Last minute developments are causing companies to reevaluate their conflict mineral disclosures under the rules that the SEC adopted as required by Dodd-Frank as the disclosure’s deadline is only a month away. Most recently, on April 14, 2014, the D.C. Circuit struck down the requirements of the rules that required “entities to report to the Commission and to state on their website that any of their products have ‘not been found to be “DRC conflict free.”’” This ruling prompted two SEC Commissioners to issue a joint statement urging the SEC delay implementing the conflict minerals rules. Earlier in April, the SEC released new FAQs on its website that interprets the conflict mineral rules to support the position that if a company concludes that any of its products are “DRC conflict undeterminable” during the reporting period, “the issuer is not required to obtain an IPSA [independent private sector audit] of its Conflict Minerals Report.”

Conflict Mineral Reporting: Overview

Despite good intentions, Dodd-Frank’s conflict mineral reporting requirements require substantial effort to determine whether reporting companies use minerals that support conflicts in Africa. The end goal, to qualify as “DRC conflict free,” requires companies to look back at their products sold in 2013 and establish that these products did not contain “conflict minerals” (gold, tantalum, tin, or tungsten) from the Democratic Republic of Congo or adjoining countries that directly or indirectly finance armed groups. If a company determines that a product contains a conflict mineral, the company must conduct a “reasonable country of origin inquiry” to assess whether the conflict mineral came from the DRC or adjoining countries. If the company determines that, based on this inquiry, its conflict minerals did not come from the DRC or adjoining countries, then the company must file a “Conflict Mineral Disclosure” with the SEC that “briefly describes the reasonable country of origin inquiry” the company undertook to make its determination. 

In the event that a company has reason to believe that any conflict minerals in its products originated in the DRC or adjoining countries, then the company must “exercise due diligence on the source and chain of custody” of its conflict mineral that conforms to “a nationally or internationally recognized due diligence framework . . . .” If, after the due diligence, the company still cannot say that the conflict minerals did not come from the DRC or adjoining countries (or come from scrap or recycled sources) the company must file a “Conflict Mineral Report” with the SEC. 

The Conflict Mineral Report requires a description of the due diligence steps taken by the company and also a description of products that are not “DRC conflict free.” The description of the due diligence must include an independent private sector audit. However, the SEC included an exception to the IPSA requirement. For two years (or four years for smaller reporting companies), the SEC will allow companies to declare products “DRC conflict undeterminable” if after completing due diligence the company cannot determine whether the product is not DRC conflict free. Unless a company has determined that a product is DRC conflict free, the SEC’s rules require the company to identify those products in its Conflict Mineral Report. Again, an exception to this rule is that companies may declare products to be “DRC conflict undeterminable” during the initial transition period and avoid declaring them not DRC conflict free.

Ultimately the goal of the complicated conflict mineral rules is to take a “name and shame” approach by forcing companies to either refrain from using minerals that support wars in Africa or publicly state that their products are conflict free. In the words of the D.C. Circuit in its recent ruling on this issue, the conflict minerals rules compel “an issuer to confess blood on its hands . . . .” 

D.C. Circuit Reject “DRC Conflict Free” Label

On April 14, 2014, the D.C. Circuit held that SEC’s final conflict mineral rule “violates the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be “DRC conflict free.”’” It is still unclear how the SEC will apply this ruling. Senator Dick Durbin downplayed the impact of the Court’s ruling, stating “[w]hile I am disappointed the court rejected the one narrow reporting requirement included in the rule, today's decision will allow the key provisions of this law to be implemented.”

However, it is worth noting that the entire concept of the Conflict Mineral Report does not make sense if there is no obligation to state whether the products at issue are not DRC conflict free. All that is left in the report is for the company to describe which products are DRC conflict undeterminable (during the transition period of 2-4 years) and to describe its due diligence process and possible independent private sector audit. For that reason, there may be a need for the SEC to revise the conflict mineral rules if the D.C. Circuit’s ruling stands.

While companies still have the option of declaring products DRC conflict undeterminable, the Court’s ruling will not have much of an impact on most companies’ conflict mineral compliance burden. The majority of companies have already completed the most burdensome requirements of the conflict mineral rules and all that is now left to do is to fulfill reporting obligations. While the Court struck down the requirement that companies identify their products as “not found to be ‘DRC conflict free’” in the Conflict Mineral Report and on the company website, companies still have to report their conflict mineral undeterminable product and their due diligence to make this determination. Given the widespread difficulties that companies have experienced in tracing the origins of their conflict minerals, most companies will still have to make DRC conflict undeterminable designations. Thus, the Court’s ruling does not impact much of the time and expense for this year’s filing.

