notice of proposed rulemaking (NPRM) titled “Gas Pipeline Leak Detection and Repair.” PHMSA published the NPRM in response to section 113 of the Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2020 (PIPES Act). Section 113 of the PIPES Act directed PHMSA to promulgate final regulations by December 27, 2021, requiring operators of gas transmission, distribution pipelines, and certain gathering lines to conduct leak detection and repair programs.
PHMSA proposes to amend 49 CFR Parts 191, 192, and 193 to: increase the frequency of leakage survey and patrolling requirements; introduce leakage survey and repair requirements for liquefied natural gas (LNG) facilities; require grading and repairs of leaks; reduce the use of blowdowns and intentional venting; impose design, configuration, and maintenance requirements for relief devices to reduce emissions; expand reporting requirements; and require that Type A, B, and C gathering lines submit geospatial pipeline location data to the National Pipeline Mapping System (NPMS). PHMSA proposes a six-month effective date for this rulemaking.
Comments on the NPRM are due on July 17, 2023.
Scope
Among other notable features of the proposal, the scope of this NPRM extends beyond the Section 113 congressional mandate by including Type C gathering lines, underground natural gas storage facilities, and LNG facilities. The statutory mandate was limited to regulated gathering lines in a Class 2, 3, or 4 location, and new and existing gas transmission and distribution pipelines. The NPRM also includes provisions intended to avoid overlap with existing Environmental Protection Agency (EPA) leak detection and repair (LDAR) regulations at 40 CFR Part 60, Subpart OOOOa, and EPA’s proposed regulations that would be codified at 40 CFR Part 60, Subparts OOOOb and OOOOc. The scope of these anti-overlap provisions is unclear, and the provisions could prove difficult to implement from a practical perspective.
Key aspects of the NPRM include:
Increased Leakage Surveys and Patrols
With the exception of distribution pipelines located within business districts, PHMSA proposes to increase the frequency of leakage surveys and right-of-way patrols for pipeline facilities and introduces these requirements for Type B and C gathering pipelines. PHMSA proposes that transmission operators conduct right-of-way patrols every 45 days with a minimum of 12 patrols each calendar year. The proposal reflects a significant expansion of the current obligations.
PHMSA proposes to expand the leakage survey obligation to all valves, flanges, meters, regulators, tie-ins, and launcher and receiver facilities. Further, the NPRM would restrict leakage surveys that exclusively use human senses to offshore pipelines below the waterline, or, with the prior approval of PHMSA, onshore transmission and gathering lines located outside of high consequence areas or in Class 1 or 2 locations. For all other leakage surveys, an operator must deploy leak detection technologies that meet PHMSA’s proposed detection sensitivity requirements. The proposed frequencies for the leakage surveys vary based on the type and location of the pipeline, valve, flange, tie-in or launcher and receiver facility.
Development of Advanced Leak Detection Programs
PHMSA proposes to require that operators develop a written Advanced Leak Detection Program (ALDP). Operators would need to develop procedures that specify how they intend to perform leakage surveys, as well as pinpoint and investigate leaks. Among other requirements, operators would need to identify the leak detection technology they intend to use in their programs after considering several prescribed factors, and an operator’s ALDP must select a leak detection device that is capable of detecting and pinpointing all leaks that have a sufficient release rate to produce a reading of 5 parts per million when measured from a distance of 5 feet or less from the pipeline or within a wall-to-wall paved area. It is not clear whether this leak detection device sensitivity threshold is practicable or consistent with existing EPA LDAR regulations.
Leak Grade and Repair Requirements
PHMSA proposes stringent leak grade and repair regulations that would require operators to classify and repair all detected leaks on their pipeline systems. Operators would need to determine whether detected leaks qualify as grade 1 (most severe), grade 2, or grade 3 (least severe) based on pre-defined narrative criteria or specified percentages of the lower explosive limit (LEL). For a grade 1 leak, an operator would be required to take immediate and continuous action to repair the leak upon detection. A grade 2 leak would need to be repaired within 6 months of detection, but an operator must also re-evaluate the leak every 30 days until the repair is complete. In addition, an operator would be required to develop procedures to prioritize grade 2 leak repairs, and a grade 2 leak located on a transmission line or Type A gathering line in an HCA, or a Class 3 or 4 location would require repair within 30 days. A grade 3 leak would need to be repaired within 24 months of detection, and re-evaluated every 6 months until the repair is complete, unless the operator replaces the pipeline segment containing the leak within 5 years of detection. The proposal would establish post-repair inspection and leak repair verification requirements, provide for the downgrading and upgrading of leak classifications, and allow an operator to request that PHMSA extend the regulatory deadlines for completing for repairs. We note that PHMSA’s proposed leak grading scheme is not an approach adopted by EPA in its LDAR regulations, which generally include a concentration-based leak definition above which a repair is required.
Exceptions for Compressor Stations
PHMSA would not apply the proposed leakage survey, patrolling, ALDP, leak grade and repair, and personnel qualification requirements to compressor stations on gas transmission or gathering lines if the compressor station is already subject to the EPA’s LDAR standards. More specifically, compressor stations would be exempt from these proposed PHMSA requirements if they are subject to EPA’s methane detection monitoring and repair requirements under 40 CFR Part 60, Subparts OOOOa or OOOOb, or relevant standards in an EPA-approved State Plan or Federal Plan that is at least as stringent as EPA’s proposed requirements at 40 CFR Part 60, Subpart OOOOc. The EPA “requirements” PHMSA references as being in place under 40 CFR Part 60, Subparts OOOOb and OOOOc are the subject of a proposed rulemaking by EPA, and they have not been promulgated in final form. Furthermore, EPA’s proposed greenhouse gas emission guidelines under 40 CFR Part 60, Subpart OOOOc, if finalized, would generally apply to compressor stations constructed prior to November 15, 2021, but these emission guidelines would be implemented directly by states after what could be a lengthy EPA review and approval process.
Reporting
PHMSA is proposing to amend Part 191 to require operators to report estimated emissions attributed to leaks, other estimated emissions from stationary sources, and the number and grade of leaks an operator detects and repairs.
