Articles, Alerts & Perspectives

Pipeline Alert

(by James Curry, Keith J. Coyle and Brianne K. Kurdock)

On June 21, 2018, the U.S. House of Representatives, Transportation and Infrastructure Committee, Subcommittee on Railroads, Pipelines, and Hazardous Materials, held an oversight hearing related to the Pipeline and Hazardous Materials Safety Administration’s (PHMSA) implementation of the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (2016 Act) and its predecessor, the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (2011 Act).

The primary focus of the hearing, the first since the appointment of Howard “Skip” Elliott as the new PHMSA Administrator, was the status of several outstanding statutory mandates from the 2011 Act.  Those mandates directed PHMSA to make appropriate changes to the federal pipeline safety regulations to address the National Transportation Safety Board’s (NTSB) recommendations following its investigation of two significant pipeline accidents that occurred in 2010.

The members of the Subcommittee expressed bipartisan concern with PHMSA’s failure to satisfy the mandates from the 2011 Act, which largely address concerns that the NTSB identified following its investigation of pipeline accidents that occurred nearly eight years ago.  As Administrator Elliott acknowledged during the hearing, PHMSA has not yet made all of the changes necessary to address the mandates in the 2011 Act.  Administrator Elliott indicated that some of the mandates will be addressed in a rule relating to the safety of hazardous liquid pipelines that is in the final stages of review.

Other mandates will be addressed in a rule relating to the safety of gas transmission lines that PHMSA recently presented to the Gas Pipeline Advisory Committee, the federal advisory committee that reviews proposed changes to the gas pipeline safety regulations, for consideration.  …

Public Sector Alert

(by John A. McCreary, Jr., Robert Max Junker and Stephen L. Korbel)

In Janus v. AFSCME Council 31, ___ U.S. ___, No. 16-1466 (2018) the U.S. Supreme Court declared that Illinois’ statutory requirement for nonmembers to pay an “agency fee,” intended to support the collective bargaining related expenses of unions representing public employees, violated the First Amendment. The Janus Court reasoned that because public sector bargaining addressed and affected such matters as the allocation of scarce public resources and the cost of public services, “the union speech at issue in this case [collective bargaining and grievance/arbitration proceedings] is overwhelmingly of substantial public concern,” slip op. at 31. The compulsory payment required by Illinois law, therefore, fell squarely within the Court’s precedent prohibiting governmental compulsion of, or interference with, individual expression. The Court concluded that Illinois’ requirement that nonmembers pay agency fees to unions “violates the free speech rights of nonmembers by compelling them to subsidize private speech on matters of substantial public concern.” Janus, slip op. at 1. The Court remanded the case to the lower court for further proceedings, which are likely to consist entirely of a damages calculation.

The Janus decision invalidates Pennsylvania’s Public Employee Fair Share Fee Law, 43 Pa.C.S.A. §1102.1 et seq. (Fair Share Law). The Fair Share Law permits public employers and the unions representing their employees to negotiate the payment of “fair share fees” by nonmembers: “If the provisions of a collective bargaining agreement so provide, each nonmember of a collective bargaining unit shall be required to pay to the exclusive representative a fair share fee.” 43 Pa.C.S.A. §1102.3. The “fair share fee” is defined as the “regular membership dues required of members of the exclusive representative, less the cost for the previous fiscal year of its activities or undertakings which were not reasonably employed to implement or effectuate the duties of the employee organization as exclusive representative.” The law requires any public employer that has agreed to fair share to deduct the amount certified by the union from the pay of each nonmember identified by the union. …

ASA’s The Contractor’s Compass

(by Marc J. Felezzola)

Although every subcontractor begins a project with full expectations of a successful project for which it will receive timely payment, the reality is that some projects encounter financial difficulties. Fortunately, the law provides subcontractors with security against those difficulties in the form of mechanic’s lien or payment bond rights (or sometimes both). This security is not absolute, however, and there are many potential pitfalls along the way about which subcontractors should be aware to ensure their right to the security provided by a lien and/or payment bond is not inadvertently lost. This article provides a general overview of the potential ways in which a subcontractor may lose its payment security during a construction project and provides some general guidance on how to avoid them.

