Category: State and Local Law

PFAS Rolling into Regulation

Introduction

Per- and polyfluoroalkyl substances, abbreviated as PFAS, are a class of widely dispersed chemicals quickly gaining notoriety in the public health and environmental remediation space. In 2019, rapid developments toward regulation to govern the investigation and cleanup of PFAS contamination to protect human health are occurring in a wide variety of arenas, including federal regulation and congressional action as well as at the state level through both regulation and enacted legislation. This article examines the current state of regulatory developments for PFAS and projects where things are heading in the remainder of 2019, with particular focus on how those developments will incentivize and accelerate the pace of site cleanups and cost recovery, and pose significant challenges to existing sites where other contaminants are already being addressed.

What are PFAS?

PFAS are a class of more than 4,000 synthetic chemicals comprised of carbon-fluorine chains of varying lengths. PFAS have been in use since the late 1940s, due to their unique resistant physical and chemical properties. For example, PFAS have been used in non-stick applications such as cookware, paper packaging, and textiles, as well as in certain types of firefighting foam.[1] The two most widely studied PFAS are perfluorooctane sulfonate or PFOS and perfluorooctanoic acid or PFOA.

Over the past decade, understanding of PFAS and their potential toxicity to humans and the environment has increased. Of particular concern is their stability in the environment. The properties that made PFAS so desirable for commercial and industrial use keep these compounds from degrading in the environment and allow them to pose a long-term threat if not removed from the environment and/or from drinking water supplies. Common exposure to these compounds can come through their product use as well as drinking from contaminated water supplies impacted by their release. Also notable are the very low levels at which these compounds exhibit their toxicity, and the very stringent levels under consideration by the regulatory agencies for controlling these compounds. For example, EPA has set interim screening levels of 70 nanograms per liter (parts per trillion or ppt), and several states have proposed guidance levels of 15 ppt or less. For context, 15 ppt is equivalent to a few droplets in an Olympic-sized swimming pool.

Federal Regulatory Developments

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) authorizes cleanup at sites where hazardous substances have been released, and enables parties conducting cleanups to seek cost recovery from other potentially responsible parties. The ability to potentially recover costs under CERCLA can be an important driver in encouraging impacted parties to investigate and remediate contaminated sites. However, as an emerging contaminant class, PFAS are not currently regulated as hazardous substances under CERCLA.

In February 2019, EPA issued an Action Plan outlining its steps to address PFAS and protect public health.[2] Among its listed priority actions was to propose a national drinking water regulatory determination for the two most widely studied PFAS, PFOA and PFOS, by the end of 2019. This proposed determination would begin the process towards establishment of a maximum contaminant level, or MCL, for these compounds. Another priority action was to initiate the process to list PFOA and PFOS as CERCLA hazardous substances; in April of 2019 at a meeting of state regulators, EPA committed to proposing this hazardous substance designation by the end of 2019.[3] Such a designation will have a multitude of impacts, including 1) PFOA and/or PFOS-contaminated sites will be eligible for listing as Superfund sites; 2) Federal and State authorities will have mechanisms through which they can seek damages or cleanup costs from responsible parties; and 3) Superfund monies will be eligible for use in cleaning up sites contaminated with PFOA and/or PFOS.

This commitment to regulate PFOA and PFOS under CERCLA was reaffirmed in a keynote speech of EPA’s General Counsel on September 12th at the American Bar Association, Section Environment, Energy, and Resources Fall Conference in Boston, Massachusetts. In his speech, the Honorable Matthew Leopold indicated that EPA was actively looking at designating PFOA and PFOS as CERCLA hazardous substances by year’s end. This would represent one of the few times in which new contaminants such as these were regulated under CERCLA.

Concurrent with these EPA actions, congressional legislators have called for increased and expedited federal action to regulate PFOA and PFOS, and in some cases the entire PFAS class of 4000 plus chemicals. There have been several bills proposed in 2019 which would commit EPA to taking expedited action with regards to PFAS, including listing some or all PFAS as hazardous substances, and establishing federal MCLs.[4] Perhaps most notably are two bills regarding appropriations for the Fiscal Year 2020 National Defense Authorization Act. S.1790 (passed by the Senate on June 27, 2019) would require EPA to promulgate drinking water MCLs for PFOA and PFOS within two years of enactment, and H.R.2500 (passed by the House on July 12, 2019) would require EPA to designate all PFAS as hazardous substances within one year of enactment.