PHMSA is also introducing a new large-volume gas release report that would require an operator to report within 30 days an unintentional or intentional release of 1 million cubic feet or more from a gas pipeline facility.
The NPRM would also require operators to submit data about offshore gas gathering lines, and Type A, Type B, and Type C gas gathering lines to the National Pipeline Mapping System. This provision exceeds the existing statutory mandate for NPMS.
Mitigating Emissions from Venting
To limit methane emissions caused by venting events such as blowdowns and tank boil-off, the NPRM would require operators of gas transmission, Type A gathering, regulated offshore pipelines, and LNG facilities to choose from a list of emission reduction methodologies, such as routing gas to a flare stack or reducing the operating pressure of a line prior to venting. Operators would be required to document the methodologies they choose and describe how the chosen methodologies reduce emissions.
Design, Configuration, and Maintenance of Pressure Relief Devices
The NPRM would require a documented engineering analysis to demonstrate that new, replaced, relocated, or otherwise changed pressure relief and limiting devices on Part 192-regulated pipelines have been designed and configured to minimize unnecessary releases of gas. Operators must also develop operations and maintenance procedures to assess pressure relief devices as well as procedures to provide for the repair or replacement of the devices, if necessary.
Qualifications
The NPRM would require personnel that conduct leakage surveys, leak grading, and leak investigations on certain facilities to be operator qualified under Part 192, subpart N.
LNG Facilities
PHMSA proposes to require operators to conduct quarterly leakage surveys of equipment or components at LNG facilities that contain methane or LNG. The surveys would require use of leak detection equipment capable of detecting a methane leak that produces a reading of at least 5 parts per million when located within 5 feet of the equipment being surveyed.
PHMSA would require LNG facility operators to develop procedures to eliminate leaks and minimize releases of gas, conduct leak surveys and address any methane leaks according to their maintenance procedures or abnormal operating procedures.
PHMSA also proposes that LNG operators adopt blowdown and boiloff emission reduction methodologies from a PHMSA-proposed list. PHMSA’s list includes use of a flare or isolation of smaller piping segments, but also would allow operators to propose their own “alternative method,” if the operator can demonstrate it would reduce emissions by 50% as compared to taking no emission mitigation measures.
Underground Natural Gas Storage Facilities
The NPRM proposes to amend Sec. 192.12(c) to require operator procedural manuals to include procedures for eliminating leaks and minimizing releases of gas from storage facilities.
For a more detailed assessment of how this NPRM could affect specific asset profiles, please contact Brianne Kurdock at bkurdock@babstcalland.com, Jim Curry at jcurry@babstcalland.com, Gary Steinbauer at gsteinbauer@babstcalland.com or Lee Banse at lbanse@babstcalland.com.
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Pretrial Practice & Discovery
American Bar Association Litigation Section
(By Joseph Schaeffer)
It is essential to follow the necessary steps so that a court has the authority to authorize alternative service of process when that becomes the only remaining option.
Early in 2023, in a class action arising out of the collapse of the FTX cryptocurrency exchange, a Florida judge denied the plaintiffs’ request for alternative service of the complaint on NBA legend (and one-time FTX pitchman) Shaquille O’Neal via social media. The judge held that the plaintiffs had not demonstrated that alternative service complied with Florida law—although perhaps he was simply skeptical that a 7-foot-1-inch, 325-pound former basketball star could not be personally served. Yet in another recent case—this one filed by two Georgia election workers against Rudy Giuliani—a District of Columbia judge granted the plaintiffs’ request for alternative service of a subpoena on Jenna Ellis, a former attorney for President Trump. Freeman v. Giuliani, No. 1:21-cv-03354-BAH (D.D.C. May 10, 2023). Why the difference?
For one thing, District of Columbia law expressly authorizes alternative service. It in fact had been authorized earlier in the same case. And perhaps even more importantly, the plaintiffs established that they had exhausted efforts at traditional service. They had contacted Ellis’s counsel and attempted to negotiate acceptance of service—until, that is, they learned that Ellis’s counsel no longer represented her. They had made multiple attempts at service at Ellis’s last listed address—until, that is, they learned that she had moved to Florida. And they made repeated, and unsuccessful, attempts to locate Ellis in Florida. Finally, the plaintiffs demonstrated that those efforts likely had made Ellis aware of the attempts to perform service. The court thus authorized six methods of alternative service:
- email to Ellis’s former counsel,
- mail to Ellis’s former Colorado address,
- email to Ellis directly,
- direct message via Twitter,
- direct message via Instagram, and
- direct message via Facebook.
See Freeman, supra.
As always, the lesson here for practitioners is to know the governing law and build your record! Though serving process on an uncooperative party can be difficult and time-consuming, it is essential to follow the necessary steps so that a court has the authority to authorize alternative service of process when that becomes the only remaining option.
Joseph Schaeffer is a shareholder with Babst, Calland, Clements & Zomnir, P.C. in Pittsburgh, Pennsylvania.
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© 2023. Service by Direct Message: Making a Record to Serve Parties by Alternative Means, Pretrial Practice & Discovery, American Bar Association Litigation Section, May 16, 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.
Pretrial Practice & Discovery
American Bar Association Litigation Section
(By Edward D. Phillips)
It is important to include key language in cases where a joint tortfeasor is obtaining a pro rata release.
When pretrial settlement negotiations are successful, one of the last crucial considerations in wrapping up the matter is to consider a release agreement that fully protects your client. In some instances, failing to include key language in a release can expose your client to liability long after obtaining an executed settlement agreement and release (SA&R). When sorting through numerous provisions in an SA&R that require modification or when drafting a SA&R from scratch, it is important to include key language in cases where a joint tortfeasor is obtaining a pro rata release.
For example, pursuant to Pennsylvania’s Uniform Contribution Among Tortfeasors Act, 42 Pa.C.S. § 8326, “[a] release by the injured person of one joint tort-feasor, whether before or after judgment, does not discharge the other tort-feasors unless the release so provides, but reduces the claim against the other tort-feasors in the amount of the consideration paid for the release or in any amount or proportion by which the release provides that the total claim shall be reduced if greater than the consideration paid” (emphasis added). Section 8326 encompasses both pro rata and pro tanto releases. Pro rata settlements reduce the final judgment by the settling defendant’s proportional share of the judgment, even where the settlement amount is not the same as the amount determined by the fact finder. Pro tanto settlements reduce the judgment only by the amount paid by the settling defendant(s).
