Articles, Alerts & Perspectives

The “Roundup” Round-Up: Will a Recent Third Circuit Ruling Spell the End for Roundup Products Liability Litigation in Pa. State Courts?

The Legal Intelligencer

(by Casey Alan Coyle and Michael Libuser)

Over 100,000 cases have been brought against Monsanto Corporation nationwide, claiming its Roundup™ weed-killer contains a carcinogenic active ingredient, namely, glyphosate.  Hundreds of such cases are pending in Pennsylvania alone.  But for over 30 years, the U.S. Environmental Protection Agency (“EPA”) has found evidence of glyphosate’s non-carcinogenicity for humans, and in 2015, the EPA determined “that glyphosate is not likely to be carcinogenic to humans.”  EPA, “Glyphosate,” https://www.epa.gov/ingredients-used-pesticide-products/glyphosate.

This long-held conclusion regarding the non-carcinogenicity of glyphosate informed the EPA’s decision to approve a label for Roundup that omitted any cancer warning.  By approving (and reapproving, over decades) Roundup’s label—pursuant to its authority under the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136 et seq. (“FIFRA”)—the EPA effectively foreclosed litigants from asserting state-law product liability claims against Monsanto based on a purported duty to warn for failing to include a cancer warning on Roundup’s label.  This is so because, as the U.S. Court of Appeals for the Third Circuit recently held in Schaffner v. Monsanto Corp., 113 F.4th 364 (3d Cir. 2024), FIFRA expressly preempts any such claims.

To many, Schaffner appeared to provide the last word on the subject.  But some Pennsylvania state courts have declined to adhere to FIFRA-preemption in the wake of the decision.  Last month, for example, the Philadelphia Court of Common Pleas concluded a trial—involving, in part, the same state-law failure-to-warn claim deemed preempted in Schaffner—resulting in a $78 million verdict for the plaintiffs.  Melissen v. Monsanto Co., No. 210602578 (Phila. Cnty. C.C.P. Oct. 10, 2024).  To borrow from Dickens, there appears to be a Tale of Two Courts within Pennsylvania—federal courts (where FIFRA-preemption applies), and state courts (where it does not)—resulting in, among other problems, discord, non-uniformity, confusion, and incentivization of forum-shopping.

FIFRA

FIFRA is a comprehensive regulatory statute that regulates pesticides and empowers the EPA to “supervise the pesticide industry” generally.  Schaffner, 113 F.4th at 372.  FIFRA prohibits manufacturers from misbranding pesticides, including by prohibiting them from omitting certain warnings or cautioning statements that, if complied with, are “adequate to protect health and the environment.”  7 U.S.C. § 136(q)(1)(G).  It also prohibits manufacturers from distributing or selling unregistered pesticides.

The EPA is tasked with determining whether to register a pesticide under FIFRA, a process that requires manufacturers to submit proposed labels for the pesticides, among other things.  Once registered, a pesticide cannot be distributed or sold unless it retains the same composition and labeling as presented to the EPA during the registration process.  Any manufacturer that modifies a pesticide’s preapproved label must apply for an amended registration; failure to do so bars the manufacturer from distributing or selling the pesticide.  The EPA is also charged with reviewing pesticide registrations every 15 years.  Notably, FIFRA contains a “uniformity” provision that prohibits states from imposing “any requirements for labeling or packaging in addition to or different from those required under this subchapter.”  7 U.S.C. § 136v(b).  This provision “mandates nationwide uniformity in pesticide labeling . . . .”  Schaffner, 113 F.4th at 371 (emphasis added).

Schaffner

In Schaffner, a husband and wife sued Monsanto, claiming the husband’s use of Roundup as a professional landscaper and as a property owner caused him to develop non-Hodgkin’s lymphoma and asserting a failure-to-warn claim under Pennsylvania law.  Although they filed their claim in Pennsylvania state court, the case was removed to Pennsylvania federal court, transferred to a California federal court involved in multidistrict litigation (“MDL”) proceedings, and then transferred back to the same Pennsylvania federal court before being appealed to the Third Circuit.  The MDL court rejected Monsanto’s argument that FIFRA precluded the couple from asserting a state-law failure-to-warn claim based on the Roundup label’s omission of a cancer warning.  When the case returned to Pennsylvania—the U.S. District Court for the Western District of Pennsylvania, specifically—the parties settled all aspects of the case excepting Monsanto’s FIFRA-preemption argument, which it expressly reserved for appeal.

On appeal, Monsanto prevailed on its FIFRA-preemption argument.  In siding with Monsanto, the Third Circuit made several rulings that cast (arguably conclusive) doubt on any state-court proceedings that recognize a failure-to-warn claim premised on the omission of a cancer warning on Roundup’s label.  At its core, Schaffner represents a straightforward application of FIFRA’s statutory framework and corresponding precedent.  As the Third Circuit noted, preemption under Section 136v(b) of FIFRA—which, again, prohibits states from imposing different or additional labeling requirements than under FIFRA itself—applies if two conditions are met: (1) the state law imposes a requirement for “labeling or packaging”; and (2) that requirement is “in addition to or different from those required” under FIFRA.  Bates v. Dow Agrosciences LLC, 544 U.S. 431, 444 (2005).  The U.S. Supreme Court has held that a common-law duty to warn satisfies the first requirement.  Id. at 446.

As to the second requirement, the parties in Schaffner sharply disagreed as to its applicability.  This requirement implicates the Supreme Court’s “parallel requirements” test, under which “a state-law labeling requirement is not preempted if it is ‘equivalent to a requirement under FIFRA,’ while it is preempted if it ‘diverges from those set out in FIFRA and its implementing regulations.’”  Schaffner, 113 F.4th at 379–380 (quoting Bates, 544 U.S. 452–453).  The statute operates to preempt “any statutory or common-law rule that would impose [such] a labeling requirement[.]”  Id. at 382.  The test is a simple one—it requires courts to compare FIFRA’s labeling requirement to the state’s labeling requirement “to determine whether a pesticide label that violates the state requirement would also violate the federal one.”  Id. at 380.

Applying this standard, the Third Circuit held that FIFRA preemption applied to bar the couples’ Pennsylvania failure-to-warn claim.  The Court first had to identify the FIFRA labeling requirement to compare it to any state-law requirement.  The Court concluded that the EPA’s “Preapproval Regulation,” i.e., the regulation that prohibited Monsanto from modifying Roundup’s label to include a cancer warning without further EPA approval, is the relevant FIFRA “requirement” for purposes of applying the parallel-requirements test.  In doing so, the Court rejected the couples’ argument that it should only compare the Pennsylvania failure-to-warn “with the statutory definition of misbranding”—without regard to the Preapproval Regulation.  The Third Circuit then applied the parallel-requirements test and found that, accepting the allegation that Monsanto violated Pennsylvania’s duty to warn by omitting a cancer warning on Roundup’s label, the omission did not violate the Preapproval Regulation given that Roundup’s previously approved label omitted a cancer warning.  The test was therefore not satisfied because the FIFRA and state requirements are not equivalent, and accordingly, FIFRA preemption applied.

Subsequent Pennsylvania State Court Rulings

Despite Schaffner and its clear holding regarding FIFRA preemption vis-à-vis Roundup’s label, uncertainty has been sown by subsequent Pennsylvania state-court proceedings.  One example is Melissen, which resulted in a nuclear verdict and is but one of hundreds of similar actions pending as part of the Roundup Products Liability cases in the Philadelphia Court of Common Pleas.  There, Monsanto moved for summary judgment, invoking Schaffner and seeking judgment in its favor on plaintiffs’ failure-to-warn claims under FIFRA preemption.  The court denied the motion, along with Monsanto’s motion for a stay and request that the court certify the FIFRA-preemption issue for immediate appeal.  Monsanto then filed an emergency application for permission to appeal to the Pennsylvania Superior Court, but that, too, was denied.

Although Schaffner is not binding on Pennsylvania state courts, non-adherence to its holding is problematic for several reasons.  For one, and as Melissen demonstrates, the Roundup cases have been catapulted into irreconcilable trajectories.  In federal court, under Schaffner, the Melissens’ failure-to-warn claim would have been preempted; in Pennsylvania state court, it was not.  Meanwhile, state courts in other jurisdictions have begun to follow Schaffner.  See, e.g., Cardillo v. Monsanto Co., No. 2177CV00462, at 12–19 (Mass. Super. Oct. 21, 2024).  This tension presents a classic Erie problem.

Moreover, ignoring Schaffner promotes discord and non-uniformity, which is doubly concerning in this context given FIFRA’s mandate of nationwide uniformity in pesticide labeling.  It also clearly violates the statutory bar on states “imposing labeling requirements that are in addition to or different from the requirements imposed under FIFRA itself.”  Schaffner, 113 F.4th at 371.  If states can unilaterally decide when they can impose additional labeling requirements, e.g., cancer warnings not approved by the EPA, it would undermine FIFRA entirely.

And this raises still other concerns.  States that decide to entertain failure-to-warn claims contra Schaffner will put manufacturers in the intractable position of having to decide between two competing alternatives: follow a federal statute aimed at promoting nationwide uniformity—or attempt to conform pesticide labels to predictions of what one or more states might ultimately require notwithstanding FIFRA.  This dilemma implicates “conflict preemption,” which applies when “it is impossible to comply with both state and federal requirements,” or when “state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”  Roth v. Norfalco LLC, 651 F.3d 367, 374 (3d Cir. 2011) (cleaned up).

