Each pipeline has a regulatory maximum operating pressure: Maximum Allowable Operating Pressure (“MAOP”) for gas pipelines and Maximum Operating Pressure (“MOP”) for hazardous liquids pipelines. See 49 C.F.R. 192.619(a) and 49 C.F.R. 195.406(a). The Pipeline and Hazardous Materials Safety Administration (“PHMSA”) recently issued an Advisory Bulletin requiring that owners and operators “assure that all MAOP and MOP are supported by records that are traceable, verifiable, and complete.” See 77 Fed. Reg. 26822, 26823 (May 7, 2012).

Several technical considerations go into establishment of MAOP/ MOP including the design pressure of the weakest element in a segment, pressure testing, and maximum safe pressure considering specific pipeline history. However, pre-1970 pipelines may establish MAOP/MOP based on pre-1970 operating data. See 49 C.F.R 192.619(a) and 49 C.F.R. 195.406(a). Owners and operators of qualifying pre-1970 pipelines do not have to pressure test pipeline segments nor consider design information when establishing MAOP/MOP.

However, where MAOP/MOP records for a specific method are not traceable, verifiable, and complete, the owner/operator must “rely on another method as allowed in 49 C.F.R. 192.619 or 40 C.F.R. 195.406.” See 77 Fed. Reg. 26822 and 76 Fed. Reg. 1504, 1506 (Jan. 10, 2011). As such, MAOP/MOP developed using non-traceable, non-verifiable, or incomplete pre-1970 operating pressure data would not be allowed; MAOP/MOP must be developed by another method. In effect, the grandfathered segment would no longer be grandfathered. Further, given the forty plus years since construction, compliance options may be limited as required design information may no longer exist (assuming it ever did).

The referenced Advisory Bulletin establishes guidelines for information that support MAOP/MOP determinations, including “the highest actual operating pressure to which the segment was subjected” prior to 1970. 40 C.F.R. 192.619 (a)(3). This historical operating pressure data must be traceable, verifiable, and complete.

  • Traceable records can be traced back to the original source document. Transcribed documents require further verification.
  • Verifiable records can be confirmed by other records such as contracts for pressure tests that are confirmed by pressure charts or fields log.
  • Complete records must be signed and dated.

The implication of the guidance is that owners and operators must have original documents containing pre-1970 operating pressure data for grandfathered pipelines (or data that can be verified to represent pre-1970 data) that is signed and dated. Without sufficient data to establish MAOP/MOP using historical data, owner/operators must establish MAOP/MOP by other allowed methods.

PHMSA is also planning revisions to the Annual Report form for Gas Transmission and Gathering Lines (PHMSA F 7100.2-1) to facilitate collection of information regarding methodology used by the owner/operator to determine MAOP of gas transmission pipelines. 77 Fed. Reg. 22387, 22388 (Apr. 13, 2012). Under the same initiative, the Annual Report will require disclosure of non-pressure tested and “non- piggable” pipeline segments. To the extent it has not already been done, operators and owners of pipelines should review their records supporting their MAOP and MOP determinations, consistent with this recent guidance.

On May 30, 2012, the National Labor Relations Board’s acting general counsel issued a third report on social media cases. The NLRB released two previous memoranda on social media cases (in January 2012 and August 2011), which analyzed discharges and other employment decisions based on employee Facebook posts. This time, the report focused exclusively on employer social media policies and provisions the NLRB found to be unlawful under the National Labor Relations Act.

All employers should be aware of the NLRB’s position on social media policies and certain key provisions contained in such policies. Employers should evaluate their existing policies in light of the NLRB’s latest report and consult an attorney for assistance in drafting and revising their social media policies.

 

The recent enactment of House Bills 974 and 976 may conflict with and/or impair or impede the ability of school systems in school desegregation cases to implement outstanding orders of the court.

Where orders are outstanding regarding the hiring of teachers, for example, the provisions of House Bill 974 may give rise to a conflict. The voucher provisions in House Bill 976, for example, may either result in a financial burden leading to insufficient funding to implement court orders or may adversely affect a school system’s ability to desegregate its schools.

