U.S. Navy Does Not Have to Pay to Monitor Residents for PFOS/PFOA Exposure Issues
By Leah M. Song
In our previous blog post, we discussed the case of Kristen Giovanni, et al. v. Navy. As an update, on January 15, 2020, the district court judge said that the Navy did not have to pay to monitor residents for potential health issues linked to PFOS and PFOA exposure.
The court dismissed the suit finding that the regulator's failure to designate the chemicals as hazardous substances precluded the plaintiffs from filing under state law. To qualify for medical monitoring, Section 1115 of Pennsylvania’s Hazardous Sites Cleanup Act (HSCA) stated that citizens must have been exposed to a hazardous substance, a designation that PFOA and PFOS lack under either federal or state law. The judge reasoned that “merely having the essential qualities of a hazardous waste…is not enough to be a hazardous substance under HSCA.”
Another basis for the Court’s ruling was that the state and federal governments are “well on their way to classifying PFAS as hazardous substances.” This may increase efforts to designate PFAS as hazardous substances under the federal Superfund law.
The plaintiffs’ attorney said that the decision would not be appealed but they would see what could be done in the future if the substances are designated as hazardous substances.
Failure to Designate PFAS as Hazardous Substance May Doom Medical Monitoring Lawsuit
The fact that neither perfluorooctanoic acid (PFOA) nor perfluorooctane sulfonic acid (PFOS) is classified as a hazardous substance may prove fatal to plaintiffs’ efforts to convince a federal court to allow a novel citizen suit to proceed. In the case of Kristen Giovanni, et al. v. Navy which is pending in the U.S. District Court for the Eastern District of Pennsylvania, plaintiffs brought a citizen suit under a Pennsylvania cleanup statute seeking to compel the Navy to monitor residents for potential health issues linked to PFOS and PFOA exposure. In October 2018, the Third Circuit Appellate Court affirmed an earlier ruling from the district court that had rejected plaintiffs’ efforts to compel the Navy to undertake a government-led health assessment, finding that such a request constituted an impermissible challenge to an ongoing CERCLA response action. The Third Circuit concluded that plaintiffs' request for a government-led health study sought injunctive relief that could potentially interfere with the ongoing response action at the site. Plaintiffs’ request for medical monitoring, on the other hand, sought to compel the Navy to fund a trust, which the Third Circuit concluded was not a challenge to ongoing response actions at the site.
During a hearing following remand from the Third Circuit, the district court judge noted that Section 1115 of Pennsylvania’s Hazardous Sites Cleanup Act (HSCA) (which provides for a citizen-suit right of action) only provides relief for HSCA designated “hazardous substances.” Although plaintiffs’ counsel argued that PFOA and PFOS fell within the HSCA’s definition of “hazardous substances,” in fact neither substance has been designated as a “hazardous substance” under CERCLA, nor have they been so designated by the Pennsylvania Department of Environmental Protection. In what may be foreshadowing of how the court intends to rule, the judge noted that if he were to dismiss plaintiffs’ case, in the event that either the state or U.S. EPA were to designate PFOA and/or PFOS as “hazardous substances,” plaintiffs would be able to file a new lawsuit.
Trump Administration Proposes Landmark Changes to National Environmental Policy Act’s Review Process
By Matthew G. Lawson
Marking the 50th anniversary of the enactment of the National Environmental Policy Act (“NEPA”), on January 1, 2020, the Trump White House published a Presidential Message announcing the imminent release of newly proposed regulations designed to “modernize” the foundational environmental statute. NEPA, which requires federal agencies to quantify and consider environmental impacts before undertaking actions that have the potential to “substantially impact” the environment, has far reaching applications. Under NEPA, federal agencies are often required to complete an Environmental Impact Assessment (“EIS”) prior to starting public infrastructure projects such as roads, bridges and ports, or before permitting certain private actions that require federal approval, such as construction of pipelines or commencement of mining operations. According to the 2018 Annual NEPA Report, EISs drafted by federal agencies between 2010 and 2017 took an average of 4.5 years to complete. The Presidential Message asserts that the existing NEPA review process “has become increasingly complex and difficult to navigate,” while causing “delays that can increase costs, derail important projects, and threaten jobs for American workers and labor union members.” The regulations proposed by the Trump Administration are expected to be released by the Council on Environmental Quality (“CEQ”) later this week.
