Thursday, August 11th, 2022
Per-and polyfluoroalkyl substances (collectively, “PFAS”) are a group of nearly 5,000 human-made chemicals that are resistant to heat, water and oil. Due to these “resistance” properties, since the 1940s, PFAS have been used in a broad spectrum of industrial applications and commercial products, including everyday household items and packaging. Some examples of PFAS usage include carpeting, waterproof clothing, upholstery, food paper wrappings, cookware, personal care products, fire-fighting foams, and metal plating.
In the environment, PFAS rapidly move through groundwater. Thus, PFAS frequently are found in public and private water sources throughout the United States.
Unfortunately, the same resistance to water, heat and oil that lead to the use of PFAS in industrial applications and commercial products, also makes them slow to naturally biodegrade and difficult to remove from environmental media using the technologies traditionally used to remediate environmental conditions.
The United States Environmental Protection Agency (the “EPA”) has concluded that “most people in the United States have been exposed to PFAS”, “due to their wide-spread use and persistence in the environment.”[1] Scientific studies have shown that regular exposure to even low concentrations—in the range of parts per trillion (“ppt”)—of PFAS may cause certain adverse health effects. Such adverse health effects include: reproductive effects such as decreased fertility or increased likelihood of high blood pressure in pregnant women; developmental effects in children, including low birth weight, developmental delays, accelerated puberty, bone variations or behavioral changes; increased risk of some cancers, including prostate, kidney, and testicular cancers; reduced ability of the body’s immune system to fight infections, including reduced vaccine response; interference with the body’s natural hormones; and increased cholesterol levels and/or risk of obesity.
In response to concerns over the potential adverse consequences of exposure to PFAS on human health, recently, the EPA has taken certain steps to regulate PFAS in a number of contexts. In one of its first actions relative to PFAS, in 2012, the EPA directed operators of public drinking water systems to begin testing for the presence of PFAS in their drinking water supplies. Then, in 2016, the EPA issued drinking water health advisories at 70 parts per trillion for Perfluorooctanoic acid (“PFOA”) and perfluorooctane sulfonic acid (PFOS), two PFAS chemicals. The analogy frequently used to describe parts per trillion is drops of water in an Olympic-sized swimming pool. So, 70 ppt would be equivalent to 70 droplets of water in an Olympic-sized pool. The purpose of such EPA health advisories is to provide technical information to state agencies and other public health officials on health effects, analytical methodologies, and treatment technologies associated with drinking water contamination by PFAS.
On June 15, 2022, the EPA released updated drinking water health advisories for PFOA and PFOS as well as new health advisories for hexafluoropropylene oxide-dimer acid (“GenX”) and perfluorobutane sulfonate (“PFBS”). These updated 2022 health advisories significantly reduced the concentrations of PFOA and PFOS from 70 ppt to 0.004 ppt and 0.02 ppt respectively—about the equivalent of 4/1000th and 2/100th of a drop of water in an Olympic-sized pool. The 2022 drinking water health advisory set concentrations of 10 ppt and 2,000 ppt for GenX and PFBS.
In June 2020, the EPA added 172 PFAS chemicals to the Toxics Inventory Reporting (“TRI”) requirements for 2020. Three other PFAS chemicals were added to TRI reporting requirements in 2021.
In early 2019, the EPA commenced two significant regulatory process PFOA and PFOS; (1) promulgating a Maximum Contaminant Level (“MCL”) for PFOA and PFOS under the Safe Drinking Water Act and (2) adding the PFOA and PFOS to the list of chemicals identified as “hazardous substances” under CERLCA.
On October 18, 2021, the EPA issued comprehensive plan for promulgating regulations governing PFAS under various environmental regulatory programs, titled “PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024” (the “Strategic Roadmap”). The Strategic Roadmap identifies goals and implementation strategies for addressing PFAS moving forward, such as holding “polluters accountable”, placing “responsibility for limiting exposures and addressing hazards of PFAS on manufacturers, processors, distributors, importers, industrial and other significant users, discharges, and treatment and disposal facilities” and enhancing PFAS reporting.[2] Furthermore, the EPA identified the following industrial sectors as “priorities” for additional investigation and evaluation as suspected PFAS users: printing; chemical manufacturing and blending; plastics and resins; oil & gas; metal coating; mining and refining; electronics; aviation; waste management; treatment and disposal; and potable water management, treatment and distribution.
The EPA is in the process of implementing the plan set forth in the Strategic Roadmap. As that plan is implemented, we anticipate that the entities that used PFAS, and entities that own or operate property on which that may be present PFAS in environmental media such as groundwater or soil, may be affected by the coming PFAS regulations. We foresee regulatory developments relating to PFAS under the following regulatory programs: CLERCLA; TRI National Pollutant Discharge Elimination System permitting, Industrial Wastewater Discharge permitting, Solid and Hazardous Waste Management and Disposal, and Toxic Substances Control.
In preparation for the coming PFAS regulations, businesses—especially in the “priority” industrial sectors listed above—should conduct their own assessments of the nature, scope and extent of their potential exposure to PFAS- related risk. Such assessments should include careful review and analysis of current operations and anticipated future compliance obligations, and develop of a plan to manage potential PFAS-related risk and comply with anticipated PFAS regulations that will likely affect their business.
PFAS is coming. The time to prepare is now.
[1] Lifetime Health Advisories and Heal Effects Support Document for POFA and PFOS, 81 Fed. Reg. 33250 (EPA May 25, 2016).
[2] PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024 (Oct. 18, 2021).
Thursday, July 21st, 2022
During the 2022 Session, the Virginia General Assembly passed SB 550, which, among other things, prohibits the application of contingent payment or condition precedent payment clauses (known as “pay-if-paid” clauses) under most circumstances. The bill also establishes prompt payment clauses for prime contracts and subcontracts on private projects, whereas, Virginia’s Prompt Payment Act was formerly applicable only to public projects. The final language of the bill included a delayed enactment clause so that the statutory changes in SB 550 will not take effect until January 1, 2023. This delay gives project owners, developers, design professionals, general contractors, and subcontractors the opportunity to work with counsel to modify contracts, subcontracts, and the payment application review and approval processes, to both comply with the new statutory language and to provide the maximum amount of protection available to prevent a catastrophic outcome. It also allows time for stakeholders to work towards agreement on revisions to the language of the bill addressing its numerous ambiguities.
