Category: Uncategorized

NLRB: Federal Court in DC Issues Promised Opinion on Election Regulations

As indicated in our previous blog on this topic, on May 30, 2020, the U.S. District Court for the District of Columbia issued a two page order invalidating five elements of the NLRB’s 2019 election regulation, based on Count One of the plaintiff’s complaint.  On June 7, the court issued its promised memorandum opinion further explaining that order.

The opinion makes three key points.

First, the Court noted that under the Administrative Procedure Act, the norm is for notice and comment rule making.  An exception in the APA, however, permits agencies to forego notice and comment requirements when promulgating “rules of agency organization, procedure, or practice.”  5 U.S.C. Sec. 553(b)(A). The NLRB had relied on this exception to promulgate the election rule without notice and comment. As the Court stated, “The nub of the instant dispute is the NLRB’s valiant effort to shoehorn five parts of its 2019 Election Rule into this narrow classification.” Slip op. at 28.

Following a thorough discussion of the five parts of the rule it had held invalid in its May 30 order, the Court concluded: “[T]he challenged provisions carry many of the indicia of substantive rules — i.e., they grant rights and impose obligations; they produce ‘significant effects on private interests’; and they ‘foreclose alternative courses of action’ or ‘conclusively bind the . . .      affected private parties.’ . . . Therefore, this Court finds the NLRB’s promulgation of these particular [five] rules without engaging in notice-and-comment rulemaking violated the APA.” Slip op. at 42-42 (citation omitted).

Second, the Court found that the five invalidated parts of the election regulation were severable from the remainder of the election rule. The Court rejected AFL-CIO’s argument that the election regulation should be invalidated in its entirety. Slip op. at 43-51. The Court stated that its severability ruling was not prejudical to plaintiffs, however, who are “always free to press an independent basis for setting aside the remainder of the rule and ask the court to do so . . . .” Slip op. at 48 (emphasis in original).

Indeed, the plaintiff’s complaint had three additional counts alleging that the election rule was arbitrary and capricious in whole and in part, and was contrary the National Labor Relations Act.  In a footnote, the Court observed: “[T]he AFL-CIO might well have argued that . . . the Court should . . . proceed to reach the merits of its alternative claims . . . . But for whatever reason, the AFL-CIO maintained that this Court need not reach its other claims, apparently assuming that the Court would agree with its severability analysis.” Slip op. at 48, n. 13.

Third, Court made it clear that the NLRB would have very broad discretion in dealing with the Court’s remand of the remaining rules for consideration in light of the Court’s opinion and order.   “[T]he agency decides what happens next when all or part of a challenged action has been invalidated.”  Slip op. at 46 (emphasis in original).

In a footnote, the Court held: “Thus, no matter how illogical it might seem to this Court for the NLRB to proceed to enforce the remaining portions of the 2019 Election Rule, it is up to the agency to determine which otherwise lawful policy proscriptions it wishes to adopt and enforce, and a simple remand of the matter gives the agency the best opportunity to make that determination in the first instance.”  Slip op. at 47, n. 12.

Following the Court’s May 30 order, the NLRB had swiftly acted to implement the remaining election regulations.  The AFL-CIO also filed a motion for clarification of the May 30 order seeking, among other things, a ruling on the swiftness of the NLRB’s action.  The Court signaled its inclination to deny that motion in its memorandum opinion, stating that “no matter how swiftly the agency undertakes to make that decision  . . . [courts] ‘do not, and cannot, police agency deliberations as a general matter . . . .’ Thus, the AFL-CIO’s recent motion . . . raises an issue that is plainly non-justiciable.”  Slip op. at 48, n. 13.

While the Court’s ruling, and the parties’ respective reactions to it, paint a bit of a muddy picture on what comes next, it is clear that there are still other shoes to drop in this case.  The Board has indicated its intent to appeal the court’s decision invalidating the five elements of the election rule.  The AFL-CIO may re-assert the counts of its complaint not addressed in the Court’s decision, or make additional arguments based on the NLRB’s actions on remand, as further grounds for invalidating the entire election rule.  Or, it may file its own appeal of the Court’s decision seeking appellate review of the Court’s decision not to deal with the other counts in the complaint.

For now, the NLRB will conduct elections in accordance with the undisturbed portions of the election rules, but how they may be impacted by further court litigation is unknown.  It therefore will be very important for employers involved in representation cases to stay up to speed on developments in this dynamic arena.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.

For more NLRB decisions, see the National Law Review Labor & Employment law section.

