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A report titled Validity of Caltrans’ Environmental Hydrogen Embrittlement Test on Grade BD Anchor Rods in the SAS Span dated December 2, 2014 prepared by Yun Chung, Materials Engineer (Retired), purportedly for Steve Heminger, Chair, Toll Bridge Program Oversight Committee recently surfaced. Seven other professors, consultants and engineers purportedly reviewed the report and provided comments, including Robert G. Bea, Ph.D., Russell Kane, Ph.D., Harold J. Mantle, P.E., Charles J. McMahon, Jr., Sc.D., Cory Padfield, P.E., Patrick Pizzo, Ph.D., and Pierre R. Roberge, Ph.D., P.E. The Chung Report responds, in part, to Caltrans’ conclusion “that all the 2,210 HDG BD rods in the SAS are “safe” as installed from future EHE failures.” The San Francisco-Oakland Bay Bridge Self-Anchored Suspension Bridge Evaluation of the ASTM A354 Grade BD Rods was issued on September 30, 2014.

In part, the Chung Report concludes that “This review revealed that Caltrans’ EHE test protocols and data interpretation are both problematic and unscientific and that their conclusions as to the integrity of the [self-anchored suspension span (SAS)] could not be supported.” Section 8.0 of the Chung Report sets forth 12 conclusions and recommendations, including that “Caltrans’ conclusions and recommendations in their September 2014 report on the A354 BD Rod Evaluation are incorrect and will not resolve the concerns about possible hydrogen embrittlement (HE) failures of hot dip galvanized (HDG) Grade BD rods that are critical to the structural integrity of the self-anchored-suspension (SAS) span.” Among other things, the Chung Report recommends that Caltrans should “adopt the strategy of using HDG BD rods that are metallurgically not susceptible to EHE failures, for example those with peak hardness of 32 – 35 HRC maximum” and “identify HDG BD rods in the SAS that are susceptible to EHE failures and replace them with new HDG BD rods or equivalent rods not susceptible to EHE failures.” As for monitoring, the Chung Report recommends that Caltrans “concentrate on the tower base anchor rod performance because they are not replaceable and their failures would be critical to the SAS structural integrity…. It may take years but it is difficult to predict the timeframe of EHE failures. Caltrans should develop a risk analysis of the tower base anchor rod performance.”

Additional Source: The Sacramento Bee, Independent report calls Bay Bridge Tests ‘unscientific,’ ‘erroneous’ (Dec. 2, 2014).

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In the 2012 case of Texas Rice Land Partners, Ltd., et al., v. Denbury Green Pipeline-Texas, LLC, 363 S. W. 3d 192 (Tex. 2012), the Texas Supreme Court held that the routine and ministerial issuance of a common carrier pipeline permit to Denbury Green did not conclusively establish the pipeline’s status as a common carrier as a matter of law, thereby enabling the pipeline to exercise eminent domain powers over private property. Consequently property owners now have the right to challenge that status in state court. The Texas Railroad Commission took note of the criticisms lodged against its rules and procedures, and on December 2, 2014, the Commission promulgated changes to its permitting rule, which is located in Title 16, Part 1, Chapter 3 of the Texas Administrative Code, Rule § 3.70. The new rule is effective on March 1, 2015.
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The Texas Supreme Court confirmed that it will hear oral arguments in McGinnes Indus. Maint. Corp. v. The Phoenix Ins. Co., et al., No. 13-20360, case on January 15, 2015. The issue was certified to the Texas Supreme Court by the Fifth Circuit Court of Appeals on June 11, 2014. The Court will decide whether, under Texas law, an EPA order to clean up a site is a “suit” triggering an insurer’s duty to defend. A trial in which the companies’ liability to pay civil penalties to Harris County was litigated, concluded a few weeks ago, with mixed results.

As described by the Fifth Circuit Court of Appeals in an unpublished opinion (issued June 11, 2014), McGinnes is in the waste disposal business. In the 1960s, McGinnes removed waste from a paper mill and released the waste into three ponds located in Harris County, Texas, adjacent to the San Jacinto River. During that time, McGinnes was covered by commercial general liability (GCL) insurance policies which required the insurers to defend its insured in any “suit” (an undefined term in the policies) seeking damages on account of property damage. Many years later, EPA sent a series of CERCLA notice letters to Waste Management, McGinnes parent company, including a Unilateral Administrative Order ordering McGinnes to conduct a remedial investigation and feasibility at what became known as the San Jacinto Waste Pits Superfund Site. Failing to comply with the Order would subject McGinnes to substantial civil penalties. McGinnes then notified its insurers of these demands, and requested that they provide a defense in accordance with the terms of the insurance policies. Travelers refused to defend, arguing that no “suit” had been filed. McGinnes then filed a lawsuit against the insurers in the US District Court for the Southern District of Texas, seeking over $2 million in attorney’s fees as well as a declaratory judgment that Travelers was required to provide a defense to the EPA actions. However, the District Court granted the insurers motion for summary judgment, determining that the EPA CERCLA action was not a suit triggering the duty to defend. It based its decision on the fact that when the policies were issued in the 1960s and 70s when “this sort of administrative bullying did not exist.” McGinnes appealed the order to the Fifth Circuit Court of Appeals.