State officials have also actively petitioned for more expedited federal action on PFAS. On July 30, 2019, 22 state and territory attorneys general issued a letter to Congress requesting that certain PFAS be designated hazardous substances, in particular, PFOA, PFOS, and a PFOA-replacement chemical known as GenX. In their letter, the attorneys general specifically note that such a designation would promote cleanup efforts, including federal facilities formerly owned or operated by the US Department of Defense.[5]

Based on these developments from multiple agencies and levels of government, it appears likely that in the relatively short term PFOA and PFOS will be designated as hazardous substances under CERCLA. This in turn will open the door for CERCLA regulation of PFAS-contaminated sites. Once designated, the next question will be one of appropriate cleanup levels. Typically, EPA would take the lead with establishment of MCLs that can be used to develop risk-based cleanup levels, and from which states could either adopt or modify. However, the process for proposing and finalizing a federal MCL can take years. Thus, faced with increasing public pressure to respond to PFAS contamination, the states have stepped in to fill this gap.

State Regulatory Developments

In November 2018, New Jersey became the first state to issue an MCL for any individual PFAS, specifically for the chemical perfluorononanoic acid (PFNA).[6] For PFOA and PFOS, there are currently no state MCLs that have been finalized. However, many states have established PFOA and PFOS advisory or screening levels, and several states have begun the MCL rule-making process, with some anticipating finalization this year.

In 2019, three states have proposed MCLs of varying concentrations for PFOA and PFOS:

  • In April, New Jersey proposed an MCL of 14 ppt for PFOA and 13 ppt for PFOS; the public comment period has since closed, and the standard is in the process of finalization;[7]
  • In June, New Hampshire proposed an MCL of 12 ppt for PFOA and 15 ppt for PFOS (they also proposed MCLs for two other PFAS chemicals);[8] those MCLs were approved on July 18,[9] and will become effective on October 1; and
  • In July, New York proposed an MCL of 10 ppt for PFOA and PFOS making them the most protective standards in the nation; the proposal is currently out for public comment, which closes on September 24.[10]

In addition, several other states have provided commitments to establishing MCLs in the near future. These include Massachusetts with an MCL rule proposal anticipated by the end of 2019;[11] Michigan with an MCL rule proposal expected by October with finalization in 2020;[12] and Vermont with a commitment to establishing and adopting MCLs by February 1, 2020.[13] Other states are also moving forward with efforts to regulate PFAS. For example, in August 2019 California established notification levels for PFOS and PFOA in drinking water of 6.5 ppt and 5.1 ppt, respectively, that go into effect January 1, 2020. [14],[15]

Conclusion

With federal and state regulatory action underway, and mounting public pressure to expedite a response, it is clear that regulation of some PFAS under CERCLA is imminent. By the end of the year, it is likely that 1) EPA will have designated, or be close to designating, PFOA and PFOS as hazardous substances; and 2) several states will have finalized MCLs to regulate their remedial response. These two developments will open the door for parties to investigate, cleanup, and ultimately recover the costs associated with PFAS-contaminated sites. In addition, these developments will likely complicate existing sites in terms of both their required remedial response as well as their cost recovery strategy. New PFAS regulation at existing sites will unlock a myriad of cost implications not the least of which involve cost allocation among potentially responsible parties. In the face of these complications and uncertainties, what is clear is that PFAS regulation has rolled off the horizon and directly in front of those involved with protecting public health and the environment.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal or accounting advice.

[1]  For a more thorough background on the history and usage of PFAS, see the Interstate Technology Regulatory Council fact sheets at https://pfas-1.itrcweb.org/

[2] https://www.epa.gov/newsreleases/epa-acting-administrator-announces-first-ever-comprehensive-nationwide-pfas-action-1

https://www.epa.gov/pfas/epas-pfas-action-plan

[3] https://www.asdwa.org/2019/04/11/cooperative-federalism-pfas-are-top-issues-at-ecos-spring-meeting/

[4]  https://fas.org/sgp/crs/misc/R45793.pdf

[5]  https://portal.ct.gov/-/media/AG/Press_Releases/2019/Multistate-PFAS-Legislative-Letter73019FINAL.pdf

[6]  New Jersey regulated PFNA largely in response to a regional issue relating to specific historic discharges from a chemical manufacturing facility.

