In-House Counsel Committee Newsletter July 2015 · In-House Counsel Committee Newsletter ... One of the beneﬁ ts of membership in our ... July 31-August 2, 2015 ABA Annual Meeting

1In-House Counsel Committee, July 2015

July 2015Vol. 16, No. 2

In-House CounselCommittee Newsletter

MESSAGE FROM THE CHAIRSheila Deely

Welcome to our second newsletter of 2015. In this newsletter, we are happy to provide insightful articles on CERCLA developments arising from the Fox River PCB litigation, environmental enforcement in the energy industry, EPA’s Next Generation Compliance initiative, recent cases on the Clean Water Act permit shield, public-private partnerships in the water and wastewater industries, and insurance coverage for pollution. Special thanks to our newsletter co-chairs Sasha Reyes and Seth Jaffe for another enlightening newsletter.

As we move into summer and toward the end of this ABA SEER year, I want to thank our committee leadership and members for their support and participation in our programs and events. One of the benefi ts of membership in our committee is the fl exibility we have to organize programs and events around virtually any topic that is of interest to in-house counsel, whether professional development matters for in-house counsel, interface with outside counsel, insights on the behind-the-scenes workings of federal legislative or administrative bodies, or substantive issues of particular interest such as civil and criminal enforcement or important legal or regulatory developments. We want to make sure our committee members know that we are always delighted to hear their ideas or input on articles or programs, especially if you hear an interesting program that we can reprise. We are also always looking for member interest in leadership in our committee. Please contact me or any of our vice chairs if you are interested in greater participation in our group.

LESSONS LEARNED FROM THE FOX RIVER LITIGATIONJohn F. Gullace and Nicole R. Moshang

Many environmental practitioners have closely watched the ongoing litigation over the cleanup of the Lower Fox River and Green Bay Superfund site in northeastern Wisconsin. While the U.S. District Court for the Eastern District of Wisconsin (the district court) has disposed of several important issues in both underlying cases through the years, the Seventh Circuit’s recent companion decisions in United States v. P.H. Glatfelter Company and NCR Corporation, No. 1:10-cv-00910, 2014 WL 4755483 (7th Cir. Sept. 25, 2014) (the Glatfelter matter), and NCR Corp. v. George A. Whiting Paper Co., Nos. 08-cv-16 and 08-cv-895, 2014 WL 4755491 (7th Cir. Sept. 25, 2014) (the Whiting Paper matter) (collectively, “the Fox River litigation”), addressed several issues that should be of particular interest to in-house counsel due to their potential application to other cases. Indeed, the Fox River litigation represents just one in a number of cases that have arisen from the Environmental Protection Agency’s (EPA) efforts to remediate signifi cant water bodies throughout the country that have been declared federal Superfund sites—including the Lower Passaic River and Newark Bay in northern New Jersey, the Hudson River in upstate New York, the Gowanus

Continued on page 3.

2 In-House Counsel Committee, July 2015

Copyright © 2015. American Bar Association. Allrights reserved. No part of this publication may bereproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic,mechanical, photocopying, recording, or otherwise,without the prior written permission of the publisher.Send requests to Manager, Copyrights and Licensing, at the ABA, by way of www.americanbar.org/reprint.

Any opinions expressed are those of the contributorsand shall not be construed to represent the policiesof the American Bar Association or the Section ofEnvironment, Energy, and Resources.

In-House Counsel Committee NewsletterVol. 16, No. 2, July 2015Sasha Reyes and Seth Jaffe, Editors

In this issue:

Message from the ChairSheila Deely ............................................1

Lessons Learned from the Fox River LitigationJohn F. Gullace and Nicole R. Moshang .................................1

Higher and Higher: Escalating Enforcement Against the Energy IndustryAnna R. Kuperstein .................................5

Next Generation Compliance in EPA SettlementsJeremy W. Meisinger and Nathaniel D. Boesch ..............................9

The Clean Water Act Permit Shield: Expanding, Shrinking, or Both?Kenneth Smith .......................................12

Municipal Water and Wastewater Systems—Riding the P3 WaveJohn Watson and Jessica Wicha .......15

Insurance Coverage for Pollution: An Important Part of the PictureErin L. Webb ..........................................18

July 31-August 2, 2015 ABA Annual MeetingChicago

August 5-7, 2015 27th Annual Texas Environmental Superconference Primary Sponsor: State Bar of Texas, Environmental and Natural Resources Law Section

September 15, 2015 Counseling Farmers & Ranchers, Agri-Businesses and Food Entrepreneurs on InsurancePrimary Sponsor: Solo, Small Firm, & General Practice Division

October 1-2, 2015 36th Public Land Law Conference. Transcending Boundaries: Achieving Success in Cooperative Management of Natural ResourcesPrimary Sponsor: Public Land & Resources Law Review, University of Montana School of Law

October 28-31, 2015 23rd Fall ConferenceChicago

March 29-30, 2016 34th Water Law Conference Austin, TX

March 30- April 1, 2016 45th Spring ConferenceAustin, TX

October 5-8, 2016 24th Fall ConferenceDenver

CALENDAR OF SECTION EVENTS

AMERICAN BAR ASSOCIATION

SECTION OF ENVIRONMENT, ENERGY, AND RESOURCES

CALENDAR OF SECTION EVENTS

For full details, please visit www.ambar.org/EnvironCalendar


Canal and Newtown Creek in Brooklyn, New York, and Portland Harbor Lower Duwamish in Oregon and the Waterway in Seattle, Washington.

By way of background, the Fox River litigation arises out of the discharge of wastewater containing PCBs into the Lower Fox River resulting from the historic operations of several paper mill and paper recycling companies that operated along the banks of the river from the mid-1950s to the 1970s. In 1998, the U.S. Environmental Protection Agency (EPA) placed the site on its Superfund list and in 2002 it selected a remedy requiring dredging and capping of contaminated sediments. In 2007, EPA issued unilateral administrative orders (UAO) to several potentially responsible parties (PRPs), including NCR Corp., to perform certain remedial work at the site. NCR Corp. took the lead in responding to the remedial action required by the UAO, but stopped work in 2012, prompting EPA to seek injunctive relief to force the parties to resume the remedial work in the Glatfelter matter. Given the signifi cant costs of the planned remedy, it is not surprising that NCR Corp. and other UAO recipients fi led claims under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) sections 107 and 113 for cost recovery and contribution against various others PRPs in the Whiting Paper matter.

Seventh Circuit Overturns District Court’s Allocation of 100 Percent of Response Costs to Primary PRP on Summary Judgment

In Whiting Paper, the district court conducted an equitable allocation on summary judgment determining that NCR Corp. was not entitled to contribution from the other liable parties and that the other liable parties were entitled to recover 100 percent of their response costs from NCR. The ruling is noteworthy for several reasons, not the least of which is that, despite the fact that other PRPs were liable parties under CERCLA, the district court ultimately allocated 100 percent of the cleanup costs to NCR at the summary judgment

stage of the proceedings. The district court made this determination after ruling that it would consider NCR’s “knowledge” of the hazardousness of the discharges as the sole equitable factor it would consider in the allocation phase of the case, and then limiting prehearing discovery to just that factor. Many PRPs across the country who believed that they were de minimis contributors to sites hoped this decision would encourage other courts to similarly limit or deny their liability.

