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Federal Court Directed to Rule on Challenge to WV Pooling Statute

A federal appeals court has instructed a lower court to resolve a pending suit challenging the constitutionality of West Virginia’s oil and gas pooling and unitization law. The federal district court previously declined to resolve certain constitutional issues presented in the suit on the grounds that those issues should be decided by a state court instead of a federal court.

In 2022, the West Virginia Legislature enacted Senate Bill 694 to revise West Virginia law governing the pooling and unitization of oil and gas formations associated with horizontal well development. Pooling and unitization essentially involves combining separately owned properties into a single “unit” through which one or more horizontal wells are drilled. The oil and gas produced from the horizontal well is then allocated among all the properties in the unit for purposes of calculating production royalties payable to the mineral owners.

Prior to Senate Bill 694 becoming effective on June 7, 2022, formation of a pooled unit for a horizontal well drilled through “shallow” oil and gas formations, which includes the Marcellus Shale, required consent of 100% of the mineral owners for all the properties to be included in the unit. This 100% consent requirement did not apply to horizontal wells drilled through “deep formations” such as the Utica Shale. One of the more significant changes made by SB 694 was to allow the West Virginia Oil and Gas Conservation Commission to approve units for shallow formations where at least 75% of the mineral owners consent, provided other requirements are also satisfied. This means that up to 25% of a unit could potentially include properties for which the mineral owner did not consent to being part of a unit.

Before Senate Bill 694 became effective, a pair of mineral owners (Scott Sonda and Brian Corwin) filed a lawsuit in the federal District Court for the Northern District of West Virginia seeking to preclude the law from taking effect. Governor Jim Justice was the only defendant named in the case. In their suit, Sonda and Corwin alleged that the law was illegal for several reasons, including the claim that the law authorizes the unconstitutional taking of private property without just compensation and deprives landowners of due process of law.

Federal Judge John Preston Bailey initially dismissed all of their claims for two reasons. First, Judge Bailey concluded that Sonda and Corwin lacked standing to bring the challenge because (a) their property had not been pooled into a unit without their consent and no operator had sought approval of a unit to include their property without their consent; and (b) the Commission, not the Governor, has the power to directly enforce Senate Bill 694.

Second, Judge Bailey ruled that, even if Sonda and Corwin established standing, Governor Justice had constitutional immunity from the suit because he had no direct authority to implement Senate Bill 694. Rather, the Commission has the authority to implement the law.

Instead of dismissing their suit entirely, Judge Bailey granted leave for Sonda and Corwin to amend their complaint to name the Commission as a defendant instead. Sonda and Corwin did so, and also named as defendants each person who serves on the Commission. The amended complaint still does not allege that mineral properties owned by Sonda or Corwin were pooled into a unit without their consent. Instead, the amended complaint attempts to address the standing issue by alleging that Senate Bill 694 effectively eliminates their ability to challenge whether they are being fairly compensated for oil and gas produced from their property that was pooled into a unit with their consent.

The Commission moved to dismiss the amended complaint for various reasons, including Sonda’s and Corwin’s lack of standing to bring the case. Judge Bailey did not address the standing issue, but agreed with the Commission with respect to three of the five claims asserted by Sonda and Corwin. Judge Bailey then abstained from addressing the Commission’s arguments for dismissal of the other two claims, which asserted constitutional violations, because he believed that those issues were more appropriate for resolution by a state court instead of a federal court.

The Commission appealed Judge Bailey’s decision to abstain from addressing the arguments for dismissal of the constitutional claims. By opinion issued on January 31, 2024, the Fourth Circuit Court of Appeals ruled that Judge Bailey should not have abstained. The appellate court also directed Judge Bailey to first address the standing issue before addressing any other pending issue. The opinion does not specify a deadline for Judge Bailey to rule on those issues. If Judge Bailey finds that Sonda and Corwin continue to lack standing to assert their claims, the case will presumably be dismissed on that ground alone. If Judge Bailey concludes that Sonda and Corwin have established standing, Judge Bailey will likely address the merits of the Commission’s other arguments for dismissal.

Key Takeaways from U.S. Supreme Court Decision in West Virginia v. EPA

On June 30, 2022, the U.S. Supreme Court issued its decision in West Virginia v. EPA, 597 U.S. __, 2022 WL 2347278 (June 30, 2022), a case involving the Obama Administration’s Clean Power Plan (CPP) and the Trump Administration’s Affordable Clean Energy (ACE) Rule. Applying the “major questions” doctrine, the Court held that EPA exceeded its statutory authority when promulgating the CPP. This decision has implications for the Biden Administration’s planned re-work and reissuance of the CPP and other options for reducing greenhouse gas (GHG) emissions from the electric power and other sectors. It also carries implications outside the environmental realm, providing litigants a powerful new administrative law precedent to challenge agency rules.