Pursuant to Section 8327,
[a] release by the injured person of one joint tort-feasor does not relieve him from liability to make contribution to another tort-feasor, unless the release is given before the right of the other tort-feasor to secure a money judgment for contribution has accrued and provides for a reduction to the extent of the pro rata share of the released tort-feasor of the injured person’s damages recoverable against all the other tort-feasors
(Emphasis added.)
Accordingly, if the settling defendant obtains a release that does not include language expressly stating that it is pro rata release, then the release most likely will be construed to be a pro tanto release. Absent the required pro rata language, if the settling defendant’s proportional share of the judgement is greater than the amount of the settlement, the settling defendant may be exposed to liability for contribution to the other defendants who paid a portion of the settling defendant’s judgment. This wrinkle, however, is easily avoided by careful crafting of the SA&R with state-specific considerations in mind. Do not forget the details, beyond the standard release language, that may be necessary to protect your client.
Edward D. Phillips is an associate at Babst, Calland, Clements & Zomnir P.C. in Pittsburgh, Pennsylvania.
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© 2023. Including a Few Key Words in a Release Can Save Your Client Down the Road, Pretrial Practice & Discovery, American Bar Association Litigation Section, May 15, 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.
PIOGA Press
(By Lisa Bruderly)
An April 12, 2023, ruling by the U.S. District Court for the District of North Dakota has created a regulatory patchwork across the nation in which the definition of ‘waters of the United States’ (WOTUS), and subsequently, the jurisdiction of the Clean Water Act, now differs by state. For example, West Virginia and Pennsylvania currently rely on different WOTUS definitions to determine Clean Water Act jurisdiction.
This split creates more uncertainty about the extent that a project will impact WOTUS (if at all), what permitting will be required, and how much cost/time will be necessary to obtain appropriate permitting. It also creates inconsistencies from state to state on how the jurisdiction of the Clean Water Act is applied. For example, the Corps may determine that a water is regulated under the Clean Water Act based on the definition of WOTUS effective in one state, while the same water would not be federally-regulated based on the definition of WOTUS effective in another state. It will be difficult for regulating agencies to consistently differentiate between the two definitions, especially when a Corps District regulates WOTUS across states with differing effective definitions.
The nationwide split occurred when the North Dakota district court granted a preliminary injunction that halted the implementation and enforcement of the Biden administration’s new definition of WOTUS (2023 Rule) in the following 24 states: Alabama, Alaska, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
In granting the preliminary injunction, the North Dakota district court had harsh criticism for the 2023 Rule, noting that “the new 2023 Rule is neither understandable nor ‘intelligible,’ and its boundaries are unlimited.” It also stated that the 2023 Rule “raises a litany of other statutory and constitutional concerns.” The district court went further to state that the changing definitions of WOTUS “have created nothing but confusion, uncertainty, unpredictability, and endless litigation.”
The 2023 Rule was published as final in the Federal Register on January 18, 2023, (88 Fed. Reg. 3004) and became effective on March 20, 2023 in 48 states. A March 19, 2023, preliminary injunction granted in the U.S. District Court for the Southern District of Texas had already enjoined the new WOTUS definition in Texas and Idaho prior to the definition becoming effective.
A third judicial challenge to the 2023 Rule is pending. In April 2023, the Commonwealth of Kentucky and certain industry groups appealed the decision of the U.S. District Court for the Eastern District of Kentucky, which denied a motion for preliminary injunction to stop the enforcement of the 2023 Rule in Kentucky until May 10, 2023. On May 10, the Sixth Circuit granted an injunction, staying the enforcement of the 2023 Rule in Kentucky, one day after the district court denied the Commonwealth’s motion for an emergency injunction of the 2023 Rule pending the appeal. Therefore, as of May 11, 2023, the 2023 Rule is not effective in Kentucky while the appeal is pending.
As of May 11, 2023, the 2023 Rule is effective in 23 states, while the 1986 definition of WOTUS (which was in effect nationwide prior to the 2023 Rule) is in effect in the remaining 27 states.
The two definitions of WOTUS are conceptually similar, with both being based on the 1986 definition, as interpreted by early-2000s U.S. Supreme Court decisions regarding WOTUS, primarily the seminal Rapanos v. U.S. case. The U.S. Supreme Court in Rapanos identified two tests for determining WOTUS, with the more narrow test being established by Justice Antonin Scalia (i.e., relatively permanent waters and wetlands with a continuous surface connection to such waters), and the broader test being asserted by Justice Anthony Kennedy (i.e., the significant nexus test). Under the 1986 definition, the regulated community and regulators could base their jurisdictional arguments on either the Scalia or Kennedy test for identifying WOTUS. However, because the 2023 Rule codifies both Rapanos tests, it, arguably, requires the more inclusive, significant nexus test to be considered.
It is unclear whether additional judicial actions will occur in advance of the highly-anticipated U.S. Supreme Court decision in Sackett v. EPA, which will opine on whether the Ninth Circuit set forth the proper test to determine whether wetlands are WOTUS. The Supreme Court’s decision may significantly affect the 2023 Rule and USEPA’s ability to define WOTUS. The Sackett decision is expected to be issued by early summer 2023.
Babst Calland will continue to stay up-to-date on the developments related to WOTUS and the Clean Water Act, in general.
If you have any questions or would like any additional information, please contact Lisa Bruderly at (412) 394-6495 or lbruderly@babstcalland.com.
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Reprinted with permission from the May 2023 issue of The PIOGA Press. All rights reserved.
Smart Business
(By Adam Burroughs featuring Audra Hutter)
Act 122 was signed into law on November 3, 2022, by Pennsylvania’s former Gov. Tom Wolf. This legislation makes various changes to Title 15 of the Commonwealth’s Consolidated Statutes, also known as the Associations Code. One notable change for businesses in Pennsylvania is the new mandatory Annual Report Filing. This requirement replaces the previous Decennial Report Filing requirement and aligns Pennsylvania with a majority of other states that already require similar annual report filings.
