WASHINGTON, DC and PITTSBURGH, PA – May 6, 2019 – Law firm Babst Calland today announced the lateral move of Julie Domike, a veteran environmental attorney, who joined the firm’s Washington, D.C. office as shareholder, effective April 29.
Ms. Domike will provide senior-level legal counsel in key practice areas including Environmental, Mobility, Transport and Safety, and Litigation. Ms. Domike has represented numerous clients across the country in complex negotiations with the U.S. Department of Justice and EPA, resulting in global settlements affecting multiple company facilities. Much of Ms. Domike’s practice involves permitting and other issues under the Clean Air Act, addressing issues associated both with mobile and stationary sources. Ms. Domike has worked with companies engaged in developing new projects or modifying existing plants, and she has worked with clients on environmental audits and subsequent correction and disclosure to state and federal environmental agencies.
Having previously served as an attorney and manager at the United States Environmental Protection Agency (EPA) Headquarters, Ms. Domike understands the Agency’s enforcement approach and counsels clients to engage with EPA in rulemaking, and enforcement. She has represented a variety of companies that have been the focus of EPA’s regulations, including refineries, engine manufacturers, independent power producers, chemical plants, fuel producers, and construction and farm equipment makers.
Commenting about this lateral move to the Firm, Donald C. Bluedorn II, managing shareholder of Babst Calland, said, “We are very pleased to welcome Julie to our Firm and to our established team in Washington, D.C. She is a natural fit for us and her experience further complements the existing synergies that we offer clients, particularly in the Energy, Mobility, and Transportation industries.”
Julie Domike’s arrival at Babst Calland also represents sustained growth in the Mobility practice, led by Firm shareholder Tim Goodman, responding to our clients’ requests to provide environmental and emissions mobile source services before EPA, the California Air Resources Board (CARB), and other regulatory agencies as a part of our best-in-class team.
“As an attorney focused on environmental law, I am pleased to be joining a well-established, multidisciplinary legal team representing clients in the various industries where I have served ” said Attorney Julie Domike.
“Since opening Babst Calland’s Washington, D.C. office in 2016, we have grown to 10 professionals focused on serving clients in the energy, mobility, emerging technologies and transportation sectors. Julie brings a new dimension to our team, and allows the firm to better serve our clients throughout the country.” said James Curry, managing shareholder of the Washington, D.C. office.
The Legal Intelligencer
(by Molly Meacham)
One of the key questions for any dispute is forum. Most parties are limited to selecting from the available court or courts provided by state and federal law as a function of jurisdiction and venue. Some contracting parties choose the courts of a particular forum in advance as part of their agreements. Other businesses and individuals take it a step farther and choose to opt out of the courts entirely by agreeing to resolve some or all of their disputes through arbitration.
There are aspects of arbitration that may be advantages or disadvantages, depending upon your viewpoint: privacy, typically faster resolution and streamlined discovery, lack of a jury’s emotion in the verdict and limited appellate rights. In addition, arbitration can have significantly higher up-front forum costs in the thousands of dollars, as compared to the relatively low forum cost in the hundreds of dollars to file a complaint in the courts.
Given the higher forum costs, some plaintiffs—particularly those with smaller claims—may seek to bring their arbitrations as class claims. In recent years the U.S. Supreme Court has addressed several questions relating to arbitrability of class claims. In Stolt-Nielsen v. AnimalFeeds International, 559 U.S. 662 (2010), the Supreme Court prohibited class arbitration where the agreement is silent on whether the parties agreed to classwide arbitration. On April 24, the Supreme Court released its opinion in Lamps Plus v. Varela, No. 17-988, __ U.S. __ (2019), extending the holding of Stolt-Nielsen to also bar class claims where the agreement is ambiguous on whether the parties agreed to classwide arbitration.
In 2016, a malicious hacker used a phishing and social engineering scheme to convince one of the employees of Lamps Plus to send that hacker the W-2 forms of over 1,000 of the company’s employees. The company notified its employees of the data breach and offered them credit monitoring and counseling. After the data breach, employee Frank Varela learned that he was the victim of identity theft in the form of a fraudulent federal income tax return filed by someone else in his name.
Varela had signed an arbitration agreement at the beginning of his employment with the company, agreeing to submit “any and all disputes, claims or controversies” to arbitration. However, Varela chose to file a complaint in federal court bringing a lawsuit on behalf of a putative class of employees whose W-2s were compromised in the 2016 data breach. The company filed a motion to compel individual arbitration of Varela’s claim, not classwide arbitration, on the grounds that the arbitration agreement was silent on classwide arbitration and therefore did not allow it.
The lower court and the U.S. Court of Appeals for the Ninth Circuit ruled that under the terms of the agreement Varela’s complaint had to be arbitrated, but could proceed as a class claim in arbitration. The Ninth Circuit affirmed the lower court’s decision on the basis that the arbitration agreement was a contract to which California law applied, and California law required application of the principle of contra proferentem to construe ambiguities in the arbitration agreement against the company as the drafter. Applying that principle, the Ninth Circuit held that the arbitration agreement was ambiguous regarding classwide claims and under California law it must be read to include the possibility of class arbitration.
The Supreme Court reversed those decisions, holding in Lamps Plus that “neither silence nor ambiguity” can confer the right to classwide arbitration. Justice John Roberts, writing for the majority, emphasized that “arbitration is strictly a matter of consent.” Roberts held that California’s doctrine of contra proferentem is pre-empted by the Federal Arbitration Act, because construing ambiguities against the drafter does not determine whether the parties intended to consent to classwide arbitration. Instead, the doctrine is a default rule meant to apply where the court cannot ascertain the intent of the parties—fundamentally in conflict with “the foundational FAA principle that arbitration is a matter of consent.” Further, classwide arbitration is “markedly different” from individual arbitration under the Federal Arbitration Act, and it “undermines the most important benefits” of individual arbitration because it “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly and more likely to generate procedural morass than final judgment.” As a result, “more than ambiguity” is required to ensure that the parties consented to classwide arbitration. Effectively, following Lamps Plus only express and unambiguous consent to classwide arbitration will be sufficient to establish such a right.
Roberts’ 13-page opinion in Lamps Plus sparked more than 30 pages of dissent from the four justices in the minority. Justice Elena Kagan disagreed with the majority’s decision to disregard California law on contra proferentem on the basis that ambiguities in the agreement should be resolved against the company, which drafted the agreement and could have included language “expressly barring class arbitration if that was what it wanted.”
In another dissent, Justice Ruth Bader Ginsburg called out the decision as denying “employees and consumers effective relief against powerful economic entities,” as the decision serves to potentially deny judicial remedies in circumstances “when submission to arbitration is made a take-it-or-leave-it condition of employment or imposed on a consumer given no genuine choice in the matter.” Ginsburg pointed out the “proliferation” of arbitration agreements following the Supreme Court’s series of arbitration decisions, which have “hobbled the capacity of employees and consumers to band together in a judicial or arbitral forum” with the result that “mandatory individual arbitration continues to thwart ‘effective access to justice’ for those encountering diverse violations of their legal rights.”
Under the current state of the law, parties to arbitration agreements that do not contain an express consent to arbitration of classwide claims may have effectively waived the right to bring such claims. However, given the vehement dissents in Lamps Plus and the 5-4 decision, future Supreme Court decisions may alter or amend that holding. As a result parties entering into arbitration agreements should not rely on silence or ambiguity to determine the treatment of classwide claims. Instead, the parties should consider expressly addressing classwide claims in their arbitration agreements, so that a future court is not left to construe the vital question of whether or not the parties intended to consent to the arbitration of these claims.
For the full article, click here.
Environmental Alert
(by Lisa Bruderly and Gary Steinbauer)
On April 23, 2019, the U.S. Environmental Protection Agency (EPA) published a Federal Register notice of availability of an Interpretive Statement[1] concluding that it considers releases of pollutants to groundwater to be categorically excluded from the Clean Water Act’s permitting requirements. The notice opens a 45-day public comment period, ending on June 7, 2019. EPA is requesting comments on the analysis and rationale included in the Interpretive Statement and is soliciting input on additional actions that may be needed to provide further clarity and regulatory certainty on whether the NPDES permit program regulates releases of pollutants to groundwater. The publication of the Interpretive Statement has reinjected EPA into the ongoing debate, federal circuit court split, and pending U.S. Supreme Court case over whether the CWA’s National Pollutant Discharge Elimination System (NPDES) permit program regulates point source discharges that travel through groundwater before reaching a jurisdictional surface water.