This is a link to the final language of the bill, which looks very different from the language of the original bill that was introduced by Senator Bell, or the first substitute presented in committee. The bill passed the Senate but was extensively amended by the House committee, which added two exceptions to the prohibition on pay-if-paid clauses and prompt payment language for private contracts. The Governor proposed a substitute bill that incorporated several changes to the language of the bill that passed the House and was approved by the Senate.
- Language was added to the Virginia Public Procurement Act (VA Code 2.2-4354) section that establishes clauses that must be included in public construction contracts:
- A payment clause that obligates a contractor on a construction contract to be liable for the entire amount owed to any subcontractor with which it contracts. Such contractor shall not be liable for amounts otherwise reducible due to the subcontractor’s noncompliance with the terms of the contract. However, if the contractor withholds all or a part of the amount promised to the subcontractor under the contract, the contractor shall notify the subcontractor, in writing, of his intention to withhold all or a part of the subcontractor’s payment with the reason for nonpayment. Payment by the party contracting with the contractor shall not be a condition precedent to payment to any lower-tier subcontractor, regardless of that contractor receiving payment for amounts owed to that contractor. Any provision in a contract contrary to this section shall be unenforceable.
Pursuant to this new clause, contracts for public projects must include a clause “that obligates a contractor on a construction contract to be liable for the entire amount owed to any subcontractor with which it contracts.” However, the contractor is not liable to pay the subcontractor “for amounts otherwise reducible due to the subcontractor’s noncompliance with the terms of the contract.” But, if the contractor intends to withhold all or part of a payment from the subcontractor, the contractor must provide written notice to the subcontractor “of his intention to withhold all or a part of the subcontractor’s payment with the reason for nonpayment.” Last, but certainly not least, pay-if-paid clauses in contracts for public projects will be unenforceable, without exception.
- Language was added to the Virginia Wage Theft Law (Virginia Code 11-4.6):
“Owner” means a person or entity, other than a public body as defined in § 2.2-4301, responsible for contracting with a general contractor for the procurement of a construction contract.
B. In any construction contract between an owner and a general contractor, the parties shall include a provision that requires the owner to pay such general contractor within 60 days of the receipt of an invoice following satisfactory completion of the portion of the work for which the general contractor has invoiced. An owner shall not be required to pay amounts invoiced that are subject to withholding pursuant to the contract for the general contractor’s noncompliance with the terms of the contract. However, if an owner withholds all or a part of the amount invoiced by the general contractor under the terms of the contract, the owner shall notify the general contractor, in writing and with reasonable specificity, of his intention to withhold all or part of the general contractor’s payment with the reason for nonpayment. Failure of an owner to make timely payment as provided in this subsection shall result in interest penalties consistent with § 2.2-4355. Nothing in this subsection shall be construed to apply to or prohibit the inclusion of any retainage provisions in a construction contract.
C. Any contract in which there is at least one general contractor and one subcontractor shall be deemed to include a provision under which any higher-tier contractor is liable to any lower-tier subcontractor with whom the higher-tier contractor contracts for satisfactory performance of the subcontractor’s duties under the contract. Such contract shall require such higher-tier contractor to pay such lower-tier subcontractor within the earlier of (i) 60 days of the satisfactory completion of the portion of the work for which the subcontractor has invoiced or (ii) seven days after receipt of amounts paid by the owner to the general contractor or by the higher-tier contractor to the lower-tier contractor for work performed by a subcontractor pursuant to the terms of the contract. Such contractors shall not be liable for amounts otherwise reducible pursuant to a breach of contract by the subcontractor. However, if a contractor withholds all or a part of the amount invoiced by any lower-tier subcontractor under the contract, the contractor shall notify the subcontractor, in writing, of his intention to withhold all or a part of the subcontractor’s payment with the reason for nonpayment, specifically identifying the contractual noncompliance, the dollar amount being withheld, and the lower-tier subcontractor responsible for the contractual noncompliance. Payment by the party contracting with the contractor shall not be a condition precedent to payment to any lower-tier subcontractor, regardless of that contractor receiving payment for amounts owed to that contractor, unless the party contracting with the contractor is insolvent or a debtor in bankruptcy as defined in § 50-73.79. Any provision in a contract contrary to this section shall be unenforceable. Failure of a contractor to make timely payment as provided in this subsection shall result in interest penalties consistent with § 2.2-4355. Nothing in this subsection shall be construed to apply to or prohibit the inclusion of any retainage provisions in a construction contract.
These new requirements apply to “Construction Contracts,” defined in the Wage Theft Law as “a contract between a general contractor and a subcontractor relating to the construction, alteration, repair, or maintenance of a building, structure, or appurtenance thereto, including moving, demolition, and excavation connected therewith, or any provision contained in any contract relating to the construction of projects other than buildings.” In the new language, “General Contractor” and “Subcontractor” continue to use definitions from the Virginia Mechanic’s Lien Statute (Virginia Code § 43-1).
Pursuant to new subsection B, any prime contract on a private construction project must include a provision requiring “the owner to pay such general contractor within 60 days of the receipt of an invoice following satisfactory completion of the portion of the work for which the general contractor has invoiced.” It is unclear if this provision will prevent owners and contractors from entering into a contract with milestone payments rather than payments after invoices are submitted at regular intervals. It is also unclear how this new prompt payment language will affect the submission of pencil copies of payment applications prior to the submission of final versions for approval and payment. As in the changes to the Prompt Payment Act, subsection B states that the Owner “shall not be required to pay amounts invoiced that are subject to withholding pursuant to the contract for the general contractor’s noncompliance with the terms of the contract.” If the Owner intends to withhold all or part of the amount invoiced, “the owner shall notify the general contractor, in writing and with reasonable specificity, of his intention to withhold all or part of the general contractor’s payment with the reason for nonpayment.” Subsection B also imposes interest penalties under Virginia Code § 2.2-4355 on owners who fail to make timely payments. Virginia Code § 2.2-4355(B) establishes that the rate of interest shall be the base rate on corporate loans (prime rate) at large United States money center commercial banks as reported daily in the Wall Street Journal. The new language does not apply to or prohibit retainage provisions in prime contracts.