The general concept underpinning a mechanic’s lien is that construction of a building or other structure improves the value of the real estate on which the building or structure is constructed, and therefore, those who furnish the labor and materials for the construction (collectively, “constructors”) should be allowed to put a lien on the title to the property as security for payment for their work. Importantly, the lien is against the property itself rather than the property owner, and therefore, the property serves as the collateral securing the debt owed to the constructor. Thus, in the event of nonpayment, a constructor with a mechanic’s lien can foreclose on the lien and force the sale of the property. The proceeds from that sale will then be used to pay the debt owed the constructor.

This mechanism of providing constructors security works well for privately owned property, where a change in ownership will not have a significant detriment to the general public. …

Environmental Alert

(by Robert M. Stonestreet and Christopher B. Power)

On West Virginia’s 155th birthday, the Fourth Circuit Court of Appeals vindicated the state’s approach to developing plans for improving the quality of its waterways.  The appeals court reversed a lower court decision that concluded West Virginia had failed to timely submit such plans to the federal Environmental Protection Agency (EPA) for approval, which could have required the EPA to supplant West Virginia’s role in developing those plans.  A brief background on the applicable law and circumstances of the litigation will help provide context for understanding the ruling.

The federal Clean Water Act requires states who administer approved water pollution control programs to take certain actions and make a multitude of different submissions to the EPA reflecting those actions.  These submissions include proposed water quality standards, draft permits, reports on the health of a state’s waterways, and action plans to address waterways determined to be impaired.  The Clean Water Act requires the EPA to approve or disapprove certain of these state submissions, such as plans to improve the quality of impaired waters through the development of “total maximum daily loads” for the waterbody (TMDLs).  TMDLs are essentially calculations of the maximum volume of certain pollutants that can be discharged into a waterway and still allow the waterway to achieve compliance with water quality standards – i.e. no longer be impaired.  Once a TMDL is adopted, a “waste load allocation” based on the TMDL is used to calculate effluent limits for those who hold permits to discharge into that waterbody so that the total cumulative discharged concentration of the pollutant at issue does not exceed the TMDL.

Many TMDLs address numeric water quality standards, which as the name suggests, are numeric concentrations of various substances that may exist in waterways without impairing the designated uses of the water.  …

Marcellus, Utica Shale Plays Account for 41 Percent of U.S. Natural Gas Output

The 2018 Babst Calland Report – Appalachian Basin Oil & Gas Industry: Forging Ahead Despite Obstacles; Legal and Regulatory Perspective for Producers and Midstream Operators,  the firm’s annual review of shale gas development activity in the Appalachian Basin, acknowledges an ongoing rebound despite obstacles presented by regulatory agencies, the courts, activists, and the market. To request a copy of the Report, contact info@babstcalland.com.

In this Report, Babst Calland attorneys provide perspective on issues, challenges, opportunities and recent developments in the Appalachian Basin and beyond relevant to producers and operators.

According to the U.S. Energy Information Administration’s May 2018 report, the Appalachian Marcellus and Utica shale plays account for more than 40 percent of U.S. natural gas output, compared to only three percent a decade ago. Since then, the Appalachian Basin has become recognized in the U.S. and around the world as a major source of natural gas and natural gas liquids.

The industry has been forging ahead amidst relatively low natural gas prices, infrastructure building, acreage rationalization and drilling plans that align with business expectations. The policy landscape continues to evolve with ever-changing federal and state environmental and safety regulations and tax structures along with a patchwork of local government requirements across the multi-state region.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “This Report provides perspective on the challenges and opportunities of a shale gas industry in the Appalachian Basin that continues to enjoy a modest rebound. While more business-friendly policies and procedures are emanating from Washington, D.C., threats of trade wars are raising concerns about the U.S. …

Environmental Alert

(by Michael H. Winek, Meredith Odato Graham and Gary E. Steinbauer)

On June 7, 2018, Pennsylvania Governor Tom Wolf and Department of Environmental Protection (DEP) Secretary Patrick McDonnell announced the final issuance of air permitting documents affecting oil and gas operations in the Commonwealth.  DEP shortly thereafter released a suite of new materials to mark the latest step forward in implementing Governor Wolf’s Methane Reduction Strategy.  The new permitting documents are controversial in so far as they represent a significant departure from the status quo, requiring operators to take a fresh look at when and where an air permit may be needed.