Key Takeaways and Issues to Watch

1. “Major questions” doctrine. The most significant takeaway of the opinion is the Court’s elaboration and application of the “major questions” doctrine, as a limit on federal agency regulatory authority. Chief Justice Roberts’ majority opinion held that in “certain extraordinary cases” where an agency asserts broad authority of “economic and political significance,” courts should look for a clear statement of congressional authorization before green-lighting the action. Based on the “major questions” doctrine, the Court rejected the CPP’s partial reliance on generation shifting (from coal-fired power plants to natural gas or renewable electricity generation) as a component of the “best system of emission reduction” (BSER) for reducing carbon dioxide from coal-fired power plants. The Court held that Clean Air Act Section 111(d), 42 U.S.C. § 7411(d), a rarely-used statutory provision, was not sufficient to support a rulemaking that “restructure[ed] the Nation’s overall mix of electricity generation….” Because the Court determined this result would carry consequences of economic and political significance, the Court found the rule triggered the “major questions” doctrine. The Court reiterated that although Section 111(d) authorizes EPA to establish emission guidelines for existing major sources of air pollution based on BSER, the Agency could not do so using such transformative measures.

This decision represents the Supreme Court’s first formal assertion of the “major questions” doctrine, applicable when an agency claims broad authority based on new interpretations of older statutes or statutes in which the grant of authority is not explicitly stated. Although this was not the first Supreme Court case employing this logic, this was the first case where the Court formally used the phrase “major questions” doctrine. Other cases the Court pointed to include a 2000 case rejecting the asserted authority of the Food and Drug Administration (FDA) to regulate tobacco products, like cigarettes, as drug-delivery “devices,” and more recent cases from this Supreme Court term concerning the authority of the Occupational Safety and Health Administration and the Centers for Disease Control and Prevention (CDC) to apply long-extant legal authorities in the context of COVID-19.

2. Chevron deference doctrine. The Court does not strike down Chevron as some parties had predicted or sought. That doctrine—requiring courts to defer to an agency’s reasonable construction of an ambiguous statute it is charged with administering—survives for now. Indeed, the majority opinion did not even cite Chevron deference.

3. Biden EPA. This decision immediately affects the scope of the Biden Administration’s approach to regulating power sector GHG emissions. The Administration has said that it wants to start these rules from a clean slate.

a. On-site measures. As noted in the decision, the Administration may be more likely to consider on-site measures as the BSER. Such options might include partial carbon capture and storage (CCS) or natural gas co-firing. The Obama EPA had declined to use those options for existing sources because it believed generation shifting was a less expensive way for industry to comply. But EPA had used partial carbon capture to set the limits for new sources, so it may review that issue now. Since the CPP’s issuance, the IRS Section 45Q tax credit for CCS and commercialization of CCS technologies that did not exist when the CPP was drafted may also affect the EPA’s approach now.

b. Generation shifting off the table. At least for setting the stringency of BSER, EPA will not be able to rely on generation-shifting measures. Advances in CCS technologies and the Section 45Q tax credit may also affect how EPA defines BSER for coal-fired plants in particular.

c. Seeking GHG reductions as “co-benefits” of other power sector rules. The Biden EPA may also consider other power plant emission rules under other CAA programs to achieve GHG reductions as “co-benefits.” Programs for regional haze, interstate air pollution, and hazardous air pollutants regulate other emissions, but often have the effect of reducing GHGs as well.

d. Other climate authorities will likely get a more intense look. The decision may also likely cause the Biden EPA to consider other, more clearly established GHG sources or authorities to seek additional GHG emissions reductions (e.g., mobile sources, HFCs).

4. Congressional action remains key. The Court’s decision underscores that certain rulemakings will need to rely on clear legislative authority to withstand legal challenges. Notably, the decision does not divest Congress from the ability to delegate “major questions” like this to federal agencies; it only requires that such delegations be clearly stated. Congress retains authority to act in any number of ways on climate change—including with economy-wide emissions programs (as it considered during the first Obama term), or by drafting clearer EPA authority—but with a narrowly-divided House and Senate, these actions seem unlikely.

5. Power sector practical effects. The practical outcome for the power sector is limited. That sector, in many respects, has already decarbonized at a rate faster than provided for by the CPP, largely for economic reasons.

6. States. This decision will likely encourage some states to use their authority to regulate GHG emissions, given the narrowed scope of EPA’s authority.