Subsection C applies to subcontracts between the General Contractor and Subcontractor. These subcontracts must include a provision “under which any higher-tier contractor is liable to any lower-tier subcontractor with whom the higher-tier contractor contracts for satisfactory performance of the subcontractor’s duties under the contract.” Subsection C states that the contract “shall require such higher-tier contractor to pay such lower-tier subcontractor within the earlier of (i) 60 days of the satisfactory completion of the portion of the work for which the subcontractor has invoiced or (ii) seven days after receipt of amounts paid by the owner to the general contractor or by the higher-tier contractor to the lower-tier contractor for work performed by a subcontractor pursuant to the terms of the contract.” Note that there is a potential gap between the 60-day payment period in subsection C and the 60-day payment period in subsection B so that a General Contractor may be obligated to pay its subcontractors prior to the General Contractor receiving payment from the Owner.
Using the language in the first sentence of Subsection C and the definitions in Virginia Code § 11-4.6 and § 43-1, it remains unclear if Virginia Courts will apply the requirements in Subsection C to sub-subcontracts, although it appears that the General Assembly intended these provisions to apply to subcontracts and sub-subcontracts, regardless of tier.
Subsection C also states that “such contractors shall not be liable for amounts otherwise reducible pursuant to a breach of contract by the subcontractor.” But, as in Subsection B, if the contractor withholds all or a part of the amount invoiced by any lower-tier subcontractor, the contractor must provide written notice to its subcontractor “of his intention to withhold all or a part of the subcontractor’s payment with the reason for nonpayment, specifically identifying the contractual noncompliance, the dollar amount being withheld, and the lower-tier subcontractor responsible for the contractual noncompliance.” If a higher-tier contractor intends to withhold payment of any amount invoiced, then they must be proactive in providing written notice with the information required. We expect that General Contractors and Subcontractors will err on the side of caution, providing written notice of withholding payment any time there is even the slightest discrepancy, question, or problem with a payment application. It may prove difficult for a contractor to meet the requirements of this section, particularly in identifying the “lower-tier subcontractor responsible for the contractual noncompliance” if the contractor does not yet know who is responsible at the time that the payment application is pending.
Subsection C also includes a provision rendering pay-if-paid clauses unenforceable in subcontracts for private projects, but with two exceptions: “unless the party contracting with the contractor is insolvent or a debtor in bankruptcy as defined in § 50-73.79.” General Contractors pushed for these exceptions to be added to the bill. These exceptions protect General Contractors and higher-tier Subcontractors in the event that the party above them in the chain of contract becomes insolvent as defined in the Virginia code, or files for bankruptcy. However, it is unclear if these exceptions apply to downstream subcontractors if the Owner is insolvent or files for bankruptcy, or if this protection is limited to the General Contractor.
Although subcontractors are excited that SB 550 prohibits the enforcement of pay-if-paid clauses in most circumstances, SB 550 will not solve some thorny issues, like non-payment for work that is performed subject to a change order rejected due to a dispute over whether the work is an extra or falls within the contract scope. Furthermore, on private projects, lower-tier subcontractors still run the risk of being left holding the bag if the owner goes bankrupt or is insolvent. Discussions are already underway concerning potential modifications and clarifications to be proposed during the 2023 General Assembly Session. Now is the time to discuss with counsel how to modify the contract and subcontract forms and procedures for review, approval, and payment of invoices and payment applications to ensure compliance with these new provisions.
Wednesday, July 20th, 2022
The question regarding whether a worker is properly classified as an independent contractor or employee is fraught with controversy, legal risk and uncertainty. A recent case illustrates the issue in the trucking world.
On June 30, 2022, the U.S. Supreme Court declined a petition for writ of certiorari filed by a group representing California’s trucking industry, California Trucking Association (“CTA”). CTA’s petition sought to challenge a California worker classification law that will have a devastating impact on the trucking and transportation industries. These industries are already in the midst of multiple, overlapping crises.
The high court denied CTA’s petition challenging the Ninth Circuit’s decision in California Trucking Association v. Bonta, 996 F.3d 644 (9th Cir. 2021). That case focused on a 2019 California law known as California’s Assembly Bill 5, or “AB5,” which makes it more difficult for businesses to classify workers as independent contractors, as opposed to employees.
AB5 codified a test created by the California Supreme Court in Dynamex Operations West Inc. v. Superior Court, 416 P.3d 1 (2018), to determine whether workers are truly independent contractors. The three-pronged “ABC test” presumptively considers all workers to be employees, and it allows workers to be classified as independent contractors only if the hiring business demonstrates that the worker satisfies each of the following conditions: “(a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” Id. at 34.
The trucking industry has long relied on an “owner-operator” model, which is dependent on independent contractors who own their trucks. Under this industry model, it is difficult to satisfy the “B” prong of the ABC test because independent contractor drivers and the motor carrier are involved in the same business of transporting freight.
The Ninth Circuit held in Bonta that AB5 is a generally applicable labor law and is therefore not preempted by the Federal Aviation Administration Authorization Act (“F4A”). F4A[1], which also applies to the trucking industry, prohibits states from regulating the prices, routes, and services offered by motor carriers. The import of this decision, and the Supreme Court’s decision to let it stand, is that it will potentially open the door to further state regulation in this space, and it will limit the use and classification of truckers as independent contractors or owner-operators—thereby further increasing the cost of freight transport, which will be passed on to consumers.
This issue is crucial for all businesses. There are valid financial and operational justifications for a business to use independent contractors. On the other hand, government agencies and plaintiffs’ lawyers are eager to initiate claims against employers who are alleged to have misclassified their employees. Companies who have misclassified their workers are often be subject to crippling wage and hour lawsuits, including collective actions, as well as tax liability for failing to withhold employment taxes .
