PIOGA Press
(By Matt Wood)
On December 15, 2022, the U.S. Environmental Protection Agency (EPA) published a final rule amending its All Appropriate Inquiries (AAI) Rule to incorporate ASTM International’s E1527-21 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” (Final Rule).1 The Final Rule – effective February 13, 2023 – allows parties conducting due diligence to utilize the E1527-21 standard to satisfy the AAI requirements under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), for the purpose of obtaining liability protections when acquiring potentially contaminated properties. Specifically, “bona fide prospective purchasers,” “contiguous property owners,” and “innocent landowners” can potentially obtain CERCLA liability protection by complying with the AAI Rule. More broadly, however, other regulating bodies, such as states, often require or recommend using the E1527 standard for evaluating potentially contaminated properties prior to purchase.
The Final Rule’s publication ends months of speculation and confusion about when and how EPA would address E1527-21 and its prior version, E1527-13. After ASTM issued E1527-21 in November 2021, EPA published an applicable direct final rule (and accompanying proposed rule, requesting comments on the direct final rule) in March 2022 incorporating E1527-21 into the AAI Rule, but also allowing parties to continue to use E1527-13 to satisfy AAI requirements. Many commenters opposed this approach, predicting confusion about which standard to use and pointing out that ASTM would eventually do away with E1527-13. In response to these comments, EPA withdrew the direct final rule in May 2022. The Final Rule addresses these concerns by removing the AAI Rule’s reference to the E1527-13 standard one year from the Final Rule’s publication in the Federal Register, i.e., December 15, 2023. Until then, any Phase I Environmental Site Assessment (ESA) conducted using E1527-13 will be considered compliant under the AAI Rule.
Among its many updates, E1527-21 adds definitions for certain terms (e.g., “significant data gap”) and updates other definitions for clarity and consistency (e.g., “recognized environmental condition”); it explains how long a Phase I ESA remains viable (no more than 180 days prior to property acquisition, or up to one year if certain components are updated); and expands the scope of the subject property’s historical review to include adjoining properties. One of the most notable and potentially significant updates is E1527-21’s discussion of “emerging contaminants,” or “substances not defined as hazardous substances under CERCLA,” which includes discussion of how and whether to address per- and polyfluoroalkyl substances (PFAS).
Specifically, E1527-21 categorizes PFAS and emerging contaminants not identified as hazardous under federal law as outside the scope of the E1527-21 standard. E1527-21 notes, however, that when such substances are defined as hazardous under applicable state law, and a Phase I ESA is being performed to satisfy federal and state requirements, analysis of such substances may be addressed in the Phase I ESA as “Non-Scope Considerations.” Non-Scope Considerations are potential environmental conditions at a property that might not give rise to CERCLA liability but may be relevant to a potential purchaser’s decision to acquire the subject property. Based on property-specific factors, a potential purchaser may also direct the environmental professional conducting the Phase I ESA to include analysis of PFAS or other emerging contaminants to provide a more fulsome understanding of potential risks associated with the subject property. Importantly, E1527-21 advises that when an emerging contaminant is designated a CERCLA hazardous substance, that contaminant must be evaluated within the scope of the Phase I ESA.
One commenter to the March 2022 direct final rule and proposed rule said that the emerging contaminants section threatened to lead to premature CERCLA liability for landowners and prospective buyers and requested a formal notice and comment period for the E1527-21 standard. Other commenters requested specific modifications to certain E1527-21 defined terms. In response, EPA noted in the Final Rule that E1527-21 is not an EPA regulation that it has authority to modify and that such requests should be directed to ASTM for consideration. Further, EPA said that because use of the E1527-21 standard is not required for complying with the AAI Rule, i.e., compliance can be achieved using other methods, the agency found no reason not to recognize E1527-21 as compliant with the AAI Rule. EPA’s response to comments document is available here.
With respect to PFAS, the timing of the Final Rule’s publication is particularly relevant to parallel rulemaking. In September 2022, EPA published a proposed rule designating PFOA and PFOS – the most common and well-studied PFAS – as CERCLA hazardous substances. The comment period for that proposed rule ended on November 7, 2022, and the final version is expected to be published in 2023. If EPA designates PFOA and PFOS as CERCLA hazardous substances as expected, they will fall within the scope of E1527-21. The same will apply to any other PFAS that EPA designates as CERCLA hazardous substances, which the agency has indicated it is considering via a future rulemaking.
Although many states have been regulating PFAS for years under various regulatory programs, similar efforts by the federal government are more recent. In addition to the Final Rule and the anticipated PFOA and PFOS CERCLA hazardous substance rule, EPA is also in the process of developing a proposed national drinking water regulation for PFOA and PFOS and is also considering regulatory actions to address other PFAS. These changes and others likely to occur in the coming months and years underscore the importance of understanding the various risks associated with PFAS contamination and how to comply with current and forthcoming requirements.
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1ASTM International develops technical standards for numerous areas and industries, including metals, paints, plastics, construction, energy, the environment, consumer products, devices and electronics, and advanced materials. Among other things, the standards are intended to enhance health and safety, improve product quality, and create consensus processes for achieving specific outcomes. The standards, which can be voluntarily adopted, are often referenced by governments in statutes, regulations, and/or codes.
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Reprinted with permission from the January 2023 issue of The PIOGA Press. All rights reserved.
PIOGA Press
(By Lisa Bruderly)
Projects involving oil or natural gas development or pipeline construction require U.S. Army Corps of Engineers (Corps) permitting for impacts from crossing, or otherwise disturbing, federally regulated streams and wetlands. The extent of required federal permitting is dependent on the definition of “waters of the United States” (WOTUS), which determines federal jurisdiction under the Clean Water Act (CWA). Typically, the more impacts to federally regulated streams and wetlands, the more likely the permitting will cause project delays and increase expenses.
As one of their last actions for 2022, U. S. EPA and the Corps (the Agencies) released a prepublication notice of a new definition of WOTUS on December 30, 2022. The new definition will become final 60 days after publication in the Federal Register.
Although the Agencies have promoted this final rule as establishing a “durable definition” that will “reduce uncertainty” in identifying WOTUS, this definition does not appear to provide much-needed clarity. Rather, generally speaking, the new definition codifies the approach that the Agencies have already been informally utilizing to determine WOTUS, which entails relying on the definition of WOTUS from the late 1980s, as interpreted by subsequent U. S. Supreme Court decisions (e.g., Rapanos v. United States, 547 U.S. 715 (2006)). The Agencies reverted back to this definition in August of 2021, when the U.S. District Court for the District of Arizona vacated the definition of WOTUS promulgated by President Trump’s administration, referred to as the Navigable Waters Protection Rule (NWPR).
The Agencies’ current approach to interpreting WOTUS relies heavily on both of the frequently discussed tests identified in the Rapanos decision. In Rapanos, Justice Antonin Scalia issued the plurality opinion, holding that WOTUS would include only “relatively permanent, standing or continuously flowing bodies of water” connected to traditional navigable waters, and to “wetlands with a continuous surface connection to such relatively permanent waters” (i.e., adjacent wetlands). Justice Anthony Kennedy, however, advanced a broader interpretation of WOTUS in his concurring opinion, which was based on the concept of a “significant nexus,” meaning that wetlands should be considered as WOTUS “if the wetlands, either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered water.”
President Biden’s new definition directly quotes and codifies these tests as regulations that may be relied upon to support a WOTUS determination. Publication of this definition, at this time, is likely a preemptive move by the Agencies in advance of the Supreme Court’s impending decision in Sackett v. EPA, a case in which the Court is considering whether the Ninth Circuit “set forth the proper test for determining whether wetlands are ‘waters of the United States.’” Some have speculated that the U. S. Supreme Court’s opinion may support a more narrow interpretation of WOTUS than is currently being implemented by the Agencies. If true, this inconsistency would create even more uncertainty in identifying WOTUS.
While this new WOTUS definition may not, conceptually, be a significant change to how the Agencies approach regulating streams and wetlands, the new definition could expand how the Agencies evaluate whether a wetland is “adjacent” to a WOTUS and whether a waterbody will “significantly affect” a WOTUS, both of which would support federal jurisdiction of the stream/wetland. The preamble to the new definition includes lengthy discussion regarding adjacent wetlands. In addition, the new definition of “significantly affect” enumerates five factors to be assessed and five functions to be considered in evaluating whether a potentially unregulated water will have a “material influence” on a traditionally navigable water. Factors include distance from the traditionally navigable water, hydrologic factors (e.g., frequency, duration, magnitude of hydrologic connection) and climatological variables (e.g., temperature and rainfall). Functions include contribution of flow, retention and attenuation of runoff and provision of habitat and food resources for aquatic species in traditionally navigable waters. Both the factors and the functions are broad and open to interpretation, which could lead to the Agencies asserting jurisdiction over more waterbodies.
