Category: Administrative & Regulatory

President Biden’s FY 2024 Budget Includes Additional Funding for TSCA and Funding to Address PFAS Pollution

On March 9, 2023, President Biden released his fiscal year (FY) 2024 budget. According to the U.S. Environmental Protection Agency’s (EPA) March 9, 2023, press release, the budget requests over $12 billion in discretionary budget authority for EPA in FY 2024, a $1.9 billion or 19 percent increase from the FY 2023 enacted level. Highlights of the FY 2024 budget include:

  • Ensuring Safety of Chemicals for People and the Environment: The budget provides an investment of $130 million, $49 million more than the 2023 enacted level, to build core capacity to implement the Toxic Substances Control Act (TSCA). Under TSCA, EPA has a responsibility to ensure the safety of chemicals in or entering commerce. According to EPA, in FY 2024, it “will focus on evaluating, assessing, and managing risks from exposure to new and existing industrial chemicals to advance human health protection in our communities.” EPA states that “[a]nother priority is to implement [the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)] to ensure pesticides pose no unreasonable risks to human health and the environment.”
  • Tackling Per- and Polyfluoroalkyl Substances (PFAS) Pollution: The budget provides approximately $170 million to combat PFAS pollution. This request allows EPA to continue working toward commitments made under EPA’s 2021 PFAS Strategic Roadmap, including: increasing its knowledge of PFAS impacts on human health and ecological effects; restricting use to prevent PFAS from entering the air, land, and water; and remediating PFAS that have been released into the environment.

EPA states that it will release the full Congressional Justification and Budget in Brief materials “soon.”

Article By Lynn L. Bergeson and Carla N. Hutton of Bergeson & Campbell, P.C.

Click here for more environmental legal news from the National Law Review.

©2023 Bergeson & Campbell, P.C.

The EPA and Army Corps’ “Waters of the U.S.” (WOTUS) Rule to Become Effective on March 20

In January of 2023, the federal Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (USACE) published in the Federal Register (see Federal Register/Vol. 88, No. 11, January 18, 2023) new rules that define which water bodies are classified under the Clean Water Act (CWA) as “waters of the U.S.” (WOTUS). While this may not appear to be significant, the adoption of these rules will have major implications for how federal agencies will identify the types of water bodies that are subject to jurisdiction under the CWA. The January 18th Federal Register publication provides that these new rules will become effective on March 20, 2023.

The CWA is the law that provides federal agencies the authority to prohibit or limit various activities that can impact WOTUS, such as the regulation of industrial and municipal wastewater discharges to navigable waters, the dredging or filling of wetlands, and the requirement to prepare “Stormwater Pollution Prevention Plans” (SWPPP) for industrial facilities. It also is the basis for much State law water regulation.

Applicability of the CWA

To be classified as a WOTUS, a water body must be considered to be “navigable,” but this term is more arcane than it might at first appear. Navigable waters as defined by the CWA includes, “waters of the United States,” and has been further defined by regulation to include those waters that “are subject to the ebb and flow of the tide and/or are presently used, or have been used in the past, or may be susceptible for use to transport interstate or foreign commerce.” This approach to navigability has led some states to adopt a “saw log test” as to whether the body of water could float a saw log for commercial purposes. In other states, such as Wisconsin, the test for navigability is whether the body of water can on a recurring basis – even if intermittent – support navigation by the smallest recreational craft, such as a canoe or kayak. Therefore, navigable waters not only can include larger lakes, rivers and streams, but can also include less obvious smaller water types such as wetlands adjacent to navigable waters, and even in some instances, ditches that hold water. While the CWA provides federal jurisdiction over WOTUS, the CWA does not actually define the term WOTUS; rather, it provides authority for EPA and the USACE to define WOTUS in regulations, which since the 1970s, the agencies at various times have done.

The Rapanos Decision and Competing Rationales

Further, the definition of what constitutes WOTUS has been reviewed in several U.S. Supreme Court cases, but the most significant case on this subject is the 2006 case of Rapanos v. United States, 547 U.S. 715 (2006), in which the Supreme Court interpreted the definition of WOTUS using two separate tests. In a four-justice plurality opinion written by Justice Scalia, WOTUS was defined as “only those relatively permanent, standing or continuously flowing bodies of water forming geographic features that are described in ordinary parlance as streams[,] … oceans, rivers, [and] lakes,” and “wetlands with a continuous surface connection” to a “relatively permanent body of water connected to traditional interstate navigable waters.” However, Justice Kennedy applied a different approach in a concurring opinion and stated that WOTUS must possess a “significant nexus” to waters that are or were navigable in fact or that could reasonably be so made.” He added that adjacent wetlands could possess a significant nexus if the wetlands “either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as ‘navigable.'”

Regulatory Attempts to Define WOTUS Following Rapanos

Following Rapanos, the agencies have at various times developed guidance for implementing the WOTUS definition. For example, in 2015, under the Obama administration, the agencies amended their regulations defining WOTUS as part of the “Clean Water Rule, which expanded the definition of which water bodies were defined as WOTUS, and included the use of the “significant nexus” test. Again, in 2020, under the Trump administration, another rule was adopted, known as the “Navigable Waters Protection Rule” (NWPR), which limited the types of water bodies that were considered WOTUS under the previous 2015 Clean Water Rule. However, in 2021, in Pasqua Yaqui Tribe v. EPA, (Case No. 4:20-cv-00266), the U.S. District Court for the District of Arizona vacated implementation of the NWPR nationwide. The new rules published in the January 2023 Federal Register represents the Biden administration’s effort to rewrite the WOTUS rules following the vacation of the NWPR, allowing the agencies the ability to use both Justice Scalia’s “relatively permanent” test or Justice Kennedy’s “significant nexus” test in determining whether they have jurisdiction over water bodies.