SEC Signals use of DRC Conflict Undeterminable to Ease Reporting Burdens

Perhaps the most noteworthy recent development is the SEC’s increasing reliance on the “DRC conflict undeterminable” to address the problems that companies are having implementing the conflict mineral rules. As the reporting deadline looms, it has become increasingly apparent that it simply will not be possible to obtain reliable information from some suppliers as to whether the conflict minerals in their products come from DRC conflict mineral free smelters. As a result, the SEC appears to be signaling that companies should make use of the “DRC conflict undeterminable” designation when they run into unexpected problems complying with the new rules. The allowance for use of this declaration recognizes that it will still be a few more years before both the rules and companies understanding of the rule’s requirements are solidified.

On April 7, 2014, the SEC further increased the benefits of declaring products DRC conflict undeterminable when it released its latest update to its FAQs. According to the SEC, “[i]f any of an issuer’s products are ‘DRC conflict undeterminable’ during [the transition] period, the issuer is not required to obtain an IPSA [independent private sector audit] of its Conflict Minerals Report.” As a result, few companies will have to conduct audits on their conflict mineral assessment for the first two years of implementation. 

Embrace the Uncertainty

Despite the looming reporting deadline of May 31st (actually June 2nd, because May 31st is a Saturday), expect more updates and uncertainty with conflict mineral reporting. On May 19, 2014, the D.C. Circuit will hear oral arguments, en banc, in the American Meat Institute case which concerns a similar “mandatory disclosure” rule such as the rule at issue in Court’s recent conflict mineral ruling. In dissenting from the Court’s ruling rejecting the DRC conflict free label, Judge Srinivasan noted that the Court’s ruling in American Meat Institute might undercut its conflict mineral ruling. In addition, it is likely that the SEC will release more FAQs, thought this may not be until after the reporting deadline. 

Based on the uncertainty caused by the litigation involving the rules, SEC Commissioners Daniel Gallagher and Michael Piwowar urged the SEC to suspend implementation of the rules. However, a dozen House and Senate Democrats wrote a letter to the SEC requesting that it move ahead with implementation. In the meantime, companies will just have to do their best with the information that they have been able to gather and be cognizant of the option to declare products DRC conflict undeterminable.
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On October 1, 2013, FEMA announced that it was extending the proof of loss deadline by six months for flood insurance policy claims due to Superstorm Sandy. Normally, policyholders have sixty days from the date of loss in which to provide proof of loss. However, given the extensive damage caused by Sandy, FEMA extended the deadline. On November 9, 2012, FEMA extended the deadline for 1 year. FEMA extended it again October 1, 2013 creating a new deadline of April 28, 2014.

Given these extensions, FEMA sought to clarify the difference between the proof of loss extensions and the time to sue over a coverage dispute. In a November 21, 2013 memo, James A. Sadler, Director of Claims of the National Flood Insurance Program, noted that the statute of limitations to sue on flood insurance claims is 1 year pursuant to 42 U.S.C. § 4072.  While FEMA has the authority to extend the proof of loss deadline, see 44 C.F.R. § 61.13(d) and 44 C.F.R. § 61 Appendices A(1) and A(2), Section VII(D), and Appendix A(3), Section VIII(D), it does not have the authority to extend the statute of limitations in the event of a coverage dispute. That statute of limitation is set by Congress and can only be changed by Congress.

Flood insurance policyholders also need to be careful not to confuse a claim decision with proof of loss deadline. “An NFIP policyholder whose insured property is damaged by an event such as [Superstorm] Sandy only has one claim arising from that event, regardless of the number of Proofs of Loss that the insured may submit in support of that claim.” The 1-year statute of limitation begins when the policyholder is notified in writing that the claim is denied in whole or in part. “While FEMA does the most it can to assist NFIP insureds, it cannot and does not waive or extend the applicable statute of limitations.”

This blog was originally posted on November 27. Click here to read the original article from The Insurance & Reinsurance Report. 

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Reptile strategy has taken the plaintiffs' bar by storm. The Reptile theory asserts that you can prevail at trial by speaking to, and scaring, the primitive part of jurors' brains, the part of the brain they share with reptiles. The Reptile strategy purports to provide a blueprint to succeeding at trial by applying advanced neuroscientific techniques to pretrial discovery and trial.

The fundamental concept is that the reptile brain is conditioned to favor safety and survival. Therefore, if plaintiff's' counsel can reach the reptilian portion of the jurors' brains, they can influence their decisions; the jurors will instinctively choose to protect their families and community from danger through their verdict.  Thus, the focus of the plaintiff’s case is on the conduct of the defendant, not the injuries of the plaintiff. The jurors are not interested in plaintiff’s injury, even when severe, according to the theory. Rather, the only truly effective way to engage jurors is to demonstrate how the defendant's conduct endangers the jurors and their families. 

