BSEE

By Michael J. O’Brien

Scott Angelle, a native of Breaux Bridge, Louisiana, has been appointed by the Trump Administration to head the Bureau of Safety and Environmental Enforcement (“BSEE”).  Mr. Angelle first held public office in the late 1980’s. He has since served as a Parish President, Secretary of Louisiana’s Department of Natural Resources, and, most recently, as Chairman of the Louisiana Public Service Commission. Under his leadership as Louisiana’s Secretary of the Department of Natural Resources, the state’s coastal permitting system was reformed, providing for efficient permitting while increasing drilling rig counts in Louisiana by more than 150 percent during his tenure. Mr. Angelle has also served as Chairman of the Louisiana State Mineral Board, and as a member of the Louisiana State University Board of Supervisors, Southern States Energy Board, and the Louisiana Coastal Port Advisory Authority.

Mr. Angelle will become BSEE’s fourth director since it was established six years ago. BSEE was formed after the Deepwater Horizon explosion to promote safety, protect the environment, and conserve resources offshore through “vigorous regulatory oversight and enforcement.”

BSEE is headquartered in Washington D.C. and supported by regional offices in New Orleans, Louisiana, Camarillo, California, and Anchorage, Alaska.  These regional offices review applications for permits to drill, ensure safety requirements are met, conduct inspections of drilling rigs and offshore production platforms, investigate offshore accidents, issue Incidents of Non-Compliance and have the authority to fine companies through civil penalties for regulatory infractions.

Mr. Angelle’s post does not require Senate confirmation; as such, he will start working as the head of BSEE Tuesday, May 23, 2017. Secretary of the Interior, Ryan Zinke, issued the following statement about Mr. Angelle: “Scott Angelle brings a wealth of experience to BSEE, having spent many years working for the safe and efficient energy production of both Louisiana’s and our country’s offshore resources. As we set our path towards energy dominance, I am confident that Scott has the expertise, vision, and the leadership necessary to effectively enhance our program, and to promote the safe and environmentally responsible exploration, development, and production of our country’s offshore oil and gas resources.”

 

structure

By Matthew C. Meiners

In targeting a company for purchase, many buyers prefer to purchase the assets of a company, as opposed to the stock (or other equity) of the company because, as a general rule, the buyer of assets in an asset acquisition does not automatically assume the liabilities of the seller.  Accordingly, an asset acquisition generally allows the buyer and seller to select which assets and liabilities will be transferred.  However, in certain circumstances, the buyer can be held responsible for liabilities of the seller if a court determines that certain exceptions are met.  Louisiana courts have been willing to impose liability on asset-sale successors on the following grounds:

  1. The buyer assumed the liabilities;
  2. The transaction was entered into to defraud the seller’s creditors;
  3. The buyer company is a “mere continuation” of the seller company; and
  4. The transaction was “in fact” a merger.

The “mere continuation” exception is probably the most likely to catch a buyer off guard.  Louisiana courts, in considering whether an asset-sale successor is a “mere continuation” of the seller company, have considered the extent to which the buyer company has retained the same employees, supervisory personnel, company name, and physical location as the seller company.  Further, prior business relationships may be considered, as well as the continuity of general business operations and the identity of the business in the eyes of the public.  A threshold requirement to trigger a determination of whether successor liability is applicable under the “mere continuation” exception is that one company must have purchased all or substantially all the assets of another.

If you plan to purchase all or substantially all of the assets of a company, especially if your goal in choosing an asset purchase over a stock purchase is to avoid or minimize your liability for the seller’s liabilities, you should carefully consider the ways in which you could be seen as merely continuing the seller’s business under the factors described above.  You may be signing on for more liability than you anticipate.

EPA

By Lauren Rucinski

On May 4, 2017, Momentive Performance Materials Silicones, LLC (“MPM”) agreed to a settlement with the United States, on behalf of the Environmental Protection Agency (“EPA”), and the State of New York, that requires MPM to pay $1.5 million in fines. The action was brought against MPM pursuant to Sections 113(a) and (b) of the Clean Air Act (“CAA”) and Sections 3008(a) and (g) of Resource Conservation and Recovery Act (“RCRA”) and sought civil penalties for violations of federal law and federally-approved provisions of New York state law. The claims arise from MPM’s ownership and operation of a rotary kiln incinerator at its Waterford, New York facility.