Content and Reasoning Behind the Interpretive Statement
EPA describes the Interpretive Statement as the Agency’s “most comprehensive analysis” of the CWA’s text, structure, and legislative history as they relate to whether the NPDES permit program governs point source releases to groundwater. The bulk of the 63-page Interpretive Statement includes EPA’s legal analysis of the statutory provisions implementing and enforcing the NPDES permit program, the forward-looking, information-gathering statutory provisions that explicitly reference groundwater, and legislative history. Based on its analysis of this information, EPA concludes that Congress deliberately chose to exclude discharges of pollutants to groundwater from the NPDES permit program, even when those pollutants are conveyed to a jurisdictional surface water via groundwater.
While EPA’s conclusion is based primarily on its legal interpretation of the CWA, the major policy-based rationale supporting its conclusion is that groundwater is extensively regulated under other federal and state statutory regimes. With respect to state laws and regulations that limit discharges to groundwater, EPA notes that several states have laws in place that protect groundwater. On the federal side, EPA notes that the Safe Drinking Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act all regulate groundwater quality to some extent. According to EPA, these federal and state laws and regulations are sufficient to protect groundwater.
Conflict with the Existing Circuit Court Opinions and Pending Supreme Court Appeal
EPA describes its position in the Interpretive Statement as differing from the two legal theories that emerged from the numerous 2018 federal appellate court decisions addressing whether the CWA regulates point source discharges that travel through groundwater before reaching a jurisdictional surface water. Unlike the decisions of the Fourth and Ninth Circuits and EPA’s prior statements that have been construed as advocating a different interpretation, EPA now unequivocally believes that any release of a pollutant to groundwater does not fall within the ambit of the CWA. Thus, EPA has rejected the “direct hydrological connection” legal test established by the Fourth Circuit in Upstate Forever v. Kinder Morgan[2] and the “fairly traceable” legal test established by the Ninth Circuit in Hawai’i Wildlife Fund v. County of Maui[3] and will apply the Interpretive Statement in all jurisdictions, other than those 14 states (including West Virginia, Virginia and Maryland) and other territories within the Fourth and Ninth Circuits.[4] The decisions of the Fourth and Ninth Circuits will stand until further clarification by the U.S. Supreme Court, which agreed to hear the County of Maui appeal approximately two months ago.
In the Ninth Circuit’s County of Maui v. Hawai’i Wildlife Fund decision, the Court affirmed the district court’s decision finding the County liable under the CWA for injecting treated sanitary wastewater into separately permitted underground wells after the plaintiffs demonstrated that the discharge ultimately reached the Pacific Ocean. On appeal, the Supreme Court will be deciding “whether the CWA requires a permit when pollutants originate from a point source but are conveyed to navigable waters by a nonpoint source, such as groundwater.” The Court granted the County’s petition for review after the United States filed an amicus brief, in which it noted that EPA would soon be publishing what we now know is the Interpretive Statement.
It is unclear what role, if any, EPA’s Interpretive Statement will play in the County of Maui matter. The County’s merits brief currently is due before the close of the public comment period on the Interpretive Statement. It is also unclear whether EPA will finalize any rulemaking or take any other more formal administrative action before the Supreme Court renders its decision, likely in 2020 after oral arguments are heard this fall.[5] Furthermore, the level of deference, if any, the Supreme Court will give EPA on its position in the Interpretive Statement is unclear, particularly because the position articulated in the Interpretive Statement is inconsistent with the position that the United States, on behalf of EPA, took in an amicus brief filed when the County of Maui case was previously heard by the Ninth Circuit.
In the meantime, regulated parties outside the Fourth and Ninth Circuits now have additional support to defend against lawsuits alleging that the CWA regulates point sources discharges that travel through groundwater before reaching a jurisdictional surface water.
Babst Calland is actively monitoring this Interpretive Statement and evaluating its potential effect across sectors and industries. If you have questions about the Interpretive Statement or comment procedures, please contact Lisa M. Bruderly at (412) 394-6495 or lbruderly@babstcalland.com or Gary E. Steinbauer at (412) 394-6590 or gsteinbauer@babstcalland.com.
Smart Business
(by Jayne Gest with Kevin Wills)
Founders should understand that choosing a business entity isn’t one size fits all. That’s why founders should consult with legal and tax advisers to make sure that they choose the entity that works best for their circumstances.
“A big issue is that clients don’t always consult legal and tax advisers. They Google ‘start a company’ and go with one of the first links they find,” says Kevin T. Wills, shareholder at Babst Calland.
People also will call and say, ‘I want to start a company. Everyone says I should be a Delaware corporation,’ he says. That may be the case, but it’s important to talk it through first. A different structure may be better for your business.
Smart Business spoke with Wills about legal structures for startups.
What are some potential entity types?
When starting a business, most founders tend to consider three options.
- C corporation (C-corp). A traditional corporation that is run by a board of directors, owned by stockholders and subject to federal income taxation.
- Limited liability company (LLC). More of a contractual arrangement that is governed by an operating agreement and offers pass-through taxation.
- S corporation (S-corp). This is a corporation, but the company’s revenue passes directly through and is only taxed at the shareholder distribution level.
What about limited partnerships (LPs)?
LPs are still prevalent in certain industries, but LLCs have limited the utility of LPs. Generally, you can structure an LLC to operate like an LP, where a board of managers runs the company and members are passive investors who get distributions.
What are the advantages and disadvantages to each structure?
C-corps work well for startups that need to raise capital from professional investors or plan to give employees stock grants to supplement compensation. They can be more attractive for investors because many venture capital funds have tax-exempt members that cannot invest in entities with pass-through taxation.
One of the largest challenges with C-corps is the potential for double taxation, i.e., income taxes owed both at the corporate and shareholder distribution levels. However, in practice, when companies first start out, profits tend to be minor and often can be offset by expenses like salaries. Additionally, C-corps require more paperwork and cost more to set up.
For new companies, an LLC offers a lot of flexibility. There are fewer corporate formalities and it’s less expensive to form with less paperwork than a corporation.
An S-corp is a hybrid approach, with the structure of a corporation that avoids double taxation. S-corps are a good option if a limited number of people are starting a business. However, they only allow one class of stock to be issued and there are limitations on the number and nature of shareholders.
How hard is it to adjust the structure?
You can change corporate form as the business’s needs evolve, but there are costs associated with most conversions. Going from LLC to a corporation isn’t difficult, and S-corp status is a tax election, so you can convert either to a C-corp if the company enters a growth phase. If you start as a C-corp or S-corp and convert to an LLC, however, it can have adverse tax consequences.
It’s also not uncommon for third-party investors to require a particular structure before investing.
What other issues can pop up if the structure isn’t set up correctly?
You’ll want to work with your legal and tax advisers to curtail potential problems, which may include asking awkward questions. For example, stock and LLC membership interests are personal property, so you will want to make sure to account for what happens if one of the members gets divorced, passes away or wants to sell. Further, you will want to try to avoid requirements for unanimous consent because such requirements means one person can hold the business hostage.
Founders have numerous decisions they must make when starting their businesses, and it is important that they seek out professional advice to weigh the legal and tax considerations to ensure that they choose the best entity structure for their business.
For the PDF, click here.
For the full article, click here.
The Legal Intelligencer
(by Blaine Lucas and Alyssa Golfieri)
Defenses or claims based in equity have long been recognized by Pennsylvania courts in zoning and other land use matters. There are three main equitable theories, all of which bar a municipality from enforcing its land use regulations and permit property owners to continue a use or activity in violation of applicable ordinances—equitable estoppel, vested rights and variance by estoppel. Pennsylvania courts consider all three theories unusual remedies that should only be granted in the most extraordinary of circumstances, as in Lamar Advantage GP v. Zoning Hearing Board of Adjustment, 997 A.2d 423 (Pa. Commw. Ct. 2010). These three theories are closely related and the elements of each vary only subtly.