A related concern is forum shopping.  “[P]art of the policy underlying preemption . . . is to prevent litigants from forum shopping to achieve a different result in federal court than they could obtain in state court.”  Stone Crushed P’ship v. Kassab Archbold Jackson & O’Brien, 908 A.2d 875, 887 (Pa. 2006).  If state courts refuse to apply preemption under Schaffner, litigants will have the ability to obtain relief in state court that they could not obtain in federal court.

Conclusion

It remains to be seen whether Schaffner will spell the end for the Roundup Products Liability litigation in Pennsylvania state courts.  If not, courts across the Commonwealth will need to grapple with the strong policy concerns raised by permitting state-law failure-to-warn claims in the face of FIFRA.

——————–

Casey Alan Coyle is a shareholder at Babst, Calland, Clements and Zomnir.  He focuses his practice on appellate law and complex commercial litigation.  Coyle is also a former law clerk to Chief Justice Emeritus Thomas G. Saylor of the Pennsylvania Supreme Court.  Contact him at 267-939-5832 or ccoyle@babstcalland.com.

Michael Libuser is a litigation associate at the firm.  He focuses his practice on appellate law and complex commercial litigation.  Before entering private practice, Libuser served as a law clerk to Judge Yvette Kane, Senior U.S. District Judge for the Middle District of Pennsylvania, and then Judge Karoline Mehalchick, U.S. District Judge for the Middle District of Pennsylvania.  Contact him at 717-868-8379 or mlibuser@babstcalland.com.

To view the full article, click here.

Reprinted with permission from the December 5, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.

Final Erosion and Sediment Control General Permit for Earth Disturbance Associated with Oil and Gas Activities Published (ESCGP-4)

FNREL Water Law Newsletter

(by Lisa M. Bruderly, Jessica Deyoe and Mackenzie M. Moyer)

On October 5, 2024, the Pennsylvania Department of Environmental Protection (PADEP) published notice of the final Erosion and Sediment Control General Permit for Earth Disturbance Associated with Oil and Gas Exploration, Production, Processing, or Treatment Operations or Transmission Facilities (ESCGP-4). See 54 Pa. Bull. 6341 (Oct. 5, 2024). ESCGP-4 became effective October 5, 2024, and will expire on October 5, 2029. The current ESCGP-3 is scheduled to expire on January 6, 2025, following an administrative extension from October 6, 2023. PADEP will continue to accept applications for ESCGP-3 until October 11, 2024.

There are several notable differences between ESCGP-3 and ESCGP-4. ESCGP-4 requires that if a discharge approved for coverage under ESCGP-4 subsequently exhibits a condition rendering it ineligible for coverage under the permit, ESCGP-4 requires the permittee to promptly take action to restore eligibility, notify PADEP in writing of the condition, and submit an individual erosion and sediment control permit application to PADEP if eligibility cannot be restored. ESCGP-3 had no such requirement for discharges that became ineligible after approval under the permit.

Under ESCGP-3, weekly inspections of controls were required, as well as inspections following stormwater events. ESCGP-4 adds an inspection requirement following “snowmelt sufficient to cause a discharge” and requires that inspections be documented using PADEP’s Chapter 102 Visual Site Inspection Report form (No. 3800-FM-BCW0271d) or a similar form that contains the same information. ESCGP-4 also requires that “qualified personnel, trained and experienced in erosion and sediment control and post-construction stormwater management” complete the required inspections and outlines requirements for such qualifications. Further, ESCGP-4 requires the initiation of repair or replacement of a best management practice or stormwater control measure (SCM) within 24 hours of discovery of an issue, if there is no likelihood of a pollutional incident. When there is a likelihood of a pollution incident, repair or replacement must occur immediately.

ESCGP-4 also requires that any SCM implemented by an operator that is not in PADEP’s Erosion and Sediment Pollution Control Manual (No. 363-2134-008) or the Water Quality Antidegradation Guidance (No. 391-0300-002) be approved by PADEP. Additionally, operators must document the implementation of each structural SCM using a PADEP form—“SCM Construction Certification Form” (No. 3800-FM-BCW0271j)—and submit this documentation to PADEP within 30 days of completion of construction.

Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

PADEP Presents Update on the OOOOc Rulemaking to the Air Quality Technical Advisory Committee

The Foundation Mineral and Energy Law Newsletter

Pennsylvania – Oil & Gas

(by Joe Reinhart, Sean McGovern, Matt Wood and Alexandra Graf)

On October 10, 2024, the Pennsylvania Department of Environmental Protection (PADEP) presented an update on and summary of OOOOc Rulemaking to the Bureau of Air Quality’s Air Quality Technical Advisory Committee (AQTAC). See PowerPoint Presentation, PADEP, “Emissions Guidelines (EGs) for Greenhouse Gas (GHG) Emissions from Existing Crude Oil & Natural Gas Facilities (40 CFR Part 60 Subpart OOOOc)” (Oct. 10, 2024). On March 8, 2024, the U.S. Environmental Protection Agency (EPA) finalized its rule targeting methane emissions from the oil and natural gas sector (the Methane Rule), which established new source performance standards (NSPS) for facilities built, modified, or reconstructed after December 6, 2022 (OOOOb), as well as emissions guidelines (EG) for states to follow in designing and executing state plans for existing sources (OOOOc). See Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review, 89 Fed. Reg. 16,820 (Mar. 8, 2024) (to be codified at 40 C.F.R. pt. 60). The Methane Rule applies to oil and gas facilities involved in production and processing (including equipment and processes at well sites, storage tank batteries, gathering and boosting compressor stations, and natural gas processing plants) and natural gas transmission and storage (including compressor stations and storage tank batteries). The Rule requires frequent monitoring and repair of methane leaks at well sites, centralized production facilities, and compressor stations using established inspection technologies or, at an operator’s selection, novel advanced detection technologies. OOOOb applies to affected facilities that begin construction, reconstruction, or modification after December 6, 2022, while OOOOc (as implemented by state programs) will apply to sources existing as of that same date. The main differences between OOOOb and OOOOc are the timeframe for compliance and the additional requirements for new wells, particularly relating to flaring and well completions.

Under 25 Pa. Code § 122.3, Pennsylvania will incorporate OOOOc by reference and adopt a State Plan based on the Model Rule. PADEP has until March 8, 2026, to submit the State Plan to EPA. The State Plan must document meaningful engagement, which includes input from PADEP advisory bodies, environmental justice communities, stakeholder outreach and discussion, and public hearings. After the State Plan is submitted, EPA has 60 days to determine completeness and then has one year to approve or disapprove the plan. Under the regulations, EPA has until May 2027 to approve the state plans. The projected compliance deadline for owners and operators will be the first quarter of 2029.

Notably, the Methane Rule has several key subparts. First, it aims to phase out venting and flaring of gas from oil wells because the most significant emissions reductions will come from this directive. The Methane Rule also creates the Super Emitter Program (SEP) for identifying and addressing significant methane leaks from production facilities, including an avenue for qualified third parties to alert EPA of owners and operators exceeding the emissions standards and for EPA to require owners/operators to investigate such alerts. A “super emitter” event is defined as emissions of 100 kg (220.5 pounds) of methane per hour or larger. Further, the Methane Rule is also applicable to storage vessels, as owners and operators of existing tanks or tank batteries will need to evaluate a new applicability trigger under OOOOc. Under the presumptive standard, for existing storage tanks or tank batteries with a potential to emit of 20 tons of methane per year or greater, owners/operators will have to reduce their emissions by 95%.

The Methane Rule also establishes new leak detection and repair (LDAR) requirements based on the type of facility involved, which generally includes well sites, centralized production facilities, and compressor stations where methane is emitted. Additionally, for well closure, fugitive emissions monitoring is required to continue until closure and, once closed, a final optical gas imaging survey must be performed. All pneumatic pump affected facilities in the oil and gas industry and pneumatic controllers must have zero emissions, and natural gas-driven pumps are prohibited except at facilities with fewer than three natural gas-driven diaphragm pumps in areas where other power sources are inaccessible. There are also new requirements for well liquids unloading, centrifugal compressors, reciprocating compressors, covers and closed vent systems, natural gas processing plant equipment leaks, and sweetening units.

PUC Issues Final Regulations for Petroleum Products and Other Hazardous Liquids in Intrastate Commerce
On September 14, 2024, the Pennsylvania Public Utility Commission (PUC) published its Rulemaking Regarding Hazardous Liquid Public Utility Safety Standards at 52 Pa. Code Chapter 59 in the Pennsylvania Bulletin, the purpose of which is to “establish State public utility safety standards addressing localized concerns for hazardous liquid public utilities constructing, operating, and maintaining pipeline facilities.” 54 Pa. Bull. 5729 (Sept. 14, 2024). The rulemaking specifically applies to public utility intrastate hazardous liquid pipelines and facilities. It does not apply to Act 127 of 2011 (the Gas and Hazardous Liquids Pipelines Act), 58 Pa. Stat. §§ 801.101—.1101, pipelines or solely interstate hazardous liquid pipelines. The rule primarily establishes new standards for governing hazardous liquid public utilities (HLPUs) and related activities, such as constructing new pipelines; converting, relocating, or replacing existing pipelines; and reporting requirements. It also includes requirements for operations and maintenance, qualifications for pipeline personnel and land agents, and corrosion control standards for all HLPUs. Currently, there are only two certified HLPUs in Pennsylvania. In addition, the PUC made minor revisions to regulations applicable to gas service.