MPM manufactures silicone products from basic raw materials to a wide variety of finished products. According to the settlement agreement, MGM bypassed an automatic shut off system in order to allow the incinerator to operate outside of its permitted limits thousands of times within a two year period. As a result, the incinerator released hazardous substances to the environment in violation of its operating permits and federal and New York state law. MPM also failed to continuously monitor certain operating parameters during those times of incinerator bypass, in derogation of its Title V and RCRA permits. MPM also allowed the incinerator to discharge carbon monoxide (“CO”) in excess of the permit limits at least 13 times during a 7 month period in 2007, constituting a violation of its Title V and RCRA permits, Hazardous Waste Combustor National Emissions Standards for Hazardous Air Pollutants (“NESHAP”) rules, and New York state law, which incorporates the NESHAP standards in its permitting program. MPM also falsely certified that it was in compliance with NEHSAP and Title V permit requirements in its 2006 Title V Annual Compliance Certification.

The EPA is authorized to initiate a civil enforcement action for injunctive relief and civil penalties of up to $32,500 per day for each violation. Similarly, New York state law authorizes its Department of Environmental Protection to initiate civil administrative and judicial enforcement actions for civil penalties for up to $15,000 per violation and $15,000 per day for each day the violation continues and, for a second and any subsequent violation, up to $22,500 per violation and $22,500 per day for each day the violation continues. Based on the various violations of CAA, RCRA, and New York State laws and regulations, MPM agreed to pay $1.5 million in fines, with half going to the state of New York and half to the federal government. The large fine is likely due in part to MPM’s intentional bypass of its automatic shut off system and its falsifying of its annual compliance report.

By J. Eric Lockridge

Large and small offshore service companies are turning to the Bankruptcy Code for help with restructuring their balance sheet, and turning to Washington for help with generating more work.

One of the largest offshore service companies in the world, Tidewater, announced this week that it will file a Chapter 11 bankruptcy petition in Delaware on or before May 17, 2017. This is not a surprise to the markets. Tidewater received notice from the New York Stock Exchange in April that it is at risk of being delisted before the end of the year because its average stock price sat below $1.00 per share for too long. Tidewater’s press release announcing the upcoming bankruptcy says the company has secured broad support from secured creditors for a pre-packaged plan that will effectuate a form of debt-for-equity swap. The plan will also reject certain sale-lease back agreements for a portion of Tidewater’s fleet. Expect a fight over lease-rejection damages.

A smaller operator focused on the Gulf of Mexico, GulfMark Offshore, also announced this week that it is planning a Chapter 11 filing. Offshore Support Journal reported that GulfMark Offshore’s most recent SEC filing discloses the company will likely file a Chapter 11 bankruptcy petition on or before May 21, 2017. The company is working with advisors to secure support for a restructuring agreement that will include a backstop commitment from certain note holders and a debt-for-equity swap.

Some in the offshore industry are lobbying the White House and others to extend the “America First” agenda to the offshore-service industry in hopes that might provide a boost. For example, see Harvey Gulf’s recent open letter to President Donald Trump here. Many in the offshore service industry would like to see the current administration enforce regulations requiring proper plugging and abandonment (P&A) of many non-producing or low-producing wells in the Gulf of Mexico’s shallow water. They have to be careful about how loudly they push that agenda, however, or they may alienate the very exploration and production (E&P) companies that would hire them. Many E&P companies would like to see enforcement of those regulations delayed as long as possible, and at least until the price of oil is higher.

Enforcing P&A obligations would likely create thousands of jobs and boost the economy along the Gulf Coast, where President Trump received strong electoral support. The House Majority Whip, Rep. Steve Scalise (R-LA), represents a district along the Louisiana coast that is home to scores of offshore service companies and their vendors, which gives that industry some important clout on Capitol Hill. Delaying enforcement of P&A obligations and/or making them less onerous might be more consistent with a “regulation-roll-back” agenda and with the interests of many E&P companies, several of which have strong ties to the current administration and deep relationships in Congress.

Will Washington take any action to provide some relief for offshore service companies, their employees, vendors, and lenders? How will an increase in Chapter 11 cases for offshore service companies affect the industry and the companies that have (so far) avoided bankruptcy? Kean Miller and many of our clients will keep a close watch as events unfold.

 

DEQ

By Tokesha Collins-Wright

The Louisiana Department of Environmental Quality (LDEQ) derives its enforcement power and ability to assess penalties from La. R.S. §§ 30:2025, 30:2050.2, and 30:2050.3. The typical chronology for the administrative enforcement process is that LDEQ will first issue a notice of potential penalty (NOPP), compliance order (CO), or consolidated compliance order & notice of potential penalty (CCO/NOPP) for alleged violations of the Louisiana Environmental Quality Act (LEQA). The Respondent then has the opportunity to appeal or settle the matter. The CCO/NOPP has typically been divided into four sections:

  1. Findings of Fact;
  2. Compliance Order;
  3. Further Notice, and;
  4. Notice of Potential Penalty.

Recently, however, LDEQ added a new section to its CCO/NOPPs entitled, “Request to Close.” The main effect of this new section is to allow the Respondent to indicate whether there is any interest in discussing settlement and, if so, to present the Department with a settlement offer.