The suite of materials recently finalized by DEP includes three key permitting documents: (1) a revised Air Quality Permit Exemption List (with substantial changes to the longstanding “Exemption 38” for well sites); (2) a revision of the existing general permit for natural gas compression and processing facilities, known as “GP-5”; and (3) a new general permit known as “GP-5A” to authorize the construction and operation of unconventional natural gas well site operations and remote pigging stations.  DEP accepted stakeholder feedback on multiple drafts before issuing the final documents, which are all effective August 8, 2018.  The agency also released various ancillary documents, including a Technical Support Document and new permit application forms.

Operators now face the challenging task of adjusting to the new permitting regime.  Although the changes to the program are generally forward-looking—affecting new or modified sources—all operators should become familiar with the applicability triggers associated with Exemption 38, GP-5, and GP-5A.  What may seem like a routine activity at a facility could have unexpected consequences for permitting purposes.  Operators will also want to become familiar with DEP’s new e-Permitting platform for GP-5 and GP-5A, as DEP believes that use of the e-Permitting system will expedite review of applications. …

Babst Calland announced the addition of William L. Godfrey as Director, Mobility, Automation and Safety.

The Firm is expanding its capabilities to support the developing needs of companies with emerging technologies.  It 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 those related to automated/autonomous driving systems.

“Will Godfrey’s expertise and creativity deepens our unique vision to deliver full-stack solutions to clients’ problems that integrate technical and engineering know-how with legal insight to expand business opportunities,” said Tim Goodman, Chair of Babst Calland’s Mobility, Transport and Safety Group, and former National Highway Traffic Safety Administration Assistant Chief Counsel for Enforcement and Federal Senior Executive.

A former General Motors vehicle engineer, production manager and senior U.S. federal regulatory chief at the National Highway Traffic Safety Administration (NHTSA)/U.S. Department of Transportation (DOT), Will Godfrey will assist clients in achieving their business goals and navigating obstacles by applying a current and detailed understanding of the federal government’s approach to transportation safety regulation (particularly motor vehicles), including its programs, processes, and personnel.

Godfrey spent nearly a decade at NHTSA/DOT, where he served in various leadership capacities.  Among other things, as NHTSA’s Trends and Analysis Division Chief, he led the oversight, analysis, and investigation of more than 1,100 vehicle, equipment, tire, motorcycle, and child car seat manufacturers globally, including TREAD Act/Early Warning Reporting Program and the integration of new, data-driven techniques.  As a senior policy advisor to the NHTSA Administrator, he led the agency’s comprehensive reorganization of the NHTSA Office of Defects Investigation (ODI).

“Will Godfrey is well-regarded and uniquely qualified to serve clients with emerging technologies as a senior technical and strategic advisor, integrated with our best in class legal and technical team,” said Donald C. …

Corporate and Commercial Alert

(by Johanna H. Jochum and Kevin T. Wills)

On May 25, 2018, the European Union General Data Protection Regulation No. 2016/679 (GDPR), which limits personal data processing, became effective and enforceable.  Unlike most EU regulations, portions of the GDPR are applicable to companies in third party countries—including companies in the United States.

The extraterritorial ramifications of the GDPR are already apparent.  Many U.S.-based companies that generate revenue from processing large amounts of personal data have recently revised their privacy policies to comply with the GDPR requirements.  However, for companies with business models that do not center on personal data processing, the extent of the GDPR’s reach and application is less clear.