If enacted, the proposed regulations could mark the first comprehensive update to NEPA’s review process in more than four decades. According to accounts of a draft memo from CEQ outlying the proposed changes, the modifications will bring substantial changes to the NEPA review process, including:
requiring that all EISs be completed within a two-year time limit;
limiting the scope of projects that trigger the requirement to draft an EIS; and
in the case of private actions that require federal approval, allowing private companies to take lead in reviewing potential environmental impacts under the supervision of a federal agency.
Perhaps most critically, CEQ is expected to advise that federal agencies are no longer required to consider “cumulative” environmental consequences when accounting for the environmental impacts of a specific action. This language appears aimed at eliminating the requirement that federal agencies consider the impact of increased greenhouse gas (“GHG”) emissions and climate change as part of their NEPA review. The proposal comes after several high profile infrastructure projects back by President Trump, including the Keystone XL oil pipeline, were blocked by federal judges on the basis that the project’s EIS failed to sufficiently consider the impacts of climate change.
While the CEQ regulations have not been comprehensively revised since 1986, in recent years the Obama and Trump Administrations have independently sought to clarify the obligation imposed on Federal agencies to consider GHG emissions and climate change under NEPA. In 2016, the Obama Administration CEQ released guidance endorsing the view that NEPA requires federal agencies to consider and quantify any reasonably foreseeable GHG emissions that are attributable to a proposed action. However, this guidance was subsequently withdrawn by the Trump Administration CEQ in 2017, and replaced in June 2019 with draft guidance that cautioned agencies to only consider GHG emissions that were “substantial enough to warrant quantification” and not “overly speculative.”
Once the CEQ’s newly proposed regulations are released and filed in the federal register, the public will be afforded 60 days to comment on the changes. From this point, the Trump Administration is aiming to publish the final regulations before the presidential election in November. However, before the new regulations can take effect, environmental groups are expected to challenge them in court proceedings.
New York Bans PFAS Chemicals in Firefighting Foam as Industry Fights for Exemptions
By Matthew G. Lawson
On December 23, 2019, New York Governor Andrew M. Cuomo gave conditional approval to a state ban on firefighting foams containing per- and polyfluoroalkyl substances (known as “PFAS”). PFAS, commonly referred to as “forever chemicals” due to their ongoing persistence in the environment, are a family of man-made chemicals commonly found in a variety of products, including food packaging, cookware, stain-resistant clothing, and, in the case of perfluorooctane sulfonic acid (PFOS), many types of firefighting foams. According to the U.S. EPA, PFAS chemicals are not only “extremely persistent in the environment,” but have also been linked to numerous health conditions including cancer in humans.
The legislation (“A445A”) requires the New York Office of Fire Prevention and Control to promulgate regulations that will provide guidance for state agencies and local government to avoid the purchase of firefighting foams containing PFAS compounds and outright prohibits the manufacture of PFAS containing firefighting foams within two years of the effective date of the bill. As a condition to his approval, Governor Cuomo noted that an amendment to the current legislation was needed to allow discretionary use of firefighting agents containing PFAS where no other viable options exist. On the basis of an agreement with the New York legislature to implement these amendments, the Governor conditionally approved the bill.
With the enactment of the legislation, New York becomes the third U.S. state to ban PFAS chemicals behind Washington and New Hampshire. In addition, six other states have enacted some form of partial prohibitions on the use of foams containing PFAS chemicals. In response to the recent state legislation, the FluoroCouncil has affirmed that use of firefighting foam containing PFAS “is credited with saving lives and property” and that use of such foams may be essential for extinguishing fires caused by flammable liquids.
Regulation of PFAS chemicals is also being considered at the federal level. As noted in a prior blog by the Corporate Environmental Lawyer, a federal bill is currently being considered that would require the U.S. EPA to promulgate drinking water standards for PFOS as well as perfluorooctanoic acid (PFOA), another common chemical in the PFAS family. According to the Congressional Budget Office (CBO), the estimated cost of implementing these federal standards across the country are likely to exceed “several billion dollars.” The Corporate Environmental Lawyer will continue to update on forthcoming or pending state and federal legislation regarding PFAS chemicals.