[7]  https://www.nj.gov/dep/rules/notices/20190401a.html

[8]  https://www.des.nh.gov/media/pr/2019/20190628-pfas-standards.htm

[9]  https://www.gencourt.state.nh.us/rules/jlcar/minutes/AM7-18-19.pdf

[10]  https://www.governor.ny.gov/news/governor-cuomo-announces-availability-350-million-water-system-upgrades-statewide-and-directs

[11]  https://www.mass.gov/files/documents/2019/06/20/pfas-stakeholder-presentation-20190620.pdf

At the American Bar Association, Section Environment, Energy, and Resources Fall Conference in Boston, Massachusetts, the Commissioner of the Massachusetts Department of Environmental Protection participated in a panel discussion titled “The State of CERCLA Following EPA Reform: More of the Same or Something Super?” In this discussion, Mr. Suuberg indicated that Massachusetts will finalize its PFAS standards by the end of the year, and in an accompanying paper noted that the comment period on the proposed cleanup standard of 20 ppt (for a sum of six PFAS) had closed in July and was currently under review.

[12]       https://www.michigan.gov/egle/0,9429,7-135-3308_3323-494077–rss,00.html

[13]       https://dec.vermont.gov/sites/dec/files/PFAS/Docs/Act21-2019-VT-PFAS-Law-Factsheet.pdf

[14]            https://www.waterboards.ca.gov/drinking_water/certlic/drinkingwater/PFOA_PFOS.html

[15]      California already had notification levels of 14 ppt for PFOA and 13 ppt for PFOS and will continue to have a response level for those drinking water systems exceeding 70 ppt for the total combined concentration of both compounds, consistent with EPA’s advisory level. 

© Copyright Nathan 2019

ARTICLE BY Brian Henthorn and Christopher Loos of Nathan.
For more PFAS Regulation developments, see the National Law Review Environmental, Energy & Resources law page.

California Redefines “Beer” to Align with Federal Definition

On July 9, 2019, California Governor Gavin Newsom signed into law Assembly Bill (AB) 205, which redefines beer under California’s Alcohol Beverage Control Act.  AB 205 allows for beer to be produced with honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials. Under the prior California law, “beer” was defined as “any alcoholic beverage obtained by the fermentation of any infusion or decoction of barley, malt, hops, or any other similar product, or any combination thereof in water.” Prior to AB 205, use of fruit in the fermentation process required a wine license.

Notably, federal law already permits the use of these additional ingredients.  As per 26 U.S.C. § 5052(a), federal law defines beer as “beer, ale, porter, stout, and other similar fermented beverages (including sake or similar products) of any name or description containing one-half of 1 percent or more of alcohol by volume, brewed or produced from malt, wholly or in part, or from any substitute therefor.” Federal regulations at 27 CFR 25.15 identify the materials that may be used in the production of beer: “Beer must be brewed from malt or from substitutes for malt. Only rice, grain of any kind, bran, glucose, sugar, and molasses are substitutes for malt. In addition, you may also use the following materials may be used as adjuncts in fermenting beer: honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials.”

Thus, the passage of AB 205 is a seemingly long-overdue update and will likely have little effect on the market as California’s legal system has likely deferred to the federal definition.  Indeed, California Craft Brewers Association Executive Director Tom McCormick described AB 205 as a “clean-up bill” that aligns California with federal law. Nonetheless, Assemblyman Tom Daly (D-Anaheim), who introduced the bill, stated that “[t]his measure modifies the definition of beer in a way that will allow California breweries to expand their market, satisfying the consumer’s desire for more varied and unique styles of beer.”

 

© 2019 Keller and Heckman LLP
Article by Food and Drug Law at Keller and Heckman LLP.
For more on alcohol regulation, please see the National Law Review page on Biotech, Food & Drug law.

