On October 5, 2020, the North Dakota Department of Environmental Quality (“NDDEQ”) issued a Compliance Alert intended to explain ongoing compliance expectations within the state for the oil and gas production sector. The Compliance Alert initially notes that the “overall compliance rate” at North Dakota oil and gas production facilities has improved significantly following the issuance of the Environmental Protection Agency’s (“EPA”) September 2015 Compliance Alert. Broadly speaking, EPA’s 2015 Compliance Alert noted the potential compliance concerns associated with the design, maintenance, and operation of storage vessels at oil and gas production facilities. EPA has used its 2015 Compliance Alert as the basis for several high-profile enforcement actions within the last several years.

NDDEQ’s Compliance Alert notes several additional potential compliance concerns observed by NDDEQ inspectors in 2019 and 2020. Among other items, NDDEQ notes that inspectors observed:

• Inoperable air pollution control equipment;
• Open or leaking thief hatches on tanks; and
• Smoking flares.

In addition to the observations of inspectors, NDDEQ notes that EPA’s National Enforcement Investigations Center Division conducted a Geospatial Measurement of Air Pollution (GMAP) survey of North Dakota’s oil and gas fields in August of 2020. According to NDDEQ, the initial findings are “consistent” with NDDEQ’s inspector observations. The Compliance Advisory notes that these are “preliminary findings.” NDDEQ’s interpretation of this study, while vague, seems to indicate that NDDEQ believes that oil and gas facilities are potentially out of compliance, specifically when flares are not in operation or facilities have “excessive” leakage.

The Compliance Alert encourages operators to “revisit” the EPA’s 2015 Compliance Alert and “identify and correct deficiencies at production facilities.” NDDEQ further encourages operators to ensure proper design of air pollution control equipment and proper maintenance at such facilities. Finally, NDDEQ also notes that it is open to continued dialogue with operators to discuss the Compliance Alert and associated issues.

Moving forward, the Compliance Alert puts operators on notice that there may be additional compliance issues within the categories identified by inspectors. This potentially creates compliance and enforcement liability from NDDEQ and EPA. Of particular note, a change in a presidential administration may allow EPA to use NDDEQ’s Compliance Alert in a manner similar to how it used EPA’s 2015 Compliance Alert for future enforcement. Operators may wish to consider beginning a self-audit of their current their compliance with EPA and NDDEQ requirements and regulations. Such an effort, followed by self-disclosure of potential violations, would likely be received by NDDEQ in the spirit of the agency’s offer of continued discussion on the issues highlighted in the Compliance Alert.

Davis Graham attorneys have substantial self-audit and disclosure experience and would be happy to provide additional guidance or further discuss these issues. If you have further questions, please contact Randy Dann, John Jacus, or Will Marshall.

The Committee on Foreign Investment in the United States (CFIUS) is an interagency body tasked with reviewing foreign investments into the U.S., which could threaten the country’s national security interests. Established under Section 721 of the Defense Production Act and its implementing regulations, CFIUS’s role is to review proposed transactions and, when warranted, make recommendations to the president to block or unwind transactions that are deemed to present irresolvable national security concerns.

Historically, CFIUS’s scrutiny focused on military contractors, producers of defense articles, aerospace manufacturers, and similar types of companies engaged in the industries most commonly associated with “national security.” In more recent years, as technology has evolved, CFIUS expanded its interests to encompass the information technology space, with specific attention being paid to manufacturers and providers of semi-conductors and other electronics components that could be used by agents of an unfriendly state to surveil U.S. citizens or sabotage government activities.

Regardless of the industry, until 2018, CFIUS jurisdiction was limited to corporate-level transactions involving the acquisition of existing U.S. businesses by foreign parties. But under the 2018 amendments to the Defense Production Act, as implemented by regulations that took effect in February 2020, CFIUS now has the authority to review transactions involving the purchase of U.S. real estate by foreign parties. The 2018 amendments broadly expanded CFIUS’s jurisdiction in a number of other areas as well, including “critical technology” and “critical infrastructure.” This article is intended to give readers a high-level understanding of how the real estate provisions of the amendments can affect renewable energy siting.

CFIUS’s historic concerns with location

Although the question of geography was never explicitly addressed in the CFIUS regulations prior to 2018, it was well known that CFIUS had siting concerns when foreign parties acquired U.S. businesses that were located within some unspecified proximity to sensitive government facilities. In fact, the only published case concerning CFIUS’s jurisdiction involved the location of a wind farm that had been purchased by investors who had ties to the Chinese government. The decision in that case, Ralls Corp. v. CFIUS, held that the investors’ acquisition of a U.S. renewable energy company whose assets included a project site within restricted naval air space presented insurmountable security issues, and the court upheld the president’s plenary authority to force a divestment and order the removal of construction. The upshot is that CFIUS’s authority to investigate a transaction – and the president’s authority to block or unwind a transaction – are essentially non-reviewable, and parties to real estate transactions with foreign investors should make use of the information the government has made available to determine if their transaction might present concerns.

Defining “covered real estate transactions”

The CFIUS regulations governing the foreign acquisition of real estate (the “Real Estate Regulations” at 31 C.F.R. Part 802) contain detailed definitions and procedures, which will not be addressed here. Instead, this section offers an overview of the key terms and considerations parties should think about before entering into real estate transactions in certain areas of the U.S.

A “covered real estate transaction” is a transaction involving the purchase or lease by, or concession to, a “foreign person” of “covered real estate,” in which the “foreign person” obtains at least three of four listed property rights, and which is not otherwise an “excepted real estate transaction” as defined in the Real Estate Regulations. The listed property rights are (i) physical access, (ii) the right to exclude, (iii) the right to improve or develop the real estate, or (iv) the right to attach fixed or immovable structures or objects to the real estate. Most real estate transactions involving renewable energy project sites would likely include at least three, if not all four, of the listed property rights.

The term “foreign person” is broadly defined to include any foreign national, foreign government, foreign entity, or any entity over which control can be exerted by a foreign national, foreign government, or foreign entity. In other words, a U.S. company that is subject to control by a foreign party is considered a “foreign person” for CFIUS’s purposes. This was the problem for the investors in Ralls, which was a U.S. corporation that was ultimately subject to control by Chinese citizens.