By way of comparison to the “ABC” test, courts in the Fourth Circuit (VA, NC, SC, WV, MD) apply the six factor test originally identified in United States v. Silk, to determine if an individual is an employer or an independent contractor. 331 U.S. 704 (1947). “These factors include: “(1) the degree of control that the putative employer[s] ha[ve] over the manner in which the work is performed; (2) the worker’s opportunities for profit or loss dependent on his managerial skill; (3) the worker’s investment in equipment or material, or his employment of other workers; (4) the degree of skill required for the work; (5) the permanence of the working relationship; and (6) the degree to which the services rendered are an integral part of the putative employer[s’] business.” Hall v. DIRECTV, LLC, 846 F.3d 757, 774 (4th Cir. 2017) (quoting Silk, 331 U.S. at 304–05). No single factor in the test is dispositive, and it is designed to capture “the economic realities of the relationship between the worker and the putative employer.” Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 305 (4th Cir. 2006).
Employers in the Fourth Circuit are not governed by the ABC test at present, but still need to be mindful of how they classify employees. Gentry Locke is monitoring these developments and can assist with independent contractor agreements and lobbying for transportation interests.
The case is California Trucking Association v. Bonta, U.S. Supreme Court, No. 21-194.
[1] 49 U.S.C. § 14501(c)(1).
Friday, July 1st, 2022
It is the job of the Virginia legislature to make and change the laws of our Commonwealth. Sometimes, these new or changed laws are plastered all over the news. More often than not, new and changed laws are put into effect with little to no publicity. Nevertheless, there they are, ready to be used as a tool, or weapon, when the time presents itself.
Despite the world’s reaction to COVID-19, the Virginia legislature was hard at work in 2020. Part of its work included amending an existing law concerning indemnification provisions in contracts with design professionals. Historically, indemnification provisions included a duty to defend. In 2020, the Virginia legislature changed this rule, following a popular trend among other state legislatures, by adding the following paragraph to Va. Code § 11-4.4:
Any provision contained in any contract relating to the planning or design of a building, structure, or appurtenance thereto, including moving, demolition, or excavation connected therewith, or any provision contained in any contract relating to the planning or design of construction projects by which any party purports to impose a duty to defend on any other party to the contract, is against public policy and is void and unenforceable.
This amendment is important, but it has gone largely unnoticed by owners, contractors, and design professionals. As a result, for all qualifying contracts after 2020, the inclusion of a “duty to defend” obligation will render the entire provision void and unenforceable. Keep in mind that this new paragraph in Va. Code § 11-4.4 concerns any provision, not just indemnification provisions. Thus, owners, contractors, and design professionals must all be on the lookout for “duty to defend” provisions going forward, or else risk having numerous provisions of their contracts stricken.
As Benjamin Franklin once said, “an ounce of prevention is worth a pound of cure.” When dealing with design professional contracts, that ounce of prevention is taking the time to properly prepare, review, and negotiate your contracts before signing them.
Tuesday, June 7th, 2022
In one of the more significant Virginia administrative law decisions in recent years, the Supreme Court of Virginia held that the “harmless error” standard does not apply to most issues in administrative appeals, restricting the standard only to procedural defects. The decision in Chesapeake Hospital Auth., d/b/a Chesapeake Regional Medical Center v. State Health Commissioner, et al., Record No. 201510 (Va. May 19, 2022) sweeps broadly, impacting judicial review of all agency decisions subject to the Virginia Administrative Process Act (“VAPA”). The result is likely more delay, more uncertainty, and more litigation in regulatory matters, increasing regulatory risk for clients—particularly for those seeking regulatory approvals for controversial projects. The case also parallels developments at the federal level signaling more rigorous scrutiny of agency interpretations of regulations.
Case Background: The case arose out of a Certificate of Public Need (“COPN”) application to the State Health Commissioner by the Chesapeake Hospital Authority, doing business as the Chesapeake Regional Medical Center (“CRMC”), for new heart-related services and equipment. After an informal fact-finding process, the State Health Commissioner denied CRMC’s application, citing multiple deficiencies.
CRMC, pursuant to the VAPA, sought judicial review, arguing the State Health Commissioner had committed legal error in interpreting a relevant regulation in the State Medical Facilities Plan. The circuit court affirmed the COPN denial. While agreeing that the State Health Commissioner erred in interpreting a provision in the State Medical Facilities Plan, the court found the error harmless given that other, independent factors supported the determination. The Virginia Court of Appeals affirmed on the same “harmless error” grounds.
Decision: The Virginia Supreme Court reversed and remanded the case to the Virginia Department of Health. The primary issue on appeal was whether the “harmless error” standard could save the State Health Commissioner’s denial of CRMC’s COPN application.
Undertaking a familiar, textualist interpretation of the VAPA, the Court found that the “harmless error” standard could only be used to save agency error regarding procedural issues. The VAPA defines the “issues of law” subject to judicial review in Va. Code § 2.2-4027, listing four, specifically:
- accordance with constitutional right, power, privilege, or immunity;
- compliance with statutory authority, jurisdiction limitations, or right as provided in the basic laws as to subject matter, the stated objectives for which regulations may be made, and the factual showing respecting violations or entitlement in connection with case decisions;
- observance of required procedure where any failure therein is not mere harmless error; and
- the substantiality of the evidentiary support for findings of fact.
Va. Code § 2.2-4027 (emphasis added, form adjusted for clarity). Since this specific provision mentions “harmless error” only with respect to failures to follow required procedure, the Court reasoned that the General Assembly had limited the “harmless error” standard to those procedural issues of law. And, since the State Health Commissioner had committed a substantive legal error in applying the statutory COPN factors, the Court determined that remand was required under the VAPA, whether the error was harmless or not. Chesapeake Hospital Auth., at 12-14.
Justice McCullough, concurring in the decision, wrote separately to emphasize the “anomalous nature of this situation,” in which harmless error is the rule in most every situation but administrative law appeals. Id. at 14. He observed this makes Virginia an outlier amongst other states and the federal government, tends to require inefficient litigation, and should perhaps be revisited by the General Assembly. Id. 14-16.
