The Legal Intelligencer
(by Lisa Bruderly)
The controversy continues over the hotly contested definition of “waters of the United States” (WOTUS), a phrase that determines the scope of federal jurisdiction over streams, wetlands and other waterbodies under the Clean Water Act (CWA). The U.S. Environmental Protection Agency (USEPA) and the U.S. Army Corps of Engineers (Corps) published a proposed revision to the WOTUS definition on December 7, 2021 (Rule 1), with the public comment period closing on February 7, 2022. Nearly 90,000 comments were received.
This proposed definition is similar to the pre-2015 definition of WOTUS, which is currently in effect, but it also includes updates to reflect relevant Supreme Court decisions (e.g., Rapanos v. United States) that occurred in the early 2000s. Much of the controversy surrounding the WOTUS definition relates to the two tests identified in the Rapanos decision. Justice Antonin Scalia issued the plurality opinion in Rapanos, 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.” Justice Anthony Kennedy, however, advanced a broader interpretation of WOTUS in his concurring opinion, which relied on the concept of a “significant nexus.” In his opinion, Justice Kennedy stated 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.”
If promulgated, the December 2021 proposed WOTUS definition would incorporate Justice Kennedy’s significant nexus test into the regulations, by designating waters such as wetlands, lakes and streams as WOTUS if they “alone or in combination with similarly situated waters in the region, significantly affect the chemical, physical, or biological integrity” of traditionally navigable waters. The proposed rule defines “significantly affect” to mean “more than speculative or insubstantial effects” on the integrity of the traditionally navigable waters based on the distance from a water of the United States or traditionally navigable water; hydrologic factors, including shallow subsurface flow; the size, density, and/or number of waters that have been determined to be similarly situated; and climatological variables such as temperature, rainfall, and snowpack.
If the December 2021 proposed WOTUS definition is promulgated, the impact is not expected to be extremely significant because, under the current definition of WOTUS, the Corps has largely been relying on its 2008 guidance, which already considers Kennedy’s significant nexus test.
New Proposed WOTUS Definition Expected This Year
However, the Biden administration intends additional (potentially more expansive) revisions to the WOTUS definition in a second rulemaking (Rule 2), planned for later this year. Broadly, the more expansive the definition of WOTUS, the more waters that are federally regulated, and the more likely that surface water impacts from a project will require Section 404 permitting. The increased amount of impacts to federally-regulated waters may cause a project to exceed nationwide permit (NWP) or state programmatic permit (e.g., PASPGP-6) thresholds and require an individual Section 404 permit. Typically, obtaining an individual permit is a more expensive and lengthy process than obtaining coverage under a general permit (i.e., NWP or PASPGP-6).
While the extent of Rule 2 is unknown, as stated in the Fall 2021 Unified Agenda, “[t]his second rule proposes to include revisions reflecting on additional stakeholder engagement and implementation considerations, scientific developments, and environmental justice values. This effort will also be informed by the experience of implementing the pre-2015 rule, the 2015 Clean Water Rule, and the 2020 Navigable Waters Protection Rule.”
U.S. Supreme Court Agrees to Hear WOTUS Case
In addition to planned changes to the definition by the Biden administration, the U. S. Supreme Court, in January 2022, signaled that it would weigh in on the WOTUS debate, when it agreed to hear the case of Sackett v. USEPA. In Sackett, landowners in Idaho have had a long-standing challenge to an administrative order issued against them for alleged unpermitted fill of wetlands. The Sacketts’ arguments largely pertain to whether Justice Kennedy’s significant nexus test in Rapanos is the appropriate test to delineate the wetlands as WOTUS.
In 2021, the Ninth Circuit ruled against the Sacketts’ position and held that the “significant nexus” test in the Kennedy concurrence was the controlling opinion from Rapanos. The Sacketts petitioned the U.S. Supreme Court to consider whether Rapanos should be revisited to adopt the plurality’s test for wetland jurisdiction under the CWA. However, the Court agreed, instead, to consider the narrow issue of whether the 9th Circuit “set forth the proper test for determining whether wetlands are ‘waters of the United States.’” The Supreme Court’s decision as to whether Justice Kennedy’s concurring opinion is controlling will be very significant in future interpretations of WOTUS.
Recent Changes to the NWP Program
The changes to the definition of WOTUS coincide with the U.S. EPA and the Corps recently issuing updates regarding certain NWPs under Section 404 of the CWA and Section 10 of the Rivers and Harbors Act of 1899. Additional revisions are planned in 2022. Broadly, NWPs authorize certain work in streams, wetlands, and other WOTUS when those activities will result in no more than minimal individual and cumulative adverse environmental effects.
The reissuance of 40 existing NWPs and issuance of one new NWP (Water Reclamation and Reuse Facilities), on December 27, 2021, rounded out NWP rulemaking activities that began in September 2020, when the Corps, under the Trump administration, proposed to reissue the 52 existing NWPs and issue five new NWPs. In January 2021, the Corps modified and reissued 12 existing NWPs that largely related to the energy industry and issued four of the five proposed NWPs. The January 2021 final rule also revised and reissued the NWP general conditions and definitions.
While the December 2021 reissuance includes relatively minor changes to several NWPs, it also adds consistency to the NWPs as a whole, by (1) making the newly reissued NWPs subject to the general conditions and definitions included in the January 2021 rule; and (2) identifying the expiration date for the newly reissued permits as March 14, 2026, consistent with the expiration date of the NWPs that were reissued in January 2021. These NWPs go into effect on February 25, 2022.
Looking ahead, the Biden administration intends to reevaluate the NWPs later this year. According to the Fall 2021 Unified Agenda of Regulatory Actions, the Corps is planning a comprehensive rulemaking in 2022 to re-examine all NWPs issued in 2021 “to identify NWPs for reissuance, modification, or issuance, in addition to identifying potential revisions to general conditions and definitions in order to be consistent with Administration policies and priorities.” Changes to the NWP program are expected to address, among other things, climate change and environmental justice.
With expected WOTUS and NWP developments from the U.S. EPA, the Corps and the U. S. Supreme Court, 2022 is shaping up to be a critical year for federal water law. Babst Calland will continue to track developments and changes to the definition of WOTUS and the NWP program. If you have any questions about these developments, please contact Lisa Bruderly at 412.394.6495 or lbruderly@babstcalland.com.
For the full article, click here.
Reprinted with permission from the February 24, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.
Employment and Labor Alert
(by Steve Antonelli and Jessica Altobelli)
In a recent show of bipartisanship, both the House of Representatives and the Senate recently passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445). President Biden has supported the Bill, urging Congress to pass it, and is expected to sign the Bill into law any day. Like the 2017 prohibition on tax deductions for amounts paid for sexual harassment settlements that are subject to a nondisclosure agreement, this Bill is a product of the “#MeToo” movement that will serve to bring greater transparency to alleged sexual misconduct in the workplace.
If enacted into law, the Bill will amend the Federal Arbitration Act to prevent companies from enforcing mandatory arbitration clauses against parties who bring claims of sexual assault or harassment. Instead, prospective plaintiffs will be given the choice of whether to proceed with arbitration or litigate their claims in the public forum of a federal court. This decision will be available even to plaintiffs who have already signed contracts agreeing to mandatory arbitration, so long as the alleged dispute itself arises after enactment of the law, as the law will apply retroactively to make mandatory arbitration provisions voidable. The law will not, however, allow cases that have already been decided in an agreed upon arbitration to be re-opened or re-litigated.
