Category: Uncategorized

Employee Wins Federal Appeal Involving Commonly-used Defenses in Employment Discrimination Cases

The U.S. Court of Appeals for the Fourth Circuit issued a decision (Haynes v. Waste Connections, Inc.) this week that reversed in the employee’s favor.  The opinion tackles many commonly-used defenses by employers in employment discrimination and retaliation cases.  In particular, the Fourth Circuit analyzed whether:

  • the employee had identified a valid comparator (aka a similarly situated employee);
  • established that he was performing his job satisfactorily when the employer fired him; and
  • produced any evidence of pretext, which looks to whether the employee can show that the employer’s stated reason for the adverse employment action (termination, demotion, etc.) was meant to disguise a discriminatory intent.

Ultimately, the court found in favor of the employee and sent the case back down to the trial court.

Background

Jimmy Haynes, who is African-American, claimed that his former employer, Waste Connections, Inc. (WCI), discriminated and retaliated against him when it fired him.  Haynes alleged that WCI violated Title VII of the 1964 Civil Rights Act and 42 U.S.C. §1981 (Section 1981) as a result.  Notably, while Title VII and Section 1981 have many similarities in terms of prohibiting race discrimination in employment, a number of significant differences exist that can impact how a court reviews these claims, as discussed here.

The key facts had to do with Haynes reporting to work one evening and then leaving the job site.  According to Haynes, he left work due to a stomach virus and told his supervisor about this.  WCI, on the other hand, claimed that Haynes walked off the job because he was frustrated that his normal truck was not ready.  Two days later, WCI fired Haynes for job abandonment.  WCI did not mention any other reason for terminating Haynes’ employment at the time.  During the course of his lawsuit though, WCI claimed that Haynes had also committed other violations during June and August 2015.

After Haynes filed his lawsuit in court and the parties exchanged information during the discovery process, WCI filed a motion for summary judgment arguing that no disputed material facts existed and thus a jury trial was unnecessary.  The trial court granted summary judgment to the WCI and dismissed Haynes’ lawsuit.  Haynes then appealed this decision and the appellate court reversed the trial court’s decision.

The Fourth Circuit’s findings

Valid comparator/similarly situated employee

The Fourth Circuit first analyzed whether Haynes had established a proper comparator who was not African-American and was treated better than him.  Noting that comparing similar employees will never involve exactly the same offenses occurring over the same time period with the same set of facts, the court explained that showing someone is a valid comparator involves:

  • evidence that the employee and the comparator dealt with the same supervisor;
  • were subject to the same standards; and
  • engaged in the same conduct without such differentiating circumstances that would distinguish their conduct or the employer’s treatment of them

Haynes v. Waste Connections, Inc., Case No. 17-2431 at p. 8, (4th Cir. April 23, 2019).  The appellate court found that a white employee, who had the same supervisor as Haynes, had several workplace violations.  These violations included twice using a cellphone while driving, driving while distracted, and responding to a traffic situation late.  Id.  It also appeared that this white employee had yelled at the supervisor before quitting his job.  Yet the white employee was allowed to return to work and Haynes, who had not yelled at his supervisor and had fewer infractions, was fired.

Because both employees had the same supervisor, were subject to the same standards, and engaged in similar conduct, the court found the white employee to be a valid comparator.  In making this decision, the appellate court rejected WCI’s argument that the white employee’s infractions did not cause any damages whereas Haynes’ violations did.  It also turned away WCI’s claim that the white employee had notified the employer that he was resigning while Haynes simply walked off the job.

Was Haynes performing his job satisfactorily

WCI also argued that Haynes had not demonstrated that he was performing his job satisfactorily at the time WCI fired him.  The Fourth Circuit pointed out that Haynes was not required “to show that he was a perfect or model employee;” rather, he need only show that he was qualified for the position and meeting WCI’s legitimate expectations.  To support his contention that he was satisfactorily performing his job, Haynes produced evidence that:

  • his supervisor told him the month before Haynes was terminated that “everything looks good” and “nothing to worry about” in terms of his upcoming job performance evaluation; and
  • Haynes received bonuses during the relevant time period

The court thus ruled that Haynes had presented enough evidence to demonstrate satisfactory job performance.

Evidence of pretext

To show pretext, “a plaintiff may show that an employer’s proffered non-discriminatory reasons for the termination are inconsistent over time, false, or based on mistakes of fact.”  Haynes, Case No. 17-2431 at 12.  If the employee does so, then summary judgment should be denied and the case should proceed to trial.

The most important factor to the Fourth Circuit was that WCI came up with a new reason why it claims it terminated Haynes’ employment:  his poor attitude.  The only reason given at the time of Haynes’ termination, however, was job abandonment.  Further, the company policy on job abandonment defines it as three days with no call or no show, yet Haynes had called and texted within one day.  Ultimately, the Fourth Circuit found too many inconsistencies with WCI’s purported reasons for firing Haynes and thus ordered that a jury should decide whose version is correct.

Key takeaways

Some important factors can be gleaned from the Fourth Circuit’s decision here:

  • For the comparator/similarly situated analysis, you’re more likely to meet this test if you and the other employee(s) you’re comparing yourself to:
    • share the same supervisor;
    • perform very similar job tasks and responsibilities (both the number and weight) as the other person;
    • if the case involves discipline, then the number and severity of the infractions should be relatively similar;
    • have similar job performance evaluations and disciplinary history; and
    • your experience level (including supervisory experience) the same as the other person
  • To demonstrate that you were performing your job satisfactorily, evidence that you received bonuses, awards, and/or average (or higher) job performance ratings will be important;
  • Regarding pretext, the more inconsistencies you can show the employer’s reasons for firing you, the better off you will be.

© 2019 Zuckerman Law
This post was written by Eric Bachman of Zuckerman Law.

Executive Orders Aim to Streamline Energy Infrastructure Projects

On April 10, 2019, President Trump signed two executive orders intended to address a range of legal and procedural hurdles commonly facing infrastructure projects, particularly in the energy sector. Most notably, the executive orders require the U.S. Environmental Protection Agency (EPA) to review and revise Section 401 water quality certification procedures and increase the president’s direct role in permitting cross-border projects.

In recent years, states and tribes have increasingly utilized Section 401 of the Clean Water Act, 33 U.S.C. § 1341, to delay, condition, or deny permits and licenses for projects within their borders that may violate established water quality standards. Executive Order 13868 directs EPA to review these water quality certification procedures in consultation with states, tribes, and other federal agencies, with a focus on:

    • Promoting federal-state cooperation.
    • Clarifying the appropriate scope of water quality reviews.
    • Identifying appropriate conditions for certifications.
    • Establishing reasonable review times for certifications.
    • Delineating the nature and scope of information that states and tribes may need in acting promptly on a certification request.