The term “covered real estate” is geographically defined as any property that (i) is, is within, or is part of, a “covered port”, or (ii) is located: (a) within “close proximity” (1 mile) of certain listed military installations, (b) within the “extended range” (100 miles) of certain other listed military installations, (c) within certain counties or portions of counties where the U.S. houses ballistic missile facilities, or (d) within the territorial sea around certain listed military installations. To allow parties to identify the military installations in a given area, CFIUS has developed a user-friendly mapping tool, which enables parties to input street addresses, intersections, or geographic coordinates to get a rough estimate of the military installations in the vicinity.

Once parties have determined that the object of their transaction is “covered real estate,” they should think hard about whether they qualify for one of the exceptions under the Real Estate Regulations. A number of exceptions are listed in the Real Estate Regulations, but, in most cases, for a large-scale renewable energy project to qualify as an “excepted real estate transaction,” either the real estate must be located in Indian country or Alaska native lands, or the acquirer must be an “excepted real estate investor” – a status that can be difficult to establish.

In principle, an “excepted real estate investor” is any party of Australian, Canadian, or UK origin (the “excepted real estate foreign states”), who does not also have citizenship in any other countries, but in practice, establishing “excepted real estate investor” status for entities can be a lengthy and convoluted process. As mentioned in the case of Ralls, a U.S. entity that has foreign ownership is considered a “foreign person” under CFIUS, so to establish “excepted real estate investor” status, both the acquiring entity and all of its “parent” owners must satisfy a number of criteria, with the end result being that the acquiring entity is ultimately owned and controlled by citizens of the U.S. or any of the three “excepted real estate foreign states.” In the case of publicly held companies, the analysis can be particularly challenging. Even if the citizenship test is passed, there are a number of caveats and disqualifying factors that impact whether an investor is an “excepted real estate investor,” so out of an abundance of caution, many investors in real estate transactions that involve “covered real estate” are opting to file with CFIUS, even when they think they might qualify as “excepted real estate investors.”

Options for parties to “covered real estate transactions”

As is the case with the longstanding rules on CFIUS “covered transactions,” in which a foreign person acquires corporate-level control over a U.S. business, parties to “covered real estate transactions” may elect to file a full notice with CFIUS, an abbreviated short-form declaration, or no filing at all, depending on the risk tolerance of the parties. There are no mandatory filings for “covered real estate transactions.” However, as the investors in Ralls found out, the consequences of not filing can be severe.

If you have further questions, please contact Almira Moronne or Joel Benson.

If an employee or customer contracts COVID-19 at a place of business, should that business be held liable? Even though the business followed every bit of health and safety guidance from relevant authorities? These questions are likely top of mind for most business operators, especially as communities reopen and employees return to work. The answers may depend on whether the U.S. Congress passes legislation to limit businesses’ liability related to COVID-19.

While legislation is always an uncertain proposition, there is at least some possibility that Congress will pass a liability protection bill in the coming weeks, as Senate Republicans have said that such legislation must be included in an expected new round of COVID-19 relief measures. On September 8, Senate Republicans introduced a proposed relief package, which includes a robust liability-limiting bill styled as the SAFE TO WORK Act (“STWA”).[1] The Senate’s first vote on the package garnered a majority (52 votes) but failed to meet the 60-vote threshold to overcome a filibuster; even so, negotiations over a COVID-19 relief bill are expected to continue, including discussion of liability protection.

Initially proposed by Senator Cornyn in July, the STWA is seen by many as the liability-related legislation most likely (even if still far from certain) to pass in Congress at some point this year—or at least to serve as the starting point for a negotiated piece of legislation as part of a compromise package. By its proposed terms, the STWA’s liability-limiting provisions, if enacted, will be retroactive in nature. This means that businesses can act now to take appropriate measures that may maximize the benefit of this potential legislation.

This article will (1) summarize the key features of the STWA, and (2) suggest what businesses should do now about potential liabilities relating to COVID-19 given the possibility of the STWA’s enactment.

I. Key Features of the Proposed “Safe to Work Act”

At a high level, the STWA creates an exclusive federal cause of action for claims that a person suffered injury by being exposed to COVID-19 in a workplace or other business setting. This federal cause of action would preempt and supersede state law tort claims and provide various forms of protection against liability for businesses that make reasonable efforts to comply with applicable government standards and guidance.

Scope: The STWA liability provisions would apply to all “coronavirus exposure actions,” which include any civil action (i) brought by a person who suffered personal injury or is at risk of suffering personal injury, (ii) against an individual or entity engaged in businesses, services, activities, or accommodations, (iii) alleging that an actual, alleged, feared, or potential for exposure to coronavirus caused the personal injury or risk of personal injury that occurred in the course of the businesses, services, activities, or accommodations of the defendant individual or entity.[2]
The STWA excludes from its scope claims brought by the federal government or by any state, local, or tribal government as well as any claims alleging intentional discrimination on the basis of various enumerated protected classes, including sex (which specifically includes pregnancy).[3]

Federal Cause of Action and Preemption: The STWA would create a federal cause of action as an exclusive remedy for coronavirus exposure claims, which would preempt and supersede other federal, state, or tribal laws that otherwise govern claims for personal injuries related to coronavirus exposure.[4] The STWA would not, however, preempt state and local laws that “impose[] stricter limits on damages or liabilities” or provide “greater protection to defendants” for coronavirus exposure claims. [5]
The STWA also would not preempt or affect (i) a claim for benefits under workers’ compensation programs; (ii) governmental actions under criminal, civil, or administrative enforcement laws; (iii) certain intentional discrimination claims under federal, state, or tribal law; and (iv) a seaman’s right to claim maintenance and cure benefits.[6]

Federal Court Jurisdiction and Removal: The STWA would grant the federal courts concurrent jurisdiction over coronavirus exposure actions and would permit removal to federal court of any such claims initially filed in state court, even if the claim had been filed prior to STWA’s enactment.[7]

