Hydraulic fracturing involves injection of large volumes of fluids at high pressure into a well to create fractures in the source rock formation. This technique was designed to improve oil and gas production. Hydraulic fluids that are used in this technique are a mixture of water, chemical additives and proppants (small spheroids of solid material). The types of concentrations of chemical additives and proppants used in hydraulic fracturing fluids vary depending on site-specific conditions and are usually tailored to needs of the project. In some instances, operators will use diesel fuels as an additive. Diesel fuels may contain a number of chemicals of concern including benzene, toluene, ethylbenzene and xylene compounds that are highly mobile in groundwater.

Underground injection of fluids through a well is subject to the requirements of the Safe Drinking Water Act (SDWA). In the 2005 Energy Policy Act, Congress revised the SDWA definition of “underground injection” to specifically exclude hydraulic fracturing fluids from the Underground Injection Control (UIC) program, except in instances where diesel fuels are used as an additive. [SDWA section 1421(d)(1)(B)]. Thus, owners or operators who inject diesel fuels for hydraulic fracturing related to oil and gas operations must first obtain a UIC permit before the injection begins.

On February 12, 2014, the United States Environmental Protection Agency (“EPA”) released an interpretive memorandum to clarify the UIC program requirements under the SDWA, for underground injection of diesel fuels in hydraulic fracturing for oil and gas extraction. The agency has also released technical guidance containing recommendations for EPA permit writers to consider in implementing the UIC requirements.

According to the Louisiana Department of Natural Resources, there are no known operations in Louisiana that inject diesel fuels for hydraulic fracturing at this time. And although the technical guidance was developed specifically for hydraulic fracturing where diesel fuels are used, many of the guidance’s recommended practices are consistent with best practices for hydraulic fracturing in general, including those found in state regulations and model guidelines for hydraulic fracturing developed by industry and stakeholders.

The EPA’s stated objectives are:

  •  To explain that any owner or operator who injects diesel fuels in hydraulic fracturing for oil or gas extraction must obtain a UIC Class II permit before injection.
  • To explain the agency’s interpretation of the SDWA statutory term “diesel fuels” for permitting purposes.
  • To describe existing UIC Class II program requirements for permitting underground injection of diesel fuels in hydraulic fracturing and to provide recommendations for the EPA’s permit writers to consider in implementing these requirements to ensure protection of underground sources of drinking water.

The guideline provides an overview of existing program requirements and technical recommendations pertaining to the following aspects of Diesel Fuels hydraulic fracturing permitting:

  1. Permit application submission and review process
  2. Information submitted with the permit application
  3. Wells authorized under permits
  4. Permit duration and well closure
  5. Area of review
  6. Well construction and mechanical integrity testing
  7. Well operations, monitoring and reporting
  8. Financial responsibility
  9. Public notification and environmental justice.

The interpretive memorandum and technical guidance documents can be found on the EPA’s website here.

In its second advisory opinion of the year, issued February 12, 2014, the U.S. Department of Health & Human Services, Office of Inspector General (OIG) determined that it would not impose sanctions pursuant to the anti-kickback statute or civil monetary penalty law on a proposed arrangement involving a licensed offeror of Medicare supplemental health insurance (Medigap) policies, preferred provider organizations (PPOs), and hospitals participating in the PPO networks. Under the proposed arrangement, network hospitals would waive the Medigap policyholders’ inpatient deductibles, which would otherwise have been paid by the Medicap insurer. Each time this discount was received, the Medigap insurer would pay the corresponding PPO an administrative fee and would provide the patient a $100 premium credit. The insurer would market the credit to its existing and potential policyholders and would identify the participating network hospitals.

The OIG began its analysis of the proposed arrangement under the anti-kickback statute. Although the arrangement failed to qualify for either the waivers of beneficiary coinsurance and deductible amounts safe harbor or the reduced health plan premium amounts safe harbor, the OIG found that the proposed arrangement presented no more than a minimal risk of fraud and abuse under the anti-kickback statute due to the following factors:

(a) The hospital waivers would not increase or affect the Medicare Part A payments for inpatient services, which are fixed and are unaffected by beneficiary cost-sharing;

(b) The arrangement was unlikely to increase utilization because the amount waived by the hospitals was owed by the insurer, not the patient;

(c) The arrangement would not adversely affect hospital competition because participating in the PPO networks would be open to any Medicare certified, accredited hospital that meets state law requirements;

(d) The arrangement would not affect medical judgment because policyholders would not incur any additional cost based on their hospital selection and physicians and surgeons would not receive any remuneration; and

(e) The policyholders would be informed that they can choose any hospital without incurring any penalty or increased cost.

