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On September 18, 2014, a divided panel of the U.S. Court of Appeals for the Fifth Circuit decided another Deepwater Horizon case. The case is United States v. Transocean Deepwater Drilling, Inc., and involves the statutory authority of the U.S. Chemical Safety and Hazard Investigation Board (CSB) to issue administrative subpoenas to Transocean, the operator of the Deepwater Horizon drilling unit, following the disaster on the Deepwater Horizon drilling unit in the Gulf of Mexico.

Transocean argued that the CSB lacked any authority to issue these subpoenas. According to Transocean, this was a “marine oil spill” from a vessel over which the CSB has no jurisdiction under the Clean Air Act (CAA). The lower court held that the CSB was only investigating the release of airborne gases following this explosion and spill on the Outer Continental Shelf (OCS) in the Gulf of Mexico, and since the Deepwater Horizon was not in fact a “vessel”, the incident was not transportation-related and therefore the National Transportation Safety Board (NTSB) had no jurisdiction over the incident. By law, the CSB cannot investigate a “transportation-related” incident, but if the NTSB has no jurisdiction, then the CSB can step in.

The Fifth Circuit agreed, holding that while the drilling unit was a “vessel” for most purposes, it could also be considered to be a “stationary source” as that term is defined in the CAA because the Deepwater Horizon was physically attached to the seabed. Moreover, parsing the law, the Fifth Circuit held that there must be a category of marine oil spills that are not transportation-related and over which the NTSB lacks jurisdiction.

Judge Jones filed a strong dissent, remarking that virtually every Fifth Circuit decision to date has referred to the drilling unit as a “vessel”, and to call it a stationary source because it was attached to the seabed is to ignore the fact that it was constantly in motion. Judge Jones also disagreed with the majority’s ruling that the NTSB lacked authority to investigate this incident because it was not “transportation-related”. Finally, Judge Jones remarked that, as a result of this ruling, “nearly all non-standard offshore vessels involved in oil and gas production on the OCS will become subject to CAA regulation and reports, in addition to all of the regulatory requirements of ‘traditional vessels’ imposed by the Coast Guard.

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United States Supreme Court decisions provide guideposts for the exercise of environmental permitting and enforcement power by state and federal authorities. Whether a particular facility can be permitted often determines whether it can be built or modified after it has been constructed. In addition, a decision such as the Court’s ruling in the case of Marvin Brandt Revocable Trust v. US has a bearing on land use considerations. Even a decision by the Court not to take up a case will have these same consequences. For instance, the Court’s refusal to review the Mingo Logan Coal Company v. EPA leaves undisturbed the EPA’s asserted power to overturn a Corps of Engineers’ permitting decision, which may create disincentives to begin a project in the first place if it looks controversial.

Recently, we published our advisory Supreme Court Roundup: Recent Environmental Law Rulings and Pending Cases. Our Advisory discusses the United States Supreme Court’s rulings affecting environmental law during the October 2013 Term. With significant pronouncements regarding EPA’s Clean Air Act regulatory authority among them, however, the October 2013 Term was far from uneventful. Several more cases slated for the October 2014 Term presage rulings across a broad spectrum of environmental and administrative law issues.

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On September 15, 2014, the Office of Federal Contract Compliance Programs (OFCCP) released its Notice of Proposed Rulemaking (“Proposed Rule“) implementing President Obama’s Executive Order 13665 (“EO 13665“) (April 8, 2014), banning federal contractors from taking adverse action against employees and applicants who discuss their pay. EO 13665 instructs that, within 160 days of the date of EO 13665, the Secretary of Labor shall propose regulations prohibiting federal contractors from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or compensation of other employees and applicants. The Proposed Rule will apply to nearly all federal contracts exceeding $10,000 entered into or modified on or after the effective date.

Executive Order 13665 states that it is “designed to promote economy and efficiency in Federal Government procurement.” It explains that:

When employees are prohibited from inquiring about, disclosing, or discussing their compensation with fellow workers, compensation discrimination is much more difficult to discover and remediate, and more likely to persist. Such prohibitions (either express or tacit) also restrict the amount of information available to participants in the Federal contracting labor pool, which tends to diminish market efficiency and decrease the likelihood that the most qualified and productive workers are hired at the market efficient price. Ensuring that employees of Federal contractors may discuss their compensation without fear of adverse action will enhance the ability of Federal contractors and their employees to detect and remediate unlawful discriminatory practices, which will contribute to a more efficient market in Federal contracting.