How to Banish the Black Market and Ensure Integrity: What States Legalizing Sports Betting for the First Time Can Learn From Nevada and Legalized Cannabis States

Integrity, integrity, integrity. The integrity of the game is a top concern of regulators and the college and professional sports leagues as legalized sports wagering expands across the United States. But what steps can regulators take to ensure that the “fix” is not in on games being wagered upon?

In theory and in practice, legalization of sports wagering provides a better framework to track and trace aberrations in betting patterns that may indicate game fixing. After all, if sports wagering is illegal, there is no one monitoring the action to ensure that those placing wagers are not being ripped off by game fixing. Once wagers are placed in a legal setting, you can bet that the legal bookmakers will be watching the betting patterns closer than anyone to make sure they are not being taken for a ride. And the veteran Nevada sports book operators who are sure to be running  many of the books in newly legalized states have the experience in tracking the numbers to know when something is off.

Indeed, Nevada sports books have long assisted regulators – and the leagues – in uncovering game-fixing schemes, such as the 1999 Arizona State Sun Devils point-shaving scandal, by tracking and notifying regulators when they have spotted irregular betting patterns.

But what about the black market? In theory, the legalization and regulation of sports wagering should bring the industry into the light, allowing the wagering action to be taxed and the backroom sports books to be shut down. And that certainly is an important policy goal of regulators. But it isn’t necessarily that simple.

States drafting their sports wagering laws and regulations can learn a lot from another black-market activity that has been legalized in a number of states – cannabis – to better understand the impact that legalization has had on the black market for cannabis in those states.

The surprising result: the black market has not magically disappeared in the states where cannabis sales have been legalized. One of the key reasons why is the simple fact that legal cannabis prices are generally higher than black-market cannabis because of the additional costs of state-mandated testing, security systems, etc., and, of course, taxes. Coupled with a lack of adequate resources and funding for local law enforcement to crack down on illegal cannabis sales, this makes for a thriving black market, even in states that have legalized cannabis.

What can the regulators who are drafting sports-wagering laws and regulations take away from this? We would not advocate stepping back from drafting the laws to legalize sports wagering, as a lack of any legal market would only help the black market. Instead, regulators should just keep this issue in mind as they draft regulations and try to find a balance between meaningful regulation and over-taxing and heavy regulatory requirements that will add to the costs of legal sports wagering in a way that will either make it unprofitable for legal sports books to operate or make the costs of such wagers so high that bettors continue to seek backroom options.

 

© Copyright 2018 Dickinson Wright PLLC

City of Birmingham Passes Nondiscrimination Ordinance, Creates Human Rights Commission

On September 26, 2017, the Birmingham City Council passed an ordinance that makes it a crime for any entity doing business in the city to discriminate based on race, color, national origin, sex, sexual orientation, gender identity, disability, or familial status. The ordinance passed unanimously and is the first of its kind in Alabama. Enforceable through the municipal courts, the local law applies to housing, public accommodations, public education, and employment. It carves out two exceptions: one for religious corporations and one for employers with bona fide affirmative action plans or seniority systems.

In a separate measure passed during the same meeting, the city created a local human rights commission to receive, investigate, and attempt conciliation of complaints. The commission has no enforcement authority. Citizens who believe they have suffered unlawful discrimination must appear before a magistrate and swear out a warrant or summons. The entity or individual will not receive a ticket but will face a trial before a municipal judge in the city’s courts. Ordinance violations are classified as misdemeanor offenses, and those found guilty of discrimination will face fines of up to $500. Alabama municipalities have no authority under state law to create civil remedies for ordinance violations, therefore, an employer would not be required to reinstate an employee or provide back pay if it were found guilty of violating the ordinance in municipal court.

Because the city’s courts, which are courts of criminal jurisdiction, operate much more quickly than federal civil courts do, one would expect that a guilty verdict under the Birmingham ordinance likely could be used as evidence of discrimination in a federal civil claim that is almost sure to follow.

Although the city’s mayor must sign the ordinance for it to become effective, the mayor has announced he will sign it into law immediately. The city also expects that the Alabama Legislature will challenge the ordinance.

This post was written by Samantha K. Smith of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved. © 2017
For more legal analysis, go to The National Law Review

Recreational Pot Comes to Nevada…But Why Are The Shelves Empty?