The new Request to Close section is divided into three parts:

  1. Statement of Compliance;
  2. Settlement Offer, and;
  3.  Certification Statement.

The Statement of Compliance portion contains a checklist for the Respondent to ensure that it has provided the LDEQ with all of the information that was requested in the Compliance Order section. The Settlement Offer portion is optional and allows the Respondent to indicate whether there is any interest in entering into settlement negotiations with the LDEQ, with the understanding that the Department has the right to assess civil penalties based on LAC 33:I.Subpart I.Chapter 7. The section also provides an opportunity for the Respondent to make an offer of settlement on the form itself to close the matter out. If the Respondent chooses this option, then the Department will review the settlement offer and will later notify the Respondent as to whether or not the offer has been accepted. Additionally, if the Respondent decides to include a Beneficial Environmental Project (BEP) in its settlement offer, then the Respondent can provide a justification and description of its proposed BEP. The third and final portion of the Request to Close is the Certification Statement. In this section, the Respondent certifies that, among other things, based on reasonable inquiry, the information being provided to the Department is true, accurate, and complete.

 

time

By A. Edward Hardin, Jr.

Under the federal Fair Labor Standard Act, employees are entitled to be paid time and a half their regular rate of pay for all hours worked over 40 in a workweek.  Private employees cannot elect, nor can private employers offer, “comp time” in lieu of overtime pay.  Private employers can offer (or may be able to require) time off within a single workweek to offset longer-than-normal hours or to prevent an employee from exceeding the 40-hour threshold in a single workweek, but private employers cannot not offer true comp time to employees to offset overtime.  Unlike the private sector, under some circumstances, public sector employees can elect “comp time” in lieu of overtime pay.  On May 2, in a vote along party lines, the U.S. House of Representatives voted to extend to private employers the ability to offer employees the option to elect comp time in lieu of overtime, something that has been in place for a number of years for public employers.  The Society for Human Resource Management (SHRM) and the White House both support the bill, but the bill may face a filibuster by Democrats in the Senate.   Here are links to an article from SHRM and an article from CNN on the bill and the House action.

whistle

By Erin L. Kilgore

The Louisiana Environmental Whistleblower Statute, La. R.S. 30:2027, protects employees who, in good faith, disclose, or threaten to disclose, acts they reasonably believe to be in violation of an environmental law, rule, or regulation.  It also protects employees who testify or provide information to a public body about such acts.  An employer may not retaliate against an employee who engages in activity protected by the statute.  The statute provides for the trebling of certain damages awarded to a prevailing plaintiff.

Last week, the Louisiana First Circuit Court of Appeal reversed a $750,000 judgment against the Louisiana Department of Natural Resources (“DNR”), finding that the plaintiffs were independent contractors of the State – not employees – and, therefore, outside the scope of the statute’s protection.

Earlier in the suit, the jury found that the plaintiffs were employees of DNR; that they reported what they believed to be environmental violations; and as a result of their reports, DNR retaliated against them.  The jury awarded the plaintiffs $250,000 in lost wages, which was then tripled to $750,000 by the statute’s trebling provision.  On appeal, the court found that the plaintiffs were independent contractors, rather than employees of DNR.  As a result of this finding, the plaintiffs were outside the scope of La. R.S. 30:2027, and the case was dismissed.

Additional information can be found here  and a copy of the decision can be found here.

 

socmed

By Erin L. Kilgore and A. Edward Hardin, Jr.

It appears that an announcement regarding the U.S. Department of Justice’s investigation into the shooting death of Alton Sterling may be forthcoming, and many employers in the Baton Rouge-area are considering how the city and their employees may react.  As a general practice, employers should take steps to remind employees to treat one another with dignity and respect, both in personal interactions and social media, and remind employees regarding workplace policies that demonstrate these values.  Employers should anticipate issues so that the employer places itself in a position to diffuse issues before they arise.

In charged and emotional situations, like the news related to the Sterling shooting, employees and others often flock to social media to share views and experiences, vent frustrations, or to express support for a position to which they are aligned.  Employees often fail to consider that what they say or do on social media may lead to hurt feelings or spark disagreements in the workplace, or that their personal commentary can potentially negatively reflect on their employers.