The Bill will also enable individuals to bring collective actions and it will allow disputes over its application to be made by the federal courts, rather than by an arbitrator. It will also apply to cases filed under federal, state, or local law. Employers that utilize forced arbitration provisions in employment agreements should review their agreements for necessary revisions and be mindful of the fact that, in a few days, the forced arbitration provisions of their existing agreements may be voided by employees alleging sexual assault or harassment.
Babst Calland’s Employment and Labor Group will continue to keep employers apprised of further developments related to this and other employment and labor topics. If you have any questions or need assistance in addressing the above-mentioned area of concern, please contact Stephen A. Antonelli at (412) 394-5668 or santonelli@babstcalland.com or Jessica L. Altobelli at (412) 394-6557 or jaltobelli@babstcalland.com.
Click here for PDF.
Environmental Alert
(by Robert Stonestreet)
The federal Fourth Circuit Court of Appeals has struck down an evaluation by the U.S. Fish and Wildlife Service of the potential impacts on two endangered fish species presented by stream crossings for the Mountain Valley Pipeline. In its February 3, 2022 opinion, the Court concluded that the Service failed to sufficiently establish the “environmental baseline” conditions for each species, and failed to adequately evaluate how the stream crossings, along with other anticipated activities impacting the streams, will affect the species on a cumulative basis. The Court also faulted the Service for not assuming future negative effects of climate change in its analysis.
In September 2020, the Service published a “Biological Opinion” addressing how the proposed pipeline would likely affect five species listed for protection under the federal Endangered Species Act (ESA) (one plant; two fish; and two bats). The Service concluded that the pipeline would likely affect each species, but would not jeopardize those species, which is the key determination under the ESA for whether other federal agencies may issue permits for a project. The Service also issued an “Incidental Take Statement” that authorized certain levels of “take” of each species associated with construction of the stream crossings, which would otherwise be prohibited by the ESA. For purposes of the ESA, “take” of a species means actions “to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct.”
A group of organizations opposed to the pipeline, including the Sierra Club, challenged both the Biological Opinion and the Incidental Take Statement with regard to the two fish species (Roanoke Logperch and Candy Darter) and one bat species (Indiana Bat). The Court only squarely addressed the Service’s evaluation of the two fish species, but included a detailed footnote that strongly recommended a second look by the Service at its evaluation of the Indiana Bat.
The opinion explaining the Court’s ruling primarily focuses on how the Service ascertained the environmental baseline for the two fish species and assessed the cumulative impacts of the proposed pipeline along with other anticipated activities. The Court faulted the Service for not gathering site specific data for each stream crossing proposed in areas of the species’ habitat. The opinion states that the Service did not sufficiently identify the existing “stressors” that were negatively impacting the species in the pipeline path. Although the Service observed that a primary driver decreasing the Candy Darter population is “hybridization” – i.e. interbreeding by the Candy Darter with another similar species of darter – the Court concluded that the Service did not adequately consider other factors negatively affecting the Candy Darter, such as increased stream sedimentation.
The Court rejected the Service’s argument that statistical modeling used to prepare both the environmental baseline determination and cumulative effects evaluation sufficiently accounted for conditions within the pipeline path. The Court did so because (1) the Biological Opinion does not indicate a reliance on statistical modeling to establish the environmental baseline or cumulative effects determinations; and (2) the models were not designed to assess environmental conditions on a small-enough scale to evaluate the specific areas to be impacted by the project.
With respect to climate change, the Court acknowledged that the statistical modeling used by the Service takes into account “environmental stochasticity,” which is defined as “unpredictable fluctuations in environmental conditions.” The Court still found that the Service did not adequately consider climate change because the models assumed a constant amount of environmental stochasticity in the future. According to the Court, “the model failed to account for the one thing we know about climate change: that it will get worse over time.” The opinion identifies anticipated increased water temperatures, frequency and intensity of flooding, and increased sedimentation as negative impacts of climate change that were not considered in the statistical models. The court does not cite to any of the materials in the administrative record to support this observation. Other than referencing a description of climate change by the Service as presenting an “increasing threat,” the Court does not offer any guidance on why the Service should assume conditions for the species will necessarily get “worse” over time due to climate change, or how the Service should go about factoring these considerations into its evaluations.
In light of the Service’s shortcomings described in the opinion, the Court concluded that the Service could not have reasonably concluded that the proposed project is unlikely to jeopardize the two fish species. The Court recognized that the ESA does not prohibit approval of projects “solely because baseline conditions or cumulative effects already imperil a species.” However, the ESA does prohibit approval of a project that will likely accelerate the decline of a species. “Put differently, if a species is already speeding toward the extinction cliff, an agency may not press on the gas.”
The Court rejected several additional arguments advanced by the challengers as grounds to set aside the Biological Opinion and Incidental Take Statement. These included claims that the Service (1) arbitrarily limited the scope of the “action area” (i.e. the impact area); (2) erroneously excluded the Blackwater River from its evaluation of the Roanoke Logperch; and (3) the Incidental Take Statement established “unlawfully vague” take limits.
This opinion highlights the importance of Endangered Species Act considerations for energy projects. The Candy Darter was listed as endangered on November 20, 2018, which was over a year after the Federal Energy Regulatory Commission (FERC) authorized the pipeline project. As noted in the “2021 Babst Calland Report,” the Service has drastically accelerated the pace of proposing and adopting species for protection under the ESA. As more species are designated for protection under the ESA, there is an increased likelihood that areas slated for development will trigger a rigorous review by the Service before any federal permit may be issued for a proposed project.
The opinion makes clear that the Service must methodically analyze the specific areas expected to be affected by a proposed project to determine whether the project may jeopardize a listed species. This effectively means that project proponents, through their counsel and consultants, must ensure that the Service adequately evaluates potential impacts on listed species, and more importantly, documents that evaluation correctly. A failure by the Service to do so, or a finding that the project will jeopardize a listed species, can stop a project in its tracks. Even one that is “an already mostly finished Pipeline” as the court observed in this case. As of December 2021, 94 percent of the pipeline had been constructed with approximately 20 linear miles remaining.
If you have any questions about the court’s opinion or the Endangered Species Act in general, please contact Robert M. Stonestreet at rstonestreet@babstcalland.com or 681-265-1364.
To view PDF, click here.
Babst Calland announced the addition of two professionals to its Washington, D.C. office – former PHMSA Official Christopher Hoidal as Senior Director of Safety and former API Policy Advisor, Christopher Kuhman as an Associate.
Chris Hoidal recently joined Babst Calland as Senior Director of Safety in the Energy and Natural Resources, Environmental and Pipeline and HazMat Safety groups. Mr. Hoidal advises clients throughout the United States on the regulation of transportation pipelines, LNG facilities and other regulated energy facilities. He has over 30 years of experience in various leadership roles with the U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration (PHMSA).
Mr. Hoidal has extensive knowledge of the pipeline safety regulations, industry codes and standards, and agency policy. He guides industry stakeholders seeking to improve regulatory compliance and safety performance, conducting transactional due diligence, and building remedial programs to address accidents and near-miss events. Mr. Hoidal also advises clients on special permits, inspection preparation, enforcement, rulemaking and policy development.