WOTUS under the New Rule

Use of the “relatively permanent” test or the “significant nexus” test is apparent in the new rule’s definition of WOTUS. The 2023 rules identify the following waters as WOTUS:

  • Traditional navigable waters, the territorial seas, and interstate waters;
  • Impoundments of waters otherwise identified as WOTUS;
  • Tributaries of navigable waters, territorial seas, interstate waters, or impoundments if the tributaries meet the relatively permanent test or the significant nexus test;
  • “Adjacent wetlands,” which includes wetlands adjacent to navigable waters, wetlands adjacent to and with a continuous surface connection to relatively permanent impoundments, wetlands adjacent to tributaries that are relatively permanent, and wetlands adjacent to impoundments or tributaries which meet the significant nexus test; and
  • Intrastate lakes and ponds, streams, or wetlands not listed above which meet the relatively permanent test or the significant nexus test.

The 2023 rules specifically exclude the following from the WOTUS definition, though some activities may still be subject to Wisconsin rules:

  • Prior converted cropland;
  • Waste treatment systems;
  • Ditches (including roadside ditches) excavated wholly in and draining only dry land, and that do not carry a relatively permanent flow of water;
  • Artificially irrigated areas that would revert to dry land if the irrigation ceased.
  • Artificial lakes or ponds created by excavating or diking dry land, that are used exclusively for stock watering, irrigation, settling basins or rice growing;
  • Artificial reflecting pools or swimming pools, and other small ornamental water bodies created by excavating or diking;
  • Waterfilled depressions in dry land incidental to construction activity and pits excavated in dry land for obtaining fill, sand or gravel unless the construction is abandoned and the water body meets the definition of WOTUS; and
  • Swales and erosional features that are characterized by low volume, infrequent, or short duration flow.

Where is this Going?

While these new WOTUS rules become effective on March 20, 2023, the future of these new rules is in question as the U.S. Supreme Court is reviewing a case (Sackett v. EPA, 142 S. Ct. 896 (2022)) in which the legal sufficiency of the “significant nexus” test, in the context of wetland permitting, is under review. The Court’s opinion is expected to be issued after the 2023 rules becomes effective. Therefore, depending on the Court’s opinion related to the “significant nexus” test, it is possible that the 2023 rules may need to be revised. Further, in early March, a federal Congressional Committee (the House Transportation and Infrastructure Committee) approved a joint resolution to overturn the 2023 rules. In addition, several industry groups have filed suits to overturn the 2023 rules. These definitions have always been politically and scientifically contentious and we expect that to continue.

Due to the potential flux in which this new rule may ultimately be applied and considered, it will be increasingly important for the regulated public to keep abreast of which water bodies are ultimately determined to be classified as WOTUS, either by the agencies through regulation or guidance, by a U.S. Supreme Court decision in Sackett, and/or other legal or Congressional challenges. We will be tracking the implementation of this new rule by the agencies and related caselaw developments and Congressional challenges and will provide timely future Legal Updates. In the meantime, the extent of regulations of WOTUS – particularly wetlands – will continue to be very challenging.

Article By David P. Ruetz of von Briesen & Roper, s.c.

For more environmental legal news, click here to visit the National Law Review.

©2023 von Briesen & Roper, s.c

Silicon Valley Bank Fails After Run on Deposits

“The Federal Deposit Insurance Corporation took control of the bank’s assets on Friday. The failure raised concerns that other banks could face problems, too.”

Read the New York Times article (Free Subscription Required)

In light of the news this morning that Silicon Valley Bank (SVB) has been closed by the California Department of Financial Protection, which appointed the Federal Deposit Insurance Corporation as SVB’s receiver, it’s fair to ask if this is the beginning of a trend among regional banks or an isolated incident. SVB, while unique in the banking industry, since it would lend against illiquid (pre-IPO) securities, mainly issued by ventured-backed companies, faced challenges in a rising interest rate environment that are not unique and which, many similarly situated regional banks, are still facing.

As the Federal Reserve considers whether to raise interest rates by 0.25% or 0.5%, in order to combat inflation, a key factor in their analysis will be the impact these interest rate hikes have on regional banks and their portfolios. Regional banks, unlike their Fortune 100, multi-national counterparts, derive their value from vast portfolios of bonds, which are very sensitive to interest rate hikes (as interest rates rise, the value of these bonds fall). For instance, the S&P Regional Banks Select Industry Index is down 3.69% today, 19.92% month-to-date, and 13.02% year-to-date.

Therefore, in the coming days, it will be crucial to watch both the Federal Reserve’s Federal Open Market Committee meeting on March 21-22 and whether SVB’s collapse signals a contagion among the regional bank sector. SVB’s closure is the biggest bank collapse since the financial crisis and many start-up/early-stage companies will be very interested to see if it is the last or the first of many.