On July 1, 2017, Nevada became the fifth state in the United States to legalize the sale of recreational marijuana. The epicenter of “what happens here, stays here” tourism just added a new vice to its repertoire! So, what’s the problem?

Among other things, Nevada’s recreational marijuana dispensaries are facing the specter of empty shelves. Why? Because a wrinkle in the ballot measure that legalized recreational marijuana sales in Nevada gives licensed liquor wholesalers a temporary 18-month monopoly on marijuana distribution rights… “unless the [Nevada] Department [of Taxation] determines that an insufficient number of marijuana distributors will result from this limitation.” In order to fill its shelves, a Nevada-licensed recreational marijuana dispensary must use a licensed recreational marijuana distributor to transport the product from the cultivation facility to their stores (whereas dispensaries selling medical marijuana were allowed to move “medical-use” product from cultivation locations without an independent distribution network).

Despite efforts by marijuana dispensaries to stock up prior to July 1, overwhelming demand for recreational marijuana has resulted in dwindling supplies. And now, distributors are nowhere to be found. That is because very few liquor wholesalers have applied to become licensed marijuana distributors, and those that have made such application have failed to meet the requirements for licensure. The Nevada Department of Taxation (NDOT) reported that as of July 7, 2017, ZERO distribution licenses have been issued by NDOT.

Perhaps liquor wholesalers fear risking their federal alcohol permits issued by the Alcohol and Tobacco Tax and Trade Bureau? It would appear that marijuana distribution licenses would have to be issued to persons other than liquor wholesalers – however, nothing is that simple. A small group of liquor wholesalers, known as the Independent Alcohol Distributors of Nevada, sued and, on June 21, won a temporary injunction against NDOT to prevent marijuana distribution licenses from being issued to persons other than liquor wholesalers.

In response, on July 7, Governor Sandoval endorsed emergency regulations that would give NDOT the authority to determine whether there are a sufficient number of marijuana distributors to service the market – a determination that would allow NDOT to open up distributor licensing to those other than licensed liquor wholesalers. The emergency regulations will be considered by NDOT on July 13. Stay tuned.

This post was written by  Kate C. Lowenhar-Fisher   Jennifer J. Gaynor   Jeffrey A. Silver and Gregory R. Gemignani  of Dickinson Wright PLLC.

10 Free Keyword Research Tools + How to Use Them [INFOGRAPHIC]

The Rainmaker Institute mini logo (1)

An old friend – Google’s free Adwords Keyword tool – has gone off the grid for good, leaving in its place the new Keyword Planner. The Planner is a little more detailed, but still fairly easy to use and still free.

A recent post at the GroTraffic.com blog had a list of 10 free keyword research tools you will find useful, as well as a good infographic that provides step-by-step instructions on how to conduct keyword research:

Mergewords – especially useful for creating long tail keyword phrases which are critical to your SEO efforts.

Wordstream – will give you up to 30 free keyword results; after that, you have to subscribe.

SEMRush – the first 10 results are free; a subscription is required for more. Data analysis and keyword performance info is also offered on the site.

SEOBook – this site has a free keyword tool that requires free registration to access.

Keyword Eye – if you are more visually oriented, this site is for you.

KGen – if you use Firefox as your browser, this tool is available as an add-on and will rank keywords on any given website.

Bing Keyword Research Tool – part of the Bing Webmaster Tools.

Keyword Spy – lets you evaluate competitive websites for keywords they use.

Thesaurus.com – this website gives you synonyms for your keywords.

Ubersuggest – suggestion tool for more keyword ideas.

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Some Indiana Local Government Entities May Qualify for Loans Due to Past Misapplied Maximum Fund Rate Calculations

The National Law Review recently published an article by Randal J. Kaltenmark and Jeffery J. Qualkinbush of Barnes & Thornburg LLP titled, Some Indiana Local Government Entities May Qualify for Loans Due to Past Misapplied Maximum Fund Rate Calculations:

Qualified Indiana local government entities – school corporations, cities, towns, counties and library districts – may wish to review their 2012 or prior year budgets due to misapplication of the maximum capital projects fund rate calculation under Indiana statute (Indiana Code 6-1.1-18-12).