Mr. Hoidal worked for the United States Department of Transportation from 1990 to 2021, and the Pipeline and Hazardous Materials Safety Administration’s Office of Pipeline Safety since 1993. Prior to joining the Firm, Mr. Hoidal served as a Senior Technical Advisor in PHMSA’s Office of Pipeline Safety between 2018 and 2021. In this role, he supported PHMSA in the development of recent rules and guidance, including the 2019 Gas “Mega Rule.” Before this role, Chris served for 20 years as PHMSA’s Western Region Director for the Office of Pipeline Safety.
Mr. Hoidal has his Bachelor of Science in Geotechnical Engineering from the University of Nevada (1980), and Master of Business Administration from the University of Colorado (1983).
Chris Kuhman recently joined Babst Calland as an associate in the Energy and Natural Resources and Pipeline and HazMat Safety groups. Mr. Kuhman advises energy clients on a variety of pipeline safety-related matters.
Prior to joining the Firm, he worked as a Policy Advisor for the American Petroleum Institute (API) where he helped to develop API’s legislative and regulatory positions on pipeline safety matters. Before his work at API, Chris served as an engineer for a gas distribution company and an upstream energy services company where he gained practical technical knowledge. Firm clients benefit from Chris’ unique mix of policy and engineering experience. He is a 2021 graduate of American University Washington College of Law.
Commenting on their move to the Firm, Jim Curry, Managing Shareholder of Babst Calland’s Washington, D.C. office said, “We are very pleased to welcome Chris Hoidal and Chris Kuhman to our Firm. They have great backgrounds in the energy sector and a commitment to client service, and both are a natural fit for our pipeline practice. They join our growing Washington, D.C. office and will support our energy clients nationwide.”
PIOGA Press
(By Lisa Bruderly and Evan Baylor)
The U.S. Environmental Protection Authors: Agency (EPA) and the U.S. Army Corps of Engineers have recently issued updates regarding Nationwide Permits (NWPs) under Section 404 of the Clean Water Act (CWA) and Section 10 of the Rivers and Harbors Act of 1899, as well as a new proposed definition of waters of the United States (WOTUS). More developments on both subjects are anticipated in 2022 from these agencies, as well as from the U.S. Supreme Court.
On December 27, 2021, the Corps published a final rule reissuing 40 existing NWPs and issuing one new NWP (Water Reclamation and Reuse Facilities) (86 Fed. Reg. 73522). Broadly, NWPs authorize certain work in streams, wetlands and other WOTUS when those activities will result in no more than minimal individual and cumulative adverse environmental effects. This final rule rounds out NWP rulemaking activities that began in September 2020, when the Corps, under the Trump administration, proposed to reissue the 52 existing NWPs and issue five new NWPs.
As background, in January 2021, the Corps modified and reissued 12 of the existing NWPs and issued four of the five proposed NWPs. The January 2021 final rule also revised and reissued the NWP general conditions and definitions. The focus of that rule was largely to revise and reissue NWPs that relate to the energy industry, including the division of existing NWP 12 (Utility Line Activities) into three NWPs, depending on the type of utility line: oil and natural gas pipeline activities (NWP 12), electric utilities and telecommunications (NWP 57), and utility lines for water and other substances (NWP 58). The December 2021 rule does not address these 16 NWPs that were finalized in January 2021.
This December 2021 reissuance makes relatively minor changes to several NWPs, including NWP 13 (Bank Stabilization) and NWP 27 (Aquatic Habitat Restoration, Enhancement and Establishment Activities). It also states that the NWPs will be subject to the general conditions and definitions included in the January 2021 rule, making the general conditions and definitions for all NWPs consistent. Previously, these NWPs had been subject to the general conditions and definitions in effect in 2017.
The NWPs in this rule replace the 2017 versions of those permits and complete the rulemaking process to reissue all of the NWPs. These NWPs go into effect on February 25 and will expire on March 14, 2026, consistent with the expiration date of the NWPs that were reissued in January 2021.
More NWP changes expected in 2022
The Biden administration intends to reevaluate the NWPs later this year. According to the Fall 2021 Unified Agenda of Regulatory Actions, the Corps is planning a comprehensive rulemaking in 2022 to reexamine all NWPs issued in 2021 “to identify NWPs for reissuance, modification, or issuance, in addition to identifying potential revisions to general conditions and definitions in order to be consistent with Administration policies and priorities.” Changes to the NWP program are expected to undo Trump administration revisions, which, arguably expanded the permits’ applicability, and also address climate change and environmental justice concerns.
The Corps stated that it is considering whether additional steps should be taken to ensure the NWP program aligns with the Biden administration’s policies and priorities, including Executive Order 13990, “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.” This order directs agencies to review and address regulations from the previous administration that conflict with national objections to improve public health and the environment. Further, this order directs agencies to prioritize environmental justice. According to Assistant Secretary of the Army for Civil Works Michael L. Connor, “The [Corps] will also be reviewing the overall NWP program to ensure consistency with the administration’s policies, including the need to engage affected communities.”
Changes to WOTUS
The Corps and EPA published a proposed revision to the WOTUS definition on December 7 (Rule 1), with the public comment period closing on February 7. This proposed definition is similar to the pre-2015 definition of WOTUS, with updates to reflect relevant Supreme Court decisions (e.g., Rapanos v. United States) that occurred in the early 2000s. In Rapanos, Justice 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.” Justice Kennedy, however, advanced a broader interpretation of WOTUS in his concurring opinion, which relied on the concept of a “significant nexus,” and stated 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.” The December 2021 proposed WOTUS definition would incorporate Justice Kennedy’s significant nexus test into the regulations.
The impact of the December 2021 proposed WOTUS definition is generally not expected to be significant because, under the current definition of WOTUS, the Corps, in most jurisdictions, has been relying on 2008 guidance which also considers Kennedy’s significant nexus test. However, the Biden administration intends additional (potentially more expansive) revisions to the WOTUS definition in a second rulemaking (Rule 2). Broadly, the more expansive the definition of WOTUS, the more waters that are federally regulated, and the more likely that surface water impacts from a project will require Section 404 permitting. The increased amount of impacts to federally-regulated waters may result in a project exceeding NWP or state programmatic permit (e.g., PASPGP-6) thresholds and requiring an individual Section 404 permit.
As stated in the Fall 2021 Unified Agenda, “[t]his second rule proposes to include revisions reflecting on additional stakeholder engagement and implementation considerations, scientific developments, and environmental justice values. This effort will also be informed by the experience of implementing the pre-2015 rule, the 2015 Clean Water Rule, and the 2020 Navigable Waters Protection Rule.”
U.S. Supreme Court agrees to hear WOTUS case
In addition to planned WOTUS changes by the Biden administration, the U. S. Supreme Court, in January 2022, signaled that it would weigh in on the WOTUS debate, when it agreed to hear the case of Sackett v. USEPA. In Sackett, landowners in Idaho have a long-standing challenge to an administrative order issued against them for allegedly conducting fill activities without a Section 404 permit. Much of the Sacketts’ arguments pertain to whether the wetlands in question were appropriately delineated as WOTUS by applying Justice Kennedy’s significant nexus test in Rapanos.