© 2023 ArentFox Schiff LLP

The Future of Stablecoins, Crypto Staking and Custody of Digital Assets

In the wake of the collapse of cryptocurrency exchange firm FTX, the Securities and Exchange Commission (SEC) has ratcheted up its oversight and enforcement of crypto firms engaged in activities ranging from crypto staking to custody of digital assets. This is due in part to concerns that the historically free-wheeling and largely unregulated crypto marketplace may adversely impact U.S. investors and contaminate traditional financial systems. The arguments that cryptocurrencies and digital assets should not be viewed as securities under federal laws largely fall on deaf ears at the SEC. Meanwhile, the state of the crypto economy in the United States remains in flux as the SEC, other regulators and politicians alike attempt to balance competing interests of innovation and investment in a relatively novel and untested asset class.

Is Crypto Staking Dead?

First, what is crypto staking? By way of background, it’s necessary to understand a bit about blockchain technology, which serves as the underpinning for all cryptocurrency and digital asset transactions. One of the perceived benefits of such transactions is that they are decentralized and “peer-to-peer” – meaning that Person A can transact directly with Person B without the need for a financial intermediary to approve the transaction.

However, in the absence of a central authority to validate a transaction, blockchain requires other verification processes or consensus mechanisms such as “proof of work” (which in the case of Bitcoin mining ensures that transactions are valid and added to the Bitcoin blockchain correctly) or “proof of stake” (a network of “validators” who contribute or “stake” their own crypto in exchange for a chance to validate a new transaction, update the blockchain and earn a reward). Proof of work has come under fire by environmental activists for the enormous amounts of computer power and energy required to solve complex mathematical or cryptographic puzzles to validate a transaction before it can be recorded on the blockchain. In contrast, proof of stake is analogous to a shareholder voting their shares of stock to approve a corporate transaction.

Second, why has crypto staking caught the attention of the SEC? Many crypto firms and exchanges offer “staking as a service” (SaaS) whereby investors can stake (or lend) their digital assets in exchange for lucrative returns. This practice is akin to a person depositing cash in a bank account in exchange for interest payments – minus FDIC insurance backing of all such bank deposits to protect investors.

Recently, on February 9, 2023, the SEC charged two crypto firms, commonly known as “Kraken,” for violating federal securities laws by offering a lucrative crypto asset SaaS program. Pursuant to this program, investors could stake their digital assets with Kraken in exchange for annual investment returns of up to 21 percent. According to the SEC, this program constituted the unregistered sale of securities in violation of federal securities laws. Moreover, the SEC claims that Kraken failed to adequately disclose the risks associated with its staking program. According to the SEC’s Enforcement Division director:

“Kraken not only offered investors outsized returns untethered to any economic realities but also retained the right to pay them no returns at all. All the while, it provided them zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place.”1

Without admitting or denying the SEC’s allegations, Kraken has agreed to pay a $30 million civil penalty and will no longer offer crypto staking services to U.S. investors. Meanwhile, other crypto firms that offer similar programs, such as Binance and Coinbase, are waiting for the other shoe to drop – including the possibility that the SEC will ban all crypto staking programs for U.S. retail investors. Separate and apart from potentially extinguishing a lucrative revenue stream for crypto firms and investors alike, it may have broader consequences for proof of stake consensus mechanisms commonly used to validate blockchain transactions.

NY DFS Targets Stablecoins

In the world of cryptocurrency, stablecoins are typically considered the most secure and least volatile because they are often pegged 1:1 to some designated fiat (government-backed) currency such as U.S. dollars. In particular, all stablecoins issued by entities regulated by the New York Department of Financial Services (NY DFS) are required to be fully backed 1:1 by cash or cash equivalents. However, on February 13, 2023, NY DFS unexpectedly issued a consumer alert stating that it had ordered Paxos Trust Company (Paxos) to stop minting and issuing a stablecoin known as “BUSD.” BUSD is reportedly the third largest stablecoin by market cap and pegged to the U.S. dollar.

The reasoning behind the NY DFS order remains unclear from the alert, which merely states that “DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.”2 The same day, Paxos confirmed that it would stop issuing BUSD. However, in an effort to assuage investors, Paxos stated “All BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with U.S. dollar–denominated reserves, fully segregated and held in bankruptcy remote accounts.”3

Separately, the SEC reportedly issued a Wells Notice to Paxos on February 12, 2023, indicating that it intended to commence an enforcement action against the company for violating securities laws in connection with the sale of BUSD, which the SEC characterized as unregistered securities. Paxos, meanwhile, categorically denies that BUSD constitute securities, but nonetheless has agreed to stop issuing these tokens in light of the NY DFS order.

It remains to be seen whether the regulatory activity targeting BUSD is the beginning of a broader crackdown on stablecoins amid concerns that, contrary to popular belief, such coins may not be backed by adequate cash reserves.