Statute of Limitations: The STWA would require that a coronavirus exposure action be filed within one year of the date of actual, alleged, feared, or potential for exposure to coronavirus.[8]

Heightened Pleading Standards and Other Complaint Requirements: For any coronavirus exposure action filed in or removed to federal court, the STWA would require any complaint to plead “with particularity:”

• each element of the plaintiff’s claim;
• “all places and persons visited by the [plaintiff] and all persons who visited the residence of the [plaintiff] during the 14-day-period before the onset of the first symptoms allegedly caused by coronavirus,” and the factual basis for the belief that the defendant’s place of business, rather than all other potential sources of exposure, was the actual source of the plaintiff’s exposure to coronavirus; and
• “each alleged act or omission constituting gross negligence or willful misconduct” that caused the plaintiff’s injury.[9]

The STWA would also require a plaintiff to file certain other documents with the complaint, including specific information describing “the nature and amount of each element of damages and the factual basis for the damages calculation;” a statement of facts demonstrating the defendant acted with the required state of mind; an affidavit of a medical expert who did not treat the plaintiff explaining the basis for the expert’s belief that the plaintiff suffered the alleged injury; and certified medical records documenting the alleged injury.[10]

Heightened Standards of Proof, Including Requirement to Prove Business Failed to Comply with Government Standards: To prove liability for exposure to coronavirus, the STWA would require a plaintiff to prove by clear and convincing evidence that:

• the business operator “was not making reasonable efforts in light of all the circumstances to comply with the applicable government standards and guidance in effect at the time of [the alleged exposure-related injury]”;
• the business operator “engaged in gross negligence or willful misconduct that caused an actual exposure to coronavirus”; and
• “the actual exposure to coronavirus caused the personal injury of the plaintiff.”[11]

If the business operator is subject to conflicting, non-mandatory government standards and guidance, the plaintiff would have to show by clear and convincing evidence that the business operator failed to make reasonable efforts to comply with “any of the conflicting … standards and guidance.”[12]

Benefits of a Written Policy: The STWA would provide heightened protections for business operators that establish a written policy to prevent coronavirus exposure. If the business operator “maintained a written or published policy on the mitigation of transmission of coronavirus” at the time of the alleged exposure that complied with, or was more protective than, applicable government standards and guidance, the business operator would be presumed to have taken reasonable measures to comply with applicable government standards and guidance, unless the plaintiff proves the business operator was not complying with its written or published policy.[13]

Damages Limitations: The STWA would limit recoverable money damages in most cases to actual economic losses incurred, with damages for noneconomic losses possible only if the business operator’s conduct was willful rather than just negligent.[14] Punitive damages would also be limited to instances of willful misconduct and could not exceed the amount of compensatory damages awarded.[15]
Further, the amount of monetary damages would be reduced by any amount received by the plaintiff from a collateral source, such as his or her health insurance provider—i.e., the collateral source rule would not apply.[16]

Limitation on Joint and Several Liability: The STWA would, with limited exceptions, provide for proportional—rather than joint and several—liability allocation. As such, a defendant would be liable “solely for the portion of the judgment that corresponds to the relative and proportionate responsibility of that individual or entity,” with the trier of fact considering the nature of each responsible party’s conduct and the nature and extent of the causal relationship between each individual’s conduct and the damages to plaintiff.[17]

Discovery Limitations: In federal court actions, the STWA would not permit discovery prior to the deadline for the defendant to file an answer or motion to dismiss and would stay discovery until the court ruled on any motion to dismiss.[18] It would also allow an immediate interlocutory appeal of any denial of a motion to dismiss and stay discovery pending resolution of the appeal.[19] Once discovery proceeds, it would be limited to matters “directly related to material issues contested” in the action.[20]

Class Action and Multidistrict Litigation Limitations: The STWA would require individual plaintiffs to affirmatively “opt in” to a class action, and would require greater transparency of class counsel’s fee and financing arrangements.[21]
For any multidistrict litigation, the STWA would prohibit transferee judges from trying cases assigned to them absent consent of all parties, and would permit immediate interlocutory appeals of any orders the resolution of which could materially advance the ultimate termination of one or more cases in the multidistrict proceeding.[22]

Protection Against Meritless Demands: The STWA would seek to deter meritless demands by creating a federal cause of action allowing defendants to recover compensatory damages and attorneys’ fees incurred in responding to a meritless demand, and would also authorize punitive damages in limited circumstances.[23]
The STWA would also permit the U.S. Attorney General to seek civil penalties against anyone engaged in a pattern or practice of making meritless demands for payment for coronavirus exposure.[24]

Retroactive Application: The STWA’s liability protections would be retroactive to any actions alleging coronavirus exposure after December 1, 2019 and would apply going forward for alleged exposures occurring until at least October 1, 2024 and possibly later.[25]

Protection from Federal Employment Claims and Enforcement Proceedings and Public Accommodation Liability: The STWA would protect an “employer” (defined to include essentially all private and public employers)[26]
from being “subject to any enforcement proceeding or liability under any provision of a covered Federal employment law” in connection with coronavirus if the employer:

• “was relying on and generally following applicable government standards and guidance”;
• “knew of the obligation under the relevant provision”; and
• “attempted to satisfy any such obligation by … (i) exploring options to comply with such obligation[] and with the applicable government standards and guidance (such as through the use of virtual training or remote communication strategies); (ii) implementing interim alternative protections or procedures; or (iii) following guidance issued by the relevant agency with jurisdiction with respect to any exemptions from such obligation.”[27]

“Covered Federal employment laws” include many of the key federal employment statutes, such as Title VII of the Civil Rights Act of 1964, Title I of the ADA, the ADEA, the OSHA Act, and others (but notably not the Family and Medical Leave Act).[28] The STWA would also limit businesses’ liability and the actions they are required to take to modify their policies, practices, or procedures under federal public accommodation laws (Title III of the ADA and Title II of the Civil Rights Act of 1964)[29]
during a “public health emergency period.”[30] Notably, however, it appears the STWA’s protections against federal employment and public accommodation claims would not extend to similar state laws, which exist in most states to varying degrees. This could make the STWA’s protections in this regard somewhat hollow for many businesses.