International Shipping Industry Plots New Course to Battle Climate Change
In recent years, the global maritime shipping industry has faced pressure to reduce the large quantity of greenhouse gas (“GHG”) emissions associated with international shipping. About 90 percent of the world’s trade goods are transported by ship, and, according to one 2014 study, the shipment of these good via maritime vessels emits approximately 1.9 billion tonnes of GHG annually, or approximately 4% of human-made emissions worldwide. The annual GHG output of the shipping industry has been projected to rise by as much as 250% by 2050 if direct actions are not taken to modify industry practices.
Because of its international nature, global shipping is extremely difficult to regulate on a national basis, and therefore is often addressed through international agreements. To this end, in 2018, the International Maritime Organization (“IMO”), a branch of the United Nations, approved the world’s first broad agreement designed to reduce GHG from worldwide ocean shipping. The agreement reached by the IMO member provides the following target metrics:
(1) Reduce CO2 emissions per “transport work” (product of cargo transmitted and distance sailed) by at least 40% by 2030 and 70% by 2050; and
(2) Reduce total CO2 emissions from shipping by at least 50% by 2050.
The targets were designated to fall in line with the GHG reductions goals set out in the 2015 Paris Climate Accords (the "2015 Paris Agreement"). Though the 2015 Paris Agreement does not include an agreement to reduce GHGs in international shipping, the IMO has stated that it is committed to reducing GHGs in the industry to match the commitment put forward in the agreement.
On December 18, 2019, ship owner associations representing over 90% of the world’s merchant fleets formally presented to IMO their proposed strategy for meeting the international body’s 2018 GHG reduction goals. The industry’s plan proposed the creation of a $5 Billion USD research fund that will be used to research and develop more environmentally friendly fuels and ship propulsion systems. The fund would be fully funded from a $2 per ton tax on marine fuel purchased by shippers over a 10-year period. The associations argued that the fund would be critical to the development of alternative fuels—such as synthetic fuels created by renewable energy sources—which had the potential to drastically reduce the industry’s carbon footprint.
IMO’s environmental goals expand to areas beyond just GHG reduction. For example, in January 2020, the IMO’s new cap on the amount of Sulphur permitted fuel oil will take effect. The effort is aimed at reducing maritime vessel’s emissions of Sulphur oxides (SOx), which are known to be harmful to human health and can lead to acid rain and ocean acidification. on December 10, 2019, the United States Environmental Protection Agency (“USEPA”) enacted a new Final Rule to help refiners comply with the IMO’s new global sulfur standard. As provided by the USEPA, the Final Rule was designed to “ensure that U.S. refiners can permissibly distribute distillate marine fuel up to the 5,000 ppm sulfur limit, which will facilitate smooth implementation of the 2020 global marine fuel standard.”
NY AG Strikes Out in Climate Fraud Suit Against Exxon
By Leah M. Song
Following a three-week bench trial, the New York Supreme Court ruled in favor of Exxon Mobil Corp. in the climate fraud case brought by New York’s attorney general, who accused the energy company of deceiving its investors about climate change-related risks to its business. In reaching this holding, Justice Barry Ostrager found that the attorney general “failed to prove, by a preponderance of the evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor,” which was the threshold for sustaining claims under the Martin Act.
As noted in in Jenner & Block’s previous blog post, the attorney general began its investigation into Exxon Mobil in 2015. The attorney general’s investigation was grounded in New York's shareholder-protection statute, the Martin Act, as well as New York’s consumer protection and general business laws. After a three-year investigation, the attorney general’s office sued Exxon on October 24, 2018.
Exxon Mobil’s victory was foreshadowed when the attorney general dropped two of its four claims, one for common law fraud and one for equitable fraud, on the last day of trial. These claims were important to the state’s case because they alleged that Exxon Mobil’s misstatements were part of a scheme to mislead its investors and that Exxon Mobil’s investors had in fact relied on the misstatements when purchasing the company’s stock. Only two Martin Act investor fraud claims remained, which did not require the government to prove fraudulent intent.
An Exxon spokesperson said the ruling affirmed the position Exxon has held throughout the investigation and trial. "The court agreed that the attorney general failed to make a case, even with the extremely low threshold of the Martin Act in its favor," the spokesperson said.