The new definition also codifies that the effect of the potentially regulated water must be evaluated “alone or in combination with similarly situated waters in the region,” which will likely broaden how the Agencies evaluate the potential regulation of ephemeral and isolated waterbodies.
If the fate of the new WOTUS definition follows the same path as President Obama’s Clean Water Rule and President Trump’s Navigable Waters Protection Rule, the new definition will be challenged quickly after it becomes effective. These challenges may result in the stay or vacatur of the new definition. If this occurs, the Agencies may, again, revert back to the current definition of WOTUS.
Babst Calland will continue to follow these and other Clean Water Act developments. If you have any questions about these developments, contact Lisa Bruderly at 412-394-6495 or lbruderly@babstcalland.com.
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Reprinted with permission from the January 2023 issue of The PIOGA Press. All rights reserved.
Pittsburgh Business Times- Pittsburgh INNO
(By Nate Doughty)
A new Pittsburgh-based investment program backed by local angel investors has marked the close of its first capital infusion into a startup company.
IF Ventures, a joint program from Pittsburgh-based nonprofit economic development organization Idea Foundry made in partnership with Pittsburgh-based law firm Babst Calland, announced it invested over $300,000 into one of the program’s inaugural cohort of companies.
Chris Farmakis, a shareholder and board chair at Babst Calland, declined to disclose the name of the startup that received the investment citing confidentiality agreements made between the parties but noted that this is just the first of several deals the program is looking to make in the coming months.
Farmakis said the program isn’t to be likened to a fund like those raised by venture capital firms. Instead, IF Ventures serves as the vetter of hundreds of companies looking to take on investment and only selects a few firms to be presented to its cadre of angel investors who are open to deploying capital in budding enterprises.
There is no requirement that individuals in this program invest in every company, Farmakis said, though periodic investments must be made if investors wish to remain participants in the program.
“This is more about taking successful entrepreneurs, successful business people and people that have the ability to invest in these companies, aggregate them together and give them access in a painless way to make discernible investment decisions,” Farmakis said. “And that’s what we’re doing with this program.”
IF Ventures is expecting to close on its second investment soon and a second cohort of companies will be brought before the investors in its program next month.
Breaking Ground
(By Max Junker and Anna Hosack)
Since the 1999 enactment of the Pennsylvania Construction Code Act (“PCCA”), Pennsylvania has sought to establish uniformity for construction standards throughout the Commonwealth. In pursuit of uniformity the PCCA embraced the adoption of standards drafted by the International Code Council (“ICC”), a private non-profit entity, and directed the Department of Labor & Industry (“Department”) to promulgate certain ICC standards under the Uniform Construction Code (“UCC”). The directive to adopt standards originating from a non-governmental entity such as the ICC implicates a legal concept known as the non-delegation doctrine. The Commonwealth Court recently invoked the non-delegation doctrine to enjoin the enforcement of the 2021 accessibility regulations promulgated by the Department in Pennsylvania Builders Association v. Department of Labor & Industry, No. 479 M.D. 2021, 2022 WL 14668728 (Pa. Cmwlth. Oct. 26, 2022).
The non-delegation doctrine is embodied in Article II, Section 1 of the Pennsylvania Constitution where it states: “The legislative power of this Commonwealth shall be vested in a General Assembly, which shall consist of a Senate and a House of Representatives.” Together with Article III, Section 1 of the Pennsylvania Constitution addressing the passage of laws, the non-delegation doctrine constrains the General Assembly so that it cannot delegate its lawmaking power to any other branch of government, another body, or some other authority. Christ the King Manor v. Dep’t of Pub. Welfare, 911 A.2d 624 (Pa. Cmwlth. 2006), aff’d 951 A.2d 255 (Pa. 2008).
The Commonwealth Court’s recent decision in Pennsylvania Builders Association is the culmination of litigation filed by the Pennsylvania Builders Association (“PBA”) against the Department alleging that the ICC accessibility provisions adopted pursuant to Section 304(a)(3) of the PCCA (“Accessibility Regulations”) constituted an unconstitutional delegation of legislative authority.
On December 25, 2021, pursuant to Section 304(a)(3) of the PCCA, the Department amended Sections 403.21, 403.26, and 403.28 of the Department’s regulations and certain definitions in Section 401.1 to expressly adopt the ICC’s 2021 amendments to accessibility provisions of the International Building Code, International Existing Building Code, and International Swimming Pool and Spa Code. On December 29, 2021, PBA filed a complaint in the Commonwealth Court’s original jurisdiction alleging that the General Assembly delegated unfettered legislative authority to a private entity, the ICC, to establish accessibility standards, and that PBA and its members were aggrieved as a result. PBA claimed that the association and its members were denied the opportunity to provide meaningful comment during the promulgation process in addition to suffering future adverse economic impacts, delays, as well as foreseeable interpretive and enforcement difficulties. Section 304(a)(3) of the PCCA directs: “The Department shall promulgate regulations updating accessibility standards under Chapter 3 [Uniform Commercial Construction Code] by adopting by December 31 of the year of issuance of the accessibility provisions of the most recently published edition of the ICC codes and any other accessibility requirements which shall be specified in the regulations or contained in or referenced by the [UCC] relating to persons with disabilities.” 35 P.S. § 7210.304(a)(3). PBA argued that Section 304(a)(3) is a directive that in its essence requires the Department to rubber-stamp into law whatever accessibility standards the ICC publishes, without a process to consider any alterations to those standards. Furthermore, that the General Assembly failed to provide any mechanism for the Department to question, modify, reject, or even independently review and concur with the accessibility standards the ICC creates.
This is not the first time that PBA has accused the Department of violating the non-delegation doctrine. The General Assembly’s previous solution to complying with the non-delegation doctrine while still upholding the purpose of the PCCA was to establish the UCC Review and Advisory Council (“RAC”). Established in 2008, RAC is charged with making recommendations to the Governor, the General Assembly, and the Department regarding proposed changes to the PCCA. Additionally, RAC is responsible for reviewing the most recent building code updates published by the ICC. RAC is authorized to make determinations as to whether any new or amended provisions of ICC’s codes are not consistent with the PCCA, or are inappropriate for inclusion in Pennsylvania’s UCC, and RAC is to notify the Department of the same by May 1 of the issuing year. When that happens, the Department must exclude the challenged provisions when adopting the UCC, thereby leaving the corresponding provisions of the prior UCC version in effect. In late 2010, PBA filed a petition for review seeking a declaration that the 2009 UCC and other related codes are null and void as violative of the non-delegation doctrine. However, the Commonwealth Court held that the 2009 UCC amendments were valid because the inclusion of RAC in the Department’s process to adopt the Pennsylvania UCC afforded oversight and input by industry members and meant that the Department could no longer adopt ICC’s codes “sight unseen.” Pennsylvania Builders Ass’n v. Dept. of Labor & Indus., 4 A.3d 215, 222 (Pa. Cmwlth. 2010).
As noted by the Commonwealth Court, the distinguishing factor in the current case challenging the Accessibility Regulations was that RAC was uninvolved in the process. Section 106(b) of the PCCA specifies that “the Accessibility Advisory Board shall review all proposed regulations under [the PCCA] and shall offer comment and advice to the [Department’s] secretary on all issues relating to accessibility by persons with physical disabilities, including those which relate to the enforcement of the accessibility requirements.” 35 P.S. § 7210.106(b) (emphasis added). On July 15, 2021, the Department sought input from the Accessibility Advisory Board which “expressed no concern with the proposed changes.” However, the Department must only consider the Accessibility Advisory Board’s comments and advice in contrast with the binding determinations that are issued by RAC. The General Assembly has not expressly authorized the Department to alter ICC’s accessibility standards based on input from the Accessibility Advisory Board. Therefore, the Court found that due to the General Assembly’s statutory mandate that the Department must adopt the ICC’s accessibility codes without modification, the Accessibility Advisory Board’s review process does not in any way guide or restrain the ICC’s control over Pennsylvania’s UCC and the Department’s regulations.