Thai Army Whistleblower Faces Up to Seven Years of Jail Time For Fleeing Retaliation

In February of this year, the Thai Army launched a new initiative to combat corruption and abuse within its ranks—a 24-hour hotline that reports directly to the Army Chief General, Apirat Kongsompong. This initiative was created in the wake of a shocking incident in which a soldier killed 29 people after a dispute with his commanding officer. The new hotline, while not anonymous, was set up to provide Army whistleblower confidentiality and work in conjunction with National Anti-Corruption Commission, where complaints would be transferred if outside of the Army’s jurisdiction.

In rolling out this new program, General Nattapol was quoted as saying: “[T]he Army is doing our best…This is not a public stunt.” However, in light of the treatment of one of the first major complaints that was submitted through this channel, this statement could not be further from the truth.

As reported by Human Rights Watch, Sgt. Narongchai Intharakawi filed several complaints with the new hotline just two months after it was created, alleging fraud involving staff allowances at the Army Ordnance Materiel Rebuild Center. However, no action was taken on his complaints. Then, despite the promised confidentiality of the hotline, Sgt. Narongchai Intharakawi began receiving death threats and was informed that he would be facing a disciplinary inquiry for “undermining unity within the army and damaging his unit’s reputation.” This inquiry was nothing but a sham, intended to intimidate Sgt. Narongchai Intharakawi. In fact, a leaked video of the inquiry shows Sgt. Narongchai Intharakawi’s superior directly threatening him for reporting, including by stating: “You may be able to get away this time, but there is no next time for you.”

Because after all of this Sgt. Narongchai Intharakawi reasonably feared for his personal safety, he fled his post and publicized his experience, including by making a report to the Thai Parliament’s Committee on Legal Affairs, Justice, and Human Rights.

Instead of ceasing retaliation due to the new publicity around Sgt. Narongchai Intharakawi’s case, the Army has doubled down: They have requested a military court warrant his arrest him for delinquency in his duties. Under this charge Sgt. Narongchai Intharakawi could face up to seven years in prison as well as a dishonorable discharge.

This abhorrent treatment of a whistleblower will make the Army’s new system completely ineffectual and nothing more than symbolic piece of propaganda, discouraging any future whistleblowers from coming forward for fear they will be treated the same way. In order to make right their grievous actions, the Thai Army must abandon all charges against Sgt. Narongchai Intharakawi, issue a formal apology for the breach of confidentiality, and discipline those accused of participating in the retaliation.

Sgt. Narongchai Intharakawi is a hero for stepping out and trying to report corruption under a new, untested system and should be treated as such both in Thailand and globally.

Copyright Kohn, Kohn & Colapinto, LLP 2020. All Rights Reserved.

SBA Rulemaking and Guidance Challenged in Federal Lawsuits in Connection with PPP Loan Guidance

The Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by the President on March 27, 2020. Title I of the CARES Act, named “Keeping American Workers Employed and Paid” by Congress, appropriated $659 billion for loans guaranteed by the Small Business Administration (“SBA”) under the Paycheck Protection Program (“PPP”).

Section 1114 of the CARES Act instructs the SBA to issue regulations “to carry out this title and the amendments made by this title” within fifteen days and without regard to the usual notice requirements, which the SBA did in the form of Frequently Asked Questions (the “FAQs”). 15 U.S.C. §§ 9001(1), 9012.

While ostensibly intended to clarify uncertainty in the CARES Act, two recent federal lawsuits challenge certain rulemaking and guidance promulgated by the SBA. The question before the courts is whether such rulemaking and guidance is a lawful interpretation of the CARES Act or, as the plaintiffs argue, amounts to illegal rulemaking.

Agencies are prohibited by the Administrative Procedures Act from taking action “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(C). The validity of an agency’s interpretation of a statute is reviewed by a court using the two-step framework outlined in the landmark case, Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837 (1984). The first question reviewed in the Chevron analysis is, “whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842–43.

The plaintiffs argue that certain elements of the SBA guidance did not give effect to the unambiguously expressed intent of Congress and, as a result, are unlawful and unenforceable.

DV Diamond Club of Flint v. SBA

DV Diamond Club of Flint LLC (“DV Diamond”) is a strip club in Flint, Michigan, which feared that it would be denied a PPP loan by lenders as a result of guidance from the SBA that is not consistent with the CARES Act. DV Diamond’s initial complaint, dated April 8, 2020, was amended on April 17, 2020 to add forty-one new co-plaintiffs (collectively with DV Diamond, the “Plaintiffs”), each of which claims to operate a legal sexual oriented business which meets the eligibility requirements under the CARES Act. The Plaintiffs argue that the CARES Act is unambiguous as to what businesses are eligible for PPP loans and the SBA, therefore, has no right to assert additional eligibility requirements or disqualifiers. See DV Diamond Club of Flint, LLC v. U.S. SBA, 20-cv-10899, 2020 U.S. Dist. LEXIS 82213, at *27 (E.D. Mich. May 11, 2020).

