Smart Business
(by Sue Ostrowski featuring Kevin Douglass)
You’ve just discovered someone is stealing from your company. Worse yet, what if a high-level person — a partner, an owner, a director or an officer — is involved?
“Particularly if the theft involves a substantial amount of money, an accomplice outside of your business, or if criminal investigatory agencies are involved, you should consult with an attorney about how best to interact with authorities, respond to possible subpoenas, conduct an internal investigation and craft a consistent message to employees and customers,” says Kevin Douglass, a shareholder at Babst Calland.
Of course, every employee with access to company financials poses a risk, and every company should take steps to protect itself.
Smart Business spoke with Douglass about how to keep your business from falling prey to a theft — and what to do if it happens anyway.
How can a company protect its assets?
Employees with the greatest access to the company’s finances are in the best position to take advantage. The easiest way to prevent stealing is to ensure that there are checks and balances built into your company’s financial system, regardless of the trust you have in employees or colleagues responsible for managing that system.
The easiest way to do that is to require that more than one person monitor the company’s cash flow, including approval or review of checks, credit and debit card usage, petty cash and invoicing. If that is not possible, consider an audit every couple of years by an independent accounting firm and provide them with full access to the company’s internal financial records.
An individual may only take small amounts in the beginning, increasing the amount and frequency as they gain confidence. And to cover their tracks, they likely will delete, alter or fabricate financial recordkeeping. If undetected, embezzlement can last years, or even decades, and add up to thousands or millions of dollars. Once someone starts down this path, they rarely stop until they are caught.
Company theft happens more often than you might think. No company wants to publicize the fact that an employee is stealing. Often, once detected, a business may choose to quietly terminate the employee and sweep the situation under the rug to avoid negative attention. But that does not mean that it did not happen.
Once theft is discovered, how should a company proceed in the immediate aftermath?
First, you must be certain the person has actually stolen from the business. As quickly as possible, perform an internal investigation and, depending on the complexity and scope, consider hiring an independent investigator or accountant to ensure your investigation is credible and comprehensive.
You also need to take steps to prevent further harm to your business, including likely termination of the employee, denying the offender access to the company’s accounts and finances, as well as other company records and property, including laptops and company phones. An employee under suspicion may intentionally delete computer files and/or alter records, so decisive and immediate action is necessary. If the individual has signature authority on a bank account, you need to remove that authority or consider closing the account.
After a theft is discovered, consider whether and how to communicate with other employees, customers and the public. Can you keep this quiet? Should you keep it quiet? What is the right messaging?
In addition, you must decide whether to report the theft and seek recovery of the stolen funds. Is a customer a victim via fabricated invoices or other means? If yes, consider your obligations with counsel given the company’s unwitting role in the theft.
How can an attorney help you navigate the crisis?
It is critical to receive sound advice as quickly as possible when confronted with a theft of company assets involving an owner or employee. Counsel can guide you through this stressful process, ensuring proper communication and messaging with governmental authorities, employees and customers, as well coordinating the internal investigation. In addition, counsel can help navigate the complex contractual issues that may arise in order to sever ties with an offending owner.
For the full article, click here.
For the PDF, click here.
EmTech Law Blog
(by Ashleigh Krick)
On August 13, 2021, the National Highway Traffic Safety Administration’s (NHTSA) Office of Defect Investigations (ODI) opened a Preliminary Evaluation (PE21-020) into crashes with in-road or roadside first responders involving Tesla vehicles where Autopilot was confirmed to have been engaged during the approach to the crash. NHTSA cites to 11 crashes involving emergency vehicles that involved 17 total injuries and 1 fatality. The earliest cited crash is the January 22, 2018, crash in Culver City, California, where a Tesla Model S rear-ended a firetruck parked along a California freeway. A National Transportation Safety Board investigation into the crash found that the driver was overly reliant on Autopilot and that Autopilot allowed the driver to disengage from the driving task.
In the investigation report, ODI described Tesla’s Autopilot as an SAE Level 2 Advanced Driver Assistance System (ADAS) system “in which the vehicle maintains its speed and lane centering when engaged within its Operational Design Domain (ODD).” Even with the ADAS active, ODI noted that the driver continues to hold primary responsibility for Object and Event Detection and Response (OEDR). As such, ODI explained that the investigation will “assess the technologies and methods used to monitor, assist, and enforce the driver’s engagement with the dynamic driving task during Autopilot operation.” ODI will also evaluate Autopilot’s ODD and OEDR.
While the investigation focuses on a relatively narrow issue—the ability of Autopilot to identify and respond to parked emergency vehicles—it reinforces the Agency’s interest in crashes involving SAE Level 2 ADAS systems that are being deployed on public roads. Particularly, the Agency’s interest in how vehicle manufacturers are perhaps enforcing the driver’s engagement when these systems are activated. This investigation follows NHTSA’s recent Order requiring crash reporting for ADAS-equipped vehicles.
Tags: Advanced Driver Assistance System, autopilot, investigation, NHTSA
Pennsylvania House Environmental Resources and Energy Committee Hearing
In his testimony on August 17, 2021 at the Pennsylvania House Environmental Resources and Energy Committee public hearing on the Environmental and Economic Benefit of Pipelines, Babst Calland Attorney Keith Coyle, chairman of the Marcellus Shale Coalition’s Pipeline Safety Workgroup, explains, “As long as we are relying on fossil fuels to produce power, we need pipelines to deliver them safely. …It’s pretty clear we are going to be relying on natural gas and petroleum for some time. There is no other way to do this safely and to move product in bulk besides these pipelines.”
To view the video of the full public hearing of the House Environmental Resources & Energy Committee on the Environmental and Economic Benefits of Pipelines, click here.
Environmental Alert
(by Julie Domike)
An August 10, 2021 decision by Judge Michael J. Truncale of the U.S. District Court for the Eastern District of Texas may upend assumed privilege for documents and studies gathered as part of an environmental self-audit in Texas. The Order on Motion to Quash Subpoena, Sierra Club v. Woodville Pellets, LLC, No. 9:20-cv-178, 2021 WL 3522443 (E.D. Tex. Aug. 10, 2021) addressed the subpoena for stack test reports sought by the Sierra Club in a Clean Air Act enforcement case against the wood pellet manufacturing facility in Woodville, Texas.
Background
On August 18, 2020, Sierra Club filed a complaint under the citizen suit provisions of the federal Clean Air Act, alleging that Woodville Pellets, LLC had violated the statute by emitting unpermitted amounts of air pollutants from its facility. The matter will be tried before a jury in November; during discovery, the Sierra Club sought reports of stack testing that Trinity Consultants conducted as part of a facility audit under Texas law. Failing to receive the documents from Woodville Pellets, the Sierra Club served a subpoena on Trinity, which is not a party to the litigation, seeking these and other documents. Woodville and Trinity moved to quash the subpoena on the grounds that the documents sought are privileged under the Texas Environmental, Health, and Safety Audit Privilege Act (Audit Act) and this prevents their production.
The Decision
The Court accepted that the stack tests were done as part of an audit under the Audit Act, which extends a privilege to documents gathered as part of an environmental self-audit. The privilege provides these documents are not admissible as evidence or subject to discovery in a civil action under state law. Tex. Health & Safety Code Ann. § 1101.051, 1101.101. However, the Court disagreed that these documents were protected from discovery under federal law and denied the motions, determining that the state audit privilege claim does not itself justify a federal court applying that privilege. Although the stack test reports may have been created with the expectation that they would not be disclosed under state law, the Audit Act does not apply to EPA. Noting that Texas guidance states the privilege is waived in the event the violations are disclosed to EPA, the Court suggested in dicta that an audit report sent to EPA could then be obtained through a FOIA request to EPA. Further, EPA’s staunch opposition to expansive audit privileges under state laws1 supported the Court’s determination under federal law that the stack test reports are not privileged. Finally, the Court found that the state’s interest in maintaining confidential these reports did not outweigh the federal interest in the ‘truth-seeking process’ of the litigation.