An employer cannot prevent its employees from expressing personal or political views on social media during the employee’s off-duty time and when an employee uses his or her personal devices.  Yet, there are countless instances in which an employee’s personal posts have come to an employer’s attention, through another employee or a member of the public urging the employer to take some kind of action in response to the post.

Depending on its substance, on-line commentary – even commentary that includes vulgar language or profanity – may (in some instances) be protected by law.  Therefore, if an employee posts what could be perceived as objectionable or antagonistic content on social media regarding the Sterling investigation, employers should remain calm and must consider the substance of the post.

In instances where a member of the public complains to an employer about an employee’s post or negatively comments about an employee’s post, it may be appropriate for the employer to designate a spokesperson to respond on the employer’s behalf with a short statement acknowledging the inquiry or comment, thanking the commentator for bringing the matter to the employer’s attention, stating that the employer takes all inquiries and complaints seriously, and stating that the employer will look into the issue further.  It may also be appropriate to suggest that the commentator contact the employer’s spokesperson by telephone to further discuss the matter and attempt to resolve the issue.  In many instances, it is better to take the merits of the discussion off-line, rather than to prolong the on-line life of a thorny issue raised in a post.

Delaware

By David P. Hamm, Jr.

In Sandys v. Pincus, the Delaware Supreme Court reversed a “thoughtful forty-two page opinion” by Chancellor Bouchard that dismissed a derivative action based upon the stockholder’s failure to make pre-suit demand.[1] The court’s opinion can be found here.  The underlying Court of Chancery opinion can be found here.

Expansion of the Rales Test for Demand Futility

The authority of the board of directors to manage the business and affairs of a corporation under Section 141(a) of the Delaware General Corporation Law extends to the board’s authority to decide whether to initiate or refrain from initiating litigation. Thus, pursuant to Court of Chancery Rule 23.1, a plaintiff in a derivative action must “either make a demand upon the board to initiate the litigation or demonstrate that such demand would be futile.”[2]

Delaware courts apply either the Aronson test or the Rales test in determining whether a plaintiff’s demand upon the board would be futile. In general, the Aronson test requires the plaintiff to plead particularized facts that create a reasonable doubt that either “the directors are disinterested and independent” or that “the challenged transaction was otherwise the product of a valid exercise of business judgment.”[3] In general, the Rales test requires the plaintiff to plead particularized facts that create a reasonable doubt that, at the time the complaint was filed, “the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.”[4] The timing of the inquiry is a chief distinction between the two tests.

The Aronson test has been criticized over the years and exceptions to the application of the Aronson test have been created in several contexts. Three such exceptions were outlined in Rales as follows:

“A court should not apply the Aronson test for demand futility where the board that would be considering the demand did not make a business decision which is being challenged in the derivative suit. This situation would arise in three principal scenarios: (1) where a business decision was made by the board of a company, but a majority of the directors making the decision have been replaced; (2) where the subject of the derivative suit is not a business decision of the board; and (3) where . . . the decision being challenged was made by the board of a different corporation.”[5]

Chancellor Bouchard’s application of the Rales test to the plaintiff’s Brophy and Caremark claims do not result in the expansion of the test’s application. However, the Chancellor’s application of the Rales test in the context of the plaintiff’s claim that the board breached its fiduciary duties by approving the secondary offering in question (the “Secondary Offering Claim”) does constitute an expansion of the Rales test. The novelty of the test’s application is acknowledged by Chancellor Bouchard as follows:

“In identifying these three scenarios, the Court [in Rales] included a qualification that they were the ‘principal’ scenarios where Aronson would not apply, implying that there could be other scenarios. In my opinion, this case presents such a scenario.”[6]

The Chancellor set forth the following facts in support of his application of Rales to the Secondary Offering Claim:

  1. A majority of the board that approved the secondary offering “had a personal financial interest in the transaction such that they may have received an unfair benefit and the transaction may be subjected to entire fairness review.”[7]
  2. A majority of the board was not changed from the time the secondary offering was approved to the time the complaint was filed. Thus, the “principal scenario” set forth by the Court in Rales did not find application.
  3. The board composition changed from the time the secondary offering was approved to the time the complaint was filed to the extent that a majority of directors derived no personal financial benefit from the secondary offering.

These facts led Chancellor Bouchard to conclude that the demand futility inquiry should be focused solely upon the board that existed at the time the complaint was filed (as required by Rales) rather than the board that existed at the time the second offering was approved (as required by the second prong of Aronson).