The U.S. District Court for the Eastern District of Michigan (the “District Court”) issued an injunction in favor of the Plaintiffs, noting that Congress unambiguously stated that the SBA may not exclude from eligibility for a PPP loan guarantee a business that met the CARES Act’s size standard for eligibility. Id. at *27.

The District Court agreed with the Plaintiffs that, “under step one of Chevron that the PPP Ineligibility Rule conflicts with the PPP and is therefore invalid.” Id. at *42.

“Congress provided temporary paycheck support to all Americans employed by all small businesses that satisfied the two eligibility requirements—even businesses that may have been disfavored during normal times.” Id. at *4-5.

The Sixth Circuit Court of Appeals denied the SBA’s motion for a stay of the injunction, holding that the relevant factors, including the Plaintiff’s likelihood success, weighed in favor of the Plaintiff. DV Diamond Club of Flint, LLC v. SBA, No. 20-1437, 2020 U.S. App. LEXIS 15822, at *8 (6th Cir. May 15, 2020).

Zumasys, Inc. v. SBA

Zumasys and two affiliated companies (collectively, “Zumasys”) received PPP loans but are concerned that they may subsequently be deemed ineligible as a result of “improper, and legally impermissible, underground regulation” promulgated by the SBA. (Zumasys, Inc. v. U.S. SBA et al., Dkt. No. 20-cv-008511, Dkt. 1 (the Zumasys Complaint) ¶ 58.)

Zumasys claims to have acted in reliance on the CARES Act by obtaining—and spending—what they expected to be forgivable PPP funds under the terms of the CARES Act rather than furloughing or terminating their employees. Subsequently, guidance set forth in questions 31 and 37 of the SBA’s Frequently Asked Questions, according to Zumasys, might require their loans to be repaid. Zumasys claims that being forced to repay their loans will place them in a worse financial position than had it never sought the PPP funds.

The SBA’s “credit elsewhere” test, which requires a borrower to demonstrate that the needed financing is not otherwise available on reasonable terms from non-governmental sources, was expressly excluded as an eligibility requirement to obtain a PPP loan by Congress. Zumasys alleges, however, that the FAQs “purport to re-impose the “credit elsewhere” requirement in contravention of” the CARES Act. (Id. ¶ 66.)

As a result, in an argument similar to that made by DV Diamond and its co-plaintiffs, Zumasys asserts that the FAQs “are not in accordance with the law and exceed Defendants’ authority under the CARES Act,” and asks that the SBA should be enjoined from enforcing them by the court. (Id.)

Subsequent to the filing of the Zumasys lawsuit, on May 13, 2020, the SBA issued guidance in question 46 in the FAQs that any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

While this development, on its face, would seem to alleviate the concerns of Zumasys, a great deal of uncertainty remains for borrowers in connection with the guidance that has been released by the SBA since the passing of the CARES Act into law. Furthermore, there is no guarantee that subsequent guidance from the SBA will not contradict the guidance currently being relied upon, and in FAQ 39 the SBA noted that it will review all loans in excess of $2 million and in subsequent rulemaking it noted that with respect to a PPP Loan of any size, the “SBA may undertake a review at any time in [the] SBA’s discretion.”

Conclusion

The challenges by DV Diamond, Zumasys and other plaintiffs will hinge on whether or not the applicable courts determine that the guidance issued by the SBA is inconsistent with the unambiguously expressed intent of Congress.

To the extent that borrowers and applicants continue to believe that problematic discrepancies exist between the law and guidance being delivered by the SBA, and the SBA subsequently determines that a borrower is ineligible for a PPP loan or forgiveness of such loan, the courts may in the future be called upon again to apply the Chevron analysis to the SBA’s actions in connection with the PPP.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect those of Sills Cummis & Gross P.C.

© Copyright 2020 Sills Cummis & Gross P.C.
For more on SBA’s PPP loans, see the National Law Review Coronavirus News section.

FTC Attorney Discusses Regulatory Focus on Payment Processing Industry

The Federal Trade Commission consistently seeks to expand the scope of potential liability for deceptive advertising practices.  From substantial assistance liability under the FTC’s Telemarketing Sales Rule to theories of agency or vicarious liability, ad agencies, ad networks, lead buyers and aggregators, lead purchasers, merchants and payment processors are all potentially accountable for facilitating the actions or omissions of those that they do business with.

Consider the latter and the FTC’s recent assault on the payment processing industry.  It amply highlights third party accountability remedial theories and the imposition of reasonable monitoring duties.

