U.S. Department of Justice Revises its Guidance on Evaluating Corporate Compliance Programs

Posted in Compliance, DOJ

On June 1 the criminal division of the U.S. DOJ revised its guidance to DOJ attorneys on how to evaluate corporate compliance programs. DOJ considers the “adequacy and effectiveness” of a company’s compliance program in deciding whether to charge a company with a crime and what penalties the government may seek, and this guidance provides them direction on how to do it. This guidance is a useful companion to the U.S. Sentencing Commission’s guidelines on what constitutes an effective ethics and compliance program aimed at preventing and detecting misconduct. The publication of these revised guidelines is a good reminder of the importance of effective compliance and environmental risk management programs not only to criminal prosecutors, but also civil enforcement authorities and a broad range of non-governmental stakeholders.

The adequacy of compliance programs is frequently relevant in civil enforcement actions brought by federal agencies such as U.S. EPA and state environmental enforcers. More broadly, environmental compliance and management programs, such as those based on ISO 14001, are generally recognized as foundations for effective environmental risk management and environmental and social governance (ESG) or corporate social responsibility (CSR) strategies. So, the application of DOJ’s revised guidance may not be limited to criminal enforcement, and it would be prudent for organizations implementing sustainability, CSR or ESG strategies to take it into account as well.

Effective environmental compliance and risk management programs bring their own reward as well. They can help organizations do the right thing, prepare for the unforeseen, prevent errors, and mitigate adverse effects when issues do occur. Applying well-established business practices to manage environmental issues can help organizations internalize and integrate sustainability and ESG into everyday conduct. This can support concrete and meaningful strategies that may  decrease the risk of charges of “green washing” or “social washing” (i.e., is the organization “walking the talk”?).

DOJ’s revised guidance reflects DOJ’s growing experience with compliance programs as well as input from the business community. DOJ poses three basic questions:

  1. Is the corporation’s compliance program well designed?
  2. Is the program being applied earnestly and in good faith? In other words, is the program adequately resourced and empowered to function effectively?
  3. Does the corporation’s compliance program work in practice?

The balance of the 20-page document unpacks each of those questions. For example, program design elements include risk assessment, policies and procedures, and training and communications (including “hotlines”). DOJ points out that the scope of an effective program should extend to third parties (e.g., entities in the value chain, contractors) and be part of merger, acquisition and divestiture activities.

The latter two questions posed by DOJ get to the fundamental question: can the organization demonstrate that they take the program seriously and that it works. These are questions of equal importance to other stakeholders, including employees, neighbors, customers and investors. In these portions of the guidance, DOJ addresses issues ranging from demonstrated management commitment to effective auditing, root cause analysis and corrective action procedures.

Throughout the guidance, DOJ suggests a dynamic and operational approach to compliance programs based on constant management participation, the regular and transparent flow and evaluation of data, continual improvement and flexibility to address new situations and facts, and relentless checking and verification of performance. A key “take away” is that an effective compliance program shouldn’t be sitting on a shelf (or the cloud) collecting dust but should be demonstrably implemented on a daily basis at all levels of the organization and, as appropriate, its value chain.

While this note has focused on the relevance of DOJ’s guidelines to environmental matters, they apply to programs aimed at compliance with laws of any sort, from anti-trust to the FCPA. The guidelines are written in a manner that allows organizations to design programs covering multiple laws but sharing common elements.

Organizations looking to implement or enhance their environmental compliance and management systems, or their sustainability, ESG or ESG strategies, would be well-served to take a close look at the revised DOJ guidance.

Tenant Insolvencies in the UK and Contaminated Land Liability Risks Due to COVID-19

Posted in Contamination, International, Real estate, United Kingdom

The negative economic effects resulting from efforts to mitigate the spread of Coronavirus Disease 2019 (COVID-19) have put financial pressure on many businesses.  In the worst such cases, businesses may face the risk of insolvency.  In an environmental law context, this raises the question of what the potential implications may be for those businesses’ environmental liabilities – in particular, for businesses which lease premises and who may be responsible for any potential liabilities for contamination caused during the term of their lease.

