Articles, Alerts & Perspectives

The Legal Intelligencer

(by Stephen Antonelli)

By the time you are reading this, the federal government will have re-opened, at least temporarily. On Friday, Jan. 25, the president and Congress agreed to end a 35-day partial shutdown of the U.S. government—the longest in history—by passing a continuing resolution that will fund the government through Feb. 15.

Throughout the shutdown, there were numerous news stories concerning the deadlines by which federal courts were expecting to run out of money. As a result, employment litigators and other federal court practitioners questioned whether the shutdown would interfere with their clients’ filing deadlines and how it might affect their practices, generally. Early on, courts were expected to run out of operating funds by Jan. 18. That deadline was later extended to Jan. 25 and then to Feb. 1. Luckily, courts were able to maintain mostly normal operations until the shutdown ended.

Likewise, the shutdown did not affect the National Labor Relations Board (NLRB) or the U.S. Department of Labor (DOL). The same cannot be said for the Equal Employment Opportunity Commission (EEOC), which closed on Dec. 22 and did not reopen until Jan. 28. For the 37 days in between those dates, the EEOC did not process new charges of discrimination and it did not investigate pending charges.

According to the EEOC’s website, during the shutdown, most services were unavailable. Its toll-free phone numbers were unstaffed, its digital portals were inaccessible, and intake interviews were cancelled (unless a charging party was in danger of missing a filing deadline). In other words, unless a deadline was nearing, if parties to a charge of discrimination had questions about the status of a charge, those questions were likely unanswered during the shutdown. …

Smart Business

(by Jayne Gest with Christian Farmakis and Sara Antol)

Consider this scenario: A startup in the artificial intelligence (AI) space develops a unique algorithm. A larger AI firm is interested in this algorithm but isn’t sure it’ll work. The larger company doesn’t want to buy the startup, but it wants a foot in the door on the new technology and is willing to invest. The startup needs funds but is concerned about the competitive issues created by giving the larger company a board seat and waiving the corporate opportunity doctrine.

“A smaller company is under pressure — in this scenario or others like it — to waive the corporate opportunity doctrine,” says Sara M. Antol, shareholder at Babst Calland. “Before you do that, stop and think about what this will mean. You need to determine whether there’s room to compromise with tailored language that serves the purposes of both the company and the investor.”

Smart Business spoke with Antol and Christian A. Farmakis, shareholder and chairman of the board at Babst Calland, about the corporate opportunity doctrine.

What is the corporate opportunity doctrine?

The corporate opportunity doctrine is part of the duty of loyalty imposed upon corporate fiduciaries. It’s not uncommon for a business owner or entity to invest in another company. If the investment is significant, the investor may demand a board seat to help influence the policies and operations of the company. If this person finds out about an opportunity as a board member, the corporate opportunity doctrine stops that director or officer from personally benefiting from an opportunity that would belong to the corporation, if it meets a four-pronged test:

• If the corporation is financially able to exploit the opportunity.

…

The PIOGA Press

(by Lisa M. Bruderly and Gary E. Steinbauer)

On December 11, the U.S. Environmental Protection Agency and Army Corps of Engineers released a much-anticipated proposed rule that would redefine “waters of the United States” (WOTUS) under the Clean Water Act (CWA).1 As compared to the WOTUS definition in the Obama administration’s 2015 “Clean Water Rule” (CWR) (currently applicable in Pennsylvania), the proposed rule would significantly reduce the federal government’s jurisdiction over surface water, including wetlands, nationwide. Should the proposed rule be finalized as writ ten, the oil and gas sector could see significant changes in CWA permitting/compliance obligations associated with well sites and pipeline construction.

Revised definition limits federal government’s CWA jurisdiction

The proposed rule’s WOTUS definition is intended to provide predictability and consistency in identifying federally regulated surface waters. The agencies state the proposed WOTUS definition is “straightforward” and cost-effective while still being protective of the nation’s navigable waters and respectful of state and tribal authority over their land and water resources.

