DOE and EPA Announce $6 Million to Support Advanced Biofuel Development
On January 8, 2025, the U.S. Department of Energy’s (DOE) Bioenergy Technologies Office (BETO) and the U.S. Environmental Protection Agency (EPA) announced $6 million in funding for three projects that will advance biofuel development and support U.S. leadership in energy and emissions innovation. According to BETO, the projects will support research to improve performance and reduce costs of high-impact biofuel production technologies; scale up production systems with industry; and support the U.S bioeconomy. The projects will support DOE’s Sustainable Aviation Fuel (SAF) Grand Challenge goals by developing biofuel technologies that use sustainable biomass and waste feedstocks while also providing industry with new technologies to meet EPA’s Renewable Fuel Standard (RFS) Program requirements to reduce greenhouse gas (GHG) emissions and expand the renewable fuels sector, reducing reliance on imported transportation fuel, heating oil, and jet fuel. Using agricultural residues and wet wastes, BETO notes that the projects also align with its 2023 Billion-Ton Report (BT23), an assessment of domestic renewable carbon resources that estimates that the United States can sustainably provide 134 million tons of agricultural residues and 32 million tons of wet waste in the near-term. The funding will address the development of advanced biofuels through pre-pilot scale-up of integrated biorefinery technologies. The following projects were selected:
Air Company Holdings, Brooklyn, New York — Biogenic Carbon Dioxide to Drop-in Sustainable Aviation Fuel;
Erg Bio Inc., Dublin, California — Demonstration of the ASPIRE Feedstock Flexible Biomass Deconstruction and Conversion Technology at the Pre-pilot Scale; and
Terragia Biofuels, Hanover, New Hampshire — Continuous Conversion of Corn Stover to Ethanol Using Engineered Thermophilic Bacteria.
Handling Insurance Claims in the Wake of the Los Angeles Wildfires
Los Angeles continues to be devastated by wildfires, and our thoughts are with those who have been affected. Tragically, lives have been lost. Homeowners and businesses ordered to evacuate have left behind properties that suffered enormous property damage and loss. At this time, more than 15,000 structures have been burned and counting. Landmarks, places of worship, schools and notable business are among the structures that have been damaged or destroyed. Recent estimates have pegged insured losses in the $20 billion to $30 billion range with some estimates coming in even higher.
Safety is the number one priority. At some point, though, the focus will shift as the fires seize and those affected rebuild and replace their property. There has already been much talk of insurance availability and maximizing insurance recoveries will be a key component of the recovery process. For those who will go through the insurance claims process, we have prepared critical action items to help policyholders navigate the claim process.
Navigating the Insurance Claims Process: Action Items
Obtain a Copy of Your Insurance Policy: Having a complete copy of your insurance policy, including all forms and endorsements (or riders), is critical. If you do not have a copy, request one immediately from the insurer.
Identify Applicable Insurance: Many policies, including homeowners and commercial property policies, cover physical loss or damage. These policies can contain many types of coverages (e.g., business interruption, dwelling, etc.) and it is important to know what coverages may apply and what limits are available as you begin the claim process.
Give Prompt Notice: Notice should be provided to the insurer consistent with the policy’s notice requirements and is crucial to preserving rights under the policy.
Detail Your Claim: When submitting the claim, it generally helps to be as detailed as reasonably possible. If necessary, the claim can always be supplemented with additional information. At the same time, avoid “padding” the claim and be as accurate as possible.
Be Wary of Public Adjusters: Following any significant disaster, unscrupulous individuals prey on vulnerable policyholders by charging exorbitant rates or making promises they can’t keep. Be careful should you decide to retain a public adjuster.
Maintain Documentation: Documentation plays a vital role in ensuring the maximum recovery under the policy. Businesses should keep records of losses suffered. Policyholders should document the property damaged, whether it be through photos, video, receipts, or other record. It is also vital to keep records of communications with the insurance adjuster, including sending follow-up written confirmation following verbal conversations, to help ensure they don’t sidestep their commitments.
Be Friendly, but Assert Your Rights: Policyholders generally have a duty to cooperate and it typically inures to one’s benefit to maintain a cordial relationship with the adjuster. Do not give an overwhelmed adjuster a reason to try to deny the claim or limit the benefits paid out. That being said, be assertive and remain steadfast in your position if you believe you are not getting what you are entitled to—adjusters are prone to making mistakes like anyone else, especially when handling an abundance of claims.
PFAS: A New Four-Letter Word in Environmental Law? Updates from 2024 and Predictions for 2025
The final year of the Biden administration saw several significant developments related to the regulation of per- and polyfluoroalkyl substances, more commonly known as PFAS. These developments included the U.S. Environmental Protection Agency’s designation of the two most common PFAS compounds as hazardous substances under federal cleanup laws and its limitation of six PFAS compounds under federal drinking water regulations, among others. The past year also saw a growing number of PFAS-related lawsuits, which are currently in various stages of litigation. What could happen to all these developments in 2025? Can the Trump administration change these rules and policies? What about the numerous PFAS related lawsuits that have been filed in the past year? This update takes a look at some of the more significant PFAS-related developments from the past year and considers what might happen in 2025 and beyond.