In 2021, despite the Sacketts’ arguments, the Ninth Circuit held that the “significant nexus” test in the Kennedy concurrence was the controlling opinion from Rapanos. The Sacketts petitioned the U.S. Supreme Court to consider whether Rapanos should be revisited to adopt the plurality’s test for wetland jurisdiction under the CWA. However, the court agreed instead to consider the narrow issue of whether the Ninth Circuit “set forth the proper test for determining whether wetlands are ‘waters of the United States.’” The Supreme Court’s decision as to whether Justice Kennedy’s concurring opinion is controlling will be very significant in future interpretations of WOTUS.
With expected WOTUS developments from the U.S. EPA, the Corps and the U. S. Supreme Court, 2022 is shaping up to be a critical year for federal water law.
Babst Calland will continue to track developments and changes to the NWP program and WOTUS. If you have any questions about these developments, contact Lisa Bruderly at 412-394-6495 or lbruderly@babstcalland.com or Evan Baylor at 202-853-3461 or ebaylor@babstcalland.com.
For the full article, click here.
For the PDF, click here.
Reprinted with permission from the February 2022 issue of The PIOGA Press. All rights reserved.
The Legal Intelligencer
(by Anna Jewart and Blaine Lucas)
In recent years, public support for renewable energy generation has increased across the United States. According to a recent article published by the National Agricultural Law Center, 89% of Americans support expanding solar power generation and 83% support wind power expansion. See, Peggy Kirk Hall, Whitney Morgan and Jesse Richardson, “Land Use Conflicts Between Wind and Solar Renewable Energy and Agricultural Uses,” Nat’l Ag. Law Center (Jan. 10, 2022). National approval, however, often fails to translate into local support. Those seeking to site wind or solar projects are frequently met with opposition from neighbors, many of whom may be generally supportive of renewable energy, but when it comes time to decide where generation will occur, they repeat the well-known adage, “Not in my back yard.” In fact, local objection to renewable projects frequently mirrors that which has been levied for decades against traditional energy development. Concerns over aesthetics, noise, storm water, or traffic can be expected whether an applicant proposes an oil and gas well or a wind farm. In either instance, broad concerns over impacts on the community often devolve into highly technical debates over compliance with not only the local ordinances, but the validity or reliability of different scientific methods or standards. As a result, zoning hearings on any energy project may become full-blown battles of the experts. In Atlantic Wind v. Zoning Hearing Board of Penn Forest Township, No. 585 C.D. 2020, No. 591 C.D. 2020, No. 20 C.D. 2021, No. 242 C.D. 2021, (Pa. Cmwlth. Jan. 12, 2022), the Pennsylvania Commonwealth Court considered whether a zoning hearing board properly handled competing expert testimony over what metrics to use in calculating maximum noise levels.
In 2013, Atlantic Wind, LLC (Atlantic Wind) entered into a lease with the Bethlehem Authority (authority), for property located in Penn Forest Township (the township). The lease granted Atlantic Wind the right to use approximately 5,000 acres of the authority’s property (the project area) for wind energy purposes. In 2015, Atlantic Wind filed an application for a special exception under the Township Zoning Ordinance (ordinance) to erect 28 wind turbines with access roads, appurtenant structures, and infrastructure, including a permanent meteorological tower.
On Jan. 30, 2019, the Township Zoning Hearing Board (board), following 10 public hearings, denied the application and concluded in part that Atlantic Wind failed to present evidence or sustain its burden of showing the project would comply with the ordinance’s noise level requirements. Both Atlantic Wind and the authority appealed to the trial court. The trial court consolidated the appeals and granted petitions to intervene to the township and 42 individual objectors (objectors.) Without taking additional evidence, the trial court affirmed the board’s denial. Atlantic Wind and the authority appealed to the Commonwealth Court.
On appeal, Atlantic Wind asserted that the board had disregarded unrefuted record evidence that it would maintain sound levels in compliance with the ordinance, and that it erred in finding the ordinance mandated the use of a sound metric known as “Lmax.” Under the ordinance, Atlantic Wind was required to prove in relevant part that:
The design of the wind energy facility shall conform to applicable industry standards, including those of [ANSI] …
and …
The audible sound from the wind turbine(s) shall not exceed 45 A weighted decibels [(dBAs)], as measured at the exterior of an occupied dwelling on another lot …
At the hearings, Atlantic Wind presented an acoustical engineer as an expert witness, who testified that he conducted predictive modeling and issued a report which concluded the project would comply with the 45dBA limit. He testified that because the ordinance did not specify the use of a particular metric, he employed a metric known as “Leq,” because it was most common, and the industry standard. His testimony detailed his methods, his reasons for reliance on the Leq metric, and its acceptance by the scientific community as well as why another available metric, Lmax, was not appropriate. In contrast to the Leq metric, which measures average sound levels, Lmax measures the highest noise level.
The objectors presented their own expert in wind turbine acoustics and noise measurements who argued the Leq metric was not a proper metric to evaluate a “shall not exceed” noise ordinance, but that Lmax should be used instead. Following testimony on why Leq was improper, he testified he could ascertain the Lmax by adding 11dBAs to the Leq results, thereby concluding the project would in fact exceed the ordinance maximum of 45 dBAs.
On rebuttal, Atlantic Wind presented a second witness, this time a certified noise control engineer, who supported and affirmed Atlantic Wind’s original expert testimony and report, and explained that when an ordinance does not specify what the metric is, his professional experience would suggest using Leq. He further disagreed with the objectors’ expert’s method of obtaining an Lmax metric by adjusting the Leq by 11dBAs. In sum, he concluded with a reasonable degree of professional certainty that the Leq modeling accurately demonstrated the project would meet the ordinance standard. Ultimately, the board determined that the Lmax metric was the appropriate one to use under the ordinance, and Atlantic Wind had failed to produce evidence to meet its burden that the sound level would not exceed the requirements of the ordinance.
As acknowledged by the Commonwealth Court, the board was free to reject even uncontradicted expert testimony it found to be lacking in credibility, and it would not be an abuse of discretion to choose to believe the opinion of one expert over another. However, the board was required to provide an adequate explanation of its resolution of the factual questions involved at the hearing, and to show, through its written findings and conclusions, that its decision was well reasoned and not arbitrary. The court found several defects in the board’s findings and conclusions, noting, for example, that while it appeared the objectors’ expert testimony formed the basis of the board’s decision, it never made a written finding that he had ever appeared or testified at the hearings, let alone reconciled his testimony with that of the other experts. In addition, there were no findings relative to the rebuttal testimony at all. Consequently, the court found the board had failed to provide any “explanation of its resolution of the factual questions involved,” as required by law.
Furthermore, the court observed that if the ordinance intended to apply the Lmax metric it could have stated so. As a result, the court concluded that the board’s application of the Lmax metric was not supported by law or record evidence and could not form the basis for denial of the application. The court relied largely on MarkWest Liberty Midstream & Resources v. Cecil Township Zoning Hearing Board, 102 A.3d 549 (Pa. Cmwlth. 2014), a case in which the court found that a zoning board, in considering a special exception application for a natural gas compressor station, had acted arbitrarily and abused its discretion by mandating requirements not set forth in the ordinance. As a result, the court vacated the board’s decision, and remanded it for the board to make the necessary credibility determinations and to explain its resolution of the factual questions regarding the noise metric.