Equitable Estoppel
The doctrine of equitable estoppel applies when:
- The municipality intentionally or negligently misrepresented a material fact;
- The municipality knew or had reason to know that the property owner would justifiably rely on the misrepresentation; and
- The misrepresentation induced the property owner to act to his detriment because of his justifiable reliance, as in Cicchiello v. Bloomsburg Zoning Hearing Board, 617 A.2d 835, 837 (1992).
The Commonwealth Court has consistently held that the theory of equitable estoppel cannot be relied upon to provide relief when the property owner asserting it “knew or should have known that the alleged promisor was without authority to effectuate the alleged promise,” as in DiSanto v. Board of Commissioners, 172 A.3d 139 (Pa. Commw. Ct. 2017). For example, a property owner cannot reasonably rely on the statement of an appointed official when the property owner knew, or should have known, that the official does not have the authority to bind the municipality with his statements. See, e.g., Strunk v. Zoning Hearing Board of Upper Milford Township, 684 A.2d 682, 685 (Pa. Commw. Ct. 1996) (landowners could not justifiably rely on a zoning officer’s statements regarding the adequacy of a sewage disposal system where the zoning officer expressly directed landowners to the sewage enforcement officer before proceeding).
Vested Rights
The vested rights doctrine permits a property owner to use his property in a manner contradictory to applicable zoning regulations where a permit is issued in error by the municipality. In order to prove the existence of a vested right, a property owner must show:
- His due diligence in attempting to comply with the law;
- His good faith throughout the proceedings;
- The expenditure of substantial unrecoverable funds;
- The expiration of the permit appeal period with no appeal; and
- Neither individual property rights nor the public health, safety or welfare will be adversely affected by the use or activity authorized by the permit, as in Petrosky v. Zoning Hearing Board, 402 A.2d 1385, 1387 (Pa. 1979).
In Petrosky, a township issued zoning, building and use permits for the construction of a garage on land that the Petroskys had an option to purchase. Upon receipt of the permits, the Petroskys purchased the land and constructed the garage, expending more than $15,000. During construction, the township’s inspector visited the property three times and at no point informed the Petroskys that a problem existed. Approximately seven months after the garage was completed, the township realized that it had erred by allowing construction within the minimum required setback. The township subsequently revoked the Petroskys’ permits and ordered the garage to be removed or relocated in compliance with the zoning ordinance. Based on the foregoing, and the lack of any evidence in the record that the Petroskys’ reliance on the permit was in bad faith, the court concluded that they had acquired a vested right and were entitled to continue using the garage as-is, even though the setbacks were considerably less than required by the township’s zoning ordinance.
Similarly, the Commonwealth Court determined it was inequitable to enforce applicable zoning regulations against a property owner in Three Rivers Youth v. Zoning Board of Adjustment for Pittsburgh, 437 A.2d 1064 (Pa. Commw. Ct. 1981). There, the city’s zoning officer erroneously issued a building permit for the construction of an office building in a residential district (i.e., a use that violated the city’s zoning ordinance), there was no evidence in the record to indicate the property owner’s reliance on the permit was not in good faith, and the city acquiesced to the obvious commercial use of the property for seven years before taking action to remediate the violation.
Variance by Estoppel
The theory of vested rights applies where a municipality issues a permit in error. In instances where a permit has not been issued, a property owner may be able to assert a defense to an enforcement action based on the theory of variance by estoppel, the elements of which are:
- There was a long period of time during which the municipality knew or should have known of an ordinance violation, but failed to enforce the implicated ordinance;
- The municipality actively acquiesced to the illegal use/activity;
- The property owner acted in good faith and relied innocently upon the validity of the use or activity throughout the proceedings;
- The property owner made substantial expenditures in reliance upon their belief that the subject use or activity was permitted; and
- The denial of the variance would impose an unnecessary hardship on the property owner, as in Skarvelis v. Zoning Hearing Board of Dormont, 679 A.2d 278, 281 (Pa. Commw. Ct. 1996).
In analyzing the theory of variance by estoppel, the Pennsylvania Commonwealth Court has stressed that the mere passage of time does not, in and of itself, entitle a property owner to such relief. Moreover, the court has held that a property owner has a duty to check a property’s zoning status, and failure to do so undermines the property owner’s argument that he relied innocently and in good faith on the legality of the particular use or activity.
Municipal action or inaction triggering a property owner’s right to relief from ordinance enforcement often embodies elements of more than one of these three equitable doctrines (e.g., municipal inaction coupled with the issuance of a permit or the negligent misrepresentation of a material fact). As a result, the rigid labels given to the various theories often cause confusion for zoning hearing boards and the courts alike. However, in the majority of instances where Pennsylvania courts have granted equitable relief in a zoning or other land use dispute, the municipalities have done more than passively stand by while an illegal use or activity occurs. Typically, they have taken an affirmative action, such as granting a permit or making a representation or statement, which has reasonably led the property owner to conclude that the use or activity authorized thereby was permitted, and then waited years to take action against the property owner for the violation.
For the full article, click here.
Firm Alert
(by Jean Mosites and Kevin Garber)
On April 16, 2019, the Pennsylvania Environmental Quality Board, in a vote of 14-5, directed the Pennsylvania Department of Environmental Protection to develop a report and recommendation on a petition for a cap and trade regulation. The Clean Air Council, Widener Commonwealth Law School Environmental Law and Sustainability Center, and others submitted the Petition on February 28, 2019 asking EQB to promulgate a regulation that would create a multi-sector cap and trade system to reduce greenhouse gas (GHG) emissions to achieve carbon neutrality in Pennsylvania by 2052.
The Petition
The Petition includes a fully drafted regulation that establishes a cap on covered GHG emissions, based on a 2016 base year, and reduces GHG emissions to carbon neutrality by 2052. The regulation borrows heavily from the California cap and trade regulation, which is a multi-sector program that includes Ontario and Quebec. The California regulation, however, does not require a reduction of all GHG emissions to net zero.
Citing a goal set by the United Nations Framework Convention on Climate Change and the Paris Agreement, the regulation proposes a cap on Pennsylvania GHG emissions to begin at 91 percent of 2016 emissions and thereafter decline by three percent each year until reaching net zero emissions by 2052. Covered entities would be required to obtain allowances, by auction or allocation, for each metric ton of reportable GHG emissions per year attributable to their operations in Pennsylvania. Allowances would cost a minimum of $10 each in 2020, with the price increasing by 10 percent plus the rate of inflation each year. Any person may buy from the available allowances regardless of whether that person must surrender allowances for GHG emissions or not.
The petitioners cite the Pennsylvania Air Pollution Control Act and the Environmental Rights Amendment, Article I, Section 27 of the Pennsylvania Constitution, as legal authority for their Petition. The only express Pennsylvania legislation related to climate change and greenhouse gases is the Pennsylvania Climate Change Act, Act 70 of 2008, which simply provides for a report on potential climate change impacts, the duties of DEP, establishment of a Climate Change Advisory Committee, and a voluntary registry of GHG emissions. Neither the Air Pollution Control Act nor the Climate Change Act provides express authority to regulate GHG emissions or establish a cap and trade system. The Petition bypasses legislative consideration of this issue by asking EQB as an administrative body to promulgate a climate change regulation.
Next Steps
DEP will prepare a report and recommendation within 60 days (or longer if the report cannot be completed within 60 days) on whether EQB should promulgate a cap and trade regulation. The report should comprehensively evaluate the social, environmental and economic impacts of the proposed regulation, a task that will require significant inquiry as well as sweeping speculation. EQB members asked for updates and status reports from DEP if the report is not completed by its next meeting in June. If EQB decides to promulgate a GHG regulation, EQB policy directs DEP to prepare a proposed rulemaking for EQB’s consideration within six months after mailing the report to the petitioners.
This Petition and its proposed regulation present a dramatic departure from any current regulation in Pennsylvania and are intended to affect every aspect of the economy of this Commonwealth. Whether or not such a program in Pennsylvania would have any effect on the global climate is a question that no one can answer. Babst Calland will continue to track and report on this and related issues as they develop in the coming months.