In January 2020, the FTC announced that an overseas payment processor and its former CEO settled allegations that they enabled a deceptive “free trial” offer scheme.  According to the complaint, the company, its principals and related entities marketed supposed “free trial” offers for personal care products and dietary supplements online, but instead billed consumers the full price of the products and enrolled them in negative option continuity plans without their consent.

To further the scheme, the defendants allegedly used dozens of shell companies and straw owners in the United States and the United Kingdom to obtain and maintain the merchant accounts needed to accept consumers’ credit and debit card payments, an illegal practice known as “credit card laundering.”

The FTC subsequently filed an amended complaint adding a Latvian financial institution and its former CEO to the case, alleging that they illegally maintained merchant accounts for the other defendants in the name of shell companies and enabled them to evade credit card chargeback monitoring programs.

In a press release, FTC attorney Andrew Smith, Director of the Bureau of Consumer Protection, stated that “[t]he FTC will continue to aggressively pursue payment processors that are complicit in illegal conduct, whether they operate at home or abroad.”

The FTC also recently announced that a payment processor for an alleged business coaching scheme settled charges that it ignored warning signs its client was operating an unlawful business coaching and investment scheme.  Here, according to the FTC’s complaint, the company for years processed payments for a purported scheme that charged consumers hundreds of millions of dollars for allegedly worthless business coaching products, and that the company ignored numerous signs that the business was allegedly fraudulent.

The red flags listed in the complaint include questions about whether the company was a domestic or international company, the nature of its business model, the company’s purported history of excessive chargebacks, and claims the company allegedly made in its marketing materials.

Notably, the complaint also alleged that the company failed to follow its own internal policies and failed to review its clients’ business practices in detail, which, according to the FTC, would have revealed numerous elements that should have eliminated the client under those policies.

According to the FTC, even after the company took on the client, the client’s processing data immediately raised red flags related to the quantity of charges it processed and the number of refunds and chargebacks associated with those charges.  When the client experienced excessive chargeback rates, instead of adequately investigating the causes of the chargebacks, the company responded by requiring the client to work closely with chargeback prevention companies, according to the FTC.  The FTC alleged that the company failed to monitor the products its client was selling and the claims it was making to sell those products.

Again, the Director of the FTC’s BCP conveyed that “[i]gnoring clear signs that your biggest customer is a bogus online business opportunity is no way to operate a payment processing business.”  “And, it’s a sure-fire way to get the attention of the FTC,” Smith stated.

Most recently, the FTC announced that a payment processor that allegedly helped perpetuate multiple scams has been banned under the terms of a settlement with the agency and the State of Ohio.  Here, the FTC alleged that the defendants used remotely created payment orders and remotely created checks to facilitate payments for unscrupulous merchants, allowing them to draw money from consumer victims’ bank accounts.

Reaffirming the FTC’s focus on the payment processing industry, FTC lawyer Andrew Smith stated that “[p]ayment processors who help scammers steal people’s money are a scourge on the financial system.”  “When we find fraud, we are committed to rooting out payment processors and other companies who actively facilitate and support these fraudulent schemes,” Smith stated.

The FTC is aggressively policing payment processors that bury their heads in the sand or go a step further and help cover up their clients’ wrongdoing.  Either course of conduct could land them in legal hot water.

The settlement terms of the matters above include permanent bans, hefty monetary judgments and the surrender of assets.

© 2020 Hinch Newman LLP

EPA OIG Report States Further Efforts Needed to Uphold Scientific Integrity Policy at EPA

On May 20, 2020, the U.S. Environmental Protection Agency (EPA) Office of Inspector General (OIG) released a report entitled Further Efforts Needed to Uphold Scientific Integrity Policy at EPA.  OIG conducted an Agency-wide survey to determine whether EPA’s Scientific Integrity Policy is being implemented as intended to ensure scientific integrity throughout EPA.  OIG received 4,320 responses (a 23.5 percent response rate), showing that 3,987 respondents were aware of or had some familiarity with the Scientific Integrity Policy.  According to OIG, among those respondents with a basis to judge, the majority (56 percent; 1,025 of 1,842) were satisfied with the overall implementation of the Policy.  OIG states that the survey also revealed some concerns with specific aspects of scientific integrity at EPA, including dissatisfaction with EPA’s culture of scientific integrity (59 percent; 1,425 of 2,402) and the release of scientific information to the public (57 percent; 1,049 of 1,842).  OIG recommends that EPA’s deputy administrator lead an effort to examine the causes associated with the scientific integrity concerns identified in the survey and communicate the results to EPA employees, including planned actions to address the causes.  OIG also made 11 recommendations to the EPA science advisor, including developing procedures for addressing and resolving allegations of scientific integrity violations, communicating the outcomes of reports of scientific integrity violations, and improving the release of scientific information to the public.  OIG states that EPA agreed with its recommendations and provided acceptable corrective actions.  According to OIG, EPA has completed two recommendations, and the others are resolved with corrective actions pending.