The proposal focuses on surface waters that are “physically and meaningfully connected to traditional navigable waters,” and relies largely on the “relatively permanent water” jurisdictional test established in the late Justice Antonin Scalia’s plurality opinion in United States v. Rapanos, 547 U.S. 715 (2006). The proposed rule includes the following six categories of waters that are WOTUS and also includes 11 categories of waters or features that are not WOTUS:

WOTUS includes

1. Traditional navigable waters, including territorial seas (TNWs)
2. Tributaries that contribute perennial or intermittent flow to TNWs
3. Ditches that (a) are TNWs, (b) are constructed in a tributary, (c) relocate or alter a tributary such that they are a tributary, or (d) are constructed in an adjacent wetland so long as they meet the definition of tributary
4. Lakes and ponds that (a) are TNWs, (b) contribute perennial or intermittent flow to a TNW in a typical year directly or indirectly through a jurisdictional water, or (c) are flooded by jurisdictional waters in a typical year
5. Impoundments of otherwise jurisdictional waters
6. Wetlands adjacent to jurisdictional waters

 WOTUS does NOT include

1. Any feature not identified in the proposal as jurisdictional
2. Groundwater
3. Ephemeral features and diffuse stormwater run-off
4. Ditches that are not defined as WOTUS
5. Prior converted cropland
6. Artificially irrigated areas that would revert to upland if irrigation stopped
7. Artificial lakes/ponds constructed in upland that are not defined as WOTUS
8. Water-filled depressions and pits created in upland incidental to mining or construction activity, and pits excavated in upland to obtain fill, sand or gravel
9. Stormwater control features created in upland to convey, treat, infiltrate or store stormwater run-off
10. Wastewater recycling structures constructed in upland
11. Waste treatment systems

The proposed rule’s definition of WOTUS is significantly different from the definition of WOTUS under the CWR, and, as such, would significantly reduce the extent of federally regulated waters. …

Smart Business

(by Jayne Gest with Christian A. Farmakis)

In 2013, San Francisco seed accelerator Y Combinator created a Simple Agreement for Future Equity (SAFE), which can be used in lieu of a convertible note. SAFEs spread throughout the California investment community. Now they’re entering regions like Pittsburgh. Investors, however, haven’t always embraced SAFEs as a reasonable vehicle for seed investment. They may be hesitant or uncomfortable with them.

Christian A. Farmakis, shareholder and chairman of the board at Babst Calland, first encountered SAFEs a few years ago when making a personal investment.

“I didn’t know much about it at the time. I initially thought, ‘How is this different than a convertible note?’” he says. “I read it and thought: ‘If the investment goes well, I’m largely in the same position. If the investment doesn’t go well, I will never be repaid, but I never expected to be.’ So, I signed it.”

Smart Business spoke with Farmakis about what entrepreneurs and investors need to understand about SAFEs.

What are the similarities and differences between SAFEs and convertible notes?

A SAFE is essentially a warrant (a contractual right to purchase equity upon the occurrence of a future triggering event, like a later priced investment round), but with the purchase price paid upfront.

SAFEs are like convertible notes in many ways. They can (a) include a discount on the per share price — a 20 percent discount would provide the investor 125 shares rather than 100; (b) include a valuation cap, capping the investor dilution when the triggering event occurs; and (c) give pricing protection for early investors. Because both are early-stage investment vehicles, the price per equity unit is not determined because the company has no company valuation. …

PITTSBURGH, January 2, 2019 – Babst Calland recently named Meredith L. Calfe, Kate H. Cooper, Alana E. Fortna and Rachel E. James shareholders in the Firm.

Meredith Calfe, a member of the Firm’s Energy and Natural Resources Group, concentrates her practice on counseling oil and gas clients on mineral-related transaction matters, including title examination, due diligence and curative work.

Ms. Calfe is a 2009 graduate of the University of Pittsburgh School of Law.

Kate Cooper, a member of the Firm’s Corporate and Commercial Group, counsels for-profit and non-profit entities in connection with mergers, acquisitions and divestitures, and a broad range of general corporate matters, including business planning and structuring, commercial contracts, securities law matters and governance issues.

Ms. Cooper is a 2010 graduate, cum laude, of Boston College Law School.

Alana Fortna is a member of the Firm’s Litigation, Environmental, Employment and Labor, and Emerging Technologies groups. Ms. Fortna represents clients in complex commercial litigation with a focus primarily on environmental litigation, including large-scale cost recovery actions under CERCLA and state law statutes, actions seeking injunctive relief under RCRA, and citizens’ suits brought under various federal statutes and regulatory programs. She also leverages her litigation experience to help companies and other entities with emerging technologies strike a balance between innovation and risk management.

Ms. Fortna is a 2010 graduate, magna cum laude, of Duquesne University School of Law.