As between a tenant and a landlord, liability for contamination may arise contractually through provisions in a lease.  While such provisions are often heavily negotiated, a typical approach is to allocate liability for pre-existing contamination expressly to the landlord and liability for contamination first arising or exacerbated during the term of the lease to the tenant.  For tenants whose use of a property has the potential to be materially contaminative (for example, where the tenant is undertaking an industrial activity), the lease may also provide for the landlord to recover on a full indemnity basis should the landlord suffer losses from contamination caused by that tenant.  Where the lease makes no express contractual provision governing contamination the landlord may have to try to obtain recourse using the standard non-environmental provisions (such as repair covenants) in the lease.

Landlords may take practical steps in efforts to mitigate the risk of liability for contamination caused by tenants who may be financially distressed. For example, landlords may consider:

  1. assessing their tenant’s creditworthiness and financial health before deciding whether to enter into tenancy agreement with them;
  2. obtaining a guarantee from another person, such as a parent company, for the tenant’s obligations under the lease;
  3. putting in place an insurance policy covering environmental risks including those arising from a tenant’s activities; and
  4. undertaking periodic inspections of the tenant’s operations so that potential issues may be identified and, where necessary, recourse can be sought.

Read the full GT Alert here.

For more information and updates on the developing COVID-19 situation, visit GT’s Health Emergency Preparedness Task Force: Coronavirus Disease 2019.

Commonwealth Court’s Invalidation of Pennsylvania PUC Defined Terms – Potential Net Metering Implications

Posted in Court Cases, Energy, Pennsylvania, Renewables, Solar, State & Local, Utilities

On May 12, 2020, a three-judge panel of the Commonwealth Court of Pennsylvania held that certain net metering regulations of the Pennsylvania Public Utility Commission (PUC) are unenforceable. The regulations at issue are related to the implementation of Pennsylvania’s Alternative Energy Portfolio Standards Act (AEPS Act), which incentivizes the use of electricity generated by renewable sources such as wind, solar, and biomass.

The Commonwealth Court’s ruling in David N. Hommrich v. Comm., Pa., Pub. Util. Comm’n (674 M.D. 2016), leaves some questions unanswered. In Hommrich, the plaintiff, seeking to install solar photovoltaics, challenged PUC regulations pertaining to net metering that he alleged were unauthorized under the AEPS Act. “Net metering” is a system by which renewable energy generators (most often customers using solar photovoltaics) connect to a public utility power grid, and surplus power is transferred back to the grid, allowing customers to offset the cost of the power they draw from the utility. Hommrich alleged that a project that could be approved for net metering under the AEPS Act could also not be approved under the PUC’s regulations, due to the PUC’s definitions of key terms.

One of the primary questions before the Commonwealth Court was whether the PUC regulatory definitions of “customer-generator” and “utility” exceeded the PUC’s rulemaking authority. The Commonwealth Court determined that the PUC’s regulations were enacted pursuant to its narrow rulemaking authority under the AEPS Act rather than its broader rulemaking authority under the Pennsylvania Public Utility Code. The AEPS Act confers narrow authority on the PUC to establish technical and net metering interconnection rules. In its analysis of the definitions, the Commonwealth Court held that the PUC’s regulations added criteria that restrict eligibility for net metering and inhibit the development of alternative energy, in conflict with the AEPS Act. Because of this dissonance, the Commonwealth Court held that those definitions are invalid and unenforceable.

In addition to invalidating the key “customer-generator” and “utility” definitions, the Commonwealth Court considered two further questions: whether the PUC exceeded its authority in adopting a regulation defining “virtual meter aggregation” and whether the requirement for customer-generators to have an independent load at the generation site in order to net meter was appropriate. The Commonwealth Court again held that the PUC’s regulations were unenforceable because they created eligibility requirements that were not in the AEPS Act.

While the holding in Hommrich may lay the foundation for an increase in the number of individuals and entities entitled to be “customer-generators” in the Commonwealth, the Commonwealth Court also upheld some of the PUC regulations challenged in Hommrich, namely the regulations that establish an application process for customer-generators and those that establish rules of operation for large customer-generators. The Commonwealth Court held that these regulations were within the PUC’s narrow authority under the AEPS Act.

Still, the Hommrich holding creates uncertainty for the PUC, which may face significant challenges if it tries to use its defined terms to regulate smaller generators under the AEPS Act. As of now, the door to solar photovoltaic development in Pennsylvania appears more open than ever. The PUC may scramble to close it by requesting a re-argument before the Commonwealth Court or appealing to the Pennsylvania Supreme Court, but in the intervening time the path forward for PUC regulation (particularly of small-scale solar) is unclear.