What are PFAS and what were the prior administration’s PFAS priorities?
The term “PFAS” encompasses thousands of manmade chemicals. PFAS compounds have been widely used for decades in various applications, including manufacturing water-, stain-, and heat-resistant consumer products, e.g., waterproof clothing and food packaging, and as ingredients in aqueous film forming foams (known as AFFF) used to extinguish certain kinds of chemical fires. There is research indicating that exposure to certain PFAS, which are prevalent and persistent in the environment, may cause various health-related impacts. In an effort to address the impacts related to PFAS, in 2021, the Biden administration published a “PFAS Strategic Roadmap: EPA’s Commitments to Action 2021-2024” identifying a number of regulatory priorities that the administration planned to take during its four-year term. The Strategic Roadmap and annual progress reports are available here.
What were some of the most significant federal regulatory developments in 2024?
Two of EPA’s more significant regulatory actions in 2024 occurred almost back-to-back in April with its designation of two PFAS compounds as hazardous substances under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and its rule imposing regulatory limits on six PFAS compounds under the Safe Drinking Water Act (SDWA). We reported on both of these developments in updates available here and here.
Specifically, in April 2024, the EPA published a final rule designating perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS), and their salts and structural isomers, as “hazardous substances” under CERCLA, available here. As we reported previously, EPA’s designation of PFOA and PFOS as CERCLA hazardous substances was unprecedented and controversial because it was the first time the Agency used its statutory authority under CERCLA to designate a hazardous substance. Until that point, hazardous substances under CERCLA had only been defined by reference to other statutes (e.g., the Clean Water Act and the Resource Conservation and Recovery Act). Among other things, the rule requires parties to report unpermitted releases of PFOA and/or PFOS at or above the applicable “reportable quantity” (one pound or more within a 24-hour period) to federal, state, and local authorities. It also imposes certain obligations on federal agencies when selling and transferring federally owned real property. And most significantly, the rule provides the federal government with additional authority under CERCLA to address PFOA/PFOS contamination in the environment, allows private parties who conduct cleanups consistent with CERCLA’s National Contingency Plan to seek to recover PFAS cleanup costs from other potentially responsible parties (PRPs), and potentially affects closed sites with existing remedies. At the same time EPA published the final CERCLA rule, it issued a policy memorandum, “PFAS Enforcement Discretion and Settlement Policy Under CERCLA” summarizing the Agency’s intent to use its discretion to not “pursue entities where equitable factors do not support seeking response actions or costs under CERCLA . . . .” and generally focus on so-called “major PRPs” – parties who, in EPA’s view, “have played a significant role in releasing or exacerbating the spread of PFAS into the environment, such as those who have manufactured PFAS or used PFAS in the manufacturing process, and other industrial parties.” Some industries that would be protected under this Policy, including publicly owned treatment works and publicly owned/operated municipal solid waste landfills, expressed concern that the policy provides only discretionary rather than mandatory protection and that it does not prevent other PRPs from pursuing claims against them.
Also in April 2024, EPA published a National Primary Drinking Water Regulation establishing the first-ever national enforceable drinking water standards for six PFAS under the Safe Drinking Water Act (SDWA), available here. The rule sets enforceable Maximum Contaminant Levels (MCLs) and non-enforceable health-based Maximum Contaminant Level Goals (MCLGs) for PFOA and PFOS, and four additional PFAS compounds – perfluorononanoic acid (PFNA), hexafluoropropylene oxide dimer acid and its ammonium salt (HFPO-DA, commonly known as GenX chemicals), and perfluorohexane sulfonic acid (PFHxS). EPA set MCLs (the maximum concentrations allowed in drinking water that can be delivered to the users of a public water system) at 4.0 parts per trillion (ppt) for PFOA and PFOS and 10 ppt for PFNA, PFHxS and HFPO-DA. In addition, EPA set MCLGs at 0 parts per ppt for PFOA and PFOS and at 10 ppt (same as the enforceable MCL) for PFNA, PFHxS and HFPO-DA. Under the rule, public water systems are given until 2027 to complete initial monitoring of each of the six PFAS, followed by ongoing compliance monitoring, and until 2029 to implement solutions to reduce PFAS where MCLs are exceeded. After those five years, public water systems that exceed one or more of the MCLs must take action to reduce PFAS levels and provide notice to the public of the violation.
In 2024, EPA proposed other rules related to PFAS that have not yet been finalized. For example, in February 2024, EPA published two proposed rules to address PFAS and other emerging contaminants under the authority of the Resource Conservation and Recovery Act (RCRA). First, EPA proposed to add nine PFAS (including their salts and structural isomers) to the list of “hazardous constituents” in Appendix VIII of 40 C.F.R. Part 261 that would need to be considered in facility assessments and, where necessary, considered in any further investigation and cleanup through the corrective action. Second, EPA also proposed to clarify, by regulation, that emerging contaminants – including PFAS – can be addressed under RCRA’s Corrective Action Program. For more information about the proposed RCRA rules, see our previous update, available here.