Despite ruling against the attorney general, Judge Ostrager clarified that “nothing in [the] opinion is intended to absolve ExxonMobil from responsibility for contributing to climate change through the emission of greenhouse gases in the production of its fossil fuel products.” The judge continued “ExxonMobil is in the business of producing energy, and this is a securities fraud case, not a climate change case.”
Exxon is battling similar accusations in other state and federal courts. Jenner & Block's Corporate Environmental Lawyer will continue to update on those matters, as well as other important climate change litigation cases, as they unfold.
Dan Brouillette, Acting Secretary of Energy, Confirmed by Senate for Top DOE Spot
By Alexander J. Bandza
The Senate in a 70-15 vote confirmed Dan Brouillette this week as the new Secretary of Energy to succeed Secretary Rick Perry. All 47 Republicans who were present for the vote backed confirmation, as did 22 Democrats, including Joe Manchin III of West Virginia, Tom Udall of New Mexico, and Richard J. Durbin of Illinois, and one Independent, Angus King of Maine.
At his confirmation hearing, Mr. Brouillette stressed the role of the DOE in advancing research, including focusing his tenure on pushing direct air capture, carbon capture and sequestration (CCS), nuclear reactors, and the DOE commercialization work that fosters novel technologies in the private sector. He stated he would “absolutely” devote more DOE resources to researching DAC, and praised ongoing work on CCS and demonstrations of the technology in Wyoming in particular, nothing that he is “very excited about the work I see being done in Wyoming and within DOE writ large.”
Wyoming has become a focal point of the tension as to the future of coal under climate change policies or other environmental laws and the potential opportunity for CCS to resolve this tension. (Wyoming supplies 40% of the United States’ coal to 29 states.) The Wyoming Public Service Commission Chair has recently spoke about the need for a hard look at the benefits of CCS before shuttering coal plants. Also this week, the University of Wyoming announced a partnership with DOE to accelerate research on carbon capture technology at two of the state’s coal-fired power plants. In light of Mr. Brouillette’s extensive comments in support of Wyoming and CCS, we can anticipate much more on this front.
As noted by the New York Times, before becoming deputy energy secretary, Mr. Brouillette was chief of staff to the House Energy and Commerce Committee and was assistant secretary of energy for congressional and intergovernmental affairs in the George W. Bush administration. He also worked as an executive at the United Services Automobile Association, a financial services provider to members of the military, and Ford Motor Company. He once was a member of Louisiana’s State Mineral and Energy Board.
PFAS Regulations Projected to Impose Billions of Dollars of Compliance Costs on Drinking Water Systems
A recent report from the Congressional Budget Office (CBO) estimated that the costs to comply with anticipated drinking water standards for per- and polyfluoroalkyl substances (PFAS) are likely to exceed “several billion dollars.” The CBO analyzed Senate Bill 1507 which passed out of Senate Environment & Public Works Committee earlier this year. Senate Bill 1507 seeks to require U.S. EPA to promulgate drinking water standards for perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) and imposes monitoring requirements on drinking water systems. The bill could potentially impose fairly stringent requirements on more than 67,000 public water systems.
The CBO estimate comes on the heels of a recent New Hampshire court decision that put on hold New Hampshire’s newly promulgated groundwater standards setting a 12 part per trillion (ppt) limit on PFOA and 15 ppt limit on PFOS. The standards were challenged on the basis that New Hampshire’s Department of Environmental Services (DES) had not conducted an adequate cost-benefit analysis of the new regulatory standards. The court agreed that DES had not conducted the cost-benefit analysis required by New Hampshire statutes and therefore enjoined DES from enforcing the new groundwater standards until such time as the analysis is completed.
D.C. Circuit Rejects Attempts by Trump Administration to Fast-Track Litigation on EPA Climate Rule
On November 22, 2019, the D.C. Circuit rejected a bid by the Trump Administration to fast-track litigation over the United States Environmental Protection Agency’s (“USEPA”) Affordable Clean Energy Rule governing greenhouse gas emissions from power plants. The Order similarly rejected an opposing bid by environmental groups and twenty U.S. States which sought to stall the litigation.