The STWA would also circumscribe liability (whether arising under state or federal law) related to workplace coronavirus testing and would prohibit plaintiffs from using as evidence of an employment or joint employment relationship various coronavirus related measures, including testing, training, or temporary assistance, taken with respect to a business’s independent contractors or workers employed by another employer.[31]

II. What Can Businesses Do Now to Take Advantage of the STWA if It Is Enacted?

Because the STWA, if enacted, would apply retroactively, there are several steps businesses can take now that will ensure they can maximize the liability-limiting benefits of the STWA. Importantly, some of these recommended steps will help businesses limit their potential liability for coronavirus exposure even if STWA never becomes law.

1. Identify and Seek to Comply with Applicable Government Standards and Guidance

Perhaps the most impactful feature of the STWA is the requirement that a plaintiff prove a business failed to make reasonable efforts to comply with applicable government standards and guidance to mitigate coronavirus exposure. Under the STWA, a business will have a good chance of prevailing if the evidence shows it made good faith, reasonable efforts to adhere to relevant governmental health and safety guidance.

To do so, a business will first need to identify the relevant government standards and guidance, which will depend on the jurisdictions in which the business operates, the type of industry it is in, and other factors, including type of worksite and employee count. Relevant government standards may come from a combination of statutes, regulations, and guidance documents from various federal agencies as well as state and local authorities. The relevant standards for any given business will likely change from time to time as agencies update their guidance based on still-developing scientific information and as communities pass through various phases of economic closure and reopening. Moreover, the relevant standards might intersect or conflict with other bodies of law, including employment and public accommodation laws. Given the wide range of potential sources of applicable guidance and potential conflicts between such guidance and other law, businesses should consult legal counsel to help identify the standards that apply to them.

After identifying relevant standards and guidance, businesses should be sure not only to comply, but to document their compliance efforts in a way that will produce admissible evidence that can be used to defend against any potential claims. Again, businesses should consult legal counsel to determine appropriate ways to implement health and safety standards and to create and maintain admissible records of such activities.

2. Create and Implement a Written Policy to Mitigate Coronavirus Transmission

As noted above, the STWA provides its maximum liability-limiting benefits to businesses that create and adhere to a written policy to mitigate the transmission of coronavirus. Such a policy must be consistent with, or more protective than, applicable government standards and guidance, and the business must comply with its written policy. Legal counsel can assist businesses in developing a written policy that incorporates the appropriate standards and guidance and in documenting their compliance with such a policy.

3. Consider Strategies in Pending Litigation

Due to the STWA’s retroactive application, businesses that are currently facing demands or claims for coronavirus exposure should consider how the prospect of the STWA’s enactment might affect its litigation or settlement strategy. For example, if a business is optimistic that the STWA will be enacted, it might consider postponing discussions to settle current claims until after enactment. For claims that are already in active litigation, businesses should consider opportunities to extend the litigation timeline to allow for the possibility that the STWA will pass and apply retroactively. Current litigants should also consider appropriate opportunities to preserve arguments and defenses that would be available under the STWA, while being careful not to rely on a prospective law to the detriment of any protections available under existing law.

4. Utilize Existing Protections Under Federal and State Law

Businesses should also be sure to take advantage of existing liability protection measures under federal and state law. At the federal level, for example, the Public Readiness and Emergency Preparedness (PREP) Act limits legal liability for those who administer certain specified “countermeasures” during a declared public health emergency.[32] Under current declarations and guidance by the U.S. Department of Health and Human Services, the PREP Act’s protections generally apply to businesses that manufacture, distribute, or administer specific pandemic countermeasures—such as medicines, vaccines, testing equipment, and personal protective equipment (“PPE”)—that have been approved or otherwise authorized by the Food and Drug Administration. Separately, the CARES Act—enacted earlier this year—grants liability protections to volunteer health care providers engaged in certain health care services in response to COVID-19.[33] Neither the PREP Act nor the CARES Act, however, provide the kind of broad protection from exposure claims that is contemplated in the STWA.

Many states have also implemented liability-limiting protections relating to COVID-19. Some of these laws, like the PREP Act and CARES Act, focus on health care services and businesses providing PPE, medicines, and other materials that directly support the health care response to the pandemic. But some states—including, for example, Utah, Wyoming, Oklahoma, North Carolina, and Louisiana—have also enacted broad protections against coronavirus exposure liability for businesses, employing some of the same tools that are proposed in the STWA. The core concept of many of these laws—as with the STWA—is that a business operator’s liability to coronavirus exposure claims should be limited where the evidence shows that the business reasonably complied with applicable health and safety standards and guidance. As such, even in the absence of broader federal liability protection in the form of the STWA or similar legislation, businesses should consult legal counsel to ensure they can receive the full benefit of any other liability-limiting provision under federal or state law.

5. Understand that the STWA May Not Be Enacted or May Be Modified

Finally, businesses should never put all their eggs in a basket that depends on the U.S. Congress to do something. Although it is prudent to take certain measures now to maximize the STWA’s benefits if it is eventually enacted, businesses should also prepare for the possibilities that the STWA is never enacted or that it passes with significant modifications from the current version. In that respect, businesses should prioritize risk reduction strategies that are based on the current state of the law and avoid any conduct inconsistent with those strategies that is premised only on a hope that current laws will be changed. Legal counsel can help businesses develop such strategies and ensure that they can be adapted in the event Congress enacts STWA or some other form of liability protection relating to coronavirus exposure.

If you have any questions, please contact Mark Champoux, Sterling LeBoeuf, or Daniel Richards.

[1] S. Amdt. 2652 to S. 178, available at https://www.congress.gov/amendment/116th-congress/senate-amendment/2652/text.

[2]
Sec. 2003(4)(A). The STWA separately provides certain liability protections for coronavirus-related medical liability claims against health care providers. This article, however, focuses on the STWA’s proposed protections for exposure claims against businesses and employers.

[3]
Sec. 2003(4)(B).

[4]
Sec. 2121(a)-(b).