In turn, OFCCP’s Fact Sheet on the Proposed Rules states that “[e]nabling the more than 28 million employees of Federal contractors and subcontractors to discuss their compensation without fear of adverse action can contribute to reducing pay discrimination and ensuring that qualified and productive employees receive fair compensation.”

The Fact Sheet provides “highlights” of the Proposed Rule:

  • Amends the Equal Opportunity Clause of Executive Order 11246 that requires certain information be included in Federal contracts and subcontracts. The amendment mandates inclusion of the requirement that Federal contractors and subcontractors refrain from discharging, or otherwise discriminating against, employees or applicants who inquire about, discuss, or disclose their compensation or the compensation of other employees or applicants. An exception exists where the employee or applicant makes the disclosure based on information obtained in the course of performing his or her essential job functions.
  • Requires that Federal contractors incorporate the nondiscrimination provision into their existing employee manuals or handbooks, and disseminate the nondiscrimination provision to employees and to job applicants.
  • Defines key words or terms such as compensation, compensation information, and essential job functions as used in the Executive Order.
  • Provides employers with two defenses to an allegation of discrimination: one based on enforcing rules against disruptive behavior; and the other based on the essential functions of the person’s job.

The Proposed Rule will be published in the Federal Register on September 17, 2014. Interested parties will have until December 16, 2014 to submit comments.

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A new California law effective July 1, 2015 requires employers to provide at least 3 paid sick days per year. Workers covered by valid collective bargaining agreements meeting certain requirements are exempt, but contractors should review their sick leave policies for all employees to ensure they are in compliance. Please click here for a helpful guide to the new law prepared by Pillsbury’s employment law group.

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On September 4, 2014, the U.S. Court of Appeals for the Ninth Circuit issued a decision rejecting the argument that a Clean Water Act (CWA) “permit shield” required the dismissal of a CWA citizen suit. The case is Alaska Community Action on Toxics, et al. v. Aurora Energy Services, LLC; Alaska Railroad Corporation, which had been argued less than a month before the ruling was made. The defendants own and operate a coal loading facility located on the northwest shore of Resurrection Bay in Seward, Alaska. Since 2001, the facility has been covered by an EPA “multi-sector” General Permit for Stormwater Discharges, and the defendants argued that any spills of coal from the facility into Resurrection Bat was covered by this permit and the “permit shield” provisions of Subdivision (k) of Section 1342 of the CWA (33 U.S.C. § 1342(k)). The lower court agreed with the defendants and granted summary judgment.

However, according to the Court of Appeals, a careful review of the provisions of the permit disclosed that these particular “non-stormwater” discharges were not, in fact, covered by the permit, and the decision of the lower court was reversed, and the case was remanded for further proceedings.

This is the second “permit shield” case to be decided by the Court of Appeals in the past few months. In July, the U.S. Court of Appeals for the Fourth Circuit also rejected the use of the permit shield defense in the case of Southern Appalachian Mountain Stewards, et al., v. A & G Coal Corporation, 2014 WL 3377687 (4th Cir. July 14, 2014), which involved the interpretation of an individual National Pollutant Discharge Elimination System (NPDES) permit and the disclosures the applicant made to the permitting authority. It is evident that the courts are subjecting this defense to an exacting review.

Additional Source: Aurora Energy Decision Deems Discharges Prohibited, Leaves Open Question of Permit Shield Applicability; “Permit Shield” Defense Unavailable When Presence of Pollutant Was Not Disclosed In Permit Application Process

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Rule of Thumb: If the business entity’s name change results in the California Secretary of State issuing a new registration number, a new California contractor’s license will be required ~ a contractor’s license is not transferrable. If a new license is required, you must file an application for original contractor’s license and fulfill any other requirements, including bonding and insurance requirements. The license application approval process can take time, plan ahead and, if prudent, request that the license application approval process be expedited. (It is a misdemeanor for a person to engage in the business or act in the capacity of a contractor in California without having the requisite contractor’s license.)

Any change to the licensee’s name or address must be reported to the CSLB within 90 days of the change by submitting an Application to Change Business Name or Address signed by an owner, partner, or officer of the corporation. Also keep in mind that any new business name cannot indicate (1) a change in the type of entity, e.g., LLC, LLP, Inc., etc., (2) that the company qualifies for a classification other than the one for which it is currently licensed, or (3) a personnel change. In addition, any corporate name change must first be registered with the Secretary of State’s Office; adding a “DBA” to the existing corporate name does not require any changes with the Secretary of State’s Office, except that the DBA cannot indicate a second corporation.