Judge Covey, writing for the majority, stated: “The non-delegation doctrine prohibits the General Assembly from incorporating sight unseen, subsequent modifications to such standards without also providing adequate criteria to guide and restrain the exercise of the delegated authority.” Without the oversight of RAC in the promulgation process, the Accessibility Regulations were being adopted sight unseen and without any subsequent modification by the legislature. Therefore, the Commonwealth Court determined that Section 304(a)(3) of the PCCA contains valid provisions inseparable from invalid provisions, struck Section 304(a)(3) in its entirety from the PCCA, and permanently enjoined the Department from its enforcement.
After the Commonwealth Court’s ruling, it is likely that review of the ICC accessibility provisions will be referred to RAC and therefore avoid non-delegation doctrine issues in the future. Although it might seem like a short-lived win for PBA because the PCCA could utilize RAC to avoid the non-delegation doctrine, there is a crucial argument to be made following the recent decision. Because Section 304(a)(3) of the PCCA was declared unconstitutional, there is a strong argument that the Commonwealth Court also rendered invalid all accessibility regulations previously promulgated pursuant to that provision; not just the 2021 Accessibility Regulations at issue in the case. Although some accessibility provisions have been promulgated under Section 301 of the PCCA, a great deal of the accessibility provisions were promulgated by adopting a successor or revised code under the authority granted by Section 304(a)(3). Furthermore, if Section 304(a)(3) is unconstitutional, as ruled by the Commonwealth Court, by necessary implication those previous accessibility provisions adopted as regulations should be invalid as well.
The Department did not file an appeal with the Supreme Court so the Commonwealth Court’s decision stands. We will continue to follow developments in this area of the law and its intersection with the design, construction, and inspection activities of the Master Builders’ Association of Western Pennsylvania’s members.
Act of November 10, 1999, P.L. 491, as amended, 35 P.S. §§ 7210.101-7210.1103; See Commonwealth v. Null, 186 A.3d 424, 427 (Pa. Super. 2018) (quoting Flanders v. Ford City Borough, 986 A.2d 964, 969 (Pa. Cmwlth. 2009)).
Max Junker is a shareholder at Babst Calland. He can be reached at rjunker@babstcalland.com. Anna Hosack is an attorney at Babst Calland. She can be reached at ahosack@babstcalland.com.
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Reprinted from the January/February 2023 edition of Breaking Ground magazine with permission from the publisher Tall Timber Group. All rights reserved.
Energy Alert
(By Tim Miller, Jennifer Hicks and Austin Rogers)
The Fourth Circuit Court of Appeals released its decision in Corder, et al. v. Antero Resources Corp., No. 21-1715 (4th Cir. January 5, 2023) (https://www.ca4.uscourts.gov/opinions/211715.P.pdf), a dispute over royalties owed for the sale of gas and natural gas liquids (“NGLs”). In its opinion, the Fourth Circuit made several important rulings regarding the ongoing application of West Virginia’s seminal oil and gas royalty case, Estate of Tawney v. Columbia Natural Resources, LLC, 219 W. Va. 266, 633 S.E.2d 22 (2006) (“Tawney”).
The Court first explained that Tawney applies to all leases that calculate royalties “at the well,” including both “market value” and “proceeds” leases. The Court noted that the West Virginia Supreme Court of Appeals’ recent decision in SWN Prod. Co. v. Kellam, 875 S.E.2d 216 (W. Va. 2022) (“Kellam”) did not support the lessee’s argument that Tawney is solely restricted to proceeds leases. Corder at 16.
The Court further rejected the lessee’s argument that even where a lease is silent as to the deduction of post-production costs, Tawney does not apply to costs incurred after oil or gas becomes marketable but before the point of sale. The Court analyzed whether Tawney or any other West Virginia authority supported the argument that once gas reaches the point where it is first marketable, the presumption that the lessee bears all post-production costs no longer applies, and deductions can be taken for costs incurred between the point where it is first marketable and the point of sale. The Court concluded that although the Kellam court recently characterized the marketable product rule as narrower than the “point of sale,” when it stated that under the marketable product rule, “the lessee bears all post-production costs incurred until the product is first rendered marketable,” the Fourth Circuit was unable to ignore the express “point of sale” language in the syllabus points in Wellman, Tawney, and Kellam. The Court acknowledged that the existing West Virginia authorities do not specifically relate to NGLs and whether post-production costs may be deductible after a product first becomes first marketable but before the point of sale, but noted that Wellman and Tawney only use language about the point of sale and “[b]ecause the West Virginia Supreme Court has not adopted a contrary rule, we conclude that the Tawney requirements apply through the point of sale.”
Finally, and most importantly, the Court ruled that certain market enhancement provisions are sufficient to meet the requirements of Tawney, albeit the Court disagreed with both the lessors and the lessees in Corder regarding the meaning of the specific provisions in their leases. In Corder, some of the leases included a market enhancement clause that specified the producer must cover the costs to “transform the product into marketable form” but permitted deduction of the costs from royalties if they “result in enhancing the value of the marketable oil, gas or other products to receive a better price.” See Corder at 24 (emphasis in original). The lessors argued, and the lower court agreed, that the clause was ambiguous and did not satisfy Tawney’s specificity requirements. The Fourth Circuit disagreed, finding the leases were not ambiguous and satisfied Tawney, though they did not have the meaning lessee believed. The Court reasoned the market enhancement clause at issue specifically states it applies to marketable products and not unprocessed gas. Lessee argued that it was entitled to deduct post-production costs after unprocessed gas first becomes marketable, but the Court held the lease language unambiguously states it only applies to value achieved after a product becomes marketable and had Lessee “instead wished to make the marketability of ‘unprocessed gas’ the reference point, it should have said so.” See Corder at 26. The Court acknowledged that the parties’ dispute centered on NGLs, which the market enhancement clauses at issue did not expressly mention, but explained that even if NGLs are a form of “gas” rather than “other product,” the clause “is concerned when the particular gas product actually sold by the Lessee reaches a marketable form.” Corder at pg. 26 note 10 (emphasis added). Thus, the Court concluded that the determination of when and where the specific NGL products sold by the Lessee became marketable and whether the value was enhanced is a factual issue and remanded this limited question for further proceedings.
Also important, in what appears to be a confirmation of their decision in Young, the Fourth Circuit further rejected the Lessors’ argument that the market enhancement clause fails to meet Tawney’s “particularity” requirement and noted that Kellam did not establish a hard and fast rule for determining what language passes the Tawney test, confirming their reasoning that no particular degree of detail is needed to satisfy Tawney if the intent of the parties to allow deductions is clear. Corder at page 28.
Finally, the Court affirmed the District Court’s dismissal of the lessors’ fraud and punitive damage claims, concluding that the pleadings failed to satisfy the particularity requirements of Rule 9. The Court also noted that the District Court had dismissed the claims based on the Gist of the Action doctrine and, while that decision did not need to be reviewed based on the Rule 9 dismissal, the Court stated that application of the Gist the Action doctrine “seems well supported.” Corder at 34 note 12.
For further analysis and discussion, please contact Tim Miller at (681) 265-1361 or tmiller@babstcalland.com or Jennifer Hicks at (681) 265-1370 or jhicks@babstcalland.com.
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Environmental Alert
(By Lisa Bruderly)
The definition of “waters of the United States” (WOTUS) determines federal jurisdiction under the Clean Water Act (CWA). It affects U.S. Army Corps of Engineers (Corps) permitting for impacts from crossing, or otherwise disturbing, federally regulated streams and wetlands, as well as NPDES permitting, federal spill reporting and SPCC plans.
As one of their last actions for 2022, U. S. EPA and the Corps (the Agencies) released a pre-publication notice of a new definition of WOTUS on December 30, 2022. The new definition will become final 60 days after publication in the Federal Register. The definition was originally proposed in a December 7, 2021 rulemaking.
Although the Agencies have promoted this final rule as establishing a “durable definition” that will “reduce uncertainty” in identifying WOTUS, this definition does not appear to provide much-needed clarity. Rather, generally speaking, the new definition codifies the approach that the Agencies have already been informally utilizing, which entails relying on the definition of WOTUS from the late 1980s, as interpreted by subsequent U. S. Supreme Court decisions (e.g., Rapanos v. United States, 547 U.S. 715 (2006)). The Agencies reverted back to this definition in August of 2021, when the U.S. District Court for the District of Arizona vacated the definition of WOTUS promulgated by President Trump’s administration, referred to as the Navigable Waters Protection Rule.