Rachel James, a member of the Firm’s Energy and Natural Resources Group, represents energy clients on oil, gas and mineral-related transaction matters, including title examination, due diligence activities, curative work and the acquisition and disposition of oil and gas fee and leasehold assets. …

The Legal Intelligencer

(by Blaine A. Lucas and Alyssa E. Golfieri)

Pennsylvania municipalities are “creatures of the state” and thus may only exercise those powers expressly and implicitly delegated to them by the General Assembly. One area in which municipalities have been delegated authority is the regulation of land uses. The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq., establishes the framework for zoning and subdivision and land development regulation in Pennsylvania. However, a municipality’s powers are not without limitation. The General Assembly, by statute, has constrained the manner and degree to which municipalities can regulate certain types of land use. The Pennsylvania Right-to-Farm Act, 3 P.S. Section 951 et seq., (RTFA) and the Pennsylvania Agricultural, Communities and Rural Environment Act, 3 Pa.C.S. Section 311 et seq., (ACRE) are two such examples.

The RTFA was enacted in 1982 for the purpose of limiting the circumstances under which “normal agricultural operations” may be the subject matter of nuisance suits and zoning regulations. Specifically, the RTFA mandates that every municipality regulating a public nuisance exempt from its scope “normal agricultural operations” as long as the operations do not have a “direct adverse effect on the public health and safety.” It also requires municipalities to permit the direct sale of agricultural commodities on property owned and operated by a landowner who produces 50 percent or more of the commodities sold, regardless of applicable zoning regulations.

In 2005, the General Assembly recognized that owners and operators of normal agricultural operations needed a cost and time efficient way to challenge local regulatory actions running afoul of the RTFA and, in response, enacted ACRE. ACRE provides a means for those engaged in these activities to challenge and seek the invalidation of unauthorized ordinances or enforcement actions related to those ordinances. …

The PIOGA Press
(by Meredith Odato Graham and Gary E. Steinbauer)
In 2016, the U.S. Environmental Protection Agency finalized a rule that established first-time federal standards for methane emissions from new, modified, and reconstructed sources in the oil and gas industry. The so-called new source performance standards (NSPS) at 40 C.F.R. 60, Subpart OOOOa (Subpart OOOOa), have since become the subject of considerable debate and litigation. Consistent with the Trump administration’s other deregulatory efforts, EPA published a proposal in the Federal Register in October that aims to reduce the Subpart OOOOa regulatory burden for industry.
EPA estimates that the proposed improvements to the rule could save industry tens of millions of dollars in compliance costs each year. EPA held a public hearing in November and is accepting stakeholder comments through December 17.
Significant changes to applicable requirements
The 52-page rulemaking notice describes several proposed amendments to Subpart OOOOa. EPA is addressing certain issues that were presented to the agency in formal petitions for reconsideration, as well as “other implementation issues and technical corrections” brought to the agency’s attention after Subpart OOOOa was promulgated. For example, it is proposing significant changes to the requirements for fugitive emissions components, including revised leak monitoring frequencies. Whereas the current regulation subjects well sites to semiannual leak monitoring, the revised Subpart OOOOa would require monitoring every other year for low production well sites and annually for all other well sites. The required frequency of compressor station monitoring would be reduced from quarterly to either semiannual or annual. (The proposal includes distinct monitoring requirements for well sites and compressor stations on the Alaska North Slope.) EPA also is proposing to reduce the schedule for repairing leaks from 30 to 60 days. …

The American Oil & Gas Reporter
(by Jean M. Mosites, Keith J. Coyle and Krista-Ann M. Staley)
PITTSBURGH–The Marcellus and Utica shale plays account for some 30 percent of total U.S. natural gas output, compared with only 3 percent a decade ago. The Appalachian Basin’s rapid growth in natural gas and natural gas liquids production has occurred despite relatively low natural gas prices, driven by greater well productivity from improved drilling and completion techniques, including longer laterals and optimized well spacing.
Additionally, infrastructure build-out in the region, including the development of significant interstate pipeline projects featuring large-scale transmission of natural gas and NGLs (such as the Rover, Nexus and Mariner East 1 projects), has allowed access to Northeast population centers to increase demand for Appalachian-derived natural gas resources. Continued innovations in the industry, such as improvements to water logistics, likely will be important to reduce operational costs and further improve efficiency to maintain growth.
While the industry continues forging ahead in the Marcellus, Utica and conventional Appalachian plays, the legal landscape continues to evolve with everchanging federal and state environmental and safety regulations, along with a variety of local government requirements across the basin. The federal and state courts, legislatures and regulatory agencies continue to address a variety of issues that affect all facets of oil and gas development in the multistate region.
These decisions and developments not only affect drilling and production, but also the midstream and transportation infrastructure that is so critical to Appalachian producers’ ability to market their production. This article summarizes developments in the legal and regulatory landscape facing oil and gas producers and midstream operators in the Appalachian Basin.
In October 2016, the Marcellus Shale Coalition filed a petition in the Pennsylvania Commonwealth Court challenging seven new provisions in 25 Pa. …