While this case will likely be appealed to the Fifth Circuit, the decision must be taken into account when embarking on facility audits. The Court’s analysis is made under federal law and is not limited to actions under the Clean Air Act. Further, the decision is likely not limited to the Texas Audit Act and may apply to audits conducted under other states’ audit privilege policies or laws.
If you have any questions or would like further information regarding implications of this decision for audit laws in other states, please contact Julie R. Domike at 202-853-3453 or jdomike@babstcalland.com.
Click here for PDF.
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1See EPA’s Audit Policy, Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 65 Fed. Reg. 19618, 19623 (April 11, 2000).
Babst Calland is pleased to announce that three lawyers were selected as 2022 Best Lawyers “Lawyer of the Year” in Pittsburgh, Pa. and Charleston, W. Va. (by BL Rankings). Only a single lawyer in each practice area and designated metropolitan area is honored as the “Lawyer of the Year,” making this accolade particularly significant.
Receiving this designation reflects the high level of respect a lawyer has earned among other leading lawyers in the same communities and the same practice areas for their abilities, professionalism, and integrity. Those named to the 2022 Best Lawyers “Lawyer of the Year” include:
Kevin K. Douglass, Natural Resources Law “Lawyer of the Year” in Pittsburgh, Pa.
Mark D. Shepard, Bet-the-Company Litigation “Lawyer of the Year” in Pittsburgh, Pa.
Robert M. Stonestreet, Environmental Law “Lawyer of the Year” in Charleston, W. Va.
In addition, 32 Babst Calland lawyers were selected for inclusion in the 2022 Edition of The Best Lawyers in America (by BL Rankings), the most respected peer-review publication in the legal profession:
- Chester R. Babst – Environmental Law, Litigation – Environmental
- Donald C. Bluedorn II – Environmental Law, Water Law, Litigation – Environmental
- Dean A. Calland – Environmental Law
- Matthew S. Casto – Commercial Litigation
- Frank J. Clements – Corporate Law
- Kathy K. Condo – Commercial Litigation
- James Curry – Oil and Gas Law
- Julie R. Domike – Environmental Law, Litigation – Environmental
- Kevin K. Douglass – Natural Resources Law
- Christian A. Farmakis – Corporate Law
- Kevin J. Garber – Environmental Law, Natural Resources Law, Energy Law, Water Law, Litigation – Environmental
- Norman E. Gilkey – Bankruptcy and Creditor Debtor Rights/Insolvency and Reorganization Law, Litigation – Bankruptcy, and Mediation
- Steven M. Green – Energy Law
- Lindsay P. Howard – Environmental Law, Litigation – Environmental
- Blaine A. Lucas – Energy Law, Land Use and Zoning Law, Municipal Law, Litigation – Land Use and Zoning
- John A. McCreary – Labor Law – Management
- Janet L. McQuaid – Environmental Law
- James D. Miller – Construction Law and Litigation – Construction
- Timothy M. Miller – Energy Law, Commercial Litigation, Bet-the-Company Litigation, Oil and Gas Law, Litigation – Environmental
- Jean M. Mosites – Environmental Law
- Christopher B. Power – Environmental Law, Natural Resources Law, Energy Law, Commercial Litigation, Mining Law, Oil and Gas Law, Litigation – Regulatory
Enforcement (SEC, Telecom, Energy), Litigation – Environmental, Litigation – Land Use and Zoning, Litigation – Municipal
- Joseph K. Reinhart – Environmental Law, Natural Resources Law, Energy Law, Litigation – Environmental
- Bruce F. Rudoy – Mergers and Acquisitions Law, Corporate Law
- Charles F.W. Saffer – Real Estate Law
- Mychal Sommer Schulz – Litigation – ERISA
- Mark D. Shepard – Commercial Litigation, Bet-the-Company Litigation, Litigation – Environmental
- Steven B. Silverman – Information Technology Law, Commercial Litigation
- Krista-Ann M. Staley – Land Use and Zoning Law
- Laura Stone – Corporate Law
- Robert M. Stonestreet – Environmental Law, Energy Law, Commercial Litigation
- David E. White – Construction Law, Litigation – Construction
- Michael H. Winek – Environmental Law
13 Babst Calland lawyers were also named to the 2022 Best Lawyers: Ones to Watch list which recognizes associates and other lawyers who are earlier in their careers for their outstanding professional excellence in private practice in the United States:
- Mary H. Binker – Corporate Law and Real Estate Law
- Katrina N. Bowers – Energy Law and Environmental Law
- Carla M. Castello – Commercial Litigation, Litigation – Labor and Employment and Mass Tort Litigation / Class Actions – Defendants
- Marissa A. Cocciolone – Energy Law
- Nicholas M. Faas – Administrative / Regulatory Law and Government Relations Practice
- Marc J. Felezzola – Commercial Litigation and Litigation – Construction
- Alyssa Golfieri – Land Use and Zoning Law and Municipal Law
- Sean R. Keegan – Commercial Litigation and Litigation – Labor and Employment
- Jennifer L. Malik – Land Use and Zoning Law
- James D. Mazzocco – Litigation – Environmental and Transportation Law
- Cary M. Snyder – Appellate Practice, Commercial Litigation, and Communications Law
- Joshua S. Snyder – Commercial Litigation and Energy Law
- Benjamin R. Wright – Commercial Litigation and Construction Law
Best Lawyers undergoes an authentication process, and inclusion in The Best Lawyers in America is based solely on peer review and is divided by geographic region and practice areas. The list has published for more than three decades, earning the respect of the profession, the media, and the public as the most reliable, unbiased source of legal referrals. Its first international list was published in 2006 and since then has grown to provide lists in over 65 countries.
The Legal Intelligencer
(by Krista Staley and Anna Jewart)
On June 30, 2021, Governor Tom Wolf signed Pennsylvania House Bill 1621, the Small Wireless Facilities Deployment Act as Act 50 of 2021 (“Act 50”), into law. This Act reflects years of negotiations between industry groups and municipalities over the balance of local land use authority and ease of deployment in small cell infrastructure deployment. Effective August 29th, the Act standardizes the local permitting process for small cell facilities located within municipal rights-of-way.
As demand increases exponentially for faster and more reliable wireless service, so does the demand to develop infrastructure capable of providing greater coverage and capacity. A decade ago, a single large cell tower on the outskirts of town could meet a community’s wireless voice and data service needs. However, the reliability of these large “macro cell” wireless facilities has decreased as mobile data traffic exploded. The telecommunications industry responded by developing “small cell networks” distributed throughout communities and buildings to better meet to the constant on-the-go data needs of the modern age. Instead of utilizing a single tower, possibly hundreds of feet high, small cell networks use multiple low-power antennas that connect to fiber optic cables. These small cell systems allow for greater speeds and more uniform coverage where they are deployed. However, they require a greater level of “wireless density” in order to function as intended. In other words, small cell facilities must be installed every few blocks rather than every few miles.
To achieve the desired wireless density providers have sought to utilize existing utility poles, street lights, or other structures within municipal rights-of-way. This allows for ease of installation as well as proximity to users. While the use of the right-of-way, and the existing infrastructure therein, is a convenient solution for wireless providers, the rapid development of these technologies has forced municipalities across the country to scramble to determine how to handle permits for the installation of small cell facilities within their communities. Conflicts between local zoning and land use regulations and federal law has led to confusion among local leaders, often spurred by citizen opposition and misinformation about the safety of these new technologies.