Observations/Impact: Unless the General Assembly amends the VAPA, this case will have significant impacts on judicial review of agency decisions subject to the VAPA, far beyond COPN proceedings. It will impact both judicial review of regulations as well as case decisions across state government.
First, and most directly, any substantive error at the agency level will likely entitle the challenging party to a remand. And this does not apply only to errors interpreting the law. The decision also means no “harmless error” standard for fact-finding without substantial evidence, which is also considered non-procedural legal error subject to judicial review.
The procedural posture of the Chesapeake Hospital Authority case, alone, indicates this is a meaningful change to how courts consider appeals of agency decisions. There, both the circuit court and Court of Appeals had applied the “harmless error” standard, but they no longer may do so for substantive errors. Particularly for case decisions involving complex regulations or contested facts (or both), this change will provide parties multiple avenues for attacking agency decisions, without the need for the challenging party to show that any particular substantive error was material to the outcome.
Second, the case continues a trend of reduced deference to agency interpretations of regulations. Virginia law has remained steadfastly resistant to any Chevron-like deference to statutory interpretation, but has generally recognized deference to agency interpretation of regulations. See Family Redirection Inst., Inc. v. Commonwealth, 739 S.E.2d 916, 920 (Va. App. 2013) (Virginia courts review agency interpretation of statutes de novo, but defer to reasonable interpretation of regulations). The distinction’s reasoning runs that agencies have no specialized expertise, under separation of powers principles, to interpret statutes; however, when interpreting their own regulations, agencies act “securely within [their] delegable authority” because the General Assembly has authorized them “to issue regulations” in the first place. Id.
But in Chesapeake Hospital Auth., the Court found the agency erred in interpreting its own regulations under their plain meaning. This analysis used familiar tools of statutory interpretation; and since there was no ambiguity, no deference was required. Id. at 8-10. This reasoning aligns with the U.S. Supreme Court’s decision in Kisor v. Wilkie, 139 S.Ct. 2400 (2019), which cautioned that ambiguous regulations (and thus deference) should not be found without resort to the same rigorous interpretive tools courts use to interpret statutes. So while the Chesapeake Hospital Auth. decision does not make an explicit change in Virginia law regarding deference to agencies’ interpretations of their own regulations, it signals a less deferential, Kisor-like approach. Compare Chesapeake Hospital Auth., at 8-10 (finding error based on plain meaning of regulation) with Frederick County Business Park, LLC v. Virginia Dept. of Environmental Quality, 677 S.E.2d 42, 44-45 (Va. 2009) (applying arbitrary and capricious standard to D.E.Q.’s interpretation of solid waste management regulations).
Third, this decision, insofar as it makes remands more likely going forward, accentuates an underlying dynamic in contentious regulatory matters. When a court reviews an agency decision and finds error, it can only remand the decision back to the agency. The remedy works as a negative check, so it tends to favor the status quo.
For instance, here, CRMC won at the Virginia Supreme Court. But that does not mean CRMC gets to proceed with its desired project; it still must win approval from the State Health Commissioner. Meanwhile, the status quo is maintained. Suppose, instead, that the State Health Commissioner had approved CRMC’s COPN application, but committed a similar legal error. Had opponents sought judicial review, they would have won a remand. That result would also maintain the status quo. To ultimately prevail, CRMC needs to thread the regulatory/judicial review needle. CRMC’s opponents, on the other hand, can maintain the status quo by winning either at the agency or through judicial review.
It remains true that judicial review of agency action is highly deferential to the agency. But the regulatory risk posed by judicial review is not shared equally by participants in the regulatory process. With Virginia law now clarified that the “harmless error” standard cannot save agency action (other than for procedural defects), this dynamic favoring the status quo has become only more pronounced. Accordingly, the Chesapeake Hospital Auth. case emphasizes the need to pay close attention to potential legal errors at the agency level, keeping judicial review in mind from the outset of administrative proceedings.
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Thursday, June 2nd, 2022
Are you naked?
Are you fully covered?
Look, don’t be embarrassed. I’m talking about insurance. Let me ask again: Are you covered?
In my work, I often talk to clients who don’t have enough insurance coverage. The problem is that many of them didn’t know they were naked — that is, they lacked adequate insurance coverage — until it was too late. They didn’t have enough coverage to protect their family or themselves, or enough to cover claims paid to someone they might have injured in an accident. They didn’t have enough coverage to replace a home that might have been lost in a fire.
They didn’t know what kind of policy they had, they didn’t know what it covered, what the premiums were, or what they were getting for their money. And those people were always shocked — shocked! — when they found out that they didn’t have enough coverage to protect them.
Do you know what’s in your insurance policies? Is it enough coverage? Do you have liability coverage in case you cause an accident that injures another person? Do you have an umbrella insurance policy? Do you even know what an umbrella insurance policy is?
You need to understand the importance of having enough insurance to protect yourself, your family and anyone that you might harm. If you don’t have proper insurance when you really need it, there is nothing you can do to increase your coverage. By then, it’s too late. You’ll have no choice but to launch a GoFundMe page, set up a collection jar in a convenience store, or rely on family to make ends meet.
It’s time to get covered. Let’s discuss some important basics about insurance policies and the kind of coverage you need.
Don’t forget the umbrella!
If you don’t have an umbrella insurance policy, don’t even go to sleep tonight until you get one.
Like the name implies, umbrella insurance offers broad, overarching protection in case you become liable for damages or injuries that exceed your regular insurance coverage. An umbrella protects you and your assets, which could otherwise be at risk.
The Umbrella policy also covers liability for “personal injuries” not covered by other policies. This includes not false imprisonment and malicious prosecution, but also defamation. So, if for example you take out a trespassing warrant against someone and get accused in turn of making a baseless charge, you are covered. More importantly in this age of social media, if you get sued for posting something – or more commonly, reposting something — that turns out to be untrue, you are covered (such claims are more common than you may think).
Let’s say you are in an automobile accident and become liable for another person’s injuries and expenses, but your automobile insurance policy falls far short of what you owe, then a simple umbrella policy can potentially cover that shortfall.
The cost of an umbrella policy is quite low, especially when considering the amount of protection it provides. With underlying coverage in place, an inexpensive umbrella can give you as much as $1 million or more in extra protection.