While the form is simple and inexpensive, the consequences of missing the filing date can be significant.
Smart Business spoke with Audra Hutter, an attorney at Babst Calland, about Act 122, the filing change, and what it means for entities doing business in Pennsylvania.
What is the filing requirement?
Now, every year, organizations must file a report with the Pennsylvania Department of State that includes their business name; jurisdiction; registered office address; the name of at least one director, member or partner; names and titles of the principal officers; principal office address and its Department of State provided entity number.
Filling out the form is relatively simple and will likely be very similar to the forms companies were previously required to fill out every 10 years. There will be a $7 filing fee for businesses, corporations, LLCs, limited partnerships, and limited liability partnerships. There is no fee for organizations that operate for not-for-profit purposes.
Who needs to file and when are the deadlines?
Organizations should receive information and a letter from the Pennsylvania Department of State letting them know that their filing deadline is approaching. However, an excuse of missing an annual filing due to lack of notice from the Department of State will not be an acceptable reason for missing the deadline. The filing dates will be the same every year — for example, corporations will be required to file by June 30, LLCs will need to file by September 30, and other filing entities or foreign filing entities must file by December 31.
Entities that are required to file include:
- Domestic business corporations.
- Domestic nonprofit corporations.
- Domestic limited liability partnerships.
- Domestic electing partnerships that are not limited partnerships.
- Domestic limited partnerships (including limited liability limited partnerships).
- Domestic limited liability companies.
- Domestic professional associations.
- Domestic business trusts.
- All registered foreign associations.
These new annual filings will not be required until 2024, with penalties for missed filings not beginning until 2027.
What are the consequences of not filing?
In 2027, when penalties are levied, the consequence of failing to file will be the commencement of the process of administrative dissolution or cancellation of the business entity. Within six months of a missed deadline, the Department of State will send notice to an organization. If the annual report is not filed after the notice is received, then the Department will start the process of administratively dissolving and canceling the entity.
If an entity is dissolved, it will no longer be able to legally conduct business in Pennsylvania and its name will become available for new entities to claim. As such, if administratively canceled or dissolved, an entity may lose the ability to conduct business in Pennsylvania under their previous name.
A domestic entity can correct the dissolution or cancellation by applying for reinstatement, which would mean filing the reinstatement application, filing the missed annual reports, and paying the fees associated with each. A foreign entity may not simply apply for reinstatement, instead it must submit another Foreign Registration Statement to the Pennsylvania Department of State.
This change is an example of why it’s important to keep up-to-date on state legislation — not just in Pennsylvania, but any state where a company conducts business — because a simple administrative change could have a significant impact on an organization.
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Public Sector Alert
(by Alyssa Golfieri, Anna Hosack and Anna Jewart)
Effective today, municipalities and law enforcement agencies must process record requests seeking criminal history information submitted under Act 134.
On November 3, 2022, Pennsylvania Governor Tom Wolf signed into law Act 134 of 2022, which amended the Criminal History Record Information Act (CHRIA), to implement a new statutory process by which victims of crimes and defendants in certain civil actions can obtain criminal history investigative information gathered by law enforcement agencies (Act 134). Act 134 went into effect today, May 2, 2023, and is the latest of several statutory amendments impacting access to law enforcement records.
The important takeaways:
- Similar to the Pennsylvania Right-to-Know Law (RTKL), which governs access to public records, Act 134 provides a process by which certain individuals may request criminal history investigative information from municipalities and law enforcement agencies.
- Act 134 is not, however, an extension of nor an amendment to the RTKL. Act 134 is an independent statutory scheme implemented to provide crime victims and certain defendants in a civil action a definitive, stand-alone right to access criminal history investigative information—information that is generally not subject to access under the RTKL.
- Unlike the RTKL, where the requester’s identity is not relevant, under Act 134, access to records is completely dependent on the requester’s identity. Act 134 makes an explicit distinction with respect to the right to access information between a crime victim and a defendant. Crime victims are entitled to access before or after a civil action is pending in a Pennsylvania court. Defendants are only entitled to access after a civil action is pending. Without a firm understanding of this distinction, municipalities and law enforcement agencies are at significant risk of disclosing confidential and sensitive criminal history investigative information without proper authority.
- An Act 134 request must include or comply with the following:
- A sufficiently specific description of the information sought.
- A statement by the requester (or the requester’s representative), made subject to the penalties of unsworn falsification to authorities, that the information requested (i) is directly related to a civil action pending in Pennsylvania, or (ii) if the requester is a crime victim, is necessary to the investigation or preparation of a civil action in Pennsylvania.
- Submitted to the municipality or law enforcement agency via personal service or certified mail with receipt. Requests submitted via e-mail do not trigger a municipality’s or law enforcement agency’s obligation to respond under Act 134.
- Act 134 requests must be responded to within 60 days from the date of receipt of the request or by the date identified by the requester, whichever is later.
- Act 134 exempts from disclosure certain personal information, including without limitation, social security numbers, driver’s license numbers, financial information, telephone numbers, and e-mail addresses.
- Act 134 authorizes municipalities and law enforcement agencies to redact or deny access to requested information under certain circumstances. For example, an Act 134 request may be redacted or denied if the release of the requested information would endanger a person or public safety, adversely affect an investigation or ongoing prosecution, relates to law enforcement’s use of confidential informants, or would identify a third-party victim of child abuse, domestic violence, or sexual abuse.
Due to the complexities of Act 134 and its interplay with the RTKL, municipalities and law enforcement agencies should consult their legal counsel immediately upon receipt of any request for criminal history investigative information in order to avoid the improper disclosure of sensitive or confidential information. If you have questions about how Act 134 will impact your organization, please contact Alyssa E. Golfieri at 412-773-8701 or agolfieri@babstcalland.com, Anna R. Hosack at 412-394-5406 or ahosack@babstcalland.com, or Anna Skipper Jewart at 412-253-8806 or ajewart@babstcalland.com.