The litigation revolves around the Trump Administration’s implementation of the Affordable Clean Energy Plan, a replacement for the Clean Power Plan enacted by the Obama Administration. The Obama-era Clean Power Plan—which itself was stalled by legal challenges—sought to impose carbon emissions caps on power plants and reduce the United States’ greenhouse gas emissions by 32% from 2005 levels by the year 2030. In contrast, the Trump-era Affordable Clean Energy Plan seeks a more modest reduction of greenhouse gas emissions and provides further latitude for individual U.S. States to design their own plans for paring carbon dioxide emissions at power plants. The challengers to Trump’s rule assert that the Affordable Clean Energy Plan does not meaningfully reduce greenhouse gas emissions and is a violation of USEPA’s duty to address pollution from power plants under the Clean Air Act.
In its response to the challenges, the USEPA asserted that an “[e]xpeditious resolution of the petitions … would provide certain over EPA’s authority under the Clean Air Act, and the validity of the Affordable Clean Energy Rule promulgated under the Act.” The Trump Administration’s attempt to quickly resolve challenges to the Affordable Clean Energy Plan stems from the Administration’s goal to fully implement its final rule prior to any potential administration changes from the 2020 elections. A swift ruling in the Trump Administration’s favor would secure the validity of final rule and limit any future administration’s options for imposing additional regulations of greenhouse gas emissions under Clean Air Act. However, as a result of the D.C. Circuit’s ruling, it is estimated that the court will not hear oral arguments on the case until summer or fall of 2020, likely placing a final ruling after the results of the 2020 presidential election.
U.S. EPA May Require Companies to Report PFAS Releases in TRI Reports
On November 25, 2019, U.S. EPA submitted an advance notice of proposed rulemaking (ANPR) for publication in the Federal Register seeking public comment on whether certain per- and polyfluoroalkyl substances (PFAS) should be added to the list of chemicals subject to reporting under Section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA). In its ANPR, U.S. EPA seeks comments on which, if any, PFAS compounds should be considered for listing, how to list them, and what would be the appropriate reporting thresholds given their persistence and bioaccumulation potential. U.S. EPA specifically notes that it is considering establishing a reporting threshold for PFAS that is lower than the usual statutory thresholds (25,000 pounds for manufacturing or processing and 10,000 pounds for otherwise using listing chemicals) due to concerns over the compounds environmental persistence and bioaccumulation potential. The ANPR notes that perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS) have been the most widely studied PFAS compounds but notes that there are more than 600 PFAS compounds that are being manufactured and/or used in the United States.
If added to the list of chemicals subject to reporting under EPCRA, affected companies would be required to report annually how much of each listed PFAS compound is released into the environment or otherwise managed through energy recovery, recycling or treatment. This information is then publicly available through the Toxic Release Inventory database. The ANPR comes on the heels of action by the House Energy and Commerce Committee that approved legislation (H.R. 535) on November 20th that seeks to add at least 13 PFAS compounds to the list of chemicals subject to EPCRA reporting.
Environmental Groups Collaborate on Launch of National PFAS Clearinghouse
In conjunction with a publicity blitz surrounding the release of “Dark Waters,” a movie targeting alleged environmental and health impacts associated with PFAS releases in Ohio and West Virginia, a group of environmental groups, lawmakers and other advocates of more stringent PFAS regulations launched a public clearinghouse that is intended to provide consumers with information on the adverse health impacts of PFAS and provide recommendations on ways to minimize exposure to these chemical substances. In a November 19, 2019 press conference, Mark Ruffalo (one of the actors in the "Dark Waters" movie) and Rob Bilott (author of the book Exposure), joined by members of Congress and several environmental groups, announced the launch of the clearinghouse, named “Fight Forever Chemicals,” noting that purpose behind the clearinghouse is to bring the fight against forever chemicals from the margins to the mainstream and thereby demand stronger protections from leaders in office.
As has been discussed in previous blog entries, both the States and U.S. EPA are feeling increasing pressure to adopt stringent PFAS regulations. Some states such as California have already adopted screening levels as low as 5 parts per trillion for perfluorooctanoic acid (PFOA) in drinking water (and suggested that the levels could be as low as 0.1 parts per trillion), even though the science regarding the toxicity of these compounds is still in flux. On November 21, 2019, U.S. EPA released its fall regulatory agenda in which it confirmed its intent to designate PFOA and perfluorooctanesulfonic acid (PFOS) as hazardous substances through one of the available statutory mechanisms in Section 102 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
The publicity surrounding the launch of the clearinghouse and the opening of the movie will only increase the pressure felt by States and U.S. EPA. As such, it is more important than ever for companies to ensure that they have carefully thought-out strategies in place to minimize the risks associated with PFAS impacts in the environment. These strategies need to take into consideration the allocation of PFAS risks in transactional settings, as well as assessing potential liabilities associated with historical manufacturing operations. The PFAS tidal wave seems to building, and companies should be proactive to guard against being caught up in the deluge.