7. Future challenges. Expect litigants to rely heavily on the West Virginia decision in other rulemaking challenges going forward, whenever agencies act under existing authorities in a way that, in the Chief Justice’s words, “raises an eyebrow.” This may include not only EPA regulatory efforts to address modern environmental challenges, but actions of other federal agencies such as efforts by the Federal Communications Commission to regulate internet service providers to impose net neutrality, or efforts by the Securities and Exchange Commission to establish ESG disclosure requirements. Litigants will have a powerful tool to challenge those rules if they can persuasively phrase the question in “major question” terms.

Article By Eric L. Christensen, Brook J. Detterman, David M. Friedland, Jennifer J. Leech, and Zachary B. Pilchen of Beveridge & Diamond PC

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

Wage Deductions in West Virginia

Most West Virginia employers must comply with two wage and hour laws: the federal Fair Labor Standards Act (“FLSA”) and the West Virginia Wage Payment and Collection Act (“WPCA”). Both laws restrict the ability of employers to make deductions from employees’ wages.

The FLSA

When an employer makes impermissible deductions from an exempt employee’s pay, the employer risks losing the exemption from the FLSA’s overtime requirement. Generally, to be exempt, the employee must perform certain exempt duties and must be paid at least $455 per week on a salary basis. A salary is a predetermined, fixed amount of compensation that does not fluctuate because of changes in the amount of hours worked from week to week. The general rule is that employers must pay exempt employees the full salary amount for any week in which the employee performs any work regardless of the number of hours worked.

However, there are some exceptions that allow for an employer to make deductions:

If the employee is absent from work for one full day or more because of personal reasons other than sickness or disability;
For absences caused by sickness or disability if the deduction is made in accordance with a bona fide plan that provides compensation for the lost time;
As penalties for violating safety rules of major significance;
For unpaid, disciplinary suspension; and,
To offset amounts an employee receives as a jury or witness fee, or for military pay.
Employers are also permitted to make deductions from an employee’s paid time off as long as the employee receives his or her standard weekly salary. If the employee performs no work in a given workweek, then the FLSA does not require that the exempt employee be paid for that week. Similarly, an employer is not required to pay the full salary in the first and last weeks of employment or when the employee takes unpaid leave under the Family and Medical Leave Act.

The FLSA also contains a provision that allows employers to correct an impermissible deduction and thereby preserve the exempt status of the employee. To take advantage of this “window of correction,” the employer must have a policy that is clearly communicated to employees that prohibits improper deductions. The policy should be in writing and must provide a mechanism by which employees can file complaints. Once a violation is found, the employer must reimburse the employee and make a good faith commitment to comply in the future.

The WPCA

The WPCA limits an employer’s ability to make deductions from an employee’s wages after the wages have been earned, unless the employer and employee have completed a statutorily-required authorization. This includes situations where the employee owes the employer a debt, such as when the employee has charged a purchase to an employee account. Unlike the FLSA, the WPCA restrictions apply to both salary and hourly employees.

An authorization is not required if the deduction is for union or club dues, pension plans, payroll savings plans, credit unions, charities, hospitalization and medical insurance. In addition, deductions without an authorization are permitted when the deduction is for “an amount required by law to be withheld.” This exception is very narrow. Wages that must be garnished pursuant to a court order, such as child support obligations, would meet the exception.

If the deduction is for any reason other than those listed above, then the employer must use a wage assignment form. The West Virginia Division of Labor has posted a sample form on its website, and employers should use this form. The assignment cannot exceed one year. It must be signed by the employer, acknowledged by the employee, and notarized. It must also specify the total amount due and collectible by virtue of the assignment and state that three fourths of the employee’s periodical wages are exempt from the assignment.

ARTICLE BY

Joseph U. Leonoro

Steptoe & Johnson PLLC

West Virginia Chemical Spill Prompts Wave of Lawsuits

The January 9th, 2014 chemical release at a Freedom Industries, Inc. facility in West Virginia has shown, yet again, that major environmental releases are likely to prompt major environmental lawsuits. As a result of the spill of 7,500 gallons of 4-MCHM, a chemical foam used to wash coal, 300,000 residents of nine counties were told not to use tap water for anything other than toilet-flushing or firefighting, area businesses were forced to close, and hospitals took emergency measures to conserve water.