However, the Seventh Circuit reversed the district court, not because a 100 percent allocation on summary judgment is not permitted as a matter of law but because the court could not determine on the record before it whether the lower court fully evaluated several other potentially relevant allocation factors before selecting and limiting discovery to just “knowledge” as the sole relevant equitable factor. Specifi cally, the court stated that, “[f]or us to evaluate the district court’s allocation decision, therefore, we would need to see either that it evaluated and rejected these considerations as bases for allocation, or that it explained why one or more of them were so immaterial when compared with the ones on which it chose to rely as to make it fruitless for a party to develop evidence on those points” (slip op. at 34). In practice, it seems questionable whether a district court will ever be able to limit discovery for purposes of an allocation determination to a single factor and still be able to establish the type of record dictated by the Seventh Circuit’s decision. Hence, the Seventh Circuit’s rationale likely weakens the ability of practitioners to rely upon the Fox River litigation to support a 100 percent allocation to the lead PRP on summary judgment based on limited factors and/or limited discovery.

Seventh Circuit Rules Against EPA with Respect to Entry of Permanent Injunction Requiring PRPs to Perform a Remedy, but Affi rms District Court’s Finding That Separate Operable Units Are Not Separate Sites for Purposes of Determining a PRP’s Liability for Response Costs

In the Glatfelter matter, the second decision issued in the Fox River litigation, the Seventh Circuit

Continued from page 1.


addressed, among other matters, two unique issues: (1) whether a district court can grant EPA a permanent injunction requiring PRPs to comply with an EPA UAO; and (2) whether EPA must prove all of the elements of liability for that PRP in relation to each separate operable unit (OU) of a site in order to hold the PRP jointly and severally liable for all response costs at issue.

As to the fi rst issue, after an 11-day bench trial on EPA’s claims, the district court entered a declaratory judgment and permanent injunction in the government’s favor requiring the two non-settling PRPs in the case to comply with EPA’s 2007 UAO. Many practitioners representing PRPs were rightly concerned that the district court’s decision might prompt EPA to pursue a similar tactic at other sites and force parties to begin cleanups, or face contempt, without any opportunity to have a court thoroughly review the remedy fi rst. In this regard, the Seventh Circuit’s decision should be cause for relief. The Seventh Circuit concluded that “permanent injunctive relief is an inappropriate mechanism to enforce an administrative order under § 106(b) of CERCLA” (slip op. at 35). In reaching its decision, the Seventh Circuit recognized that section 106(a) of CERCLA allows EPA to seek a preliminary injunction or declaratory relief where it is determined that emergency action is necessary, but EPA has not had a chance to thoroughly study the site and issue an administrative order. In contrast, where the site has been exhaustively studied, a remedy has been selected, and EPA has issued an order requiring performance of that selected remedy, the Seventh Circuit’s decision is clear that EPA is limited to bringing an action in district court to enforce the order, during which the court may review the selected remedy. The court further noted that permanent injunctive relief is not needed as an enforcement tool to complete a remedy the court has not yet reviewed, as a mechanism already exists to encourage compliance—the threat of civil penalties. Notably however, while the Seventh Circuit held that “permanent injunctive relief is incongruous with the nature and purpose of an action to enforce an administrative cleanup

order under CERCLA § 106 (b)” (slip op. at 37), the court went on to note that EPA is nevertheless entitled to great deference when a court ultimately reviews an EPA remedy.

As to the second issue, the Seventh Circuit’s decision clarifi es the government’s burden of proof for establishing liability at large Superfund sites that are separated into multiple OUs. Specifi cally, Glatfelter, one of the PRPs at the site, argued that while it may have discharged contaminants at OU1, one of the upstream OUs, there was no evidence that its alleged discharges impacted or caused the incurrence of response costs at OU4, which is downstream and therefore, it should not be liable for the response costs related to OU4. The Seventh Circuit rejected Glatfelter’s claim that its liability must be established with respect to each OU at the site, reasoning instead that:

[w]here, as here, releases from multiple facilities contaminate an interconnected environmental system like a river, the entire system falls within this defi nition. Thus, in this case, the Site was properly defi ned to include the entire Lower Fox River and Green Bay, and so long as PCBs released from the Bergstrom Mill caused the incurrence of some response costs within the Site, Glatfelter may be held liable for all response costs within the Site.

(slip op. at 22).

In sum, the Seventh Circuit concluded that “operable units are not separate sites; thus, they do not determine the extent of a party’s liability” (slip op. at 23). Although the existence of separate operable units at a site does not expand the government’s burden of proof on liability for all response costs, the court’s opinion recognizes that in appropriate cases, operable units could serve as a basis for establishing a divisibility defense, although the burden of establishing divisibility is on the defendant.

Accordingly, just because your client has received a general notice letter from EPA for one operable


unit of a larger site does not mean that your client is not a potentially liable party for any other operable units that may exist at the site.

In sum, we learned from the Seventh Circuit’s companion decisions in the Fox River litigation that:

1. An equitable allocation on summary judgment will be diffi cult to sustain on appeal if the district court limited the equitable factors to be considered and/or limited discovery concerning other equitable factors;

2. The government cannot obtain an injunction requiring a PRP to implement the government’s selected remedy of a site; and

3. The government only needs to prove that a PRP is a liable party at the larger site and not with respect to each operable unit within the site, though a PRP may demonstrate that the harm is divisible and that it should not be responsible for response costs at all operable units at a site.

John F. Gullace and Nicole R. Moshang are partners in the Bala Cynwyd, Pennsylvania, offi ce of Manko, Gold & Katcher, LLC. John is primarily involved with environmental litigation and regulatory matters. Nicole represents clients in multiparty litigation, commercial disputes, enforcement proceedings, and settlements involving complex environmental issues.

HIGHER AND HIGHER: ESCALATING ENFORCEMENT AGAINST THE ENERGY INDUSTRYAnna R. Kuperstein

The energy sector has become an increasingly prime target for environmental regulators. In the coming years, the oil and gas industry should expect more inspections and increased penalties as agencies have shown that they are looking for ways to give enforcement efforts more bite. Even the renewables space is not immune, with wind and solar projects seeing scrutiny of their impacts on protected birds. The energy industry as a whole should be prepared to face more aggressive enforcement at the state and federal levels, which in some cases could include criminal liability.

Federal Enforcement

At the federal level, the Environmental Protection Agency (EPA) has identifi ed energy extraction as a National Enforcement Initiative for 2014 through 2016. Announcing EPA’s selection of National Enforcement Initiatives for FY 2014–2016, http://news.agc.org/wp-content/uploads/2014/09/2014-2016-nei-announcement3.pdf. As it turns out, this is no empty threat. Over the past several years, EPA has dramatically increased inspections of drilling operations and associated activities. According to EPA, in 2011 the agency conducted 360 inspections or compliance evaluations. Annual Number of EPA Energy Extraction Inspections/Evaluations and Concluded Enforcement Actions, http://www2.epa.gov/enforcement/national-enforcement-initiative-ensuring-energy-extraction-activities-comply. That number jumped dramatically to 870 annual inspections in 2012, 673 in 2013, and 723 in 2014. Id.

On top of increased inspections, civil penalties from concluded enforcement actions are breaking records. In 2013, EPA secured the largest civil penalty under section 404 of Clean Water Act (CWA) for alleged unpermitted discharges of dredged or fi ll material into waters of the United

In the July/Aug 2015 issue, Sec on chair Steve Miano refl ects on why Sec on membership ma ers to your prac ce. Also in this issue: Lima climate nego a ons, fracking-related earthquakes in Oklahoma, hot clean water topics, and prosecutorial discre on.