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Environmental Alert
(by Matt Wood and Mackenzie Moyer)
West Virginia is one among many states developing new laws and regulations related to per- and polyfluoroalkyl substances (PFAS). On March 28, 2023, Governor Jim Justice signed House Bill 3189, also known as the PFAS Protection Act (the Act), into law. Broadly, the Act is intended to identify sources of PFAS discharged into waters used for public drinking water and sets forth certain duties and obligations related to public water systems, water treatment systems, and facilities that use PFAS compounds.
The Act is a direct response to Senate Concurrent Resolution 46, passed in 2020, which required the West Virginia Department of Environmental Protection (WVDEP) and the West Virginia Department of Health and Human Resources to initiate a public source-water supply study to sample PFAS for all community water systems in the state. Community water systems are public water systems that pipe water for human consumption to at least 15 service connections used by year-round residents or that regularly serve at least 25 residents. Subsequently, the state agencies contracted with the United States Geological Survey (USGS) to sample and analyze for 26 PFAS compounds from 279 sites consisting of public water systems, including schools and daycares that operate their own water systems. USGS published the final report summarizing the study in July 2022.
PFAS Study Results and Contemporary Federal Actions
The study found that 13 percent of the sampled sources (37/279) exceeded 70 parts per trillion (ppt) for perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) combined, the then-current health advisory established by the U.S. Environmental Protection Agency (USEPA) in 2016. PFOA and PFOS are the most studied PFAS chemicals. Health advisories are unenforceable, non-regulatory thresholds below which adverse health effects are not anticipated to occur over a lifetime of exposure. In June 2022, USEPA published updated interim health advisories for PFOA (0.004 ppt) and PFOS (0.02 ppt) and final health advisories for hexafluoropropylene oxide dimer acid and its ammonium salts (HFPO-DA, commonly known as GenX; 10 ppt) and perfluorobutane sulfonic acid (PFBS; 2,000 ppt). When compared to the updated, interim PFOA and PFOS health advisories, 49 percent (137/279) of sampled sources exceeded these thresholds. Such exceedances on their own do not create obligations for drinking water systems to take action to address PFAS.
At the same time that the West Virginia legislature was developing House Bill 3189, USEPA was moving to regulate PFAS compounds in drinking water at the federal level. For example, on March 14, 2023, USEPA announced a proposed National Primary Drinking Water Regulation setting maximum contaminant levels for six PFAS compounds. More information about the proposed regulation is available at USEPA’s website here. In August 2022, USEPA proposed designating PFOA and PFOS as hazardous substances under CERCLA and the agency is considering applying the same designation to six other PFAS compounds. The West Virginia legislature cited these and other actions as background to passing the Act.
WVDEP and Facility Obligations Under the PFAS Protection Act
The Act obligates WVDEP to take certain actions based on the presence and concentration of PFAS compounds in raw and/or treated water. For every raw water source where USGS detected any of four listed PFAS (PFOA, PFOS, PFBS, or GenX) above the practical quantitation limit (PQL) and above EPA’s applicable health advisory, WVDEP must write a PFAS action plan to identify and address the PFAS sources. The PFAS action plans are due by July 1, 2024. For each raw water source where USGS detected any of the four listed PFAS above the method detection level (MDL), above EPA’s applicable health advisory, and below the PQL, the Act requires WVDEP to sample the finished, treated water at the associated public water system by the end of 2023. For each public water system where any of the four listed PFAS is detected in finished water above the MDL and above EPA’s applicable health advisory, regardless of the concentration in relation to the PQL, the Act requires WVDEP to prepare a PFAS action plan to identify and address sources of PFAS for the public water system’s raw water source(s). For these, the first 50 plans must be completed by the end of 2025 and the remaining plans must be completed by the end of 2026.
As set forth in more detail in the Act, developing the PFAS action plans requires WVDEP to coordinate with affected public water systems and consult with applicable governmental agencies, organizations representing West Virginia public drinking water systems, and other entities with knowledge applicable to identifying and addressing PFAS sources. The Act also directs WVDEP to recommend changes to applicable statutes and/or rules to address the sources of PFAS compounds and to report on its activities annually to the Joint Legislative Oversight Commission on State Water Resources.
The general PFAS approach for federal and state agencies is to obtain the occurrence and exposure data from drinking water systems and take action to reduce and eliminate the sources of PFAS to such systems. The latter component can be seen in the second part of the Act, which requires all facilities that discharge to a surface water under a West Virginia/National Pollutant Discharge Elimination System permit, or to a Publicly Owned Treatment Works under an industrial pretreatment program, and that manufacture or knowingly use or have used one or more PFAS chemicals in their production process since January 1, 2017, to report such use to WVDEP by no later than December 31, 2023. Facilities subject to the reporting requirement must begin quarterly monitoring of the self-reported PFAS chemicals within six months of notification to WVDEP. The Act also requires WVDEP to modify a facility’s applicable permits to require monitoring for the self-reported PFAS chemicals.
The Act does not create any new obligations for either public water systems or publicly owned treatment systems. Looking toward the future, after USEPA finalizes Clean Water Act water quality criteria for any PFAS, WVDEP must propose criteria no more stringent than USEPA’s established criteria in the next regular legislative rulemaking cycle. The Act will be effective on June 8, 2023.
As the federal and state governments continue to take multiple actions to address PFAS across many program areas, Babst Calland attorneys continue to track these developments and are available to assist you with PFAS-related matters. For more information on this development and other remediation matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, or Mackenzie M. Moyer at (412) 394-6578 or mmoyer@babstcalland.com, or any of our other environmental attorneys.
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Legal Intelligencer
(by Casey Alan Coyle, Anna Jewart and Anna Hosack)
In December 2022, the Pennsylvania Supreme Court issued its opinion in Central Dauphin School District v. Hawkins, 286 A.3d 726 (Pa. 2022), the latest in a line of cases considering the intersection of the federal Family Educational Rights and Privacy Act, 20 U.S.C. §1232g (“FERPA”), and the Pennsylvania Right-to-Know Law, 65 P.S. §§67.101-67.3104 (“RTKL”). The majority held that, while the school bus surveillance video at issue constituted an “education record” under FERPA, the school district was nonetheless required to release the video under the RTKL, following redaction of students’ personally identifiable information (“PII”). Hawkins has clear implications regarding the treatment of school surveillance videos under FERPA and the RTKL. However, Hawkins raises several questions, including whether a non-public record can “become” public through redaction, and therefore, be subject to disclosure under the RTKL.