If you have questions about the petition for cap and trade regulation, please contact Jean M. Mosites at (412) 394-6468 or jmosites@babstcalland.com or Kevin J. Garber at (412) 394-5404 or kgarber@babstcalland.com.
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Environmental Alert
(by Donald Bluedorn and Gary Steinbauer)
On April 12, 2019, the Fifth Circuit Court of Appeals issued a decision in Southwestern Electric Power Company, et al. v. EPA, addressing pending claims in consolidated petitions challenging the U.S. Environmental Protection Agency’s revised effluent limitations guidelines for the Steam Electric Power Generating Point Source Category (ELGs). The Opinion vacated the “legacy” wastewater and “combustion residual leachate” best available technology economically achievable (BAT) standards promulgated by EPA in 2015. A copy of the Opinion is available here: http://www.ca5.uscourts.gov/opinions/pub/15/15-60821-CV0.pdf.
Under the Clean Water Act (CWA), EPA is responsible for establishing nationwide technology-based standards to govern discharges of pollutants by specific industrial categories. See 33 U.S.C. § 1314(b). In November 2015, EPA promulgated revisions to the ELGs after a multi-year study of wastewater management and treatment technologies used by steam-electric power plants since the ELGs were last revised in 1982. EPA revised the ELGs to regulate six separate wastewater streams: (1) flue gas desulfurization (FGD) wastewater; (2) fly ash transport wastewater; (3) bottom ash transport wastewater (BATW); (4) flue gas mercury control wastewater; (5) combustion residual leachate (leachate); and (6) gasification wastewater. In addition, the ELGs regulate “legacy” wastewater, which consists of one or more of the above-referenced wastewater streams (commingled or separate) if they are generated before the date determined by the state permitting authority. For leachate and “legacy” wastewaters, EPA selected impoundments as BAT-level controls. By contrast, EPA affirmatively rejected surface impoundments as BAT for the other five wastewater streams and imposed limits based on other forms of wastewater treatment or management.
In granting the environmental groups’ challenge to the BAT “legacy” wastewater limits in the ELGs, the Court repeatedly emphasized what it felt was a false distinction that EPA created between “legacy” wastewater and the other wastewater streams regulated under the ELGs. As noted, “legacy” wastewaters are defined solely by when the wastewater was generated. Relying primarily on EPA’s inconsistent determinations that impoundments constitute BAT for “legacy” wastewaters yet are considered ineffective and outdated (i.e., not BAT) for the same subsets of wastewaters, the Court held that EPA’s BAT determination for “legacy” wastewaters was arbitrary and capricious.
The Court also rejected EPA’s argument that it lacked data to justify adopting a more advanced treatment technology as BAT for “legacy” wastewaters. In the rulemaking record for the ELGs, EPA acknowledged that multiple power plants have been using chemical precipitation to treat “legacy” wastewaters. The Court also cited numerous instances within the rulemaking where EPA concluded that impoundments are ineffective at removing toxic pollutants. Notwithstanding the typical deference EPA receives in setting BAT limitations, the Court held that EPA’s undisputed statements and scientific conclusions from its own rulemaking record were enough to conclude that using surface impoundments as BAT for “legacy” wastewaters was unlawful under the CWA.
The Court essentially came to the same conclusion when it vacated EPA’s BAT limitations for leachate. For leachate, EPA adopted impoundments as the technology for BAT-level control in its 2015 revisions; the same technology EPA adopted as the BPT-level of control for leachate when it revised the ELGs in 1982. The CWA provides that BPT is to be the “average of the best performance levels of existing plants,” whereas BAT is to represent the performance of the “single best-performing plant in an industrial sector.” According to the Court, EPA unlawfully conflated the more stringent BAT limits with the less stringent BPT when it adopted the 1982 BPT limits at BAT for leachate in 2015. The Court also rejected EPA’s attempt to justify the leachate BAT determination based on the relatively small amount of pollutants discharged in leachate and the stricter BAT requirements for the other, more voluminous waste streams. Consequently, even if the CWA allowed EPA to establish BAT for leachate as the previously establish BPT for the same wastewater stream, the Agency’s reasons for doing so were consisted arbitrary and capricious.
The Court’s decision in Southwestern Electric is another significant blow to an EPA rulemaking for the electric power industry. As reported in our past Alert, the D.C. Circuit recently vacated and remanded significant portions of EPA’s 2015 Coal Combustion Residuals (CCR) Rule, which regulates, among other things, surface impoundments holding CCR generated by power plants. In addition, the Southwestern Electric decision was issued in the midst of EPA’s efforts to revise the ELGs’ BAT requirements for FGD wastewater and BATW. The Agency previously indicated that it intends to propose revised requirements for the FGD wastewater and BATW BAT requirements in 2019. EPA could seek reconsideration or ask the Supreme Court to review the Southwestern Electric Opinion, which could take several months. In short, time will tell whether the Fifth Circuit’s vacatur and remand of the BAT limits for “legacy” wastewater and leachate will impact EPA’s projected timeline for reconsideration of the BAT requirements for FGD wastewater and BATW.
If you have any questions about the Fifth Circuit’s April 12, 2019 Opinion, please contact Donald C. Bluedorn II at (412) 394-5450 or dbluedorn@babstcalland.com or Gary E. Steinbauer at (412) 394-6590 or gsteinbauer@babstcalland.com.
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Pipeline Safety Alert
(by James Curry, Keith Coyle and Brianne Kurdock)
On April 10, 2019, President Donald Trump signed an Executive Order on Promoting Energy Infrastructure and Economic Growth (Executive Order). In addition to outlining U.S. policy toward private investment in energy infrastructure and directing the U.S. Environmental Protection Agency to take certain actions to improve the permitting process under the Clean Water Act, the Executive Order instructs the U.S. Department of Transportation (DOT) to update the federal safety standards for liquefied natural gas (LNG) facilities. The Executive Order notes that DOT originally issued those safety standards nearly four decades ago and states that the current regulations are not appropriate for “modern, large-scale liquefaction facilities[.]” Accordingly, the Executive Order directs DOT to finalize new LNG regulations within 13 months, or by no later than May 2020, an ambitious deadline given the complex issues involved and typical timeframe for completing the federal rulemaking process.
What is LNG?
LNG is natural gas that is cooled through a liquefaction process to minus 260 degrees Fahrenheit. Natural gas converts to a liquid state at that temperature and occupies a volume that is 600 times smaller than its gaseous counterpart. The reduced volume and high energy density of LNG makes long-distance transportation commercially viable, particularly to markets that lack access to local supplies of natural gas. LNG facilities create three primary risks from a safety perspective. As a cryogenic liquid, LNG can cause frostbite or severe burns upon contact with skin. LNG also vaporizes when released into the environment and can ignite in certain air-gas mixtures. High concentrations of LNG vapors may displace oxygen, creating the risk of asphyxiation in confined spaces.
Why Does DOT Regulate LNG Safety?
The LNG industry has a long history in the United States. The first LNG plant went into service in West Virginia in the World War I era, and a commercial liquefaction plant in Cleveland, Ohio went into operation in the 1940s. In 1944, the Cleveland plant experienced an LNG tank failure that led to a fatal explosion and fire and resulted in extensive property damage. The first commercial shipment of LNG by vessel occurred 15 years later, in 1959, when the Methane Pioneer sailed from Louisiana to the United Kingdom. Several large-scale LNG terminals were constructed during the late 1960s and 1970s in places like Alaska, Louisiana, Georgia, Maryland, and Massachusetts, a period that coincided with DOT’s initial efforts to establish federal safety standards for LNG facilities.
In the Natural Gas Pipeline Safety Act of 1968 (1968 Act), the U.S. Congress authorized DOT to prescribe and enforce minimum federal safety standards for gas pipeline facilities and persons engaged in the transportation of gas. Acting pursuant to the authority provided in the 1968 Act, DOT promulgated interim federal safety regulations for LNG facilities in the early 1970s. The interim regulations required operators to comply with the 1972 edition of the National Fire Protection Association Standard 59A (NFPA 59A), a consensus industry standard for the production, handling and storage of LNG, as well as DOT’s new federal safety standards for gas pipeline facilities.