To view the July/August 2015 issue of Trends, please visit

ambar.org/EnvironPublica ons


States. Consent Decree, http://www2.epa.gov/sites/production/fi les/2013-12/documents/chesapeakeappalachiallc-cd.pdf. The fi ne was levied against Chesapeake Appalachia, which, as EPA took care to note, is “the nation’s second largest natural gas producer.” Chesapeake Appalachia, LLC Clean Water Settlement, http://www2.epa.gov/enforcement/chesapeake-appalachia-llc-clean-water-settlement. Not one year later, EPA obtained the second largest civil penalty for alleged violations of section 404: this time it was Trans Energy, Inc., that paid a fi ne of $3 million. Trans Energy, Inc. Clean Water Act Settlement, http://www2.epa.gov/enforcement/trans-energy-inc-clean-water-act-settlement. At the end of 2014, EPA announced yet another substantial penalty of $2.3 million for alleged violations of section 404 by XTO Energy, Inc., which EPA pointed out is a subsidiary of “the nation’s largest holder of natural gas reserves,” ExxonMobil XTO Energy, Inc. Settlement—2014, http://www2.epa.gov/enforcement/xto-energy-inc-settlement-2014. In each case, EPA credited “routine” inspections with helping to discover the alleged conditions that led to enforcement. See Chesapeake Appalachia, LLC Clean Water Settlement; Trans Energy, Inc. Clean Water Act Settlement; XTO Energy, Inc. Settlement—2014.

State Enforcement

Many states are joining EPA in the quest for higher penalties. In September 2014, the Pennsylvania Department of Environmental Protection (PADEP) obtained a $4.15 million civil penalty from gas producer Range Resources Corp. to settle alleged violations at several impoundments (including releases of fl owback). DEP Fines Range Resources $4.15 Million for Violating Environmental Regulations, http://www.pa.gov/Pages/NewsDetails.aspx?agency=DEP&item=16043. PADEP reported that the fi ne was “the largest [levied] against an oil and gas operator in the state’s shale drilling era.” Id. Within a month, PADEP then sought an even larger fi ne, pursuing a civil penalty of $4.5 million from EQT Production Company (EQT), also for alleged releases of

fl owback. DEP Seeks $4.5 Million Penalty from EQT Production Company for Major Pollution Incident in Tioga County, http://www.portal.state.pa.us/portal/server.pt/community/newsroom/14287?id=20636&typeid=1. As of April 2015, this matter remained unresolved.

One effective approach to increasing the amount collected from civil fi nes is to raise penalty caps. In January 2015, the Colorado Oil and Gas Conservation Commission (COGCC) increased the maximum daily penalty for violations to $15,000 (from $1,000). COGCC Rule 523.c; COGCC Enforcement and Penalty Rulemaking, http://cogcc.state.co.us/RR_Docs_New/Enforcement_and_Penalty/Regulatory_Analysis.pdf. The agency also did away with a cap of $10,000 on total penalties for violations that do not cause substantial adverse impacts. Id.

Another tactic is to intensify inspection practices. In January 2015, PADEP fi nalized more stringent protocols for investigating alleged violations in the oil and gas sector. See Standards and Guidelines for Identifying, Tracking, and Resolving Oil and Gas Violations, http://www.elibrary.dep.state.pa.us/dsweb/Get/Document-105828/820-4000-001.pdf. The new policy emphasizes that even minor violations must be logged by agency staff: a notice of violation must be issued for “any” oil and gas violation that is not corrected during the inspection. Id. And even those violations that are corrected immediately must be noted in an inspection report.

Criminal Liability

In addition to seeking hefty civil penalties, environmental agencies have enlisted the help of the Department of Justice (DOJ) in pursuing criminal charges. According to the Environmental Crimes Unit of the DOJ’s Environment and Natural Resources Division, the fi rst criminal prosecution of a natural gas company in the modern energy extraction era took place in 2011, when natural gas operator Hawk Field Services was charged with the unpermitted take of an endangered species of mussel in the course of


pipeline construction. Plea Agreement, http://www.justice.gov/usao/are/news/2011/April/hawk_fi eld_services_plea_agreement_4-5-11.pdf. Since then, the DOJ has pursued other criminal charges against both corporate entities and individuals. In 2012, Chesapeake Appalachia, LLC, pleaded guilty to unauthorized discharges to the waters of the United States in violation of the CWA (placing and spreading stone and gravel within a stream to improve access to a gas drilling site). The company was ordered to pay a $600,000 fi ne and placed on supervised release for two years. Chesapeake Appalachia Sentenced for Clean Water Act Violations, http://www.justice.gov/archive/usao/wvn/news/2012/december/chesapeake.html. In 2014, the U.S. District Court for the Northern District of Ohio sentenced Ben Lupo to a 28-month prison sentence and a $25,000 fi ne for unpermitted discharges of brine and drilling muds in violation of the CWA. Company Owner Sentenced To More Than Two Years In Prison For Dumping Fracking Waste In Mahoning River Tributary, http://www.justice.gov/usao-ndoh/pr/company-owner-sentenced-more-two-years-prison-dumping-fracking-waste-mahoning-river.

Following in the footsteps of federal authorities, Pennsylvania is also bringing criminal charges against energy companies. For instance, Kathleen Kane began her tenure as the attorney general for Pennsylvania with a promise to empower the AG’s Environmental Crimes Section, specifi cally to protect the environment “from the dangers of fracking.” Making good on that promise, in 2013 the state fi led criminal charges against XTO Energy for alleged discharges of fracturing wastewater from leaking storage tanks. It has been reported that this is the fi rst time a public company with drilling operations in the Marcellus Shale has been subject to criminal charges. XTO Energy Inc. charged with illegally discharging waste water from Marcellus Shale gas well site in Lycoming County, https://www.attorneygeneral.gov/Media_and_Resources/Press_Releases/Press_Release/?pid=520; Exxon Fights Over Fracking With Pennsylvania Attorney General, http://www.wsj.com/articles/exxon-says-it-is-getting-singled-

out-over-fracking-1405011974. Then in 2014, the state fi led criminal charges against EQT for alleged discharges of fl owback from an impoundment.

With the states and the federal government seeking to enhance enforcement, the specter of criminal liability looms large.

Mounting Pressure

State agencies in particular are facing increased criticism of their enforcement efforts in the oil and gas space. Advocacy groups are playing a larger role as watchdog, analyzing publicly available data to evaluate the effi cacy of state enforcement programs. In 2012, Earthworks released a report cataloging alleged failures to enforce regulations on energy extraction in six states: failure to inspect every well, understaffi ng, and inconsistent issuance of formal violations and penalties. See BREAKING ALL THE RULES: THE CRISIS IN OIL & GAS REGULATORY ENFORCEMENT, http://www.earthworksaction.org/issues/detail/oil_gas_enforcement. Similarly, a 2013 report by the Western Organization of Resource Councils alleges insuffi cient oversight of drilling operations in several western states, due to fewer inspections, outdated enforcement practices, and trivial penalties. See A REVIEW OF THE INSPECTION AND ENFORCEMENT PROGRAMS IN FIVE WESTERN STATES, http://www.worc.org/userfi les/fi le/Oil%20Gas%20Coalbed%20Methane/Law&Order2013.pdf.

State auditors are not far behind. A 2014 report by Pennsylvania’s Auditor General’s Offi ce criticizes PADEP’s response to allegations of impacts to water supplies from gas drilling. DEP’s PERFORMANCE IN MONITORING POTENTIAL IMPACTS TO WATER QUALITY FROM SHALE GAS DEVELOPMENT, 2009–2012, http://www.paauditor.gov/Media/Default/Reports/speDEP072114.pdf. Similarly, a 2015 report by the Louisiana Legislative Auditor concludes that the state’s Department of Natural Resources failed to adequately regulate active wells and manage orphaned wells. REGULATION OF OIL AND GAS WELLS AND MANAGEMENT OF ORPHANED WELLS, http://app.lla.state.la.us/PublicReports.