The Fifth Circuit, realizing there was no controlling Texas precedent to guide it in deciding “an important question of Texas law, for which there is no controlling Texas precedent”, certified a question of law to the Texas Supreme Court, asking whether the EPA’s PRP letters and/or unilateral administrative order received by McGinnes constitute a “suit” within the meaning of the GCL policies, triggering a duty to defend. The appeal was filed on June 11, 2014.

Additional Sources: Houston * Chronicle, Science & Environment, Settlements, split verdict yield murky result in waste pit case (Nov. 13, 2014); HoustonPress, Blogs, Two Companies Settle Over San Jacinto River Waste Pits, Jury Clears Lone Holdout of Liability (Nov. 14, 2014); Texas Supreme Court’s Case Information, McGinnes Indus. Maint. Corp. v. The Phoenix Ins. Co., et al., No. 14-0465

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On December 1, 2014, the U. S. District Court for the Eastern District of Louisiana (Judge Zainey presiding) issued a ruling in the case of The Parish of Plaquemines v. Total Petrochemical & Refining USA, Inc., et. al. The court granted the motion of the Parish to remand to state court a lawsuit filed by the Parish against several major oil companies who the Parish alleges have caused substantial environmental damages to the land and water bodies located within the Louisiana Coastal Zone boundaries of Plaquemines Parish. These companies, over the course of many years, have conducted their operations pursuant to more than 1000 state coastal zone permits, which they are alleged to have violated. The case was filed in state court, but the defendants attempted to remove it to federal court. They argued that removal was justified on the basis of diversity, the Outer Continental Shelf Lands Act (OCSLA), general maritime law, and federal enclave jurisdiction (some of the areas are also located in federal nature preserves). The District Court rejected all of these arguments in a careful and a lengthy opinion.

The ability of the Parish to pursue this litigation was challenged, but the District Court determined that the relevant Louisiana statutes authorized the Parish to bring this lawsuit, which pertains to activities conducted within the jurisdictional boundaries of the Parish. There is a suggestion that the Louisiana Attorney General does not concur with this legal action, but very little discussion is provided on this matter. The defendants also argued that a recent decision of the Fifth Circuit in In re Deepwater Horizon, 745 F.3d 157 (5th Cir. 2014), clarified the reach of federal jurisdiction embodied in the OCSLA, but the District Court pointed out that that case involved natural resource damage claims emanating from oil spills on the Outer Continental Shelf — and that is not the case here. Finally, the maritime and federal enclave arguments were unsuccessful. The matter will be returned to the state courts — unless there is an appeal to the Fifth Circuit. By state law, the Parish must expend any damages recovered to enhance coastal protection and recovery issues.

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In Cincinnati Ins. Co. v. AMSCO Windows, No. 13-4155, 2014 WL 6679589, at *3 (10th Cir. Nov. 26, 2014), the United States Court of Appeals, Tenth Circuit, held that construction defects brought against a window manufacturer (“AMSCO”) were “occurrences” as defined under the manufacturer’s Commercial General Liability (“CGL”) policies and, therefore, those CGL policies provided coverage for those claims.

In our experience, when courts follow the minority and find that manufacturing or construction defects cannot be an occurrence under a CGL policy, they often rotely apply what they see as precedent, instead of carefully analyzing the policy language and the facts. Here, both the district court and the Tenth Circuit give us a refreshing and thoughtful analysis into this issue. Read about it after the jump.
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On September 30, 2014, Governor Edmund G. (Jerry) Brown Jr. signed into law California Assembly Bill 26 and Assembly Bill 2272, both of which are effective January 1, 2015. Existing law requiring payment of prevailing wages defines “public work” to include, in part, “[c]onstruction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds…” Cal. Lab. Code § 1720(a). AB 26 redefines “construction” to add “work performed during the postconstruction phases of construction, including, but not limited to, all cleanup work at the jobsite.” Cal. Lab. Code § 1720(a)(1). Existing law otherwise contemplates fines for failure to pay prevailing wages and makes a willful violation of laws relating to the payment of prevailing wages on public works a misdemeanor.

Additional Source: California Department of Industrial Relations, California Prevail Wage Laws

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On November 26, 2014, the U.S. District Court for Hawaii issued a ruling holding that a Hawaii County Ordinance purporting to place restrictions on the “open air cultivation, propagation development or testing of genetically engineered crops or plants” was preempted by state laws empowering the Hawaii Department of Agriculture to control “noxious weeds”. In addition, it held that provisions of the Federal Plant Protection Act preempts the County’s attempt to ban open air field testing. The case is Hawaii Floriculture and Nursery Association v. County of Hawaii.