Like going to a picnic when there is a chance of rain, don’t go out without your umbrella and keep in mind, like all insurance products, you want to buy an umbrella from a reputable insurance company that does not have unnecessary exclusions.
Check with your trusted attorney to get advice on how big of an umbrella you need to protect you, your family or business.
On the road to adequate auto coverage
Too often, people are way underinsured when it comes to their automobiles.
You should check your policy to make sure you have adequate coverage in case you are in a wreck. If you are responsible for the accident, you will need to have enough liability coverage to pay for any damages to the other person’s vehicle and for any injuries they may have sustained.
But even if the other person is responsible for the accident, you could still be on the hook for massive medical expenses to treat injuries to yourself or family, if the other person does not have adequate liability insurance (and they rarely do!). Make sure your policy has generous underinsurance provisions which is the part of the policy that protects you, the insured.
Business owners need to make sure they have commercial automobile insurance if their employees drive company cars, or if they use their personal car on company business.
Planes, boats, jet skis … and golf carts
Your new speedboat is not going to be covered by your automobile policy. Neither is your go-cart, jet ski, motorcycle, trailer or the golf cart you tool around in while cruising the neighborhood pretending that you’re at the beach.
You will need specific coverage for those vehicles. Most companies offer policies that cover a number of watercraft so that you won’t be sunk if your party pontoon takes on water. The same goes for other modes of transportation vehicles, such as airplanes and gliders.
Home, sweet homeowners insurance
Your homeowners insurance should be a valued family possession just like grandma’s fine china. Do you know what your homeowners policy covers? What’s the limit on the payout and will that be enough to rebuild your home if — and we hope this never happens — it is destroyed?
What’s your deductible? If your leaky dishwasher wrecks your kitchen floor and causes a big mold problem that the hazmat guys have to clean up, do you have enough money to pay for those repairs out of your own pocket if your deductible hasn’t been reached?
Homeowners liability insurance also covers you in case a person gets hurt on your property and then files a lawsuit against you. Maybe your neighbor won’t sue you if he falls down your icy steps and breaks his back, but you never know. What if your pet dog, cat, snake, etc., bites someone? Are you covered? It is best to have insurance protection in place.
Homeowners liability coverage also applies “off premises” – so if you take your dog to the dog park and he bites someone, or if your college age kid gets involved in a fraternity hazing scandal (also more common than you may think), you are covered.
Know your agent
I cannot emphasize this enough: Do not buy insurance online. You are virtually buying a pig in a poke.
The internet is filled with companies offering cheap insurance. You get what you pay for. Pay cheap premiums, expect cheap coverage. Many online insurance companies offer bare minimum coverage that probably won’t provide enough money should you ever need to file a claim.
I recommend dealing with a local insurance agent or company who can walk you through all the best insurance options for you and your family. Spend time getting to know your agent. If he or she will not return calls when you are trying to buy coverage . . . can you imagine trying to reach them to file a claim?
So, that covers it. Check over your insurance policies regularly the same way you’d go to a doctor for an annual check-up. In either case, you don’t want to wait too long before you realize you have a serious problem. Take care of yourself and your family today.
And don’t forget your umbrella!
Spread the Word
Share this article and your new knowledge with family and friends. This is incredibly important information that is frequently only learned in the school of hard knocks! Now, you do not have to attend that school.
Comments Off on You’ve got it covered, right? Gentry Locke Partner Matt Broughton Discusses Insurance Policies, Coverage, and Umbrellas
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Monday, April 25th, 2022
Cross-examination can determine whether you win or lose your case. It’s a crucial opportunity to reinforce advantageous points and undermine problematic ones. Maintaining control of the process is key. Here are some ways to do so.
- Know where you are going.
Organize your strategy and questions, prepare rigorously, and know what you want to accomplish with each witness. Pay close attention to the order of your questions, because jurors tend to remember the first and last things they hear the most. Always ask yourself: Is it even necessary to cross-examine this witness?
Never ask open-ended questions. Ask only questions you already know the answer to, because you have deposed the witness. Never ask that “one questions too many.”
- Know which form of cross-examination to use — constructive or destructive — and when.
Use the constructive approach to elicit helpful testimony to corroborate testimony of one of your witnesses or to impeach an opposition witness. Either or both may be helpful.
The format “Mr. Jones, can we agree that …?” is often an advantageous question in such situations. Frequently, constructive cross-examination is initially used with the other party’s expert witness. For example, it can be valuable in getting the witness to agree that your expert’s methodology is reliable and accepted in the field.
The goal of destructive cross-examination is to destroy, or at least seriously damage, the witness’s credibility or limit the testimony’s effect. It has the reputation of being a “gotcha” tactic.
And as with everything else, timing is key. If you need constructive testimony from a witness, it is better to get it before moving into destructive cross-examination. Once his credibility is challenged, the witness will be more likely to fight about points on which you are seeking agreement.
- Make the most of destructive cross-examination when questioning a critical adverse witness.
When dealing with a critical adverse witness, your goal is to start strong by establishing control over the witness in his mind and in the minds of the jurors. If you pull punches, jurors might assume you are unable to impeach the witness. Finish strong by holding certain zingers until the end of the cross. And keep in mind, again, that jurors remember what they hear first and last.
- Rely on cross-examination rules to set/retain control over the witness.
Maintain control by adhering to traditional rules of cross-examination: Ask only leading questions, ask only questions that can be answered with a “yes” or “no,” and never ask a question unless it’s absolutely necessary and you know the answer.
Ask questions that dare the witness to disagree with you. Assuming you’ve deposed the witness, put the deposition on counsel table or lectern where the witness can see it. This technique reinforces your challenge to the witness to disagree with you, and it shows you expect certain answers and the witness will pay for varying from them.
Each question should be tight and limited to one fact. A witness may easily quibble with or deny a complicated and fact-intensive question, especially if a sub-part or minor fact is technically incorrect. Don’t open that door.