©2020 Bergeson & Campbell, P.C.

Proposition 13 Overhaul Qualifies for November Ballot

California Secretary of State Alex Padilla announced on Friday, May 29, 2020, that the revised initiative entitled “The California Schools and Local Communities Act of 2020” officially qualified for the November ballot. If passed, the initiative would establish a “split roll” where retail, office, commercial, and industrial real property would be taxed based on their market value, while residential property would continue to be assessed based on its purchase price.

THE CURRENT TAX REGIME: PROPOSITION 13

The current property tax regime under Proposition 13 generally provides that real property is taxed at one percent of its fair market value, which usually is the property’s purchase price. Unless there is a change in ownership of the property such as a sale, this “base value” can only increase by an inflationary rate that cannot exceed two percent per year. When property changes ownership, it is reassessed and the property’s base value is reset to its then current fair market value. Under Proposition 13, a property’s base value can be lower than its current fair market value, which in turn can reduce the amount of property tax that might otherwise be owed.

THE SPLIT ROLL

The ballot initiative creates a “split roll” if voters approve it in November. Under the split roll, commercial and industrial property with a fair market value of more than $3 million would be reassessed at its current fair market value at least every three years. The current tax regime under the Proposition 13 rules described above would continue to apply to all residential property, including both single-family and multi-unit structures and the land on which those structures are constructed or placed. The current rules also would remain in place for real property used for commercial agricultural production.

The process of administering this new tax regime will be determined by the California legislature, which will include, among other things, a process for reassessment appeals. The taxpayer will have the burden of proving that the property was not properly valued. The legislature also will determine a process by which to allocate mixed-use property between its commercial and residential uses for purposes of implementing the split roll.

The new regime will not apply to commercial or industrial property with a fair market value of $3 million or less unless any of the direct or indirect owners of such real property also own interests in other commercial and/or industrial real property. In that case, the new regime will apply if all such real property has an aggregate fair market value in excess of $3 million.

TANGIBLE PERSONAL PROPERTY TAX RELIEF

If passed, the ballot initiative would exempt small businesses from property tax on all of its tangible personal property. A small business is a business that: (1) has fewer than 50 annual full time employees, (2) is independently owned and operated such that the ownership interests, management and operation are not subject to control, restriction, modification, or limitation by an outside source, individual or another business, and (3) owns real property located in California.

For all other taxpayers, an amount up to $500,000 of combined tangible personal property and fixtures (other than aircraft and vessels) will be exempt from taxation.

WHEN WOULD THE SPLIT ROLL TAKE EFFECT?

The split roll would become operative beginning January 1, 2022, and the tangible personal property tax relief would become operative on January 1, 2024.

Despite the split roll becoming operative on January 1, 2022, the reassessment of undervalued commercial and industrial property will be implemented through a phase-in over two or more years. An owner of commercial or industrial property would only be obligated to pay taxes based on the new assessed value beginning with the lien date for the fiscal year when the assessor has completed the reassessment. In addition, if 50% or more of the square footage of a commercial or industrial property is occupied by a small business, such property will not be subject to the new regime at least until the 2025-26 fiscal year.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

For more on real estate taxation, see the National Law Review Tax law section.

HHS Laboratory Data Reporting Guidance for COVID-19 Testing

On June 4, 2020, the U.S. Department of Health and Human Services (HHS) issued new Laboratory Data Reporting Guidance for COVID-19 Testing (Guidance) and related Frequently Asked Questions. Under the Guidance, in addition to providing the results of COVID-19 testing, laboratories will be required to report demographic information, including the patient’s age, race, ethnicity, sex, residence zip code, and county. The Guidance further recommends reporting the patient’s name, street address, date of birth, ordering provider address, and ordering provider phone number to state and/or local public health departments, although this data would not be collected by the Centers for Disease Control and Prevention (CDC) or HHS. Data for each test completed must be submitted within 24 hours of the results being known or determined, providing public health officials with “nearly real-time data.

Reporting is required for both diagnostic and serologic testing, and the Guidance specifically includes laboratory testing that relies on home-based sample collection. Laboratories, defined to include “laboratories, non-laboratory testing locations, and other facilities or locations offering point-of-care testing or in-home testing related to SARS-CoV-2,” must comply with the new requirements by Aug. 1, 2020. The Guidance specifies that reporting should be made through existing channels to state or local public health departments that will, in turn, submit de-identified data to the CDC.