1. What is the GDPR?

In the age of the internet, nearly everyone routinely shares personal data in everyday tasks. The purpose of the GDPR is to protect the “fundamental rights and freedoms” of people who share that personal data by limiting the extent a third party can process that personal data.

The GDPR’s definitions of “personal data” and “processing” are broad enough that most online activities are captured. For example, “personal data” can be “any information” relating to an identifiable person, including a person who can be identified by a username or location ID.[1] Further, “processing” is defined to include activities such as collection, storage or dissemination of personal data.[2]

Generally speaking, no company may process personal data that is distributed during these everyday tasks at all unless the data falls into one of six broad exemption categories: (1) consent; (2) contractual obligations; (3) legal obligations; (4) protection of “vital interests”; …

Energy and Natural Resources Alert

(by Blaine A. Lucas and Robert Max Junker)

In Gorsline, Court Declines to Rule on Broader Issue of Compatibility With Uses in Residential and Agricultural Zoning Districts, but Suggests that Municipalities May Permit Unconventional Natural Gas Drilling in any and all Zoning Districts

The Pennsylvania Supreme Court published its long-awaited opinion in Gorsline v. Board of Supervisors of Fairfield Township on June 1, 2018.  Although the majority reversed the Commonwealth Court’s decision affirming the granting of a conditional use for an unconventional natural gas well pad, it did so in a narrow holding, finding that Inflection Energy, LLC (Inflection) did not present enough evidence before the Fairfield Township (Township) Board of Supervisors (Board) establishing that its proposed unconventional gas well pad was similar to other uses allowed in the Township’s  Residential-Agricultural Zoning District (R-A District).  Unlike most zoning ordinances, the Township’s zoning ordinance did not specifically authorize oil and gas wells.  Instead, Inflection had relied upon a “savings clause,” which allowed uses “similar to” the other uses specifically allowed in the R-A District.

Despite headlines and press releases touting the Gorsline decision as a wholesale rejection of oil and gas development in residential and agricultural zoning districts, its ruling was much more limited.  In fact, language in both the Gorsline majority and dissenting opinions largely rejects the post-Robinson Township assertion of many shale gas opponents that natural gas wells must be relegated to industrial zoning districts and are fundamentally incompatible with residential or agricultural zoning districts.

Background

Babst Calland’s overview of the Commonwealth Court’s September 14, 2015 decision can be found here.  …

Energy Alert

(by David W. Ross, Mark A. Lindsay and Erica K. Dausch)

On May 25, 2018, in In re: Sabine Oil & Gas Corporation, 2018 WL 2386902 (2d. Cir. May 25, 2018), the United States Court of Appeals for the Second Circuit affirmed that a bankrupt energy and production company could reject its gas gathering agreements with a midstream company under Section 365 of the Bankruptcy Code because the gas gathering agreements did not create or involve an interest in real property.

Background
Sabine Oil & Gas Corporation (Sabine), an energy and production (E&P) company, filed for Chapter 11 bankruptcy protection in 2015 in the Southern District of New York.  Prior to its bankruptcy filing, Sabine entered into gathering agreements (the “Agreements”) with Nordheim Eagle Ford Gathering, LLC (Nordheim), whereby Sabine was required to “dedicate” all of the gas it produced in a designated area to Nordheim, which would then gather and treat the gas.  If Sabine could not deliver the minimum required amounts of gas to Nordheim, it was required to make significant deficiency payments.

Section 365 of the Bankruptcy Code permits a debtor to reject pre-petition executory contracts and unexpired leases that the debtor deems to be burdensome, thereby relieving the debtor of the obligation to perform moving forward.  Agreements that involve the conveyance or creation of interests in real property (other than unexpired leases) are generally not subject to rejection under Section 365.

Sabine sought to reject the Agreements under Section 365 because Sabine deemed the terms of the Agreements, including the requirement to make significant deficiency payments, overly burdensome.  Nordheim argued that the “dedications” contained in the Agreements were “covenants that run with the land” and thereby constituted interests in real property that were not subject to rejection under Section 365. …