The solar industry is also under scrutiny for impacts to birds, which can occur when birds collide with refl ective panels that they mistake for water, or are burned by concentrated light rays. The Fish and Wildlife Service (FWS) is paying close attention to avian impacts at several large solar projects in California, which has set aggressive goals for developing renewable energy resources. FWS is now considering implementing a permitting scheme for the incidental “take” of birds protected under the MBTA, meaning that this issue is not going away anytime soon. FWS considers permitting for unintentional bird kills, http://www.eenews.net/stories/1060013481. Conclusion

The energy industry should expect to remain an enforcement priority for both state and federal regulators, which are using enhanced—and often creative—means to exercise their authority. Although oil and gas operations are still the primary target, renewable energy projects are subject to increasing scrutiny. The industry as a whole should expect more aggressive inspection and enforcement tactics, as well as higher penalties and the potential for criminal liability.

Anna R. Kuperstein is an attorney in the Houston offi ce of Locke Lord LLP, where she focuses on environmental law matters in the context of regulatory compliance, rulemaking and policy assessment, transactions, remediation, and litigation and regulatory proceedings.

nsf/0/D6A0EBE279B83B9F86257CE700506EAD/$FILE/000010BC.pdf. These external assessments both increase pressure on regulatory agencies and provide them with additional justifi cation for intensifying enforcement efforts.

Enforcement in the Renewables Space

While the traditional energy industry has borne the brunt of environmental enforcement, agencies appear to have begun targeting renewables as well. DOJ recently obtained back-to-back convictions for bird deaths at several wind projects in Wyoming in violation of the Migratory Bird Treaty Act (MBTA)—the fi rst criminal convictions of wind farms under the statute. The fi rst, the 2013 conviction of Duke Energy Renewables Inc., carried a total penalty of over $1 million (in fi nes, restitution, community service, and other contributions), fi ve years’ probation, and the requirement to establish a migratory bird compliance plan. Utility Company Sentenced in Wyoming for Killing Protected Birds at Wind Projects, http://www.justice.gov/opa/pr/utility-company-sentenced-wyoming-killing-protected-birds-wind-projects. The second, a 2014 conviction of Pacifi Corp Energy, forced the company to pay more $2.5 million (again for a combination of fi nes, restitution, and community service). Utility Company Sentenced in Wyoming for Killing Protected Birds at Wind Projects, http://www.justice.gov/opa/pr/utility-company-sentenced-wyoming-killing-protected-birds-wind-projects-0.

Leadership Development ProgramApplication Deadline: Friday, August 7, 2015

The Section is accepting applications for its Leadership Development Program (LDP). Now in its sixth year, the LDP is designed to support Section members interested in expanding a current leadership role or growing their knowledge of the Section so that they can assume a leadership role in the future. The Section is seeking to identify and enroll up to twelve Section members who exhibit an interest in increased Section involvement or leadership responsibility and who can commit to the Leadership Development Program over one year (September 2015- August 2016). We anticipate that these individuals will refl ect diversity and help the Section support ABA Goal III.

For more information, please visit www.ambar.org/EnvironLDP


NEXT GENERATION COMPLIANCE IN EPA SETTLEMENTSJeremy W. Meisinger and Nathaniel D. Boesch

In 2012, the U.S. Environmental Protection Agency (EPA) announced its Next Generation Compliance Initiative, signaling a step away from traditional on-site inspection and enforcement and toward “a modern approach to compliance, taking advantage of new tools and approaches while strengthening vigorous enforcement of environmental laws.” US EPA, Next Generation Compliance, available at http://www2.epa.gov/compliance/next-generation-compliance.

“Next Gen” came about partly due to state and federal budget constraints that, coupled with substantial rates of noncompliance in certain programs, limited EPA’s ability to enforce environmental laws via traditional methods. The agency sought to make enforcement more effi cient by embracing advancements in information and monitoring technologies, increasing transparency, and streamlining regulation and permitting. Cynthia Giles, assistant administrator for EPA’s Offi ce of Enforcement and Compliance Assurance, described the process as “moving toward a world in which states, EPA, citizens, and industry will have real-time electronic information regarding environmental conditions, emissions, and compliance . . . and using what we have learned about compliance to make it easier to comply than to violate.” Cynthia Giles, Next Generation Compliance, Environmental Forum, Sept.–Oct. 2013, at 22–26.

Elements of Next Generation Compliance

As will be discussed, the most concrete present examples of Next Gen compliance can be found in recent EPA settlements and guidance for settlements going forward. The settlements are a part of “innovative enforcement,” which itself incorporates many of the elements of Next Gen compliance.

More Effective Regulations and PermitsEPA has expressed that rules should be written in a way that facilitates greater levels of compliance as a matter of course. This involves “[r]egulations and permits that are clear, as easy to implement as possible, and that contain self-reinforcing drivers for better performance.” US EPA, Next Generation Compliance: Strategic Plan, 2014–2017 (2014), available at http://www2.epa.gov/sites/production/fi les/2014-09/documents/next-gen-compliance-strategic-plan-2014-2017.pdf. Giles has argued that “the net environmental benefi t of a simpler, clearer rule may trump a more detailed and in theory more protective standard.”

Advanced Monitoring“Advanced” monitoring technology is characterized by one or more of the following characteristics: lack of widespread use, real-time monitoring capability, ease of use or less expense compared to commonly used existing technologies, or the use of existing technologies in new ways. Advanced monitoring technologies are also frequently combined with modern communications technologies to quickly notify facility offi cials, regulators, or community members.

Electronic ReportingElectronic reporting is meant to make the submission, collection, and utilization of data more practical and effi cient. EPA believes that “e-reporting” will provide more accurate and timely information, reduce transaction costs for all parties involved, and allow for the management of environmental programs as “a more unifi ed environmental protection enterprise.”

Expanded TransparencyBy focusing on the public availability of compliance data, EPA hopes to “provide facilities and the public with better information on pollution releases, pollution sources, environmental conditions, and the performance of regulated sources and the government.” Citing EPA’s Toxic Release Inventory as one example, Giles argues that transparency and public accountability are two of the most important ways to drive compliance.


Innovative EnforcementInnovative enforcement combines many of the elements of Next Gen compliance and aims to enlist technology, community involvement, and third-party verifi cation in enforcement and compliance. EPA wants to use more and better data to focus civil and criminal enforcement on the most serious violations, and to drive compliance going forward.

Next Gen Compliance in Action

In January 2015, Giles issued a memorandum directing case teams to consider incorporating Next Gen compliance tools into civil judicial and administrative settlements. US EPA, Use of Next Generation Compliance in Civil Enforcement Settlements, available at http://www2.epa.gov/sites/production/fi les/2015-01/documents/memo-nextgen-useinenfsettlements.pdf. As EPA settlements from recent years illustrate, many Next Gen tools have been in use for several years, and these settlements suggest how Next Gen compliance is likely to work in practice.

Advanced MonitoringU.S. v. AL Solutions (New Cumberland, W.Va.)—This February 2014 consent decree arising from alleged Clean Air Act allegations required the implementation of a health and safety plan using forward-looking infrared cameras to identify volatile drums of materials to prevent fi res and explosions.

Third-Party Verifi cationU.S. v. Tyson Foods, Inc. (Washington, D.C.)— This July 2013 consent decree, arising from alleged releases of anhydrous ammonia, incorporated an extensive third-party audit protocol. The required audit involved both paper review and on-site inspection of 23 facilities by professionals approved by EPA. The consent decree called for reporting of fi ndings and deviations to both EPA and Tyson, with a framework for responses or disputes by Tyson.

Electronic ReportingU.S. v. BP Products North America, Inc. (Whiting,

Ind.)— In addition to the installation and operation of a fence line monitoring system, this November 2012 consent decree required weekly posting of monitoring data on a publicly available website in a “readily accessible, clearly labeled, and clearly presented” format. Several nonprofi t organizations could request meetings with BP to discuss the data.