Although local governments have a certain level of control over activities within their rights-of-way, federal law, contained in Sections 253 and 332(c)(7) of the Communications Act, 47 U.S.C. §253(a), 332(c)(7)(B)(i)(II), prohibits state or local regulations that prohibit or “have the effect of prohibiting” interstate communications. This prohibition limits municipalities’ ability to regulate small cell providers through their zoning, land development, or other ordinances. In 2018, the Federal Communications Commission (“FCC”) issued a Declaratory Ruling (“Small Cell Order”) which outlined when such an effective prohibition has occurred. Act 50 largely codifies these FCC rules, but it also places certain additional burdens and limitations on municipalities within the Commonwealth that will impact how local governments process applications for the installation of small cell facilities within their rights-of-way going forward.
While the Act in large part attempts to standardize local permitting for small cell facilities, it also imposes certain requirements on wireless providers. For example, wireless providers must repair any damage to the right-of-way or other land disturbed by its activities or that of its contractors. If a provider fails to do so, a municipality may, within 30 days after written notice, perform the repairs and charge the provider for the costs plus a penalty not to exceed $500.00. Providers are also required to demonstrate that collocation on an existing structure is not possible prior to placing a new structure within the right-of-way. The Act also defines “Small Wireless Facilities” subject to its protections as facilities where each antenna is no greater than three cubic feet, and the volume of all other equipment associated with the facility is cumulatively no more than 28 cubic feet. Utility poles used for small cell facilities may not be greater than fifty feet in height.
Act 50 primarily sets requirements for how municipalities handle applications to place small cell facilities within their rights-of-way. From a zoning perspective, small cell facilities must be considered a permitted use in all areas of the municipality, except underground districts. They may still be reviewed by municipal staff in accordance with local zoning, land use, and certain other ordinances. However, municipalities may not subject small cell applicants to discretionary zoning review, such as conditional use or special exception requirements. Municipalities may require applicants to obtain permits of general applicability in order to collocate small cell facilities on existing poles, replace existing utility poles with added small cell infrastructure, or install a new utility pole with added small cell infrastructure within the municipal right-of-way.
In accordance with the 2018 FCC Small Cell Order, Act 50 limits the application fee municipalities may charge for placing a small cell facility within their rights-of-way. The Act allows up to $500.00 for an application seeking approval of up to five collocated small cell facilities, up to $100.00 for each additional collocated facility, and up to $1,000.00 for an application for a new or replacement pole. In addition, municipalities are permitted to charge a right-of-way management fee of up to $270.00 per small cell facility per year, unless they can demonstrate that a higher fee is a reasonable approximation of the actual cost to manage the right-of-way and that the fee is reasonable and non-discriminatory. These limits may be adjusted in the future if the FCC adjusts the fee levels in its 2018 Small Cell Order.
In addition, the Act establishes time limits for municipal review of applications for small cell facilities. Municipalities have only 60 days to approve or deny an application to collocate facilities and 90 days to render a decision on an application to replace or install a new pole. Failure to comply with these deadlines results in a deemed approval. Municipalities are only permitted to deny an application for certain enumerated reasons, such as interference with the safe operation of traffic control, failure to comply with their applicable codes, or failure to comply with the requirements of the Act. If approved, right-of-way occupancy permits must have an initial term of at least five years and permit two five-year renewal terms. On the other hand, the applicant must complete all permitted work within one year.
The Act does allow for a certain level of local control over application and design criteria for small cell facilities. Municipalities may adopt objective guidelines for small cell facilities regarding minimization of their aesthetic impact so long as the guidelines do not prohibit the provider’s technology or unreasonably discriminate among providers of functionally equivalent services. This includes requiring concealment measures for facilities within historic districts, as well as limitations on access to areas designed exclusively for underground cable or utility facilities. They may also adopt certain application criteria such as requiring the submission of construction and engineering drawings, documentation of approval from the pole owner, and documentation showing compliance with the municipality’s design guidelines.
If municipalities desire to amend or adopt an ordinance in compliance with the Act, including establishing permissible aesthetic guidelines or application requirements, they must do so within 60 days of the effective date of the Act. If a municipality does not do so, any applications received must be processed in compliance with the Act. Therefore, municipalities should review their ordinances for compliance with the Act and consider amendment or adoption of any permissible design or application criteria for small cell facilities prior to October 28, 2021.
For the full article, click here.
Reprinted with permission from the August 19, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
The PIOGA Press
This is another excerpt from The 2021 Babst Calland Report, which represents the collective legal perspectives of Babst Calland’s energy attorneys addressing the most current business and regulatory issues facing the oil and natural gas industry. The full report is available online at reports.babstcalland.com/the-2021-babst-calland-report-1.
Appalachian Storage Hub
As has been chronicled in earlier editions of this white paper, the explosive growth of natural gas production from the Marcellus and Utica shale formations in the Appalachian region starting in 2010 produced strong economic gains for West Virginia, Pennsylvania and eastern Ohio for several years.
In addition, much of that gas is relatively “wet”— meaning that it has a high proportion of natural gas liquids (NGLs) such as ethane, propane, butanes and natural gasolines (pentanes) that are used as petrochemicals in various manufacturing industries. Regional leaders, seeking to capitalize on the vast natural gas resources of those shales, began to stress the importance of developing local businesses that use NGLs—rather than allowing plastics manufacturing and other uses to accrue in other areas.
In 2017, the American Chemistry Council published a report suggesting that the buildout of the petrochemical industry in Appalachia could support the construction of as many as five ethane crackers. Among other factors, the report described that a key to the development of petrochemical manufacturing presence in the area would be the establishment of an Appalachian Storage Hub (ASH) that would act as a conduit for the production and sale of NGLs, storing massive quantities of the liquids and connecting the storage facilities to end users via pipelines. U.S. Senators Shelley Moore Capito and Joe Manchin of West Virginia, along with Senator Rob Portman of Ohio, introduced legislation intended to promote the goal of establishing an ASH. In 2018, the U.S. Department of Energy’s National Energy Technology Laboratory (located in Morgantown, West Virginia, and led by Project Director Brian Anderson) published the “Ethane Storage and Distribution Hub in the United States Report to Congress,” outlining the potential benefits of an ASH and ranking the most likely methods of building such a facility based on the geology, topography and other relevant regional factors. As recently as November 17, 2020, Senator Manchin wrote to DOE Secretary Dan Brouillette, seeking an update on the department’s efforts at preparing a report addressing the proposed ASH, as called for in the Fiscal Year 2020 Energy and Water bill.
Today, we find that Mr. Anderson has been appointed as the Executive Director of the Biden’s administration Interagency Working Group (IWG) on Coal and Power Plant Communities and Economic Revitalization. The NETL website offers no discussion of planned updates to the 2018 study, and the prospect of development of an ASH backed by DOE-guaranteed loans would seem to be directly at odds with most if not all of President Joseph R. Biden, Jr.’s plans to move swiftly away from the use of fossil fuels in our energy mix. Speaking at a recent meeting of the Ohio River Valley Institute, Finance Professor Kathy Hipple of Bard College’s MBA in Sustainability program commented that the recent major shift in the plastics market away from single-use plastic products, as well as China’s 2018 decision to stop importing plastics waste and recycled material, have created considerable concerns about the growth projections for the plastics industry, which only creates a further cloud on the development of an ASH anytime in the foreseeable future.
In short, while unforeseen events have a way of changing the outlook for the natural gas industry (including NGLs), for now it appears that the development of an ASH to support a robust plastics manufacturing industry in our region is firmly on the back shelf.
Carbon capture and storage
The federal government is trying to incentivize the development of carbon capture and storage (CCS) to inject captured carbon dioxide from emissions into underground geologic formations by expanding tax credits for qualifying projects. The Bipartisan Budget Act of 2018 expanded Section 45Q of the tax code to increase the CCS project credit value (so long as the project started within seven years of enactment), reduce the minimum eligibility threshold, allow for the transfer of credit and expand the program to include carbon oxides, rather than just carbon dioxide.