Among other things, the rulemaking includes requirements for conducting geological and environmental impact studies related to pipeline construction and conducting inspections and maintenance of depth of cover for pipes transporting hazardous liquids, construction, and clearance between pipes and underground structures. The rule also prevents constructing, relocating, or converting pipelines under existing buildings and establishes requirements for girth weld testing. More broadly, the rule is intended to improve communications between stakeholders, including the utilities, the public, local government entities, and others. The PUC reasoned the rule is necessary to reduce the frequency and consequences of incidents involving onshore transmission lines by employing prevention methods and early detection of threats to pipelines. As support, the PUC cited 71 hazardous liquid pipeline accidents in Pennsylvania since 2010 that all resulted in releases or spills, and investigations into 243 incidents of reported subsidence since 2017.

The PUC originally adopted and entered the final-form rulemaking order on February 22, 2024, see Rulemaking Regarding Hazardous Liquid Public Utility Safety Standards at 52 Pa. Code Chapter 59, No. L-2019-3010267, but withdrew it prior to review by the Independent Regulatory Review Commission (IRRC). After resubmission, the IRRC approved the revised final-form rulemaking on June 20, 2024. See Press Release, PUC, “PUC Enhancements to Regulations for Hazardous Liquids Pipelines Receive Approval from Independent Regulatory Review Commission” (June 20, 2024). In response to public comments, the PUC removed many requirements from the final rule that were originally included in its proposed rule. Those included design requirements regarding external loads; 40 inches of depth cover in commercial farmland; standards regarding valves for pipelines transporting highly volatile liquids (federal regulations now require rupture mitigating valves or equivalent technology); pressure testing; leak detection and odorization; determination of need for emergency flow restricting devices; additional criteria for cathodic protection; and close interval survey requirements. The docket for the rule, L-2019-3010267, is available here. The final rule is effective on November 13, 2024.

PADEP Begins Accepting Grant Applications for Plugging Orphaned Oil and Gas Wells
On October 9, 2024, the Pennsylvania Department of Environmental Protection (PADEP) began accepting applications for grants to plug abandoned oil and gas wells. See Press Release, PADEP, “Shapiro Administration Launches New Program in Pennsylvania to Plug Orphan Oil and Gas Wells, Creating Jobs and Cutting Methane Emissions in the Commonwealth” (Oct. 2, 2024). PADEP said that this new program is intended to reduce greenhouse gas emissions from orphaned wells that have the potential to leak methane, while also supporting job growth in the energy sector. An orphaned well is defined by section 3202 of the Pennsylvania Oil and Gas Act as “a well abandoned prior to April 18, 1985, that has not been affected or operated by the present owner or operator and from which the present owner, operator or lessee has received no economic benefit other than as a landowner or recipient of a royalty interest from the well.” According to PADEP, Pennsylvania has more than 350,000 orphaned and abandoned wells, which contribute to approximately 8% of the state’s total methane emissions.

The total amount of available funding is $16.8 million, and applicants can apply to plug up to five wells per application, with subawards based on well depths. A maximum of $40,000 will be awarded for each well that is 3,000 feet or less, and a maximum of $70,000 will be awarded for wells greater than 3,000 feet. The grants are available to Qualified Well Pluggers, defined as a “person who demonstrates access to equipment, materials, resources and services to plug wells in accordance with statutory and regulatory requirements.” An applicant may apply to plug additional wells once the last well under its current application is adequately plugged, PADEP issues a plugging certificate, and all terms and conditions of the grant agreement have been satisfied. All wells must be screened for methane prior to the application process, and for wells where methane is detected, emissions must be measured after application approval, but prior to plugging the well.

The funding is part of the $76.4 million Phase 1 formula grant awarded to Pennsylvania through the Infrastructure Investment and Jobs Act (IIJA). Additionally, per the IIJA, recipients of grant funds must submit environmental information documentation to the U.S. Department of the Interior for approval before beginning work on plugging projects, which contains a project scope and description, Endangered Species Act clearance, and National Historic Preservation Act clearance. More information on the application requirements is available here, and more information about the program is available at the Office of Oil and Gas Management’s website here. PADEP published notice of the program and application period in the Pennsylvania Bulletin on October 5, 2024. 54 Pa. Bull. 6343 (Oct. 5, 2024).

PADEP Publishes Final Erosion and Sediment Control General Permit-4
On October 5, 2024, the Pennsylvania Department of Environmental Protection (PADEP) issued a notice publishing the final Erosion and Sediment Control General Permit-4 (ESCGP-4) for Earth Disturbance Associated with Oil and Gas Exploration, Production, Processing, or Treatment Operations or Transmission Facilities. 54 Pa. Bull. 6341 (Oct. 5, 2024). In September 2024, PADEP published a Comment Response Document to comments it received during the comment period from June 29, 2024, to July 29, 2024, and incorporated those comments into ESCGP-4. See PADEP, Comment Response Document (Sept. 2024). In response to comments, PADEP did not eliminate the expedited review process for the ESCGP-4 permit, and noted that there are minimal differences between ESCGP-3 and ESCGP-4.

However, there are several notable changes and additions in ESCGP-4, including (1) where an approved discharge later becomes ineligible for coverage, the permittee must promptly act to restore eligibility and notify PADEP, or apply for an individual erosion and sediment control permit if eligibility cannot be restored; (2) the imposition of a new 60-day deadline to submit the notice of intent (NOI) before the planned date for initiating any new discharge; (3) a weekly inspection requirement after “snowmelt sufficient to cause a discharge” occurs, which must be completed by qualified personnel who meet the enumerated requirements under the permit; (4) that repair or replacement actions be implemented within 24 hours of discovery of an issue, where ESCGP-3 required immediate action; and (5) for any stormwater control measure that is not authorized by PADEP manuals, the permittee must receive PADEP approval and comply with related requirements.

ESCGP-4 became effective on October 5, 2024, and will expire October 5, 2029. Notices of permit approvals will be published in the Pennsylvania Bulletin. As of October 11, 2024, any NOI for new projects, renewals, subsequent phases, or modifications must be submitted under ESCGP-4. See PADEP, ESCGP-4 Transition Plan (Sept. 2024). Further, PADEP is required to act on all NOIs submitted for coverage under ESCGP-3 by January 6, 2025, due to its pending expiration. However, projects that were authorized for coverage under ESCGP-3 prior to this date will have coverage administratively extended under the terms and conditions of ESCGP-3 for the remainder of the time period of the original coverage. That is, if PADEP approves ESCGP-3 coverage, that coverage remains valid through the permit’s approved expiration date, unless PADEP approves a notice of termination or revokes permit coverage in the interim.

Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

OSMRE Approves Amendment to the Pennsylvania Abandoned Mine Land Reclamation Plan

The Foundation Mineral and Energy Law Newsletter

Pennsylvania – Mining

(by Joe Reinhart, Sean McGovern, Christina Puhnaty and Alexandra Graf)

On August 16, 2024, the Office of Surface Mining Reclamation and Enforcement (OSMRE) approved Pennsylvania’s proposed modification of its Pennsylvania Abandoned Mine Land Reclamation Plan under the Surface Mining Control and Reclamation Act of 1977 (SMCRA) by adding Reclamation Plan Amendment No. 3 to allow the Pennsylvania Department of Environmental Protection (PADEP) to administer a State Emergency Abandoned Mine Land Reclamation Program. See 89 Fed. Reg. 66,563 (Aug. 16, 2024). Pennsylvania submitted Reclamation Plan Amendment No. 3 for approval to OSMRE in 2016. Reclamation Plan Amendment No. 3 covers coordination of emergency reclamation work between Pennsylvania and OSMRE as well as procedures for implementing the National Environmental Policy Act and other Pennsylvania procedures. The Pennsylvania Abandoned Mine Land Reclamation Plan, including its amendments, is available here.

Emergency response reclamation activities involve “enter[ing] upon any land where an eligible abandoned coal mine related emergency exists . . . to restore, reclaim, abate, control, or prevent the adverse effects of legacy coal mining practices and to do all things necessary or expedient to protect the public health, safety, or general welfare.” Reclamation Plan Amendment No. 3, pt. G(I) (citing SMCRA § 410(b), 30 U.S.C. § 1240(b)). Pennsylvania defines an “emergency” in Reclamation Plan Amendment No. 3 as “a sudden danger or impairment or previously unknown condition, related to legacy coal mining, which represents a high probability of substantial physical harm to health, safety or general welfare . . . .” Id. at pt. G(III)(1). Under Reclamation Plan Amendment No. 3, PADEP will perform the investigations and eligibility findings for proposed emergency projects under title IV of SMCRA and will subsequently submit this information to an OSMRE official to make the requisite finding of fact and emergency declarations that are required under section 410(a) of SMCRA. PADEP will coordinate its emergency reclamation projects with OSMRE, in part by following the procedures in the OSMRE Federal Assistance Manual, ch. 4-120.

Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

Streamlining Permits for Economic Expansion and Economic Development (SPEED) Program Announced

FNREL Water Law Newsletter

(by Lisa M. Bruderly, Jessica Deyoe and Mackenzie M. Moyer)

On August 12, 2024, the Pennsylvania Department of Environmental Protection (PADEP) announced the launch of an initiative from the 2024–25 Budget, Fiscal Code H.B. 2310, signed into law by Governor Shapiro on July 11, 2024, to modernize the permit review process. See Press Release, PADEP, “DEP Launches Two New Initiatives from 2024-25 Budget to Continue to Speed Up Permitting Process” (Aug. 12, 2024). The initiative, Streamlining Permits for Economic Expansion and Development (SPEED) Program, is intended to help PADEP reduce backlogs
and process permits more quickly.