RTKL
The RTKL is the state open records law. It requires state and local government agencies, including public school districts, to provide access to “public records’ upon request, subject to certain exceptions. The statute broadly defines a “public record” as a record of a Commonwealth or local agency that is not exempt under one of 30 enumerated exemptions, not protected by a privilege, and “not exempt from being disclosed under any other Federal of State law or regulation or judicial order or decree.” A record in the possession of an agency is presumed to be a public record unless, inter alia, “the record is exempt from disclosure under any other Federal or State law or regulation or judicial order or decree.” The RKTL also contains a disclaimer: “Nothing in this act shall supersede or modify the public or nonpublic nature of a record or document established in Federal or State law, regulation or judicial order or decree.” Notably, the RTKL includes a provision mandating redaction of exempt information, Section 706. Critically, however, Section 706 does not apply to all records, but only those determined to be a “public record,” “legislative record,” or “financial record.”
FERPA
FERPA is a privacy statute for student education records. An “education record” is defined as those records files, documents, and other materials which: (1) contain information “[d]irectly related to a student;” and (2) are “[m]aintained by an educational agency or institution or by a person acting for such agency or institution.” FERPA serves the dual purpose of ensuring parents and students have access to education records, while protecting student and parent privacy by prohibiting disclosure of students records without consent. FERPA achieves these objectives by conditioning federal funding to public school districts and other educational agencies or institutions upon compliance with its regulations. FERPA makes education records exempt from disclosure, subject to limited exceptions. One such exception is parental consent. Another is where the educational agency or institution, in its discretion, elects to release a record after the removal of all PII, “provided that the educational agency or institution or other party has made a reasonable determination that a student’s identity is not personally identifiable.”
Hawkins
Hawkins involved a school bus video. The video shows an incident occurring primarily between a student and a parent of another student while surrounded by other students on a school bus located on school district property. After receiving reports of the incident, the district conducted an investigation that resulted in disciplinary action against both students and staff. No parental consent for the release of the video was ever provided.
A Commonwealth Court panel held the video did not constitute an “education record” under FERPA, and thus, was subject to disclosure under the RTKL. The Pennsylvania Supreme Court subsequently issued its opinion in Easton Area School District v. Miller, 232 A.3d 716 (Pa. 2020), holding that a school bus video—factually analogous to the one in Hawkins—qualified as an education record under FERPA. The plurality opinion in Easton Area also discussed the issue of redaction but did not reach a majority on the issue.
In the wake of that ruling, the Supreme Court vacated the order in Hawkins and remanded for additional proceedings consistent with Easton Area. On remand, a Commonwealth Court panel affirmed the trial court on different grounds: although the video constituted an “education record” under FERPA, it was still subject to disclosure under the RKTL because “redacting students’ images removes any argument that the video is a public record and exempt under Federal law or regulation, and thus removes any argument by the [s]chool [d]istrict that it is exempt under [the RTKL.]”
The Supreme Court affirmed on further review. The majority held education records in a school district’s possession are presumed public and the district has the burden to prove the record is exempt by a preponderance of the evidence. The majority also held that the video in question is an education record, but that education records are not categorically exempt from disclosure under the RTKL. Rather, only a students’ PII within an education record is exempt. The majority further held the district did not meet its burden of proving it lacked the capacity to redact the video. Finally, while acknowledging that FERPA’s regulations define PII to include “[i]nformation requested by a person who the educational agency or institution reasonably believes knows the identity of the student to whom the education record relates,” the majority held that it “lack[ed] sufficient context to reverse the fourth consecutive directive to disclose the video” in reliance on that provision.
Justice Mundy authored a concurring and dissenting opinion. While agreeing with various of the majority’s conclusions, including that the video is an education record under FERPA, Justice Mundy disagreed with the majority’s “creation of a presumption that school districts have the ability to redact students’ personal identifiable information from video, imposing the costs of such redaction on districts, and its apparent diminishment of students’ privacy interest in their educational records.”
Unanswered Questions
While likely intended to resolve the uncertainty created by the plurality opinion in Easton Area, Hawkins arguably has created more questions than answers for school solicitors and other RTKL practitioners. They include, but are not limited to, the following:
- Burden of proof: The majority opined in a footnote that, to satisfy its burden of providing records are exempt under the RTKL, the district “must do more than baldly state it lacks the ability to redact them.” However, the district had not only submitted an affidavit attesting that it lacked the technological capability to redact the video, but also offered testimony to the same and the requester offered no contrary evidence. If unrefuted testimony is not sufficient to satisfy an agency’s burden of proof, then what is? Is Justice Mundy correct that the majority “essentially creates a presumption that school districts will never be able to meet their burden to show they lack the ability to redact the video, or any other media, to remove identifiable student information?”
- In camera review: Along these same lines, the majority ordered redaction of the video in Hawkins even though neither the Office of Open Records, common pleas court, Commonwealth Court, nor the Supreme Court reviewed the video, in camera, to determine whether redaction could remove all PII from the recording. What role, if any, does in camera review play to assess the feasibility of redaction of a record following Hawkins?
- Discretion: The majority found that “it is clear Section 706 of the RTKL mandates agencies . . . to redact exempt information and does not give them discretion in this regard.” But FERPA’s regulations state the opposite. The regulations vest an educational agency or institution with the discretion to release an education record upon de-identification only following a “reasonable determination that a student’s identify is not personally identifiable.” The district in Hawkins never made such a determination. To the contrary, it asserted that de-identification was not feasible because, even in redacted from, the requester and the public would know exactly which student’s face has been redacted from the video. Is a “reasonable determination” from a district that “a student’s identity is not personally identifiable” a requirement for disclosure of an education record under the RTKL? Or does the RKTL supersede FERPA in this regard? And if the latter is true, how can that be reconciled with the disclaimer set forth in Section 306 of the RTKL?