Custody of Crypto Assets

On February 15, 2023, the SEC proposed changes to the existing “custody rule” under the Investment Advisers Act of 1940. As noted by SEC Chair Gary Gensler, the custody rule was designed to “help ensure that [investment] advisers don’t inappropriately use, lose, or abuse investors’ assets.”4 The proposed changes to the rule (referred to as the “safeguarding rule”) would require investment advisers to maintain client assets – specifically including crypto assets – in qualified custodial accounts. As the SEC observed, “[although] crypto assets are a relatively recent and emerging type of asset, this is not the first time custodians have had to adapt their practices to safeguard different types of assets.”5

A qualified custodian generally is a federal or state-chartered bank or savings association, certain trust companies, a registered broker-dealer, a registered futures commission merchant or certain foreign financial institutions.6 However, as noted by the SEC, many crypto assets trade on platforms that are not qualified custodians. Accordingly, “this practice would generally result in an adviser with custody of a crypto asset security being in violation of the current custody rule because custody of the crypto asset security would not be maintained by a qualified custodian from the time the crypto asset security was moved to the trading platform through the settlement of the trade.”7

Moreover, in a departure from existing practice, the proposed safeguarding rule would require an investment adviser to enter into a written agreement with the qualified custodian. This custodial agreement would set forth certain minimum protections for the safeguarding of customer assets, including crypto assets, such as:

  • Implementing appropriate measures to safeguard an advisory client’s assets8
  • Indemnifying an advisory client when its negligence, recklessness or willful misconduct results in that client’s loss9
  • Segregating an advisory client’s assets from its proprietary assets10
  • Keeping certain records relating to an advisory client’s assets
  • Providing an advisory client with periodic custodial account statements11
  • Evaluating the effectiveness of its internal controls related to its custodial practices.12

The new proposed, cumbersome requirements for custodians of crypto assets appear to be a direct consequence of the collapse of FTX, which resulted in the inexplicable “disappearance” of billions of dollars of customer funds. By tightening the screws on custodians and investment advisers, the SEC is seeking to protect the everyday retail investor by leveling the playing field in the complex and often murky world of crypto. However, it still remains to be seen whether, and to what extent, the proposed safeguarding rule will emerge after the public comment period, which will remain open for 60 days following publication of the proposal in the Federal Register.

1 SEC Press Release 2023-25 (Feb. 9, 2023).

2 NY DFS Consumer Alert (Feb. 13, 2023) found at https://www.dfs.ny.gov/consumers/alerts/Paxos_and_Binance.

3 Paxos Press Release (Feb. 13, 2023) found at https://paxos.com/2023/02/13/paxos-will-halt-minting-new-busd-tokens/.

4 SEC Press Release 2023-30 (Feb. 15, 2023).

5 SEC Proposed Rule, p. 79.

6 SEC Fact Sheet: Proposed Safeguarding Rule.

7 SEC Proposed Rule, p. 68.

8 For instance, per the SEC, this could require storing crypto assets in a “cold wallet.”

9 Per the SEC, “the proposed indemnification requirement would likely operate as a substantial expansion in the protections provided by qualified custodians to advisory clients, in particular because it would result in some custodians holding advisory client assets subject to a simple negligence standard rather than a gross negligence standard.” See SEC Proposed Rule, p. 89.

10 Per the SEC, this requirement is intended to “ensure that client assets are at all times readily identifiable as client property and remain available to the client even if the qualified custodian becomes financially insolvent or if the financial institution’s creditors assert a lien against the qualified custodian’s proprietary assets (or liabilities).” See SEC Proposed Rule, p. 92.

11 Per the SEC, “[in] a change from the current custody rule, the qualified custodian would also now be required to send account statements, at least quarterly, to the investment adviser, which would allow the adviser to more easily perform account reconciliations.” See SEC Proposed Rule, p. 98.

12 Per the SEC, the proposed rule would require that the “qualified custodian, at least annually, will obtain, and provide to the investment adviser a written internal control report that includes an opinion of an independent public accountant as to whether controls have been placed in operation as of a specific date, are suitably designed, and are operating effectively to meet control objectives relating to custodial services (including the safeguarding of the client assets held by that qualified custodian during the year).” See SEC Proposed Rule, p. 101.

Article By Anjali C. Das of Wilson Elser Moskowitz Edelman & Dicker LLP

For more cryptocurrency and finance legal news, click here to visit the National Law Review.

© 2023 Wilson Elser

Locking Tik Tok? White House Requires Removal of TikTok App from Federal IT

On February 28, the White House issued a memorandum giving federal employees 30 days to remove the TikTok application from any government devices. This memo is the result of an act passed by Congress that requires the removal of TikTok from any federal information technology. The act responded to concerns that the Chinese government may use data from TikTok for intelligence gathering on Americans.

I’m Not a Federal Employee — Why Does It Matter?

The White House Memo clearly covers all employees of federal agencies. However, it also covers any information technology used by a contractor who is using federal information technology.  As such, if you are a federal contractor using some sort of computer software or technology that is required by the U.S. government, you must remove TikTok in the next 30 days.

The limited exceptions to the removal mandate require federal government approval. The memo mentions national security interests and activities, law enforcement work, and security research as possible exceptions. However, there is a process to apply for an exception – it is not automatic.

Takeaways

Even if you are not a federal employee or a government contractor, this memo would be a good starting place to look back at your company’s social media policies and cell phone use procedures. Do you want TikTok (or any other social media app) on your devices? Many companies have found themselves in PR trouble due to lapses in enforcement of these types of rules. In addition, excessive use of social media in the workplace has been shown to be a drag on productivity.

Article By J. William Manuel and Anne R. Yuengert of Bradley Arant Boult Cummings LLP

For more communications, media, and internet legal news, click here to visit the National Law Review.

© 2023 Bradley Arant Boult Cummings LLP

Administration’s WOTUS Rule Muddies Jurisdictional Waters

The U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers have issued a new definition of “waters of the United States” (WOTUS), which becomes effective on March 20. The regulated community is watching this new definition of WOTUS because it will determine federal jurisdiction under the Clean Water Act.