The SPEED Program allows permit applicants to use PADEP-verified and qualified third-party contractors to conduct initial reviews of applications for eligible permit types. PADEP was required to issue a request for proposal by mid-October to identify qualified third-party contractors for the SPEED Program. Permits eligible for the SPEED program include air quality plan approvals (state-only) (Pa. Code ch. 127), earth disturbance permits (Pa. Code ch. 102), individual water obstruction and encroachment permits (Pa. Code ch. 105), and dam safety permits (Pa. Code ch. 105). Permit applicants that choose to use a third-party reviewer must pay for any costs associated with the qualified professional’s review of the permit application.

Permits under the SPEED Program are subject to specific timelines established in PADEP’s Permit Decision Guarantee Policy, see Exec. Order No. 2012-11, “Policy for Implementing the Department of Environmental Protection (Department) Permit Review Process and Permit Decision Guarantee” (Nov. 2, 2012), or separate permit decision timelines if agreed to by PADEP and the applicant. The permit decision timeline starts once the qualified professional certifies to PADEP that no conflict of interest exists with the permit applicant.

The qualified professional will perform a technical review of the eligible permit application, then recommend action to PADEP. After receiving the recommendation, PADEP will issue the permit, deny it, or send a technical deficiency letter to the permit applicant explaining necessary changes. Once issues in the application are resolved, PADEP will issue the permit. If issues are not, or cannot be, resolved, PADEP will deny the permit. If PADEP does not issue or deny the permit within the established timeline, the permit application will be immediately elevated for priority review and PADEP will have 10 business days to make a decision. If a decision is not made within 10 business days, PADEP must refund the permit application fee and pay the qualified professional’s cost of the review.

Although PADEP planned to establish a process for the SPEED program by mid-September, as of October 3, 2024, PADEP has not yet published an established process for the SPEED program. SPEED also requires PADEP to create a secure tracking system for applications submitted electronically on PADEP’s website within 180 days of the passage of the bill (i.e., by January 7, 2025), so long as funding is provided. Given this quick timeline, permit applicants may be able to utilize SPEED in the first quarter of 2025.

Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado

The Moving Goalposts of Overtime Exemption: Texas Judge Invalidates 2024 Salary Threshold Rule

The Legal Intelligencer

(by Steve Antonelli and Alex Farone)

Just as many employers were finalizing their 2025 budgets, on November 15, 2024, a federal court in Texas issued a nationwide injunction six weeks before the second of two meaningful changes to the federal overtime law was set to take effect.

Unless specifically exempted, the Fair Labor Standards Act (FLSA) requires covered employees to be paid overtime when they work more than 40 hours during a week.  One group of employees that is exempted from the overtime requirements are those who qualify as executive, administrative, or professional (EAP) employees.  To qualify for this overtime exemption, workers must perform certain job duties and be paid on a salary basis.  Until earlier this year, to qualify for the exemption, workers had to be paid a minimum yearly salary of $35,568.  In other words, those employees who earned in excess of this amount did not have to be paid overtime if they worked more than 40 hours in a week.

In April 2024, the U.S. Department of Labor (DOL) announced a final rule that qualified millions of additional employees for overtime pay because it increased the salary threshold required for the EAP exemption.  The rule was to be implemented in phases. The first phase took effect on July 1 and called for an immediate increase to the minimum salary.  Specifically, the first phase increased the salary threshold for the EAP exemption from $35,568 (which is $684/week) to $43,888 per year (which is $844/week).  To comply with the new rule, employers across the nation had to increase the minimum salary paid to EAP employees by July 1, 2024, to avoid paying overtime to those workers.

The second phase of the new rule required the salary threshold to increase again, this time in a more meaningful way, on January 1, 2025, when the threshold was set to increase to $58,656 (which is $1,128/week).  The new rule also required regular updates to the salary threshold every three years to ensure predictability, reflect changes in earnings, and to protect against the potential for future erosion of overtime protections.

The state of Texas and a coalition of trade associations challenged the rule, claiming that the DOL exceeded its authority when issuing the rule.  Judge Sean D. Jordan of the Eastern District of Texas agreed and recently issued a nationwide injunction that not only invalidated the upcoming second phase that was set to take effect on January 1, 2025, but also invalidated the first phase of the rule, which took effect on July 1, 2024 and has already rendered an estimated one million workers as nonexempt who had previously been classified as exempt from the overtime requirements.  The ruling also invalidates the regular updates every three years.

Practically speaking, where does this leave those employers that have already raised the salaries of exempt employees to meet the July 1, 2024 increase?  Employers should exercise caution in taking any action with respect to existing salaries until we learn whether an appeal will be filed, and the ultimate resolution of any such appeal.  Furthermore, many employers will be hard-pressed to lower a salary increase that may have been given to avoid qualifying certain EAP employees for overtime in accordance with the now-invalidated phase one increase.

Given the uncertainty of the effect of an appeal, employers are similarly left in limbo with respect to the January 1, 2025 increase.  Employers that do not wish to raise salaries on January 1, 2025 in light of the recent decision should budget for the possibility of a successful appeal at some point in 2025, necessitating a later implementation of the contemplated raise to keep these employees exempt under the FLSA.  However, given the upcoming presidential administration change, it is impossible to predict where the salary thresholds will ultimately land.  The current salary thresholds were set pursuant to a 2019 rule issued by the first Trump administration, and it is unclear whether the incoming Trump administration will support the now-voided thresholds rolled out during the Biden administration, the current thresholds originally set in 2019, or an entirely new set of salary thresholds.  Regardless, employers should tread carefully in the coming months when evaluating the amounts that must be budgeted for salaries to ensure exempt employees remain exempt from the FLSA’s overtime requirements.

If you have questions about the status of the now-invalidated DOL rule please contact Stephen A. Antonelli at 412-394-5668 or santonelli@babstcalland.com or Alexandra G. Farone at (412) 394-6521 or afarone@babstcalland.com.

Stephen A. Antonelli is a shareholder in the Employment and Labor and Litigation groups of Babst Calland. His practice includes representing employers of all sizes, from Fortune 500 companies and large healthcare organizations to non-profit organizations and family-owned businesses. He represents clients, in all phases of employment and labor law, from complex class and collective actions and fast-paced cases involving the interpretation of restrictive covenants, to single-plaintiff discrimination claims and day-to-day human resources counseling.

Alexandra G. Farone is an associate in the Employment and Labor and Litigation groups of Babst Calland. Ms. Farone’s employment and labor practice involves representing Fortune 500 companies, startups, public sector organizations, family-owned businesses, health care providers, and the financial services industry on all facets of employment law, including comprehensive human resources counseling concerning restrictive covenants, discrimination and harassment, disability accommodation, grievances, personnel best practices, contract negotiations, wage and hour issues, and collective bargaining.

To view the full article, click here.

Reprinted with permission from the November 26, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.

Best Practice for Conducting an Effective Internal Company Investigation

Pittsburgh Technology Council

(by Kevin Douglass, Carla Castello and Stephen Antonelli)

Today’s businesses are subject to increasing workplace scrutiny concerning possible misconduct of their owners, officers, management, and personnel. When faced with an allegation that can potentially expose the company to legal, financial and reputational harm, it is critical that the company promptly investigate the facts and assess the business risk in order to make an informed decision on the best course of action.

Is an Internal Company Investigation Warranted?

Employee complaints, or even allegations from third parties, concerning improper workplace conduct should always be taken seriously. Whether the claims involve an entry level employee, a manager, a corporate officer, or anyone in between, the company should assess whether the allegations, if true, would constitute violations of law or company policies, or otherwise materially impact the company’s finances, culture, reputation, or workforce.

Workplace investigations are often sensitive. Employees may be reluctant to step forward and become the center of an investigation. They may also fear backlash from the individual(s) being investigated, particularly if they carry significant clout within the company. The company can assuage those concerns by reminding employees involved in the investigation of the company’s obligation to comply with applicable anti-retaliation laws and company policies. The company should also explain that it will perform the investigation with impartiality and (as much as possible) confidentiality, and that it will comply with the organization’s policies and procedures while minimizing business disruption.

Planning for and Conducting the Investigation

At the outset, the company must define the scope and purpose of the investigation (i.e. identify the allegations and the reasons for undertaking the investigation), select an investigation team, and determine a timeline for the investigation. It is important to recognize that the scope may shift as the investigation progresses and information is gathered. The team needs to implement measures designed to protect the attorney-client privilege and the attorney work product doctrine, including defining the roles of both internal and/or external attorneys and determining whether counsel will lead the investigation. The company should also identify the employees who will serve as the points of contact with the investigation team and the frequency and manner in which they will be kept informed of the investigation’s progress.

Another critical consideration is the preservation, collection, and review of key documents, including e-mails and text messages. In that regard, the organization’s document retention policy must be reviewed, and a notice issued to ensure the preservation of relevant communications and other documents that could become evidence in potential subsequent litigation. The team should also evaluate whether to engage a third-party to collect documents in a forensically sound manner from company-issued electronic devices. It is helpful to compile at the outset a list of potential people to be interviewed, including current and former employees, consultants, and any other individuals with pertinent information, including the person(s) who is the target of the investigation. Typically, the target of the investigation will be interviewed near the conclusion of the other interviews.

When planning for interviews, the investigation must balance the need for a thorough investigation while maintaining confidentiality and meeting timelines. How many interviews should be conducted and which interviews are critical to the investigation? It is recommended that the investigation team explain during the interviews the importance of confidentiality and, if counsel is conducting the interview, also emphasize that counsel represents the company, not the individual being interviewed. It is critical to exercise care concerning the manner in which the records witness statements or facts in interview notes, as those notes may become discoverable in potential subsequent litigation. Moreover, attorneys’ impressions or communications of the interviews should be separately recorded and protected.