Because the $100 premium credits served as an incentive for policyholders to select an in networkhospital, the OIG also analyzed the arrangement under the civil monetary penalty provision prohibiting beneficiary inducements. Finding that the premium credits were substantially similar in purpose and effect to differentials in coinsurance and deductible amounts, which are excepted from the definition of remuneration, the OIG concluded that the arrangement would pose a low risk of fraud and abuse. Additionally, the OIG noted that the arrangement had the potential to lower costs for all Medigap policyholders because it did not increase costs for policyholders choosing out of network hospitals and the savings would be reported to state-insurance setting regulators.

On February 12, 2014, President Obama followed up on comments made during his State of the Union address and signed an Executive Order increasing the minimum wage for employees of federal contractors. The Order, which increases the minimum wage from $7.25 to $10.10 per hour, covers all employees who perform services or construction work under new contracts, subcontracts, and replacements for existing contracts. The effective date of the Order is January 1, 2015, and mandatory application will begin with solicitations for covered contracts issued on or after the effective date. However, the Order also “strongly encourages” all federal agencies “to take all steps that are reasonable and legally permissible” to comply with the Order prior to the effective date.

The minimum wage is set at $10.10 per hour for 2015 and will thereafter be adjusted by the U.S. Secretary of Labor to reflect inflation. Tipped employees of federal contractors and subcontractors must receive a minimum of $4.90 per hour and a guaranteed $10.10 per hour through the combination of tips and wages. The Order also requires covered employers to increase to $10.10 per hour the minimum wage of disabled individuals who, pursuant to a special certificate program under the Fair Labor Standards Act, receive less pay because of a disability that affects their productivity.

While the White House estimates that the Order will affect hundreds of thousands of people who work under contracts with the federal government, industry groups have noted that existing legislation already requires most federal contractors to pay a prevailing or negotiated wage that is often higher than $10.10 per hour. The Order is still seen as a major step towards an increase of the federal minimum wage and may very well put pressure on private employers. Legislation has already been introduced in both houses of the U.S. Congress to increase the federal minimum wage from $7.25 to $10.10 per hour over the next several years and to tie future increases to inflation.

The Order instructs the U.S. Secretary of Labor to issue more detailed regulations concerning the new minimum wage requirements by no later than October 1, 2014. In the meantime, employers who are parties to federal contracts or subcontracts should begin preparing for increased labor costs beginning in January of 2015.

For most startups and emerging companies, fundraising continues to be challenging. With the passage of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), Congress tasked the Securities and Exchange Commission (the “SEC”) with revamping federal securities laws to make fundraising more accessible for small companies in attempt to help create jobs. Recently, the SEC has implemented and proposed new and revised securities laws to achieve this mandate. While not all of these rule changes make life easier for small companies seeking to raise capital, some of the rules do potentially provide new fundraising alternatives for small companies. Companies and investors should also be aware that certain new rules impact established practices and, predictably, there are new pitfalls to avoid. This post briefly introduces some of the recent developments in unregistered offerings and provides some key takeaways for companies and investors to consider.

Background: The JOBS Act

As a reference point, the JOBS Act consists of the following five parts or Titles: Title I is the so-called “on-ramp” to the initial public offering (“IPO”) process for emerging growth companies that introduced certain relaxed disclosure and audit requirements (this topic is not covered in this post); Title II tasked the SEC to promulgate rules to lift the ban on general solicitation in effect under existing private placement exemptions; Title III created an exemption for crowdfunding offerings; Title IV tasked the SEC with improving the Regulation A offering exemption; and Title V increased the limit on the number of shareholders a company may have before it triggers public reporting requirements.

Traditional Regulation D Private Placements

Companies seeking to raise capital through the offer and sale of securities must either register the securities offered with the SEC under the Securities Act of 1933 (the “Securities Act”) or rely on an exemption from registration. Historically, when small companies raised funds from private investors in unregistered offerings, such offerings were generally conducted as private placements exempt from registration under Rule 506 of Regulation D under the Securities Act, which allows an unlimited amount of capital to be raised from an unlimited number of accredited investors (and up to 35 sophisticated non-accredited investors).(1)  One of the requirements of former Rule 506, now revised Rule 506(b), is that a company cannot engage in general solicitation or advertising in connection with the offering.

Continue Reading Jumper Cables: Recent Developments in Securities Laws Aim to Boost Small Company Fundraising

On February 10, 2014, the Treasury Department released final regulations on the employer mandate provisions under the Affordable Care Act (a.k.a. Obamacare). While the final rules retain much of what was outlined in the proposed regulations issued in December 2012, the most significant news is the additional one-year delay for certain covered employers with respect to the potential penalties (the “no offer penalty” and/or the “unaffordability / lack of minimum value penalty”).