The executive order contemplates several forthcoming EPA actions with aggressive deadlines. Within 60 days, EPA must issue new water quality certification guidance to states, tribes, and federal agencies. Within 120 days, EPA must publish a proposed rule revising the existing regulations that implement Section 401. Other federal agencies that issue permits or licenses subject to Section 401 certification requirements must then revise their regulations and guidance to conform to EPA’s actions. These actions will afford numerous commenting opportunities and, given the executive order’s focus on “Promoting Energy Infrastructure,” the agencies likely will be interested in specific ideas, experiences, and feedback of project proponents.

Executive Order 13868 is not limited to Section 401. It further directs the U.S. Department of Transportation (DOT) to propose a rule newly allowing transport of liquefied natural gas (LNG) in rail tank cars. DOT must also revise its safety regulations for LNG facilities to reflect modern industry practices. Additionally, the executive order calls for scrutiny of retirement funds’ divestments from the energy sector. It also aims to facilitate renewals and reauthorizations of energy rights-of-way and similar authorizations. Lastly, it seeks information from agencies on barriers to a national energy market, intergovernmental assistance, and opportunities for economic growth in the Appalachian region.

Executive Order 13867 aims to end the multi-year reviews of cross-border infrastructure, such as pipelines and bridges, principally administered by the State Department. These projects have attracted national attention and controversy, as well as litigation. The Secretary of State will continue to receive all applications for such cross-border projects but will face a highly aggressive 60-day deadline to complete its review and provide recommendations to the president for a final permitting decision. The executive order stipulates that the State Department must revise its regulations to reflect these requirements by May 29, 2020. Because presidential actions are not subject to National Environmental Policy Act (NEPA) review, and to meet the tight deadline, such projects might undergo less review than they do today, which in turn may foster more litigation.

Overall, these executive orders afford opportunities to reduce barriers to energy infrastructure projects and improve the efficiency of the permitting process. Whether they yield tangible results remains to be seen. The substantive details and any legal challenges will emerge through the various agency actions implementing these executive orders, which the regulated community should follow and closely participate in.

 

© 2019 Beveridge & Diamond PC.

Supreme Court Agrees to Hear Cases Determining Extent of Title VII Protection for LGBT Workers

The Supreme Court of the United States announced three cases will be argued next term that could determine whether Title VII protects LGBT employees from workplace discrimination.

Title VII prohibits discrimination because of “race, color, religion, sex, or national origin,” but it does not explicitly mention sexual orientation or gender identity.  Federal courts have disagreed on whether discrimination based on sexual orientation or gender identity falls within Title VII’s prohibition against sex-based discrimination.  Differing opinions on this topic exist within the federal government as well:  the Equal Employment Opportunity Commission (“EEOC”) has taken the position that Title VII prohibits discrimination based on sexual orientation and gender identity, while the Department of Justice has argued it does not.  The Supreme Court’s decisions may ultimately decide these conflicts.

Two cases represent a split in federal appellate courts regarding the extent, if any, to which Title VII prohibits sexual orientation discrimination as a subset of sex discrimination.  In Altitude Express v. Zarda, a skydiving company fired Donald Zarda, a skydiving instructor, after Zarda informed a female client he was gay to assuage her concern about close physical contact during skydives.  The trial court dismissed Zarda’s sexual orientation discrimination claim.  In an opinion written by Chief Judge Robert A. Katzmann on behalf of a full panel of the U.S. Court of Appeals for the Second Circuit, the Court reversed the trial court’s dismissal and held that sexual orientation discrimination is properly understood as a subset of discrimination on the basis of sex.  In other words, in the Second Circuit, sexual orientation discrimination is prohibited under Title VII.  The Second Circuit aligned its thinking with the Seventh Circuit’s April 2017 opinion in Hively v. Ivy Tech Community College of Indiana, which held that “discrimination on the basis of sexual orientation is a form of sex discrimination.”

The U.S. Court of Appeals for the Eleventh Circuit reached the opposite conclusion in Gerald Bostock v. Clayton County Georgia.  Gerald Bostock alleged he was terminated from his county job after the county learned of his involvement in a gay recreational softball league and his promotion of involvement in the league to co-workers.  The trial court dismissed and the Eleventh Circuit affirmed, relying on its own precedent that broadly held that Title VII does not prohibit sexual orientation discrimination.  In other words, in the Eleventh Circuit, Title VII does not prohibit sexual orientation discrimination.

The Supreme Court consolidated the cases into a single case to determine whether the prohibition in Title VII against employment discrimination “because of . . . sex” encompasses discrimination based on an individual’s sexual orientation.

The third case, R.G. & G.R. Harris Funeral Homes v. EEOC, focuses on whether Title VII applies to transgender employees.  In 2007, a funeral home hired Aimee Stephens, whose employment records identified her as a man.  Later, Stephens told the funeral home’s owner she identified as a woman and wanted to wear women’s clothing to work.  The owner fired Stephens, believing allowing Stephens to wear women’s clothing violated the funeral home’s dress code and “God’s commands.”  The EEOC filed suit on Stephens’ behalf.  The trial court dismissed a portion of the lawsuit because “transgender . . . status is not currently a protected class under Title VII,” but permitted other portions to proceed based on the claim Stephens was discriminated against because the funeral home objected to her appearance and behavior as departing from sex stereotypes.  The Sixth Circuit agreed that Stephens had viable claims.  The Supreme Court will review “[w]hether Title VII prohibits discrimination against transgender people based on (1) their status as transgender or (2) sex stereotyping” under prior Supreme Court precedent.

All three cases will affect the employment rights of LGBT workers.  Dinsmore & Shohl lawyers will closely monitor the Court’s analysis of these cases.  Dinsmore’s Labor and Employment Practice Group stands ready to assist employers in navigating this developing area of law.  Dinsmore’s experience in this arena includes accomplished labor and employment lawyers, former law clerks to federal judges who have drafted orders on these very issues, former federal government attorneys, litigators and published scholars.

 

© 2019 Dinsmore & Shohl LLP. All rights reserved.
This post was written by Jan E. Hensel and Justin M. Burns of Dinsmore & Shohl LLP.
Read more on the US Supreme Court  decision on the National Law Review’s Labor and Employment page.

Chicago and Cook County Amusement Tax

In previous posts, we have explored several local Illinois taxes, including the Chicago Personal Property Lease Transaction Tax and Cook County Parking Lot Tax. Also notable is the Chicago and Cook County Amusement Tax, which can apply more broadly than taxpayers often anticipate. Specifically the scope of the amusement tax has been expanded over the last few years to non-traditional amusements, including electronically transferred television shows, movies, videos, music, and games.