Concluding the Investigation

As the investigation proceeds, the company should determine whether to prepare a written or verbal report, or materials for a presentation. If issuing a written report, the company should take appropriate steps to ensure confidentiality and privilege where appropriate. The company must then decide whether the investigation team will simply report its findings or take the additional step of recommending a course of action, up to and including disciplinary measures. Ultimately, management, the board of directors, or other decision makers must act in the best interests of the organization and decide what, if any, action is necessary to address the allegations that led to the investigation. At the investigation’s conclusion, the company should inform the complaining employee(s) as well as the target(s) of the outcome while reminding them of the company’s interest in maintaining confidentiality.

To view the full article, click here.

Babst Calland Ranked in 2025 Best Law Firms®

Babst Calland has been recognized in the 2025 edition of Best Law Firms®, ranked by Best Lawyers®, nationally in 8 practice areas and regionally in 38 practice areas:

• National Tier 2
  • Environmental Law
  • Land Use and Zoning Law
  • Litigation – Construction
  • Litigation – Environmental
• National Tier 3
  • Energy Law
  • Mining Law
  • Natural Resources Law
  • Oil and Gas Law
• Regional Tier 1
  • Pittsburgh
    • Bet-the-Company Litigation
    • Commercial Litigation
    • Construction Law
    • Corporate Law
    • Energy Law
    • Environmental Law
    • Land Use and Zoning Law
    • Litigation – Construction
    • Litigation – Environmental
    • Litigation – Land Use and Zoning
    • Municipal Law
    • Natural Resources Law
    • Water Law
  • Charleston-WV
    • Business Organizations (including LLCs and Partnerships)
    • Commercial Litigation
    • Energy Law
    • Environmental Law
    • Litigation – Environmental
    • Oil and Gas Law
• Regional Tier 2
  • Pittsburgh
    • Information Technology Law
    • Labor Law – Management
    • Real Estate Law
  • Charleston-WV
    • Arbitration
    • Banking and Finance Law
    • Commercial Transactions / UCC Law
    • Corporate Law
    • Mining Law
    • Natural Resources Law
  • Washington, D.C.
    • Energy Law
    • Environmental Law
    • Litigation – Environmental
    • Oil and Gas Law
• Regional Tier 3
  • Pittsburgh
    • Litigation – Labor and Employment
  • Charleston-WV
    • Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law
    • Bet-the-Company Litigation
    • Litigation – ERISA
    • Mergers and Acquisitions Law
    • Real Estate Law

Firms included in the 2025 Best Law Firms^® list are recognized for professional excellence with impressive ratings from clients and peers. To be considered for this milestone achievement, at least one lawyer in the law firm must be recognized in the 2025 edition of The Best Lawyers in America^®.

Achieving a ranking in Best Law Firms signifies high-quality legal practice and a depth of legal proficiency. Recognized firms, categorized into three tiers, receive acclaim on both national and metropolitan levels, reflecting the extent of their practice and geographic reach. Receiving a tier designation represents an elite status, reflecting the integrity and reputation earned by law firms.

Receiving a tier designation represents an elite status, integrity and reputation that law firms earn among other leading firms and lawyers. The 2025 edition of  Best Law Firms^® includes rankings in 75 national practice areas and 127 metropolitan-based practice areas. Additionally, one “Law Firm of the Year” was named in each nationally ranked practice area.

Click here to view the Best Law Firms^® profile.

SAY “YES”: Reinventing Yourself in the Legal Profession

The Legal Intelligencer

(by Janet Meub)

Clients come and go. There is no guarantee that you will keep the work. This is true for many reasons. You can win every trial and cost-effectively resolve every case for a client who will transfer the work to another firm or attorney willing to charge a lower billable rate. The claims examiner who directly assigns you cases leaves the insurance company or is replaced. The company’s new general counsel chooses to use her law school classmate for the transactional work you provided for years. Perhaps you do not reciprocate the inappropriate crush the assignor of work has on you (yes, this can happen to women in the law). The court rules in your client’s favor, eliminating 20 cases nationwide. A corporate client is sold or goes bankrupt. Or maybe the work stays (and stays…), and you want to leave! You will land new clients or land on your feet in a more supportive environment if you embrace the unfamiliar by saying “yes” to new work, experiences and opportunities.

******

I graduated from law school in 2001 and began working at a 15-attorney general practice firm in Youngstown, Ohio. My first “litigation” experience occurred the day after my swearing-in ceremony. A partner sent me to the Mahoning County Courthouse to take a debtor’s exam. I was nervous about my lack of experience, afraid to appear “green,” and uncomfortable asking the 60-some year-old debtor probing questions about his obviously precarious financial situation. Despite being asked out by the debtor and my pen leaking ink all over my face and new suit, I walked back to my office with confidence. However, my anxiety and discomfort in the face of new professional opportunities has never fully dissipated, and that’s okay.

During my first two years of practice, my assignments were varied – from attending workers compensation hearings on behalf of employers to assisting a university client on real estate and land bank transactions, filing residential foreclosures, and fighting traffic tickets in municipal court (for the managing partner because “it was good courtroom experience”) to attending bankruptcy hearings on behalf of creditors, and more. With the bottom name on the firm letterhead, it was my responsibility to answer the cold calls from people “looking for an attorney to do X, Y and Z.” Feeling the pressure to bring in my own work and demonstrate my value to the firm, I took on a child custody case and a dispute with a mortgage company from these calls. I was frantically researching different areas of the law to find the answer to that day’s dilemma. I was, as they say, a jack of all trades, master of none. I longed to be an expert on one topic.

A law school classmate tipped me off about a job at a firm in Pittsburgh where I could increase my salary and perhaps hone my skills in one practice area. I moved to Pittsburgh in 2003 to start anew. This would be my niche. For the next 15 years, I defended physicians, podiatrists, counselors, psychiatrists, dentists, nurses, and chiropractors in negligence cases. While every case required mastering some new (to me) aspect of medicine, the procedural course (preliminary objections, discovery, depositions, expert review, summary judgment, trial) and the legal theories remained the same. I made partner. And, as I had hoped, I was able to navigate my clients through the legal process and manage the emotional trauma of having their professional reputations publicly questioned. I will not say that it was without its challenges, but my practice became routine. I knew what to do and when. I knew what experts to engage depending on my clients’ specialties or the medical issues involved.

For whatever reason, at every one of my firms, I am the attorney that coworkers seek when a friend or family member needs help. A partner at one of my first firms bought me a Lucy from Peanuts “Psychiatric Help 5 ₵/The Doctor is In” sign to hang on my office door, commenting that there was always a line to see me. Save for a few times when the matter was too complicated or required special experience (taxes!), I have generally said “yes” when asked to assist. While helping people makes me feel good, the pressure I place on myself (to do a good job, to not disappoint, to get up to speed while juggling a full caseload) and the scary uncertainty when tackling something new is intense. All of these exercises outside of my comfort zone were confidence-building and exposed me to new people and new challenges. In the long run, saying “yes” has paid off.

Through my med mal defense work, I became friendly with an experienced plaintiff’s attorney. He called me one day and asked me if he could recommend me to a non-profit to review its vendor contracts and provide general legal advice from time to time. He knew I was not a transactional attorney as we had tried two cases against each other in court, but he said that he knew the client would like me. He was sure about me, even if I was not sure about myself. What began as an occasional contract review led to more employment and professional liability work. I have done legal work for that same non-profit for the past eight years. It followed me to my current firm.

Another time, one of my partners asked me if I might handle the labor negotiations for a successor collective bargaining agreement for one of his clients. He was nearing retirement, wanted to transition out of the labor practice, but he also wanted to keep the work at the firm. He promised the client that he would stay involved “while training someone younger.” Then, at not the ideal time for me, dealing with two sudden family emergencies, I was asked to take on labor negotiations for a client two hours away (pre-pandemic, pre-Zoom). But, I said, “Yes, and I loved the work. Ultimately, this led to assisting another colleague with labor negotiations and helping with his employment caseload. I said to a friend who wanted to submit my resume for an employment litigation position, “Why not,” and here I am.

I have listened to attorney friends bemoan their circumstances at lunches and happy hours for more than two decades. A law school classmate asked me years ago if she should leave her firm because she felt that she was not getting the trial experience she wanted. My friend worked for a partner who never let her sign the pleadings she drafted or contact the client directly. She agonized over her situation, but she stayed at her firm making partner on schedule. However, it was 15 years before she finally tried a case on her own! Another friend was hired to work in a practice group that left three months after his joining the firm, but he has remained there for years doing “mind-numbing” work and is paralyzed at the thought of starting over.

You may have your own fears and insecurities. You may have achieved a status you are unwilling to lose. You may truly be stuck in your current position because of age or finances. However, it is possible to improve your work situation without uprooting yourself. For example, saying yes to taking on new work or a pro bono or a best interest case, handling a landlord-tenant dispute, serving as a guardian ad litem, or representing an indigent client may provide new experiences, and also, you may discover a new “you” after all.

Janet Meub is senior counsel in the Litigation and Employment and Labor groups of Babst Calland. She has significant experience in the areas of employment and labor law, professional liability defense, insurance coverage and bad faith litigation, toxic tort litigation, nursing home negligence, and medical malpractice defense. She has a diversified practice that includes defending employers, healthcare providers, law enforcement and other professionals, and non-profits, at all levels of civil litigation through trial. She may be contacted at jmeub@babstcalland.com or 412-394-6506.

To view the full article, click here.

Reprinted with permission from the October 18, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.