After issuing the interim regulations, DOT initiated a new rulemaking proceeding to establish permanent federal safety standards for LNG facilities. DOT relied on NFPA 59A in developing those standards, including the concept of requiring an operator or governmental authority to exercise control over the activities that occur within a specified distance of an LNG facility. These distances, known as “exclusion zones,” were designed to protect the public from unsafe levels of thermal radiation and vapor gas dispersion in the event of an LNG incident. DOT proposed to require that operators calculate the dimensions of an exclusion zone using certain mathematical models and other parameters.
While DOT’s LNG rulemaking proceeding was still underway, Congress passed the Pipeline Safety Act of 1979 (1979 Act). In addition to expanding DOT’s authority to regulate hazardous liquid pipeline facilities, the 1979 Act included a rulemaking mandate directing DOT to finalize the new regulations for LNG facilities. DOT satisfied that mandate in August 1980 by issuing the original version of federal safety standards for LNG facilities. The regulations, codified at 49 C.F.R. Part 193, incorporated the 1979 edition of NFPA 59A by reference and included siting requirements for LNG facilities based on the exclusion-zone approach. Other provisions addressed design, construction, operation, maintenance, security, and fire protection.
DOT left the original Part 193 regulations in place for the next two decades as unfavorable market conditions significantly reduced domestic interest in LNG development, particularly for large-scale terminals. In 2000, DOT responded to a rulemaking petition from NPFA by repealing many of its substantive regulations and deferring to the comparable provisions in the 1996 edition of NFPA 59A. In subsequent industry standards updates, DOT incorporated the 2001 edition and 2006 editions of NFPA 59A into Part 193. No other significant changes to the LNG regulations have occurred since DOT issued the original federal safety standards in 1980.
Why is President Trump Focusing on DOT’s LNG Regulations?
DOT’s LNG-related activities have increased significantly in recent years, primarily in response to the rapid growth of U.S. natural gas resources and renewed interest in domestic LNG projects. In the Obama administration, DOT issued several significant letters of interpretation dealing with the Part 193 siting requirements and approved the use of two alternative vapor gas dispersion models for calculating exclusion zone distances. DOT also issued a series of Frequently Asked Questions providing operators with guidance on LNG issues and created a process for reviewing design spill determinations for proposed LNG projects. In August 2018, DOT and the Federal Energy Regulatory Commission (FERC), the federal agency that exercises economic regulatory and limited safety jurisdiction over LNG terminals and facilities under the Natural Gas Act of 1938, executed a Memorandum of Understanding (MOU) to improve interagency coordination. Under the MOU, DOT is responsible for issuing a letter of determination on whether a proposed FERC-jurisdictional LNG project complies with the Part 193 regulations.
The Executive Order seeks to build on these recent efforts by directing DOT to update the Part 193 regulations by no later than May 2020. DOT will need to consider several important issues during the rulemaking process, such as whether to incorporate more recent additions of NFPA 59A into Part 193 by reference, whether changes should be made to the exclusion zone approach in the siting regulations, and whether to address a new rulemaking mandate for small-scale LNG facilities that Congress included in the 2016 reauthorization of the Pipeline Safety Act. Finishing the rulemaking process by the deadline provided in the Executive Order will be extremely difficult. DOT has not yet issued a notice of proposed rulemaking, and the proceeding is likely to generate significant public interest. Industry has made tremendous technological advances in the four decades since DOT’s last comprehensive review of its LNG regulations, and public interest and other advocacy groups have also become very active in recent proceedings related to new LNG projects. These factors, when combined with the ordinary time horizon for completing DOT rulemaking proceedings and upcoming presidential election, suggest that extraordinary efforts will be needed to issue a final rule in the next 13 months.
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WASHINGTON, DC, April 15, 2019 – Babst Calland announced that Arija Flowers has joined the Firm as an attorney in the Mobility, Transport and Safety Group in the Firm’s Washington, D.C. office.
Ms. Flowers, a former NHTSA attorney well-known in the industry, served as a Senior Trial Attorney with the NHTSA Office of Chief Counsel. There, she was the lead U.S. federal enforcement attorney for a number of matters addressing some of the most significant issues in the industry. Ms. Flowers’ joining the Firm continues to enhance its best-in-class capabilities to meet the developing needs of mobility and transport clients and other companies with emerging technologies. The practice provides strategic leadership with business and legal advice for manufacturers, suppliers, start-ups, technology companies and government entities in the full-spectrum of transportation regulatory, safety, product quality, and automation matters, including automated/autonomous driving systems.
“Arija Flowers’ joining our team represents a consolidation at Babst Calland of several recent former NHTSA and DOT senior staff and leadership with the freshest and deepest understanding of NHTSA/DOT’s current decision-makers and technical analysis approach,” said Babst Calland’s Managing Shareholder Donald C. Bluedorn II. “The continued outreach to us for services from companies – even those who are well represented at present – has really spoken to the success of our vision,” he added.
Ms. Flowers will join Will Godfrey, Babst Calland’s Director, Mobility, Automation and Safety, and a former General Motors engineer and senior NHTSA regulatory chief, and Tim Goodman, the leader of Babst Calland’s Mobility, Transport and Safety Group, and former NHTSA chief legal officer for enforcement and U.S. federal senior executive.
Ms. Flowers will help companies navigate the full-spectrum of mobility, vehicle safety and related regulatory matters, including self-certification of standards, homologation, regulatory compliance, automated/autonomous driving systems, innovative mobility and safety approaches, best practices and emerging trends, standards enforcement, defects investigations, government inquiries and enforcement proceedings, and recall implementation.
“The industry knows and respects Arija, and I’m delighted she’s rejoining me and Will Godfrey,” said Tim Goodman. “The sheer number of companies we advise – from OEMs to suppliers, from start-ups and ride-sharing companies and e-commerce enterprises – is objective evidence of our organic growth, and Arija will be a force-multiplier on our team.”
At NHTSA, among other things, Ms. Flowers served as lead counsel for the agency’s investigation and ongoing oversight of the largest motor vehicle recall in U.S. history (Takata air bag inflators, involving 19 automotive manufacturers and an estimated 65-70 million inflators in 40-50 million vehicles in the U.S. market). She provided insight and leadership in agency investigations of vehicle and equipment manufacturers concerning safety-related defects, noncompliance with federal safety standards, and other violations of the Vehicle Safety Act and regulations. Ms. Flowers also supported DOT’s U.S. Supreme Court and federal appellate litigation practice on a number of cases.
Ms. Flowers has a background in public service. Prior to the Department of Transportation, she served as a judicial law clerk, and before law school served as the Scheduler and Executive Assistant to a senior U.S. Senator and staff to a Senator in the Washington state legislature.
Ms. Flowers earned her J.D., magna cum laude, from American University Washington College of Law. She graduated from the University of Washington with dual Bachelor of Arts degrees in History and in Communications and Political Science.
The Legal Intelligencer
(by Alana Fortna)
The Clean Water Act regulates the discharge of pollutants into “waters of the United States” pursuant to National Pollutant Discharge Elimination System (NPDES) permits issued by the U.S. Environmental Protection Agency (EPA) or an authorized state agency. This is not a new concept. However, what has come to be known as “the groundwater conduit theory” is disrupting the long-standing understanding of what is and what isn’t covered by the Clean Water Act. This new theory also creates questions for companies and attorneys dealing with Superfund sites and waste management units regulated under RCRA. This article discusses the circuit split on this theory and what I view as potential implications for Superfund sites and waste management units depending on how the U.S. Supreme Court rules.
Several federal cases have addressed the issue of the indirect discharge of pollutants into jurisdictional waters via groundwater transport, and the Supreme Court may weigh in on this question soon. This is an important issue with far-reaching ramifications because it is generally understood that all groundwater that is not otherwise removed (i.e., pumped for drinking water supply) will eventually discharge to a surface water. The Clean Water Act prohibits discharges of pollutants from a “point source” without a NPDES permit, 33 U.S.C. Section 1342. A “point source” is defined as “any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged.” Based on this definition, discharges into and through groundwater have not been considered point source discharges because they are not the typical “end of the pipe” discharges. Recent case law out of the U.S. Courts of Appeal for the Fourth, Ninth and Sixth Circuit has resulted in a circuit split on coverage under the Clean Water Act.