DoD Quietly Releases PFAS Screening Levels
By Steven M. Siros
On October 15th, the Department of Defense (DoD) issued an internal guidance document regarding CERCLA cleanup actions involving per- and polyfluoroalkyl substances (PFAS). The DoD guidance sets screening levels for three PFAS compounds that some have criticized as being inconsistent with draft screening levels that are in the process of being finalized by U.S. EPA.
DoD’s October 15th guidance document adopts U.S. EPA’s proposed screening level (in groundwater) of 40 parts per trillion (ppt) for sites containing both perfluorooctane sulfonate (PFOS) and perfluorooctanioic acid (PFOA). However, the DoD guidance adopts a higher screening level for sites containing only one of the three targeted PFAS compounds. For sites containing only PFOA or PFOS, the DoD screening level jumps to 400 ppt. The guidance also sets a screening level for perfluorobutanesulfonic acid (PFBS) (a shorter chain PFAS compound) at 40,000 ppt.
The DoD guidance is silent with respect to other PFAS compounds. The guidance also doesn’t specify a particular clean-up level if the above-referenced screening levels are exceeded. Instead, the guidance notes that a site-specific risk assessment will be conducted to determine if remedial measures are necessary.
Notwithstanding the DoD guidance document, there is no indication that U.S. EPA will not continue to rely on its 40 ppt level screening (both for single- and combined-PFAS compound sites) and 70 ppt preliminary cleanup goal proposed in its draft interim guidelines for remediating PFAS-impacted groundwater at DoD sites.
Managing the Great Lakes Seminar—October 29th
By Steven M. Siros
Jenner and Block and ELI cordially invite you to attend a seminar titled “Managing the Great Lakes” on October 29, 2019 from 2:00 pm to 5:00 pm (CST) at Jenner and Block’s office (353 N. Clark Street) in Chicago and by webinar.
There will be two panel presentations. The first presentation focuses on the Great Lakes Compact and water rights in the Great Lakes Basin. Panel participants include Cameron Davis (former Great Lakes Czar) and Victoria Pebbles (Program Director for the Great Lakes Commission). The second presentation focuses on managing algae blooms in the Great Lakes. Panel participants include Todd Nettesheim (Deputy Director of EPA’s Great Lakes National Program) and Todd Brennan (Senior Policy Manager for Alliance for the Great Lakes).
A reception sponsored by Exponent and Brown and Caldwell immediately follows the seminar.
Please click here for more information and to register.
Recent DOJ Directive Marks Continuing Effort to Curb Availability of Supplemental Environmental Projects in Civil Environmental Settlements
On August 21, 2019, the Department of Justice issue a new memorandum reducing state and local governments’ ability to enter into settlement agreements that require the completion of supplemental environmental projects (SEPs) as compensation for alleged environmental violations. While impactful in its own right, the DOJ memo can be viewed as a continuation of an over two-year long effort by the DOJ to reduce the general availability of SEPs in the settlement of civil environmental cases.
As defined by the EPA, “SEPs are projects or activities that go beyond what could legally be required in order for the defendant to return to compliance, and secure environmental and/or public health benefits in addition to those achieved by compliance with applicable laws.” Private parties or municipalities may offer to complete SEPs as part of a settlement with EPA or other environmental regulators. By doing so, the alleged violator effectively replaces a part or all of the penalty owed for an environmental violation with the commitment to develop an environmentally beneficial project.
Despite the widespread and longstanding use of SEPs in settlement agreements, recent actions by the DOJ demonstrate a clear effort by the Department to reduce the use of SEPs in the settlement of alleged environmental violations.
The trend started with a June 8, 2017 policy directive issued by then Attorney General Jeff Sessions which broadly prohibited settlement agreements from “directing or providing” payment to any third-parties that are neither victims nor parties to the lawsuits. The directive had the immediate effect of prohibiting SEPs that require violators to fund environmental project performed by third parties.