Finally, the court also reversed the board’s decision on two ordinance interpretation issues. First, the court found that the board had erred in finding that the wind farm use would be an unlawful second principal use under the ordinance. Objectors had argued the project area was already used as a “government facility” in part because it was covered by a conservation easement intended to preserve the property to benefit the authority’s adjacent potable water reservoirs. Because “government facilities” were only permitted by special exception under the ordinance, and no such application had been granted by the board, the court found that the record did not support the finding that any other zoning use, let alone a principal use, existed in the project area. Second, the court found that the board erred in finding that the meteorological tower was also an unlawful second principal use, rather than an accessory use to the project. The court noted that not only had Atlantic Wind presented sufficient evidence that the tower was customary and incidental to the project, the board failed to recognize its own zoning officer’s opinion that the tower was an integral part of the overall project. The township and the objectors have filed an application for reargument. As of this writing, the court has not acted on that application.
Atlantic Wind, although an unreported case, holds educational value for all land use applicants, objector and decisionmakers. The case demonstrates the technical level with which the parties must be prepared to present their cases, and reminds zoning hearing boards and governing bodies that their decisions must be thoroughly discussed and supported in their written findings and conclusions. Atlantic Wind also may be a harbinger of the intense scrutiny and opposition renewable energy projects, much like traditional energy developments before them, will encounter as the nation broadens its energy portfolio.
For the full article, click here.
Reprinted with permission from the February 10, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.
Pennsylvania Business Central
Tim Schoonover is a shareholder in the Energy and Natural Resources, Litigation and Public Sector groups of law firm Babst Calland. Tim has practiced law in the Centre County region since 1997. He currently serves as Solicitor for Haines Township, and is the former Solicitor to Benner Township and counsel to AccuWeather, Inc. Tim has significant experience with Marcellus Shale related issues, including contract matters and land use litigation issues. His practice also focuses on the areas of real estate, corporate/business law, municipal law, litigation, and estate planning and administration.
Tim received his J.D. from the Ohio Northern University Pettit College of Law in 1995. He is an active volunteer in Centre County having held board positions for the Centre County Bar Association, State College Jaycees, Infant Evaluation Program, Habitat for Humanity of Greater Centre County, Centre County Housing and Land Trust, and YMCA of Centre County.
To view the article, click here.
Alert
(by Peter Schnore and Ed Phillips)
At the beginning of 2022, the Pittsburgh Post-Gazette reported that the overall vacancy rate in the Pittsburgh commercial real estate market was 20.8% at the end of 2021, which was an increase from the 19.3% vacancy rate at the end of 2020. [1] But statistics like this tell only part of the story, as they reflect past events, rather than what market participants anticipate will occur in the future. The same article noted that some property owners are offering incentives, such as free rent and higher improvement allowances to retain and attract tenants. The COVID pandemic is having, and will have, a material impact on the value of various commercial property types for quite some time.
Given the trends in increasing vacancy rates and incentives—along with concerns for what long-term effects the pandemic will have on tenants’ future needs—commercial property owners should consider whether the time is right to appeal their commercial real estate assessments. For many commercial property owners, the best approach is to work with an attorney familiar with the appeals process and property valuation through the lens of Pennsylvania assessment law, to best appreciate whether an appeal is likely to be a worthwhile endeavor. In Allegheny County, property owners have until March 31, 2022 to initiate an appeal for Tax Year 2022. For property owners in the remainder of Pennsylvania, annual appeal deadlines fall between August 1 and the first Monday in October, depending on the county.
Each year, Pennsylvania publishes an equalization ratio for each county based on a comparison of the county’s most recent years’ sales data vs. the sold properties’ assessments. In a properly filed appeal, this ratio is applied to the property’s current fair market value to set the assessment. The ratio applicable to Allegheny County for Tax Year 2022 is significantly more favorable to property owners than last year’s ratio. This more favorable ratio makes it a particularly good year to initiate an appeal by the March 31, 2022 deadline. Because counties are not required to regularly reassess, the financial benefits of a decreased assessment may be enjoyed for many years.
Property taxes are often the most significant operating expense for an income-producing property, making it important to evaluate this expense to protect your real estate asset’s bottom line.
If you have any questions about these developments, contact Peter Schnore at 412-394-5692 or pschnore@babstcalland.com or Edward Phillips at 412-394-6553 or ephillips@babstcalland.com.
_____________
[1] Mark Belko, Lingering effects: Pittsburgh office market struggles to overcome the pandemic, Pittsburgh Post-Gazette (January 4, 2022, 6:07 AM).
To view the PDF, click here.
Infrastructure Alert
(By Robert M. Stonestreet, Christopher B. “Kip” Power, Ben Clapp)
State and federal lawmakers are creating economic opportunities for the coal industry and landowners to support production of “critical materials” in high demand for technology products. The term “critical materials” refers to a group of 50 minerals, elements, substances, and materials that the U.S. Department of Energy (DOE) has identified as key components of products that are essential to the economic or national security of the United States, and that are susceptible to supply chain disruption. The federal legislation generally known as the “Infrastructure Bill” allocates more than $1.3 billion to support a number of new and existing DOE initiatives directed toward research, development, and production of critical materials, including substances known as “rare earth elements.”
Rare earth elements are essential for many high-tech products such as smart phones and other sophisticated electronic devices. Rather than being “rare,” these elements exist in many places throughout the United States (and the rest of the world) although generally in very low concentrations that make them difficult to economically recover and process. Relatively greater concentrations of rare earth elements, along with other critical materials, can be found in coal seams and adjacent geologic formations. Even higher concentrations often exist in polluted water flowing from surface and underground coal mines – commonly referred to as “acid mine drainage” or AMD.
Members of the mining industry – not just academic institutions or research foundations – are eligible to apply for large amounts of funding created by the Infrastructure Bill related to the extraction of critical materials generally and rare earth elements specifically. The bill allocates $127 million in grants focused on research to support the recovery of rare earth elements from coal and coal byproducts, such as AMD. Grant funding totaling $140 million has been dedicated toward establishing a feasible full-scale operation to extract, separate, and refine rare earth elements from AMD, mine waste, and other “deleterious material.” $600 million in grant funding is available for projects to establish a sustainable long-term supply of critical materials, including innovations in technologies to diversify commercially viable sources of these materials. $400 million is appropriated to fund pilot projects for the processing, recycling and development of critical materials, at least 30 percent of which must be granted to projects relating to secondary recovery, which includes recovery of critical materials from mine waste piles, AMD sludge, or byproducts produced through legacy mining activities. Finally, another $75 million will fund contracts to support construction of a research facility focused on developing a reliable supply chain for rare earth elements and other critical materials. Opportunities to apply for these grants and contracts through the DOE are expected to open beginning in the fourth quarter of 2022, subject to the development of appropriate policies or regulations to guide the process.
State lawmakers in West Virginia are also taking steps to promote rare earth element recovery associated with coal mining operations. Legislators have recently introduced multiple bills in the 2022 Legislative Session intended to clarify that those who successfully extract rare earth elements from mine drainage may derive a commercial benefit from doing so. These efforts seek to resolve the issue of who owns the substances present in AMD, which historically has been considered a liability rather than an asset due to the costs (and permitting liability) associated with treating it.