- Loss-of-federal-funding exception: Easton Area involved the loss-of-funding exception to disclosure under the RTKL. The plurality determined that, to implicate this exception, an agency must establish that it has a “policy or practice” of “releasing,” “permitting the release of,” or “providing access to” protected education records or personally identifiable information, adding that such language “necessary denotes repeated or systematic violations of student privacy, as opposed to singular or exceptional instances.” By mandating the disclosure of education records in redacted form, did Hawkins establish a statewide policy or practice of providing access to education records to implicate this exception? If not, what more is required to trigger the same with respect to education records?
- Scope of holding: At minimum, education records are now subject to a right of access, via redaction, under the RTKL. Arguably, however, the rationale of Hawkins extends to all non-public, exempt records of a Commonwealth or local agency. How will future courts interpret Hawkins? Will they limit the holding to the context of education records? Or will courts follow Hawkins’ lead and determine that only certain information within a record—as opposed to the record itself—is non-public, thus triggering redaction under Section 706 to entire categories of records previously considered non-public?
Given these unanswered questions, school districts and other Commonwealth and local agencies should proceed cautiously when addressing RTKL requests until the subsidiary issues raised by Hawkins are resolved.
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Casey Alan Coyle is a shareholder at Babst Calland Clements and Zomnir, P.C. and Co-Chair of the firm’s Appellate Practice Group. He is also a former law clerk to Chief Justice Emeritus Thomas G. Saylor of the Pennsylvania Supreme Court. He represented Central Dauphin School District in its appeal to the Pennsylvania Supreme Court in Hawkins. Contact him at 267-939-5832 or ccoyle@babstcalland.com.
Anna S. Jewart is an associate at the firm and focuses her practice on land use and general municipal law. Contact her at 412-253-8806 or ajewart@babstcalland.com.
Anna R. Hosack is an associate at the firm and focuses her practice primarily on municipal and land use law. Contact her at 412-394-5406 or ahosack@babstcalland.com.
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Reprinted with permission from the April 20, 2023 edition of The Legal Intelligencer© 2023 ALM Media Properties, LLC. All rights reserved.
Christina Manfredi McKinley, a shareholder in Babst Calland’s Litigation, Energy & Natural Resources, and Environmental groups, was selected by The Legal Intelligencer as a “2023 Lawyer on the Fast Track” in Pennsylvania.
A graduate of The Catholic University of America Columbus School of Law, Ms. McKinley continually strives to provide business-oriented solutions to her clients and routinely serves as a general advisor, counseling clients on day-to-day legal and business matters on any number of issues. Her business-focused, proactive approach to problem-solving allows her to provide solutions to clients in a variety of industries. Her experience spans a wide range of industries, including manufacturing, retail, energy, chemicals, and environmental.
As a litigator who focuses on complex commercial matters, Ms. McKinley’s trial practice encompasses all phases of litigation, from early alternative dispute resolution through post-trial motions. She has concentrated experience in complex purchase agreement and commercial contracts disputes, protection of competitive interests (e.g., Lanham Act, unfair competition, tortious interference, trade secret protection, restrictive covenants), technology disputes (e.g., software services and license agreements), and corporate governance.
The Legal Intelligencer asked the Pennsylvania legal community to submit nominations for the annual Lawyers on the Fast Track honors. After reviewing their results, a six-member judging panel composed of evaluators from all corners of the legal profession and the state selected 29 attorneys as the 2023 Lawyers on the Fast Track. This recognition is only given to attorneys under the age of 40 who have demonstrated excellence in four categories: development of the law; advocacy and community contributions; service to the bar; and peer and public recognition.
Environmental Alert
(by Sloane Anders Wildman and Amanda Brosy)
On April 13, 2023, the U.S. Environmental Protection Agency (EPA) issued an Advance Notice of Proposed Rulemaking (ANPRM) requesting input on the potential designation of additional categories of per and poly-fluoroalkyl substances (PFAS) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund. The ANPRM follows EPA’s September 2022 Proposed Rule, which, if finalized, would designate two of the most common PFAS as CERCLA hazardous substances and represents another step under the “PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024,” a plan for taking an agency-wide approach to address PFAS under EPA’s various statutory and regulatory authorities. EPA will be accepting comments on the ANRPM until June 12, 2023.
What Are PFAS?
PFAS are a group of man-made chemicals identified by signature elemental bonds of fluorine and carbon, which are extremely strong and difficult to break down in the environment. As a result, PFAS are persistent and can withstand high temperatures and highly corrosive environments. While the PFAS family of chemicals includes the commonly known and used PFOA, PFOS, and GenX, there are more than 12,000 other compounds that are also classified as PFAS. PFAS can be present in water, soil, air, and food as well as materials found in homes and workplaces.
PFAS have been manufactured and used in a variety of industries around the globe, including in the United States since the 1940s. Because of their ability to repel water and oil, PFAS are used in many different types of products, including firefighting foam known as “AFFF,” stain-resistant carpets, roofing materials, coatings, food packaging, water-resistant outdoor clothing and gear, nonstick cookware, and boots, among others.
What Is EPA Doing to Address PFAS?
EPA’s PFAS Strategic Roadmap sets timelines by which EPA plans to take specific actions related to PFAS across regulatory programs. As previously reported by Babst Calland in September 2022, among numerous other actions, EPA proposed a rule to designate perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) – the two most common and well-studied PFAS – and their salts and isomers as “hazardous substances” under CERCLA. EPA currently is reviewing comments received on this Proposed Rule and is expected to finalize these listings this summer.