For example, projects involving oil or natural gas development or pipeline construction require federal permitting for impacts from crossing, or otherwise disturbing, WOTUS. Generally speaking, the more impacts to such federally regulated streams and wetlands, the more complicated, expensive and lengthy the Corps Section 404 permitting.

In addition to determining the scope of federal permitting for the dredging/filling of streams and wetlands, the WOTUS definition also determines the scope of several other federal regulations, including regulations associated with National Pollutant Discharge Elimination System permitting, Spill Prevention, Control and Countermeasure plans and federal spill reporting. Although WOTUS is not defined in the CWA, the WOTUS definition appears in 11 different federal regulations.

Overview And Background

The agencies have promoted this final rule as establishing a “durable definition” that will “reduce uncertainty” in identifying WOTUS. However, this definition does not appear to provide much-needed clarity. Rather, generally speaking, the new definition codifies the approach that the agencies already have been informally utilizing to determine WOTUS, for example, relying on the definition of WOTUS from the late 1980s, as interpreted by subsequent U. S. Supreme Court decisions (such as the 2006 case, Rapanos v. United States). Challenges to the new definition are already underway.

The definition of WOTUS has been debated for nearly two decades, starting with several U. S. Supreme Court cases, which addressed the meaning of the 1980s WOTUS definition. This 1980s definition is very brief and is open to much interpretation because it does not include any defined terms. As discussed further below, rather than providing clarity, the U.S. Supreme Court decisions introduced additional uncertainty by offering more than one test for determining WOTUS.

Subsequently, Presidents Obama and Trump each introduced their own WOTUS definitions. President Barack Obama introduced the Clean Water Rule (CWR) in 2015, and President Donald Trump introduced the Navigable Waters Protection Rule (NWPR) in 2020.

Not surprisingly, the CWR entailed a broader interpretation of WOTUS, based heavily of Justice Anthony Kennedy’s significant nexus test in Rapanos, while the NWPR was based heavily on Justice Antonin Scalia’s “relatively permanent waters” test in Rapanos. Both the CWR and the NWPR were immediately and significantly challenged. Neither rule remains in effect.

Current Status

The Biden administration published its draft definition of WOTUS on Dec. 7. The final rule was published in the Federal Register on Jan. 18. The agencies’ approach to interpreting WOTUS relies heavily on both of the frequently discussed tests identified in the Rapanos decision. In Rapanos, Justice Scalia issued the plurality opinion, which held that WOTUS would include only “relatively permanent, standing or continuously flowing bodies of water” connected to traditional navigable waters, and to “wetlands with a continuous surface connection to such relatively permanent waters” (such as adjacent wetlands).

Justice Kennedy, however, advanced a broader WOTUS interpretation in his concurring opinion, which was based on the concept of a “significant nexus” (for instance, wetlands should be considered as WOTUS “if the wetlands, either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical and biological integrity of other covered water”). President Biden’s new definition directly quotes and codifies these tests as regulations that may be relied upon to support a WOTUS determination.

While this new WOTUS definition may not be, conceptually, a significant change to how the agencies regulate streams and wetlands, the new definition may expand the agencies’ interpretation of a wetland that is “adjacent” to a WOTUS, through its lengthy discussion of adjacent wetlands in the final rule’s preamble.

The new definition also may expand how the agencies determine whether a water body will “significantly affect” a WOTUS, by providing a definition of “significantly affect,” which enumerates five factors to assess and five functions to consider in evaluating whether a potentially unregulated water will have a “material influence” on a traditionally navigable water.

Factors include distance from the traditionally navigable water, hydrologic factors and climatological variables. Functions include contribution of flow and retention and attenuation of runoff. Both the factors and the functions are broad and open to interpretation, which may lead to the agencies asserting jurisdiction over more water bodies. The new definition also codifies that the effect of the potentially regulated water must be evaluated alone “or in combination with similarly situated waters in the region,” which likely will broaden how the agencies evaluate the potential regulation of ephemeral and isolated water bodies.

Supreme Court And Congress

Publication of this definition, at this time, is likely a preemptive move by the agencies in advance of the Supreme Court’s impending decision in Sackett v. EPA, a case in which the court will, again, weigh in on the definition of WOTUS.

In Sackett, landowners in Idaho have had a long-standing challenge to an administrative order issued against them for allegedly filling wetlands without a permit. The Sacketts assert that Justice Kennedy’s significant nexus test in Rapanos is not the appropriate test to delineate wetlands as WOTUS, and that, under the test identified by Justice Scalia, the wetlands on their property are not WOTUS.

In 2021, the U.S. Court of Appeals for the Ninth Circuit ruled against the Sacketts’ position and held that the “significant nexus” test in the Kennedy concurrence was the controlling opinion from Rapanos. The Sacketts petitioned the U.S. Supreme Court to consider whether Rapanos should be revisited to adopt the plurality’s test for wetland jurisdiction under the CWA. However, the Supreme Court instead will consider the narrow issue of whether the Ninth Circuit “set forth the proper test for determining whether wetlands are WOTUS.”

Some have speculated that the U.S. Supreme Court’s opinion may support a narrower interpretation of WOTUS than the agencies have been implementing. For example, if the court narrows or eliminates the “significant nexus” test, the decision will create even more uncertainty in identifying WOTUS and may invalidate the Biden administration’s definition. The Sackett opinion is expected by this summer.