Babst Calland Hosts Inaugural Client CLE Day at Acrisure Stadium

Latest Developments In Policies, Laws and Regulations Shaping the Future of Business and Industry

On October 16, 2024, Babst Calland hosted its inaugural Client CLE Day at Acrisure Stadium. This full-day continuing legal education (CLE) program addressed the latest developments in policies, laws, and regulations shaping the future of business and industry. Topics included challenges facing in-house counsel, climate change litigation, the politics of energy law, ethical considerations for internal investigations, the end of the modern administrative state, and much more. In addition to offering high-quality CLE programming, the event featured tours of Acrisure Stadium and a tailgate-themed networking reception.

Below are the topics discussed in the various sessions throughout the day representing the legal and regulatory perspectives of Babst Calland attorneys across a wide spectrum of legal practice areas:

• Appalachia Appeal: Pennsylvania and West Virginia Appellate Roundup
  This CLE presented by attorneys Casey Coyle, Michael Libuser, and Robert Stonestreet provided a survey of important, headline-grabbing Pennsylvania and West Virginia civil appellate cases decided within the last two years or currently pending before an appellate court in either state. The topics of the appeals included nuclear verdicts, jurisdiction, venue, forum non conveniens, arbitration, environmental law, liability, royalty, and damages.
• Proactive Strategies to Prevent and Handle High-Stakes Environmental Litigation
  This experienced panel, comprised of Babst Calland corporate attorney Ben Clapp, consultant Kurt Herman of Gradient, and Babst Calland litigators Jim Corbelli and Christina McKinley discussed the various considerations that inform environmental litigation concerns, from their inception (e.g., contractual negotiations and drafting) to their conclusion (e.g., through trial and appeals). The panel also discussed the implications of, and strategic calls presented by different fora, whether federal court or state tribunals. The discussion examined common and unique pitfalls in the process, as well as hypothetical scenarios.
•  The Politics of Energy
  A panel discussion about how upcoming elections on the national and local level may impact energy policy and development. The panel was moderated by Tim Miller, co-chair of Babst Calland’s Energy Litigation team, with analysis and commentary by Jim Curry, Managing Shareholder of the Washington, D.C. office of Babst Calland, and A. Moore Capito, recent candidate for Governor of West Virginia and former member of the West Virginia legislature.
• Breaking Down SCOTUS’ Recent Administrative Law Decisions: How (Loper) Bright Is the Future for Regulated Entities?
  The final days of the Supreme Court’s October 2023 Term saw the issuance of major administrative law decisions that have the potential to reshape how the public and regulated entities interact with the federal government. Panelists Kevin Garber, Keith Coyle, and Stefanie Mekilo provided a comprehensive overview of that trio of decisions—Loper Bright v. Raimondo; Corner Post v. Board of Governors of the Federal Reserve System; and SEC v. Jarkesy—and explored the new opportunities they could bring for regulated entities with robust discussion of what these decisions did (and did not) say, as well as what they mean for agency authority, adjudications, and enforcement actions moving forward.
• Key Developments in U.S. Climate Change-Related Litigation, Regulation, and Legislation
  Panelists Gary Steinbauer, Varun Shekhar, and Gina Falaschi Buchman covered key recent developments in climate change law in the United States. In addition to a discussion of pending and recently decided state and federal cases, the panel discussed newly enacted and proposed climate-change legislation, proposed and promulgated regulations, rule challenges, and climate-related financial disclosure laws and regulations.
• Legal Ethics in the Age of AI: What In-House Counsel Need to Know
  This session explored the intersection of legal ethics and artificial intelligence (AI) and the evolving landscape of AI and its implications for legal professionals. Panelists Chris Farmakis, Susanna Bagdasarova, and Justine Kasznica discussed the ethical challenges and opportunities facing both in-house and outside counsel when leveraging AI tools. Attendees gained practical insights into developing internal AI use policies and best practices and understanding and addressing key risks associated with AI implementation by employees and third-party vendors, including bias, intellectual property, data privacy, and cybersecurity.
• Inside the Investigation: Ethical Challenges in Internal Inquiries
  “Inside the Investigation: Ethical Challenges in Internal Inquiries” was a panel discussion that delves into the nuts and bolts of internal corporate investigations, offering a behind-the-scenes look at how these inquiries are conducted from start to finish. Panelists Steve Antonelli, Erin Hamilton, and Carla Castello broke down key phases such as planning, evidence collection, interviewing, and reporting, providing practical insights and exploring common pitfalls, best practices, and strategies for navigating confidentiality, conflicts of interest, and privilege issues while adhering to professional conduct standards. This session aimed to equip legal professionals with the knowledge to effectively navigate the complexities of internal inquiries with confidence and precision.
• Challenges Facing In-House Counsel
  In-house legal counsel have a unique role as both lawyers and business partners with their internal clients. As a result, they must often act as both legal and business advisors in navigating the challenges faced by their businesses; often at the same time and while justifying their status as cost centers versus capital creators. This panel, led by Babst Calland’s Jim Chen, formerly VP of Public Policy and Chief Regulatory Counsel of Rivian, with panelist Sara Antol, Babst Calland corporate and commercial attorney and former General Counsel of Tollgrade Communications, and special guests Jim Miller, COO and General Counsel of Mongiovi & Son and Jessica Sharrow Thompson, Senior Counsel EHS & Sustainability of PPG, examined the unique role of in-house counsel, the challenges they face and some of the ways panelists have creatively stood up to those challenges in creating value for their companies and themselves.

As developments in policies, laws, and regulations shape the future of businesses and industries, Babst Calland’s multidisciplinary team of attorneys continues to stay abreast of the many legal and regulatory challenges. For questions about any of the topics discussed, please contact the attorneys listed above. For more information about Babst Calland and our practices, locations and attorneys, visit babstcalland.com.

Press Pause: SCOTUS Says an Appeal of Denied Request to Compel Arbitration Must Stay Case

Pretrial Practice & Discovery

American Bar Association Litigation Section

(by Alexandra Graf)

Navigate the Current Uncertainty on FinCEN Matters

PIOGA Press

(by Christian Farmakis, Susanna Bagdasarova, Kate Cooper, and Dane Fennell)

By now, you have likely heard about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) Beneficial Ownership Information Reporting Rule (the “Rule”) from your accountant, attorney, or business colleagues. Promulgated under the Corporate Transparency Act (“CTA”), the Rule requires most business entities to disclose information to FinCEN about their ‘beneficial owners’: individuals who directly or indirectly own or control such entities.

Enacted as part of the Anti-Money Laundering Act in 2021, the CTA is intended to “prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.” The Rule aims to enhance transparency and support the mission of the CTA by requiring domestic and U.S. registered foreign entities to report information about their beneficial owners to FinCEN. Most entities in the U.S. will likely be required to comply with the Rule, and FinCEN estimates approximately 32 million business will be required to make a filing. The Rule exempts 23 types of entities from reporting requirements, primarily large or regulated entities already subject to various reporting requirements, such as banks, SEC-reporting companies, insurance companies, and ‘large operating companies’, as well as wholly owned subsidiaries of the foregoing. Entities formed before January 1, 2024, have until 2025 to comply, while entities formed in 2024 have a 90-day compliance period.

Under the Rule, reporting companies must provide detailed personal identifying information for each individual beneficial owner, including name, date of birth, residential street address, and unique identifying number (such as a passport or driver’s license number). A ‘beneficial owner’ is a natural person who directly or indirectly owns or controls at least 25% of the ownership interests of a reporting company or who exercises ‘substantial control’ over the reporting company. Both ‘substantial control’ and ‘ownership interests’ are defined broadly to prevent loopholes allowing corporate structures to obscure owners or decision-makers. Companies formed after January 1, 2025, must also provide this information for ‘company applicants’, the individuals who make or direct the filing of a reporting company’s formation or foreign registration documents. The Rule also requires supplemental filings to be made within 30 days of any change to any of the reported information, for example, a change in residential address. Businesses will need to monitor changes in ownership and management throughout the year for compliance purposes.

FinCEN is authorized to disclose the reported information upon request under specific circumstances to federal agencies engaged in national security, intelligence or law enforcement activities and to state local and tribal law enforcement agencies, as well as certain other limited entities. Failure to comply with the requirements may result in potential civil and criminal consequences, including civil penalties of up to $500 per day a violation has not been remedied and criminal penalties of $10,000 and/or up to two years in prison for willful noncompliance.
The future of enforcement is uncertain as the Rule is currently being challenged in the courts on constitutional grounds. Reporting requirements have been paused for certain entities following an injunction issued by the Northern District of Alabama on March 1, 2024, which ruled the CTA unconstitutional because it exceeds Congress’s enumerated powers. With this and other cases challenging the validity of the Rule making their way through the courts, what should companies do in the meantime? Given the uncertainty about the constitutionality of the Rule and future enforcement, we recommend the following:

• New entities formed or registered on or after January 1, 2024, and before January 1, 2025, should comply with the applicable reporting requirements and make their filings within 90 calendar days after formation or registration.
• Existing entities formed or registered prior to January 1, 2024, should begin their reporting analysis now to ensure compliance in advance of the New Year’s deadline.

Every entity organized under U.S. law or registered to do business in the U.S. will need to determine (i) whether it is exempt from reporting requirements and (ii) if not, what information it must report. Companies with simple management and ownership structures may be able to navigate the filing on their own. However, where complex management or ownership structures or uncertainty about determinations of beneficial ownership or substantial control exist, an attorney can help you avoid missteps.

To view the full article, click here.

Reprinted with permission from the October 2024 issue of The PIOGA Press. All rights reserved.