New York State Court Greenlights New Islanders Arena Project

Posted in Court Cases, New York, State & Local

A New York State Supreme Court Justice in Nassau County dismissed two separate challenges to the state government approvals of a new arena for the NHL’s New York Islanders hockey team. The challenges to the Belmont Redevelopment Project were brought by a neighboring village and a group of citizens seeking to stop the ongoing construction of the arena alleging, among other grounds, that the project approvals violated the New York State Environmental Quality Review Act (SEQRA) and the public trust doctrine.

The trial court affirmed the government’s SEQRA review applying the well-established and highly deferential “rational basis” standard of review applicable to administrative challenges. The petitioners challenged the detailed traffic analysis contained in the Environmental Impact Statement (EIS) for the Belmont project, but the court held that “the traffic studies did, in fact, take into account the factors [the government] is accused of disregarding, but reached different conclusions with respect to the extent of the impact or the efficacy of the mitigation.” The petitioners also sought to challenge the inclusion of additional mitigation measures between issuance of the draft and final Environmental Impact Statement (FEIS), such as the construction of a new Long Island Railroad commuter train station, on the grounds that a supplemental EIS was required. The petitioners also claimed the inclusion of more detail on proposed transportation management measures and an alternative approach to servicing the project with natural gas required supplemental review. The court rejected those arguments, observing that the additional measures were intended to reduce project impacts and had been adequately studied in the FEIS. The court also cited with approval the approach of providing an additional comment period on the FEIS when new measures are added, even though SEQRA does not explicitly provide for such a procedure. This ruling supports that courts tend to look positively on environmental reviews that provide ample opportunities for public review and comment and will not require supplements when additional mitigation measures or project changes implemented between issuance of a draft EIS and FEIS do not result in significant new environmental impacts. The court also rejected petitioners’ public trust doctrine claims, noting that Belmont Park Racetrack had been privately owned and operated since 1905 and had only recently become state-owned, with private development explicitly contemplated by state statute.

Greenberg Traurig represented the governmental defendant, New York State Economic Development, in connection with the environmental review and subsequent legal challenges to the Belmont Redevelopment Project which, along with the arena, also contemplates a retail village and other amenities.


Minnesota Becomes First State to Ban TCE: Considerations Once a Chemical Is Banned

Posted in Chemicals, Minnesota, State & Local, Trichloroethylene

At the end of last week, Minnesota became the first state to ban use of trichloroethylene (TCE). TCE is used as a solvent in degreasing and other manufacturing operations, an intermediate for refrigerant manufacturing processes, and spot cleaning in dry cleaning facilities.

The use restriction provides that beginning June 1, 2022, an owner or operator of a facility required to have an air emissions permit issued by the Minnesota Pollution Control Agency may not use TCE at its permitted facility, including for manufacturing, processing or cleaning operations. There are exceptions delineated under the rule for circumstances establishing compliance with the health-based value and health risk limits for TCE as established by the Department of Health as of Jan. 1, 2019. The legislation also enumerates categories under which the commissioner of the Pollution Control Agency shall grant exemptions (closed systems, holding TCE for distribution to third party and licensed hospitals or academic medical facilities) or may grant exemptions (use exclusive to research or experimental purposes, processing facilities for waste disposal). Finally, the legislation sets forth the process to apply either for extension for elimination of use or to be granted an exception from the use ban and establishes an interest-free loan program for small businesses to reduce use of TCE.

This development is part of a broader regulatory landscape addressing TCE. In late 2017 and early 2018, U.S. EPA proposed rules to ban certain uses of TCE on a nationwide basis under Section 6 of the Toxic Substances Control Act (TSCA). U.S. EPA has not acted on those proposed rules. However, on Feb. 21, 2020, U.S. EPA released its revised draft risk assessment of TCE. The draft finds an unreasonable risk of occupational exposure through dermal and inhalation pathways. If that finding remains in the final risk assessment, the Agency will be required under TSCA to take risk mitigation steps that could include nationwide bans or restrictions on specific uses.