The application of the Rales test was also supported by the Chancellor’s position that it “functionally covers the same ground as the Aronson test” and “investigates the same sources of potential partiality that Aronson would examine.”[8]  The Chancellor further reasoned that the Rales test “provides a cleaner, more straightforward formulation to probe the core issue in the demand futility analysis for each board member who would be considering plaintiff’s demand.”[9]

Although the Delaware Supreme Court did not expressly adopted Chancellor Bouchard’s expansion of the Rales test, it did implicitly do so by utilizing the test in its analysis: “On appeal, neither party contests the applicability of the Rales standard employed by the Court of Chancery. Therefore, we use it in our analysis to determine whether the Court of Chancery erred in finding that a majority of the board was independent for pleading stage purposes.”[10]

As a result, the Delaware Supreme Court has, at least implicitly, expanded the application of the Rales test in the demand futility context.

Particularized Facts Providing Grounds of Reversal

While the Delaware Supreme Court implicitly approved of Chancellor Bouchard’s utilization of the Rales test, it expressly reversed his application of same.  The reversal was based upon “particularized facts” that created a reasonable doubt as to the impartiality of three directors (Ellen Siminoff, William Gordon, and John Doerr).

The Delaware Supreme Court reversed Chancellor Bouchard’s independence determination as to Ellen Siminoff based upon the particularized fact that she and her husband co-own an airplane with Mark Pincus (the controller). Despite the fact that the plaintiff simply characterized the co-ownership of the airplane as a business relationship, the court saw more there and concluded that the co-ownership of the plane was “suggestive of an extremely intimate personal friendship” and created “a reasonable doubt that she [could] impartially consider a demand adverse to his [Pincus’] interests.”[11] While admittedly limited to the facts of this case, the Delaware Supreme Court’s analysis on this point arguably lowers the level of proof needed to show demand futility.

Of greater import, the Delaware Supreme Court reversed Chancellor Bouchard’s independence determination as to William Gordon and John Doerr based upon particularized facts that evidenced “a mutually beneficial network of ongoing business relations” between several of the directors.[12] Gordon and Doerr are both partners at Kleiner Perkins Caufield & Byers, a venture capital firm. Kleiner Perkins owns 9.2% of Zynga, Inc.’s stock, invested in a company co-founded by Pincus’ wife, and has an equity position in a company where another Zynga director, Reid Hoffman, is both a shareholder and director.

The court’s analysis on this point has potentially significant implications given the realities of the venture capital landscape. However, such implications can be qualified by the fact that William Gordon and John Doerr did not qualify as independent directors under the NASDAQ Listing Rules.[13] The import of this fact for the court is clearly seen by the following dicta: “[T]o have a derivative suit dismissed on demand excusal grounds because of the presumptive independence of directors whose own colleagues will not accord them the appellation of independence creates a cognitive dissonance that our jurisprudence should not ignore.”[14]

Conclusion

In sum, Sandys arguably expands the application of the Rales test and provides the representative plaintiff bar with a lower threshold for demonstrating demand futility. While limited to the facts of the case, the court’s analysis should be considered when making internal determinations as to the independence of directors.

_________

[1] Sandys v. Pincus, No. 157, 2016, 2016 WL 7094027 (Del. Dec. 5, 2016) (Valihura, J., dissenting).

[2] Sandys v. Pincus, No. CV 9512-CB, 2016 WL 769999, at *6 (Del. Ch. Feb. 29, 2016), rev’d, No. 157, 2016, 2016 WL 7094027 (Del. Dec. 5, 2016).

[3] Id. (quoting Aronson v. Lewis, 473 A.2d 805, 814 (Del.1984).

[4] Id. (quoting Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).5. Rales v. Blasband, 634 A.2d 927, 933–34 (Del. 1993) (emphasis added).

[6] Id. at *12.

[7] Id.

[8] Id.

[9] Id. at *13.

[10] Sandys, 2016 WL 7094027, at *3.

[11] Id. at *1.

[12] Id. at *5.

[13] See NASDAQ Marketplace Rule 5605(a)(2).

[14] Sandys, 2016 WL 7094027, at *5.

 

Louisiana

By William J. Kolarik, II

On April 25, 2017, State Representative Sam Jones requested that the Louisiana House Committee on Ways and Means voluntarily defer HB628, which would have imposed a commercial activity tax upon many business organizations doing business in Louisiana.  The Committee’s vote to voluntarily defer the bill means that the proposed commercial activity tax is likely dead for the 2017 legislative session.  The proposed commercial activity tax was the centerpiece of Louisiana Governor Edwards’ tax package and the deferral of the proposed bill means that Governor Edwards and Louisiana legislators will need to resolve Louisiana’s current budget crisis through other means.  The Kean Miller State and Local Tax team is reviewing proposed Louisiana tax legislation and will update its blog when our review is complete.