[5]
Sec. 2121(b)(2).

[6] Sec. 2121(b)(3)-(6).

[7]
Sec. 2161(a), (b)(1).

[8]
Sec. 2121(c).

[9]
Sec. 2163(a).

[10]
Sec. 2163(b)-(c).

[11]
Sec. 2122(a).

[12]
Sec. 2122(b)(1)(A).

[13]
Sec. 2122(b)(2).

[14]
Sec. 2162(b)(1).

[15]
Sec. 2162(b)(2).

[16]
Sec. 2162(b)(3).

[17]
Sec. 2162(a).

[18]
Sec. 2163(e)(1).

[19]
Sec. 2163(f).

[20]
Sec. 2163(e)(2)(A).

[21]
Sec. 2163(g)(1).

[22]
Sec. 2163(g)(2).

[23]
Sec. 2164.

[24]
Sec. 2164(e).

[25]
Sec. 2003(4)(A)(iii)(II).

[26]
Sec. 2003(8).

[27]
Sec. 2181(a)(2).

[28]
Sec. 2181(a)(1).

[29]
Sec. 2181(b)(1)(B).

[30]
Sec. 2181(b)(2).

[31]
Sec. 2183.

[32] See 42 U.S.C. § 247d-6d.

[33] See Coronavirus Aid, Relief, and Economic Security Act (Pub. L. 116-136), Sec. 3215.

On July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the European Commission’s decision establishing the Privacy Shield framework for international personal data transfers from the European Union to the United States. Other data transfer mechanisms, in particular the Standard Contractual Clauses adopted by the European Commission (SCCs), remain valid. But the SCCs are on shaky ground. That’s because the reasons invoked by the CJEU to invalidate the Privacy Shield – relating to U.S. government surveillance practices – apply to any data transfer mechanism. Below is an analysis of the specific implications of the CJEU ruling on Privacy Shield and an assessment of what happens next with SCCs.

How did we get here?

Max Schrems, an outspoken privacy activist in the EU, lodged a complaint with the Irish Data Protection Commissioner (DPC) in 2013 alleging that Facebook Ireland was unlawfully transferring his personal data to Facebook Inc. in the U.S. because the U.S. did not ensure adequate protection of personal data against government surveillance activities. The matter was referred through the Irish courts to the CJEU, which ruled, in October 2015, that the Safe Harbor framework (Privacy Shield’s predecessor) was invalid. When the matter went back to the DPC, the plaintiff reformulated his complaint to question transfers based on SCCs. Again, the matter was referred to the CJEU by way of the Irish High Court with questions covering both Privacy Shield and SCCs.

Before addressing the specific impacts on Privacy Shield and SCCs, it is important to highlight several significant clarifications provided by the CJEU in its ruling:

• First, absent an adequacy determination (that is, a conclusion by the European Commission that a third country’s laws ensure “an adequate level of protection” for personal data), the standard to be applied is whether the level of protection adopted (by law or by contract) is “essentially equivalent” to that which is provided under the EU’s General Data Protection Regulation (GDPR). And this level of protection must be guaranteed despite the legal mechanism relied upon.
• Next, EU supervisory authorities cannot invalidate the standard contractual clauses adopted by the European Commission (only the CJEU can do that and the court found no grounds for doing so here); but the supervisory authorities can suspend or prohibit transfers based on SCCs if they conclude that the clauses cannot be complied with.
• Lastly, the European Commission’s determination that the U.S. provided an adequate level of protection was flawed because U.S. law “does not provide for the necessary limitations and safeguards with regard to the interferences [authorized] by its national legislation and does not ensure effective judicial protection against such interferences.” The CJEU found that EU residents would not have effective redress in the U.S. against the government’s lawful surveillance activities.

Based on this third conclusion, the court invalidated the Privacy Shield, but left open the question whether data transfers to the U.S. pursuant to SCCs could meet the “essentially equivalent” standard.

What happens to Privacy Shield?

The Privacy Shield framework has now been invalidated, effective the date of the decision. And the CJEU concludes this will not create a legal vacuum because the GDPR provides alternatives to the Privacy Shield data transfer mechanism. So, companies relying on Privacy Shield can no longer do so and must adopt an alternative (like SCCs, discussed below). But their Privacy Shield commitments remain binding and are enforceable by the Federal Trade Commission. Companies self-certifying to the framework must therefore continue to satisfy their respective obligations including the requirements for transparency and dispute resolution.

It’s possible that the European Commission and the Department of Commerce will go back to the drawing board for an updated framework. But they cannot accomplish this task alone, as the CJEU’s decision suggests this will require U.S. legislative action, either to revise surveillance norms or provide for effective redress mechanisms.

What happens to SCCs?

SCCs will undoubtedly become the default data transfer mechanism. But now they will require more than the administrative effort of filling in the blanks and executing. Instead, as the CJEU’s decision indicates, the contracting parties will now have to analyze each data transfer to determine whether essentially equivalent protections are provided for. And this analysis must be documented consistent with the GDPR’s accountability principle.

Adopting SCCs will require the data exporter to determine whether the data importer has been or is likely to be the subject of a foreign surveillance data request and whether the data involved in the transfer is of the type typically subject to such a request. In practical terms, though, it will fall upon the data importer to provide sufficient guarantees that it (or the data) is unlikely to be the target of a government data request. Certain data sets may more easily allow for such guarantees, but others – and especially if used in certain sectors – may not.

Last, the CJEU decision will prompt the European Commission to update the SCCs, which predate the GDPR. This may be a welcome development.

Conclusion

In ruling that the Privacy Shield is invalid, the CJEU called into question U.S. law surrounding government surveillance activities. And those questions exist despite whether a data transfer is conducted under Privacy Shield or any of the other data transfer mechanisms provided for in the GDPR. Companies will have to be thoughtful in their approach to data transfers and assess those transfers to ensure an “essentially equivalent” level of protection as provided under the GDPR.

If you have any questions, please contact Camila Tobón.

A new bill
was signed into law on July 4, 2020, to extend the period to August 8, 2020, that a loan may be obtained under the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and as amended by the Paycheck Protection Program Flexibility Act (PPPFA). The PPP makes available to small businesses up to $659 billion in potentially forgivable loans for the payment of payroll costs and certain other expenses.