Imposition of The Amusement Tax

Although the Chicago and Cook County amusement tax are imposed similarly on taxpayers, they are independently administered taxes that feature key differences. Both the Chicago Amusement Tax Ordinance (“Chicago Ordinance”) and Cook County Amusement Tax Ordinance (“Cook County Ordinance”) impose the tax “upon the patrons of every amusement” within the city or county, but require the owner, manager, or operator of the amusement to collect the tax from each patron and remit the tax to the Chicago Department of Finance (“Chicago Department”) or the Cook County Department of Revenue (“Cook County Department”).[1] Further, both Ordinances define “amusement” as “any exhibition, performance, presentation or show for entertainment purposes”.[2]

Where the Chicago and Cook County Ordinances deviate, however, are the examples used to define “amusement”, the rates of tax, and applicable exemptions. For example, although the Ordinances provide similar examples of qualifying amusements, including a motion picture show, athletic contest, or any theatrical, musical or spectacular performance, the Chicago Ordinance also includes “paid television programming” viewed within or outside the home.[3] In contrast, the County Ordinance does not include such language. Additionally, whereas the Chicago Ordinance imposes the amusement tax at a rate of 9 percent of the admission fees or other charges paid for the privilege to enter, witness, view or participate in the amusement, the County Ordinance imposes the tax at a rate of 3 percent (unless a lower rate applies, as addressed below).[4]

Further, the Chicago and Cook County Ordinances often exempt different activities. For example, although both Ordinances exempt admission fees to witness in person “live theatrical, live musical or other live cultural performances that take place in any auditorium, theater or other space”[5] with a certain limited capacity (“Small Venue Exemption”), the Ordinances include a different capacity limitation. Under the Chicago Ordinance, the Small Venue Exemption renders the amusement tax inapplicable where the maximum capacity of the venue, including all balconies and all sections, is not more than 1,500 persons.[6] In contrast, under the Cook County Ordinance, the Small Venue Exemption only applies where the venue has a capacity of not more than 750 persons.[7] Further, if the venue has a capacity of more than 750 persons, but fewer than 5,000 persons, the Cook County amusement tax applies at a rate of 1 percent rather than the general rate of 3 percent.[8] This serves as a notable example of where the Ordinances may appear to be substantially similar but in fact feature key differences. Additionally, whereas the City clarified in a 2004 Amusement Tax Ruling that “primarily educational” activities are not taxable amusements, Cook County has not released similar guidance.[9] The result is that depending on the nature of the activity, amusement tax may apply in one but not both jurisdictions.

Identifying Taxable “Admission Fees”

A contested issue in applying the amusement tax in both Chicago and Cook County is the amount that compromises the taxable “admission fees or other charges paid for the privilege to enter, witness, view” such amusement.[10] For example, in 2014, the Illinois Court of Appeals held that under the Cook County Ordinance, for club seats and luxury suites to Chicago Bears home football games, “admission fees or other charges” include the amenities available to holders of club seat tickets and tangible personal property included in the luxury suite admission price, not just the value of the home seat games.[11] The Court determined that because a fan cannot witness a game from a club seat without paying the club privilege fee and annual licensing fee, it is not possible to separate the “other charges” from the fee paid to enter the stadium.[12] As a result, the Illinois Appellate Court determined the full price paid by club seat holders and luxury suite licensees is subject to the County’s amusement tax. This decision may lead to efforts by the Chicago Department and Cook County Department to expand a taxpayer’s taxable base beyond the mere value of a “seat”. For example, both the County and the City have been aggressive in their application of the amusement tax to service fees despite clear language in the Ordinances that exempts separately stated optional charges.[13]

Expanding the Scope to Electronically Transferred Amusements

The Chicago Department has recently become aggressive in its expansion of the scope of the Chicago Ordinance. In a 2015 Amusement Tax Ruling, the Chicago Department asserted that the amusement tax is imposed “not only [on] charges paid for the privilege to witness, view or participate in amusements in person but also charges paid for the privilege to witness, view or participate in amusements that are delivered electronically.”[14] As a result, the Chicago Department intended to clarify that the Chicago amusement tax applies to fees or charges for the following if delivered in the City: (1) watching electronically delivered television shows, movies or videos; (2) listening to electronically delivered music; and (3) participating in games, on-line or otherwise.[15] Although treated with resistance by taxpayers[16], the implication is that the City Department has the authority to impose the amusement tax on users of streaming services such as Netflix and Spotify, and online gaming, such as PlayStation. Following the Mobile Telecommunication’s Sourcing Conformity Act[17], the amusement tax applies to customers whose residential street address or primary business address is in Chicago, as reflected by their credit card billing address, zip code or other reliable information.[18]

Further, as explored briefly above, the Chicago Ordinance treats “paid television programming” as a taxable amusement.[19] “Paid television” means programming that can be viewed on a television or other screen, and is transmitted by cable, fiber optics, laser, microwave, radio, satellite or similar means to members of the public for consideration.[20] Additionally, an “owner” includes “any person operating a community antenna television system or wireless cable television system, or any other person receiving consideration from the patron for furnishing, transmitting, or otherwise providing access to paid television programming.”[21]

In 2014, the Chicago Department began auditing and assessing amusement tax on a number of restaurants and bars located through the City who subscribed to paid satellite television programming and who did not collect the amusement tax[22]. In a move to clarify the application of the tax, in November 2016, the Chicago Department released an Informational Bulletin that provided additional information to business subscribers of satellite television regarding their obligation to collect and remit the Chicago amusement tax. As a result, bars, restaurants and any other businesses that subscribe to satellite television are required to remit the Chicago amusement tax on charges paid for satellite television services used in Chicago.

Applicability to Ticket Resellers and Agents

An area of uncertainty within both the Chicago and Cook County amusement tax is the potential applicability to ticket resellers and agents. The issue dates back to 2006 when the Chicago Department amended the Chicago Ordinance to require not only a “reseller” but also a “reseller’s agent” to collect and remit amusement tax.[23]This amendment set the stage for the Chicago Department to attempt to collect the tax from StubHub as a reseller’s agent. StubHub is an internet auction listing service that operates a “platform” where it charges buyers and sellers a fee to buy and sell ticket to various events.

On appeal to the Illinois Supreme Court, the Court entered a significant decision for online auctioneers, holding that municipalities may not require electronic intermediaries to collect and remit amusement taxes on resold tickets.[24] The basis of the Court’s ruling is that although the Illinois Ticket Sale and Resale Act (the “Act”) [25]gives municipalities the authority to require sellers and resellers of tickets to collect the amusement tax, municipalities do not have the authority to require internet auction listing services, such as StubHub, to collect the tax.[26] Although both the Chicago and Cook County Ordinance still define an “operator” as a person who “sells or resells a ticket”, the Stubhub decision resulted in the removal of the term “reseller’s agent” and “auctioneer” from the Chicago Ordinance.[27]

Conclusion

Although the Chicago and Cook County amusement tax are similarly imposed, there are notable differences between the applicability of the Chicago and Cook County Ordinances. These differences are particularly noteworthy with respect to potential exemptions and electronically transferred amusements. Accordingly, taxpayers should not assume that because the amusement tax applies in one locality, it applies in both Chicago and Cook County.