In January 2021, the Treasury Department and IRS issued final regulations regarding the Section 45Q credit. These regulations provide procedures to determine adequate CCS security measures, exceptions for determining to whom the credit is attributable, procedures to allow third-party taxpayers to claim the credit, standards for measuring carbon oxide and conditions that allow smaller carbon capture facilities to be aggregated for purposes of claiming the credit.
Some states are also working together to incentivize the development of CCS projects. For example, on October 1, 2020, seven states– Kansas, Louisiana, Maryland, Montana, Oklahoma, Pennsylvania and Wyoming—signed a memorandum of understanding committing to establish and implement a regional CO₂ transport infrastructure plan. Under the MOU, the signatory states will establish a coordination group to develop an action plan that will include policy recommendations for and barriers to CO₂ transport infrastructure deployment. This action plan is set for release in October 2021.
Other states are taking more direct action. In March 2021, the North Dakota Legislature passed, and the governor signed, a bill exempting CO₂ that is either stored underground or injected into old oil fields to boost production, a process known as “enhanced oil recovery,” from sales tax. A number of CCS projects are already underway in North Dakota.
Wyoming is looking to use CCS to extend the use of traditional fossil fuels including coal. The governor of Wyoming requested a study and the state partnered with the U.S. Department of Energy to evaluate the potential opportunities for retrofitting existing power plants with CCS technology. The study showed CCS retrofits can provide significant benefits, including reduced carbon dioxide emission, reduction in consumer cost, increased employment benefits, and higher state and local revenue.
In addition to funding studies, the Department of Energy has also provided federal funding for research into air capture technologies and other CCS-related technologies. As technology and infrastructure development for both capture and transportation improves, and with the availability to tax incentives, an increase in CCS projects is anticipated in the coming years.
For the full article, click here.
Reprinted with permission from the August 2021 issue of The PIOGA Press. All rights reserved.
The Legal Intelligencer
(by John McCreary)
This is the latest installment of the author’s obsessive examination of Pennsylvania’s Medical Marijuana Act (MMA) and the employment law issues it creates. By this point in our examination, it is now established, at least in the trial courts of the Commonwealth, that the MMA created a private cause of action for medical marijuana users claiming that an employer has discriminated against them because of their medical marijuana use. See e.g., Judge William J. Nealon’s comprehensive opinion in Palmiter v. Commonwealth Health Systems, No. 19-CV-1315, 2019 Pa. Dist. & Cnty. Dec. LEXIS 12307 (Lackawanna Cty. 2019); Hudnell v. Thomas Jefferson University Hospitals, Inc., 2020 U.S. Dist. LEXIS 176198; 2020 WL 5749924 (E.D. Pa. 2020)(citing Palmiter). See 35 P.S. § 10231.2103(b)(“No employer may discharge, threaten, refuse to hire or otherwise discriminate or retaliate against an employee … solely on the basis of such employee’s status as an individual who is certified to use medical marijuana …”)(emphasis supplied).
In a surprising development (at least to the author), however, Commonwealth Court construed the emphasized language in a manner favorable to employers who continue to enforce “zero tolerance” and similar drug policies. In Harrisburg Area Community College v. PHRC, 245 A.3d 283 (Pa.Cmwlth. 2020) (HACC) a nursing student with a valid medical marijuana prescription was expelled from the nursing program after testing positive for marijuana metabolites. She brought a claim before the Pennsylvania Human Relations Commission (PHRC) for disability discrimination against HACC under the Pennsylvania Human Relations Act’s (PHRA) public accommodation provisions, claiming that her medical marijuana use did not impact her ability to complete the nursing coursework and that HACC should be required to reasonably accommodate her by permitting her to use medical marijuana to treat symptoms of her underlying disabilities (post-traumatic stress disorder and irritable bowel syndrome). HACC filed a motion to dismiss before the PHRC, contending that the definition of “disability” under the PHRA precluded the use of medical marijuana even when such use was permitted under the MMA. See 43 Pa.C.S.A. §954(3)(p.1)(3)((p.1)(“The term “handicap or disability,” with respect to a person, means: … (3) being regarded as having such an impairment, but such term does not include current, illegal use of or addiction to a controlled substance, as defined in section 102 of the Controlled Substances Act ( Public Law 91-513 , 21 U.S.C. § 802)”). PHRC denied the motion and HACC appealed.
After a thorough examination of both the PHRA and the MMA, Commonwealth Court found “unpersuasive” PHRC’s argument that the legalization of medical marijuana in Pennsylvania via the MMA required accommodation under the PHRA, primarily because of the definition of disability excluded use of marijuana. The Court further observed that:
[E]ven as to employers/employees, which is not the case at hand, the MMA only prohibits discrimination against an employee because of his or her status as a certified user under section 2103(b)(1), 35 P.S. § 10231.2103(b)(1). While employers are prohibited from discriminating or retaliating against individuals based on their status as certified users of medical marijuana, section 2103(b)(2) of the MMA provides that employers are not required to provide an accommodation to employees on their premises, nor are employers prohibited from disciplining employees who are under the influence of medical marijuana on work premises:
(2) Nothing in this act shall require an employer to make any accommodation of the use of medical marijuana on the property or premises of any place of employment. This act shall in no way limit an employer’s ability to discipline an employee for being under the influence of medical marijuana in the workplace or for working while under the influence of medical marijuana when the employee’s conduct falls below the standard of care normally accepted for that position.
35 P.S. § 10231.2103(b)(2) (emphasis added).
245 A.3d at 291-292 (emphases in original).
The surprising aspect of the decision is the Court’s statement that the MMA protects only the status of certified user, not actual marijuana use itself pursuant to that status. The author earlier remarked on the General Assembly’s idiosyncratic choice of this language in the first installment of this series (The Legal Intelligencer, February 9, 2017 online edition) and noted in the second installment (The Legal Intelligencer, March 21, 2019 online edition) how courts elsewhere had rejected this constrained reading of virtually identical language. See, e.g., Noffsinger v. SSC Niantic, 338 F.Supp.3d 78, 84-85 (D.Conn. 2018)(“Under defendant’s restrictive interpretation of the statute, employers would be free to fire status-qualifying patients based on their actual use of medical marijuana—the very purpose for which a patient has sought and obtained a qualifying status. That makes no sense …”). The third installment (The Legal Intelligencer, September 20, 2020 online edition) surveyed caselaw from other jurisdictions holding in similar manner.
The HACC Court’s construction of the MMA is contrary to at least one earlier Pennsylvania trial court decision. In Laidacker v. Berwick Offray, LLC, No. 726 of 2019, 2020 WL 3410881 (Columbia Cty., January 2, 2020) the court rejected the “status vs. use” distinction:
In our case, defendant’s argument [that only status is protected, not actual use] is equally incredulous. The whole purpose of the PMMA is to provide protection to a qualifying cardholder against employment-related discrimination. The language in the statute specifically states: “No employer may discharge, refuse to hire or otherwise discriminate….”
… If this court assumes defendant’s interpretation of the statute, the protections afforded under the statute would be meaningless, and every medical marijuana patient could be screened out by a facially neutral drug test.
2020 WL 3410881 at *5 (footnotes omitted). HACC seemingly holds that the “meaningless protections” decried by the Laidacker court are all that the MMA requires. The author is not convinced that this is correct.