Of immediate note is that changes made to this law during the 2012 Session of the Indiana General Assembly allow Indiana local governmental entities to obtain an interest free loan from the State of Indiana for what such entity should have received in 2012 in such rate-capped funds after applying the corrected calculation. The window on obtaining this money this year will be closing in less than 30 days.

The issue originally came to light after Barnes & Thornburg LLP’s representation of two school districts, DeKalb County Eastern Consolidated School District and, most recently, the Metropolitan School District of Pike Township in appeals before theIndiana Tax Court. The misapplications, which were calculated by the Indiana Department of Local Government Finance (DLGF) cost these governmental units more than $1 million per year, collectively.

In both of these cases, the Indiana Tax Court agreed with the firm’s conclusions that the DLGF’s interpretation of the statute was incorrect and ordered those miscalculations to be corrected in the future budget years. On May 4, 2012, the Indiana Supreme Court denied the DLGF’s request to review these Tax Court decisions.

Attorneys involved believe many of the qualified Indiana local governmental entities have been the victim of one or more of these same miscalculations in connection with their 2012 or prior budgets.

© 2012 BARNES & THORNBURG LLP

Illinois Reverses Position on Income Tax Treatment of Benefits for Civil Union Partners

An article by Elizabeth A. Savard, Todd A. Solomon and Brian J. Tiemann of McDermott Will & Emery regarding Illinois Income Tax Policy for Civil Unions was recently published in The National Law Review:

The Illinois Department of Revenue recently issued guidance reversing its position on the state income tax treatment of benefits for non-dependent civil union partners.

Federal law excludes amounts that an employer pays toward medical, dental or vision benefits for an employee and the employee’s spouse or dependents from the employee’s taxable income.  However, because civil union partners are not recognized under federal law, employers that provide these same benefits to employees’ civil union partners must impute the fair market value of the coverage as income to the employee that is subject to federal income tax, unless the civil union partner otherwise qualifies as the employee’s “dependent” pursuant to Section 152 of the Internal Revenue Code.

The Illinois Department of Revenue previously indicated that Illinois would follow the federal approach in taxing the fair market value of employer-provided coverage for non-dependent civil union partners because state law did not provide an exemption from such taxation.  However, recent guidance issued by the Department of Revenue reverses that position and indicates that employer-provided benefits for a non-dependent civil union partner are now exempt from Illinois state income taxation.  Illinois civil union partners are directed to calculate their state income taxes by completing a mock federal income tax return as if they were married for purposes of federal law.

In addition, for federal tax purposes, employees may not make pre-tax contributions to a Section 125 cafeteria plan on behalf of a non-dependent civil union partner (i.e.,contributions for the partner generally must be after-tax) and may not receive reimbursement for expenses of the non-dependent civil union partner from flexible spending accounts (FSAs), health reimbursement accounts (HRAs) or health savings accounts (HSAs).  However, for Illinois state tax purposes, the employee now can be permitted to pay for the non-dependent civil union partner’s coverage on a pre-tax basis.

Employers providing medical, dental or vision benefits to civil union partners residing in Illinois should take action to structure their payroll systems to tax employees on the fair market value of coverage for employees’ non-dependent civil union partners for federal income tax purposes, but not for state purposes.

© 2012 McDermott Will & Emery

Seeking Corporate Dissolution: One Way to Turn Up the Heat on a Deadbeat Debtor

Posted in the National Law Review an article by Jeffrey M. Schwartz of Much Shelist Denenberg Ament & Rubenstei P.C. regarding a seldom-used remedy that can significantly increase your chances of recovering a debt:

Put yourself in the place of a creditor. One of your customers, an Illinois corporation, owes you money. The customer does not dispute the debt and has even admitted it in writing. However, you can’t get the customer to pay. You have tried everything. First, you are told “the check is in the mail” and of course, it does not show up. The customer then agrees to a payment plan but fails to make the required payments. Finally, the customer promises to “pay next month when we have the money.” Still no check. In a last ditch effort, you call repeatedly, but the customer has now gone incommunicado. It has become obvious that the only way to collect the debt is to file a lawsuit.