[1] Municipal Code of Chicago (“M.C.C.”) § 4-156-020(A), 4-146-030(A); Cook County Ordinance (“C.C.O.”) § 74-392(a), 74-395(a).

[2] M.C.C. § 4-156-010; C.C.O. § 74-391.

[3] M.C.C. § 4-156-010.

[4] M.C.C. § 4-156-020; C.C.O. § 74-392.

[5] The Chicago and Cook County Ordinance define “live theatrical, live musical or other live cultural performance” identically as a “live performance in any of the disciplines which are commonly regarded as part of the fine arts, such as live theater, music, opera, drama, comedy, ballet, modern or traditional dance, and book or poetry readings. The term does not include such amusements as athletic events, races, or performances conducted as adult entertainment cabarets.” M.C.C. § 4-156-010; C.C.O. § 74-391. In this regard, the Chicago Department and Cook County Department appear to play the role of an art critic, defining which activities qualify as “fine arts”. See a prior post exploring the issue in the context of disc jockeys.

[6] M.C.C. § 4-156-020(D).

[7] C.C.O. § 74-392(d).

[8] C.C.O. § 74-392(f)(1).

[9] Chicago Amusement Tax Ruling #1, ¶ 2.

[10] M.C.C. § 4-156-020; C.C.O. § 74-392.

[11] Chi. Bears Football Club v. Cook County Dep’t of Revenue, 16 N.E.3d 827, 835 (2014).

[12] Id. at 834. In determining the full price paid by club seat ticket holders and luxury suite licensees is subject to the amusement tax, the Court affirmed the reasoning of the court in Stasko v. City of Chicago, 997 N.E.2d 975, 993 (2013)(holding that the Chicago Ordinance applied because purchasing the permanent seat license was a prerequisite to viewing the game).

[13] M.C.C. § 4-156-020(H); C.C.O. § 74-392(e)(3).

[14] Chicago Amusement Tax Ruling #5.

[15] Chicago Amusement Tax Ruling #5, ¶ 8.

[16] The Chicago amusement tax, as it applies to certain electronically delivered amusements, such as paid television, was challenged but held by the Cook County Circuit Court to be constitutional in Labell v. City of Chicago, Case No. 15 CH 13399 (Cook Cnty. Cir. Ct. May 24, 2018). In this application, the amusement tax is often derisively referred to as the “ Cloud Tax” or the “Netflix Tax“.

[17] 35 ILCS 638.

[18] Chicago Amusement Tax Ruling #5, ¶ 13.

[19] M.C.C. § 4-156-010.

[20] Id.

[21] Id.

[22] For additional background regarding the Department’s efforts to collect the Chicago amusement tax from satellite providers, see a prior post.

[23] Under the Chicago Ordinance, a reseller’s agent is a “person who, for consideration, resells a ticket on behalf of the ticket’s owner or assists the owner in reselling the ticket. The term includes but is not limited to an auctioneer, a broker or a seller of tickets for amusements, as those terms are used in 65 ILCS 5/11-42-1, and applies whether the ticket is resold by bidding, consignment or otherwise, and whether the ticket is resold in person, at a site on the Internet or otherwise.” M.C.C. § 4-156-010 (amended May 24, 2006).

[24] City of Chicago v. Stubhub, Inc., 979 N.E.2d 844, 845 (2011).

[25] 720 ILCS 375/0.01 et seq. (2010).

[26] Stubhub, Inc., 979 N.E.2d at 857.

[27] M.C.C. § 4-156-010; C.C.O. § 74-391.

 

© Horwood Marcus & Berk Chartered 2019. All Rights Reserved.

Sixth Circuit Erases Chalking of Parked Cars

It’s not often that a dispute over parking tickets ends up in federal court. But that’s exactly what happened this week in Taylor v. City of Saginaw – a case that has already drawn the attention of the national media.

Taylor involved a challenge to “a common parking enforcement practice known as ‘chalking,’ whereby City parking enforcement officers use chalk to mark the tires of parked vehicles to track how long they have been parked.” This practice can be surprisingly effective (as certain blog authors unfortunately can attest). But it is apparently very effective in Saginaw – according to Judge Donald’s decision, one particular parking enforcement officer managed to chalk (and then ticket) Ms. Taylor fifteen separate times between 2014 and 2017.

Armed with a slew of parking tickets, Ms. Taylor filed suit in federal court, alleging that the City violated the Fourth Amendment by chalking her tires without her consent or a valid warrant. The Sixth Circuit agreed, relying upon the Supreme Court’s recent decision in United States v. Jones, 565 U.S. 400 (2012), to hold that chalking constitutes an unreasonable trespass upon a constitutionally-protected area (your car).

At first blush, chalking a car’s tires may not seem like the type of “search” typically raising Fourth Amendment concerns. But as Judge Donald explained, Jones signaled a rebirth of “the seldom used ‘property-based’ approach to the Fourth Amendment search inquiry,” which focuses on physical intrusion to one’s property:

Under Jones, when governmental intrusions are accompanied by physical intrusions, a search occurs when the government: (1) trespasses upon a constitutionally protected area, (2) to obtain information.

In the Court’s view, chalking satisfied both of these requirements: the officer came into contact with Ms. Taylor’s car, in an attempt to obtain information about her (whether she remained in her parking spot too long).

The Court proceeded to hold that the search was unreasonable because the car was parked legally when chalked, and the officer lacked any reasonable suspicion (let alone probable cause) that a crime had been committed. The Court also specifically rejected the City’s assertion of the “community caretaker” exception, explaining that “the purpose of chalking is to raise revenue, and not to mitigate [a] public hazard.”

Taylor is the latest in a series of interesting Fourth Amendment cases playing out on our public roadways. The Sixth Circuit’s decision relied heavily on the Supreme Court’s decision in Jones, which addressed the constitutionality of electronically monitoring an individual’s location by affixing a GPS device to his car.

And the Supreme Court heard argument yesterday in Mitchell v. Wisconsin, which asks whether a statute authorizing a blood draw from an unconscious motorist suspected of driving under the influence provides an exception to the Fourth Amendment warrant requirement.

 

© Copyright 2019 Squire Patton Boggs (US) LLP
Read more news from the Sixth Circuit from the National Law Review on our Litigation Page.

Avoiding Commercial Lease Disputes – Clearly Reflecting the Intent of the Parties is Key!

A commercial lease symbolizes a consensual relationship between parties that can be enduring and rewarding, or short-sighted and emotionally and financially taxing.

Entering into a clearly drafted lease agreement at the outset of the relationship helps to set expectations, which minimizes the possibility of disputes over how the lease should be interpreted.