For Further Information:

We previously circulated a legal alert (available here) outlining the general terms and conditions of the PPP, a legal alert (available here) summarizing changes to the PPP effected by the PPPFA, and various legal alerts (available here, here, here, and here) highlighting PPP guidance from the SBA and Treasury as such guidance was published.

If you have any questions regarding the PPP or the PPPFA, please reach out to Jeff Brandel or Lauren Roberts.

During the last two weeks, the Federal Reserve Bank of Boston (“FRB Boston” or “Federal Reserve”) has made a number of updates to the Federal Reserve’s Main Street Lending Program (“Main Street” or “Program”). On June 15, the Program opened for lender registration. Prior to that, on June 8, the term sheets for each facility were updated to reflect a number of changes to the facilities, including longer maturities, longer principal deferral, smaller minimum loan sizes, and larger maximum loan sizes. Finally, the Federal Reserve announced that it is working on two facilities designed to support lending to nonprofit organizations.

Lender Registration Opened

Eligible lenders can now register through the lender portal and find the necessary registration documents on the Program website. The FRB Boston is encouraging lenders to begin making Main Street loans immediately as Main Street will begin purchasing loan participations through the portal soon. Borrowers must apply for the Program loans through a participating lender. Information for borrowers can be found here
on the FRB Boston website.

Expansion of the Program

Updated term sheets for the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF) and a revised FAQ document for the Program were released on June 8. Please check the Federal Reserve website
for updated term sheets and FAQs. The changes to the Program include:

• Lowering the minimum loan size for two of the facilities;
• Increasing the maximum loan size for all of the facilities;
• Increasing the term of each loan to five years;
• Delaying principal payments for two years; and
• Raising the SPV’s participation to 95% for all loans.

The necessary legal forms and agreements for eligible borrowers and eligible lenders to participate in the three facilities have been updated to reflect the changes. View the updated forms and agreements here. The Program will still accept loans that were originated under the previously announced terms, if funded before June 10, 2020. The chart below has additional details about the facilities.

Terms*	MSNLF	MSPLF	MSELF
Term	5 years (previously 4 years)
Minimum Loan Size	$250,000 (previously $500,000)		$10 million
Maximum Loan Size	Lesser of: $35 million (previously $25 million); or 4x 2019 adjusted EBITDA minus existing outstanding and undrawn available debt**	Lesser of: $50 million (previously $25 million); or 6x 2019 adjusted EBITDA minus existing outstanding and undrawn available debt**	Lesser of: $300 million (previously $200 million); or 6x 2019 adjusted EBITDA minus existing outstanding and undrawn available debt** (previously, the loan also could not exceed 35% of outstanding and undrawn available pari passu debt)
Required Retention by Eligible Lender	5%	5% (previously 15%)	5% of Upsized Tranche
Principal Repayment (Includes capitalized interest)	15% at the end of year 3 and year 4, 70% at maturity (previously, for MSNFL, 1/3 at the end of year 2, year 3, and at maturity, and for MSPLF and MSELF, 15% at the end of year 2 and year 3, 70% at maturity)
Interest Payments	Deferred for one year (no change)
Rate	LIBOR (1 month or 3 month) + 3% (no change)

*Please review specific features of the three facilities in the respective term sheets.
** Calculated as of the date of the loan application

Updates Regarding Facilities for Non-Profit Organizations

The Federal Reserve has also announced that it is working on two facilities designed to support lending to nonprofit organizations: the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF). The Federal Reserve and the U.S. Department of the Treasury will accept comments on these facilities through June 22, 2020.

For Further Information:

We previously circulated a legal alert (available here) outlining the general terms and conditions of the Program. If you have any questions regarding the Main Street Lending Program, please reach out to Erin Simmons or Stephanie Block-Guedez.

Registered investment advisers (RIAs) that do business with retail investors are required to file their client relationship summary on Form CRS by June 30, 2020. Form CRS must be filed electronically through IARD as Part 3 of the RIA’s Form ADV. RIAs must then deliver to current retail clients their Form CRS within thirty (30) days following the June 30, 2020 compliance date. RIAs who do not do business with retail investors are generally not required to complete or file a Form CRS.

If you have any questions, please contact Peter Schwartz or Stephanie Danner.

Last week, the U.S. Fish and Wildlife Service (FWS) took another step toward finalizing regulations that would define the scope of prohibitions under the Migratory Bird Treaty Act (MBTA) to exclude incidental take. On June 5, 2020, the FWS released a draft environmental impact statement (DEIS) analyzing the environmental effects of the proposed rule and alternatives to it. The FWS is accepting public comment on this DEIS until July 20, 2020.

The MBTA prohibits take of migratory birds and imposes criminal penalties for violations of it. The DEIS marks FWS’s latest step toward defining a narrow scope of the MBTA’s prohibition on take of migratory birds. In late 2017, the Solicitor of the Interior issued opinion No. M-37050
concluding that the MBTA does not prohibit incidental take or, in other words, take that results from an activity but is not the purpose of the activity. This opinion relied on a legal interpretation from the U.S. Court of Appeals for the Fifth Circuit set forth in United States v. CITGO Petroleum Corp., 801 F.3d 477 (5th Cir. 2015). This opinion also reversed the previous Solicitor’s opinion concluding the opposite: that the MBTA prohibits incidental take. If finalized, the rule would effectively alter the migratory bird protections that a broad range of industries and land uses, including oil and natural gas, wind, solar, and energy transmission, must implement to avoid prosecution by the FWS in the event of a migratory bird take, particularly in western states.

On February 3, 2020, the FWS issued a proposed rule to define the scope of the MBTA consistent with opinion No. M-37050. At the same time, the FWS published a Notice of Intent to prepare a DEIS.