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On November 25, 2014, the U.S. District Court for Alaska granted a preliminary injunction enjoining and restraining EPA and the EPA Regional Administrator from taking any actions under their authority under Section 404c of the Clean Water Act regarding the proposed mining project of the Pebble Limited Partnership in the Bristol Bay watershed. The project is very controversial; it will require an Army Corps of Engineers permit that will itself be subject to EPA oversight. No permit application has been filed, but EPA argues that it has authority under the CWA to take its own preemptive action to halt the project. The Pebble Limited Partnership has alleged that EPA’s association with a number of public interests groups that oppose this project violates the Federal Advisory Committee Act. EPA and DOJ vigorously dispute these allegations, but the District Court has now ruled that Pebble Limited Partnership may have a case with respect to a group that the court calls the “anti-mine assessment team” A fairly quick resolution of the controversy is promised by the District Court. The case is Pebble Limited Partnership v. EPA.

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On June 23, 2014, Louisiana Governor Bobby Jindal signed into law Senate Bill 447. Louisiana Revised Statutes § 2156.3 governs the licensing of “entities engaging in the business of selling, leasing, installing, servicing, or monitoring solar energy equipment,” and “entities engaged in the business of arranging agreements for the lease or sale of solar energy systems or acquiring customers for financing entities.” Section 2156.3 prohibits licensed contractors installing solar energy equipment or solar energy systems on or after February 1, 2015 unless the licensees are in compliance with Section 2156.3 and any related rules adopted by the Louisiana State Licensing Board for Contractors (the “Board”). It provides certain exceptions, including that any contractor licensed in Louisiana as of August 1, 2014, holding the major classification of Building Construction, Electrical Work (Statewide), or Mechanical Work (Statewide), shall be deemed to have met the examination requirement.
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Internal corporate investigations often raise questions regarding legal privileges. In an important attorney-client and work product controversy in the corporate area, last June the DC Circuit Court of Appeals granted a petition for a writ of mandamus in connection with documents the trial court had ordered to be made available to the plaintiff in a False Claims Act case. The case is reported as In re: Kellogg Brown & Root, Inc., 756 F.3d 754 (May 7, 2014). The Court of Appeals, vacating the District Court’s document production order, found that the District Court, in United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 1016784, at *2 (D.D.C. Mar. 6, 2014), should have carefully reviewed the protections afforded internal legal deliberation protections recognized by the Supreme Court in Upjohn Co. v. U.S., 449 U.S. 383 (1981). In doing so, the Court of Appeals recognized that the attorney-client privilege means that potentially critical evidence may be withheld from the factfinder; however, “our legal system tolerates those costs because the privilege ‘is intended to encourage ‘full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice.'” It further ordered that “[t]o the extent that Barko has timely asserted other arguments for why these documents are not covered by either the attorney-client privilege or the work-product protection, the District Court may consider such arguments.”

During discovery, Barko sought documents related to a prior internal investigation. The internal investigation was pursuant to its Code of Business Conduct, which is overseen by the company’s Law Department. The internal investigation had allegedly been conducted for the purpose of obtaining legal advice and that the internal investigation documents therefore were protected by the attorney-client privilege. Barko responded that the internal investigation documents were unprivileged “business records.” After reviewing the disputed documents in camera, the District Court determined that the attorney-client privilege protection did not apply because, among other reasons, it has not been shown that “the communication would not have been made ‘but for’ the fact that legal advice was sought.” United States ex rel. Barko., 2014 WL 1016784, at *2 (quoting United States v. ISS Marine Services, Inc., 905 F. Supp. 2d 121, 128 (D.D.C. 2012)). The District Court concluded that the internal investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” Id. at *3.

The Court of Appeals found that “[t]he District Court erred because it employed the wrong legal test.” “[I]n a key move”, the District Court ruled that “the primary purpose of a communication is to obtain or provide legal advice only if the communication would not have been made ‘but for’ the fact that legal advice was sought,” implying that “if there was any other purpose behind the communication, the attorney-client privilege apparently does not apply.” The District Court, because it found that the internal investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice,” further concluded that “‘the primary purpose of’ the internal investigation ‘was to comply with federal defense contractor regulations, not to secure legal advice.'”

The Court of Appeals confirmed that “[t]he but-for test articulated by the District Court is not appropriate for attorney-client privilege analysis.” It underscored the “that the primary purpose test, sensibly and properly applied, cannot and does not draw a rigid distinction between a legal purpose on the one hand and a business purpose on the other. After all, trying to find the one primary purpose for a communication motivated by two sometimes overlapping purposes (one legal and one business, for example) can be an inherently impossible task.” The District Court’s “novel approach to the attorney-client privilege… would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs, which is now the case in a significant swath of American industry.” Finding that the District Court’s decision “generated substantial uncertainty about the scope of the attorney-client privilege in the business setting,” it concluded that “the District Court’s decision is irreconcilable with Upjohn.” It then held that “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.”

The latest decision of the District Court in United States ex rel. Barko was issued, and most of the 150 or so documents generated by communications between Halliburton’s in-house counsel and outside counsel qualify for the attorney-client or attorney work product protections. An appendix to the ruling lists these documents, and indicates the basis on which the court determined whether they are privileged.