In Upstate Forever v. Kinder Morgan Energy Partners, 887 F.3d 637 (4th Cir. 2018), the Fourth Circuit evaluated Clean Water Act coverage for a discharge from a ruptured pipeline in South Carolina. The court interpreted the Clean Water Act to prohibit indirect discharges from point sources to navigable waters as long as the discharge is “sufficiently connected to navigable waters.” To be sufficiently connected, there must be a “direct hydrological connection” between the point source and the navigable waters. In Hawaii Wildlife Fund v. County of Maui, 886 F.3d 737 (9th Cir. 2018), the Ninth Circuit addressed discharges to wastewater treatment plant wells that eventually reached the Pacific Ocean. The Ninth Circuit similarly found Clean Water Act liability based on indirect discharges but further limited coverage to instances where “the pollutants are fairly traceable from the point source to a navigable water such that the discharge is the functional equivalent of a discharge into the navigable water” and the pollutants that reach the surface water are more than “de minimis.” The Sixth Circuit diverged from both the Fourth and Ninth circuits by holding that both courts expanded Clean Water Act coverage beyond what was envisioned. The Sixth Circuit reviewed two cases involving discharges from coal ash ponds and held that a discharge for purposes of the Clean Water Act occurs only where the pollutant is added to jurisdictional waters “by virtue of a point-source conveyance,” see Kentucky Waterways Alliance v. Kentucky Utilities, 905 F.3d 925 (6th Cir. 2018) and Tennessee Clean Water Network v. Tennessee Valley Authority, 905 F.3d 436 (6th Cir. 2018). The decisions of the Fourth and Ninth circuits have been appealed to the Supreme Court. The Supreme Court has granted the petition from the Ninth Circuit case as to the following question: “Whether the Clean Water Act requires a permit when pollutants originate from a point source but are conveyed to navigable waters by a nonpoint source, such as groundwater.” The Supreme Court has not yet ruled on the petition from the Fourth Circuit case, which asks the court to consider whether the Clean Water Act “also applies to discharges into soil or groundwater whenever there is a ‘direct hydrological connection’ between the groundwater and nearby navigable waters.”
If the Supreme Court agrees to hear both appeals from the Fourth and Ninth circuits, the decisions could have an impact on companies and attorneys involved in Superfund site cleanups and waste management units at operating facilities. With regard to Superfund sites, a decision that affirms the Fourth and Ninth circuits could create future liability at a site where a company has already invested significant time and expense in a remedial investigation and design work. If a company has not achieved complete source control, then it could arguably face additional liability under the Clean Water Act for contamination that is migrating from the source area into groundwater and ultimately to a navigable water. The issue becomes more complicated when it is a large Superfund site with multiple source properties contributing the same contaminants of concern. Who shoulders the liability under the Clean Water Act? How do the companies establish that they are not the source of the discharge from the groundwater to the surface water? Is there a plausible way to apportion the liability when you have a commingled plume? These are questions that are not easily answered and could be very costly to answer. Moreover, remediation activities at Superfund sites take time and are subject to an established procedure under the regulatory scheme. Depending on how the Supreme Court rules, this procedure could be disrupted by citizen suit challenges. Environmental groups who disagree with the agency’s approach to the remediation or who think the remediation work is taking too long could attempt to influence the remedial action through a Clean Water Act citizen suit.
Similarly, the requirements for design, operation and closure of hazardous waste management units at operating facilities are regulated under RCRA. Specific regulations have been developed for various types of hazardous waste management units under Subtitle C of RCRA in 40 CFR parts 264, 265 and 266. The regulatory requirements are intended to protect human health and the environment from the risks posed by hazardous waste. Closure decisions that are made pursuant to solid waste regulations under RCRA (or state law by delegation) can be challenged by citizen groups under the Clean Water Act. This is problematic because there is more certainty under RCRA versus the Clean Water Act. In this regard, the Clean Water Act prohibits unpermitted discharges regardless of the level of pollutants or any evaluation risk. For a RCRA citizen suit, the plaintiff has the heavy burden of establishing an “imminent and substantial endangerment.” Because RCRA is based on level of risk, it does not necessarily follow that the only remedy will be source removal. Rather, there are likely multiple remedial alternatives that can abate a RCRA violation or be approved as a final remedy at a Superfund site. If the Supreme court establishes liability under the Clean Water Act for scenarios involving hazardous waste management units, then companies closing such a unit could face citizen suits where the environmental group argues that the only appropriate remedy is elimination of the discharge (i.e., removal of the source).
In short, how this case law develops is relevant not only from a NPDES permitting standpoint, but also from a remediation and waste management standpoint. Depending on how the groundwater conduit theory progresses, it could lead to substantial uncertainty for companies dealing with remediation at Superfund sites or closure of a hazardous waste management unit. Babst Calland Clements & Zomnir will continue to monitor this case law for purposes of evaluating its potential impact on these regulatory schemes.
Alana Fortna is a shareholder in the environmental and litigation groups of Babst Calland Clements & Zomnir. She represents clients in large-scale cost recovery actions under CERCLA and state law statutes, actions seeking injunctive relief under RCRA, and citizens’ suits brought under various federal statutes and regulatory programs including the Clean Water Act and the Clean Air Act. Contact her at afortna@babstcalland.com.
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Law360
(by Cara Salvatore)
Babst Calland has hired a former National Highway Traffic Safety Administration lawyer who played a lead role in the agency’s work on the Takata air bag probe and other high-profile matters, the firm said Wednesday, the third former NHTSA staffer to join the firm’s transportation practice in recent years.
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The PIOGA Press
(by Kevin Garber and Jean Mosites)
The Pennsylvania Environmental Quality Board (EQB) will consider a petition for a cap-and-trade regulation at its April 16 meeting. The Clean Air Council, Widener Commonwealth Law School Environmental Law and Sustain-ability Center, and others submitted the petition on February 28, asking EQB to promulgate a regulation that would create a multi-sector cap-and-trade system to reduce greenhouse gas (GHG) emissions to achieve carbon neutrality in Pennsylvania by 2052.
The petitioners initially submitted the petition to EQB on November 27, 2018. Under EQB’s Petition Policy (25 Pa. Code Chapter 23), the Department of Environmental Protection is to notify EQB and the petitioner within 30 days of DEP’s receipt of the petition whether the petition meets the policy’s eligibility criteria. DEP advised the petitioners on December 26 that the petition met the criteria and would be submitted to EQB for consideration at the first meeting of 2019.
However, DEP did not notify EQB members until, apparently, early February. Upon learning of the petition, Representative Daryl Metcalfe, chairman of the House Environmental Resources and Energy Committee, requested DEP on February 19 to have the petitioners resubmit their petition. The petitioners resubmitted the petition on February 28 with minor changes and additional signatories. DEP notified petitioners and the EQB on March 1 that DEP would review the petition to ensure it still meets the eligibility criteria. DEP has now done that and EQB scheduled the matter for consideration at its April 16 meeting.
The petition
The petition includes a fully drafted regulation that establishes a cap on covered GHG emissions, based on a 2016 base year, and reduces GHG emissions to carbon neutrality by 2052. The regulation borrows heavily from California’s cap-and-trade regulation, which is a multi-sector program that includes Ontario and Quebec. The California regulation, however, does not require a reduction of all GHG emissions to zero.
The Pennsylvania emissions cap would decline by 3 percent each year. Capping GHG emissions means that the covered entities meeting certain thresholds—including the oil and gas, coal, cement, glass, and steel industries and any facility producing or importing electricity— all must obtain allowances, by auction or allocation, for each metric ton of reportable GHG emissions per year attributable to their operations in Pennsylvania. According to EPA’s Envirofacts database, nearly 400 facilities in Pennsylvania report GHG emissions to EPA under a mandatory reporting rule. The proposed cap and trade program would require these and others not currently required to report GHG emissions to participate in the Pennsylvania program.