School districts under federal supervision are well situated to file pleadings to add the state superintendent of education, the Department of Education, and the Board of Elementary and Secondary Education as defendants to assert a claim seeking to enjoin provisions of both pieces of legislation which conflict with outstanding court orders or which may serve to impair or impede the school board’s ability to faithfully implement such orders. This approach is available to virtually all school boards which are still a party to a school desegregation lawsuit.

Last week, the Securities and Exchange Commission (SEC) approved new rules regarding the disclosure duties of underwriters to municipal issuers of securities that were proposed last summer by the Municipal Securities Rulemaking Board (MSRB).  The new rules include explicit and expanded requirements for underwriters aimed at protecting municipal issuers. Current rules already prohibit an underwriter from engaging in any deceptive, dishonest or unfair practice with respect to municipal issuers, but the new rules ensure fair dealing with state and local governments and that they have necessary information to make the best decisions when considering undertaking financial transactions.

Thus, the new rules require underwriters to disclose to municipal issuers the risks associated with complex municipal bond transactions, potential conflicts of interest, and compensation received from third-party providers of derivatives and investments, among other things.  The new rules also provide specific examples of how underwriters must fulfill their obligation.  Some of the new requirements are that:

An underwriter must provide “robust disclosures” as to its role in the transaction, its compensation, and any actual or potential material conflicts of interest.  For example, an underwriter must disclose whether its compensation is contingent upon closing the transaction or the size of the transaction.  If so, it must also disclose that this presents a conflict of interest because it may cause the underwriter to recommend a transaction that is unnecessary or in an amount that is larger than necessary.

All representations made by underwriters to state and local governments must be truthful and accurate and must not misrepresent or omit material facts.  For example, an underwriter’s response to an issuer’s request for proposals or qualifications must fairly and accurately describe the underwriter’s capacity, resources, and knowledge to perform the proposed underwriting.   An underwriter must not represent that it has the requisite knowledge or expertise with respect to a particular financing if its personnel lack the requisite knowledge or expertise.

Underwriters that recommend complex transactions or products are required to disclose all material financing risks and characteristics, incentives and conflicts of interest.  For example, variable rate demand obligations and derivatives such as swaps are the sorts of complex transactions that would require the underwriter to make this disclosure. The level of disclosure may vary depending on the issuer’s knowledge or experience with the proposed structure.

An underwriter’s duty to have a reasonable basis for its representations to issuers extends to representations made in connection with preparation of disclosure documents.  For example, the underwriter must have a reasonable basis for the representations contained in its closing certificates that will be relied upon by the issuer.

The duty to treat state and local governments fairly requires that compensation paid by the underwriter to the issuer is fair and reasonable in light of all relevant factors.  For example, if the underwriter represents that it is providing the “best” market price or that it will exert its best efforts to obtain the “most  favorable” pricing, its actions must be consistent with those representations.

Underwriters must disclose potential conflicts of interest, such as third-party payments, values or credits, profit-sharing with investors, and credit default swaps.  For example, it would be a violation of the rule for an underwriter to compensate an undisclosed third-party in order to secure municipal securities business, or for the underwriter to be compensated by an undisclosed third-party for recommending that party’s services or products to an issuer.

Underwriters who agree to underwrite transactions with retail order periods must honor those agreements.  For example, underwriters cannot disregard rules for retail order periods by accepting or placing orders that do not satisfy state and local definitions of “retail.”

Underwriters are also reminded to refrain from giving inappropriate gifts, gratuities and non-cash compensation to issuer personnel. For example, underwriters should avoid lavish and excessive travel and meal expenses incurred during rating agency trips and closing dinners.

The notice, which applies only to negotiated underwritings and not competitive underwritings unless specified, becomes effective in August.

Last week, the Community Development Financial Institutions Fund (CDFI) began using updated census tract eligibility data  that is based on the 2006-2010 American Community Survey (ACS).  In 2005, the Census Bureau launched the ACS to replace the long-form census survey.  ACS collects socioeconomic and housing information continuously from a national sample  and provides a five-year average of information, as opposed to a single point-in-time estimate provided by a traditional census survey.  Community Development Entities (CDEs) will be able to use the new data to determine whether Qualified Low Income Community Investments (QLICIs) are located in eligible census tracts.