The ANPRM seeks technical input from industry, environmental groups, Tribes, universities, and business groups that will inform EPA’s decision whether to propose to designate as hazardous substances seven additional PFAS, as well as precursors to PFOA, PFOS and the seven additional PFAS.[1]
EPA is soliciting information concerning mobility, persistence, prevalence, and other characteristics to supplement the existing toxicity data for these compounds. EPA is also requesting information regarding the degradation of these substances through environmental processes such as biodegradation, photolysis, and hydrolysis and whether and how EPA should consider the availability of analytical methods when determining whether to designate precursors as CERCLA hazardous substances. Finally, EPA is requesting information on whether categories of PFAS (i.e., groups of PFAS that share similar characteristics such as chemical structure, physical or chemical properties, mode of toxicological action, precursors or degradants, or co-occurrence) could or could not be designated as hazardous substances. Although CERCLA precludes EPA from taking cost into account in designating hazardous substances, EPA is requesting information on potential direct and indirect costs and benefits of designating any of these compounds as hazardous substances, including, in particular, impacts on small entities.
What Are the Next Steps?
EPA states that it intends to carefully review all comments and information received in response to the ANPRM, after which it plans to supplement the collected information with information that the Agency has obtained independently, to determine whether to proceed with a future rulemaking addressing these additional substances.
With respect to CERCLA liability and enforcement, the ANPRM indicates that EPA is separately developing a CERCLA PFAS enforcement discretion and settlement policy. EPA held two public listening sessions in March and sought written comments on public concerns regarding CERCLA PFAS enforcement/liability. EPA will now review and consider those comments as it develops its policy.
As the federal and state governments take action to address PFAS, Babst Calland attorneys will continue to track these developments and are available to assist you with PFAS-related matters. For further information, please contact Sloane Wildman at 202-853-3457 or swildman@babstcalland.com, Amanda Brosy at 202-853-3465 or abrosy@babstcalland.com, or your client service attorney at Babst Calland.
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[1] The seven additional PFAS are Perfluorobutanesulfonic acid (PFBS), CASRN 375–73–5, Perfluorohexanesulfonic acid (PFHxS), CASRN 355–46–4, Perfluorononanoic acid (PFNA), CASRN 375–95–1, Hexafluoropropylene oxide dimer acid (HFPO–DA), CASRN 13252–13– 6 (sometimes called GenX), Perfluorobutanoic acid (PFBA), CASRN 375–22–4, Perfluorohexanoic acid (PFHxA), CASRN 307–24–4, and Perfluorodecanoic acid (PFDA) CASRN 335–76–2.
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PIOGA Press
(By Ben Clapp and Gina Falaschi Buchman)
On March 22, 2023, Chubb, one of the world’s largest insurance companies, introduced new climate-focused underwriting standards intended to induce reductions of methane emissions from the oil and gas production sector.
Under the new standards, Chubb will continue to offer coverage only to clients that implement evidence-based plans to manage methane emissions including, at a minimum, a leak detection and repair (LDAR) program, elimination of non-emergency venting, and measures to reduce emissions from flaring. These criteria commence immediately, but customers will have time to develop an action plan based on their individual risk characteristics. Chubb has also committed to creating a customer resource center to support oil and gas insureds implementing these requirements.
Chubb also announced that it will immediately cease offering coverage for oil and gas projects in government-protected conservation areas designated by state, provincial or national governments. This will include conservation areas covered by International Union for the Conservation of Nature (IUCN) management categories I-V in the World Database on Protected Areas, which includes nature reserves, wilderness areas, national parks and monuments, habitat or species management areas, and protected landscapes and seascapes. A sixth IUCN category applies to protected areas that allow sustainable use, and Chubb plans to develop standards for projects in category VI areas and for oil and gas extraction projects in certain key zones not currently listed in the World Database on Protected Areas by the end of 2023.
It is unclear how Chubb’s new underwriting criteria will compare with existing and proposed federal and state rules like NSPS Part 60, Subparts OOOO and OOOOa, the proposed NSPS Part 60, Subparts OOOOb and OOOOc, and Pennsylvania’s 2022 Control of VOC Emissions from Unconventional and Conventional Oil and Natural Gas Sources Rules. Compliance with these state and federal standards may satisfy insurers like Chubb, but that is not certainly the case. For example, Chubb has announced that it will require, at minimum, a LDAR program, but it is unclear what the required monitoring frequency will be. Wells with emissions below certain thresholds not currently subject to frequent monitoring under federal or state rules may need additional monitoring to remain insured under Chubb’s criteria. It is also possible that other insurance companies will follow Chubb’s lead in the coming months. Producers should remain alert to notices from their insurance companies to ensure that facilities meet the requirements to remained insured.
This new underwriting policy is an extension of Chubb’s recent efforts to focus more on climate-related activities. The company has already limited coal-related underwriting and investment. Chubb has also launched a new climate business unit, Chubb Climate+, which will offer insurance products and related services to companies developing new technologies that support progress towards a low-carbon economy.
Chubb’s new standards exemplify the expanding and influential impact of Environmental, Social, and Governance (ESG) principles on companies operating in the energy sector. ESG generally refers to a set of factors used to measure the non-financial practices in areas such as sustainability, climate, and resource conservation, and non-environmental areas such as diversity, equity, and inclusion. Consumers, insurers, lenders and investors are placing an increased emphasis on ESG considerations when making business decisions, and regulatory agencies are beginning to take actions aimed at increasing the transparency of regulated companies’ ESG efforts through required disclosures.
For example, a number of proposed federal agency rules over the past year could make ESG reporting mandatory, including the Securities and Exchange Commission’s proposed Enhancement and Standardization of Climate-Related Disclosures for Investors, which could become the first mandatory ESG reporting requirement for publicly traded U.S. companies. In addition, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration have proposed a rule that would require certain federal suppliers to annually disclose their greenhouse gas (GHG) emissions and climate-related financial risks, as well as set GHG emissions reduction targets, on an annual basis. Whether through exposure to consumer, insurer, lender or investor initiatives, or to new ESG reporting requirements imposed by regulatory agencies, companies operating in the energy sector are likely to face increased scrutiny over ESG-related practices that may, as in the case of the new Chubb standards, require costly operational changes.
Babst Calland’s energy and environmental attorneys continue to track ESG related issues affecting the energy industry. For more information, please contact Ben Clapp at (202) 853-3488 or bclapp@babstcalland.com or Gina Buchman at (202) 853-3483 or gbuchman@babstcalland.com.
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Reprinted with permission from the April 2023 issue of The PIOGA Press. All rights reserved.