Public AccountabilityU.S. v. Murphy Oil USA, Inc. (Meraux, La. and Superior, Wis.)—As part of this February 2011 consent decree, Murphy Oil was required to operate a community air monitoring station in neighboring Chalmette, Louisiana, and to establish a publicly available website for meteorological and ambient monitoring data from the station, as well as emission reports required by the facility’s title V permit. The data were required to be made available as soon as practicable, and not less than 24 hours after availability. To ensure data accessibility, the decree obligated Murphy Oil to donate computers and provide for Internet access through the local St. Bernard Parish Library System. The data, as well as other environmental issues, could be discussed at required monthly meetings with a local nonprofi t organization and residents within a three-mile radius of the Murphy Oil facility.

Implications

As the examples make clear, there is often signifi cant overlap between monitoring, advanced reporting, and community involvement. This is consonant with EPA’s goal of making environmental enforcement more visible in communities, and enlisting communities and nongovernmental actors to assist EPA in monitoring compliance, and has several implications going forward.

A Shifting Enforcement LandscapeEPA’s focus on Next Gen compliance must be understood in the context of EPA’s limited resources and strategy of taking on fewer, high-impact cases. US EPA, FY 2014–2018 Strategic Plan (2014). While this may mean fewer EPA


enforcement actions, it may also mean more actions brought by citizen’s groups. Citizen’s groups necessarily have a different relationship with regulated entities than does EPA, as well as different priorities, resources, and levels of commitment. Citizen group actors may also be less familiar to regulated entities accustomed to working with EPA. This means the enforcement environment will not necessarily grow less rigorous, but simply less predictable.

Regulated entities should also be prepared to interact with citizen’s groups in other ways. Many of the recent EPA settlements provide for regular meetings (or sometimes meetings on request) with specifi c groups in environmentally impacted communities to review monitoring data or provide updates on compliance with consent decree conditions. This means that the capacity to engage productively with communities will be an important part of compliance going forward.

A Particularized Community FocusWhile EPA can be expected to incorporate Next Gen compliance broadly in coming years, such measures are likely to be most prominent at fi rst in “environmentally overburdened, underserved, and economically distressed communities.” EPA has undertaken to identify three to fi ve such communities in each EPA region—meaning 30 to 50 communities across EPA’s ten regions—for “prioritized focus,” not only in enforcement but also in provision of technical assistance and other EPA resources. EPA has set a goal of incorporating Next Gen compliance into negotiated settlements or permits in at least one to two overburdened communities per region. US EPA, Working to Make a Difference in Communities, Fiscal Year 2015 Annual Action Plan (2014).

EPA uses the term “environmentally overburdened community” to describe “the minority, low-income, tribal and indigenous populations or communities in the United States that potentially experience disproportionate environmental harms and risks as a result of greater vulnerability to environmental hazards.” US EPA, Advancing Environmental Justice Through Compliance and Enforcement

(2011). Thus, regulated entities operating in such communities should be aware of EPA’s focus on community issues and involvement as they relate to “public accountability” in Next Gen compliance.More Electronic ReportingIn addition to aiming to include more electronic reporting in settlements, EPA has explicitly set a goal of requiring electronic reporting for 50 percent of all new rules and 75 percent of proposed rules that involve record keeping or reporting. US EPA, Embracing EPA as a High-Performing Organization, Fiscal Year 2015 Annual Action Plan (2014). Electronic reporting generally requires data in a “searchable format.” This is meant partly to allow EPA to monitor more entities with fewer resources, but is also meant to aid third parties in identifying suspected noncompliance more easily. Tools like Enforcement and Compliance History Online—ECHO (http://echo.epa.gov/) already provide a user-friendly avenue for reviewing some kinds of compliance data. As it begins to receive more information in electronic format, EPA can be expected to expand the use of publicly searchable databases. Citizen’s groups, in turn, are more likely to utilize these tools to identify suspected noncompliance.

New TechnologiesEPA notes that advanced monitoring requirements in settlements represent an opportunity to test new technologies for inclusion in future settlements or incorporation into future regulations. This will enable EPA to gather data on, and sometimes insist on the use of, new monitoring technologies where voluntary adoption might otherwise be slow. Regulated entities may rightly be concerned about unfamiliar technologies, particularly where paired, as EPA has suggested, with automatic electronic reporting mechanisms. For this reason, a constantly evolving understanding of the capabilities, limitations, and quirks of new monitoring technologies will be necessary.

Conclusion

The use of Next Gen compliance in settlements presents many questions, and should be


understood in the broader context of EPA’s goals and constraints. EPA is attempting to craft tools that will allow it to do more with less, and enlist nongovernmental actors in enforcement and compliance. This will create a shifting enforcement environment going forward in which fi rms will want not only to keep aware of developments in technology and regulation, but also keep an eye on trends in EPA settlements. EPA has made clear that today’s settlements could inform tomorrow’s regulations.

Jeremy W. Meisinger and Nathaniel D. Boesch are associates in the Administrative Law Department of Foley Hoag LLP in Boston, Massachusetts.

THE CLEAN WATER ACT PERMIT SHIELD: EXPANDING, SHRINKING, OR BOTH?Kenneth Smith

After 13 years of relative silence on the issue, the courts in three separate circuits have recently taken up cases involving the scope of the “permit shield” provision of the Clean Water Act (CWA). These cases should be of interest to any practitioner with clients discharging effl uent under a National Pollution Discharge Elimination System (NPDES) permit as they closely examine the disclosure requirements for permit applicants wishing to utilize the permit shield defense as well as the availability of the permit shield to a facility operating under a general permit.

Generally speaking, the CWA prohibits the discharge of any pollutant from a point source without an NPDES permit. The permit shield provision of the CWA, found at 33 U.S.C.A. section 1342(k), sets forth a defense to liability under the NPDES permit program for discharges not specifi cally authorized by a NPDES permit. Section 1342(k) provides that “[c]ompliance with a [NPDES permit] shall be deemed compliance, for the purposes of” the general enforcement and citizen suit provisions of the CWA. This provision has served to offer fi nality to permittees over the years, “insulat[ing] permit holders from changes in various regulations during the period of a permit. . . .” E.I. Dupont de Nemours & Co. v. Train, 430 U.S. 112, 138 n.28 (1977).

Since 2001, many courts have interpreted the scope of this provision and CWA permit shield liability to be defi ned by the Fourth Circuit’s decision in Piney Run Preservation Association v. County Commissioners of Carroll Co., 268 F.3d 255 (4th Cir. 2001). The court in Piney Run reviewed the permit shield provision in the context of a citizen suit brought against a waste treatment plant operator for discharges of thermal pollution in violation of a NPDES permit. While doing so, the court established a two-part test to determine

Registration is now open!


whether section 1342(k) shields a permit holder from liability. The court held:

We therefore view the NPDES permit as shielding its holder from liability under the Clean Water Act as long as (1) the permit holder complies with the express terms of the permit and with the Clean Water Act’s disclosure requirements and (2) the permit holder does not make a discharge of pollutants that was not within the reasonable contemplation of the permitting authority at the time the permit was granted.

Id. at 259.

This two-part test (which could more accurately be described as three-part because the fi rst prong has two distinct requirements—i.e., permit compliance and disclosure) is typically applied to determine whether a NPDES permit “implicitly incorporates pollutant discharges disclosed by the permit holder to the permitting authority that are not explicitly allowed in the permit.” Id. at 266. The theory is that a permitting authority must be aware of a discharge or potential to discharge at the time the permit was issued so that they might place appropriate limitations or permit conditions on the discharge if they believe any are necessary in order to achieve compliance with state water quality standards. Without such notice, the NPDES permit may not suffi ciently protect the receiving waters, and therefore cannot shield the permittee from such exceedances from a permitted discharge.