Zoning Enforcement Pitfalls and How to Avoid Them

The Legal Intelligencer

(By Max Junker and Morgan Madden)

Ordinance enforcement is an essential function for a municipality to keep its residents and community functioning efficiently.  Indeed, the goal of zoning enforcement is to “ensure compliance with [an] ordinance such that the community is protected.  Borough of Bradford Woods v. Platts, 79 A.2d 984 (Pa.Cmwlth. 2002).  The Pennsylvania Municipalities Planning Code (“MPC”) sets forth a straightforward mechanism to enforce a municipality’s zoning ordinance, but what happens when that enforcement process goes haywire?  Small and seemingly innocuous departures from the specific requirements of the enforcement process and the provisions of the MPC can have significant and cascading consequences.  Crossing and dotting the proverbial “t’s” and “i’s” at each step of the process will help to ensure the effective administration of a zoning ordinance.

An Effective Ordinance

Pursuant to the MPC, zoning ordinances may contain “provisions for the administration and enforcement” of such ordinance.  53 P.S. § 10603(c)(3).  Despite the apparent optional nature to include such enforcement provisions in a municipality’s ordinance, inclusion of the same is fundamental to successful enforcement and must comply with the enforcement provisions in the MPC.  An effective enforcement provision will put property owners on express notice of their rights and responsibilities relative to zoning ordinance compliance, and the enforcement procedures relative thereto.  Effective ordinances clearly set forth policy goals for zoning ordinance compliance, establish expectations for compliance, and lay out the steps the municipality will take to enforce said expectations (i.e., its enforcement procedure and available remedies).

The Zoning Notice of Violation

The first official step in zoning enforcement for a municipality is the issuance of an enforcement notice.  Section 616.1 of the MPC sets forth explicitly what must be included in a zoning notice of violation (“ZNOV”).  A ZNOV must include: (1) the name of the owner of record and any other person against whom the municipality intends to take action; (2) the location of the property in violation; (3) a description of the specific violation and the requirements in the applicable ordinance sections that have not been met; (4) a specific timeline for compliance; (5) specific appeal entitlements; and (6) notice that failure to either remedy the violation or appeal constitutes a violation with possible sanctions clearly described.  53 P.S. § 10616.1.

Although the ZNOV requirements in the MPC are seemingly straightforward, it is not uncommon for an enforcement officer to inadvertently stray from those requirements and render the enforcement process ineffective.  For instance, it is important to perform due diligence in identifying the owner, or owners, of record and each of those individuals must be named on the ZNOV.  Failing to list all record owners on the ZNOV could render the ZNOV invalid or hinder further enforcement avenues.  A simple assessment search can help avoid this issue.  Once all owners are identified, best practice is to include the names of all owners on the ZNOV and mail a copy via certified mail to the registered address of each individual owner, even if they live at the same address, and to post the property with the ZNOV.

Another common ZNOV mishap is the failure to identify the violation with sufficient specificity. The Commonwealth Court has regularly held that failure to include a citation to a specific ordinance section alleged to have been violated will render a ZNOV invalid.  See, Twp. of Maidencreek v. Stutzman, 642 A.2d 600 (Pa.Cmwlth. 1994) (stating that, “as used in [S]ection 616.1(3),” the term “cite” means a “specific numerical reference to the ordinance section which the township asserts the landowners have violated”).  Simply alleging that the “zoning ordinance” or even a chapter thereof has been violated is insufficient.

Keeping in line with specificity requirements, direct references to the timeline for compliance and a property owner’s appeal rights are necessary in a valid ZNOV.  It is strongly encouraged that ZNOV drafters avoid phrases like “in two weeks” or “by the end of the month,” and instead provide a property owner with a (reasonable) date by which to remedy the violation.  Similarly, simply informing a property owner of an entitlement to an appeal of a ZNOV does not pass muster.  The law requires that a property owner be informed of the right to appeal a ZNOV to the Zoning Hearing Board and the time period to do so.  Such a notification should relate directly to the appeal procedure laid out in the municipality’s ordinance.

The Magistrate Action

If a (valid) ZNOV is issued and no appeal is timely lodged, the municipality may continue its enforcement efforts before a Magisterial District Judge (“MDJ”).  Prior to 1988, municipalities could charge violating property owners with a criminal summary offense and zoning violations could be met with jail time for failure to pay fines.  Following a 1988 amendment to the MPC, however, the available remedies for zoning violations were limited to civil penalties of $500 per day.  Thus, if judicial intervention is necessary for a municipality to achieve compliance with its zoning ordinance, the proper avenue for doing so is via the initiation of a civil complaint.

Civil complaints filed with an MDJ should be completed using the state-wide civil complaint form.  At first glance, the form requires straightforward information – names and addresses, the amount of the judgment sought, and a citation to the ordinance violated.  It is not uncommon for zoning officers to simply fill out the “blanks” on the civil complaint form and submit it; however, engagement with the municipal solicitor is likely worth the effort (and fees) to produce a sound and comprehensive complaint.  While unnecessary, a detailed narrative setting forth the enforcement proceedings to date and attaching copies of the subject ordinance sections, ZNOV(s), and other relevant documents not only provides the MDJ with a thorough picture of the circumstances surrounding the violation and enforcement efforts, but also helps to develop a record that may become valuable if further Court involvement becomes necessary.

For instance, in the event the MDJ issues a judgment against the property owner, and that property owner continues to flout the requirements of the zoning ordinance by failing to remedy the underlying violation, a municipality may want to seek injunctive or declaratory relief from a Court of Common Pleas.  In those cases, having a well-established record, complete with documentary evidence of the municipality’s prior enforcement efforts, will pave a path to more likely success.

Appeal and/or Further Enforcement

If, on the other hand, a property owner does timely appeal a ZNOV, the matter will be heard by the municipality’s Zoning Hearing Board (“ZHB”).  Often, particularly if a municipality’s administration is confident that a ZNOV will be upheld by the ZHB, it will send just one individual (likely the zoning officer) to the hearing.  Simply put, that is almost always a mistake.  ZHB hearings should be taken seriously and prepared for as if they were high-stake court cases because, well, they could ultimately become just that.  Many landmark cases that drive how municipalities craft and manage their zoning ordinances originated from challenges heard before ZHBs.

Solicitor involvement in the preparation and litigation of ZHB matters is, again, not necessary but often worth the expense.  The MPC requires the municipality to present its evidence first.  Best practice is to prepare to present the most comprehensive case possible before the ZHB.  This includes the preparation and presentation of demonstrative exhibits, including the ordinance sections at issue, copies of any correspondence with the property owners, the applicable ZNOV, photographs, etc.  When considering how to present exhibits, it is also important to contemplate who would best serve as a witness.  Most often, the zoning officer is most poised to walk through the pertinent exhibits, but not always.  Sometimes a municipal manager or board member has a good grasp on why a particular ordinance section was adopted or the property standard it was intended to uphold, other times a neighbor may be able to comment on how the alleged violation is detrimental to the health and welfare of the municipality.

Like with matters that appear before an MDJ, the establishment of a robust record may seem tedious, but the implications of not taking the additional preparatory steps may ultimately lead to a harder row to hoe when compliance with the zoning ordinance is not achieved.

Zoning enforcement can be a straightforward process, but straightforward should not mean lax.  Accurate and thorough documentation, including ZNOVs that comply with the requirements of the MPC, and complete records built before either the MDJ or ZHB, is the best way to avoid falling victim to the oft-repeated pitfalls in Pennsylvania zoning enforcement.  Moreover, this procedure is specific to zoning ordinances and there is an entirely different procedure for enforcing other ordinances regulating property maintenance, grading, or stormwater.  Our team of well-experienced attorneys regularly assists municipal and private clients in navigating all these processes.

Robert Max Junker is a shareholder in the public sector, energy and natural resources, and employment and labor groups of Babst Calland.  Contact him at rjunker@babstcalland.com .  Morgan M. Madden is an associate in Babst Calland’s Public Sector, Energy and Natural Resources, and Employment and Labor Groups and focuses her practice on land use, zoning, planning, labor and employment advice, and litigation.  Contact her at mmadden@babstcalland.com.

To view the full article, click here.

Reprinted with permission from the October 10, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.

Legislative & Regulatory Update

The Wildcatter

(by Nikolas Tysiak)

All the cases of interest this time around are from Ohio’s 7th Circuit Court of appeals. Only a couple directly involve the Marketable Title Act and Dormant Mineral Act, so more to digest this time.

Hogue v. PP&G Oil Company, LLC, 2024-Ohio-2938 (7th Dist.), involved a dispute arising from operations under different depths associated with a single oil and gas lease following a leasehold depth severance. PP&G held 4 traditional, vertical oil and gas wells in Monroe County. PP&G assigned a 2.5% working interest in the wells and 20-acre squares around the units to the Hogues in 2007, “from the surface to the bottom of the deepest producing geological formation.” The wells bottomed out around 2,500 feet. In 2011, PP&G subleased various of its lands, including the lands affected by the above wells, to HG Energy LLC as to depths from the top of the Clinton formation to the basement. The sublease was later amended to exclude the land around certain wells, and eventually became vested in Gulfport Appalachia LLC. The Hogues allege that the assignment of working interests to them do not contain express depth restrictions, that they held rights to the land itself surrounding the several wells, and that the sublease of the deep rights under the lands therefore violated the Hogues’ property rights. The 7th District Court found that, at the time of the assignment to the Hogues, there was an inherent depth limitation to unitized vertical wells under Ohio law of 4000 feet. Consequently, the Hogues received no rights deeper than 4000 feet and had no inherent interest in any depths or wells subleased to Gulfport. The appeals court remanded the suit to the trial court for further proceedings accordingly.