The petition states that if the regulation becomes effective for 2020, the initial cap would be equal to 97 percent of 2016 emissions. Limited by the ever-declining cap and availability of allowances, each covered entity must reduce its GHG emissions over time to achieve carbon neutrality by 2052. Allowances would cost a minimum of $10 each in 2020, with the price increasing by 10 percent plus the rate of inflation each year. Any person may buy from the available allowances regardless of whether that person emits GHG or not. If a covered entity cannot obtain sufficient allowances by auction or allocation, it may participate in the trading system and purchase needed allowances if they are available. Allowances may be freely traded or banked for future use.
The proposed regulation would allow manufacturers of certain products (but not fossil fuel suppliers or electricity generation) facing international and/or interstate competition to apply for some allowances to be distributed to them without cost. This mechanism is intended to prevent “leakage,” which refers to the relocation of production or emissions of GHGs to another jurisdiction in which GHG emissions are not commoditized. The number of free allowances directly awarded to such entities would be based initially on the company’s 2018 GHG emissions and be reduced by 5 percent each year after.
The petitioners cite the Pennsylvania Air Pollution Control Act and the Environmental Rights Amendment (ERA)―Article I, Section 27 of the Pennsylvania Constitution―as legal authority for their petition. Citing the Pennsylvania Supreme Court’s 2017 decision in PEDF v. Commonwealth, 161 A.3d 911, the petitioners assert the ERA requires the Commonwealth to control GHG emissions. They contend the ERA affords a right to a “natural climate unaffected by climate disruption,” because “a stable climate” should be understood to be a public natural resource, although this right is not expressly included in the Pennsylvania Constitution. The only express Pennsylvania legislation related to climate change and greenhouse gases is the Pennsylvania Climate Change Act (Act 70 of 2008), which provides for a report on potential climate change impacts, duties of the DEP, establishment of a Climate Change Advisory Committee, and a voluntary registry of greenhouse gas emissions. Neither the Air Pollution Control Act nor the Climate Change Act provides express authority to regulate GHG emissions or establish a cap-and-trade system. The petition bypasses legislative consideration of this issue by asking EQB as an administrative body to promulgate a climate change regulation.
Next steps
The notice of the agenda for the April 16 EQB meeting states DEP recommends that EQB accept the petition for further study. The petitioners may make a short oral presentation in favor of the petition at the meeting. Under its Petition Policy, EQB may deny it the petition if has previously considered the same issue for which there is no new or different information, if the request concerns a matter in litigation, or if the requested action is inappropriate for EQB rulemaking due to policy or regulatory considerations. In 2013, DEP recommended that EQB reject a petition by Ashley Funk et al. for a similar regulation to reduce fossil fuel CO2 emissions, citing lack of statutory authority and conflict with federal law. EQB voted 17-3 to accept DEP’s recommendation to deny the petition. The Commonwealth Court subsequently decided in 2016 that the Funk petitioners did not have a clear right to promulgation of the requested regulation and dismissed their petition for mandamus, which the Supreme Court affirmed. Funk v. Wolf, 144 A.3d 228.
Despite the petition policy setting certain timelines, EQB is not required to make any decision regarding the petition at the April 16 meeting.
On April 1, the Pennsylvania Chamber of Business and Industry and 14 industry trade groups including PIOGA asked EQB members not to take any action on the petition until they have fully considered its legal and practical implications. Key among those implications are the comprehensive reshaping of Pennsylvania’s entire economy and effects of higher energy prices on low-income rate payers, on municipalities, and on public, private and higher education. Other legal and practical considerations include whether the revenue collected by the auction of carbon allowances constitutes a tax, which constitutionally must be enacted by the General Assembly, and whether the impact to the power generation sector threatens reliability and the PJM Interconnection system. The Chamber and trade associations also recommend that each DEP advisory committee, including the Oil and Gas Technical Advisory Board and the Pennsylvania Grade Crude Development Advisory Council, be given the opportunity to consider the petition, providing necessary evaluation of its impacts by those industry members that would be affected.
If and when EQB accepts a petition for consideration, DEP must prepare a report and recommendation within 60 days (or longer if the report cannot be completed within 60 days) on whether EQB should promulgate a cap and trade regulation. If EQB decides to proceed with regulatory amendments, DEP will prepare a proposed rulemaking for EQB consideration within 6 months after mailing its report to the petitioners.
This petition and its proposed regulation present a dramatic departure from any current regulation in Pennsylvania and are intended to affect every aspect of the economy of this Commonwealth. Whether or not such a program in Pennsylvania would have any effect on the global climate is a question no one can answer. Every business large and small, those with and without GHG emissions, should engage in the conversation and stay tuned for further developments of the GHG rulemaking petition as 2019 unfolds.
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The Legal Intelligencer
(by Lindsay Howard and Matthew Wood)
In a press conference on Feb. 14, 2019, the U.S. Environmental Protection Agency (EPA) announced its multifaceted “action plan” outlining steps the agency is taking to protect public health and the environment from per- and polyfluoroalkyl substances (PFAS). PFAS are a group of synthetic chemicals that have been in use since around the 1940s and have numerous commercial and consumer applications. They have been used in nonstick coatings for cookware and food containers, waterproofing for fabrics and textiles, the manufacture of plastics and resins, and the formulation of firefighting foams. Their widespread use and the discovery of PFAS chemicals in various environmental media across the United States has raised interest and concerns about their potential effects on human health and the environment.
PFAS in the Environment
PFAS chemicals have been found in, among other things, groundwater (which may be used for drinking water), surface water and sediments, as well as in wildlife and human blood. Human exposure may occur through ingestion of contaminated drinking water and consumption of animals and plants in which PFAS have bioaccumulated (or that have been exposed to PFAS in the course of preparing or cooking food for consumption). Studies have shown that exposure to PFAS chemicals may have negative health consequences, which has driven the EPA and other stakeholders to better understand the chemicals, the extent of their presence in the environment, their potential health effects and the best methods for containment and cleanup.
EPA’s Action Plan
To develop its action plan, the EPA requested comments, visited with leadership and citizens of PFAS-affected communities, and hosted a PFAS National Leadership Summit in Washington, D.C. in May 2018. The input from these events informed the action plan’s four primary approaches to addressing PFAS: identifying and understanding PFAS; addressing current contamination; preventing future contamination; and effective communication with the public. In connection with these approaches, the EPA developed priority, short-term (< 2 years), and long-term (> 2 years) actions.
One of the EPA’s priority actions is to propose a drinking water regulatory determination for PFOA and PFOS—two of the more common PFAS chemicals. This regulatory determination is the first step in determining whether to establish maximum contaminant levels (MCLs) for these chemicals under the Safe Water Drinking Act (SWDA). Although EPA Administrator Andrew Wheeler anticipates completion of this first step in 2019, promulgation of MCLs will require additional regulatory steps, and is not guaranteed. In addition to its currently available enforcement mechanisms, the EPA is also in the process of defining PFOA and PFOS as “hazardous substances” under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund) in order to increase the agency’s investigation, cleanup and cost recovery authority with respect to the chemicals.
Many of the EPA’s priority, short-, and long-term actions focus on collecting and disseminating information and data toward specific goals. For example, the EPA would like to better understand toxicity and health impacts of PFAS chemicals on humans, develop new analytical methods for detecting PFAS chemicals in drinking water and other environmental media (e.g., soil, sediment and air), identify additional sources of PFAS in the environment, and improve current and advance new investigative and remedial guidance. The EPA has committed to communicate its findings on these issues to the public.
State Responses
Even if the EPA accomplishes its goals in accordance with the general schedule set forth in the action plan, many of the agency’s actions will take years to implement. Moreover, despite the EPA’s recent actions, many states have long believed that the EPA has been moving too slowly to address their concerns about PFAS chemicals and have already implemented their own PFAS-related agendas. For example, earlier this month, the New Jersey Department of Environmental Protection (NJDEP) established interim specific groundwater quality standards (ISGWQS) for PFOA and PFOS at 10 parts per trillion (ppt), which is substantially lower than the EPA’s current Health Advisory Limit (HAL) of 70 ppt combined. Other states are similarly taking aggressive regulatory action to address PFAS in the environment.