The gurus of Reptilian trial strategy are David Ball and Don Keenan, whose book, “Reptile: The 2009 Manual of the Plaintiff’s Revolution” purportedly gives its adherents a significant edge over the defense in jury trials.  Several prominent lawyers on the plaintiff’s side have cited this book as the new bible of advocacy.  The Seattle Zen Legal Blog authored by plaintiff lawyer Pat Trudell extols the theory in an article titled "Beyond the Reptilian Brain" and recites the mantra of the true believers, "The Reptile Always Wins." But do they?

Even as this new doctrine is gaining popularity in the plaintiff bar, the defense bar is mounting a counter-attack. An excellent article concerning the Reptile strategy and the defense response is titled, “Make Boots Out of That Lizard – Defense Strategies to Beat the Reptile,” authored by Minton Mayer, of Wiseman Ashworth Law Group in Tennessee (DRI, The Voice, 9/25/13). Mayer provides good tips for defusing the subliminal codes plaintiffs seek to embed in the jury’s psyche.

In the April 2013 edition of For The Defense, David C. Marshall, a lawyer with Turner Padget Graham & Laney PA in Columbia, South Carolina, provides an in-depth discussion of new trial strategy in "Lizards and Snakes in the Courtroom." According to Marshall, using the "reptile" successfully "requires creating safety rules and demonstrating that a defendant violated the rules, subjecting a plaintiff and the surrounding community to needless danger....  Thus, in closing, the lawyer using this strategy must show a jury how the dangers presented by a defendant extend beyond the facts of a case and affect the surrounding community so the entire case boils down to community safety versus danger." Marshall provides useful litigation tips for keeping the reptile at bay during trial.

Similarly, Kathy Cochran, a defense lawyer with Wilson Smith Cochran Dickerson in Seattle, WA, cautioned in the DRI Today blog in 2010, "As defense lawyers, we need to recognize this [Reptile strategy]  for what it is. It is an attempt to resurrect Golden Rule arguments, which are usually impermissible. Jurors are not to be asked to put themselves in the place of a party and make a judgment based on that virtual reality. Ball and Keene provide advice to their readers on how to circumvent this evidentiary rule. "  

Cochran cautions, "we will now see plaintiffs emphasizing 'safety rules' and trying to gain admissions from defense experts that such rules are important for the safety of the community. "Never separate a rule from the danger it was designed to prevent. ... The greater the danger, the more the Reptile [juror] cares." 

In an article titled, “Atticus Finch Would Not Approve: Why a Courtroom Full of Reptiles is a Bad Idea,” (American Society of Trial Consultants, May 2010), authors Stephanie West Allen, Jeffrey M. Schwartz and Diane Wyzga provide a scathing critique of reptile theory and suggest that an effective alternative is providing jurors with a persuasive narrative at trial. According to the authors, reptile strategy “disrespects” jurors and could result in juror backlash. Fear-based tactics direct attention in an uncertain and unpredictable manner; in contrast, thoughtful narrative directs attention toward action grounded in the reflective mind. According to the authors, “narrative shines the mental flashlight of attention which can refigure the brain and change behavior.”

In summary, whether you conclude that reptile tactics have validity or not, it makes sense for defense counsel to become familiar with them. If plaintiff’s counsel is going to use the defendant’s deposition to lay the framework for the use of a reptile strategy at trial, defense counsel had better prepare his client for the questions that will undoubtedly be asked during that deposition.

This blog was originally posted on October 4. Click here to visit the original post. 

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On September 10, 2013, the Environmental Protection Agency (“EPA”) released draft rules titled “Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units,” which for the first time proposes to set new carbon emission standards for newly constructed power plants. The new rule proposes to limit carbon dioxide (“CO2”) emissions from fossil fuel and natural gas fired power plants constructed after the rule goes into effect. It will only apply to power plants that sell more than one-third of their potential electric output and more than 219,000 megawatt-hours (“MWh”) net-electrical output to the grid on a three year rolling average basis. (EPA, “Regulatory Impact Analysis for the Proposed Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units” p. 1-1) (“Regulatory Impact”).

Newly constructed fossil fuel fired power plants would have two options to comply with the proposed rule. They could limit their CO2 emissions to 1,100 lb CO2/MWh per year, or phase in the reductions over a seven year period if they can meet a rolling average of between 1,000 and 1,050 lb CO2/MWh per year. (Regulatory Impact, p. 1-3). In order to comply with the new standards, fossil fuel fired power plants would likely have to employ a technology known as carbon capture and sequestration (“CCS”) which “scrubs carbon dioxide from their emissions before they reach the plant smokestacks. The EPA predicts that the proposed rule will provide an incentive for the research and development of this new technology that will lead to greater CO2 emission reduction and more cost effective technology. (Regulatory Impact, p. 1-3, 1-4)

New natural gas power plants also would have two options.  If a plant had a heat input rating greater than 850 million British Thermal Units per hour (“MMBTU/hr”), it would have to limit its emissions to 1,000 lb CO2/MWh per year. If the plant had a heat input rating less than 850 MMBTU/hr, it would have to limit its emissions to 1,100 lb CO2/MWh per year. According to EPA, existing natural gas power plants would be able to satisfy the proposed standard without adding new technology. (Regulatory Impact, p. 1-3).