Here are some of the major takeaways:

  • Applicable large employers that have fewer than 100 full-time employees (including full-time equivalents) in 2014 will not be subject to either employer penalty in 2015 if they meet certain conditions. One such condition is that the employer is prohibited from reducing the size of its workforce, or the overall hours of service of its employees, in 2014 to qualify for this transition relief. There are also limitations on changes the company can make to its previously offered group health coverage for the rest of 2014.
  • All covered employers can avoid the “no offer” penalty in 2015 if they offer employer-sponsored coverage to at least 70% of their full-time employees in each calendar month in 2015 (and any calendar month during the 2015 plan year that extends into 2016 for non-calendar year plans). Beginning in 2016, the employer must offer such coverage to at least 95% of its full-time employees to avoid the “no offer” penalty. Notwithstanding the limited transition relief under this paragraph, the company still would be subject to the individual unaffordability / lack of minimum value penalty in 2015 if it has one or more full-time employees receive premium assistance on the exchange because either they were one of the ones not eligible for coverage, or such coverage was not affordable to them due to their household income, or the coverage did not provide minimum value.
  • The final rules contain additional transitional relief for non-calendar year plans. Most employers with non-calendar year plans now have until the start of their 2015 plan year, rather than January 1, 2015, to bring their plans into compliance to avoid assessment of the employer penalties, and the conditions for this relief are expanded to include more employers.
  • For employers who have not previously offered dependent coverage, there is also a delay in the requirement to offer coverage for dependent children to 2016 as long as the employer is taking steps to arrange for such coverage to begin in 2016.

Applicable large employers with 100 or more full-time employees or FTEs who are assessed a “no offer” penalty in 2015 will get the benefit of a reduction in the monthly penalty for 2015 and any applicable transition relief period into 2016, in that the payment is calculated by reducing the total number full-time employees by 80 (instead of just 30) multiplied by 1/12 of $2,000. If the employer is a member of a controlled group, the company will not get the entire additional 50 full-time employee deductible but rather the member’s allocable share of 80.

The final rules also contain exceptions for various categories of employees such as volunteers, adjunct faculty and seasonal employees, provide further details and guidance on the affordability safe harbors and the safe harbor for determining full-time employee status, and significantly shorten the length of the break-in-service required before a returning employee may be treated as a new hire for purposes of group health coverage.

In the coming months the IRS is expected to issue additional guidance about the employer reporting requirements, among other issues.

To read the full version of the IRS’ final rules, click here.

In Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLP, the Delaware Court of Chancery held that in a merger under Delaware law, privilege over the absorbed corporation’s communications with its counsel, including those relating to acquisition by the surviving corporation, pass to the surviving corporation.

The case arose from a suit filed by Great Hill Equity Partners IV, LP, et al. (the “Buyer”), alleging that former shareholders and representatives of Plimus, Inc. (the “Seller”) fraudulently induced the Buyer to acquire Plimus, Inc. (“Plimus”). Plimus was the surviving corporation in the merger.

After the Buyer brought the suit, a full year after the merger, it notified the Seller that, among the files on the Plimus computer systems that the Buyer acquired in the merger, it had discovered certain communications between the Seller and Plimus’s then-legal counsel regarding the transaction. During that year, the Seller had done nothing to get these computer records back, and there was no evidence that the Seller took any steps to segregate these communications before the merger or excise them from the Plimus computer systems. Additionally, the merger agreement lacked any provision excluding pre-merger attorney-client communications from the assets of Plimus that were transferred to the Buyer. Nonetheless, the Seller asserted the attorney-client privilege over those communications on the ground that it, and not the surviving corporation, retained control of the attorney-client privilege that belonged to Plimus for communications regarding the negotiation of the merger agreement.

Continue Reading Ownership of Attorney-Client Privilege Following Merger

The Supreme Court of Louisiana, in Ogea v. Merritt, 2013 WL 6439355 (La. 12/10/13), provided guidance regarding the personal liability of members of an LLC, reversing a lower court decision and finding a member of an LLC not personally liable for damages resulting from that member’s performance of a contract in the name of the LLC.

Travis Merritt, the sole member of Merritt Construction, LLC, signed a contract with Mary Ogea to build a home on an undeveloped parcel of land owned by Ms. Ogea. After problems with the foundation became apparent, Ms. Ogea filed suit against the LLC and against Mr. Merritt individually. Following trial, the district court rendered judgment against both Mr. Merritt, personally, and the LLC “in solido” for various items of damages. The district court found that Mr. Merritt personally performed some of the foundation work and failed to properly supervise the subcontractor who actually poured the concrete, providing grounds for Mr. Merritt’s personal liability. The court of appeal affirmed, but the Supreme Court then granted a writ to address the extent of the limitation of liability afforded to a member of an LLC.