Pennsylvania PFAS Action Team
Pennsylvania has also moved to address PFAS contamination at the state level. In September 2018, Gov. Tom Wolf issued an executive order establishing a PFAS action team made up of leaders from multiple commonwealth agencies. Among other things, Wolf tasked the action team with identifying impacted sites and protecting drinking water, developing response protocols, gathering and sharing information and exploring funding for remediation efforts. As of this writing, almost 20 sites across the commonwealth are being investigated for PFAS contamination. In a contemporaneous letter to Wheeler, Wolf also urged the EPA to expeditiously set protective MCLs for PFOA and PFOS and “expand its analytical and regulatory focus beyond drinking water to encompass PFAS reductions across all media.”
PADEP subsequently held a public meeting in November 2018, to educate residents about PFAS, featuring presentations by PFAS experts and opportunities for public comment (a follow-up meeting is planned, but as yet unscheduled). In an apparent response to the EPA’s action plan—which some critics claimed indicated the EPA’s lack of commitment to establishing MCLs for PFOA and PFOS—PADEP appears to be gathering resources to begin the process of establishing its own MCL, a first for the commonwealth.
Impacts to Site Remediation Programs
Cleaning up historic contamination at old industrial properties can be an expensive and time-consuming process. With the increased attention now being given to new and emerging contaminants like PFAS, the site remediation process will no doubt become even more complicated. For example, for sites that are currently being evaluated for cleanup, the lead agency may add PFAS to the list of chemicals that need to be investigated, even if the investigation is already well on its way. Moreover, for sites that have previously been investigated and cleaned up, the lead agency could compel further investigation of PFAS chemicals. Another concern is that agencies may compel action before adequate tools to evaluate, treat, and clean up PFAS are developed. Alternatively, agencies may delay providing parties with regulatory closure at remediation sites as they attempt to come up to speed on the science and incorporate it into their regulatory schemes. All of these scenarios could be costly and time consuming for parties involved in investigations and cleanups.
Litigation
Aside from regulatory concerns, many companies may face threats of lawsuits by parties allegedly injured by PFAS. In one recent complaint filed in February 2019, (Ridgewood Water v. The 3M Company, BER-L-001447-19, N.J. Super. Ct. Law Div.), Ridgewood Water (a public drinking water provider), alleged that 3M and multiple other defendants (including 50 Doe defendants) involved in the manufacture and use of PFAS chemicals contaminated Ridgewood’s wells. The plaintiff alleged the contamination forced it to take some wells out of service and incur costs to develop treatment plans for others. Ridgewood brought causes of action for strict products liability for defective design; 2strict products liability for failure to warn; negligence; and trespass; and is seeking investigation and cleanup costs, compensatory damages for past and future injuries, punitive damages, and attorney fees and costs. We expect to see similar complaints filed in the future.
Conclusion
The regulatory developments concerning PFAS chemicals discussed here are already having significant impacts on stakeholders. Despite the recent release of the EPA’s action plan, it remains to be seen whether and how quickly the agency takes action toward further regulating PFAS chemicals. In the meantime, it is clear that Pennsylvania and other states will proceed with their own action plans, leaving the regulated community with a patchwork of potentially inconsistent and confusing requirements and standards across the country.
Babst Calland Clements & Zomnir will continue to track the EPA’s and the states’ dynamic plans to identify, regulate and respond to PFAS in our communities.
Lindsay P. Howard is a shareholder in the environmental services group of Babst Calland Clements & Zomnir. His practice focuses on issues related to complex site remediation, solid and hazardous waste, natural resource damages, and occupational safety and health for a broad array of clients. Contact him at 412-394-5444 or lhoward@babstcalland.com.
Matthew C. Wood is an associate in the firm’s environmental group. His practice encompasses a variety of environmentally related legal matters arising under major federal and state environmental and regulatory programs, with a focus on issues involving government inquiries, environmental investigations, remediation and related activities. Contact him at 412-394-6589 or mwood@babstcalland.com.
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Smart Business
(by Jayne Gest with Christian Farmakis)
It’s not always easy for business owners to find financing. Most business owners will, at some point, turn to conventional bank lending to help finance their business or fund growth, like acquisitions. There are, however, many different types of financing products available in the commercial lending market. But whatever type of financing you settle on, it’s critical to know exactly what you’re risking.
“Business owners often focus more on ‘getting the loan’ than on the specific terms and covenants of the loan, which in many instances can hinder the ongoing operations of the business,” says Christian A. Farmakis, shareholder and chairman of the board at Babst Calland.
Smart Business spoke with Farmakis about the lending environment and legal risks to keep an eye on.
What are loan options for small and mid-sized business owners?
Since the Great Recession, traditional bank lending has competed with other forms of lending. For instance, business owners are increasingly turning to private equity funding and family office lending rather than traditional, asset-based lending. These options may require sacrificing significant ownership and control over the business.
Other loan types include U.S. Small Business Administration loans backed by the federal government but underwritten by banks, small business loans for real estate financing and equipment loans.
Credit unions and regional and community banks sometimes offer different and more flexible terms and do smaller loans because they service the loan in their portfolio, where a larger bank might have stricter underwriting requirements.
What legal issues could crop up in the term sheet and loan documents?
Loans can include affirmative and negative covenants, but it’s usually the negative ones that trip people up.
Most loans require you to give a personal guarantee, provide certain information on a yearly basis, keep you from spending above a particular threshold on capital expenditures without prior approval, or stop you from taking out more debt. Most financial covenants require compliance with certain ratios, such as a debt to equity ratio; if you exceed those, the lender can theoretically default the loan. A larger loan also may require annual audits or reviewed statements, which can be disruptive and costly if the company is not already having those statements done by a CPA.
Another item to consider is pre-payment penalties, which can be significant but might decline over the first few years of the loan. It’s also not uncommon for a burdensome pre-payment penalty to stall, end or defer the business owner from doing a deal until the penalty is gone.
Therefore, it’s critical to know how the loan terms might restrict your operations and burden you with requirements. Take time to truly understand what events could trigger fees or penalties.
How much room is there to negotiate these terms?
Your negotiating room depends on the financial strength of your business, your growth model and if the bank sees opportunities to cross sell other fee-based services. Healthier, stronger businesses may be able to get items minimized or eliminated, such as fees. In addition, sometimes loans require borrowers to use services like payroll, lockbox or credit card processing. You may be able to disassociate the loan from these services.
You also want to get several quotes because banks have different underwriting requirements. For instance, one lender may require less collateral than others. And while a lot of this relates to the strength of the borrower, it also connects to the bank’s focus. If a lender isn’t interested in lending to a certain industry, it might not give the best terms.
Generally, a first-time, smaller borrower’s loan terms will be standard. You can take it or leave it, so you’re left negotiating interest rate and whether there’s a pre-payment penalty. But bigger borrowers with a solid balance sheet and strong business can prioritize the most costly or burdensome items and see if better terms are possible.
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Institute for Energy Law Oil & Gas E-Report
(by Adam Speer)
Anyone dealing with land and title issues in West Virginia quickly learns the importance of real property assessments. The relative ease in which an interest in land, including mineral rights, can be lost in a tax sale means that landmen and title practitioners who fail to examine a property’s tax assessment history do so at their peril. Those histories are found in the volumes of “landbooks” maintained by each county assessor’s office. A relatively common and beguiling problem arises when the title examiner discovers that a property has been double assessed. Such duplicate assessments are rarely obvious, as assessed interests are often described by brief and vague notations and sometimes assessed in the name of a long-gone predecessor in title.
Recently, in Haynes v. Antero Resources Corporation, Hill v. Lone Pine Operating Company and L&D Investments Inc. v. Mike Ross, Inc., the Supreme Court of Appeals of West Virginia considered the validity of several tax deeds that stemmed from the duplicate assessment of certain oil and gas interests created by the Harrison County Assessor’s Office. In each of the cases, the court reaffirmed its long-standing precedent that holds that in the case of two assessments of the same land under the same claim of title, the state can only require one payment of taxes under either assessment. The cases highlight the potential consequences of duplicate tax assessments of severed mineral interests in West Virginia and the need to have interests properly assessed. The Haynes, Lone Pine and L&D Investment decisions should be maintained in any title practitioner’s toolkit for analyzing interests conveyed by a tax sale and determining the likelihood of a successful challenge to set aside a tax deed.
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