The Agencies’ current approach to interpreting WOTUS relies heavily on both of the frequently discussed tests identified in the Rapanos decision. In Rapanos, Justice Antonin Scalia issued the plurality opinion, holding that WOTUS would include only “relatively permanent, standing or continuously flowing bodies of water” connected to traditional navigable waters, and to “wetlands with a continuous surface connection to such relatively permanent waters” (i.e., adjacent wetlands). Justice Anthony Kennedy, however, advanced a broader interpretation of WOTUS in his concurring opinion, which was based on the concept of a “significant nexus,” meaning that wetlands should be considered as WOTUS “if the wetlands, either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered water.”
President Biden’s new definition directly quotes and codifies these tests as regulations that may be relied upon to support a WOTUS determination. Publication of this definition, at this time, is likely a preemptive move by the Agencies in advance of the Supreme Court’s impending decision in Sackett v. EPA, a case in which the Court is considering whether the Ninth Circuit “set forth the proper test for determining whether wetlands are ‘waters of the United States.’” Some have speculated that the U. S. Supreme Court’s opinion may support a more narrow interpretation of WOTUS than is currently being implemented by the Agencies. If true, this inconsistency would create even more uncertainty in identifying WOTUS.
While this new WOTUS definition may not, conceptually, be a significant change to how the Agencies approach federally regulating streams and wetlands, the new definition could expand how the Agencies evaluate whether a wetland is “adjacent” to a WOTUS and whether a waterbody will “significantly affect” a WOTUS, both of which would support federal jurisdiction of the stream/wetland. The preamble to the new definition includes lengthy discussion regarding adjacent wetlands. In addition, the new definition of “significantly affect” enumerates five factors to be assessed and five functions to be considered in evaluating whether a potentially unregulated water will have a “material influence” on a traditionally navigable water. Factors include distance from the traditionally navigable water, hydrologic factors (e.g., frequency, duration, magnitude of hydrologic connection) and climatological variables (e.g., temperature and rainfall). Functions include contribution of flow, retention and attenuation of runoff and provision of habitat and food resources for aquatic species in traditionally navigable waters. Both the factors and the functions are broad and open to interpretation, which could, arguably, provide the Agencies with additional justification for asserting federal jurisdiction over more waterbodies.
The new definition also codifies that the effect of the potentially regulated water must be evaluated “alone or in combination with similarly situated waters in the region,” which will likely broaden how the Agencies evaluate the potential regulation of ephemeral and isolated waterbodies.
If the fate of the new WOTUS definition follows the same path as President Obama’s Clean Water Rule and President Trump’s Navigable Waters Protection Rule, the new definition will be challenged quickly after it becomes effective. These challenges may result in the stay or vacatur of the new definition. If this occurs, the Agencies may, again, revert back to the current definition of WOTUS.
As a final note, while the Biden administration originally indicated that it would undertake a second rulemaking to advance another, more expansive definition of WOTUS following the finalization of this new definition, the December 30, 2022 notice does not mention this potential second proposed WOTUS rulemaking, raising uncertainty as to whether a second rulemaking is still contemplated.
Anyone whose activities may cause impacts to a waterbody or wetland, including land developers and those in the aggregates and energy industries should watch these developments so that they understand how the WOTUS definition may be interpreted and how it may affect their permitting strategies. Babst Calland will continue to follow these and other Clean Water Act developments. If you have any questions about these developments, contact Lisa Bruderly at 412-394-6495 or lbruderly@babstcalland.com.
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Updated Firm Alert
(by Justine Kasznica, Susanna Bagdasarova and Gina Falaschi)
On November 14, 2022, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published a proposed Federal Acquisition Regulation (FAR) 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. 87 Fed. Reg. 68,312 (Nov. 14, 2022) (Proposed Rule). The Proposed Rule entitled the “Federal Supplier Climate Risks and Resilience Rule” implements President Biden’s Executive Order 14030, directing a number of federal agencies to take action to address climate-related risks and the Administration’s push toward net-zero emissions procurement by 2050.
The Proposed Rule would introduce a new FAR subpart 23.XX containing mandatory GHG emissions[1] disclosure and reporting requirements for major federal suppliers, which are divided into “significant” and “major” contractors for purposes of the applicable requirements. “Significant contractors,” defined as federal contractors receiving at least $7.5 million but less than $50 million in federal contract obligations in the prior fiscal year, must conduct a GHG inventory of their annual Scope 1[2] and Scope 2[3] emissions and report the total annual emissions in the System for Award Management (SAM). “Major contractors,” defined as federal contractors receiving more than $50 million in federal contract obligations in the prior fiscal year, are subject to the same requirement with respect to Scope 1 and Scope 2 emissions and must also conduct and report the results of a GHG inventory of their annual Scope 3[4] emissions.
Major contractors are also required to use the Carbon Disclosure Project (CDP)[5] Climate Change Questionnaire annually to complete a publicly available disclosure of their Scope 1, Scope 2, and Scope 3 emissions as well as their climate risk assessment process and any risks identified. In addition, major contractors must identify and publicly disclose science-based targets to reduce their GHG emissions.
Under the proposed regulatory framework, a federal supplier is presumed to be nonresponsible (and therefore ineligible for contract awards) until the relevant contracting officer confirms that the contractor has (itself or through its immediate owner or highest-level owner, as defined in the FAR), complied with the applicable requirements of the Proposed Rule.
Certain entities are exempted from the Proposed Rule’s reporting and disclosure requirements, including higher education institutions, nonprofit research entities, state or local governments and federal management and operating (M&O) contractors which derive at least 80 percent of their annual revenue from such M&O contracts. Additionally, if a major contractor qualifies as a “small business” or is a nonprofit organization, it is subject only to the reporting requirements of a significant contractor. The requirements may also be waived by the Senior Procurement Executive for emergencies, national security, or other mission essential purposes.
Significant and major contractors will be required to report Scope 1 and Scope 2 emissions one year following the publication of the final rule. Major contractor requirements to disclose Scope 3 emissions, climate-related risks, and science-based targets begin two years following the publication of the final rule.
If this Proposed Rule is finalized, many companies with government contracts, particularly small businesses, will be required to calculate and report GHG emissions and climate-related financial information for the first time. Preparations of such disclosures is costly and may require the hiring of new personnel or outside contractors to complete calculations and compile and organize information. In addition, companies without government contracts may be asked by customers or suppliers with government contracts to estimate or account for their GHG emissions as part of the supply chain. Finally, public disclosure of climate-related financial information could subject companies to litigation risk by shareholders, investors, or non-governmental organizations.
DoD, GSA, and NASA will accept comments on the Proposed Rule until January 13, 2023 (extended to February 13, 2023) on the Federal e-rulemaking portal (www.regulations.gov). If you have any questions about the Proposed Rule or submission of comments, please contact Justine M. Kasznica at (412) 394-6466 or jkasznica@babstcalland.com, Susanna Bagdasarova at (412) 394-5434 or sbagdasarova@babstcalland.com or Gina N. Falaschi at (202) 853-3483 or gfalaschi@babstcalland.com.
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[1] GHG is defined to include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, nitrogen trifluoride, and sulfur hexafluoride.
[2] “Scope 1” emissions are GHG emissions from sources that are owned or controlled by the reporting company.
[3] “Scope 2” emissions are GHG emissions associated with the generation of electricity, heating and cooling, or steam, when these are purchased or acquired for the reporting company’s operations but occur at sources other than those owned or controlled by the entity.
[4] “Scope 3” emissions are GHG emissions that are a consequence of the operations of the reporting entity but occur at sources other than those owned or controlled by the entity.
[5] The CDP is a nonprofit organization that runs a disclosure system for companies, cities, states, and regions to manage environmental impact and scores these entities based on questionnaires submitted.
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Environmental Alert
(by Matt Wood)
On December 15, 2022, the U.S. Environmental Protection Agency (EPA) published a final rule amending its All Appropriate Inquiries (AAI) Rule to incorporate ASTM International’s E1527-21 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” (Final Rule).1 The Final Rule – effective February 13, 2023 – allows parties conducting due diligence to utilize the E1527-21 standard to satisfy the AAI requirements under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), for the purpose of obtaining liability protections when acquiring potentially contaminated properties. Specifically, “bona fide prospective purchasers,” “contiguous property owners,” and “innocent landowners” can potentially obtain CERCLA liability protection by complying with the AAI Rule. More broadly, however, other regulating bodies, such as states, often require or recommend using the E1527 standard for evaluating potentially contaminated properties prior to purchase.