CDFI announced that a contract for developing a new mapping system reflecting new program eligibility is expected to be executed by the end of the year. The new system will allow users to locate eligible census tracts for all of its programs, including NMTCs, Community Development Financial Institutions Program, Native American CDFI Initiatives Program, and Bank Enterprise Award Program, on a map and to code addresses to the new census tract boundaries.   Currently, only updated eligibility criteria for the NMTC program is available.

CDFI has also released a list of 2010 census tracts that are eligible because they are located in high out-migration areas. A high out-migration area is one which has a net out-migration of residents of at least 10% of the population at the beginning of the measurement period, which is the 20 year period ending with the year in which the most recent census was conducted,.   In Louisiana, Morehouse and Vernon Parish are identified as having eligible census tracts due to high out-migration.

CDFI recognizes that CDEs may have already started to structure investments based on 2000 census data.  CDFI will allow current NMTC allocates to use either the new or old census data for transactions closing between May 1, 2012 and June 30, 2013.

 

On March 21, 2012, A. Edward Hardin, Jr. told our readers about the National Labor Relations Board’s continued efforts to implement its August 30, 2011 rule that would require most private sector employers to post an 11 x 17 inch notice that advises employees of their rights under the National Labor Relations Act.  After a series of postponements, the new poster requirement was scheduled to finally take effect on April 30, 2012.  But, in light of events within the last week, the NLRB’s poster requirement has once again been put on hiatus.

There is now disagreement among two federal district courts regarding whether the NLRB actually has the authority to require the employee rights poster.  In March 2012, a D.C. District Court judge found that the NLRB had the authority to issue the rule.    However, last week, a South Carolina District Court judge ruled the other way and concluded that the NLRB lacked authority to promulgate the rule.  Because of the conflicting decisions at the district court level, the D.C. Circuit Court of Appeals temporarily enjoined the rule.

On April 17, 2012, the NLRB issued a statement in which its chairman, Mark Gaston Pearce, spoke about the NLRB’s position regarding the federal district court decisions and the status of the rule.  The NLRB maintains its position that the poster requirement is well within the Board’s authority.  In that vein, the NLRB intends to appeal the South Carolina decision.  The NLRB also plans to appeal a portion of the D.C. District Court judge’s decision in which the judge questioned the rule’s enforcement mechanisms.  However, for the time being, the NLRB said its regional offices will not implement the rule until the conflict over the Board’s authority has been resolved.  We will keep you posted.

 

The March 22, 2012 Report and Recommendation from a federal magistrate judge in the case of Star Direct Telecom, Inc. v. Global Crossing Bandwidth, Inc., 2012 WL 1067664 (W.D.N.Y.) is a good reminder to everyone about taking evidence preservation obligations seriously.  In the case, the magistrate judge recommended that the plaintiff’s motion for sanctions on the grounds of spoliation be granted because:

  • There was no evidence that the defendant had instituted a litigation hold once the duty to preserve was triggered.
  • The defendant’s general counsel instructed one employee “to gather relevant evidence.” But, the defendant made no written record nor presented evidence as to how relevancy was determined and how the appropriate custodians were identified.
  • The defendant made no record of the custodians that provided documents in the process.
  • There was no evidence that the defendant “took steps to confirm the adequacy of its collection efforts.”
  • After learning that potentially relevant e-mails were not available from the company’s backup tapes, the defendant took no action to preserve the computers of two key employees.

The magistrate judge recommended against severe sanctions (the striking of defenses or adverse inferences) because the evidence failed to show the plaintiff was prejudiced by the loss email communications.  But, the court awarded monetary sanctions in the form of attorney’s fees and costs.  Still, the gross negligence finding, based in part on the company’s failure to issue a written litigation hold (or prove otherwise that a hold was issued), is not surprising in light of the case law.   Hopefully, the reader avoids learning about these sanction lessons the hard way.