In a letter dated Jan. 30, 25 Republican governors asked President Biden to delay implementation of the new WOTUS definition until the U.S. Supreme Court issued the Sackett decision. The governors oppose the new definition and claim that it is, among other things, ill-timed, burdensome and overbroad. The governors assert that delaying implementation of the new definition until after the issuance of the Sackett decision will minimize the number of changes to the definition in a short time. The governors stated that multiple revisions would “impose an unnecessary strain on farmers, builders and every other impacted sector of the American economy.”

Consistent with the sentiments of the Republican governors, in early February, Republican members of Congress, led by Senator Shelley Moore Capito, R-W.V., and representatives Sam Graves, R-Mo., and David Rouzer, R-N.C., announced that they intended to use the Congressional Review Act to formally challenge the new WOTUS definition through a joint resolution of disapproval. The hearing was held on Feb 8.

The CRA provides Congress a mechanism to vote to disapprove agency rules that go beyond the authority Congress granted to federal agencies and to send the resolution to the president, who can approve or veto the resolution. If passed, the joint resolution of disapproval could invalidate the rule and prohibit an agency from issuing a rule that is in substantially the same form without further congressional authorization. President Biden is expected to veto any such joint resolution of disapproval.

Consistent with Obama’s CWR and Trump’s NWPR, the new WOTUS definition already has been challenged in the U.S. District Court of the Southern District of Texas by Texas and 18 industry groups, including the American Petroleum Institute, claiming that the new definition is “unworkable” and in conflict with the CWA (see accompanying story, page 30). These challenges may result in the stay or vacatur of the new definition. If this occurs, the agencies may, again, revert back to the current WOTUS definition.

Article By Lisa M. Bruderly of Babst, Calland, Clements & Zomnir, P.C.

For more environmental legal news, click here to visit the National Law Review.

© Copyright Babst, Calland, Clements and Zomnir, P.C.

Tenth Circuit Declares No Remedy for Hemp Farmer Whose Federally Legal Plants Were Seized

In January, the United States Court of Appeals for the Tenth Circuit issued a published opinion in Serna v. Denver Police Department, No. 21-1446 (10th Cir. Jan. 24, 2023), upholding the dismissal of a hemp farmer’s lawsuit against local government officials in Colorado who confiscated his plants.

The farmer – Francisco Serna – brought suit under the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) which legalized hemp across the country and included limitations on states’ ability to prohibit the transportation of certain hemp plants and products across state lines. However, the three-judge panel concluded that no provision within the law allows for a private right of action by an individual to challenge instances of perceived unlawful governmental interference.

Serna grew hemp in Texas and intended to bring several plants home with him from Colorado. But when he attempted to get the plants – consisting of “plant clones or rooted clippings” – through Denver’s airport, a police officer confiscated them under a departmental policy to seize plants containing any discernible level of THC. Even though Serna had documentation showing that the plants’ THC level was beneath the limit authorized by the 2018 Farm Bill – and therefore compliant under federal law –  the officer took the plants anyway.

Serna’s Legal Proceedings

Serna sued the Denver Police Department and the confiscating officer under Section 10114(b) of the 2018 Farm Bill, which prohibits states from interfering with interstate transport of hemp and products that comply with the law. Serna asserted that because his plants were complaint, the defendants violated the provision. However, a federal magistrate judge granted the defendants’ motion to dismiss, which the district court adopted.[1] Serna then appealed to the Tenth Circuit.

The Tenth Circuit also held that no private right of action existed for Serna to employ. The court’s conclusion rests on the determination that Congress did not intend that hemp farmers, like Serna, should constitute a protected class under the 2018 Farm Bill. Without that status, they cannot sue. The court focused on the plain language of Section 10114(b), reasoning that it “makes no mention of [a] purported class of licensed [hemp] farmers” and merely provides that “no state…shall prohibit the transportation or shipment of hemp” across its borders. Thus, the provision pertains only to “the person regulated rather than the individuals protected,” which is fatal to the private right of action inquiry. The court compared Section 10114(b) with other federal statutes that do create private rights of action, such as Title VI of the 1964 Civil Rights Act, which specifies that “[n]o person…shall…be subjected to discrimination.” 42 U.S.C. § 2000d.

Takeaways

The unfortunate result of this decision is that individuals who comply with the provisions of the 2018 Farm Bill during the course of their business operations cannot seek recourse from improper government meddling. As a result, the law is significantly less protective than anticipated. Rather than suing to protect their interests, entrepreneurs like Serna must instead depend upon other actors – perhaps state attorneys general – to pursue these types of cases. However, those non-stakeholders generally have less incentive to pursue lawsuits, particularly against peer law enforcement agencies, leaving hemp operators with no remedy to enforce their rights under the 2018 Farm Bill.

In a broader sense, the Serna case is a cautionary tale for those who expect federal descheduling of marijuana to resolve the regulatory complexities currently faced throughout the cannabis industry. If hemp operators working with products that are federally legal are unable to utilize the courts to challenge unlawful seizure of their products, then the effectiveness of federal legalization of cannabis may require an express private right of action.

Going forward, Serna has a limited period of time to request that the case be re-heard by the Tenth Circuit en banc (i.e., by the entire eleven-judge court) – otherwise, the three-judge panel’s opinion will remain the operative, binding outcome.