Because of the weight of authority elsewhere and Supreme Court’s admonition that the MMA is to be liberally construed, Gass v. 52nd Judicial District Lebanon County, ___ Pa. ___, 232 A.3d 706 (2020), it is unlikely that Commonwealth Court’s Harrisburg Area Community College decision is the last word on this issue. The author remains uncertain about what and who is protected by the ambiguous antidiscrimination provisions of the MMA. Moreover, because HACC was not an employment case its whole analysis of the MMA’s employment law provisions may be dictum and therefore non-precedential. Further clarity awaits additional decisions from Superior Court and ultimately from the Pennsylvania Supreme Court, which once and for all can tell us whether the Act protects actual use of medical marijuana, or only the status of being a medical marijuana patient. The author, therefore, is confident that there will be a fifth installment of this series and is gratified that, for the moment at least, his original interpretation of the statute has been vindicated and plausibly may be argued in defense of claims of employment discrimination brought under the MMA.
For the full article, click here.
Reprinted with permission from the August 12, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
Environmental Alert
(by Julie Domike and Gina Falaschi)
On August 5, 2021, President Biden signed an Executive Order on Strengthening American Leadership in Clean Cars and Trucks[1] (Executive Order). The White House signing event included American automakers Ford, GM, and Stellantis, as well as the United Auto Workers (UAW), demonstrating support for the president’s Build Back Better agenda and investment in U.S. leadership in electric vehicles and batteries, manufacturing, and jobs. In conjunction with the signing of this Executive Order, the United States Environmental Protection Agency (USEPA) and United States Department of Transportation (USDOT) announced coordinated notices of proposed rulemaking that are intended to roll back the previous administration’s emissions and fuel economy regulations.
Executive Order
The Executive Order sets a new target to make half of all new vehicles sold in 2030 zero-emissions vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles. The Executive Order also directs USEPA to initiate a rulemaking to establish new vehicle and engine emissions standards, including for greenhouse gas emissions. The Administration instructs the agency to set the following:
- New emissions standards, including for greenhouse gas emissions, for light- and medium-duty vehicles for model years (MY) 2027 through at least MY 2030, by no later than July 2024;
- New nitrogen oxides standards for heavy-duty engines and vehicles beginning with MY 2027 and extending through and including at least MY 2030, by no later than December 2022; and
- New greenhouse gas emissions standards for heavy-duty engines and vehicles to begin as soon as MY 2030, by no later than July 2024.
USEPA must also consider updating the existing greenhouse gas emissions standards for heavy-duty engines and vehicles beginning with MY 2027 and extending through and including at least MY 2029 to account for the role that zero-emission vehicles may have in emissions reductions.
The Administration instructs USDOT to establish new fuel economy standards, as follows:
- For passenger cars and light-duty trucks beginning with MY 2027 and extending through and including at least MY 2030, by no later than July 2024;
- For heavy-duty pickup trucks and vans beginning with MY 2028 and extending through and including at least MY 2030, by no later than July 2024; and
- For medium- and heavy-duty engines and vehicles to begin as soon as MY 2030, by no later than July 2024.
The two agencies must coordinate as appropriate in developing these rulemakings. They must also consult with the Departments of Commerce, Labor, and Energy to achieve the zero-emission vehicle target, accelerate innovation and manufacturing, strengthen the domestic supply chain for the automotive sector, and promote job growth. Pursuant to the Executive Order, USEPA must develop these rulemakings in coordination with the State of California, which has the authority to and does establish its own emissions standards pursuant to Section 209 of the Clean Air Act.
Proposed Rulemakings Announced
On August 5, USEPA and USDOT’s National Highway Traffic Safety Administration (NHTSA) also announced rulemaking to revise the previous administration’s rollbacks of fuel efficiency and emissions standards in accordance with the executive order President Biden signed on his first day in office, Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.[2] This January 20, 2021 executive order directed agencies to review the Trump administration’s final rule “The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021–2026 Passenger Cars and Light Trucks.”[3] The 2020 SAFE rule made near-term fuel efficiency and emission standards less stringent than those previously set for the applicable model years.
The agencies are revising the 2020 rule to increase the stringency of fuel economy and emissions standards through MY 2026. NHTSA’s proposed rule starts in MY 2024 and would achieve a fleet average almost 9 miles per gallon higher than the SAFE rule by 2026. USEPA’s proposed 2023-2026 MY light-duty standards would achieve 10 percent greater emissions improvement than the SAFE rule standards for MY 2023 vehicles and then 5 percent greater emissions improvement each following year.
USEPA also announced a new rule to reduce air pollutants, including GHGs, from heavy-duty trucks. The rule, to be finalized next year, will apply to heavy-duty vehicles starting in MY 2027. It will set new standards for criteria pollutants for the entire sector as well as targeted upgrades to the current GHG emissions standards for MY 2027. A second rule will set GHG emission standards for new heavy-duty vehicles for MY 2030 and beyond.
If you have any questions or would like further information regarding the current or proposed federal regulations, please contact Julie R. Domike at 202-853-3453 or jdomike@babstcalland.com or Gina N. Falaschi at 202-853-3483 or gfalaschi@babstcalland.com.
Click here for PDF.
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[3] “The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021–2026 Passenger Cars and Light Trucks,” 85 Fed. Reg. 24174 (April 30, 2020).
Renewables Law Blog
(By Ashleigh Krick)
On July 12, 2021, Ohio Governor Mike DeWine signed into law Senate Bill 52 providing counties with the authority to block the construction of certain large solar and wind facilities in unincorporated townships. The law goes into effect on October 11, 2021. In short, Senate Bill 52 allows county commissioners to establish restricted areas in unincorporated townships prohibiting the construction of solar developments with generating capacity over 50 MWs and wind farms with over 5 MWs of generating capacity. If a township is incorporated, it retains jurisdiction to regulate whether the development occurs rather than defer to the county commissioners. Senate Bill 52 also contains requirements pertaining to public meetings in the counties that the facility will be located and decommissioning requirements. Practically speaking, Senate Bill 52 means that even if a solar or wind company obtains the necessary land rights to construct a solar or wind facility, counties can block its construction.
Senate Bill 52 follows a string of legislative actions in Ohio that appear to have stifled development and investment in solar and wind in the state. For example, in 2014, Ohio passed legislation requiring wind farms to be setback a minimum of 1,125 feet from the nearest adjacent property line. In contrast, oil and gas production wells are only required to be located at least 100 feet from the nearest homes. Since Ohio enacted the wind farm setback requirement, only one wind farm has been approved in the state.
While the full impact of Senate Bill 52 is unknown at this time, solar and wind developers can expect some counties to begin using their authority to restrict the location of solar and wind developments after the law goes into effect in October.
Tags: construction, land rights, Ohio, Senate Bill 52, solar, solar facilities, wind, wind facilities
The Legal Intelligencer
(by Matt Wood)
Over the past few months, Governor Tom Wolf’s administration, the Pennsylvania Department of Environmental Protection (DEP), and other governmental stakeholders, have made strides toward better understanding and addressing contamination of state waters with perfluoroalkyl and polyfluoroalkyl substances (PFAS). Specifically, recent sampling efforts of certain public water systems (PWSs) and surface waters have resulted in new information about the prevalence of PFAS in state waters and have informed DEP actions toward regulating certain PFAS compounds.
Public Water Source Sampling
On June 3, 2021, the Wolf administration released sampling results from an approximately two-year long statewide effort to sample PWSs for certain PFAS compounds. PFAS are a group of manmade chemicals used in numerous industrial, commercial, and consumer products. Prominent examples include non-stick and waterproofing applications and as chemical components of fire fighting foams. In recent years, PFAS chemicals have been discovered in the environment, including in groundwater (some used as drinking water sources), and in humans, plants, and animals and some studies suggest that PFAS can negatively affect human health. Because they do not break down naturally in the environment (including in the human body), they are commonly called “forever” chemicals.