The fi rst of these recent cases to test the boundaries of that two-part test was the Fourth Circuit’s decision in Southern Appalachian Mountain Stewards v. A&G Coal Corp., 758 F.3d 560 (4th Cir. 2014), which arguably narrows the applicable scope of the permit shield defense. The case in Southern Appalachian was brought as a citizen suit against A&G Coal Corp. for discharges of selenium not specifi cally authorized by its NPDES permit. Selenium is among listed pollutants the CWA and Virginia water quality standards require applicants to identify as present or absent in a

discharge proposed in an NPDES application. A&G possessed an individual NPDES permit for discharges at its mining operation in Virginia. The permit allowed A&G to discharge a number of pollutants at its facility, but did not address the discharge of selenium.

At the heart of this case was the question of disclosure by a permit applicant. The court initially applied the two-part test from Piney Run. A&G argued that it met both prongs of the Piney Run test because it only had an obligation to identify selenium in its application if it knew or had reason to believe that selenium would be present in its discharge. A&G argued that because it did not know whether selenium would be present, it had no obligation to make such a disclosure to the permitting authority.

The court disagreed with A&G’s argument, stating such a position “encourages willful blindness by those discharging pollutants and prevents the state and federal agencies tasked by the CWA with protecting our waters from receiving the information necessary to effectively safeguard the environment.” Id. at 567. The ruling issued by the court in this case highlights the connection between prong 1 and prong 2 of the Piney Run test. Most often, the way a permit applicant will meet the second prong of Piney Run—i.e., not discharge pollutants that are not within the reasonable contemplation of the permitting authority at the time the permit was granted—is to put the permitting authority on notice by disclosing said pollutants during the permitting process. The court in Southern Appalachian found that pleading ignorance may not enable a permittee to evade this notice requirement.

In an attempt to get around this affi rmative disclosure requirement, A&G attempted to rely upon EPA guidance issued in 1995 that suggested that general disclosure of particular waste streams, operations, and processes was suffi cient to gain access to permit shield. The court, granting Chevron deference to previous EPA Environmental Appeals Board decisions, however, rejected this


argument fi nding EPA had determined that such general disclosures were not suffi cient to put the permitting authority on notice of the presence of a particular pollutant. Therefore, it appears that the court has all but eliminated a permittee’s ability to argue that disclosure of anything less than the presence of a pollutant is suffi cient to avail itself of permit shield protections.

Immediately following the Southern Appalachian decision, the Ninth Circuit issued its own decision regarding the application of permit shield, in Alaska Community Action on Toxics v. Aurora Energy Services, LLC, 765 F.3d 1169 (9th Cir. 2014), this time in the context of a general permit. Prior to this case, the question of whether the CWA’s permit shield provision applies to a general NPDES permit had not been answered by the courts. Although the lower court in Aurora Energy answered this question in the affi rmative, the Ninth Circuit artfully dodged this question fi nding simply that Aurora’s discharge of coal was a violation of its NPDES permit and therefore prohibited ab initio. The court concluded that “[a]s our outcome would be the same regardless of whether Piney Run’s analysis applies to general permits, we need not decide whether it does.” Id. at 1173–74.

The district court below had determined that Aurora’s discharges complied with the multi-sector general permit and were therefore shielded from liability under the CWA. In overturning the district court’s decision, however, the Ninth Circuit simply found that a plain reading of the multi-sector general permit prohibited Aurora Energy’s non-stormwater discharges of coal. The general permit in question required the elimination of non-stormwater discharges not authorized by the permit and defi ned which non-stormwater discharges were authorized. Coal was not on the list.

Despite the Ninth Circuit’s side step here and the clear opportunity to avoid the issue altogether, the court apparently couldn’t help but to go further and apply the permit shield analysis from Piney Run anyway. The court laid out the two-part test and applied it to the facts in this case. The court

determined that Aurora would not be shielded from liability under the CWA because Aurora could not meet the fi rst prong due to its failure to comply with the express terms of the general permit. While the court’s holding did not answer the question, the signal from the Ninth Circuit was loud and clear that it would expand the permit shield defense to apply to general permits under the right set of facts.

In the most recent decision dealing with the scope of the CWA’s permit shield, the Sixth Circuit in Sierra Club v. ICG Hazard, LLC, 781 F.3d 281 (6th Cir. 2015), had that right set of facts and indeed held that compliance with a general permit could shield a permittee from liability under the CWA. In reaching its conclusion, the court looked to, and relied heavily upon, previous EPA interpretations suggesting that the permit shield defense should apply to the “overall NPDES permitting scheme,” including general permits, and the court again applied Chevron deference to those reasonable interpretations.

The Sixth Circuit, after fi nding permit shield applicable to general permits, went on to apply the two-part Piney Run test further clarifying the scope of the defense. The ICG Hazard case involved a citizen suit brought against ICG Hazard for discharges of selenium exceeding Kentucky water quality standards. ICG Hazard’s mine in question is covered by a general permit that does not specify an effl uent limitation for selenium. Rather, the only requirement related to selenium is a one-time sampling provision for that pollutant. Applying the fi rst prong of the Piney Run test, the court found that ICG Hazard was in compliance with the express terms of the permit, and more importantly, with the reporting requirements under the specifi c general permit. The court found that ICG Hazard’s submission of the one-time sampling data as required by the general permit was suffi cient for the permittee to have met the fi rst step of the analysis, even though this disclosure occurred after obtaining coverage under the general permit.

This appears to be out of step with the Fourth Circuit’s decision in Southern Appalachian where


the permittee was told it must affi rmatively state whether or not the pollutant is present at the application stage. In ICG Hazard, the court found disclosure pursuant to the conditions of the permit was suffi cient after the permittee submitted its notice of intent to discharge under the general permit. Despite the fact that this discrepancy in the application of this disclosure requirement is found in one case involving an individual NPDES permit and one case involving a general NPDES permit, it appears these decisions invite further interpretation of Piney Run’s disclosure requirement.

After fi nding that ICG Hazard had satisfi ed the fi rst prong under Piney Run, the court went on to also conclude that ICG Hazard had satisfi ed the second prong because it was clear from the one-time sampling requirement of the industry-specifi c general permit that the discharge of selenium was within the permitting authority’s reasonable contemplation. Had the presence of selenium not been in the “reasonable contemplation” of Kentucky’s Division of Water, it would not have included said requirement.

There are several key takeaways from these cases. First and foremost, the scope of the Clean Water Act’s permit shield to liability has offi cially expanded to cover facilities operating under a general permit. That said, it would behoove any facility planning for discharges under a general permit to make sure it discloses all pollutants it believes will be discharged when submitting its notice of intent due to the confl icting interpretations among circuits of what constitutes “adequate” disclosure. Furthermore, regardless of whether one is operating under a general permit or individual permit, it is incumbent upon a prospective permit holder to know what will and will not be discharged from a facility and to ensure the appropriate permitting authority is on notice of the discharge of specifi c pollutants.

Kenneth Smith is of counsel to The Session Law Firm, P.C., and owner of the K M Smith Law Firm, LLC. He focuses on all aspects of environmental litigation as well as issues related to contaminated property and real estate transactions.

MUNICIPAL WATER AND WASTEWATER SYSTEMS—RIDING THE P3 WAVEJohn Watson and Jessica Wicha

The privatization of core public services through public-private partnerships (“P3s”) has become increasingly commonplace in the United States. From parking meters and lotteries to toll roads and bridges, state and local governments are being enticed by big up-front paydays to outsource these long-standing public services to private operators who pledge to bring effi ciencies, discipline, and, most often, higher costs to the consuming public. While the ultimate benefi ts of these projects thus far appear mixed, the P3 movement remains in full swing. An ever-expanding range of public services is being targeted for P3 projects by both governments and service providers. Recently, attention has turned to municipal water and wastewater treatment systems as the next wave of P3 projects—a logical and even obvious target, though one that will undoubtedly introduce a level of regulatory and operational complexity not seen before in the privatization space.