According to HHS, “[t]he new reporting requirements will provide information needed to better monitor disease incidence and trends by initiating epidemiologic case investigations, assisting with contact tracing, assessing availability and use of testing resources, and anticipating potential supply chain issues.” HHS also indicated that the requirements may help officials understand and address disproportionate impacts of COVID-19 on certain demographic groups and ensure equitable access to testing.

Although this reporting requirement is being imposed by HHS, it is unclear what impact the new data may have at a national level. Under HHS’s COVID-19 Strategic Testing Plan issued on May 24, 2020, states are largely responsible for developing and implementing their own COVID-19 testing strategies.

©2020 Greenberg Traurig, LLP. All rights reserved.

For more on COVID-19 testing, see the National Law Review Coronavirus News section.

Waters of the United States Litigation: Practical Considerations for the Regulated Community

A familiar list of states[1] are suing the Trump administration for revising the “waters of the United States” definition that is used to create the Clean Water Act (“CWA”) regulatory programs. The lawsuit is pending before the U.S. District Court for the Northern District of California.  California v. Andrew Wheeler, Civil Action No. 3:20-cv-03005.  There is also a predicable list of the other states[2] in the litigation supporting the “Navigable Waters Protection Rule:  Definition of the United States” promulgated on April 21, 2020.  85 Fed. Reg. 22,250. While we await the impact of litigation and ruling on the request for a stay, the rule becomes effective on June 22, 2020.

The complaint for declaratory and injunctive relief in this litigation provides a road map for the legal and regulatory challenges ahead for the regulated community and agencies implementing CWA programs that rely on the definition for “Waters of the United States” aka WOTUS.  The following provides insights as to how to support a strong CWA with the new WOTUS definition.

Upset of Existing Regulatory Programs.  Challenging states/cities express concern over regulation of discharges to WOTUS (NPDES), water quality standards (TMDLs), 401 certifications (NWPs), and control of oil spills (SPCC) as the result of the new WOTUS definition.  These are the programs that are relied upon by the regulated community to operate, maintain compliance, and develop new facilities.

Those seeking CWA permits/authorizations pursuant to the new WOTUS rule should consider enhancing their public submittals with documentation supporting policy decisions as protective of WOTUS uses.  Voluntary reports, studies and data demonstrating protections and regulatory successes, in addition to routine reporting and recordkeeping, would be constructive in building confidence in the program changes and in defending against regulatory and statutory challenges.

Too Narrow a Definition.  Challengers assert the new definition for WOTUS is narrow and excludes “waters long understood as within CWA’s protections.”  They assert that ephemeral streams and many wetlands are excluded.  The multi-step deliberative process that the former WOTUS regulatory program embraced resulted in the unfortunate inability to make timely decisions about regulatory authorizations.  The tangible impact of the clarity of the new definition is the ability to engage in thoughtful analysis and decide how best to manage WOTUS protections.

In support of the clarity found in the new WOTUS rule, there is a need to demonstrate that the definition promotes the Clean Water Act mission.  The regulated community needs to support the development of objective assessments that demonstrate this point to help educate about the effectiveness of the definition in meeting the CWS objective to “restore and maintain the chemical, physical, and biological integrity of the Nation’s waters.”

Rapanos “Significant Nexus” Concurrence.   Challengers assert the U.S. Supreme Court Rapanos decision that sets forth Justice Kennedy’s “significant nexus” concurrence should have been maintained in the definition, rather than implement the plurality opinion as was done in the new WOTUS definition.

The WOTUS rule of 2020 notes that “Since Rapanos, litigation has continued to confuse the regulatory landscape. See, e.g., ECOS Memorandum at 2-23. The Supreme Court also has twice weighed in on topics related to the agencies’ implementation of their authorities under the CWA to help clarify federal authority in this area. In each case, members of the Court noted the longstanding confusion regarding the scope of federal jurisdiction under the CWA and the importance of providing clear guidance to the regulated community.” 85 Fed. Reg. 22,250, 22,257.

The CWA becomes a statute unable to move if its programs are not capable of implementation, as the “significant nexus” analysis demonstrated.  The regulated community can facilitate this issue by working with all stakeholders to develop in the near-term reports and analyses about the measurable successes of the WOTUS definition rule.

Neighbor Jurisdiction Impacts.  Challengers express concern about jurisdictions upstream that may not be as protective of water adversely impacting downstream jurisdictions.  They assert a need for a national floor for protecting water to avoid adverse impacts on downstream states.