What the current legislation fails to acknowledge is that attributing specific volumes of water to specific properties can present difficult challenges. In certain circumstances, such as the direct flow of water from a specific mine, the source of the water may be able to be identified. However, even a single mine can span multiple tracts with many different mineral owners. Water is also, by its very nature, mobile and thus moves through the subsurface in both mined-out voids and unmined geologic formations. Mine drainage can thus be an amalgamation of water flowing from and/or through a number of different underground mines forming one or more underground mine pools. While volumes of water flowing from or through certain mine voids can likely be calculated, estimating what quantity of rare earth elements came from a particular mine void would be challenging to say the least. Technical approaches that have been accepted in similar legal contexts may prove helpful in addressing this question.
These and other legislative actions present substantial opportunities for members of the coal industry to participate in grant programs and otherwise derive revenue from recovery and sale of rare earth elements and other critical materials associated with mining operations. Babst Calland has a team of lawyers following state and federal activities related to rare earth element development opportunities and implementation of the Infrastructure Bill. Please contact any of the following attorneys to learn more: Robert M. Stonestreet at rstonestreet@babstcalland.com or 681.265.1364; Christopher B. “Kip” Power at cpower@babstcalland.com or 681.265.1362; or Ben Clapp at bclapp@babstcalland.com or 202.853.3488.
To view this and other alerts regarding the Infrastructure Bill, click here.
To view the PDF, click here.
Smart Business
(by Sue Ostrowski featuring Mary Binker)
While the COVID-19 pandemic has had a significant negative impact on downtown Pittsburgh’s commercial leasing market, it has also created new opportunities for both tenants and landlords.
“While the pandemic changed a lot in the commercial real estate market in Pittsburgh, increasing vacancy rates and creating other challenges, it has also provided the chance for tenants and landlords to negotiate better terms,” says Mary Binker, a shareholder in the Real Estate, Corporate and Commercial, and Energy and Natural Resources groups of Babst Calland. “It has also allowed new tenants, who previously may not have been able to access the downtown commercial real estate market, to more seriously look into the downtown space.”
Smart Business spoke with Binker about how landlords and tenants can adjust to an evolving commercial real estate market.
How has the pandemic impacted downtown Pittsburgh commercial real estate?
Rates, lease terms and tenants’ concerns have changed, and vacancy rates have increased. Before the pandemic, the commercial real estate vacancy rate downtown was in the mid to low teens, but in January 2022, it was just over 20 percent, which is higher than in recent years. We are also seeing more tenants attempting to sublease all or part of their space.
Employers are grappling with how the pandemic is impacting office space, with many moving to remote work or, more recently, a hybrid model. What does that look like? Will the number of desks be limited? If everyone is in the office on the same days, how will that work? How do you accommodate a cleaning schedule and provide storage if different people use the same workspace on different days? In addition, there has been a change in technology needs. Businesses must have great audio and video technologies available because everyone is using them more.
As new COVID variants arise, employers will continue to grapple with whether to operate on a hybrid or remote basis, and the amount and look of office leasing will continue to change.
How can employers and landlords address the evolving commercial real estate marketplace?
Early in the pandemic, tenants tried to claim force majeure — unforeseeable circumstances that prevent someone from fulfilling a contract — to get out of their lease or negotiate terms, but that is happening less commonly now. Renewals are allowing tenants and landlords to change things in their leasing agreement that had previously been the norm.
Many landlords are offering smaller spaces and shorter lease terms, and amenities such as memberships to building fitness centers. The trend will likely be for landlords to have not one tenant occupying several floors but have several in much smaller spaces. In addition, I think there will be a change in the type of tenants moving downtown. Traditionally, it has been home to larger, more established companies, but the expansion of lease options and the availability of smaller spaces may make moving downtown more attractive to smaller or younger companies. With space available and landlords looking to lease, companies may be able to enter a market that historically would have been a challenge.
In addition, new development is still happening in the commercial real estate space that will provide opportunities for landlords, tenants and brokers, even though it may look different than it has in the past.
How can a professional help landlords and tenants navigate the market?
A professional has experience negotiating leases and knows the trends locally. What was true two years ago has greatly changed, and it’s critical to work with an expert who knows what standards have changed to get the best deal terms.
Work with an attorney and a broker on the current terms they are seeing in the marketplace. Rates have changed — in some areas square footage rates have softened — but there have also been changes in tenant allowances and other things that can be a monetary benefit to a tenant, even if the base rental rate is unchanged. If you’re stuck in a lease, have too much space or are facing negative lease terms, consulting with an attorney may help you resolve those issues.
To view the full article, click here.
To view the PDF, click here.
The Wildcatter
(By Nikolas Tysiak)
Hello MLBC friends and family! As we survive the freezing cold of winter, there are only a few things to report to you. This time of year, with its proximity to the holidays, tends to be a judicial legislative “slow time.” As always, the Legislative and Regulatory Committee looks forward to hearing from anyone with an idea or suggestion of something to include in our newsletter updates.
OHIO
Hein Bros., LLC v. Reynolds, 2021-Ohio-4633 (7th Dist. Ct. App.). Owners of severed mineral interest brought an action to have a prior judgment divesting them of such severed minerals deemed void for failure of notice. In 2013, the surface owners of this property in Belmont County brought an action to have previously-severed minerals under their lands declared vested with the surface estate. Service of notice of the lawsuit was attempted by certified mail, with the surface owners’ attorney stating that various methods were attempted to locate the severed mineral owners. Certified mail having failed, notice was served by publication in accordance with Ohio law. In 2020, the same severed mineral owners sought the judgment overturned due to failure of notice, claiming that no reasonable person would not have been able to locate their addresses for service by certified mail if applying due diligence in 2013. Under Ohio law, there is a rebuttable presumption that the reasonable diligence exercised in issuing notice by mail has been followed, and to counterbalance the presumption evidence of a substantial nature must be presented. The severed mineral owners presented evidence from an identity investigator, working in 2021, to prove that they were locatable with reasonable diligence in 2013. The trial court was not swayed by this evidence, and the Court of Appeals followed the lead of the trial court and affirmed their judgment, denying the claims by the severed mineral owners in favor of the surface owners.
Pernick v. Dallas, 2021-Ohio-4635 (7th Dist. Ct. App.). Case involves the Ohio Marketable Title Act. Severed mineral owners sued claiming that an oil and gas lease executed by the surface owners effectively preserved their severed oil and gas interest, among other things. Losing at trial, the severed mineral owners appealed. The severed mineral owners claimed that the execution of successive oil and gas leases by the surface owners starting in 2008 saved the severed mineral interests. The court concluded that, while the factual matters cited by the severed mineral owners are correct (an oil and gas lease is a title transaction under the Marketable Title Act), for a title transaction to be legally meaningful under the MTA, it must also effectively notify other parties that the severed mineral interest remains in effect. A lease from the surface owners does not accomplish that goal. The severed mineral owners then alleged that the root of the title deed contained a specific reference to the severed oil and gas interest. To this, the court pointed out that the root of title deed made no reference to oil and gas at all, only to a prior deed in the chain of title and deemed the reference language insufficiently specific to preserve the severed minerals. Finally, the severed mineral owners claimed that the root of title deed cannot be a “proper” root of title as it did not indicate that oil and gas interests were being conveyed. The court found this assertion to be meritless and discounted it out of hand. The Court of Appeals accordingly upheld the trial court’s decision vesting title to the oil and gas with the surface owners under the marketable title act.