The 2017 directive was then followed by a second memorandum on November 11, 2018, which barred the use of consent decrees to achieve “general policy goals or to extract greater or different relief from the defendant than could be obtained through agency enforcement authority or by litigating the matter to judgment.”
Finally, in its most recent move, the August 21st DOJ memorandum issued from the Department’s Environmental and Natural Resource Division details the DOJ’s determination that environmental SEPs are prohibited under the November 2018 directive. Specifically, the memo provides that “[t]he use of SEPs in consent decrees with state and local governments contravenes the prohibition on using consent decrees to ‘extract greater or different relief from [a state or local government] than could be obtained through agency enforcement authority or by litigating the matter to judgment.’” While the memorandum notes several conditions where SEPs may still be permitted, it cautions that exemptions to the general prohibition “are meant to be rare.”
With the DOJ’s most recent actions, it appears that environmental regulators will no longer be permitted to agree to SEPs in most, if not all, settlement agreements. However, open questions remains whether regulators will be able to fashion future SEPs that comply with the recent DOJ directives.
Available Company Defenses to Climate Change Shareholder Activism: Trends in Climate Change Litigation, Part 5
By Matthew G. Lawson
As noted in Jenner & Block’s prior blog post, Shareholder Activism: Trends in Climate Change Litigation, Part 4, an emerging issue for public companies in high greenhouse gas (“GHG”) emitting industries is increased pressure from environmentally focused “activist shareholders.” These shareholders often seek to leverage their ownership shares to influence companies into taking action to decrease GHG emissions and/or increase public disclosure of such emissions. These efforts may be undertaken through negotiations with company management or through the introduction of specific shareholder proposals and proxy materials to be presented and voted on at annual shareholder meetings.
Several recent actions taken by the SEC may now help shield public companies from certain attempts by shareholders to introduce climate change related proposals for consideration at shareholder meetings. Under SEC rule 14a-8(i)(7), public companies may exclude from shareholders’ voting ballots any proposals which seek to “micromanage” the company’s ordinary business operations. In recent months, the SEC has asserted that rule 14a-8(i)(7) may be utilized by companies to block certain types of climate change related proposals. The agency has articulated this position by issuing “no-action” letters to public companies seeking to block climate-change proposals from their shareholders. In effect, these letters act as an assurance that the SEC will not recommend enforcement action against the companies for blocking the respective proposals because the agency agrees that the proposal falls under the purview of rule 14a-8(i)(7). However, the SEC has, in a few instances, refused to issue “no-action” letters to companies seeking to block shareholder climate change proposals.
Whether a shareholder’s climate change proposal is excludable under rule 14a-8(i)(7) therefore appears to be a case-by-case determination which depends on the specific demands of a proposal. As a general rule, the SEC has found that proposals which only seek greater disclosure of a company’s GHG emissions cannot be excluded under rule 14a-8(i)(7), but proposals which impose GHG emission reduction targets on the company or require specific methods for reporting or calculating GHGs may be excluded under rule 14a-8(i)(7). A few instructive examples of these general conclusions are provided below:
On February 14, 2019, the SEC issued a no-action letter to J.B. Hunt Transport Services, Inc. approving the company’s request to block a shareholder proposal that, if implemented, would require the company to adopt quantitative targets for reducing GHG emissions and issue a report demonstrating its progress towards achieving these targets. The SEC found that the proposal sought to micromanage the business by probing into complex matters that were better left to the informed judgment of management.
On March 4, 2019, the SEC refused to issue a no-action letter to Anadarko Petroleum Corporation after the company sought to block a proposal requesting that the company describe if, and how, it planned to reduce its total contribution to climate change to fall in line with the global temperature objectives of Paris Agreement.
On April 2, 2019, the SEC issued a no-action letter to ExxonMobil which affirmed that the company could exclude a shareholder proposal which would require the company to adopt and disclose certain GHG emission reduction targets. The SEC noted that the proposal sought to replace the ongoing judgments of the company’s management with “specific methods” for implementing complex policies.
Of course, the threat of potential governmental enforcement actions is only one reason why a company may hesitate to block shareholder proposals. Beyond the business considerations of such a decision, public companies may also need to consider whether adopting certain types of shareholder proposals—particularly those calling for increased disclosure and transparency of GHG emissions—may be beneficial to protect the company from the risk of future lawsuits by the company’s shareholders.