However, not all commercial leases are clearly drafted, and disputes often arise between the parties over such issues as:

  • How the property can be used,
  • Who has responsibility for maintaining the property,
  • Effect of short term non-payments of rent caused by factors beyond the control of the tenant or just sheer forgetfulness, and
  • Who gets what when the lease terminates.

Disputes can also arise over the interpretation of provisions in commercial leases which deal with insurance coverage and liability of the parties.  Commercial leases typically include provisions which require one or both of the parties to have and maintain property and liability insurance policies with specific amounts of coverage.  These clauses also may include provisions which address the responsibility of the parties for damages or personal injuries.

Insurance and liability clauses are very important, and clearly drafting such clauses when the lease is created can minimize disputes between the parties regarding their obligations and liabilities under the terms of the lease.  Understanding how North Carolina Courts interpret such clauses may help the parties draft clear and unambiguous provisions which will set appropriate expectations and minimize the risk of future disputes between the parties.

The North Carolina Supreme Court recently published an opinion which addresses this issue and provides guidance on how the North Carolina courts should interpret insurance and liability provisions in commercial leases.  On December 7, 2018, the North Carolina Supreme Court reversed a decision of a divided panel of the North Carolina Court of Appeals in the case of Morrell v. Hardin Creek, Inc.  The issue decided by the Court was whether the insurance and liability provisions of a commercial lease operated as a complete bar to the tenant’s claims for damage against the landlord and other defendants.  In a split decision, the Court determined that the clear and unambiguous language of the subject lease indicated that the parties intended to discharge each other from all claims and liabilities resulting from hazards covered by insurance.

In Morrell, the tenant was in the business of manufacturing and distributing specialty pasta.  The tenant entered into a commercial lease for a building located in Boone, North Carolina.  During the term of the lease, an inspection of the premises found that modifications needed to be made to the building in order for the building to comply with state regulations regarding the production of food.

The lease contained a provision which allowed the tenant to alter or remodel the premises.  That provision also included language which stated that the parties agreed to discharge each other from all claims and liabilities arising from or caused by any hazard covered by insurance regardless of the cause of the damage or loss.  The landlord agreed to make the modifications in exchange for an extension in the term of the lease.  The project was completed but later discovered to be in violation of certain building code provisions related to fire sprinkler systems.

The violations were discovered when the sprinkler pipes burst and flooded the premises.  The flooding destroyed the tenant’s inventory and specialty equipment.  The tenant sued the landlord for negligence and other claims relating to the damages.  The landlord moved for summary judgment and asserted that the damages discharge clause in the provision of the lease which allowed the remodeling barred all of the tenant’s claims against the landlord.

The trial court agreed with the landlord and dismissed the complaint with prejudice.  On appeal, a divided panel of the North Carolina Court of Appeals reversed the decision and held that the provision of the lease was ambiguous in that it did not clearly reflect the intention of the parties to bar negligence claims.  The landlord filed an appeal to North Carolina Supreme Court based on the dissent in the Court of Appeals and for discretionary review of additional issues, which the Court allowed.

In its analysis of the case, the North Carolina Supreme Court discusses well-established principles of North Carolina law regarding the interpretation of contracts and, more specifically, provisions in contracts which exempt parties from liability ­­– so-called “exculpatory” clauses.  The Court cites to prior decisions which held that the intent of the parties is the deciding factor in contract interpretation cases.

Also, the Court states that contract provisions which exempt individuals from liability for their own negligence are not favored in the law.  As a result, such provisions will not be construed to exempt a party from liability for its own negligence or the negligence of those acting for that party in the absence of explicit language clearly showing that this is the intent of the parties.

So, when a provision that exempts a party from liability for its own negligence is well drafted, and the intention of the parties is clearly and unambiguously shown, the provision exempting the party from liability will be upheld.

With regard to the exculpatory language of the lease in question in Morrell, the tenant acknowledged the broad and expansive nature of the language while also arguing that the breadth of the clause did not satisfy the general rule that such clauses must contain explicit language which clearly shows the intent of the parties to exclude liability.  The Court was not persuaded and stated,

[Tenant’s] chameleonic construction of this contractual language is unworkable.  Given the ‘broad and expansive’ nature of the phrase ‘all claims and liabilities . . . regardless of the cause of damage or loss,’ it is a challenging exercise to conjure up language in an exculpatory clause that would meet [tenant’s’] implied standard for unambiguity regarding waiver of negligence-based claims other than to require such a waiver to explicitly mention the term ‘negligence.’

The parties had agreed that the hazard of flooding which caused the tenant’s damages was covered by insurance.  For this reason, the Court found that the exculpatory language of the lease barred the tenant from bringing an action against the landlord for all claims and liabilities caused thereby, including business losses.

The tenant also argued that the exculpatory provision was limited by language contained in another provision of the lease which required the tenant to maintain insurance and to indemnify the landlord.  The Court stated that, in effect, the tenant was asking the Court to add limiting language to the exculpatory clause based on inferences made from the separate insurance clause.  The Court rejected the argument and stated,

This Court cannot creatively interpret the parties’ actual lease agreement in the manner urged by [tenant], and must instead enforce the parties’ intent as evidenced by the clear and explicit language of the lease.

The Court was very clear that North Carolina Courts must enforce contracts as written and may not, under the pretext of construing an ambiguous term, rewrite the contract for the parties.

The bottom line is that disputes over the interpretation of provisions in commercial leases can potentially be avoided if issues like the one describe in Morrell are thoroughly addressed and the intention of the parties is explicitly and unambiguously stated in the lease.

As always, those who need assistance with drafting commercial leases, or with a dispute over the interpretation of the terms of a commercial lease, should consult an attorney who is experienced in the area of drafting commercial leases or litigating commercial disputes.

 

© 2019 Ward and Smith, P.A.. All Rights Reserved.
This post was written by Eric J. Remington of Ward and Smith, P.A.
Read more on commercial lease agreements on the National Law Review’s Real Estate page.

Full Enforcement of REAL ID Act Set for October 1, 2020

Because some of the 9/11 terrorists used fraudulent driver’s licenses to travel, Congress passed the REAL ID Act in 2005 to comply with the 9/11 Commission’s recommendation that the federal government establish minimum standards for the issuance of forms of identification, such as state driver’s licenses. After many starts, stops, and delays, the deadline set by the government for full enforcement of the Act is October 1, 2020. By that date, individuals must have compliant IDs in order to access certain federal facilities, enter nuclear power plants, and, importantly, board any commercial aircraft – even for in-country flights.

Acceptable identification would include passports, border ID cards, trusted traveler cards, permanent resident cards, and REAL ID-compliant driver’s licenses, among others. For a state driver’s license to be REAL ID-compliant, states must verify that the individual applying for the license is legally in the U.S. and biometrics were used for identification purposes. This was easier said than done. It required setting up new databases and new technologies. Not only is that an expensive proposition for states, many have expressed privacy concerns and some state legislatures blocked compliance.