The Final Rule’s publication ends months of speculation and confusion about when and how EPA would address E1527-21 and its prior version, E1527-13. After ASTM issued E1527-21 in November 2021, EPA published an applicable direct final rule (and accompanying proposed rule, requesting comments on the direct final rule) in March 2022 incorporating E1527-21 into the AAI Rule, but also allowing parties to continue to use E1527-13 to satisfy AAI requirements. Many commenters opposed this approach, predicting confusion about which standard to use and pointing out that ASTM would eventually do away with E1527-13. In response to these comments, EPA withdrew the direct final rule in May 2022. The Final Rule addresses these concerns by removing the AAI Rule’s reference to the E1527-13 standard one year from the Final Rule’s publication in the Federal Register, i.e., December 15, 2023. Until then, any Phase I Environmental Site Assessment (ESA) conducted using E1527-13 will be considered compliant under the AAI Rule.
Among its many updates, E1527-21 adds definitions for certain terms (e.g., “significant data gap”) and updates other definitions for clarity and consistency (e.g., “recognized environmental condition”); it explains how long a Phase I ESA remains viable (no more than 180 days prior to property acquisition, or up to one year if certain components are updated); and expands the scope of the subject property’s historical review to include adjoining properties. One of the most notable and potentially significant updates is E1527-21’s discussion of “emerging contaminants,” or “substances not defined as hazardous substances under CERCLA,” which includes discussion of how and whether to address per- and polyfluoroalkyl substances (PFAS).
Specifically, E1527-21 categorizes PFAS and emerging contaminants not identified as hazardous under federal law as outside the scope of the E1527-21 standard. E1527-21 notes, however, that when such substances are defined as hazardous under applicable state law, and a Phase I ESA is being performed to satisfy federal and state requirements, analysis of such substances may be addressed in the Phase I ESA as “Non-Scope Considerations.” Non-Scope Considerations are potential environmental conditions at a property that might not give rise to CERCLA liability but may be relevant to a potential purchaser’s decision to acquire the subject property. Based on property-specific factors, a potential purchaser may also direct the environmental professional conducting the Phase I ESA to include analysis of PFAS or other emerging contaminants to provide a more fulsome understanding of potential risks associated with the subject property. Importantly, E1527-21 advises that when an emerging contaminant is designated a CERCLA hazardous substance, that contaminant must be evaluated within the scope of the Phase I ESA.
One commenter to the March 2022 direct final rule and proposed rule said that the emerging contaminants section threatened to lead to premature CERCLA liability for landowners and prospective buyers and requested a formal notice and comment period for the E1527-21 standard. Other commenters requested specific modifications to certain E1527-21 defined terms. In response, EPA noted in the Final Rule that E1527-21 is not an EPA regulation that it has authority to modify and that such requests should be directed to ASTM for consideration. Further, EPA said that because use of the E1527-21 standard is not required for complying with the AAI Rule, i.e., compliance can be achieved using other methods, the agency found no reason not to recognize E1527-21 as compliant with the AAI Rule. EPA’s response to comments document is available here.
With respect to PFAS, the timing of the Final Rule’s publication is particularly relevant to parallel rulemaking. In September 2022, EPA published a proposed rule designating PFOA and PFOS – the most common and well-studied PFAS – as CERCLA hazardous substances. The comment period for that proposed rule ended on November 7, 2022, and the final version is expected to be published in 2023. If EPA designates PFOA and PFOS as CERCLA hazardous substances as expected, they will fall within the scope of E1527-21. The same will apply to any other PFAS that EPA designates as CERCLA hazardous substances, which the agency has indicated it is considering via a future rulemaking.
Although many states have been regulating PFAS for years under various regulatory programs, similar efforts by the federal government are more recent. In addition to the Final Rule and the anticipated PFOA and PFOS CERCLA hazardous substance rule, EPA is also in the process of developing a proposed national drinking water regulation for PFOA and PFOS and is also considering regulatory actions to address other PFAS. These changes and others likely to occur in the coming months and years underscore the importance of understanding the various risks associated with PFAS contamination and how to comply with current and forthcoming requirements.
Babst Calland attorneys will continue to track these developments and are available to assist you with PFAS-related matters. For more information on this development and other remediation-related matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, or any of our other environmental attorneys.
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1ASTM International develops technical standards for numerous areas and industries, including metals, paints, plastics, construction, energy, the environment, consumer products, devices and electronics, and advanced materials. Among other things, the standards are intended to enhance health and safety, improve product quality, and create consensus processes for achieving specific outcomes. The standards, which can be voluntarily adopted, are often referenced by governments in statutes, regulations, and/or codes.
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Babst Calland recently names Tiffany Arbaugh, Dane Fennell, Sean Keegan and Matthew Wood as Senior Counsel in the Firm.
Tiffany Arbaugh is a member of the Energy and Natural Resources and Litigation groups. Mrs. Arbaugh has more than 16 years of experience in the oil and gas industry. She focuses her practice on representing corporations in a variety of litigation matters with an emphasis on mineral title, real estate, trespass, fraud and title curative disputes. Mrs. Arbaugh’s practice also includes advising clients in customary business operations, litigation avoidance strategies and litigation preparedness.
Dane Fennell is a member of the Corporate and Commercial group of Babst Calland. Mr. Fennell’s practice focuses primarily on commercial real estate transactions, mergers and acquisitions, drafting commercial transaction agreements, and general corporate matters. Mr. Fennell’s background includes managing complex due diligence aspects of small and large acquisitions and contract management projects. For these projects, he works closely with Solvaire Technologies, L.P., an affiliate of Babst Calland, to achieve reliable and cost-effective results.
Sean Keegan is a member of the Litigation and Employment and Labor groups of Babst Calland. Mr. Keegan has a broad range of litigation experience in several practice areas including commercial, labor and employment, energy, and maritime. He has experience defending shareholder dispute claims, oil and gas lease disputes, insurance claims, and premises liability claims. Mr. Keegan has represented clients in both state and federal courts throughout the United States.
Matthew Wood is a member of the Environmental group. He assists clients on a variety of environmentally-related legal matters arising under major federal and state environmental and regulatory programs, with a focus on issues involving government inquiries, environmental investigations, remediation and concomitant activities under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Resource Conservation and Recovery Act (RCRA), and their state analogs. In connection with this experience, he has advised clients during all stages of multi-year environmental remediation projects under consent decrees and administrative orders at sites across the U.S. Mr. Wood counsels clients in the manufacturing, chemical, metals, and other sectors on permitting matters, compliance, enforcement actions, and government investigations and provides support on issue assessment, risk management, and strategy implementation to ensure effective client operations.
Babst Calland recently named Varun Shekhar and Josh Snyder shareholders in the Firm.
Varun Shekhar is a member of the Environmental and Transportation Safety groups. Mr. Shekhar’s Environmental practice emphasizes federal, state and local regulatory matters arising under the Clean Air Act (CAA). He counsels Title V facilities across the country regarding compliance determination and assurance, CAA Section 114 information requests, and environmental audits. Mr. Shekhar draws upon his science and engineering background to help clients develop compliance solutions that are practical, technically and legally sound, and to advise entities in the course of enforcement actions by the U.S. Environmental Protection Agency, U.S. Department of Justice, and state agencies, as well as citizen suits within federal district and appellate courts. Mr. Shekhar also has substantial experience in assisting entities with continuous parametric and emissions monitoring systems, including coordinating with consultants and other technical advisors in identifying and addressing operational and data processing issues as they relate to compliance determination.
Joshua Snyder is a member of the Litigation and Energy and Natural Resources groups of Babst Calland. Mr. Snyder has extensive experience representing oil and gas producers in a range of disputes. His energy litigation experience includes defending oil and gas producers and contractors from personal injury, toxic tort, nuisance, and lease dispute claims. Additionally, Mr. Snyder has represented clients in the manufacturing, finance, healthcare, and coal industries in a range of commercial disputes. He has represented clients in federal and state courts, as well as before administrative bodies and arbitration panels.
Smart Business
(By Sue Ostrowski featuring Gina Falaschi and Susanna Bagdasarova)
Under a proposed new rule, many federal suppliers would be required to annually disclose their greenhouse gas (GHG) emissions and climate-related financial risks, in addition to setting GHG emissions reduction targets. The result could be a significant impact on a business’s reporting requirements.
“The proposed rule was published on Nov. 14, 2022, by the Department of Defense, General Services Administration and National Aeronautics and Space Administration,” says Susanna Bagdasarova, an associate at Babst Calland. “The Federal Supplier Climate Risks and Resilience Rule directs some federal suppliers to address climate-related risks as part of the Biden administration’s climate-change initiatives, including its goal of achieving a net-zero emissions economy by 2050.