EPA projects that the proposed regulation will have a negligible economic impact. It concludes that even without the proposed rule, no new coal fired plants would be built over the next eight years without CCS technology in place. In addition, it projects that market factors have made non-coal energy sources such as natural gas and renewable resources the technology of choice for new generating capacity. Consequently, EPA predicts that companies will choose to build new natural gas power plants in place of coal power plants for the foreseeable future. (Regulatory Impact, p. 2-3).

The proposed rule will soon face a 60-day public comment period which commences once the rule is published in the Federal Register. There will also be a public hearing on the proposed rule at an undetermined date. Extensive public comment is expected.  The proposed rule is actually a revision and rescission of a rule previously proposed on April 20, 2012, which received over 2.5 million comments, the most comments ever made on an EPA rule proposal. (Regulatory Impact, p. 1-3, 1-4). 

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Mr. Ruskin’s blog post calls attention to the important problem of access to research data in litigation and other contexts.  The effort to obtain Dr. Racette’s underlying data is an interesting case study in these legal discovery battles.  Ruskin notes that there is the potential for “injustice” from such discovery, but he fails to acknowledge that the National Research Council has been urging scientists for decades to have a plan for data sharing as part of their protocol, and that the National Institutes of Health now requires such planning.  Some journals require a commitment to data sharing as a condition to publication.  The Annals of Internal Medicine, which is probably the most rigorously edited internal medicine journal, requires authors to state to what extent they will share data when their articles appear in print. Ultimately, litigants are entitled to “everyman’s” and “every woman’s” evidence, regardless whether they are scientists. 

In the case of Dr. Racette, it was clear that the time he needed to spend to respond to defense counsel’s subpoena was largely caused by his failure to comply with guidelines and best practices of the NIH on data sharing.  Racette was represented by university counsel, who refused to negotiate over the subpoena, and raised frivolous objections. Ultimately, these costs were visited upon the defendants who paid what seemed like rather exorbitant amounts for Racette and his colleagues to redact individual identifier information.  The MDL court suggested that Racette was operating independently of plaintiffs’ counsel, but the fact was that plaintiffs’ counsel recruited the study participants and brought them to the screenings, where Racette and colleagues videotaped them to make their assessments of Parkinsonism.  Much more could be said but for a protective order that was put in place by the MDL court.  What I can say is that after the defense obtained a good part of the underlying data, the Racette study was no longer actively used by plaintiffs’ counsel in the welding fume cases.  

It is not only litigation that gives rise to needs for transparency and openness. Regulation and public policy disputes similarly create need for data access.  As Mr. Ruskin acknowledges, the case of Weitz & Luxenberg v. Georgia-Pacific LLC, is very different, but at bottom is the same secrecy and false sense of entitlement to privilege underlying data. The Appellate Division’s invocation of the crime-fraud exception seems to be hyperbolic precisely because no attorney-client privilege attached in the first place.  

The Georgia-Pacific effort was misguided on many levels, but we should at least rejoice that science won, and that G-P will be required to share underlying data with plaintiffs’ counsel. Without reviewing the underlying data and documents, it is hard to say what the studies were designed to do, but saying that they were designed “to cast doubt” is uncharitable to G-P. After all, G-P may well have found itself responding in court to some rather dodgy data, and thought it could sponsor stronger studies that were likely to refute the published papers.  And the published papers may have been undertaken to “cast certainty” over issues that were not what they were portrayed to be in the papers.

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There is significant tension between the goals of scientific research and the demands of litigation. For scientific researchers, the amount of time required to respond to discovery takes away valuable time that might be otherwise devoted to research. Injustice and unfairness may result when a scientist, who has taken no part in litigation, is served with a lengthy subpoena requiring him to devote large chunks of time to produce the required information. 

In an article published in the journal Neurology by Brad A. Racette, MD; Ann Bradley, JD; Carrie A. Wrisberg, JD; and Joel S. Perlmutter, MD, titled “The Impact of Litigation on Neurologic Research,”Neurology 67(12):2124 (Dec. 2006), the authors complain about the burden of time responding to discovery demands:  

"Any hint of scientific data that support such a cause and effect relationship often encourages plaintiffs' attorneys to file suits against corporations alleging harm to their clients forcing corporations and employers to defend themselves. Both plaintiff and defendant teams hire expert witnesses who are frequently active investigators in relevant fields to bolster their positions. These legal proceedings can influence investigators and hamper research. Interactions with researchers can lead to personal financial or career gain that may bias research findings or impugn other investigators. Even researchers who have not been retained by either side of a legal dispute may be forced to respond to subpoenas for research data causing a substantial loss of research time for investigators and financial burdens on universities. Courts may require release of research records containing personal health information that could sully the trust research participants have in investigators. Litigation and its peripheral effects may bias investigators, impede research efforts, and harm research participants, thereby undermining efforts to understand the cause of neurologic disease."