You are hesitant, however, because of the time and expense it will take to obtain and enforce a judgment. After all, the customer will likely go to great lengths to delay the lawsuit and hold you at bay for as long as possible. From the customer’s point of view, the worst case scenario is that it will have to pay you the money it has already admitted it owes. Is there anything you can do to minimize the time and expense of obtaining and enforcing a judgment?

You may want to consider a seldom-used remedy that can significantly increase your chances of recovering a debt. Under the Illinois Business Corporation Act, a creditor may seek to have its claims against an Illinois corporation satisfied by bringing an action for dissolution in the state’s circuit court. By adding a cause of action for corporate dissolution to a collection lawsuit, creditors may increase pressure on the debtor to pay what is owed or resolve the dispute in a timely, cost-effective manner. In essence, this alternative remedy can change the dispute from a simple beach of contract or collection matter to a scenario where the customer risks losing control of the corporation and must fight for its very existence.

The Illinois Business Corporation Act, which has little case law interpreting it, does not require much. The statute provides that in an action brought by a creditor, a circuit court in Illinois may dissolve a corporation if it is established that:

  1. The creditor’s claim has been reduced to judgment, a copy of the judgment has been returned unsatisfied and the corporation is insolvent; or
  2. The corporation has admitted in writing that the creditor’s claim is due and owing, and the corporation is insolvent.

(Note: Many other states have similar statutes that allow a creditor to satisfy a claim against a corporation through dissolution or liquidation. Accordingly, if your customer is not an Illinois corporation, you should check to see if its state of incorporation has a similar statute.)

One advantage of using this statute is that it does not actually require a creditor to obtain a judgment. The creditor need only show that the debtor has admitted in writing that it owes the money and that the corporation is insolvent. The written admission can come in a variety of forms. For example, the debtor may have sent a letter or e-mail admitting that it owes the debt or may have acknowledged the debt in a forbearance or settlement agreement. In addition, the admission need not be made directly to the creditor. According to People Ex Rel. Day v. Progress Ins. Ass’n, a 1955 Illinois Appellate Court decision, it may be sufficient that the indebtedness is recognized in the debtor’s books and records. Furthermore, the insolvency requirement is satisfied if the corporation is “unable to pay its debts as they become due in the usual course of its business,” as stated in the Illinois Business Corporation Act.

The statue also allows the circuit court, as an alternative to dissolution, to (1) appoint a custodian to manage the business and affairs of the corporation to serve for the term and under the conditions prescribed by the court; and (2) appoint a provisional director to serve for the term and under the conditions prescribed by the court. Like the prospect of dissolution itself, these alternatives put the debtor at risk of losing control of the company.

While your customer may be willing to take the chance that a judgment will be entered against it after extensive litigation and delay, it may not be willing to risk dissolution or loss of control of the corporation. Therefore, adding a count for corporate dissolution to a collection lawsuit can alter the playing field and give you—the creditor—significant negotiating power to resolve the dispute quickly and on better terms.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.

 

 

The New Wave of Insurance Construction Defects? Four States Enact Statutes Favoring Coverage for Faulty Workmanship

Recently posted in the National Law Review an article by Clifford J. Shapiro and Kenneth M. Gorenberg of Barnes & Thornburg LLP about whether construction defects are covered by commercial general liability (“CGL”) insurance policies and briefly discuss four new statutes in various states.

 

 

Courts across the country remain split on the issue of whether claims alleging construction defects are covered by commercial general liability (“CGL”) insurance policies. The primary battle ground has been whether such claims involve an accidental “occurrence” within the meaning of the CGL policy coverage grant. Now this issue is getting substantial attention from state legislatures. Four states recently enacted new legislation addressing insurance coverage for construction defect claims, and each statute favors coverage,albeit in different ways and to varying degrees. These statutes signal that the battle over whether construction defects constitute an “occurrence” may have shifted from the courts to state legislatures. The four new statutes are discussed briefly below.