In September 2018, Governor Wolf created via Executive Order a PFAS Action Team to investigate and address potential PFAS concerns in the Commonwealth. The Action Team, made up of agency heads from multiple Pennsylvania agencies, subsequently developed a plan to sample PWSs for PFAS. Specifically, the Action Team identified PWSs within a half-mile of potential PFAS sources (such as military, fire training, and manufacturing facilities).
In June 2019, the DEP started sampling these PWSs (as well as other locations outside of the half-mile radius of potential sources to establish a baseline). The initial round of sampling was analyzed for only six PFAS compounds, but the two subsequent rounds (conducted in 2020 and 2021) were analyzed for 18 PFAS compounds using an updated method (Environmental Protection Agency Method 537.1, updated in November 2018). During its 2020 and 2021 mobilizations, DEP also resampled the PWSs it had previously sampled in 2019 and analyzed those samples using the updated method.
In total, DEP collected 412 total samples and from those, only eight of the 18 PFAS compounds analyzed were found at sampled sites. They were: PFOA, PFOS, PFNA, PFHxS, PFHpA, PFBS, Perfluorohexanoic acid (PFHxA), and Perfluoroundecanoic acid (PFUnA), with PFOA and PFOS being the most commonly detected (at 112 sites and 103 sites, respectively). Although PFAS compounds remain unregulated at the federal level (EPA is currently in the process of developing a federal drinking water standard for both PFOA and PFOS), EPA did establish in 2016 a combined drinking water Health Advisory Level (HAL) for PFOA and PFOS of 70 parts per trillion (ppt). The purpose of the PFOA/PFOS HAL, which is not an enforceable standard, is to set a concentration at or below which EPA believes health effects are not expected to occur over a lifetime of exposure, meaning it is intended to be protective of consumers, including sensitive populations.
In only two of the sampled locations, State of the Art, Inc. in Centre County, and Saegertown Borough in Crawford County, did the combined PFOA/PFOS concentrations exceed EPA’s combined PFOA/PFOS HAL. Considering the totality of the sampling results, the Wolf administration concluded that PFAS contamination is not widespread across the Commonwealth. This conclusion, however, did not address broader stakeholder concerns that EPA’s PFOA/PFOS HAS is inadequate to protect public health and should be updated. Such concerns, and in the absence of federal action to address PFAS, have driven other states to conduct their own investigations of PFAS compounds over the past few years and promulgate regulatory standards for PFOA and PFOS far lower than the HAL, as well as for other PFAS compounds. Examples include: New Jersey (PFOA – 14 ppt; PFOS – 13 ppt; and PFNA – 13 ppt), New Hampshire (PFOA – 12 ppt; PFOS – 15 ppt; PFNA – 11 ppt; and PFHxS – 18 ppt), New York (PFOA – 10 ppt and PFOS – 10 ppt), and Michigan (PFOA – 10 ppt; PFOS – 16 ppt; PFNA – 6 ppt; PFHxS – 51 ppt; PFBS – 420 ppt; HFPO-DA – 370 ppt; and PFHxA – 400,000 ppt).
DEP Actions toward Regulating PFAS
Since DEP released its PFAS sampling data, it has taken substantive steps toward regulating certain PFAS compounds. First, at a June 15, 2021 Environmental Quality Board (EQB) meeting, DEP rejected a Delaware Riverkeeper Network petition to establish a maximum contaminant level (MCL) for PFOA of 1 ppt (or no greater than 6 ppt), finding that the recommendation did not take into account all of the factors DEP must consider to establish a PFOA MCL. Instead, at DEP’s recommendation, the EQB voted to proceed with a proposed rulemaking to establish a MCL for PFOA based on available data, studies, and science, and considering factors such as health effects, technical limitations, and costs.
During a July 29, 2021 presentation to the Public Water System Technical Assistance Center (TAC; which advises and directs DEP on various issues, including regulations governing PWSs), DEP proposed establishing a PFOA MCL of 14 ppt and a PFOS MCL of 18 ppt. Referencing supporting evidence, the agency found, among other things, that the proposed MCLs (1) are technically feasible; (2) increase public health protection by 90 percent for PFOA and 93 percent for PFOS; (3) strike a balance between public health protection and costs; and (4) are within the range and same magnitude as other state standards. DEP also proposed not establishing at this time MCLs for PFNA, PFHxS, PFHpA, PFBS, and HFPO-DA, primarily citing a lack of occurrence data. Although DEP is progressing toward promulgating MCLs for two PFAS compounds (the first time DEP has taken such a step for any chemicals), until the standards are finalized via rulemaking, EPA’s HAL remains the unenforceable reference point for PFOA and PFOS in drinking water in Pennsylvania.
Outside of these efforts, the PFAS Action Team has taken other steps to address PFAS in Pennsylvania. These include: (1) proposing soil and groundwater medium-specific concentrations for PFOA, PFOS, and PFBS (the rule establishing the MSCs is currently undergoing final review; the proposed MSCs are available here); (2) working to assist communities and private well owners in the event PFOA/PFOS contamination exceeds EPA’s HAL (70 ppt); (3) developing procedures for identifying and assessing commercial/industrial properties that have contaminated private and/or public drinking water sources; and (4) conducting surface water sampling to inform the development and implementation of a statewide monitoring strategy, water quality standards, assessment methods and/or permitting requirements (discussed briefly below). DEP’s final public drinking water sampling results are available here and its Pre-Draft Proposed PFAS Rule Presentation and related materials are available here.
Surface Water Sampling
In March 2021, the United States Geological Service (USGS) released the results of a collaborative sampling effort with DEP of certain surface waters in the Commonwealth. The samples collected raw, untreated surface water from 178 DEP Surface Water Quality Network (WQN) sites and were analyzed for 33 PFAS chemicals and 18 PFAS precursors. Although analysis detected the presence of PFAS in some of the discrete samples, the detections were below EPA’s PFOA/PFOS HAL (note that because this sampling effort collected raw, untreated surface water and not finished drinking water, and used different laboratory methods, the HAL is not directly applicable). A summary of the USGS/DEP surface water sampling can be found here, and the surface water sampling data itself can be found here.
Although Pennsylvania has not moved as quickly as other states to regulate PFAS compounds, the actions discussed above mark significant progress in that direction. Interested parties can likely expect further announcements and developments in the coming months. Babst Calland’s environmental remediation attorneys will continue to track the PFAS developments in Pennsylvania and are available to assist you with PFAS-related matters. For more information on this and other remediation matters, please contact Matthew C. Wood at (412) 394-6583 or mwood@babstcalland.com, or any of our other attorneys in this practice.
For the full article, click here.
Reprinted with permission from the August 5, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.
Smart Business
(by Sue Ostrowski featuring Kate Cooper)
“With the pandemic, our clients suddenly cared a lot about whether their contracts included a force majeure provision, what it said, what it meant and how it could be interpreted,” says Cooper.
Smart Business spoke with Cooper about force majeure provisions and how approaches to them are changing.
What are force majeure provisions?
Force majeure provisions govern the conduct of both parties if unexpected or unforeseeable events result in a party being unable to deliver on the terms of the contract, with an emphasis on the unforeseeable. They’re designed to cover unexpected events and potentially allow you to delay delivering on a contract. But the provisions are not a get-out-of-jail free card, and in most circumstances, they do not let a party to a contract completely off the hook.
The disruption to the supply chain caused by the pandemic and government shutdowns has drawn renewed attention to these clauses. For example, when suppliers couldn’t deliver to their customers, those disruptions had a knock-on effect down the supply chain. Companies aiming to avoid breaching their contracts were hopeful that their force majeure provisions would provide them with relief. However, many were disappointed to find that what they wanted to do — whether that be delay performance obligations, or even terminate the contract entirely — wasn’t permitted by the language of the specific provisions set forth in their contracts.