In a rejoinder to this article, defendant’s counsel in the Welding Fume  Products Liability Litigation, Nathan A. Schachtman, wrote in a reply titled, “Response: The Impact of Litigation on Neurologic Research,” Neurology69(5):495 (Apr. 2007), that the Racette article offered a one-sided, incomplete picture of the interaction between scientific research and the law. 

Schachtman observes that the authors failed to disclose that the welder screenings for their study were funded by plaintiffs as part of an effort to solicit personal injury clients. Defendants served subpoenas to obtain the study’s underlying data only after plaintiffs’ counsel heavily relied on the authors’ study. Thus, Schachtman argues, the authors were not disinterested researchers inadvertently caught up in litigation. He states, “the authors collaborated with plaintiffs’ counsel so closely that counsel invoked litigation privileges to cloak the work in secrecy.” 

In what might be characterized as a sur-reply, Dr. Racette responded that his early collaboration with the plaintiffs had been greatly overstated. Perhaps the best advice, albeit cynical,  to scientific researchers may be to steer completely clear of lawyers at all costs and to avoid the temptation to be "helpful" to lawyers involved in litigation. Of course, the legal profession is the worse off if the best scientists are fearful of becoming involved in the judicial system. 

How then is a court to balance the competing needs for transparency in litigation and permitting scientific researchers, often unrepresented by counsel, with the peace and tranquility necessary to perform their research?  As the court observed in In Re Welding Fume Products Liability Litigation, 534 F.Supp.2d 761 (2008), Dr. Racette had performed some assessments for plaintiffs’ counsel during the nascent stages of the MDL, but later severed his ties with plaintiffs and took no more payments from them. Under these circumstances, the MDL court opted in favor of disclosure. The MDL court reasoned that where an author publishes an article with a view toward litigation, a probability of bias exists which undermines the logic supporting the admission of this material through the “learned treatise” exception to the hearsay rule. In some cases, the “learned treatise” is excluded from evidence due to the taint of suspected bias. On other occasions, the treatise is admitted but subject to impeachment on cross-examination. 

The difficulty arises when a party’s expert reaches his expert opinions by relying on a study performed by a scientific researcher who is completely disinterested in the litigation. In this instance, what intrusion into this scientist’s life will be permitted? Merely because an author has reached a conclusion that dissatisfies one side or the other in litigation should not make that scientific researcher a “target” of a burdensome subpoena.

Pursuant to a very different set of facts, the Appellate Division, First Department, recently ruled in Weitz & Luxenberg v. Georgia-Pacific LLC, 2013 N.Y. Slip.Op. 04127 (6/6/13), that Georgia-Pacific must turn over for in camera review by the Court internal communications related to scientific studies it commissioned into the safety of its products. This discovery dispute arose in the context of the Weitz & Luxenberg New York City Asbestos Litigation (“NYCAL”) cases in which Georgia-Pacific is a defendant. 

In 2005, Georgia-Pacific funded eight published research studies to aid in its defense of asbestos-related litigation. To facilitate this endeavor, Georgia-Pacific entered into a special employment relationship with Stewart Holm, its Director of Toxicology and Chemical Management, to perform expert consulting services under the auspices of in-house counsel, whom the Court found was significantly involved in the pre-publication process. 

The studies at issue were designed to cast doubt on the capability of chrysotile asbestos to cause cancer. The Court observed that despite the extensive participation of in-house counsel, none of the articles disclosed in-house counsel’s involvement. Citing the In Re Welding Fume Products Liability Litigation,  the Appellate Division determined that, “large corporations often invest strategically in research agendas whose objective is to develop a body of scientific knowledge favorable to a particular economic interest or useful for defending against particular claims of legal liability.” 

In determining that the studies and related documents should be subject to in camera scrutiny, the Court stated that the trial court was rightfully wary of prejudicing plaintiffs by permitting the sudden introduction of the studies or experts on the eve of trial, or in the many other pending asbestos cases. Therefore, the principles of fairness, as well as the spirit of the Case Management Order, required more complete disclosure. The Court held that it would be inappropriate to permit Georgia-Pacific to use its expert’s conclusions as a sword by seeding the scientific literature with Georgia-Pacific-funded studies, while at the same time using the privilege as a shield, by withholding the underlying raw data that might be prone to scrutiny by the opposing party which may affect the veracity of its expert’s conclusions. In it’s in camera review, the court will evaluate whether the crime-fraud exception to the attorney-client privilege applies to certain of the client communications in dispute. 