While most individuals have been able to board aircrafts with state-issued driver’s licenses if the state was compliant with REAL ID or if the state was granted an extension to become compliant, by October 1, 2020, individuals must have identification compliant with REAL ID standards to even pass through security. Minors under 18, travelling with an adult with REAL ID-compliant identification, will not need such documentation.

Most, but not all, REAL ID-compliant driver’s licenses have a black or gold star on the front. States will not automatically send individuals compliant driver’s licenses. Individuals must apply in person and bring identifying documentation, such as a birth certificate or a passport. Individuals with a passport, or one of the other designated documents, may not need a REAL ID-compliant driver’s license. Although DHS has not recommended which form of identification is “best,” the State Department has been encouraging all U.S. citizens to apply for passports. Currently, about 40 percent of Americans have passports. Of course, passports are more expensive than REAL ID-compliant driver’s licenses, but they serve other purposes, such as for international travel.

TSA has launched a public-awareness campaign, including new signs that will be popping up at airports around the country.

 

Jackson Lewis P.C. © 2019
This post was written by Brian E. Schield of Jackson Lewis P.C.

And Here Come the Lawyers: Securities Fraud Suits Commence Private Litigation Phase of Danske Bank Scandal

More Allegations of Nordic Malfeasance Surface as Private Party Lawsuits Beset Danske Bank and SwedBank Gets Sucked into Unfolding Scandal

“Something was indeed rotten in the state of Denmark.” – Olav Haazen

In what is perhaps the least surprising development in the sprawling, continuously unfolding Danske Bank (“Danske”) money laundering scandal, investor groups have filed private securities fraud actions against the Denmark-based bank and its top executives: first in the United States District Court for the Southern District of New York then, most recently, in Copenhagen City Court in Denmark. These suits coincide with an announcement from the Securities and Exchange Commission (“SEC”) that it, too, was opening its own probe of potential securities and Anti-Money Laundering (“AML”) violations at Danske that could result in significant financial penalties on top of what could be the enormous private judgments. More significantly, the Danske shareholder suits and SEC investigation illustrate a second front of enormous exposure from a securities fraud standpoint for banks involved in their own money laundering scandals and a rock-solid guaranteed template for future investors similarly damaged by such scandals.

As we have blogged here, here and here, the Danske scandal – the largest alleged money laundering scandal in history – has yielded criminal and administrative investigations in Estonia, Denmark, France and the United Kingdom and by the United States Department of Justice. Those investigations have focused primarily on Danske’s compliance with applicable AML regulations, as well as the implementation and effectiveness of those regulations. The SEC and civil plaintiffs now have opened a new line of inquiry focusing less on the institutional and regulatory failures that yielded the scandal and responsibility for them and more on the damage those failures have caused Danske investors.

Meanwhile, banking stalwart Swedbank is reacting, with mixed success at best, to allegations that suspicious transactions involving billions of Euros passed from Danske’s Estonian branch through Swedbank’s own Baltic branches — allegations which have produced a controversial internal investigation report, a law enforcement raid, the loss of the bank’s CEO, and plunging stock value.

Background

The Danske story has been told many times. Between 2007 and 2016, at least 200 billion Euros were laundered through Danske’s Estonia branch primarily by actors connected to the former Soviet Union. During that time, numerous red flags allegedly were ignored by Danske operatives permitting countless suspicious transactions to flow through the bank unabated. Ultimately, a whistleblower alerted Danske management of his concerns over the suspicious transactions, prompting an internal investigation that ultimately revealed the massive scope of the money laundering operation.

The Securities Fraud Angle

While initial investigations have examined how a substantial European bank and the regulators responsible for overseeing it could miss or ignore thousands of suspicious transactions channeling hundreds of billions of illicitly-gained Euros to the West, the bank’s investors and the SEC are attempting to hold the bank accountable for misleading investors concerning what it knew of the Estonian money laundering and what it meant to the bank’s overall bottom line. When the results of the Danske internal investigation were announced in October 2018, revealing for the first time the full scope of the scandal, Danske’s share value cratered. Ultimately, Danske’s share price halved and investors in Denmark holding direct shares in the bank and foreign investors holding depositary shares lost almost $9 billion.

Plumbers & Steamfitters Local 773 Pension Fund v. Danske Bank, et al.

On January 9, 2019, the Plumbers & Steamfitters Local 773 Pension Fund filed a class action complaint (the “SDNY Action”) on its own behalf and on behalf of purchasers of Danske Bank American Depositary Receipts (“ADRs”) between January 9, 2014 and October 23, 2018. An ADR is a security that allows American investors to own and trade shares of a foreign company, created when a foreign company wants to list its shares on an American exchange. The company first sells its shares to a domestic branch of an American brokerage. Then those shares are deposited with a depositary bank, a United States bank with foreign operations that acts as a foreign custodian that, in turn, issues depositary shares to the purchasing broker. The depositary shares are then sold on an American exchange. Depositary shares are derivatives – they represent a security issued by the foreign company and their value derives from the share value of the foreign company. Thus if, for instance, the foreign company became embroiled in a money laundering scandal of unprecedented magnitude, and if that scandal had a deleterious effect on the company’s stock, it would create a coextensive loss in value to the ADR. As it happens, the American class of Danske investors who brought the SDNY Action have alleged this precise scenario.

The SDNY Action presents a standard Section 10(b) and Rule 10b-5 fraud claim (as well as a claim for control person liability under Section 20(a) of the 1934 Act) against Danske and its chief executives centered on the bank’s alleged knowledge of and failure to disclose the Estonian money laundering since 2014. According to the complaint, the deception took two forms.

First, in 2014, Danske executives became aware that billions of dollars in illegal transactions were flowing through the Estonian branch and generating significant profits for the branch and the bank generally. Yet, armed with the knowledge that its “outsized profits” were the result of illegal money laundering, Danske issued annual reports in 2014 to 2016 to its investors in which it “attributed the results to Danske Bank’s purported ongoing operation and strategic prowess, rather than to the money laundering that the whistleblower had already disclosed to Dansk Bank’s senior executives.” Danske’s concealment of the true basis for its financial performance permitted its shares to trade at artificially inflated prices. Share prices were further inflated when Danske, relying on its financial performance (driven by its processing of stolen Russian money) sought and obtained several corporate debt rating increases that facilitated its raising hundreds of millions of dollars by issuing and selling bonds in the European bond markets.

Second, in February 2017, rumors began to spread concerning Danske’s Estonian bank operations. Danske initially downplayed these rumors, releasing a statement that “[s]everal media today report on a case of possible international money laundering, and Danske Bank is mentioned as one of the banks that may have been used. For Danske Bank, the transactions involved are almost exclusively transactions carried out at out Estonian branch in the 2011-2014 period.”   The statement continued to tout the significant steps Danske had taken since 2014 to combat money laundering and the success of those efforts. Later, in September 2017, as reporting increased on Danske’s involvement in money laundering, it issued another release, stating that it had “expanded its ongoing investigation into the situation at its Estonian branch” and following “a root cause analysis concluding that several major deficiencies led to the branch not being sufficiently effective in preventing it from potentially being used for money laundering in the period from 2007 to 2015.”