“Businesses with government contracts should assess whether they need to comply,” says Gina Falaschi, an associate at Babst Calland. “Assessing potential impacts will help businesses be prepared for compliance deadlines when and if the rule is finalized.”
Companies can submit written comments on the proposed rule until Feb. 13, 2023, which will be reviewed prior to the federal agencies releasing the text of the final rule.
Smart Business spoke with Falaschi and Bagdasarova about how the Federal Supplier Climate Risks and Resilience Rule could impact federal suppliers.
What does the proposed rule require?
It imposes GHG emissions disclosure and reporting requirements on certain federal suppliers. “Significant contractors,” those receiving at least $7.5 million but less than $50 million in federal contract obligations during the previous fiscal year, would be required to report an annual inventory of their Scope 1 and Scope 2 emissions.
“Major contractors,” those receiving more than $50 million in federal contract obligations during the previous year, would be subject to the same requirements. They would also be required to publicly disclose an annual inventory of their Scope 3 emissions, an assessment of their climate-related financial risks and science-based targets to reduce their GHG emissions.
The first step is an internal review of contracts to determine whether this proposed rule applies and assess whether you already report GHG emissions or make voluntary climate-related disclosures. For companies not currently required to report emissions, compliance could be costly.
Under the proposed rule, companies that do not complete the required annual disclosures would become ineligible for federal contract awards until they are compliant. However, some organizations are excluded, including higher education institutions, nonprofit research entities, state and local governments, and federal management and operating contractors that get at least 80 percent of their revenue from those contracts.
What is the timeframe for compliance?
Significant and major contractors would be required to report Scope 1 and Scope 2 emissions one year following publication of the final rule, while major contractors will be required to disclose Scope 3 emissions, climate-related risks and science-based targets two years after publication. Companies may be required to hire additional personnel or consultants to complete calculations and compile information for the required disclosures.
Even if your business doesn’t fall into an impacted category, if your customers have government contracts and are required to make disclosures, they may ask your business to calculate your GHG emissions as part of their upstream supply chain.
What are some takeaways?
Companies may be required to report and make publicly available information they haven’t before, leading to potential litigation risk. Some may decide not to bid for government contracts due to compliance obligations, or it could result in including the cost of compliance in bids, possibly making government procurement more expensive. In addition, as part of the effort of the Biden administration to implement a comprehensive, government-wide strategy to mitigate climate change, disclosures will likely lay the groundwork for future climate policy.
The comment period closes on Feb. 13, 2023, so review the proposed rule now to determine the possible impact on your business and make your voice heard.
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Legal Intelligencer
(By Harley Stone and Anna Jewart)
Enacting and amending zoning regulations is a time-consuming matter. In fact, months often pass from the inception of an idea to the implementation of a zoning scheme and its actual effective date. This is due in large part to the stringent adoption requirements set forth by the Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq. (MPC). These MPC mandated procedures require municipalities to obtain recommendations from their local planning bodies, submit proposed zoning ordinances and amendments to the relevant county planning agency, and to hold public hearings to solicit public comment.
Consequently, municipalities frequently must consider what to do with land use applications received during the period in which an ordinance is “pending,” but has not yet become effective. The “pending ordinance doctrine,” was created by the courts prior to adoption of the MPC. The doctrine was designed to protect municipalities from instances where an applicant proposes a use which conforms to the existing zoning scheme but would not be permitted under zoning changes being considered by the municipality and for which it has advertised its intent to hold public hearings. When the pending ordinance doctrine applies, a land use applicant may be required to conform to proposed zoning regulations which have not yet been adopted.
However, the doctrine does not always apply. In fact, the MPC includes certain statutory exceptions to the pending ordinance doctrine which are intended to protect landowners and applicants. Section 508(4)(i) of the MPC, and its counterpart in Section 917 modify the applicability of the pending ordinance doctrine to protect duly filed land development applications from changes or amendments in the relevant zoning ordinance. Section 508(4)(i) states applicants for approval of a plat “shall be entitled to a decision in accordance with the provisions of the governing ordinances … as they stood at the time the application was duly filed.” The Commonwealth Court’s recent reported opinion in In re Jaindl Land, No. 776 C.D. 2021, No. 1187 C.D. 2021, 2022 WL 14965490 (Pa. Cmwlth. 2022), issued a reminder to municipalities and applicants alike that under the MPC the pending ordinance doctrine does not apply to applications for subdivision or land development.
In In re Jaindl Land, the developer, Jaindl, was the equitable owner of 87 acres of property in Green Township, Franklin County. The property was split zoned with a portion located in the township’s LI Light Industrial District and another located in its HC Highway Commercial District. In 2018 Jaindl entered into a contract for the sale of the property with its legal owners. As of the date of the agreement the township zoning ordinance permitted industrial warehouses and distribution centers as a use by right in the LI District. In 2018 and 2019 representatives of Jaindl met with township representatives, including its zoning officer and engineer to discuss plans to develop the property with industrial uses. In October 2019, the township planner proposed several amendments to the township zoning map that included a recommendation that a portion of the property be rezoned from the LI District to the Transitional Commercial District in which warehousing is not a permitted use. In November 2019, the township mailed notices of the proposed amendments to affected and adjoining property owners, including notice of a public hearing scheduled for Jan. 14, 2020, which was received by the legal owners of the property. On Dec. 1, 2019, the township published its first advertisement of its intent to amend the zoning map in a newspaper of general circulation in the municipality. The public hearing was held as advertised on Jan. 14, 2020, but adoption of the amendment was tabled. The same day, Jaindl submitted a preliminary land development application for the construction of an industrial warehouse on the property. The ordinance was eventually adopted on Jan. 28, 2020.
On Feb. 5, 2020, the township zoning officer issued a written determination that Jaindl’s land development application was subject to the pending ordinance doctrine, which would mean the township would get the benefit of the more restrictive newly enacted 2020 ordinance. The zoning officer denied the application, and Jaindl appealed to the Township Zoning Hearing Board which held hearings in May and June 2020. The ZHB affirmed the denial in July 2020. During that time Jaindl also filed a challenge to the substantive validity of the 2020 ordinance, arguing it was arbitrary, irrational, discriminatory and constituted special legislation. That challenge was also denied by the ZHB following a separate hearing in September 2020. Jaindl appealed both decisions to the Franklin County Common Pleas Court, which consolidated, and then denied, both appeals. The lower court held that because the township had “advertised” the 2020 ordinance prior to submission of the application it, rather than the prior ordinance, applied to the application. On July 7, 2021, Jaindl appealed to the Commonwealth Court.
On appeal Jaindl raised two issues, that the lower court erred in finding the pending ordinance applied to their preliminary land development application; and that it erred in finding the ordinance was not invalid special legislation specifically targeted to prevent their development of the property. Tackling the pending ordinance issue at the forefront, the court detailed the history of the pending ordinance doctrine, relevant sections of the MPC, and several notable prior judicial interpretations of Section 508(4). Quoting its 1973 opinion in Monumental Properties v. Board of Commissioners of Whitehall Township, 173 A.2d 725, 727 (Pa. Cmwlth. 1973), the court emphasized:
“The Legislature could not have more clearly stated that a preliminary land development plan may not be disapproved on the basis of subsequently enacted zoning changes. The section makes no mention whatsoever of public advertisement of proposed zoning changes or of the time of such advertisement vis-à-vis the time of filing an application.”
The court consequently found that the pending ordinance did not apply to Jaindl’s application and that the 2020 ordinance, enacted after it was filed, had no effect on the plan, and was not proper grounds for disapproval.
An intriguing interpretation to the application of the doctrine was brushed upon by the court but not fully addressed, perhaps due to our Supreme Court’s recent consideration of the issue in In re Board of Commissioners of Cheltenham Township, 211 A.3d 845 (Pa. 2019). In Cheltenham the court took a look at not only Section 508(4), but its counterpart in Section 917 of the MPC, 53 P.S. Section 10917. At issue was the application of the pending ordinance doctrine to zoning relief needed for purposes of land development plan approval. The court noted that Section 917 of the MPC largely mirrors Section 508(4)(i) and provides that while an application for a special exception related to a land development is pending, the applicant is entitled to a decision in accordance with the provisions of the ordinances as they stood at the time the application was filed. In other words, the MPC’s protection of land development applications from the pending ordinance doctrine applies not only to the land development approval, but to any zoning approvals required to effectuate the development.