How is the conversation regarding force majeure changing?
It will be difficult to argue that the pandemic is an unforeseeable event now that we are a year and a half into COVID-19, meaning that COVID-19 (and pandemics generally) will need to be specifically referenced in the provision in order for it to be enforceable in most jurisdictions. Contracts differ greatly in how they define force majeure, what types of events will trigger the provision and what remedies will be available to the parties, so businesses need to have a clear understanding of the specific language of their provision and its impact if triggered.
Businesses should ensure that they are tailoring their force majeure provisions to their particular circumstances, and they should consider whether it is more appropriate to include specific COVID-19 language outside of the force majeure clause.
When drafting new contracts, make sure you understand the events upon which you, or your counterparty, may wish to delay performance, and define these provisions in a clear way that connects the dots between that triggering event and the party’s inability to perform its contractual obligations.
Working with an expert legal adviser allows you to draft your contracts on a practical level in order to protect your business interests when these events arise and future disruptions occur. Relevant questions include, ‘How do your operations work? How do you fulfill contracts? What would be an impediment to doing so?’ It may be appropriate to explore options that would permit parties to renegotiate the contract or extend delivery times upon the occurrence of one of these unforeseeable events.
Pre-pandemic, most businesses did not anticipate the importance of force majeure provisions and defining the ‘unforeseeable.’ Now that so many companies have experienced how challenging these issues can be as a result of the COVID-19 pandemic, and how nuanced the interpretation of these force majeure provisions are, business leaders need to focus on crafting the appropriate coverage in their agreements for these risks post-pandemic. Paying close attention to these issues at the time your contract is being negotiated and collaborating with your counterparty on identifying potential issues and how to resolve them can prevent your business from having to absorb the costs of dealing with these issues when they occur, or entering into litigation to resolve them.
For the full article, click here.
For the PDF, click here.
The American College of Environmental Lawyers (ACOEL)
Babst Calland Managing Shareholder Donald C. Bluedorn II was recently elected as an Active Fellow to The American College of Environmental Lawyers for 2021.
The American College of Environmental Lawyers announced that this year it has elected 22 new Active Fellows and two Honorary Fellows to membership in the College. Each individual was selected for his or her distinguished experience, high standards of practice and substantial contributions to the field of environmental law.
ACOEL President, Mary Ellen Ternes, partner with Earth & Water Law, LLC, stated, “The 22 lawyers elected as Fellows to the College represent the best environmental lawyers in government service, public interest, academia, and private practice from across the country. Our new Fellows have earned this recognition based on their career achievements and as leaders in the broad and diverse areas of environmental law and policy. Our Honorary Fellows have distinguished themselves for their substantial contributions as leaders in thought and action regarding Environmental Justice.“
ACOEL Press Release
The PIOGA Press
This article is an excerpt from The 2021 Babst Calland Report, which represents the collective legal perspectives of Babst Calland’s energy attorneys addressing the must current business and regulatory issues facing the oil and natural gas industry. The full report is available online at reports.babstcalland.com/the-2021-babst-calland-report-1.
Pennsylvania royalty cases
In two recent cases litigated by Babst Calland, courts applying Pennsylvania law reaffirmed that operators were entitled to deduct post-production costs from royalty payments based on lease language containing references to “at the wellhead” provisions. On April 28, 2021, the Court of Common Pleas of Butler County in Dressler v. PennEnergy Resources considered this issue where the lease provided that the gas royalty was to be paid based on “gas sold at the well.” The court held that phrase equated to “at the wellhead” language, which mandates using the net back method for calculating royalties―thus justifying post-production cost deductions.
A nearly identical decision was rendered by the United States District Court for the Western District of Pennsylvania less than two weeks later in Coastal Forest Resources Co. v. Chevron USA, Inc. There, the district court held that the lease’s royalty provision containing “at the wellhead” language had to be broadly interpreted to also allow for post-production cost deductions. Both cases relied on the Pennsylvania Supreme Court’s decision in Kilmer v. Elexco Land Servs., Inc., where “at the wellhead” was defined, to justify their holdings. It is likely that the two decisions will help temper further royalty litigation on the propriety of post-production deductions.
Oil and gas lease negotiations are not covered by the Pennsylvania Unfair Trade Practices and Consumer Protection Law
On March 24, 2021, the Pennsylvania Supreme Court issued its 6-1 decision in Commonwealth v. Chesapeake Energy Corp. The court considered whether the Attorney General could sue natural gas operators under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL). The Attorney General alleged, among other things, that the defendants violated the UTPCPL by engaging in deceptive practices while negotiating natural gas lease agreements with landowners. The Supreme Court reversed the Commonwealth Court’s en banc decision, which held that such transactions are subject to the UTPCPL.
The central issue in the case was whether “trade and commerce” under the UTPCPL included natural gas companies purchasing property rights when they entered into oil and gas lease agreements with landowners. The Supreme Court looked to the UTPCPL statutory definition of “trade and commerce” to determine that the “UTPCPL clearly regulates the conduct of sellers and does not provide a remedy for sellers to exercise against buyers.” Id. at 946 (emphasis added). The Supreme Court rejected the Commonwealth Court’s reliance on dictionary definitions of those terms when the legislature had specifically defined them. Id. (“Thus, the legislature chose to define trade and commerce as only acts of selling for purposes of the UTPCPL, even though the ordinary meaning of those terms signifies both buying and selling goods.”).
The court held that in the oil and gas context, the companies were in the position of a buyer, purchasing rights to the landowners’ mineral estate and the landowners were in the position of the sellers, conveying those rights. Accordingly, the court held that the UTPCPL does not apply to such transactions.
Real estate & land use
Robinson Township/ERA-based challenges to ordinances permitting oil and gas development continue to fail, but home rule charters prohibiting development open a new battlefield.
Anti-industry activists continue to rely on the Pennsylvania Supreme Court’s decision in Robinson Township v. Commonwealth in support of their challenges to the substantive validity of zoning ordinances permitting oil and gas development, on the basis that these ordinances violate substantive due process and Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA).
As discussed in previous Reports, local zoning hearing boards, common pleas courts and the Commonwealth Court have consistently rejected these challenges, and the Supreme Court has declined to hear appeals in any of these cases. The list of unsuccessful challenges to the substantive validity of local zoning ordinances allowing oil and gas development continues to grow. Early this year, objectors voluntarily discontinued their Commonwealth Court appeal of another zoning hearing board decision rejecting similar claims.
As of this writing, two Robinson Township-based challenges to the validity of zoning ordinances permitting oil and gas development remain pending in Commonwealth Court. The first involves an appeal of a decision by the Murrysville Zoning Hearing Board in Westmoreland County, rejecting a validity challenge to that community’s ordinance. The Murrysville ordinance limits oil and gas development to an overlay district and imposes an additional setback of 750 feet from the well pad to occupied structures, the net effect of these two restrictions being to limit oil and gas development to less than 5 percent of the municipality’s land mass. As such, the ordinance is far more restrictive that any of the ordinances previously found to be valid by the Commonwealth Court. The parties have briefed and argued the case and a decision is pending.
Ironically, the second case remaining pending in Commonwealth Court involves a challenge to the Robinson Township, Washington County, zoning ordinance, the objectors there essentially arguing that the township’s ordinance authorizing oil and gas development is contrary to that very same township’s prevailing position in the Supreme Court’s Robinson Township decision. The zoning board originally dismissed the challenge on ripeness and standing grounds. After a long delay by the objectors in prosecuting their appeal, the Washington County Court of Common Pleas conducted a de novo hearing, after which it dismissed the appeal on standing grounds. The parties have briefed and argued this case before Commonwealth Court, and a decision is pending.