From there the scandal broke in waves of investigations, fines, management departures, scaled-down and closing operations, and an ever-increasing total figure culminating in a Wall Street Journal report in October 2017 on Danske’s investigations pegging the total amount of illicit transactions at 200 billion Euros involving upwards of 15,000 non-resident customers.

According to the SDNY Action plaintiffs, between February 2018, “when Danske Bank ADRs traded at their Class Period high of $20.90 per share” and October 2018, when the magnitude of the scandal was revealed, “Danske Bank lost $11.40 per share in value, or 54%, erasing more than $2.793 billion in market value.” As luck would have it, the plaintiffs further note that “[a]s the U.S. SEC, DOJ and Treasury and Estonian Authorities continue to investigate, Danske Bank has built a reserve of $2.7 billion – equivalent to 85% of its 2017 net profit – to cover potential fines and reportedly continues to add to that reserve.”

The Danish Front

And Danske might be right to “continue to add to that reserve.” On March 14, 2019, a group of institutional investors filed a lawsuit against Danske in Copenhagen City Court on behalf of “[a]n international coalition of public pension funds, governmental entities, and asset managers” from Asia, Australia, Europe and North America (the “Copenhagen Action”). The Copenhagen Action was brought by the Delaware law firm Grant & Eisenhower and Florida securities fraud firm DRRT and was filed on behalf of all investors who purchased Danske securities since December 31, 2012.

Grant & Eisenhower explains in its press release, “[t]o date, more than 169 institutional investors, including many of the world’s largest pension funds, suffered substantial losses at the hands of Danske Bank unchecked laundering of funds passing through its branch in Estonia. The claimant group seeks $475 million USD in damages.” The Copenhagen Action follows the arc of the SDNY Action. As the lead attorney on the matter, Olav Haazan, describes: “Although the criminal laundering scheme flowed through the little Estonian branch, our lawsuit asserts that something was indeed rotten in the state of Denmark. . . . Danske Bank’s management engaged in a concerted cover-up of its enormous money laundering exposure, while continuing to paint a rosy picture to investors. For years, leadership made no disclosures about the problem and then misrepresented the extent of its participation in the scheme, while touting the bank’s anti-money laundering policies and procedures.”

Mr. Haazan has promised a second filing by June 1 by another group of aggrieved investors.

What – Me Worry?

Danske held its annual shareholders meeting over the course of five days after the Copenhagen suit was filed. Predictably, investors were displeased. Yet, Danske’s new Chairman, Karsten Dybvad struck a defiant tone in the face of potential civil exposure in the billions of dollars. Responding to the lawsuits, Dybvad told investors, “[i]t is our fundamental position that the bank has lived up to its information obligation. As such we don’t find any basis for lawsuits or for a settlement.” Nevertheless, according to Dybvad, “[t]he executive board has decided to waive the bonuses that could have been paid for 2018.”

Enter Swedbank

Howard Wilkinson, the Danske insider whose report launched a thousand investigations, testified that, while Danske’s role in facilitating money laundering was clear, where that money ultimately went is unknown. He went on to speculate that with the uncertainty surrounding any subsequent transactions from Danske involving laundered funds, Danske’s involvement is likely “the tip of the iceberg.” Recent events involving Swedbank have begun to take us further from the summit.

In late February, reports from Swedish broadcaster SVT revealed that between 2007 and 2015, suspicious transactions involving billions of Euros passed from Danske’s Estonian branch through Swedbank’s own Baltic branches. Swedbank’s shares fell nearly 20% on this news. Swedbank then hastily commissioned an internal investigation that yielded a widely lambasted and heavily redacted report from Forensic Risk Alliance concluding that an undisclosed number of suspicious Danske customers were also Swedbank customers and those customers moved some amount of money through Swedbank. From there, the Swedbank story has predictably exploded in size and scope.

First, on March 26, 2019, Swedish broadcaster SVT, which initially reported on the Swedbank scandal, reported that as much as 23 billion Euros in suspicious transactions flowed through the Swedbank Estonian operations. The following day, SVT reported that Swedbank was under investigation for withholding information from U.S. investigators about suspicious transaction and customers, including Paul Manafort and deposed Ukranian President Viktor Yanukovych. Later that day, Sweden’s Economic Crime Authority raided Swedbank’s headquarters related to an insider trading probe investigating whether the bank informed its largest shareholders of the February SVT report in advance.

Later still that day, news broke that Swedbank is under investigation by the New York Department of Financial Services for providing investors with misleading information concerning the money laundering scandal. Finally, March 27, 2019 was capped with an announcement that the Economic Crime Authority was also investigating whether Swedbank misled investors and the market through communications made in the months preceding the emergence of the scandal. The bank’s shares plunged an additional 12%.

Responding to the onslaught, Swedbank CEO Birgette Bonnensen – former head of Swedbank’s Baltic operations – issued a press release intended to reassure shaken investors. Noting that “[t]his has been a very tough day for Swedbank, our employees and our shareholders” Bonnensen stated that “Swedbank believes that it has been truthful and accurate in its communications,” adding “I will do everything in my power to handle the current situation.” Ms. Bonnensen was fired by the Swedbank board the following day.

Swedbank halted trading on the Stockholm exchange that day, but not before its shares fell another 7.8%, bringing its total decline since February to over 30% – wiping away approximately 7 billion Euro of its market value.

Adding to the intrigue swirling around the Swedbank story, a legal fight has broken out between Swedbank and Swedish prosecutors concerning the contents of a sealed envelope – a report prepared by Norwegian lawyer Erling Grimstad, who was commissioned by the bank to examine its activities after the scandal came to light in February. Swedbank contends the report is protected from disclosure by the attorney-client privilege and the bank will not waive the privilege until “all foreseeable consequences are known and assessed,” stating further “[i]t is incomprehensible that the prosecutor doesn’t respect the law and instead uses media to cast suspicion over the management of the bank by implying that the management is hampering the investigation.”

In just over a month, Swedbank went from Danske spectator to the subject of its own now 135 billion Euro Estonian money laundering scandal. More details will follow when the inevitable shareholder complaints are filed.

 

Copyright © by Ballard Spahr LLP.
This post was written by Terence M. Grugan of Ballard Spahr LLP.

California Estate Tax: Gone Today, Here Tomorrow?

California has no estate tax, but that could change in the near future. California State Senator Scott Wiener recently introduced a bill which would impose gift, estate, and generation-skipping transfer tax on transfers during life and at death after December 31, 2020.