The DEIS analyzes three alternatives: regulations defining the scope of the MBTA to exclude incidental take, regulations defining the scope of the MBTA to include incidental take, and a no-action alternative under which the FWS would continue to implement the MBTA consistent with opinion No. M-37050. In the DEIS, FWS determined that the proposed rule would improve legal certainty surrounding implementation of the MBTA but recognized that the proposed rule would likely reduce implemental of best practices and would likely negatively impact migratory birds, other biological resources, cultural resources, and ecosystem services.

The FWS must issue a final environmental impact statement before it can adopt final regulations. The FWS is expected to publish the final environmental impact statement and final regulations later this year.

If you have any questions, please contact Katie Schroder , Courtney Shephard, or Zach Miller.

The Paycheck Protection Program Flexibility Act (PPP Flexibility Act) was signed into law on June 5, 2020 and amends certain terms of the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The PPP has made available to small businesses up to $659 billion in potentially forgivable loans for the payment of payroll costs and certain other expenses. The following is a summary of the terms of the PPP that have been amended by the PPP Flexibility Act.

Terms of PPP Loans:

Covered Period for Receiving PPP Loans. The “covered period” during which PPP loans may be made has been extended to end on December 31, 2020 instead of June 30, 2020. Note that some members of Congress published a Letter of Congressional Intent stating that applications for loans should only be accepted on or prior to June 30, 2020. Additional guidance may be forthcoming on this issue. Also note that a different covered period applies for forgiveness purposes, as is further described below.

Minimum Maturity. PPP loans made after the enactment of the PPP Flexibility Act, to the extent not forgiven, will have a minimum maturity of 5 years. The maturity terms of any earlier PPP loan may be amended to provide for the same, if so agreed by the lender and borrower.

Deferral Period. The PPP Flexibility Act extends the required deferral of payments on a PPP loan until (1) the date on which the applicable forgiveness amount with respect to such loan has been determined and remitted to the lender or (2) the date that is 10 months after the end of the borrower’s covered period for loan forgiveness purposes, but only if the borrower has not applied for forgiveness by such date.

Loan Forgiveness:

Covered Period for Forgiveness Purposes. Under the PPP, the “covered period” for loan forgiveness purposes was the 8-week period following the origination of the particular loan. The PPP Flexibility Act extends this period to end on the earlier of (1) 24 weeks after the origination of the particular loan or (2) December 31, 2020. However, a borrower that received a PPP loan prior to the enactment of the PPP Flexibility Act may elect to still use the 8-week period following the origination of its loan.

Reduced Forgiveness Due to Reductions in Employee Headcount or Salaries. Under the PPP, a borrower’s loan forgiveness amount may be reduced if either (1) its full-time equivalent (FTE) employee headcount is decreased or (2) salaries and wages are decreased by more than 25% for any of its employees who made less than $100,000 annualized in 2019.

However, the PPP Flexibility Act provides that a reduction in FTE employees will not lead to a proportionate reduction in the amount of loan forgiveness available to a borrower to the extent that the borrower is able to document either:

• An inability to rehire former employees who were employed by the borrower on February 15, 2020, as well as an inability to hire similarly qualified individuals for unfilled positions by December 31, 2020; or
• “An inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.”

Right to Cure Reductions. In addition, a borrower now has until December 31, 2020 (rather than June 30, 2020) to cure any reductions in employee headcount or salaries that would otherwise reduce the amount of loan forgiveness available to the borrower.

Proportion of Funds Required to be Spent on Payroll Costs. Notwithstanding prior guidance by the Small Business Administration (SBA) and the Department of the Treasury (Treasury) providing that 75% of a PPP borrower’s loan forgiveness amount must have been spent on payroll costs, the PPP Flexibility Act requires a borrower to spend only 60% of its loan on payroll costs in order to receive loan forgiveness. In other words, up to 40% of the loan may be used to pay expenses (other than payroll costs) that are eligible for forgiveness under the PPP without affecting the borrower’s right to receive loan forgiveness. Note that at least 60% of the total PPP loan proceeds borrowed under the PPP must be spent on payroll costs; otherwise the loan is not eligible to be forgiven. We understand that discussions are taking place to modify this requirement.

Deferral of Payment of Employer Payroll Taxes:

Under the PPP, a borrower that had received forgiveness of all or part of its PPP loan would not be entitled to defer payment of its payroll taxes under Section 2302 of the CARES Act. The PPP Flexibility Act amends Section 2302 of the CARES Act to delete that restriction relating to PPP borrowers.

We expect the SBA and Treasury will release additional guidance in the Frequently Asked Questions and through additional Interim Final Rules interpreting both the PPP and the PPP Flexibility Act.

For Further Information:

We previously circulated a legal alert (available here) outlining the general terms and conditions of the PPP and various legal alerts (available here, here, here, and here) highlighting PPP guidance from the SBA and Treasury as such guidance was published.

If you have any questions regarding the PPP, please reach out to Jeff Brandel or Lauren Roberts.

The Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as amended by the Paycheck Protection Program and Health Care Enhancement Act, has made available up to $659 billion in potentially forgivable loans to small businesses for the payment of payroll costs and certain other expenses.

The Small Business Administration (SBA) and the Department of the Treasury (Treasury) recently made available the PPP loan forgiveness application (Loan Forgiveness Application) and new guidance relating to PPP loan forgiveness. The recent guidance includes an interim final rule posted by the SBA and Treasury on May 22, 2020 addressing PPP loan forgiveness (Loan Forgiveness IFR), an interim final rule posted by the SBA on May 22, 2020 on the SBA’s PPP loan review procedures and related borrower and lender responsibilities (Loan Review IFR), and additional published answers to frequently asked questions regarding the PPP (FAQ Guidance). We have summarized some of the recent guidance below.

It is also worth noting that on May 28, 2020, the House of Representatives approved a bill
that would make it easier for borrowers to receive full forgiveness of their PPP loans, including by (1) extending the time period during which funds spent on qualified expenses would be eligible for forgiveness and (2) reducing the percentage of the forgiveness amount required to be spent on payroll costs from 75% to 60%. The bill will next be considered by the Senate, and if it becomes law, it will implicate a number of the provisions summarized below.