Colorado

Section 13-20-808 of the Colorado Code, effective May 21, 2010, creates a presumption that a construction defect is an accident, and therefore an “occurrence” within the meaning of the standard CGL insurance policy. To rebut this statutory presumption, an insurer must demonstrate by a preponderance of the evidence that the property damage at issue was intended and expected by the insured. The statute expressly does not require coverage for damage to an insured’s own work unless otherwise provided in the policy, leaving that potentially to be decided by Colorado’s courts. In addition, the act does not address or change any policy exclusions, the scope of which will also remain an issue possibly to be determined in court. Thus, it appears that the Colorado statute resolves in favor of coverage that construction defect claims give rise to an accidental “occurrence” under the CGL policy coverage grant, but leaves most other insurance issues affecting coverage in the construction defect context subject to further attention by the courts.

Hawaii

Chapter 431, Article 1 of the Hawaii Revised Statutes provides that “the term ‘occurrence’ shall be construed in accordance with the law as it existed at the time that the insurance policy was issued.” The statute does not declare what the “the law” is now or what “the law” was at any time in the past. However, the preamble explains that the appellate court decision in Group Builders, Inc. v. Admiral Ins. Co., 231 P.3d 67 (Hawaii 2010) “invalidates insurance coverage that was understood to exist and that was already paid for by construction professionals,” and that the purpose of the statute is to restore the coverage that was denied. While not necessarily clear from the appellate court decision, coverage arguably was denied for both defects in the insured’s own work and also consequential property damage caused by faulty workmanship.

Thus, it appears that the legislature’s intent was to allow insurers to deny coverage under policies issued after May 19, 2010 to the extent permitted by the courts based on Group Builders and whatever further judicial decisions may follow, but to require application of the more favorable judicial interpretations of coverage for construction defects that the Hawaii legislature believes existed before that time. In other words, the Hawaii statute appears to be an attempt to preserve more favorable treatment of coverage for construction defect claims for projects currently underway which were insured under policies issued before Group Builders was decided.

This approach, of course, still leaves it to the courts to interpret the applicable law with respect to any particular claim (i.e., the law that existed at the time the policy was issued). But we cannot help but think that the Hawaii courts may be influenced going forward to find more readily in favor of coverage due, at least in part, to the part of the preamble to the legislation that states: “Prior to the Group Builders decision … construction professionals entered into and paid for insurance contracts under the reasonable, good-faith understanding that bodily injury and property damage resulting from construction defects would be covered under the insurance policy. It was on that premise that general liability insurance was purchased.”

Arkansas

Arkansas Code Section 23-79-155 (enacted on March 23, 2011) requires CGL policies offered for sale in Arkansas to contain a definition of occurrence that includes “property damage or bodily injury resulting from faulty workmanship.”It is unclear whether this requirement applies to policies previously issued. The act also states that it does not limit the nature or types of exclusions that an insurer may include in a CGL policy. Thus, the numerous exclusions related to construction defect claims contained in the typical CGL insurance policy are not affected by the Arkansas statute, and the judicial decisions that have interpreted those exclusions presumably remain good law.

South Carolina

Enacted on May 17, 2011, South Carolina Code Section 38-61-70 provides that CGL policies shall contain or be deemed to contain a definition of occurrence that includes property damage or bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself. However, whether the South Carolina statute will change the law in South Carolina is unclear because the statute was immediately challenged in court. On May 23, 2011, Harleysville Mutual Insurance Company filed a complaint in the South Carolina Supreme Court seeking injunctive relief and a declaration that the new statute violates several provisions of the U.S. and South Carolina constitutions, particularly with respect to existing insurance policies at issue in pending litigation.

Conclusion

The new state statutes are intended to overrule, at least to some extent, judicial decisions that denied insurance coverage for construction defect claims. The thrust of these statues is to require construction defects to be treated as an accidental “occurrence” within the meaning of the CGL insurance policy. As such, the legislation generally should make it easier for policyholders in the affected states to establish at least the existence of potential coverage for a construction defect claim, and thereby more easily trigger the insurance company’s duty to provide a defense. Whether these statutes will also result in increased indemnity coverage for construction defect claims, however, remains to be seen. Among other things, the statutes generally do not alter the exclusions that already apply to construction defect claims, and they leave the interpretation of the meaning of these exclusions to the courts.

In short, while this new wave of statutes increases the complexity and divergence among the states of this already fractured area of the law, they also appear to increase the likelihood of insurance coverage for construction defect claims in Colorado, Hawaii, Arkansas and South Carolina.

© 2011 BARNES & THORNBURG LLP