PENNSYLVANIA
Allison v. Rice Drilling B, LLC, 2021 WL 6140828 (Sup. Ct. Pa., December 30, 2021). Land in question was subject to a 1913 oil and gas lease that paid only $100 per well on the property and free gas to a home on the property. The lease had reported production until 1991, when reporting stopped. In 2016, EQT Corporation, as successor lessee under the 1913 lease, created a Marcellus unit and started paying the lessors the $100 again, which was refused by the successor landowners. In 2017, the surface owners executed new leases with Rice Drilling B, LLC, with an 18.5% royalty.
After Rice merged with EQT, payments continued to be made to the landowners at $100 per well, and not at 18.5%. EQT/Rice won at trial on summary judgment, but the Superior Court overturned that ruling, remanding it to trial. The Superior Court looked at the cross-filed motions for summary judgment and applied a rule of civil procedure to review the evidence supplied in the light most beneficial to the non-moving party to determine whether summary judgment was appropriate in either case. When reviewing the landowners’ denied motion for summary judgment, the court reviewed the evidence that most supported EQT/Rice’s position. The court found that only EQT/Rice provided any evidence of continuous production (despite a lack of reporting) from 1991 through 2016 under the 1913 lease. Consequently, the 1913 lease could not have expired in this light. Nevertheless, the Court felt the factual basis as to the continuous production issue needed further development in the record, so summary judgment would have been inappropriate as to the landowners. In reviewing the EQT/Rice’s successful motion for summary judgment, the court reviewed the evidence in the light most favorable to the landowners. Here, it found that the summary judgment depended solely on the factual issue of continuous production – if there was no continuous production, then the lease was effectively terminated when the lessors refused payment in 2016. Therefore, the Court overturned the prior motion for summary judgment and remanded the case for further trial on the issue of whether there was continuous production from the wells drilled pursuant to the 1913 lease between 1991 and 2016.
With warmest regards –
MLBC Legislative and Regulatory Committee
Nik Tysiak – Chair
To view the full article, click here.
To view the PDF, click here.
Reprinted with permission from the MLBC February 2022 issue of The Wildcatter. All rights reserved.
GO-WV News
(By Katrina Bowers)
The West Virginia Supreme Court has accepted certified questions from the United States District Court for the Northern District of West Virginia concerning whether the seminal decision in Estate of Tawney v. Columbia Natural Resources, LLC, 219 W.Va. 266, 633 S.E.2d 22 (2006) (“Tawney”) regarding the deductibility of post-production expenses remains the law of West Virginia, and if so, the proper interpretation of Tawney.
In Charles Kellam, et al. v. SWN Production Company, LLC, et al., No. 5:20-CV-85, a case filed as a class action but not yet certified, the United States District Court for the Northern District of West Virginia, Judge John Preston Bailey, certified on his own motion whether Tawney remains the law of West Virginia, whether the lease in question allowed the deductions, and the proper application of Tawney. At the time of the District Court’s certification in Kellam, pending before the District Court was the defendants’ Motion for Judgment on the Pleadings which argued the Kellam’s lease complied with Tawney and the District Court was bound by the decision in Young v. Equinor USA Onshore Properties, Inc., 982 F.3d 201 (4th Cir. 2020). The Kellam’s lease states the lessee agrees to pay the lessor “as royalty for the oil, gas, and/or coalbed methane gas marketed and used off the premises and produced from each well drilled thereon, the sum of one-eighth (1/8) of the price paid to Lessee per thousand cubic feet of such oil, gas, and/or coalbed methane gas so marketed and used . . . less any charges for transportation, dehydration and compression paid by Lessee to deliver the oil, gas, and/or coalbed methane gas for sale.”
The Kellam lease is very similar to the lease considered in Young, where the 4th Circuit Court of Appeals reversed Judge Bailey and held the lease clearly and unambiguously allowed the deduction of post-production expenses. In expressly rejecting Judge Bailey’s reasoning that the lease in Young did not contain sufficiently explicit language about the method of calculating deductions and therefore did not comply with Tawney, the 4th Circuit Court of Appeals noted that “Tawney doesn’t demand that an oil and gas lease set out an Einsteinian proof for calculating post-production costs. By its plain language, the case merely requires that an oil and gas lease that expressly allocates some post-production costs to the lessor identify which costs and how much of those costs will be deducted from the lessor’s royalties.” Young, 982 F.3d at 208.
In certifying the questions to the West Virginia Supreme Court of Appeals, Judge Bailey relied on his similar reasoning in Young, which the 4th Circuit Court of Appeals rejected.
On December 27, 2021, SWN Production Company, LLC and Equinor USA Onshore Properties Inc. (“producers”) filed their opening brief in Kellam. Additionally, on the same day, the American Petroleum Institute, Gas and Oil Association of WV, Inc., and the West Virginia Chamber of Commerce filed an amici curiae brief in support of the producers in Kellam. A response to the producers’ brief is due on or before February 11, 2022. The West Virginia Supreme Court of Appeals will allow full oral argument concerning the certified questions in Kellam during the January 2022 term of Court.
Click here, to view the article online in the February issue of GO-WV News.
Christina Manfredi McKinley recently joined Babst Calland as a shareholder in the Litigation, Energy and Natural Resources, and Environmental groups.
Ms. McKinley provides 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, 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 director and officer defense.
An experienced appellate litigator, Ms. McKinley has practiced before the United States Supreme Court at every stage of the process, including the briefing and preparation of two merits cases that were argued before the Court. She also has briefed and prepared cases for argument before the United States Courts of Appeals for the Second, Third, Sixth, and D.C. Circuits, and she has argued numerous cases before the Pennsylvania intermediate appellate court.
Prior to joining Babst Calland, Ms. McKinley was a shareholder with Dentons Cohen & Grigsby. She is a graduate of The Catholic University of America, Columbus School of Law.
The Legal Intelligencer
(by John McCreary)
Within days of the publication in the August 16, 2021 Legal Intelligencer of the last installment of this occasional series on Pennsylvania’s Medical Marijuana Act (MMA), the Superior Court affirmed Judge William J. Nealon’s decision – discussed in that article — that the MMA does provide for a private right of action by medical marijuana patients claiming discrimination in employment. Palmiter v. Commonwealth Health Systems, 260 A.3d 967 (Pa.Super. 2021). Rejecting the contention that exclusive jurisdiction over enforcement of the MMA lies with the Department of Health, the Court stated that “[a]lthough the General Assembly did not expressly create a private right of action on behalf of an employee whose employer discriminates against her for medical marijuana use, it proclaimed a public policy prohibiting such discrimination. See 35 P.S. § 10231.2103.” 260 A.3d at 973. Beyond acknowledging the existence of the claim, however, the Court did not provide any specific guidance to either patients or employers concerning their rights and obligations under the statute. It acknowledged generally that:
[T]he same section of the statute [that creates employment protections for patients] also explicitly sets forth the rights of employers, i.e., that an employer is not required to provide an accommodation for certified users and may discipline employees who are under the influence of medical marijuana in the workplace. See § 2103(b)(2). Thus, in the employment context, § 2103(b) of the MMA not only delineates the rights afforded employees who are certified users, but also sets forth the rights of employers to discipline employees who are in violation of the terms of certified use.