Despite this string of successes by municipalities, pro-development residents and natural gas operators, this has not stopped groups from going to great lengths to halt all oil and natural gas development at the local level. After the operator of a proposed underground injection well in Grant Township, Indiana County, successfully pursued a federal court challenge to the validity of a township ordinance prohibiting the deposit of waste from oil and gas operations, the township adopted a home rule charter essentially mirroring the prohibitions in the invalidated ordinance. In 2017, the Pennsylvania Department of Environmental Protection (DEP) granted the operator’s well permit and filed a petition for review with Commonwealth Court seeking declaratory relief that state laws such as the Oil and Gas Act and the Solid Waste Management Act preempt the charter’s prohibition on injection wells. The township filed counterclaims contending that these state laws violated the ERA. The Commonwealth Court denied DEP’s preliminary objections and a trial on the merits is anticipated to occur later this year.
Pennsylvania Supreme Court considers and then decides not to consider the standard of review in land use decisions
Early this year, the Pennsylvania Supreme Court agreed to hear two issues relating to the standard of review applicable to local land use decisions in a case involving the approvals of two unconventional natural gas well pads in Penn Township, Westmoreland County. Both the Court of Common Pleas of Westmoreland County and the Commonwealth Court affirmed these well pad approvals. The Supreme Court directed the parties to address the capricious disregard standard of review, which had only been applied in previous decisions when a local agency deliberately ignores relevant competent evidence. The second question was whether the Commonwealth Court properly considered the alleged cumulative impacts of developing multiple unconventional natural gas well pads within the township. The Pennsylvania State Association of Township Supervisors and the Marcellus Shale Coalition filed briefs in support of the township zoning hearing board’s approvals. After briefing and oral argument, on June 22, 2021, the Supreme Court, in a one-line order and without supporting opinion, dismissed both appeals as having been improvidently granted.
Trends in local ordinances
Since last year’s Report, Pennsylvania municipalities continue to adopt ordinances impacting oil and natural gas activities. In addition, many have begun to attempt to address issues involving renewable energy systems such as wind and solar energy operations. Although most regulations are found in zoning ordinances, others, including road weight, noise or street opening ordinances impact energy industry operations of all types.
For oil and natural gas, ordinances imposing substantially increased setbacks are an ongoing challenge. For example, Leetsdale Borough, Allegheny County, placed a proposed oil and gas zoning amendment into pending status which would subject well sites to setbacks ranging from 1,500 feet to 2,800 feet. Municipalities also are placing an increased emphasis on more stringent noise limitations. One success story is in Union Township, Washington County, where input from operators during the consideration of a new ordinance resulted in temporary development activities such as pad development, drilling and completions being exempted from the township’s new low-frequency dBC limits. Despite this victory, ordinances containing increased application requirements such as air, water, soil testing and other environmental study requirements of questionable legality continue to proliferate.
Local ordinances addressing pipelines also have become a recent trend. Uwchlan Township, Chester County, amended its subdivision and land development ordinance to require that new residential, commercial, educational and institutional uses maintain a 300-foot setback from any existing or proposed transmission pipeline rights-of-way.
In some cases, municipalities are attempting to stop certain oil and natural gas activities. In Clara Township, Potter County, the board of supervisors took the initial steps to change its form of government to a home rule charter municipality, a move promoted by anti-industry groups to block a proposed oil and gas wastewater injection well. In Allegheny County, a council member recently proposed legislation to bar the county from entering into any agreement for any industrial or commercial land uses on or below the surface of any lands the county has designated as a park. This would include natural gas extraction by conventional or unconventional means and utilization of any other extractive technologies or methods.
Numerous municipalities across Pennsylvania have considered or enacted ordinances impacting renewable energy operations. Over the last year, over 50 municipalities across 30 counties in Pennsylvania have considered land use ordinances that regulate solar energy. These are primarily municipalities located in south-central and southwestern Pennsylvania. For example, Washington Township, Franklin County, enacted an amendment to its zoning ordinance regulating the use of solar and wind power in the township which set forth permitting requirements, setbacks, and use specifications for both principal and accessory renewable energy systems.
Monitoring these proposals and enactments is necessary to anticipate upcoming restrictions and take advantage of new opportunities. The pandemic put a temporary hold on municipal activity for a couple months, but the pace of ordinance activities is generally back to pre-pandemic levels.
For the full article, click here.
Reprinted with permission from the June 2021 issue of The PIOGA Press. All rights reserved.
The PIOGA Press
(by Ashleigh Krick)
On June 7, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued an advisory bulletin (ADB) reminding owners and operators of gas and hazardous liquid pipeline facilities of a self-executing mandate from the “Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2020” (PIPES Act of 2020).
Statutory mandate
The mandate, codified at Section 114(b) of the PIPES Act of 2020, provides that by December 27, 2021, “each pipeline operator shall update the inspection and maintenance plan prepared by the operator under section 60108(a) of title 49, United States Code, to address the elements described in the amendments to that section made by [Section 114(a)].”
Section 114(a) of the PIPES Act of 2020 added to 49 U.S.C. § 60108(a) that, in deciding on the adequacy of an inspection and maintenance plan, PHMSA or a certified state authority must consider the extent to which the plan will contribute to “eliminating hazardous leaks and minimizing releases of natural gas from pipeline facilities” and “the extent to which the plan addresses the replacement or remediation of pipelines that are known to leak based on the material (including cast iron, unprotected steel, wrought iron, and historic plastics with known issues), design, or past operating and maintenance history of the pipeline.”
Additionally, Section 114(a) added to 49 U.S.C. § 60108(a) that inspection and maintenance plans must “meet the requirements of any regulations promulgated under section 60102(q).” Section 60102(q) is a new rulemaking mandate from Section 113 of the PIPES Act of 2020 that requires PHMSA to issue new leak detection rules for operators of regulated gas gathering, transmission, and distribution lines by December 27, 2021.
Section 114(a) also provided that PHMSA or a relevant state authority must review each plan not later than December 27, 2022, and then every five years.
Advisory bulletin
PHMSA issued the ADB to reiterate the mandate from Section 114 of the PIPES Act of 2020. Notably, PHMSA stated in the ADB that Section 114 applies to all pipeline facility owners and operators, including owners and operators of hazardous liquid pipeline facilities.
• Natural gas releases and hazardous leaks. While the PIPES Act did not define the type of natural gas releases or hazardous leaks operators are required to address, the ADB provides that an operator’s plan must address both intentional and unintentional releases of natural gas. PHMSA characterized intentional releases as including venting during normal operations or due to equipment design (e.g., pneumatic device bleeds, blowdowns, incomplete combustion or overpressure protection venting). Unintentional releases, the ADB explains, include any unintentional leaks from equipment, including pipelines, flanges, valves, meters, etc.
• Pipelines known to leak. With respect to addressing the replacement or remediation of pipelines that are known to leak based on the material (e.g., cast iron, unprotected steel, wrought iron, and historic plastics with known issues, according to PHMSA), design, or past operating and maintenance history, the ADB states that PHMSA will evaluate how the operator’s plans address reducing leaks from pipelines with these issues.
• Inspection and maintenance plans. PHMSA stated in the ADB that the updated plans must be “tailored to the operator’s pipeline facilities, supported by technical analysis where necessary, and sufficiently detailed to clearly describe the manner in which each requirement is met.” PHMSA also cited to page 17 its existing Part 192 O&M Enforcement Guidance and page 18 of its existing Part 195 O&M Enforcement Guidance.
• Inspections. PHMSA noted that it, along with state authorities, would be inspecting operator’s plans to determine whether they adequately address the PIPES Act mandate. PHMSA explained that it would evaluate the steps taken by an operator to prevent and mitigate both intentional and unintentional releases of natural gas.
For the full article, click here.
Reprinted with permission from the July 2021 issue of The PIOGA Press. All rights reserved.