In high stakes toxic tort litigation, such as the NYCAL or Welding Fume litigations, it is not unusual for both well-heeled plaintiffs and defendants to fund studies to support their positions in litigation. In such instances, most courts will require extensive disclosure of the data underlying these studies’ findings. 

However, this is very different from the situation where an independent scientist, who is uninvolved in any litigation, finds that his scientific research and underlying data is the subject of litigation scrutiny. Although some discovery may be appropriate in these instances, forcing scientific researchers to devote an inordinate amount of their time complying with litigation requests may have a chilling effect on the research community’s willingness to take on scientific challenges relating to important public health issues. 

*This blog was originally posted on June 19 by Bill Ruskin on the Toxic Tort Litigation Blog. Click here to read the original entry. 

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On June 25, 2013, in a speech at Georgetown University, President Obama unveiled his Climate Action Plan (CAP) which sidesteps Congress and instead focuses on executive branch action, and more specifically, U.S. EPA action in an effort to reduce greenhouse gas (GHG) emissions.  As part of the CAP, the President recommitted the United States to reduce greenhouse gas (GHG) emissions by 17% below 2005 levels by 2020 (but only if all other major economies agree to similarly limit their GHG emissions).  In an effort to meet this commitment, the CAP targets, at least in part, GHG emissions from new and existing power plants.  

More specifically, in the CAP, the President directs U.S. EPA to promulgate regulations that limit GHG emissions at existing power plants. The CAP also directs U.S. EPA to re-propose New Source Performance Standards (NSPS) for newly constructed power plants. U.S. EPA had previously issued proposed NSPS rules in April 2012; however, U.S. EPA had missed its one-year deadline for issuing a final NSPS for new coal- and natural gas-fired utilities.  

Other key elements of the President’s CAP include: 

An end to public financing of coal-fired power plants abroad that do not include carbon capture and sequestration technology, except in developing nations where no viable alternatives exists; 
Setting a target for the Department of Interior to double renewable energy production on public lands (from 10 gigawatts to 20 gigawatts) by 2020; 
Directing federal agencies to streamline the siting, permitting and review process for electricity transmission projects; 
Directing U.S. EPA and the Department of Transportation to work on a second round of heavy-duty vehicle emission limits for post-2018 model years; 
Making available up to $8 billion in loan guarantees for advanced fossil energy projects that are intended to avoid, reduce, or sequester anthropogenic emissions of GHGs; 
Directing federal agencies to ensure that new roads and other taxpayer-funded projects are built to withstand extreme weather events and anticipated rising sea levels; 
Establishing a new energy efficiency standards goal for consumer products; 
Efforts to craft a free trade agreement on environmental goods and services that will seek to lower tariffs and other market barriers; 
Initiatives to curb emissions of hydrofluorocarbons and methane; and 
Directing agencies to focus on the impacts of climate change in key sectors, including health, transportation, food supplies, oceans and coastal communities and implement strategies to mitigate the impact of climate change on these key sectors. 

Both sides of the debate have weighed in on the CAP.  Not surprisingly, the coal industry is critical of the CAP, with the American Coalition for Clean Coal Electricity noting that “taking American’s most significant source of electricity offline would have disastrous consequences for our nation’s economy.”  On the other side of the fence, the Natural Resources Defense Council applauded the President, stating “the President’s commitment to set the first-ever carbon limits on power plants is an important first step … to protect Americans and future generations from the dangerous pollution fueling climate change.”  However, notwithstanding the diatribe from both sides of the debate, climate change doesn’t seem to be a priority for the average U.S. citizen.  Although a recent Pew Research Center poll of 37,000 respondents in 39 countries identified climate change and fiscal volatility as top global threats, in the United States, only 28% of Americans think climate change should be a top priority for the Administration.  It will be interesting to see if the President is able to convince the average citizen that climate change is an important issue that needs to be addressed, especially if the President’s CAP results in increased utility bills.    

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The U.S. Supreme Court’s decision in Mutual Pharmaceutical Co., Inc. v. Bartlett, No. 12-142, decided June 24, 2013, may assist defense counsel in defending product liability cases involving FIFRA-regulated products such as herbicides and pesticides. Although Bartlett involved design defect claims against manufacturers of generic drugs, which are regulated by FDA, the principles enunciated in Bartlett potentially have much greater application.

In Bartlett, the court held that the Federal Food, Drug and Cosmetic Act preempts state-law design defect claims against manufacturers of generic drugs. The court rejected outright plaintiff’s contention that under the so-called “stop-selling” theory, a generic manufacturer could comply with both federal and state law merely by removing its drug from the market.

In rejecting that argument, Justice Samuel Alito, writing for the majority, held that “the incoherence of the stop-selling theory becomes plain when viewed through the lens of our previous cases. In every instance in which the court has found impossibility pre-emption, the ‘direct conflict’ between federal and state law duties could easily have been avoided if the regulated actor had simply ceased acting.”