260 A.3d at 975. The Court also noted that the MMA does not provide a specific remedy, id. at 975, and with its affirmance of Judge Nealon’s decision it appears to have implicitly adopted that jurist’s conclusion that an aggrieved employee could “seek to recover compensatory damages from an employer that violates Section 2103(b)(1).” Id. at 972.
Ms. Palmiter’s victory now raises additional issues for counsel for patients and employers to grapple with. First, for both sides in the litigation, is how to determine the available remedies? The Superior Court noted the absence of statutory remedies, as did the author in the first installment of this series. The author in that same article also remarked on the absence of a fee shifting provision in the MMA; unlike most anti-discrimination enactments the successful MMA plaintiff must pay her lawyer out of the proceeds collected by settlement or judgment. In the author’s experience defending claims brought under the MMA usually means that plaintiffs are amenable to quick settlements.
Should the case not settle quickly, what damages are available? The Palmiter decisions suggest that “compensatory damages” are appropriate. What are compensatory damages in the context of a wrongful discharge (or refusal to hire) under the MMA? Carlini v. Glenn O. Hawbaker, Inc., 219 A.3d 629 (Pa.Super. 2019) provides some guidance. In that case the plaintiff sued for wrongful discharge in violation of public policy, claiming among other torts that she was terminated in retaliation for filing a workers’ compensation claim. Both sides appealed the damage verdict. With respect to the wrongful discharge claim, Superior Court concluded that Carlini was entitled to recover her economic loss, consisting of lost wages and benefits, and so affirmed the verdict for those damages. 219 A.3d at 645. The trial court, however, had refused to instruct the jury that it could award Carlini non-economic damages for emotional distress and embarrassment. Superior Court found this to be error and remanded for a new trial on this measure of damages:
“Compensatory damages that may be awarded without proof of pecuniary loss include compensation … for emotional distress.” Restatement (Second) of Torts § 905 (Am. Law Inst. 1975); see also Bailets v. Pennsylvania Tpk. Comm’n, 645 Pa. 520, 181 A.3d 324, 333 (2018) (stating that “our jurisprudence has long recognized non-economic losses are actual losses” (citations omitted)). “Damages for nonpecuniary harm are most frequently given in actions for bodily contact and harm to reputation …, but they may also be given in actions for other types of harm[.]” Restatement (Second) of Torts § 905 cmt. a (citations omitted).
“In Pennsylvania[,] one who is liable to another for interference with a contract is liable for damages for the emotional distress which is reasonably expected to result from the wrongful interference.” Kilpatrick v. Delaware Cty. S.C.P.A., 632 F. Supp. 542, 550 (E.D. Pa. 1986) (citation omitted); see also Pelagatti v. Cohen, 370 Pa.Super. 422, 536 A.2d 1337, 1343 (1987) (quoting the Restatement (Second) of Torts for the proposition that “actual damages” for interference with a contract include, among other things, emotional distress if it is reasonably to be expected to result from the interference). “The victim of a wrongful termination, therefore, also should be entitled to recover damages for emotional distress reasonably expected to result from the wrongful discharge.” Kilpatrick, 632 F. Supp. at 550.
219 A.3d at 644-645 (footnote omitted). The Court also recognized that punitive damages were available under appropriate circumstances but remanded for a new trial on this issue because of error in the trial court’s admission of evidence of the net worth of the defendant. Id.
With the availability of compensatory damages for economic and non-economic injuries, as well as punitive damages, employers and their counsel should be judicious with their management of employees or applicants who lawfully use medical marijuana. This means, at least under the present state of the law in Pennsylvania, that employment decisions should be based on a patient’s use of marijuana and not on her status as a medical marijuana patient. The distinction between status and actual use is, at present, significant under the (dictum?) of Harrisburg Area Community College v. PHRC, 245 A.3d 283 (Pa.Cmwlth. 2020) (HACC), which was discussed at length in the previous installment of this series. In brief, Commonwealth Court interpreted section 2103(b)(1) of the MMA in a manner that does not prevent the employer from terminating or refusing to hire because of use of marijuana. This in turn counsels care in drafting and explaining personnel decisions. HACC is at present the latest word on the issue from an appellate court in Pennsylvania. The author is confident that Commonwealth Court’s parsing of the statute is correct as a matter of interpretation but is less confident that the Supreme Court will accept a construction that would, in effect, render the employment protections of the MMA illusory.
Additionally, employers need to be cognizant of the MMA’s recognition, however ambiguous and uncertain, of the potential safety risks presented by employees who use medical marijuana. See 35 P.S. 10231.510. Employers should identify jobs that are “safety sensitive” and consider in advance whether medical marijuana use is consistent with safe job performance. Ideally, employers will obtain an opinion from an occupational medicine practitioner, substance abuse professional or safety expert to bolster their opinion that certain jobs should be off limits to medical marijuana patients. Cf. Action Industries, Inc. v. PHRC, 102 Pa.Cmwlth. 382, 388, 518 A.2d 610,613 (1986) (“in cases of disparate treatment based upon handicap or disability, an employer can have a good-faith defense which negates its intent to discriminate where it reasonably relies upon the opinion of a medical expert in refusing to hire an applicant”).
Finally, the Palmiter Court’s conclusion that a private cause of action is available to vindicate the public policy codified in the MMA’s anti-discrimination provision suggests an additional defense applicable to employees covered by a collective bargaining agreement or employment contract containing an arbitration provision. In Phillips v. Babcock and Wilcox, 349 Pa.Super. 351, 503 A.2d 36 (1986) Superior Court held that wrongful discharge actions to vindicate public policy (in that case, retaliation for filing a workers’ compensation claim) were not available to unionized employees:
Finally, in deciding not to extend the wrongful discharge action to employees who are otherwise protected by contract or statute, we must take into consideration the strong public policy which favors the right of parties to enter into contracts. In the instant case, the union and appellee in their agreement decided the remedies that would be available, and provided that those remedies would be final and binding. This intent is expressly set forth in the agreement and, therefore, the remedies available should be preclusive of any others. Aughenbaugh v. North American Refractories Company, 426 Pa. 211, 231 A.2d 173 (1967).
349 Pa.Super. at 355, 503 A.2d at 38. See also Ross v. Montour Railroad Co., 357 Pa.Super. 376, 516 A.2d 29 (1986) (same).
Palmiter answers the issue of whether patients can sue to vindicate their employment rights, but there still remain many unanswered questions under the MMA. Employees and employers need a final answer from the Pennsylvania Supreme Court as to whether use of medical marijuana is protected under the statute, or only status as a patient. Employers need an interpretation of the safety-related provisions of the act so that they can make employment decisions free from the ambiguities created by those provisions. The author is therefore confident that there will be a sixth installment of this series.
For the full article, click here.
Reprinted with permission from the January 28, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.
Pittsburgh Business Times
(By Gary Steinbauer)
Babst Calland Shareholder Gary Steinbauer unpacks a series of proposed new EPA regulations that would further restrict methane gas emissions within the region’s oil and gas industry.