Although the court’s decision in Jaindl is essentially a reminder of the express terms of the MPC, the breadth of case law on this issue indicates that it was a well-warranted one. While timing of advertisement and other factors must be considered when pure zoning relief is sought, Jaindl reminds us that the MPC is clear: land development applications (and zoning relief necessary for their approval) are always subject to the ordinance as it stands at the time the application is filed.
Harley S. Stone is a shareholder in Babst Calland Clements and Zomnir’s public sector group. Stone provides a wide range of services to municipal governments, authorities and private developers, with an emphasis on municipal permitting, planning, land use and zoning. Please contact him at 412-394-5410 or hstone@babstcalland.com.
Anna S. Jewart is an associate in the firm’s public sector group. Jewart focuses her practice on zoning, subdivision, land development, and general municipal matters. Please contact her at 412-253-8806 or ajewart@babstcalland.com.
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Reprinted with permission from the December 22, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.
Legal Intelligencer
(by Ben Clapp)
The risk transfer transaction structure is being increasingly employed in Pennsylvania and elsewhere as industrial site owners seek to clear long-tail environmental liabilities off their balance sheets. Commonly known as an environmental liability transfer, these transactions generally involve the purchaser acquiring the real property and other assets associated with an industrial facility and assuming responsibility for all environmental liabilities associated with that property, including site closure, demolition, and environmental remediation obligations. Often, the purchaser agrees to assume all such liabilities regardless of whether they arose prior to or after the purchaser’s acquisition of the facility. The purchaser also commonly provides a release of liability and indemnity to the seller. The costs associated with the purchaser assuming these obligations and liabilities are then deducted from the value of the assets being acquired to arrive at the transaction price. This price is frequently “upside-down,” with the seller paying the purchaser to acquire the property and assume its obligations.
While environmental liability transfers have been around for years, the transaction structure appears to have increased in popularity recently as power generators and other industrial companies are motivated to divest non-core assets and reduce environmental expenditures. In the power sector in particular, a shift away from coal-fired electricity generation has left power producers holding old coal plants that are closed or rapidly nearing closure, and ancillary assets such as coal ash landfills, all of which come with hefty environmental carrying costs. On the other hand, these properties are often well-suited for redevelopment, being industrially zoned, with access to electricity transmission lines and, often, shoreline infrastructure. Companies specializing in acquiring properties through environmental liability transfers believe that they can address environmental issues more efficiently and cost-effectively than the previous owners, leaving them well-positioned to profit by redeveloping the property and either selling or operating it once environmental obligations have been satisfied.
While relatively easy to conceptualize, environmental liability transfers can pose legal and technical challenges. Obviously, a seller will want to ensure that they are reducing their exposure to residual liability for a given site to the greatest extent possible. However, a seller generally cannot eliminate its exposure to statutory environmental liability arising from its past ownership or operation of a facility by simply contracting away that liability to a third party. For example, Section 107(e) of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” aka “Superfund”), makes clear that “[n]o indemnification, hold harmless, or similar agreement . . . shall be effective to transfer from the owner or operator of any . . . facility or from any person who may be liable for a release or threat of a release under [CERCLA], to any other person the liability imposed under [CERCLA].” 42 U.S.C. § 9607(e)(1). This provision does not bar contractual arrangements allocating CERCLA liability between private parties. See 42 U.S.C. § 9607(e)(2). It simply means that the government will continue to have a claim against a party liable under CERCLA regardless of whether that party may have contracted with a third party to assume that liability.
As long as the purchaser remains a viable party with the financial wherewithal to honor its contractual indemnification obligations, and those obligations are sufficiently robust to cover any environmental liability that may arise, the seller can feel comfortable that it is largely protected from residual environmental liabilities. To that end, a seller should employ a suite of contractual, legal and financial protections designed to insulate itself from environmental liabilities that were assumed by the purchaser. Contractual protections include drafting provisions relating to the buyer’s assumption of liabilities that are broad enough to ensure that the seller is not inadvertently retaining liabilities relating to pre-closing operations that were intended to be assumed by the buyer. The contract should also include an acknowledgement by the buyer that it is acquiring the property “As Is, Where Is, With All Faults” and a provision releasing the seller from any claims by the buyer arising from the environmental condition of the property and other liabilities assumed by the buyer. The seller should also seek an indemnity from the buyer, whereby the buyer agrees to indemnify and defend the seller for the assumed liabilities, including all claims arising under environmental laws. Other contractual provisions, such as covenants requiring the buyer to perform certain environmental obligations, and provisions conditioning closing on the satisfaction of certain events such as the transfer of material permits or obtaining key regulatory approvals may also be required depending on the circumstances of a given transaction. The seller may also be subject to consent orders or similar instruments obligating it to perform remediation or other environmental compliance activities at the subject property, in which case the parties may seek to engage with the applicable regulatory authorities to modify such instruments to replace the seller with the buyer as a party. Another key consideration is that financial assurance posted by the seller to secure its environmental obligations will need to be replaced by financial assurance posted by the buyer.
The buyer should feel comfortable taking on these obligations provided that they are confident that they are assuming only those liabilities that they are being compensated for assuming, and that the compensation they are receiving is sufficient to cover the costs of those obligations. Thus, from the buyer’s perspective, a careful review of the contract’s assumed liabilities is required, likely involving input from real estate, environmental and corporate counsel, among others. The contractual review should complement a robust due diligence process that provides for an accurate accounting of all demolition, remediation, restoration, closure and other activities that will be required at the property. This process also involves input from counsel, as well as various contractors and one or more environmental consulting and engineering firms. Buyers will also often seek to protect themselves from unknown environmental liabilities through the purchase of environmental insurance products.
For upside-down transactions, where the seller pays a sum to the buyer on or after the closing date, a final consideration for the parties is how the transaction price will be distributed to the buyer. The seller should take steps to ensure that the funds it pays are put to use for their intended purpose. If the funds are extinguished prior to the completion of work the buyer has agreed to perform, and the buyer becomes bankrupt, the seller runs the risk that some or all of the environmental liabilities it has attempted to contract away will revert to the seller. To avoid this scenario, the parties will often agree to have the transaction funds placed in an escrow account. An independent engineer is employed to track the progress of the work being performed by the buyer, as measured by the achievement of certain agreed upon milestones. Upon verification by the independent engineer that a certain milestone has been achieved, the escrow agent is instructed to release a predetermined amount of funds to the buyer. In this way, the seller is provided with a level of protection against the insolvency of the buyer, while the buyer is ensured of receiving the funds it needs to complete the work.
Environmental liability transfers can be complicated contractually, require technical expertise and are diligence-intensive exercises. However, when well-executed, an environmental liability transfer is a “win-win” for the buyer and the seller and can benefit the surrounding communities as well when an idle industrial property is put back into productive use.
Ben Clapp is a shareholder of Babst Calland. Mr. Clapp’s transactional work, which straddles the Firm’s Environmental and Corporate practice areas, consists of advising clients on the environmental components of complex deals, including identifying and analyzing significant environmental liability and compliance issues arising in connection with mergers and acquisitions, asset sales, project financings, and corporate restructurings, and working to resolve, manage, allocate or mitigate these environmental risks in the client’s best interest. Contact him at 202-853-3488 or bclapp@babstcalland.com.
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Reprinted with permission from the December 15, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.
TEQ Magazine
(By Justine Kasznica)
Be Prepared
According to the CISA and the FBI the first and most important step towards protection is preparation. Being prepared includes creating, maintaining, and exercising a cyber incident response plan, resilience plan, and continuity of operations plan; ensuring personnel are familiar with key steps that must be followed during a cyber breach incident; identifying a resilience plan that addresses how to operate if you lose access to-or control of- your company’s systems; and implementing back data back-up procedures. In addition, companies need to minimize gaps by ensuring all security protocols and protections happen around the clock, including holidays and weekends.
Enhance the Organization’s Cyber Posture
Enhancing an organization’s cyber posture is imperative to its safety from any form of cyberattack. An organization may ensure proper identity and success management, protective controls and architecture, and vulnerability and configuration, by requiring strong passwords and multi-factor authentication for all users. By monitoring and detecting abnormal activity like various unsuccessful logins or unlikely geographic access, a company can spot attempted breaches early enough to prevent any damage from occurring. It is also helpful to update software in a timely manner and to be sure to use industry recommended antivirus programs.