Henderson v. Stalder, 2024-Ohio-3037 (7th Dist.). This is a case involving the Dormant Mineral Act (“DMA”). Specifically, the Henderson heirs, successors to the last known mineral owner before abandonment proceedings by the surface-owning Stalders, claimed that the Stalders search for the purposes of providing notice of the Henderson heirs rights to preserve, were insufficient. The Hendersons claim that key records were locatable via the internet at the time the surface owners’ title examiner undertook its search and should have utilized such records to perform additional research to locate the Henderson heirs. The Appeals Court disagreed with this argument, finding that notice by publication was the appropriate course of action in this instance. However, the Appeals Court also determined that the publication notice requirements under the DMA require reference to the name of a last known holder. Because the Stalders notice by publication did not include such a reference, the abandonment was not completed, and the court sustained the complaint of error by the Hendersons. As a natural outgrowth of this determination, the Appeals Court found that claims under the Marketable Title Act by the Hendersons that were avoided by the trial court now had to be subjected to trial, and so remanded the case accordingly.

Cardinal Minerals, LLC v. Miller, 2024-Ohio-3121 (7th Dist.). This case is directly connected to a similar case from earlier this year, addressed in the last update, but covers different lands owned or claimed by the same parties. Cardinal Minerals LLC brought suit claiming that a severed mineral interest had been preserved in contradiction to a Dormant Mineral Act claim by the surface owners, the Millers. Cardinal Minerals purchased the severed mineral interests from the Pfalzgrafs, heirs of the original severing parties, and claimed that the DMA action of the surface owners was improper for failing to serve notice on the Pfalzgraf heirs.

The Court of Appeals sidestepped the claim of Cardinal Minerals that the notice requirement under the Dormant Mineral Act was not properly adhered to, instead determining that Cardinal Minerals unlawfully “purchased a lawsuit” under the Doctrine of Champerty (Champerty being defined as “assistance to a litigant by a nonparty, where the nonparty undertakes to further a party’s interest in a suit in exchange for a part of the litigated matter if a favorable result ensues . . .”). The court further stated that the assignment of rights to a lawsuit is void as champerty. For these reasons, Cardinal Minerals’ claims were denied; the Court of Appeals effectively ignored the question of whether the surface owners followed the Dormant Mineral Act requirements by providing notice to the known successors to a reserving title interest holder pursuant to wills and intestate succession. It appears that the 7th District is, once again, doubling down on reasons to validate DMA procedures of questionable value, so it is suspected that additional appeals will follow.

Myers v. Vandermark, 2024-Ohio-3205 (7th Dist.). Another Marketable Title Act case was decided in the 7th Circuit (MTA). Myers owns surface rights to a tract of land in Harrison County, Vandermark is the current holder of severed oil and gas rights under the same. Myes claimed that root of title was a deed dated November 19, 1953, and that for the 40-year period following root of title there was nothing that preserved Vandermark’s severed oil and gas interest, resulting in the same extinguishing to the benefit of Myers on November 18, 1993. According to representations by both parties, the same land and interests had been subject to a lawsuit determining that Myers had somehow failed to properly claim ownership of the minerals at issue through the Dormant Mineral Act (DMA) per a prior court order from 2017. In the prior case, Vandermark claimed ownership had been settled and the instant suit was barred under res judicata, and his title had been quieted, while Myers claimed that the prior suit had no bearing on the current, as the MTA issues had not been the subject of litigation. The doctrine of res judicata is broadly the concept that, once an issue has been determined by a court order, the same issue cannot be the subject of another suit based on the same facts. The trial court agreed with Vandermark and found that the new attack on Vandermark’s property interest was “without standing and lacks merit.” The Appeals court found the trial court’s determination to be erroneous – Myers had standing because he was a party with an interest or claim in the land at issue, so he had a real interest in the outcome of the case. The Appeals Court also found that res judicata MAY apply, but that such a determination had been made prematurely. It should have been done through a motion for summary judgment because it required information not then of the record. Instead, the case had been dismissed pursuant to a motion to dismiss, which is generally reserved for situations where, taking all the parties’ allegations as true, there is no actual issue to be resolved. The Appeals court remanded the case back to trial for further determinations along these lines.

EAP Ohio, LLC v. Sunnydale Farms LLC, 2024-Ohio-4522 (7th Dist.). Landowners brought suit against EAP Ohio, LLC, current leaseholder and operator of wells affecting the lands at issue, for improperly deducting costs from royalty payments. The trial court had made several determinations and then issued a summary judgment in favor of EAP, effectively allowing the deductions. The landowners appealed, making various arguments, including that deductions for trucking and fuel (related to trucking) were not specifically referenced in the lease as acceptable deductions, which only mentioned “compression, transportation, gathering, and dehydrating” as deductible costs. The Appeals Court determined that the trial court had improperly made factual determinations in its summary judgment order, which is supposed to include a decision based solely on issues of law, not issues of fact. The Appeals Court stated that the language at issue was ambiguous as to its meaning, requiring interpretation and possible reliance on extrinsic evidence as to the parties’ intent.

The Appeals Court further stated that, EAP Ohio LLC should not be allowed to rely on “custom and usage” as extrinsic evidence for its interpretation of the lease because “custom and usage” only applies within a trade or industry. Because the landowners were not part of the oil and gas trade or industry, custom and usage was not an appropriate type of extrinsic evidence to use for interpreting the lease. Additionally, the Appeals Court found that EAP should not be allowed to rely on statutory definitions as extrinsic evidence of the lease meaning because Ohio law has different definitions for seemingly similar concepts, which are context dependent. As such, reliance by the trial court for the definition of “gathering” or “transportation” found in a pipeline statues was inappropriate in the context of an oil and gas lease interpretation issue. Overall, the Appeals Court reversed the summary judgment in favor of EAP and remanded the case to the trial court.

To view the full article, click here.

To view the PDF, click here.

Reprinted with permission from the MLBC October 2024 issue of The Wildcatter. All rights reserved.

Navigate the Current Uncertainty on FinCEN Matters

TEQ Hub

(by Christian Farmakis, Susanna Bagdasarova, Kate Cooper and Dane Fennell)

Reminder – Upcoming January 1, 2025 compliance deadline for the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information Reporting Rule (the “Rule”).

By now, you have likely heard about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) Beneficial Ownership Information Reporting Rule (the “Rule”) from your accountant, attorney, or business colleagues. Promulgated under the Corporate Transparency Act (“CTA”), the Rule requires most business entities to disclose information to FinCEN about their ‘beneficial owners’: individuals who directly or indirectly own or control such entities.

Enacted as part of the Anti-Money Laundering Act in 2021, the CTA is intended to “prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.” The Rule aims to enhance transparency and support the mission of the CTA by requiring domestic and U.S. registered foreign entities to report information about their beneficial owners to FinCEN. Most entities in the U.S. will likely be required to comply with the Rule, and FinCEN estimates approximately 32 million business will be required to make a filing. The Rule exempts 23 types of entities from reporting requirements, primarily large or regulated entities already subject to various reporting requirements, such as banks, SEC-reporting companies, insurance companies, and ‘large operating companies’, as well as wholly owned subsidiaries of the foregoing. Entities formed before January 1, 2024, have until 2025 to comply, while entities formed in 2024 have a 90-day compliance period.

Under the Rule, reporting companies must provide detailed personal identifying information for each individual beneficial owner, including name, date of birth, residential street address, and unique identifying number (such as a passport or driver’s license number). A ‘beneficial owner’ is a natural person who directly or indirectly owns or controls at least 25% of the ownership interests of a reporting company or who exercises ‘substantial control’ over the reporting company. Both ‘substantial control’ and ‘ownership interests’ are defined broadly to prevent loopholes allowing corporate structures to obscure owners or decision-makers. Companies formed after January 1, 2025, must also provide this information for ‘company applicants’, the individuals who make or direct the filing of a reporting company’s formation or foreign registration documents. The Rule also requires supplemental filings to be made within 30 days of any change to any of the reported information, for example, a change in residential address. Businesses will need to monitor changes in ownership and management throughout the year for compliance purposes.

FinCEN is authorized to disclose the reported information upon request under specific circumstances to federal agencies engaged in national security, intelligence or law enforcement activities and to state local and tribal law enforcement agencies, as well as certain other limited entities. Failure to comply with the requirements may result in potential civil and criminal consequences, including civil penalties of up to $500 per day a violation has not been remedied and criminal penalties of $10,000 and/or up to two years in prison for willful noncompliance.

The future of enforcement is uncertain as the Rule is currently being challenged in the courts on constitutional grounds. Reporting requirements have been paused for certain entities following an injunction issued by the Northern District of Alabama on March 1, 2024, which ruled the CTA unconstitutional because it exceeds Congress’s enumerated powers. With this and other cases challenging the validity of the Rule making their way through the courts, what should companies do in the meantime? Given the uncertainty about the constitutionality of the Rule and future enforcement, we recommend the following:

• New entities formed or registered on or after January 1, 2024, and before January 1, 2025, should comply with the applicable reporting requirements and make their filings within 90 calendar days after formation or registration.
• Existing entities formed or registered prior to January 1, 2024, should begin their reporting analysis now to ensure compliance in advance of the New Year’s deadline.

Every entity organized under U.S. law or registered to do business in the U.S. will need to determine (i) whether it is exempt from reporting requirements and (ii) if not, what information it must report. Companies with simple management and ownership structures may be able to navigate the filing on their own. However, where complex management or ownership structures or uncertainty about determinations of beneficial ownership or substantial control exist, an attorney can help you avoid missteps.

To view the full article, click here.