Continue Reading Personal Liability of Members of an LLC – Louisiana Supreme Court Provides Guidance

The National Labor Relations Board (NLRB) announced yesterday that it is issuing proposed amendments to its rules and regulations governing union election procedures.  On its website, the NLRB reported that “[i]n substance, the proposed amendments are identical to the representation procedure changes first proposed in June of 2011.”  Those of you watching this issue may recall that the Board withdrew the proposed amendments earlier in the wake of the Noel Canning decision, which held that certain NLRB recess appointments were unlawful thus invalidating decisions by the Board in place at the time.  In July 2013, however, the Senate confirmed five members to the Board. Now, having a full slate, the Board apparently feels comfortable in advancing these proposed changes once more. According to the Board, the proposed amendments would: (1) allow for electronic filing and transmission of election petitions and other documents; (2) ensure that employees, employers and unions receive and exchange timely information they need to understand and participate in the representation case process; (3) streamline pre- and post-election procedures to facilitate agreement and eliminate unnecessary litigation; (4) include telephone numbers and email addresses in voter lists to enable parties to the election to be able to communicate with voters using modern technology; and (5) consolidate all election-related appeals to the Board into a single post-election appeals process. According to newspapers such as The Wall Street Journal and The Los Angeles Times, business groups such as the U.S. Chamber of Commerce, National Association of Manufacturers, and Associated Builders and Contractors are already speaking out against the proposed amendments. The critiques of the proposed amendments include they are “ambushed elections proposal[s];” the proposals delay employers’ legal challenges until after the election occurs; and the proposals would limit employers’ ability to launch timely challenges and counter union-organizing campaigns. According to the Board’s website, the proposed amendments should appear in the Federal Register today and public comment on the new rules will end April 7, 2014. To read the Board’s complete announcement, click here.

Recently, the Louisiana Supreme Court granted a writ application to the Fourth Circuit Court of Appeal in Watkins v. Exxon Mobil Corporation, et. al.—an action involving plaintiff’s damages from decedent’s potential NORM (i.e., naturally occurring radioactive material) exposure. The central issue before the court is whether the one-year period to bring a survival action under Louisiana Civil Code Article 2315.1 is peremptive or prescriptive. Prior to the Fourth Circuit’s ruling in Watkins, the First, Second, Third, and Fifth Circuits weighed in on the issue and concluded that the one-year period is peremptive and thus not subject to suspension or interruption. Because the Fourth Circuit reached the opposite conclusion, holding that the one-year period in Art. 2315.1 is prescriptive, not peremptive, there is now a clear split on the issue in the circuit courts of appeal. Should the court find the one-year period to be prescriptive, the right to bring a survival action could be extended exponentially, contrary to the longstanding interpretation of the survival statute.

Oral argument is set for Monday, January 27, 2014.

With each new year, many employers resolve to review their employee handbooks. For 2014, employers should add paid time off policies to their lists of handbook policies in need of review – particularly in light of a recent decision by the Louisiana First Circuit Court of Appeal, Davis v. St. Francisville Country Manor, L.L.C., —So.3d—, 2013 WL 5872030 (La. App. 1 Cir. 11/1/13).

In Davis, a former employee sued her former employer seeking compensation for her unused “paid days off.” The employer claimed it did not need to compensate her for the paid days off because it was a “mere gratuity” and not “vacation.” The court considered whether the former employee’s accumulated paid days off constituted earned, payable “wages” within the meaning of the Louisiana Wage Payment Act, or whether the paid days off were in the nature of a “mere gratuity.” The Louisiana Wage Payment Act, La. R.S. 23:631, et seq., requires the prompt payment of “the amount then due under the terms of employment” (earned “wages”) upon an employee’s discharge or resignation. Failure to pay “the amount then due under the terms of employment” within the statutory period can result in penalties and attorney’s fees being assessed against the employer. The statute also specifically addresses vacation pay and the requirement to timely pay a departing employee her accrued but unused vacation. Vacation pay is considered an amount due only if the employee is eligible and has not otherwise been compensated for that time.

The Davis court found the difference between paid vacation time and paid days off to be “a matter of semantics” and ruled in the employee’s favor. Employers should review their existing paid time off policies and understand their obligations under the Louisiana Wage Payment Act in light of this ruling.