Forgiveness of Payroll Costs:

The following payroll costs (as defined in the CARES Act and a subsequent interim final rule issued by the SBA) of a PPP borrower are potentially eligible for forgiveness:

• Payroll costs paid or
  incurred during either (1) the eight-week period beginning on the date the loan is funded (the Covered Period) or (2) if so elected by a borrower with a bi-weekly or more frequent pay period, the eight-week period beginning on the first day of the first pay period starting in the Covered Period (the Alternative Payroll Covered Period); and
• Payroll costs incurred during the borrower’s last pay period in the Covered Period or Alternative Payroll Covered Period, as applicable, and paid no later than the next regular payroll date.

Payments to Furloughed Employees, Bonuses, and Hazard Pay. Compensation paid to furloughed employees, bonuses, and hazard pay are all potentially eligible for loan forgiveness, subject to the cap of $15,385 (the eight-week equivalent of $100,000 per year) of total compensation for each employee.

Compensation of Owner-Employees and Self-Employed Individuals. The amount of compensation of an owner-employee or self-employed individual that may be forgiven is capped at the lesser of (1) 8/52 of 2019 compensation or (2) $15,385 (the eight-week equivalent of $100,000 per year).

Forgiveness of Costs Other than Payroll Costs:

In addition to qualifying payroll costs, the following costs (Nonpayroll Costs) may be eligible for forgiveness:

• Interest payments (but not any prepayment or payment of principal) on a business mortgage obligation on real or personal property incurred prior to February 15, 2020;
• Payments on business rent obligations on real or personal property under a lease agreement that was in force prior to February 15, 2020; and
• Business utility payments (for electricity, gas, water, transportation, telephone, or internet access) for which service began prior to February 15, 2020.

To qualify for forgiveness, a Nonpayroll Cost must be either (1) paid during the Covered Period or (2) incurred during the Covered Period and paid no later than the next regular billing date (which may fall after the end of the Covered Period). In any event, Nonpayroll Costs may not constitute more than 25% of the loan forgiveness amount.

Reduction of Forgiveness Amount:

In general, a borrower’s loan forgiveness amount will be reduced if:

• Full-time equivalent (FTE) employee headcount is decreased; or
• Salaries and wages are decreased by more than 25% for any employees who made less than $100,000 annualized in 2019.

However, a reduction in headcount or salary levels will not be counted against a borrower to the extent that:

• The reduction is due to a termination for cause or an employee’s voluntary resignation or voluntary request for reduced hours during the Covered Period or Alternative Payroll Covered Period, as applicable;
• The borrower cures any such reduction made between February 15, 2020 and April 26, 2020 by no later than June 30, 2020; or
• During the Covered Period or Alternative Payroll Covered Period, as applicable, the borrower makes a good faith offer in writing to rehire a terminated employee (or restore any reduction in an employee’s hours, if applicable) for the same salary and number of hours as prior to the termination (or reduction in hours), but the employee rejects such offer. To qualify for this exception, the borrower must also keep a record of such offer and rejection and inform the applicable state unemployment insurance office of the rejected offer of reemployment within 30 days of the rejection. The Loan Forgiveness IFR states that the SBA’s website will provide further information on how a borrower should report a rejected offer to rehire a former employee to the applicable state unemployment insurance office.

Calculation of Number of FTE Employees. In order to calculate its average number of FTE employees for an applicable period, a borrower must first calculate the full-time equivalency of each employee by dividing the average number of hours paid for such employee per week by 40 (capped at a full-time equivalency of 1.0 for each employee). Alternatively, for each employee who was paid for fewer than 40 hours per week on average, the borrower may elect to use a full-time equivalency of 0.5; however, the borrower must apply the same calculation method to all of its part-time employees.

No Double Penalization. A borrower’s loan forgiveness amount will be reduced for applicable salary or wage reductions only to the extent that the same are not attributable to a reduction in the borrower’s FTE employee headcount.

Loan Forgiveness Process:

The PPP loan forgiveness process requires a borrower to submit the Loan Forgiveness Application to the lender servicing its PPP loan. The lender must review the request for forgiveness and issue a decision regarding such request to the SBA within 60 days of receipt of the borrower’s Loan Forgiveness Application. If the lender has found that the borrower is entitled to forgiveness, the SBA will pay the forgiveness amount to the lender within 90 days of notice of the lender’s decision (although payment may be delayed or denied if the SBA also reviews the applicable PPP loan).

SBA’s Review of PPP Loans:

All PPP loans are subject to the SBA’s review at any time in the SBA’s discretion, and the SBA has suggested that it will review all PPP loans in excess of $2 million. The SBA may review whether a borrower was eligible for its PPP loan, whether the loan amount was calculated correctly, whether the loan proceeds were used for permitted purposes and/or whether the borrower is or was entitled to loan forgiveness.

Review of Certification Regarding Need for PPP Loan. Recent FAQ Guidance again addresses the certification in the PPP borrower application form that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” providing that:

“SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees.”

The FAQ Guidance further provides that:

“Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance …. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.”

Borrower Right to Provide More Information. If it appears that a borrower may have been ineligible for a PPP loan or for the amount of the loan or forgiveness received, the lender or the SBA will contact the borrower for more information, and the SBA has indicated that it will take into account all information provided by the borrower in response.

Borrower Right to Appeal Determination. If the SBA determines that a borrower was ineligible for its PPP loan or for the loan or forgiveness amount applied for, the borrower may appeal this determination. The appeals process is expected to be addressed in a separate interim final rule to come.

Borrower Right to Request Review. If a borrower receives written notice from the lender servicing its PPP loan that the loan forgiveness applied for will be denied, the borrower will have 30 days to request that the SBA review the lender’s decision.

Retention of PPP Records. The Loan Review IFR requires that each borrower retain the applicable documentation in its records for six years after the forgiveness or repayment of its PPP loan in full and permit representatives of the SBA to access such records upon request.

For Further Information:

We previously circulated a legal alert (available here) outlining the general terms and conditions of the PPP and various legal alerts (available here, here, and here) highlighting PPP guidance from the SBA and Treasury as such guidance was published. If you have any questions regarding the PPP, please reach out to Jeff Brandel or Lauren Roberts.