[1] The magistrate judge and the district judge differed on their bases for concluding that Serna could not sue under the 2018 Farm Bill. Specifically, the magistrate judge determined that Section 10114(b) neither created a private right of action nor a private remedy. The district judge, on the other hand, concluded that Congress did authorize a private right of action but no private remedy to enforce it was evident. This additional divergence is another example of how the 2018 Farm Bill is susceptible to conflicting interpretations, which will likely only increase going forward as other courts consider the issue.

Article By Emily M. Leongini, Shahiedah Shabazz, and Morgan R. Pankow of ArentFox Schiff LLP

For more cannabis legal news, click here to visit the National Law Review.

© 2023 ArentFox Schiff LLP

The NLRB Curtails the Scope of Nondisparagement and Confidentiality Provisions in Severance Agreements

On Tuesday, February 21, 2023, the National Labor Relations Board (“NLRB” or “Board”) issued McLaren Macomb, a decision that curtails the permissible scope of confidentiality agreements and non-disclosure provisions in severance agreements. See McLaren Macomb, 372 NLRB No. 58 (2023). Analyzing the broad provisions in the agreements at issue in this case, the Board held that simply offering employees severance agreements that require employees to broadly waive their rights under Section 7 of the National Labor Relations Act (“NLRA” or “the Act”) was unlawful. The Board held:

Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain. Whether the employee accepts the agreement is immaterial.

The Board’s decision is part of a broader trend by courts and administrative agencies applying heightened scrutiny to contractual provisions that limit employees’ rights. The decision also provides a crucial reminder to union and nonunion workers alike of the relevance of federal labor law in providing legal protections for most private-sector workers.

Case Background

The case arose when Michigan hospital operator McLaren Macomb permanently furloughed eleven employees, all bargaining unit members of Local 40 RN Staff Council, Office of Professional Employees International Union (OPEIU), AFL-CIO, because it had terminated outpatient services during the COVID-19 pandemic in June 2020. After McLaren Macomb furloughed these employees, it presented them with a “Severance Agreement, Waiver and Release” that offered severance amounts to the employees if they signed the agreement. All eleven employees signed.

The agreements provided broad language regarding confidentiality and nondisparagement. The confidentiality provision stated, “The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.” (emphasis added). The non-disclosure provision provided, in relevant part, “At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer…” The employees faced substantial financial penalties if they violated the provisions. The Employer conditioned the payment of severance on Employees’ entering into this agreement.

The NLRB’s Decision

In McLaren Macomb, the Board held that simply offering employees severance agreements that contain these broad confidentiality and nondisparagement provisions violates the NLRA.

The NLRA provides broad protections of employees’ rights to engage in collective action. Section 7 of the NLRA vests employees with a number of rights, including the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8(a)(1) of the Act makes it an unfair labor practice (ULP) for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.” As the Supreme Court, federal courts, and the NLRB have repeatedly held and reaffirmed, Section 7 provides broad rights for employees and former employees—union and nonunion alike—to engage in collective action, including discussing terms and conditions of employment and workplace issues with coworkers, a union, and the Board. As the Supreme Court has stated in elaborating on the broad construction of Section 7, “labor’s cause often is advanced on fronts other than collective bargaining and grievance settlement within the immediate employment context.” Eastex, Inc. v. N.L.R.B., 437 U.S. 556, 565 (1978).

Applying these foundational principles to the severance agreements at hand, the Board reversed Trump-era NLRB precedent and concluded that the employer’s proffer of these broad nondisparagement and confidentiality provisions contravened the employees’ exercise of Section 7 rights, which is an unfair labor practice under Section 8(a)(1). Notably, the Board held that an employer’s merely offering such broad provisions violates the Act—it does not matter whether the employee signs the agreement or not.

The Board determined that the nondisparagement provision substantially interfered with employees’ Section 7 rights on its face. That provision prohibits the furloughed employee from making any “statements to [the] Employer’s employees or the general public which could disparage or harm the image of [the] Employer.” Analyzing this language, the Board reasoned that the provision would encompass employee conduct or critiques of the employer regarding any labor issue, dispute, or term and condition of employment. Accordingly, this proscription sweeps far too broadly—it prohibits employees from exercising their right to publicize labor disputes, a right which is protected by the Act. Moreover, the nondisparagement provision chills employees from exercising Section 7 rights, including efforts to assist fellow employees, cooperate with the Board’s investigation and litigation of unfair labor practices, and raise or assist in making workplace complaints to coworkers, their union, the Board, the media, or “almost anyone else.” As the Board underscored, “Public statements by employees about the workplace are central to the exercise of employee rights under the Act.”

The Board then concluded that the confidentiality provision also interfered with employees’ Section 7 rights in at least two ways. First, the Board explained that because the confidentiality provision prohibits the employee from disclosing the terms of the agreement “to any third person,” the agreement would reasonably tend to coerce the employee not to file a ULP charge with the Board or assist in a Board investigation. (emphasis added). Second, the same language would also prohibit the furloughed employee from discussing the terms of the agreement with former coworkers in similar situations, which would frustrate the mutual support between employees at the heart of the Act. As the Board summarized, “A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”

Takeaways for Employment Lawyers and Plaintiffs

First, while one might assume that labor law is exclusively the province of unions, their members, and their lawyers, McLaren Macomb demonstrates the relevance of the NLRA for employees regardless of union status. Although the workers in this case were unionized, the Section 7 rights at the heart of the NLRA apply to most private-sector employees, including nonunion employees. Indeed, because nonunion workers often have fewer workplace protections than their unionized counterparts, Section 7’s protections are critically important for nonunion employees. Employees who are asked to sign confidentiality and nondisparagement provisions and their attorneys should be aware that broad restrictions on employees’ concerted activity may be illegal.