The regulated community has a shared interest with the challengers in a CWA regulatory program that is dependable and has reliable outcomes.  The difference in perspective is the challengers do not have confidence in states’ abilities to protect their waters, although all states are required to demonstrate effective CWA programs to the federal agencies.  The regulated community needs to work in partnership with the state and federal agencies to support successful outcomes to refute the fear that downstream jurisdictions must be concerned.

Flow in a typical year.  A tributary, lake, pond, or impoundment must contribute flow in a “typical year” directly to traditional navigable waters (e.g., through other tributaries, lakes, ponds, impoundments or adjacent wetlands).  Tributaries must be either perennial (continuously flowing all year round) or intermittent (continuously flowing during certain times of the year and not just in response to precipitation).  The challengers assert the definition for typical year is not well articulated. “Typical year” is defined to mean “when precipitation and other climatic variables are within the normal periodic range (e.g., seasonally, annually) for the geographic area of the applicable aquatic resource based on a rolling thirty-year period.” The 2020 Rule does not identify which “other climatic variables” should be considered, or what is the “geographic area of the applicable aquatic resource.”

The challengers share with everyone a distaste for vague outcomes, a common human sentiment.  The previous WOTUS rule encompassed a myriad of steps embedded with complexities that defied any reliable or predictable outcome.  The need to define “typical year” to create a comprehensible result falls well within the acknowledged need for common sense policy.

Excluded Waters.  The challengers assert that the WOTUS definition excludes:  ephemeral waters (those flowing only in direct response to precipitation) and their adjacent wetlands, “interstate” waters as a separate category of the “waters of the United States,” and therefore excludes many waters that cross state borders;  and many wetlands that are near other jurisdictional waters but lack a physical or surface hydrological connection to them.

All stakeholders need an operable method to delineate a definition for WOTUS for the purpose of applying the CWA programs.  Objecting to a program that is unclear is a valid concern when working to promote a sustainable Clean Water Act.  Working against regulatory clarity seems misguided.  Leadership is welcomed in educating about sustainable regulation as opposed to stalled regulation.

[1] The following states have sued EPA and the Army Corps of Engineers over the recent definition for “waters of the United States.”  Plaintiffs are:  California, New York, Connecticut, Illinois, Maine, Maryland, Michigan, New Jersey, New Mexico, North Carolina, Oregon, Rhode Island, Vermont, Washington, Wisconsin, Massachusetts, Virginia, the North Carolina Department of Environmental Quality, the District of Columbia, and the City of New York.

[2] Intervenors for the Defendant Federal Agencies include:  Pacific Legal Foundation, Georgia, Wyoming, Alabama, Texas, Indiana, Mississippi, Alaska, Idaho Department of Environmental Quality, Oklahoma, Arkansas, Idaho, Kansas, Kentucky, Louisiana, Missouri, Montana, North Dakota, South Carolina, South Dakota, Utah, and West Virginia.

© Steptoe & Johnson PLLC. All Rights Reserved.
For more on Waters of the United States, see the National Law Review Environmental Energy & Resources law section.

Mama Always Said, ‘Tell the Truth,’ Especially When It Comes to COVID-19

Since the outbreak of the COVID-19 pandemic earlier this year, employers have been placed in the position of having to deal with numerous conflicting legal and moral obligations.  Prior to the pandemic, by virtue of the Americans with Disabilities Act and similar state and local laws, employers were greatly limited in the questions they could ask perspective and current employees about their individual health conditions.  Similarly, unless they were seeking a workplace accommodation, employees did not have to disclose their personal health conditions to their employer.

In the battle to quell the pandemic, the rules have changed significantly.  Employers have greater leeway to ask questions related to the pandemic and employees who may have medical conditions previously unknown to the employer are disclosing them because of their concerns about increased susceptibility to becoming infected by the virus.  At the same time, getting quick and reliable information about an employee’s COVID-19 status may be difficult.  Frequently, an employee will only receive an initial verbal confirmation of a positive test and have to wait days for the written report.  Complicating matters are reports in the media of employees who have falsely told their employer they tested positive.  In some of the reported cases, upon hearing of a positive test, the employer shut down its entire operation for a deep cleaning only to later have the employee retract their statement they were positive.  In some of these falsification incidents, employees are now facing criminal prosecution.  What is an employer to do?

Trust but Verify

The vast majority of employees are honest and deeply concerned about their employer’s response to COVID-19. Therefore, if an employee reports they have tested positive, the employer should not wait for written verification and immediately begin to follow the Centers for Disease Control or local health authority protocols.  At the same time, employers should take all possible steps to verify the accuracy of what the employee is reporting.