These kinds of restrictions or bans on the use of chemicals can affect company operations, but companies can take steps well in advance to minimize potential disruptions. There also may be market opportunities or new sources for investment that flow from measures to replace existing chemicals with less toxic alternatives or improve emission controls. Initiatives toward green chemistry and responsible stewardship can be part of programs to improve a company’s Environmental, Social and Governance (ESG). Once formal use restrictions or chemical bans are enacted, though, it can accelerate the need to implement change, resulting in a new set of complex factors for consideration.

At the outset, companies can look ahead to prepare for and anticipate chemical restrictions so that they have sufficient time to identify substitutes and make any changes necessary to existing processes. Once restrictions or bans are imposed, companies may want to consider a compliance plan for the law or regulation banning the chemical, determining with counsel appropriate steps to implement necessary changes. Bans that only impact one portion of a company’s operations can also complicate the decision-making process around implementation. Another important measure to consider, after review with counsel, is an assessment of a stewardship and hazard plan for the replacement chemical or any process changes that may be necessary as part of the phase-out. Analytical techniques continue to permit detections of smaller and smaller particles and research continues to evolve. What science supports today as a safe alternative should not be assumed to be the equivalent of permission of unrestricted use or emissions of the replacement chemical(s). A company with a responsible management plan for exposure and emissions over the life cycle of its products will be better situated to address potential future scrutiny of replacement chemicals. Finally, companies facing litigation related to a banned chemical must be prepared to address the ban as a potential evidentiary issue (usually through distinguishing the basis for enacting the chemical ban from the proof required for the claims at issue) and to balance the need to be responsive with messaging to supply chain partners, community neighbors, shareholders, employees or regulators with the overall risk mitigation strategy.



Changes to Environmental Provisions of the USMCA Trade Agreement

Posted in Energy, International, Mexico, trade policy

The original text of the United States-Mexico-Canada Trade Agreement (“USMCA”) was amended by the Parties to the Agreement to clarify certain commitments made with respect to environmental and trade matters.  These amendments sought to clarify that the Agreements listed below could not be used to impair, modify or reduce the rights of investors and their investments made in accordance with the provisions of USMCA:

  • Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES), done at Washington, March 3, 1973.
  • Montreal Protocol on Substances that Deplete the Ozone Layer, agreed in Montreal, September 16, 1987.
  • Protocol of 1978 Relating to the International Convention for the Prevention of Pollution from Ships, done at London, February 17, 1978.
  • Ramsar Convention on Wetlands of International Importance especially as Waterfowl Habitat, signed at Ramsar, Feb. 2, 1971.
  • Convention on Antarctic Marine Living Resources, formed in Canberra, May 20, 1980.
  • International Whaling Convention, signed in Washington, Dec. 2, 1946.
  • Inter-American Tropical Tuna Convention, signed in Washington, May 31, 1949.

Read the full GT Alert here.

Presidential Executive Order on U.S. Bulk Power System Equipment from ‘Foreign Adversaries’

Posted in Energy, Executive Order, International, Transactional

On May 1, 2020, President Trump issued an Executive Order (EO) declaring a national emergency due to “foreign adversaries” that are “creating and exploiting vulnerabilities” in the U.S. bulk-power system (BPS). The EO prohibits “transactions initiated after May 1, 2020” for BPS electric equipment with voltages 69 kilovolt and above if the transaction would pose an undue risk to U.S. national security, grid security, and resiliency, or the economy. A “transaction” includes “any acquisition, importation, transfer, or installation” of BPS equipment. Because the EO focuses on “transactions” for “equipment,” it also applies to components within equipment, giving it a broad reach.

While not defined by the EO, prior designations of “foreign adversaries” suggest that China and Russia would make the list. Also left to be determined by the Secretary of Energy is whether transactions with a “foreign adversary” “or a national thereof” (and “including through an interest in a contract for the provision of the equipment”) would pose an undue risk of BPS “sabotage,” “subversion,” or “catastrophic effects.”

To that end, the EO directs the Secretary of Energy to coordinate with the Director of the Office of Management and Budget, the Secretary of Defense, the Secretary of Homeland Security, the Director of National Intelligence, and the heads of other executive departments and agencies “as appropriate” in making decisions as to whether a transaction should be prohibited or not.

Read the full GT Alert here.