Second, this decision is part of a broader effort to protect workers from being muzzled by their employers. For instance, the recent federal Speak Out Act establishes that predispute nondisclosure clauses and nondisparagement clauses—often included in employment contracts—are unenforceable in disputes involving sexual assault or sexual harassment. These recent developments in the law should be on the radar of workers and their attorneys who are navigating employer’s contracts, policies, handbooks, and proposed severance agreements.

Article By Kyle Bigley of Katz Banks Kumin LLP

For more labor law legal news, click here to visit the National Law Review.

Katz Banks Kumin LLP Copyright ©

As White House Loses House Majority, what is Next for H-1B Visa Program?

The H-1B is a popular and highly-sought-after visa category for skilled foreign workers seeking to work in the United States. It has been the subject of much debate and controversy over the years, and recent changes in the political landscape have added new uncertainties and challenges to the H-1B visa process. This blog post explores the impact of the Biden administration on changes to the H-1B visa, as well as the role of the new Republican majority in the House of Representatives in shaping the future of the H-1B visa program.

What is the H-1B Visa?

The H-1B is a temporary, nonimmigrant visa category that allows employers to petition on behalf of highly-educated foreign professionals who work in specialty occupations that require at least a bachelor’s degree. These jobs are generally in the fields of science, technology, engineering, and mathematics (“STEM”), enhancing American competitiveness in the global economy. In fact, in an effort to be even more competitive, the Biden administration recently expanded eligible fields of study that qualify under the program, as described in greater detail on this blog.

The H-1B visa allows U.S. employers to fill critically important jobs in the United States with foreign workers.  While many critics of the H-1B argue that it potentially limits job opportunities for U.S. workers, many others suggest that H-1B workers offer critical support to the U.S. economy. In fact, according to the American Immigration Counsel, H-1B recipients provided critical assistance during the COVID-19 pandemic, with many doctors, scientists, and nurses present in the U.S. on the H-1B visa, including individuals who assisted with the development of vaccines.

Biden Administration and its Relationship with Immigration Reform

One of the key priorities of the Biden administration has been to modernize and improve the U.S. immigration system, including the H-1B visa program. To this end, the Biden administration has taken steps to make the H-1B visa process more accessible and efficient for skilled foreign workers, including increasing the number of visas available, increasing transparency and consistency in the lottery process, and streamlining the application process.

According to a recent article by Forbes, Senator Richard Durbin (D-IL) and Senator Alex Padilla (D-CA) are expected to return as Senate Judiciary Committee chair and immigration subcommittee chair, respectively. It is expected that Sen. Chuck Grassley (R-IA) will no longer be ranking member on the Senate Judiciary; Sen. Lindsey Graham (R-SC) likely will hold that position. Just last year, Senator Grassley blocked an exemption from green card limits for certain foreign nationals with PhDs in STEM fields – a move that frustrated employers and universities alike.

Although Democrats hold the majority in the Senate, the House now features a Republican majority, which may complicate immigration reform efforts on Capitol Hill.

Republicans on Capitol Hill Seek to Counter Democratic Efforts on Immigration

The new Republican majority in the House of Representatives may pose a challenge to the Biden administration’s efforts to reform the H-1B visa program. Republicans have traditionally been more critical program and have pushed for reforms that would restrict the number of visas available and make it more difficult for foreign workers to come to the United States.

Sen. Tom Cotton (R-AR) has been a vocal critic of the H-1B program, stating that it is used to hire cheap foreign labor at the expense of American workers. Similarly, Sen. Grassley has expressed concerns about the impact of the program on American workers, claiming that while the visa was intended to help American businesses recruit the best and brightest talent from around the world, it’s too often been used to import cheaper foreign labor and displace American workers.

Given these differing perspectives, the future of the H-1B visa program will likely continue to be a source of political debate and controversy in the United States. However, it is clear that both sides of the political aisle agree that it needs to be reformed in some way, whether to make it more accessible and efficient for skilled foreign workers, or to better protect the interests of American workers.

Currently, the H-1B process in the United States is in a state of flux, with the Biden administration taking steps to modernize and improve the program, while the new Republican majority in the House of Representatives raises concerns about its impact on American workers. Whether the program will ultimately be reformed to better serve the interests of foreign workers, American workers, or both remains to be seen, but clearly this issue will continue to be a major source of political debate and controversy in the United States for the foreseeable future.

Article By Raymond G. Lahoud of Norris McLaughlin P.A.

For more immigration legal news, click here to visit the National Law Review.

©2023 Norris McLaughlin P.A., All Rights Reserved

FTC Launches New Office of Technology

On February 17, 2023, the Federal Trade Commission announced the launch of their new Office of Technology. The Office of Technology will assist the FTC by strengthening and supporting law enforcement investigations and actions, advising and engaging with staff and the Commission on policy and research initiatives, and engaging with the public and relevant experts to identify market trends, emerging technologies and best practices. The Office will have dedicated staff and resources and be headed by Chief Technology Officer Stephanie T. Nguyen.

Article By Hunton Andrews Kurth’s Privacy and Cybersecurity Practice Group

For more privacy and cybersecurity legal news, click here to visit the National Law Review.

Copyright © 2023, Hunton Andrews Kurth LLP. All Rights Reserved.