Thus, in reversing the First Circuit decision, the court slammed the door on plaintiffs hoping to circumvent the preemption defense by contending that a manufacturer might merely stop selling the product.

In an article in Law360 titled, “Bartlett’s Benefits Will Extend Beyond Generic Drug Makers,” 6/28/13, commentators offer the view that pesticide manufacturers may now be protected from plaintiff alleging a stop-selling theory of liability.  If the case’s holding is so extended, plaintiffs should no longer be able to allege that an herbicide manufacturer should not have placed a pesticide into commerce in the first instance. In essence, this is a variation of the often espoused argument that a product should not be marketed because its risks outweigh any potential benefits.  After all, the whole point of federal regulation is the underlying assumption you are going to market the product. 

This blog was originally posted on July 2 by William A. Ruskin on Toxic Tort Litigation blog. Click here to see the original post. 

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On June 8, 2013, President Barack Obama and President Xi Jinping of China issued a joint statement announcing that the two countries have agreed to work together to phase down the consumption and production of hydrofluorocarbons (HFCs), a potent greenhouse gas used in refrigerators, air conditioners, and industrial applications.  While the two countries have (at least for now) sidestepped any collaborative measures to address the consumption and production of carbon dioxide (CO2) -- generally considered to be the most harmful of the anthropogenic greenhouse gases -- the Presidents’ statement asserts that a global phase down of HFCs could potentially reduce some 90 gigatons of CO2 equivalent by 2050, equal to roughly two years’ worth of current global greenhouse gas emissions.

The Presidents’ statement comes on the heels of a pair of federal court actions that likely mark the final demise of two high-profile private climate change litigations in the United States federal courts.  On May 20, 2013, the United States Supreme Court denied certiorari in the case Native Village of Kivalina v. Exxon Mobil, wherein the plaintiffs unsuccessfully sought to sue the defendants under a federal common law nuisance theory for the destruction of the village of Kivalina, Alaska by flooding allegedly caused by climate change.  And on May 14, 2013, the United States Fifth Circuit Court of Appeals affirmed dismissal on res judicata grounds of the plaintiffs’ second lawsuit in Comer v. Murphy Oil, which sought to sue several alleged greenhouse gas emitters in tort for damages caused by Hurricane Katrina.  

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In a decision made public on April 8, 2013, the United States District Court, for the Northern District of California, effectively put an end to fracking in the Monterey Shale Formation, for the time being, with its opinion in Center for Biological Diversity and Sierra Club v. The Bureau of Land Management and Ken Salzar, Secretary of the Department of the Interior, Case No. 11-6174 PSG. Although the Court made clear that the policy question of whether fracking is a good thing or a bad thing is outside the Court’s bailiwick, it is apparent from the Court’s decision that fracking may continue to be subject to intense judicial scrutiny.  

In this case, the plaintiffs challenged the decision of the Bureau of Land Management (“BLM”) and Interior Secretary Ken Salazar’s sale of four oil and gas leases for approximately 2,700 acres of federal land in Monterey and Fresno counties, in California.  The Plaintiffs argued that the leases were sold in violation of the National Environmental Policy Act (“NEPA”) and the Mineral Leasing Act of 1920 (“MLA”).  The Court found that the lease terms did not violate the MLA, but that the leases were issued in violation of NEPA.

In 2006, BLM prepared a Proposed Resource Management Plan/Final Environmental Impact Statement (“PRMP/FEIS”) which outlined a plan for managing approximately 274,000 acres of land, and 588,197 acres of split estate (surface rights owned by private owners/subsurface mineral rights owned by the United States), including the leased area at issue in this case which lies in the Monterey Shale Formation. This Shale is estimated to contain over 15 billion barrels of oil, or 64 percent of the nation’s total shale oil reserve. The PRMP/FEIS included a Reasonably Foreseeable Development Scenario for Oil and Gas (“RFD”) which projected that no more than 10 development wells would be drilled over the next 15 to 20 years across the entire development area. The PRMP/EIS also addressed the potential impacts of oil and gas development on specific endangered animal species. The report was published and adopted by the BLM in its Record Division (“ROD”), which subsequently established stipulations and conditions to protect endangered species, as well as water and air quality. 

In April 2011, BLM proposed an oil and gas lease sale for approximately 2,700 acres and issued a draft Environmental Assessment (“EA”).  During the comment period, BLM received many comments related to the potential effects of fracking; however, BLM stated that “these issues are outside the scope of this EA because they are not under the authority or within jurisdiction of the BLM.”  This comment would later become important to the Court’s analysis.