Stay Vigilant
Simply implementing initial data privacy, security, and response measures is not enough. Cybercriminals and their methods are constantly evolving. Taking a proactive approach to data privacy and security, and being willing to invest in same, is vital to ensuring that a company’s safeguards are adequate and up-to-date. As necessary, internal and external annual audits and/or reviews of a company’s systems and policies is crucial to its data security. For example, companies should:
- Review existing segmentation and preventative controls that may have atrophied over time.
- Identify shared systems or infrastructure on the IT side that could allow an adversarial group to pivot and deploy ransomware to the OT side.
- Review dataflows of critical business system applications reliant on OT communications and document them.
- Ensure backups are being performed across critical OT systems. Periodically test the backups and ensure there is an offline copy in the event that an online system becomes encrypted from ransomware.
- Engineering and OT teams should evaluate what systems should leverage remote access.
- Remote access requirements should be determined, including what IP addresses, communication types, and processes can be monitored. All others should be disabled by default. Validate your external exposure of IT and OT systems.
- For remote access, all communications should be centrally logged and monitored. Various detection techniques should be implemented on remote access systems, such as looking for brute force attempts or specific exploits for known vulnerabilities. Multi-factor authentication should be implemented.
In addition, data privacy and security laws, both in the United States and abroad, are frequently being updated to combat cyberthreats, and oftentimes impose new requirements on companies meeting certain thresholds. A company can increase organizational vigilance by staying up-to-date on government notifications and being sure to receive information on current security issues or vulnerabilities.
Ransomware Attacks: Pay or Not to Pay
As a general rule, the FBI does not support paying ransom to cybercriminals in ransomware attacks for two reasons.⁴³ First, paying a ransom will encourage and incentivize cybercrime. If hackers’ demands are met, they will be more likely to target other victims. Further, if others perceive that this kind of crime does, in fact, “pay,” they will be incentivized to become involved in cybercriminal activity. Second, there is no guarantee that paying a ransom will result in the release of data.
The other side of the argument can be equally compelling. Paying a ransom can be an attractive option when the alternative is to shell out millions of dollars to restore and remediate the systems. Additionally, the chaos that the disruption in services can cause cannot be discounted. In contrast, a company who decides to pay the ransom, while also working with the FBI to recoup some of the ransom and ultimately obtaining the decryption key in short order. While these results should not be expected, it is difficult to argue that, in this instance, the wrong choice was made by paying the ransom.
When faced with a ransomware attack, there are no “good” options. On one hand, organizations must consider the potential consequences of not paying the ransom: employee/customer health and safety; costs of disrupted services; internal and external impacts from potential shutdowns; release of confidential data stolen by the attacker; etc. On the other, the ransom itself may be a substantial, unrecoverable cost — one that may or may not achieve the end goal.
Ultimately, as ransomware attacks become more common and sophisticated, the safest organizations will be those that take these threats seriously and proactively fortify their networks — prevention always beats intervention.
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The Wildcatter
(By Nikolas Tysiak)
I hope everyone had a wonderful Thanksgiving holiday full of friends and family (and delicious, delicious turkey). I want to start out this update with something that should have been in the last update but was not.
Effective June 10, 2022, the West Virginia legislature modified Chapter 11A of the West Virginia Code to streamline the tax sale process by (1) eliminating the bifurcated distinction between “delinquent” and “non-entered” tax assessments, and (2) standardizing the statute of limitations for bringing procedural challenges to the tax sale process. Under the old laws, separate tax sale procedures existed for tax assessments that were “delinquent” (e.g., entered on the tax rolls but not timely paid) vs. “non-entered” (e.g., an assessment for a given real estate interest did not clearly exist on the appropriate county tax rolls). For delinquent assessments, the local sheriff’s tax office had original jurisdiction over the administration of sales and tax deeds; if a given assessment was not redeemed from delinquency or sold within certain time frames, such delinquent assessments were turned over to the State Auditor’s office for further administration and sale. Non-entered assessments existed exclusively under the original jurisdiction of the State Auditor’s office for administration and sale. In practice, the State Auditor’s office either explicitly or implicitly gave county assessors and sheriffs significant leeway in administering these taxation issues.
As landmen and lawyers practicing in West Virginia likely know, property interests affected by tax sales and tax deeds have proven challenging insofar as the ownership of executive rights and royalties pertaining to oil and gas. Recent caselaw brought a semblance of continuity to the effect of “non-standard” assessments affecting oil and gas interests, but in a way that was not anticipated by many title and real estate practitioners, which yielded varying and sometimes counter-intuitive results. Under the new tax sale regime, however, all sales of tax assessments for whatever reason (i.e., delinquency, non-entry, etc.) are to be administered by the State Auditor’s office directly. In addition, due to the elimination of local, procedural activities from the process, the legislature extended the statutes of limitations within which procedural challenges to tax sales and deeds may be brought from 2 years to 3 years. Given that tax sales and deeds under the new laws will not take place until early 2023, it remains to be seen whether the State Auditor will continue its practice of “out-sourcing” tax sale efforts to the relevant county offices or take a more active role in administration of these interests. Mark your calendars for some time in 2024/2025 for these cases to make their way to the Supreme Court.
The West Virginia Supreme Court heard several cases on writs of prohibition involving some of our colleagues. A writ of prohibition is a special action brought directly to the West Virginia Supreme Court alleging that the underlying court exceeded its authority or lacked jurisdiction over the case at hand. While the facts are not necessarily relevant to landmen directly, there were several of these recently involving landmen working in multiple capacities for oil and gas production companies. See e.g., State ex rel. Antero Resources Corp. v. McCarthy, 2022 WL 17038493, — S.E.2d — (November 17, 2022); State ex rel. TH Exploration II, LLC v. Venable Royalty, Ltd, 2022 WL 12524993 (October 21, 2022).
On October 19, 2022, the Ohio Seventh District Court of Appeals found that the assignment of an overriding royalty interest out of a leasehold interest cannot be effective against subsequent leases in Marquette ORRI Holdings, LLC v. Ascent Resources-Utica, LLC (2022-Ohio-3786).
In that case, an oil and gas lessee under a prior oil and gas lease had assigned an override to Marquette ORRI and other parties, including language that the assignment would be effective against “top leases and/or new leases covering all or any portion of the lands and interests which are included . . .” in the underlying leasehold. The Court reasoned that there is no “privity of contract” (in other words, a direct, contractual relationship) between the override owner under a prior lease and a subsequent lessee, resulting in the language regarding future leases to be unenforceable between Marquette and a later lessee (in this case, Ascent).
Also in the Seventh District, on September 30, 2022, the Court issued its decision in the fourth of four cases involving the Whitacre group of companies dealing with whether a lease remains in production “in paying quantities” under Ohio law (Hogue v. Whitacre, 2022-Ohio-3616; Whitacre IV). The court reiterated the long-standing Ohio principle that “in paying quantities” only requires that gross profit exceed direct operating expenses monthly (as determined in Blausey v. Stein, 61 Ohio St.2d 264 (1980)). “Indirect expenses,” including the actual cost of drilling the well amortized, are not considered to be direct operating expenses under this test and are therefore irrelevant. Under this test, the lease at issue in Whitacre IV was determined to be
In Pennsylvania, the Superior Court issued a decision regarding ownership of minerals arising from a potentially ambiguous oil and gas reservation on September 29, 2022 (Hunnell as Trustee of Hunnell Family Revocable Living Trust v. Krawczewicz, 2022 PA Super 166, — A.3d —). The controversy arose from a 1920 severance involving 104 acres of land, where prior owners (the “Theakstons”) excepted and reserved from a conveyance to Brtko as follows: “all the oil and gas within and underlying the hereinbefore described tract of land is also reserved together with such rights to drill or operate for same as are set forth in full in lease . . .” The successors to Brtko as to the surface estate attempted to allege that they were the proper owners of the underlying oil and gas because the reservation was limited to a prior oil and gas lease. The trial court held that the language constituted an exception of all the oil and gas estate. Citing to the distinction between a reservation and an exception under Pennsylvania law, the Superior Court found that the trial court had not erred by vesting oil and gas ownership in the Theakstons (and their successors) as an “exception” and awarded ownership of the oil and gas accordingly.
For once, no notable Marketable Title Act or Dormant Mineral Act cases to report in Ohio. A lull, or just an anomaly? Stay tuned in January for more! Have a Happy Holiday season from your friendly, neighborhood Legislative and Regulatory Chair!
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Reprinted with permission from the MLBC December 2022 issue of The Wildcatter. All rights reserved.