Additional Source: CSLB, Change Your Business Name or Address; CSLB Forms and Applications

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On September 4, 2014, U.S. District Court Judge Carl Barbier issued a ruling holding that BP Exploration & Production Inc. is subject to enhanced civil penalties under the Clean Water Act (CWA) because the deadly April 20, 2010 blowout, explosion, fire and massive oil spill at the Macondo well in the Gulf of Mexico was due to BP’s gross negligence and willful misconduct. Thousands of cases involving over a hundred thousand claimants have been filed in federal and state courts. The case is

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Yesterday, Pillsbury attorney Ray Sweigart published his client advisory English Contract Law: Choice of Law and Forum Trumped? Beware (or at least be aware) of the Commercial Agents Regulations. The Advisory discusses the English High Court’s analysis, in Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc [2014] EWHC 2908 (Ch) (29 August 2014), of the arguments for and against non-English forum selection and choice of law terms in commercial contracts involving English parties or performance in England, as well as permissive service of English court proceedings out of the jurisdiction. While the outcome was not final, it certainly sends a note of caution and a reminder to consult English qualified counsel before assuming that application of English law and English court proceedings can be avoided by contract.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Ray Sweigart, the author of this blog.

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New Jersey’s Appellate Division recently reversed a trial court’s dismissal of a general contractor’s claim against a performance bond, holding that the bond must cover the general contractor as the intended obligee, even though the general contractor was not expressly named in the bond.

In Allied Building Products Corp. v. J. Strober & Sons, LLC, et al., A-1113-12T4 (NJ App. Div., September 5, 2014), Dobco, Inc. (“Dobco”) was the general contractor for a science hall renovation project at William Paterson University. J. Strober & Sons, LLC (“Strober”) bid for and was awarded a roofing subcontract on the project. The subcontract between Dobco and Strober required Strober to obtain payment and performance bonds, in the form annexed to the Dobco-Strober subcontract (which required that Strober be named obligee on the bonds).

Strober was awarded the subcontract with Dobco, but in accordance with the company’s procedure, Colonial did not review the actual subcontract. Nevertheless, an underwriter approved issuance of the performance bond, and Strober paid for the bond.

However, when the performance bond was issued, it named William Paterson University as the obligee, rather than Dobco. Dobco advised Strober that it rejected the bond, because it was required to name Dobco as obligee. As a result, Strober issued payment and performance bonds naming Dobco as obligee, using a power of attorney and Colonial’s seal. Colonial asserted that the bonds were a nullity, because Strober was only authorized to issue bid bonds using Colonial’s seal and power of attorney, in accordance with its “partnership account.” Nevertheless, Dobco rejected these bonds as well, and demanded that Colonial issue the bonds with various documents that ordinarily accompany payment and performance bonds. Strobco did not procure the bonds, but nevertheless began its work on the project.

During the project, Dobco became concerned with Strober’s performance, and requested the bonds that had not been delivered. Strober repeatedly contacted Colonial, but was advised several times that the bonds were “still in underwriting,” even though Colonial had already accepted the premium. Eventually, Dobco terminated Strober, and Strober filed for bankruptcy protection. Dobco filed a claim against the bond, but it was denied because Dobco had rejected both sets of bonds, and Colonial maintained, therefore, that they were not in effect.

On cross-motions for summary judgment, the trial court dismissed Dobco’s claim against the bond, citing established New Jersey law that a surety is “chargeable only according to the strict terms of its undertaking and its obligation cannot and should not be extended either by implication or by construction beyond the confines of its contract.” Since Dobco rejected both bonds, the trial court found that there was no valid contract between Colonial and Dobco.

The Appellate Division reversed, noting that, when a bond incorporates a contract by reference, the bond and the contract must be considered as one integrated document in ascertaining the meaning of the bond’s provisions. The Appellate Division held that “strict construction” should have only applied after the extent of the surety’s undertaking was determined; it should not have been used to interpret the language creating the surety’s obligations under the bond. Thus, the Court held that the bond was intended to secure Strober’s contractual obligation to Dobco, which required Strober to obtain a performance bond, naming Dobco as obligee. In so holding, the Court stated, “[W]hen Colonial agreed to bond [Strober’s] performance, it undertook the obligation to do so in the form required by the contract. That Colonial chose not to review the contract it bonded cannot relieve it of obligations voluntarily undertaken.” The Court was unmoved by Colonial’s argument that Dobco rejected both bonds, and ordered the bond reformed, consistent with the Dobco-Strober subcontract.