That this privatization “opportunity” has gravitated toward municipal water and wastewater services is no great surprise. Communities across the country are struggling to manage their aging, inadequate, and failing water infrastructure. According to the U.S. Environmental Protection Agency (EPA), most underground water infrastructure was built more than 50 years ago, with some urban areas having water mains that date back to the early 1900s. EPA estimates that communities lose $2.6 billion as a result of leaking water mains and that at least $600 billion will be needed over the next 20 years to address these infrastructure challenges. Water Infrastructure and Resiliency Finance Center, U.S. Environmental Protection Agency, available at http://water.epa.gov/infrastructure/waterfi nancecenter.cfm. A recent study by the American Water Works Association puts that estimate even higher, at more than $1 trillion over the next 25 years to fi x buried drinking water infrastructure alone. Buried No Longer:


Confronting America’s Water Infrastructure Challenge, American Water Works Association, available at http://www.awwa.org/Portals/0/fi les/legreg/documents/BuriedNoLonger.pdf.

This growing fi nancial strain on municipal and other public entities is exacerbated by increasingly stringent water quality standards and effl uent limitations being imposed by EPA and state environmental protection agencies, as well as greater overall regulatory scrutiny of these municipal system operators under the Clean Water Act and Safe Drinking Water Act. One of EPA’s six current national enforcement priorities is to address discharges of wastewater from the antiquated combined sewer overfl ow systems that are integral to many community water systems across the country. National Enforcement Initiatives, U.S. Environmental Protection Agency, available at http://www2.epa.gov/enforcement/national-enforcement-initiatives. Active federal enforcement and resulting settlements have only increased the fi nancial strain on these municipal service providers. At the same time, EPA and many states have identifi ed elevated nitrogen and phosphorous concentrations in our nation’s waterways as a major water quality challenge. Further controls on municipal wastewater treatment systems will undoubtedly be an essential part of any response to these concerns for decades to come.

While the challenges are acute, public resources are simply not available to fund the system upgrades required for municipal governments to effectively operate these systems for both the near and long term. Given these realities, privatization of these essential services has emerged as a viable solution. While there have been only a handful of municipal water privatization projects completed thus far—for example, in San Antonio, Texas, and Allentown, Pennsylvania—the momentum is growing. See, e.g., San Antonio Turns to the Private Sector for Water Needs, GOVERNING THE STATES AND LOCALITIES, Nov. 12, 2014, available at http://www.governing.com/news/headlines/san-antonio-turns-to-the-private-sector-for-water-needs.html; How Allentown Leased Its Utilities to Fund

Pensions, GOVERNING THE STATES AND LOCALITIES, Sept. 9, 2013, available at http://www.governing.com/blogs/view/gov-how-allentown-sold-its-utilities-to-fund-its-pensions.html. In fact, federal and state governments alike actively support these projects. Numerous state legislatures have passed new laws authorizing or incentivizing private sector involvement in infrastructure development. See, e.g., Texas Public and Private Facilities and Infrastructure Act, Tex. Gov. Code § 2267; Virginia Public-Private Transportation Act, Va. Code Ann. §§ 56-556 to -575. Earlier this year, EPA announced the creation of a new Water Finance Center to serve as a resource to aid communities in improving their wastewater, drinking water, and storm water systems through innovative fi nancing and partnerships, including the pursuit of P3 privatization projects. EPA Launches Finance Center to Improve Community Water Infrastructure and Resiliency, U.S. Environmental Protection Agency, Jan. 16, 2015, available at http://yosemite.epa.gov/opa/admpress.nsf/0/28CE3F2FE7F9DF5285257DCF00577798. The White House also recently announced the creation of a new type of municipal bond—a qualifi ed public infrastructure bond (QPIB)—to help municipalities fi nance their P3 water infrastructure projects. Increasing Investment in U.S. Roads, Ports and Drinking Water Systems Through Innovative Financing, White House Offi ce of the Press Secretary, Jan. 16, 2015, available at https://www.whitehouse.gov/the-press-offi ce/2015/01/16/fact-sheet-increasing-investment-us-roads-ports-and-drinking-water-syste.

Unlike parking meters, toll roads, and bridges, however, the privatization of comprehensive wastewater treatment operations offers signifi cant legal, technical, and operational complexities that must be carefully understood by both government and private wastewater service providers to ensure the long-term success of any partnership. On a technical and operational level, properly assessing the current condition and likely long-term costs to upgrade, repair, and maintain a decades-old municipal sewer system may be exceedingly diffi cult. This challenge becomes particularly


daunting when the parties necessarily must consider the extent to which current compliance costs assumptions likely will change over the 30 or more years of the concession as a result of changes to regulatory requirements for municipal wastewater system operations. Legally, allocating responsibility for compliance with essential regulatory requirements among a municipal permittee and its private service provider requires not only careful consideration but also perhaps diffi cult negotiation.

While current examples of municipal wastewater privatization projects are relatively few, the outsourcing of wastewater treatment services is not necessarily a new idea and such outsourcing foreshadows the legal issues that may arise in the P3 context. For decades now, many private companies have sought to leverage the expertise of private sector experts and have outsourced the operation of industrial wastewater treatment systems at manufacturing facilities across the country. For the most part, these arrangements have worked fairly well, with services generally confi ned to the operation and maintenance of relatively basic wastewater treatment systems with limited operational variability and the risk of system capital upgrades being retained by industrial facility owners. Even amidst these relatively simple arrangements, however, disputes and even protracted litigation have not been uncommon—a cautionary tale for the future of more ambitious P3 projects. Our experience has shown that, even in the face of clear negligence or misconduct on the part of third-party operators, claims to recoup fi nes and penalties paid by system owners/permit holders have proven challenging. Invariably, system operators point to preexisting faulty valves, failed alarms, or other system defi ciencies as the root causes of incidents rather than their own fault. System operators may also deny causation by raising unanticipated system upsets and extreme system stresses to argue against their own culpability for failed compliance. Proof problems emerge the further an industrial owner gets from the operation of its own treatment system infrastructure.

The success of any municipal water P3 initiative, then, demands an appreciation of project complexities and the development of a systematic and organized project process for assessing and managing risk. It is important to understand, as well, that municipal water P3 projects vary widely. While the goal of these projects is the transfer of responsibility and liability for all system operations to the private operator, the extent to which these objectives can be achieved will necessarily depend on a host of factors, including the size, geographic expanse, and age of the system; the length of the concession; the regulatory challenges confronting system operations; future growth projections for the system service area; the fi nancial viability of the municipality; and the ultimate pricing of the transaction.

A successful municipal wastewater system privatization project will require thorough up-front diligence and effective negotiation of project documents. In this regard, perhaps the most important task in any successful water P3 project is the municipality’s development of its request for proposals (RFP) and bid specifi cations that defi ne the project scope and expectations for project bidders. On the diligence front, municipalities must not be content to allow private operators to assess these projects in isolation. Municipal expectations on required system upgrades and operating standards must be clearly articulated to prospective bidders. Finally, in negotiating P3 privatization agreements, municipal governments must pay close attention to the following essential contract terms:

● Scope of Operator Obligations/Assumption of Risks. Contract documents must answer all essential questions around project risk, including changes in law, permit compliance, system upset, and force majeure events. Typically operators will argue that these risks may properly be allocated to them only if within their ability to control or manage. What constitutes “uncontrolled circumstances” or “materially increased risk,” thus relieving operators of their contractual obligations, has been the


subject of signifi cant legal dispute. Clear and complete defi nitions may avoid such disputes in the future.