Federal Judge in Montana Narrows Vacatur of Nationwide Permit 12

Posted in Court Cases, Permitting, Water

On April 17, we posted about the federal district court for Montana vacating the Nationwide Permit (NWP) 12 and enjoining the Army Corps of Engineers’ authorization for the use of NWP 12 on any utility projects in the nation (including pipelines, transmission lines and communications lines) on the grounds that the Corps had not complied with the Endangered Species Act (ESA) when it reissued NWP 12 in 2017. On May 11, in response to a motion by the Corps, the court significantly narrowed the scope of the remedy as follows:

“5. NWP 12 is vacated as it relates to the construction of new oil and gas pipelines pending completion of the consultation process and compliance with all environmental statutes and regulations. NWP 12 remains in place during remand insofar as it authorizes non-pipeline construction activities and routine maintenance, inspection, and repair activities on existing NWP 12 projects.

6. The Corps is enjoined from authoring any dredge or fill activities for the construction of new oil and gas pipelines under NWP 12 pending completion of the consultation process and compliance with all environmental statutes and regulations.

The Corps remains able to authorize dredge or fill activities for nonpipeline construction activities and routine maintenance, inspection, and repair activities on existing NWP 12 projects.”

This is almost precisely the alternative relief suggested by the plaintiffs in their May 6 brief in opposition to the government’s motion to limit the remedy to a remand of NWP 12 and eliminate vacatur completely.

This decision, which may well be appealed, eliminates some of the uncertainty and disruption caused by the court’s blanket vacatur in the original order. New and in-process non-pipeline projects (e.g., solar, wind, transmission lines, communications lines) will be able to move forward during the remand and the Corps’ ESA consultation. Further, activities associated with maintaining or repairing existing pipelines will be able to continue. However, the court accepted the plaintiffs’ demand that the nationwide vacatur continue to apply to the construction of new oil and gas pipelines. This has already spawned litigation aimed at stopping pipelines currently under construction based on the vacatur of NWP 12.

The court’s decision is limited to the availability of NWP 12 and does not affect the ability to apply for or obtain individual permits where NWP 12 might otherwise have been used.

Is There Still a Place for Supplemental Environmental Projects in Pennsylvania?

Posted in Articles, Litigation, Pennsylvania, State & Local

SEPs, which permit a defendant to undertake an environmentally beneficial project in lieu of paying penalties—or in exchange for reduced penalties—have been seen as benefiting defendants, enforcement agencies and communities at the same time. SEPs have given enforcement agencies and defendants additional flexibility in negotiating consent decrees and settlement agreements, while also providing communities potentially affected by violations with public benefits.

In August 2019, the United States Department of Justice’s Environment and Natural Resources Division (“ENRD”) issued a memorandum curtailing the use of supplemental environmental projects (“SEPs”) in consent decrees and settlement agreements with state and local governments.  I wrote about that memorandum at the time. In March, ENRD issued a follow-up memorandum, extending the prohibition on SEPs to all enforcement cases involving civil settlements with private defendants.

I review this policy in my column for The Legal Intelligencer supplement, Pa. Law Weekly. Read “Is There Still a Place for Supplemental Environmental Projects in Pennsylvania?” by clicking here.

UK Environment Agency Continues to Issue Coronavirus Disease 2019 Enforcement Suspensions

Posted in COVID-19, Emergency Preparedness, Regulatory, United Kingdom

In addition to the recent temporary enforcement suspensions (see April 16 Alert and April 21 Alert) in response to the ongoing disruption caused by the Coronavirus Disease 2019 (COVID-19) pandemic, the UK’s Environment Agency (EA) has published further temporary regulatory position statements (RPS).

Like the EA’s general pre-COVID-19 RPS, the new COVID-19-specific RPS are declarations by the EA (the primary environmental regulator and enforcement authority for England and Wales) that it will not seek to enforce certain aspects of the UK’s environmental permitting regime in specific circumstances related to COVID-19.

An RPS does not render previously unlawful activity lawful; rather, it renders it less likely that enforcement action will be taken in relation to that activity (and, were enforcement action to be taken, an RPS may be sought to be used as a defence).

This set of RPS address:

  • Waste management (excluding radioactive waste)
  • Monitoring and reporting
  • Regulated industry installations (non-waste)
  • Agriculture
  • Radioactive substances regulation

Read the full GT Alert here.