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To bid for, contract for and perform work on most construction projects in California, a contractor must obtain a contractor’s license, and construction contracts and subcontracts entered into must be in the licensee’s name. When two licensees endeavor to undertake a project jointly, often they do so as what is commonly referred to as a joint venture or JV. (Such a venture may be established under a detailed written JV, bidding, teaming, partnership or LLC agreement, or may simply be a general partnership that results from the joint submission of a bid or performance of work.) What licensees may not realize is that to contract for work in the name of the joint venture, the licensees must first obtain a joint venture license from the Contractors’ State License Board (CSLB). Contractors that JV should carefully review the rules governing when a joint venture license is required.

JV License Requirements

It is a misdemeanor for any person to (i) engage in the business or act in the capacity of a contractor (Bus. & Prof. Code § 7028(a)) or to (ii) submit a bid to a public agency in order to engage in the business or act in the capacity of a contractor (Bus. & Prof. Code § 7028.15(a)), within California without holding the requisite license. Prior to obtaining a joint venture license, the constituent licensees may jointly bid for such a contract or work if, at that time, each of them holds the requisite license (Bus. & Prof. Code §§ 7029.1(b), 7028.15(c)). (A failure to obtain the needed joint venture license will not prevent the imposition of any penalty for a winning bidder’s failure to enter into a contract pursuant to the bid.) It is unlawful for the constituent licensees to be awarded a contract jointly, or otherwise act as a contractor, without first having secured a joint venture license (Bus. & Prof. Code § 7029.1(a)).

For both public and private work projects, then, (i) each JV member must be duly licensed at the time of submitting a bid for such a contract or for such work and (ii) the joint venture license must be in place prior to entering into a contract or performing work for which a contractor’s license is required.

Applying for a JV License

A joint venture license, by definition, is one that is issued to any combination of two or more licensees (Bus. & Prof. Code § 7029). A joint venture licensee is subject to the Contractors’ State License Law, like any other licensee or person performing work that requires a contractor’s license. A joint venture license may be issued in any or all of the classifications in which the members of the joint venture are licensed, and the joint venture may add classifications to its license. In order to obtain a joint venture license, the constituent licensees must submit an application to: CSLB Headquarters, Contractors State License Board, P.O. Box 26000, Sacramento, CA 95826-0026.

For the joint venture license application to be approved, the following requirements must be met:

  • Each of the constituent licensees participating in the joint venture must show its exact business name and license number as it appears in the records of the CSLB — an acceptable joint venture business name may include the full business name of each listed entity, part of each listed entity’s business name, or be a completely fictitious business name
  • Each of the constituent licensee’s licenses must be current and active
  • One of the official personnel listed on the CSLB’s records for each constituent licensee (the owner, a partner or an officer of the corporation, but not a Responsible Managing Employee (RME)) must sign the application
  • Pay the required application filing fee and the initial license fee
  • Pay any additional classification fees for additional classifications being applied for
  • Submit the appropriate Contractor’s the original bond or cash deposit; the bond or cash deposit must bear the same business name as the pending joint venture
  • Submit a Workers’ Compensation Certificate of Insurance if the joint venture is hiring employees, or an exemption form if no employees are being hired

Suspension, Cancelation, Dissolution and Expiration of a JV License

A joint venture license will be canceled upon the cancellation, revocation, or disassociation of any of its constituent licensees or upon the dissolution of the joint venture; the Registrar of Contractors is to be notified in writing within 90 days of the disassociation of a joint venture entity or dissolution of the joint venture and failure to do so will cause the license to be canceled effective the date the written notification is received at the CSLB Headquarters and will be grounds for disciplinary action. If any of the constituent licenses ceases to be current and active or is suspended for any reason, the joint venture license will be suspended.

The joint venture license will expire two years from the last day of the month in which the license was issued. Each license included in the joint venture must be current and active before the joint venture license can be renewed in active status.

Additional Resources: CSLB, Joint Venture License Applicants, Steps in this Section; Blueprint for Becoming a California Licensed Contractor (2006 Ed.); CSLB Forms