In cases of suspected fraud, here are some steps an employer can and should take:

  1. Require the employee to provide written confirmation.  As noted above, employers should understand that a written confirmation of a positive COVID-19 test may not be immediately available to the employee.  Many test sites provide only a verbal response with the written verification following days later.  Employers should still require written confirmation of the verbal positive result.
  2. While waiting for written confirmation of test results, ask the employee specifically where and when they went for testing and verify the accuracy of that information.  In one case reported in the media, a suspicious HR manager determined that the hospital where the employee claimed to have been tested was not even performing COVID-19 tests.
  3. Carefully examine any written documentation provided by the employee.  Doctor’s notes and other non-detailed information can be verified by a Google search to determine that the practitioner is real.  A phone call to that practitioner should be able to easily confirm the truth of the matter on the documentation.
  4. Communicate to employees in advance that falsification of employee records and information, especially something as critical as a positive COVID-19 test, can be grounds for discipline, including termination of employment.

© 2020 Foley & Lardner LLP

For more on employer’ COVID-19 considerations, see the National Law Review Coronavirus News section.

CRA Opportunity, Customer Service Opportunity, or Both?

The Board of Governors of the Federal Reserve System (Board) and the Consumer Financial Protection Bureau (CFPB) combined to issue four seemingly unrelated letters that, taken together, appear to reopen the ability of a bank to safely reenter the small dollar loan market as well as secure Community Reinvestment Act (CRA) credit in broadened areas. On May 20, 2020, the Board released the Interagency Lending Principles for Making Responsible Small Dollar Loans. Since the creation of the CFPB, the primary federal bank regulators have frowned upon banks making small loans that were viewed as deposit anticipation loans. Over the past several months, the banking regulators have recognized that consumers have a genuine need for small dollar credit and can benefit more by securing such credit from a bank rather than payday lenders or other nonbank lenders. Shortly thereafter, on May 22, the CFPB released a letter to the Bank Policy Institute containing a no-action letter template that banks with over $10 billion in assets may submit a request for a no-action letter for standardized, small dollar credit products.

On May 21, the Board issued a letter that certain investments in “elevated poverty areas” qualify as investments in low- or moderate-income (LMI) areas. An LMI area is one or more census tracts where the median family income is less than 80% of the median family income of the relevant Metropolitan Statistical Area (MSA) or state, as appropriate. Elevated poverty areas are areas in which the poverty rate is 20% or more and is not based on income relative to the MSA or state in which the area is located. Because the LMI definition is based on relative income, areas with a high absolute poverty rate are sometimes not considered LMI areas because they are located in a state in which median incomes are low in general. In other words, the median income of an area with a high absolute poverty rate may not be significantly less than the generally low median income of the MSA or state as a whole. For this reason, the Board determined that investments in elevated poverty areas will receive the same credit as if the investment had been made in an LMI area, although the area may not be designated as such

Finally, on May 27, the Board, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (agencies) issued Frequently Asked Questions on CRA Consideration for Activities in Response to the Coronavirus. Under the Q&A, COVID-19 affected states and jurisdictions are considered CRA-designated disaster areas. Therefore, the agencies will grant consideration for activities that revitalize or stabilize areas by protecting public health and safety, particularly for LMI individuals, LMI geographies, distressed or underserved non-metropolitan middle-income geographies, and, as noted before, high poverty areas. Examples include loans, investments, or community development services that support emergency medical care, purchase and distribution of personal protective equipment, provision of emergency food supplies, or assistance to local governments for emergency management. The time frame for this consideration extends six months after the national emergency declaration is has ended. Of particular note, loans, including Paycheck Protection Program (PPP) loans, in amounts of $1 million or less to for-profit businesses or to nonprofit organizations are reported and considered as small business loans under the applicable CRA retail lending tests. PPP loans will be considered particularly responsive if made to small businesses with gross annual revenues of $1 million or less or to businesses located in LMI geographies or high poverty areas. PPP loans in amounts greater than $1 million may be considered as community development loans if the loans also have a primary purpose of community development as defined under the CRA.

Question 11 relates back to the Interagency Lending Principles for Making Responsible Small Dollar Loans. Answer 11 states that CRA encourages activities that benefit LMI individuals and families, which would include individuals and families who have recently become low- or moderate-income due to loss of jobs, decreased hours, or furloughs that reduce income due to the COVID-19 emergency.

These seemingly unrelated letters work together to give banks both an incentive and a reward to make bankable loans to entities and individuals located in LMI areas or high poverty areas in order to reduce financial stress as individuals return to the workforce and entities reopen, offering employment opportunities to those individuals. Such efforts should be well documented for CRA credit.

© 2020 Jones Walker LLP

For more on Community Reinvestment Act, see the National Law Review Financial Institutions & Banking law section.