Avoid the “Isn’t-it-true-that … ?” format — such as, “Isn’t it true that the light was red?” or “Isn’t it true that you were going 95 miles per hour?” Instead, speak as though you are testifying: “The light was red” or “You were going 95 miles per hour.”
Opposing counsel might object on the grounds that you are not asking a question, but your tone will imply that it is indeed a question. If the objection is sustained, you can revert to the “isn’t-it-true-that” format to cure the objection. You can win points even then because you’ve made opposing counsel look foolish for objecting to a question so easily corrected, and the jury has now heard the same question twice.
Expert fees can be a fertile topic in your questioning. For example, consider this cross after the expert’s presumably lengthy and technical testimony, where opposing counsel didn’t ask the expert about their fees.
Q: Dr. Jones, you’re getting paid $450 per hour to testify here today?
A: Yes.
Q: I won’t take another minute of your time.
A colleague claims to have done this and, while the story is perhaps apocryphal, it does illustrate the value of brevity. Sometimes the best cross-examination, even of a critical witness who just completed a lengthy direct examination, consists of only a question or two.
In summary, make your “statement,” get your “yes” or “no” answer, and move on.
- Remain firm, but not hostile, with an evasive witness.
It’s a common situation: The witness is evasive, won’t answer directly with a “yes” or a “no,” or claims not to know what the meaning of “is” is. Never interrupt the witness; just repeat your question verbatim. Never rephrase it. If the evasiveness persists, continue to repeat the question, slowing down and pausing between words if necessary. The goal is to make the witness look obstructionist or ridiculous to the jury. In that way, you have already succeeded in your cross even if the witness still hasn’t answered your question.
Demand a “yes” or “no” answer if that’s what you’re seeking, but don’t invoke the judge unless all else fails. You will look like a tattletale running to the teacher. Establish and maintain control, but don’t be rude, ugly or hostile to the witness. For example, if the witness dodges or gives a rambling answer to a simple, direct question, let her finish and then start over by saying, “I’m sorry, I must not have been clear. My question actually was …” Hostility is not necessary, and jurors are likely to resent it.
- Keep the reason for cross-examination in mind.
Cross-examination can be a turning point in a trial, but is not a time for drama. It is a time to exhibit your best traits — topnotch preparation; hard work; and a solid grasp of the facts, the law and the witness’s previous testimony — so the jury will see the case your way. Remember that, and you’ll have conducted a successful cross-examination.
Monday, March 28th, 2022
Environmental justice is rapidly evolving in Virginia. As a result, regulators are unsure of how to incorporate, or weigh, environmental justice considerations in their decision-making process. However increasingly progressive legislation and landmark judicial decisions that check the power of state’s regulatory bodies have made environmental justice not only a significant but required element in permitting decisions.
Gentry Locke Environmental and Government and Regulatory Affairs attorneys Jasdeep Singh Khaira, Patrice Lewis, D. Scott Foster, and Government Affairs Specialist Abigail Thompson provide a legal update on environmental justice in Virginia within the University of Richmond Public Interest Law Review.
In general, with the current legislature and regulations, Virginians can expect a greater emphasis placed on environmental justice considerations during regulatory decision making. Additionally, we could see more frequent affirmation of localities’ right to consider environmental justice case-by-case rather than by a state-level directive in future permitting situations. This poses an opportunity for localities to be a leader in furthering environmental justice initiatives within the Commonwealth, but may also erode efforts to establish uniform standards of environmental and economic impact considerations for Virginia’s vulnerable communities.
The full legal update can be found here. Please contact one of the authors of this article above, or the attorneys listed on our Government and Regulatory Affairs practice, for any questions related to environmental justice or government regulations.
Tuesday, March 22nd, 2022
On July 15, 2020, Virginia, adopted the first in the nation COVID-19 Emergency Temporary Standard (the “ETS”). The ETS required Virginia employers to take certain actions to mitigate the spread of COVID-19 infections in the workplace. On January 23, 2021, VOSH replaced the ETS with a permanent Standard for Infectious Disease Prevention (the “Permanent Standard”), which it amended in August 2021.
On January 15, 2022, Governor Youngkin issued an Executive Order directing the Virginia Safety and Health Codes Board (the “Board”) to convene an emergency meeting to discuss if there is an ongoing need for the Permanent Standard. The Board met on February 16, 2022, and voted 7-3 to follow VOSH’s recommendation that the Permanent Standard should be withdrawn because COVID-19 no longer poses a “grave danger” to Virginia workers. A 30-day public comment period that ran until March 19, 2022. On March 21, 2022, the Board convened a public hearing, during which it voted to revoke the Permanent Standard. The revocation is effective on March 23, 2022.
In conjunction with the revocation of the Permanent Standard, VOSH issued a guidance document with recommendations for employers to mitigate COVID-19 risks for employee. The new guidance document takes effect once the Permanent Standard is no longer in effect (March 23, 2022). The new guidance document recommends that employers:
- Facilitate employees getting vaccinated and boosted;
- Encourage any workers with COVID-19 symptoms to stay home from work and seek advice on testing and treatment from their physician;
- Require all workers infected with COVID-19 virus to stay home;
- Provide workers with face coverings or surgical masks, as appropriate;
- Encourage good sanitary work habits such as frequent hand washing;
- Educate workers on your COVID-19 policies and procedures using accessible formats and in languages they understand;
- Operate and maintain ventilation systems in accordance to manufacturers specifications to achieve optimal performance;
- Record and report COVID-19 infections and deaths which are mandatory under VOSH regulations part 1904; and,
- Follow other applicable mandatory VOSH standards.
The guidance document also notes that going forward, VOSH may look to the General Duty Clause to hold employers accountable if they fail to protect works against know health threats, like COVID-19. Employers are also free to adopt safety and health workplace rules that are more stringent than the new VOSH guidance. The guidance document is intended to carry Virginia on its path towards normalcy.
If you have any question concerning the revocation of the VOSH Permanent Standard, or the new guidance document issued by VOSH, please call or email Spencer Wiegard, 540-983-9454 or swiegard@gmail.com.