In June 2011, BLM issued its final EA, which discussed environmental issues, and evaluated the environmental impacts of three alternatives:  1) a competitive oil and gas lease sale for 2,605 acres of federal mineral estate, including 360 acres of split estate; 2)  a competitive lease sale of 6,401 acres of federal minerals for sale, which would include the acreage from alternative number one, plus an additional 3,796 acres of split-estate federal minerals; 3)  no proposed sale of the federal mineral estate. Importantly, the EA also evaluated and projected the extent of drilling activity to be conducted and its impacts.  Using the 2006 projection in the PRMP/FEIS, and considering the fact that no wells had been drilled on the subject property in the five years since the issuance of the RFD, the BLM projected that no more than one exploratory well would be drilled on the land within the leases. The BLM reserved its analysis of the impacts of fracking until applications for permits to drill were submitted, as it determined that analyzing site-specific impacts would be more feasible.  Also important for the Court’s analysis, the EA noted that a discussion of fracking was “not relevant to the analysis of impacts…because the reasonable foreseeable development scenario anticipates very little (if any) disturbance to human environment.”

On June 16, 2011, BLM’s Acting California State Director executed a Finding of No Significant Impact (“FONSI”).  Following this, the BLM issued its final Decision Record documenting the decision to offer for oil and gas lease auction eight parcels encompassing the 2,703 acres of federal mineral estate.  The Decision Record stated that a NEPA review would be conducted at the well permitting application stage.  

Plaintiffs, and others, protested the lease sale; however, the lease sale went forward.  In September, 2011 BLM successfully auctioned leases in three parcels, and a fourth parcel was sold “over the counter.”  All four leases were subject to standard stipulations as well as three Special Stipulations.  All four leases included Special Stipulation No. 1 (Endangered Species Stipulation) and Special Stipulation No. 2 (Cultural Resource Stipulation).  Two parcels contain Special Stipulation No. 3, which is a No Surface Occupancy (“NSO”) stipulation.  The other two parcels did not contain this stipulation.  

Plaintiffs were successful with their challenge under NEPA, with the Court finding that BLM did not meet its obligations under NEPA.  NEPA requires federal agencies to take a “hard look” at “every significant aspect of the environmental impact of a proposed action.”  It also requires an agency to inform the public that it has considered environmental impacts, and requires agencies to prepare an Environmental Impact Statement (“EIS”) for all proposed federal actions which will “significantly affect the quality of the human environment.”  The Ninth Circuit case of Conner v. Burford, 848 F.2d 1441 (9th Cir. 1988) was instructive for the Court. Conner requires an EIS to include a statement of “any irreversible and irretrievable commitments of resources which would be involved in the proposed action should it be implemented.”  Relying on Conner, the Court found in the instant case that the two leases categorized as NSO leases, contain a provision preventing any surface-disturbing activities, and, under Conner, did not result in an “irretrievable commitment of resources”  Therefore, there was no obligation for BLM to conduct a NEPA analysis at the time of the lease sale for the NSO leases.  The other two parcels do not contain NSO provisions.  Without NSO provisions, the government does not have the absolute ability to prohibit potentially significant impact on the surface environment, and cannot unilaterally deny drilling rights on the non-NSO leases. As a result, the Court found that BLM was required to conduct a thorough NEPA analysis to determine whether the sale would have a substantial environmental impact.  

The Court also found that BLM’s conclusion that the leases would have no “significant environmental impact” was unreasonable. In order to avoid issuing an EIS, a FONSI must contain a statement of reasons as to why the project’s impacts are insignificant.  An agency must consider both the context of the action and the intensity of the action. The Court took great fault with BLM’s projection that only one well would be drilled across the four parcels to be leased.  The Court found that this projection failed to take into account all “reasonably foreseeable” possibilities, as required by NEPA. Furthermore, the Court was incensed by BLM’s assertion that the issue of environmental impact of fracking was outside of BLM’s jurisdiction.  “…if not within BLM’s jurisdiction, then whose?” The Court went through a recitation of facts related to the increase in fracking nationwide, and the fact that the 2006 PRMP/FEIS did not address potential concerns related to fracking that have since come to light.  

The Court further found that BLM’s assessment of intensity factors in its FONSI was distorted.  First, BLM erroneously held that the leases were not highly controversial. Second, BLM erroneously analyzed the potential effect of the leases on public health and safety. Third, BLM discounted the uncertainty of fracking that could have been addressed in an EIS.  

The Court declined the Plaintiff’s request to invalidate the lease sale, and instead is requiring the parties to meet and confer and submit an appropriate judgment by April 15, 2013.  
Producers may take solace in the fact that the Court did not tackle the policy issues associated with fracking, and instead based this ruling on BLM’s failure to comply with appropriate procedure; however, the Court did spend time making note of the controversial nature of fracking, the studies by the U.S. House and EPA which  take notice of potential contamination risks, and opined that the “…potential risk for contamination from fracking, while unknown, is not so remote or speculative to be completely ignored.”  Therefore, if this case is any indication of future judicial review, fracking will continue to be closely scrutinized.  

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