More than 60 lawsuits were filed in state court by residents and business owners in eight counties against West Virginia-American Water Company and Freedom Industries. The suits assert personal injury claims ranging from emotional distress and requests for medical monitoring to property-related claims such as trespass. Freedom Industries and the water supply company promptly removed the 62 actions to federal court, which Plaintiffs moved to remand. On April 18th, U.S. District Court Judge John T. Copenhaver, Jr. issued an order consolidating the cases for the limited purposes of adjudicating a motion to remand the actions to state court. See Desimone Hospitality Servs. LLC v. West Virginia-American Water Co., No. 2:14-CV-14845 (S.D. W. Va., Apr. 18, 2014). Citing Federal Rule of Civil Procedure 42(a), Judge Copenhaver explained that consolidation was particularly appropriate here because “[t]he risk of inconsistent adjudications, substantial expense to the parties, and inefficient use of court resources markedly increases here if the court declines consolidation to some extent.” See Desimone Hospitality Services LLC, slip op. at 23-24.

In addition to these suits, non-profit groups also have filed an emergency petition with the West Virginia Supreme Court of Appeals accusing the state’s Department of Environmental Protection and the Department of Health and Human Resources of failing to perform their legal duties to protect the public’s health in response to the spill. See Covenant House v. Huffman, No. 14-0112 (W. Va. February 7, 2014).

Article By:

Daniel M. Krainin

Gayatri M. Patel

Mackenzie S. Schoonmaker

Of:

Beveridge & Diamond PC

Refresher on the “Step-up” Process for Service Personnel

Jason S. Long and Denise M. Spatafore with Dinsmore & Shohl LLP recently had an article, Refresher on the “Step-up” Process for Service Personnel, published in The National Law Review:

A common question our Education Law Practice Group deals with relates to how the “step-up” process works for service personnel.

The “step-up” process is found in W. Va. Code 18A-4-15, which in relevant part, states:

Any regular service person employed in the same building or working station and the same classification category of employment as the absent employee shall be given the first opportunity to fill the position of the absent employee on a rotating and seniority basis. In such case the regular service person’s position is filled by a substitute service person. A regular service person assigned to fill the position of an absent employee has the opportunity to hold that position throughout the absence. For the purpose of this section only, all regularly employed school bus operators are considered to be employed within the same building or working station.

Let’s discuss some common scenarios we often see.

Scenario 1: Employee “A” is regular bus operator that is on an approved leave of absence (“LOA”) that was requested in writing and approved by the board of education. The LOA is expected to extend beyond thirty days. When an employee receives a LOA from the board, and the leave will extend for more than thirty days, W. Va. Code 18A-4-15 requires the board to post the assignment and fill it per W. Va. Code 18A-4-8b. The assignment is awarded to the most senior regular employee in the classification that applies, and if no regular employee is interested, bus operators on preferred recall, and if none, substitutes bus operators that might apply. Suppose that in the instant, Employee “B”, the most senior regular bus operator bids and receives the assignment. “B” finds the route more attractive than his or her route because it is closer to home, or is short (or some other reason). Keep in mind this is not a “step-up” for “B”. As for “B’s” regular assignment though, you have to permit “step-up” (not posting it), which is offering “B’s” assignment to the regular bus drivers via seniority based rotation. Let’s say regular Employee “C” wants “B’s” assignment via the “step-up” up process. If “C” “steps-up”, “C” will remain in that assignment until “B” returns. A substitute bus driver via rotation (whoever is next on the list) will substitute for “C”. You do not allow “step-up” to “C’s” regular assignment. “Step-up” happens once.

Scenario 2: Employee “A” is a regular bus operator out from work using sick leave. “A” has not requested in writing an approved LOA from the board. It appears that “A” is going to be absent for an extended period of time (lets’ say five to sixty days). The board does not post it after the twentieth day (that is a common myth). Instead, the board utilizes the “step-up” process of W. Va. Code 18A-4-15 and offer “A’s” assignment to the most senior bus operators via seniority based rotation. If a regular bus operator “steps-up” (let’s say “B”), a substitute next on the bus operator list is called for “B”. “Step-up” does not continue on-and-on-and-on. A substitute is called for “B”. Yes a substitute with little seniority might get lucky if s/he is next in line on the substitute list.

Always keep in mind that if a substitute is initially called for “A’s” assignment (which is often the case because the board might not know the absence could extend for a few days), but after that initial day it appears the regular employee will continue to be absent, the board should offer “step-up” per W. Va. Code 18A-4-15 to regular employees, who then bump the substitute out. The Grievance Board encourages this process (see Decision). And again, if a regular employee “steps-up”, a substitute is then called for the regular employee who took the opportunity to “step-up”.

The “step-up” process is not fun from a personnel standpoint, especially when there is not sufficient time to contact regular employees, in emergency situations, or in situations when it is not known that the regular employee’s absence will be beyond a day or so, etc. But we hope the above sheds some light on the proper use of the “step-up” process compared to the posting process. For additional grievances decision on the “step-up” process, see Garner, Mullins, McMillen, and Prickett.

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Federal Court Directed to Rule on Challenge to WV Pooling Statute

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