The Municipal Securities Rulemaking Board (“MSRB”) has been quite active lately. On April 3, 2012, the MSRB issued a notice encouraging voluntary disclosure of bank loans by state and local governments on the MSRB’s Electronic Municipal Market Access (“EMMA”) website. EMMA is an information facility of the MSRB for receiving electronic submissions of official statements, initial offering prices and other information about new issues as well as on-going municipal securities disclosures. The MSRB noted that the increased use of bank loans to meet funding needs by state and local governments concerns regulators and market participants because information about such bank loans (and the impact of those loans on a government’s outstanding debt) may not be disclosed until audited financial statements are released. The MSRB stated that the availability of timely information about bank loan financings is important for market transparency and the promotion of a fair and efficient market. Voluntary submission of relevant information through EMMA would provide bondholders, investors and other market participants with timely access to key information useful in assessing current holdings and in making investment decisions.

On April 10, 2012, the MSRB requested comments on draft amendments to MSRB Rules G-32 and G-34 that would allow underwriters to satisfy certain reporting requirements by submitting information to the New Issue Information Dissemination Service (“NIIDS”) operated by the Depository Trust and Clearing Corporation. NIIDS is a centralized system for collecting standardized electronic information on new issue securities from underwriters and disseminating it to market participants. When EMMA was first conceived, the MSRB planned to integrate NIIDS data submitted pursuant to Rule G-34 into EMMA such that it would also satisfy the data submission requirements under Rule G-32. Although the information submitted pursuant to Rule G-32 is less extensive than that under Rule G-34, the MSRB recognized that integration would prove beneficial because duplicative data entry is time consuming and increases the possibility of error. Streamlining the submission burden will result in improved data quality on EMMA and throughout the marketplace and will allow underwriters and enforcement agencies to concentrate compliance activities on this single information pipeline. Comments are due by May 8, 2012.

These recent notices demonstrate the MSRB’s continued efforts to increase transparency and improve the quality and quantity of information in the marketplace.

Several cases over the last few years have dealt with whether litigation hold letters are discoverable. As a review, a litigation hold is a written communication (email, memo, letter) usually from a party’s lawyer or legal department to the party’s employees explaining the existence of a claim or lawsuit and requesting that certain information be preserved. Because the litigation hold usually is prepared by an attorney and sent to the attorney’s client and usually contains the attorney’s thoughts about the nature of the matter and the documents or information that need to be preserved, courts typically find that a litigation hold is privileged and not discoverable. But, as you can see from the caveats in the preceding sentence, if some and/or all of those conditions are not present, a court may find that the hold is NOT privileged. And, the burden on establishing the privilege will be on the party who wants to prevent the litigation hold from being discovered. So, careful thought should go into how a litigation hold communication is worded.

Nevertheless, although a litigation hold itself may be privileged, many courts have found that the facts concerning what a party and its employees are doing to preserve and collect potentially responsive and/or relevant information generally is discoverable. Courts have found that the following facts generally are discoverable:

  • The categories of electronic stored information or documents employees were instructed to preserve and collect;
  • The specific actions employees were instructed to undertake to preserve and collect;
  • When was the litigation hold issued or given; and
  • To whom was the litigation hold issued or given.

Increasingly, document and/or ESI preservation and collection efforts are becoming a large part of lawsuits. Careful effort and attention should be spent on these efforts to avoid having them blow out of control.

Potentially useful citations: Cannata v. Wyndham Worldwide Corp., 2011 WL 5598306 (D. Nev. 2011); Hofmann v. Aspen Dental Management, Inc., 2011 WL 1258053 (S.D. Ind. 2011); Major Tours, Inc. v. Colorel, 2009 WL 2413631 (D.N.J. 2009); In re eBay Seller Antitrust Litigation, 2007 WL 2852364 (N.D. Cal. 2007)

 

The Kean Miller Business Briefing Seminar will be held on Friday, April 27, 2012 from 7:30 AM – 9:00 AM at Juban’s Restaurant.

The presentation entitled Oil & Gas Lease and Taxation Issues will be presented by Linda Perez Clark, Isaac McPherson “Mack” Gregorie, and Christopher J. Dicharry. The program will discuss issues to be considered in negotiating oil and gas leases, and taxation of oil and gas related income. Participants will learn how to effectively navigate these issues and protect their interests on the front-end.

The program agenda can be found here.

Please RSVP by April 25 to rsvp@keanmiller.com or 225.389.3753.