Friday, February 25th, 2022
The story is familiar. Your company has a customer that has been purchasing goods or services from your company for a long time. The customer is exhibiting signs that it is experiencing financial difficulties. The customer’s payments of the company’s invoices become slower and eventually past due. The business relationship is valuable to both the customer and your company: the customer needs your company’s goods or services and the customer provides important revenue to your company. Neither party wishes to terminate the relationship. The financial condition of the customer continues to deteriorate and the customer resorts to the filing of a petition under the U.S. Bankruptcy Code. Your company may or may not cease providing goods or services to the customer.
Your company receives a letter from the attorneys for the customer or from a trustee appointed in the customer’s bankruptcy case demanding that your company repay all of the money paid to your company by the customer in the ninety days before the bankruptcy petition was filed. You are outraged at this demand; your company provided the goods or services and the customer got the benefit of those goods and services. Does the U.S. Bankruptcy Code allow this to happen? As more fully described below, the answer is, “it depends.” This article is intended to help you know how to best to turn that answer into “No”.
Section 547 of the U.S. Bankruptcy Code (the “Code”) deals with payments made by a debtor to its creditors before the bankruptcy case was filed. Specifically, it provides that a trustee or in some circumstances, the debtor, may recover a payment made by the debtor (1) to or for the benefit of a creditor, (2) for or on account of a debt owed by the debtor before the payment was made, (3) made while the debtor was insolvent[1], (4) made on or within 90 days before the filing of the bankruptcy petition (the “Preference Period)[2], and (5) that enabled the creditor receiving the payment to receive more than it would have received if the debtor’s case was a liquidation case, the transfer was not made and the creditor received payment as provided by the Code (this latter element is commonly referred to as the “liquidation test”).
Appropriately, section 547 of the Code also provides a creditor with certain defenses against the demands to repay money received by that creditor. The most important of these defenses are the contemporaneous and subsequent new value defenses and the ordinary course of business defense. In sum, these defenses can protect funds paid to the company to the extent the company provided new value (1) in an intentional, substantially contemporaneously exchange or (2) after the new value (new goods or services) was given and that new value itself remained unpaid. An example of these “new value” defenses is when either contemporaneously or after a company’s receipt of a payment from the customer, the company provides new goods or services to the customer. In such circumstances, the company gets what is, in effect, a credit for the new goods and services against the payment it receives.
The other primary defense is generally called the “ordinary course of business” defense. It can also be a valuable tool for dealing with a financially troubled customer. This defense has two elements: (1) the debt must have been incurred in the ordinary course of business between the customer and the company, and (2) the payment by the customer must have been paid either (a) in the ordinary course of business between the customer and the company or (b) made according to ordinary business terms of the company’s industry. These two categories of “ordinary course defenses” are often referred to by courts as the “Objective Standard” and the “Subjective Standard”, respectively. Understanding the contours of these two defenses and taking the appropriate actions with a struggling customer can greatly increase the likelihood of successfully defending a demand to disgorge payments made by the debtor-customer to your company in the 90 days before it commences a bankruptcy case.
The Objective Standard
The Objective Standard measures whether the disputed payments were made in the ordinary course of business in the creditor’s industry. This test is broad. To utilize this standard, the creditor must present specific evidence about its industry’s ordinary business terms. For example, if your company sells widgets and the timing and form of the payments you received from the financially troubled customer during the Preference Period are within the industry’s normal range of the period between when widget sellers ship the widgets and receive payments from their customers (i.e., the industry standard), the payments made to your company will be protected by the ordinary course of business defense.
The Subjective Standard
The Subjective Standard considers the normal payment practices between the customer and the company and by that standard measures the “ordinariness” of the payments made in the 90 days before the bankruptcy petition is filed. The courts can consider a multitude of factors, with no one factor being determinative in the analysis. These factors include (1) the length of time the parties engaged in the type of transactions at issue (the longer the relationship, the more defined the payment history can be determined, (2) whether the subject transfers were in an amount greater than is usually paid, (3) whether the payments at issue were made in a manner different from previous payments (such as a change from regular check to wire transfer), (4) whether there was an unusual action by the debtor or the creditor to collect on or pay the debt, and (5) whether the creditor took any action to gain an advantage in light of the debtor’s deteriorating financial condition. However, the most consistently important factor is the difference, if any, between the timing of payments made by the customer before the Preference Period and the timing of payments made by the customer during the Preference Period. This standard is most effectively utilized if the analysis is based on transactions between the company and the customer during a time in which the customer was financially healthy and experiencing financial difficulties.
The two most common tests to determine the “ordinariness” of the timing of a payment are the “average lateness method” and the “total range method.” The average lateness method compares the average time of payment after the issuance of the invoice prior to the Preference Period against the average time of payment during the Preference Period. If the differences are not significant, the company is able to assert a strong defense against the recovery of payments it received during the Preference Period. If the differences in the two averages are material or skewed by outliers, the use of the “total range method” should provide a more complete picture of the financial relationship between the company and its customer. This method is more tolerant of outlier payments and as a result, payments made outside of the total range during the Preference Period typically must be well outside that range to be considered not made in the ordinary course of business.
Strategies to Protect Against Preferential Transfer Litigation
- Be proactive.
- Educate your accounts receivable personnel about preferential transfers and the defenses available.
- Establish and maintain standards and thresholds for identifying financially troubled customers and taking actions to prevent or reduce exposure to future exposure to preference liability. Determine the applicable range of payments for your industry using the total range method (the Objective Standard) and review and update that range annually.
- Monitor customer accounts for changes in the timing of payments. Determine the applicable historical range of payments by the customer using the “average lateness method.”
- Require customers whose payment history is changing to provide financial information as a condition to continue to sell on credit.
- Change payment terms in response to indicia of customer financial difficulties. (Caution: A change in payment terms, such as COD, may provide a new value defense, but may also make an otherwise “ordinary course” payment no longer “ordinary”. However, acting quickly may offer the opportunity to create a new “ordinary course of business” with the customer.)
- When in doubt, seek competent legal advice.
[1] In a bankruptcy case, the debtor is presumed to have been insolvent on or during the 90 days immediately preceding the date of the filing of the bankruptcy petition.
[2] This period is extended to 1 year for payments made to an “insider” of the debtor.