● Scope of Maintenance/Capital Upgrade Requirements. Understanding the limits of any concession is essential to the correct pricing of the transaction and the long-term expectations of the parties. The absence of clarity around these essential terms will inevitably lead to acrimony and disputes throughout the operating life of any agreement.

● Rights of Municipality for Failure of Contractor Performance. The ability to compel effective performance is necessary in any effective outsourcing agreement. Contractor indemnifi cation for fi nes and penalties, stipulated penalties for failure to meet performance guarantees, and the right to assume control of system operations in the face of contractor failure to effectively operate are all necessary enforcement tools to ensure operator performance.

Municipal P3 projects offer potential solutions for real and signifi cant systemic problems plaguing our nation’s water and wastewater infrastructure. These projects are multifaceted and complex and require organizational discipline and a structured deal process to ensure fair deal pricing and the proper allocation of system operating obligations and long-term operating risks.

John Watson is a partner in the Baker & McKenzie Chicago offi ce and chairs the fi rm’s Environmental Practice Group. He regularly advises industrial companies and governmental entities on the outsourcing and privatization of water and wastewater services. Jessica Wicha is an associate in the fi rm’s Environmental Group and represents clients in wide-ranging Clean Water Act regulatory and enforcement matters.

INSURANCE COVERAGE FOR POLLUTION: AN IMPORTANT PART OF THE PICTUREErin L. Webb

Many companies face pollution risks, either through liability to other parties or due to property contamination. Insurance policies can be an important asset to protect the company against these types of liabilities. These policies can provide coverage for the costs of cleanup efforts, as well as the costs of lawsuits and related legal fees from third parties. Emergency response costs and business interruption costs can also be covered, depending on the policy, as well as coverage for contractor costs, cleanup of specifi c sites, and remediation related to storage tanks. Not only does insurance serve as an important part of the larger risk management picture for a company, it is also often required by state or federal regulators, by lenders, or by business partners.

Decades ago, pollution coverage often could be found under general or “all-risk” policies. For example, commercial general liability (CGL) coverage did not absolutely exclude coverage for pollution liabilities until the late 1980s. Modern CGL policies, however, tend to have very broad “pollution exclusions” stating that most pollution-related risks will not be covered. The same is true for modern “all-risk” fi rst-party property policies. Other key types of insurance coverage for companies, such as directors and offi cers (D&O) and errors and omissions (E&O) policies, also usually contain exclusions for pollution liabilities. Thus, to obtain coverage for pollution, companies usually must purchase a separate policy. There are several types of policies available to cover pollution risks. This article will summarize some of the most common.

Pollution Legal Liability

Pollution legal liability (PLL) insurance can cover third-party and fi rst-party risks. In other words, these policies can cover a company’s liabilities based on pollution claims made by third parties,


as well as costs that the company itself incurs for cleanup or similar costs. Some examples of insurance that can be provided under a PLL policy are coverage for bodily injury, property damage, or cleanup costs that happen both on and off the insured company’s property. Emergency response costs can also be included. This coverage is also referred to as environmental impairment liability (EIL) insurance.

There are several important factors to consider when purchasing or reviewing a PLL policy. For example, the geographic scope of the policy is an important consideration. Many policies specifi cally cover or exclude specifi c locations or sites.

Another important consideration is timing. A prospective insured will want to ask: What time period is covered by the policy? Policies have differing requirements concerning (1) when a claim must be made against the policyholder to be covered under the policy, and (2) when a policyholder must ask its insurer to provide coverage. Extended “reporting periods” can sometimes be purchased for an additional cost.

Finally, the defi nition of what constitutes a “covered event” is critical, and must match the company’s specifi c risks and exposure. Whether the risks relate to leaks, spills, fumes, a specifi c factory, or surrounding geographic features like bodies of water, they should be carefully analyzed and compared to the language in the policy.

Contractors Pollution Liability

Contractors pollution liability (CPL) insurance is available to contractors who wish to protect themselves from environmental claims relating to their activities at job sites. Like PLL insurance, it can cover both third-party liability claims and fi rst-party claims to remediate on-site conditions, and has the benefi t of providing insurance for pollution risks at sites that the policyholder may not own. Construction projects are usually associated with this type of coverage, but companies working on other types of projects can benefi t as well, such as

those that regularly deliver or install materials at various locations. CPL insurance usually terminates once a defi ned project is fi nished, unless special “completed operations” coverage is also purchased.

Site-Specifi c Liability Insurance

For property not owned by a policyholder, such as a waste disposal site, site-specifi c pollution liability insurance is available. This type of insurance can also be benefi cial to companies that regularly buy and sell property as part of their business, or companies involved in a merger or acquisition. Again, fi rst-party and third-party coverage can be purchased, as well as business interruption coverage.

Storage Tank Pollution Liability Insurance

As the name would suggest, these policies are designed to cover risks associated with storage tanks, both aboveground and underground, which contain hazardous materials or other materials of special concern. Storage tanks are frequently regulated by the Environmental Protection Agency and state environmental authorities, and insurance is required in many jurisdictions. This insurance can be part of a larger PLL policy or stand-alone.

Gas stations are the most frequently cited example of companies facing this risk, but several types of manufacturers and distributors may have aboveground or underground tanks as well. Insurance options include third-party bodily injury and property damage claims resulting from events involving covered storage tanks. Companies can also purchase coverage for cleanup costs relating to leaks or other covered events.

Industry-Specifi c Pollution Insurance

Certain businesses, such as asbestos and lead paint abatement companies, have very specifi c environmental risks that are usually addressed by “general liability” insurance policies customized to their activities. Similarly, environmental engineers and consultants often purchase E&O


coverage to protect themselves against third-party claims alleging defi ciencies in performing their professional duties. In addition, remediation stop-loss insurance is a specifi c type of fi rst-party coverage, designed to insure against the risk that an environmental cleanup at a specifi c location will exceed cost estimates.

In sum, a wide variety of insurance products are available on the market to help companies manage their environmental risks. Policyholders should always carefully review the policy language and be familiar with its requirements. Experienced coverage counsel should be retained and notice should be provided to the insurer immediately in the event of a claim.

Erin L. Webb is a senior managing associate in the Washington, D.C., offi ce of Dickstein Shapiro LLP. She is a member of the Energy Insurance Practice, and has experience representing energy companies in pursuing insurance coverage from their insurers in a variety of environmental and other matters.

NOMINATECall for Nominations

The ABA Award for Excellence in Environmental, Energy, and Resources Stewardship recognizes and honors the accomplishments of a person, organization, or group that has distinguished itself in environmental, energy, and resources stewardship. Nominees must be people, entities, or organizations that have made signifi cant accomplishments or demonstrated recognized leadership in the areas of sustainable development, energy, environmental, or resources stewardship.

While nominees are likely to be a lawyer and/or law related organizations, this is not a requirement for nomination. Nominees may be lawyers, industry managers, public offi cials, non-government organization members, policy analysts, educators, or any other person who has demonstrated signifi cant achievement or leadership or organizations that have demonstrated similar signifi cant achievement or leadership. Persons and organizations active in sustainable development, environmental, energy, and resources stewardship, and environmental, energy, and resources law in the United States and abroad may submit nominations. Self-nominations will not be accepted. Current Section Council members and offi cers and ABA staff are not eligible for the award.

The award will be presented at the 23rd Fall Conference in Chicago - October 2015.

Award recipients should plan to be present at the award presentation.

The nomination deadline has been extended to August 10, 2015.

For full details, please visit

www.ambar.org/EnvironAwards

July 30 - August 4, 2015Chicago

www.americanbar.org/calendar/annual.html

Documents

In-House Counsel Committee Newsletter July 2015 · In-House Counsel Committee Newsletter ... One of the beneﬁ ts of membership in our ... July 31-August 2, 2015 ABA Annual Meeting