California law requires that any law imposing transfer taxes must be approved by the voters. This means that, if the California Legislature approves the California bill, it will be put before the voters at the November 2020 election.

For a time, California imposed a “pick up tax,” which was equal to the credit for state death taxes allowable under federal law; however, federal tax legislation phased this credit out completely in 2005, effectively phasing out any California estate tax. California has not in recent memory, if ever, had a statewide gift or generation-skipping transfer tax.

Under the proposed California bill, like the federal regime, all California transfer taxes will be imposed at a 40% rate. The good news is that the taxpayer will be granted a credit for all transfer taxes paid to the federal government, so there will be no double taxation. The bad news is that, unlike the federal regime where the basic exclusion amount for each type of transfer is $11,400,000 and is adjusted for inflation, the basic exclusion amount for each type of transfer in California will be $3,500,000 and will not be adjusted for inflation. With the federal exclusion rates rising every year, advanced estate planning techniques to minimize such taxes have become something that fewer and fewer people have had to worry about. If the California bill passes, any person who has assets valued in excess of $3,500,000 could be subject to a 40% California transfer tax during life or at death. Moreover, with a full credit for federal transfer taxes, only estates between $3,500,000 and $11,400,000 will be subject to the California tax. Thus, a California resident with an estate of $100,000,000 would pay the same California estate tax as someone with an estate of $11,400,000.

As drafted, the California bill appears to have no marital deduction; however, this is most likely an oversight and should be corrected in future revisions of the California bill. The goal of the California bill is to impose transfer taxes on wealthy Californians equal to what they would have paid prior to the implementation of the increased exemption rates at the end of 2017.  As the marital deduction existed when exemption rates were lower, eliminating the marital deduction at the first death would not be aligned with the purpose of the California bill.

All transfer taxes, interest, and penalties generated by the California bill would fund the proposed Children’s Wealth and Opportunity Building Fund, a separate fund in the State Treasury, which will fund programs to help address socio-economic inequality.

 

© 2019 Mitchell Silberberg & Knupp LLP
This post was written by Joyce Feuille of Mitchell Silberberg & Knupp LLP.
Read more news on the California Estate Tax on our Estate Planning page.

EPA Issues New Emergency Response Requirements for Community Water Systems

On March 27, 2019,  The Environmental Protection Agency (EPA) published the Federal Register Notice for New Risk Assessments and Emergency Response Plans for Community Water Systems describing the requirements and deadlines for community (drinking) water systems to develop or update risk and resilience assessments (RRAs) and emergency response plans (ERPs) under  America’s Water Infrastructure Act (AWIA) which was signed into law on October 23, 2018 and amends the Safe Drinking Water Act (SDWA).   Additionally, as described below, preparation of an ERP will enable owners or operators of community water systems to apply for grants from EPA for fiscal years 2020 and 2021.

Covered water systems.  Community water systems that serve more than 3,300 people are covered by these requirements. EPA interprets the population served to mean all persons served by the system directly or indirectly, including the population served by consecutive water systems, such as wholesalers.

Deadlines.  Each covered Community Water System completing an RRA and ERP must send certifications of completion by the dates listed below, and then review for necessary updates every 5 years thereafter:

Population Served by the Community Water System

Risk and Resilience Assessment (RRA) Certification

Emergency Response Plan (ERP)

The dates below are 6 months from the date of the RRA certification, based on a utility submitting a risk assessment on the final due date. Depending on actual RRA certification, ERP due dates could be sooner.

≥100,000

March 31, 2020

September 30, 2020

50,000-99,999

December 31, 2020

June 30, 2021

3,301-49,999

June 30, 2021

December 30, 2021

Risk and Resilience Assessment Requirements.  Each covered community water system must assess the risks to, and resilience of, its system including:

  • risk to the system from malevolent acts and natural hazards
  • resilience of the pipes and constructed conveyances, physical barriers, source water, water collection and intake, pretreatment, treatment, storage and distribution facilities;
  • electronic, computer, or other automated systems (including the security of such systems) which are utilized by the system;
  • monitoring practices of the system;
  • financial infrastructure of the system;
  • use, storage, or handling of various chemicals by the system; and
  • operation and maintenance of the system.

Emergency Response Plan Requirements (ERP). No later than six months after certifying completion of its risk and resilience assessment, each system must prepare or revise, where necessary, an emergency response plan that incorporates the findings of the assessment.  The ERP must include:

  • strategies and resources to improve the resilience of the system, including the physical security and cybersecurity of the system;
  • plans and procedures that can be implemented, and identification of equipment that can be utilized, in the event of a malevolent act or natural hazard that threatens the ability of the community water system to deliver safe drinking water;
  • actions, procedures, and equipment which can obviate or significantly lessen the impact of a malevolent act or natural hazard on the public health,  safety, and supply of drinking water provided to communities and individuals, including the development of alternative source water options, relocation of water intakes, and construction of flood protection barriers; and
  • strategies that can be used to aid in the detection of malevolent acts or natural hazards that threaten the security or resilience of the system.

The Federal Register Notice indicates that EPA is not requiring water systems to use any designated standards or methods to complete RRAs or ERPs, provided all of the requirements of the SDWA and AWIA are met.  AWIA already defines resilience and natural hazards. EPA will provide additional tools to foster compliance with its provisions and baseline information regarding malevolent acts no later than August 1, 2019.  With respect to the latter, it is anticipated that the agency will include consideration of acts that may (1) substantially disrupt the ability of the system to provide a safe and reliable supply of drinking water; or (2) otherwise present significant public health or economic concerns to the community served by the system.

Potential Impacts & Next Steps.  Preparation of an ERP will enable the owners or operators of community water systems to apply for grants under the Drinking Water Infrastructure Risk and Resilience Program, under which EPA may award grants in fiscal years 2020 and 2021.  If consistent with its ERP, a community water system may apply for grant funding for projects that increase resilience, such as:

  • Purchase and installation of equipment for detection of drinking water contaminants or malevolent acts;
  • Purchase and installation of fencing, gating, lighting, or security cameras;
  • Tamper-proofing of manhole covers, fire hydrants, and valve boxes;
  • Purchase and installation of improved treatment technologies and equipment to improve the resilience of the system;
  • Improvements to electronic, computer, financial, or other automated systems and remote systems;
  • Participation in training programs, and the purchase of training manuals and guidance materials relating to security and resilience;
  • Improvements in the use, storage, or handling of chemicals by the community water system;
  • Security screening of employees or contractor support services;
  • Equipment necessary to support emergency power or water supply, including standby and mobile sources; and
  • Development of alternative source water options, relocation of water intakes, and construction of flood protection barriers.

The EPA is currently developing a comprehensive training schedule, which will include both classroom and webinar options.

 

© 2019 Van Ness Feldman LLP.
Read more water infrastructure news on our environmental type of law page.