What were some of the major developments in PFAS litigation?
Regulatory developments directly influenced litigation developments. While the regulated community pushed back, plaintiffs’ attorneys relied on the new regulations to identify new targets for litigation and prove the elements of their cases. Overall, the prior year signaled three major developments in PFAS litigation.
First, a variety of stakeholders pushed back at the Biden administration’s efforts to regulate PFAS. In American Water Works Association v. U.S. Environmental Protection Agency, No. 24-1188 (D.C. Cir. 2024), a coalition of industry and major water utilities challenged the EPA’s regulation of PFAS under the SDWA. They argue that the Agency set MCLs for six PFAS beyond what are technologically and economically feasible and, further, adopted an unprecedented “hazard index” approach to regulating two additional PFAS. And in Chamber of Commerce v. U.S. Environmental Protection Agency, No. 24-1193 (D.C. Cir. 2024), industry challenged the EPA’s designation of two PFAS as hazardous substances under CERCLA. Emphasizing that the Agency has never before invoked its statutory authority to directly designate hazardous substances under CERCLA, they argue that the Agency conducted an improper “substantial danger” analysis and failed to properly consider the costs and consequences of its regulation. Barring deregulatory action from the Trump administration, both cases are expected to be decided in 2025 and will have major implications for whether and how the EPA may regulate PFAS going forward.
Second, PFAS manufacturers cemented a significant victory when the U.S. Court of Appeals for the Sixth Circuit declined to revisit its opinion in Hardwick v. 3M Co., where it ruled that the district court erred by allowing a “class comprising every person residing in the State of Ohio” to bring claims against ten manufacturers of PFAS for allegedly contaminating their blood with PFAS. Hardwick v. 3M Co., No. 22-3765, at *2 (6th Cir. Nov. 27, 2023). Holding that the lead plaintiff lacked standing, the Court noted that he “does not know what companies manufactured the particular chemicals in his blood stream; nor does he know, or indeed have much idea, whether those chemicals might someday make him sick; nor, as a result of those chemicals, does he have any sickness or symptoms now.” Id. at *1. Given the ubiquity of PFAS in the environment, and the numerous potential sources of exposure, Hardwick’s legacy may be to raise the bar for standing, causation, and harm in cases alleging PFAS exposure.
And, third, enterprising plaintiffs’ attorneys avoided the standing issues raised in Hardwick by bringing false advertising claims against manufacturers of products alleged to contain PFAS. Relying frequently on state consumer protection laws, the plaintiffs in these cases allege that product manufacturers misled consumers and delivered products that are worth less than they would have been if the presence of PFAS had been disclosed. In one such case filed in late 2024, for instance, the plaintiff alleges that Samsung Electronics failed to disclose the presence of PFAS in bands used with its smart watches, thereby “causing [plaintiff] to overpay for Products” and “enjoy[ing] an unfair competitive advantage, receiving millions of dollars from consumers in ill-gotten proceeds while putting the health and welfare of millions of consumers and their families at risk ….” Class Action Complaint at ¶ 8, Gonzalez v. Samsung Electronics Am., Inc., No. 2:24-cv-11234 (C.D. Cal. filed Dec. 31, 2024). Expect these lawsuits to proliferate as government reporting obligations and third-party investigations lead to the discovery of PFAS in products where it was previously unknown to have been used.
What can happen to these rules and cases under the new administration?
On the regulatory front, the Trump administration is expected to deregulate at the federal level and take a less active approach to PFAS than the Biden administration. One major tool that can be used to rescind regulations is the Congressional Review Act (CRA). The first Trump administration liberally used the CRA to rescind regulations issued in the final days of the then-outgoing Obama administration. A “lookback” provision in the CRA allows a new Congress to review and overturn regulations issued during the final sixty legislative days of the prior session – for purposes of the incoming Trump administration, the “lookback” period of the CRA is August 2024. The Biden administration intentionally finalized many regulations, including the PFAS MCLs and designation of PFOA and PFOS as hazardous substances under CERCLA, prior to August 2024 to stay out of reach of the CRA.
Though these PFAS-related regulations are out of reach of the CRA “lookback period” for rescinding regulations, there are other tools for doing so. EPA can amend or overturn a rule through ordinary notice and comment rulemaking under the Administrative Procedure Act. The notice-and-comment rulemaking requires that EPA develop a legal record justifying the proposed change and undergo a lengthy public notice process on the proposed regulatory/deregulatory action. Although it would be time-consuming, the EPA can use this option to amend or overturn the designation of PFOA and PFOS as hazardous substances under CERCLA as well as the PFAS MCLs. Of course, the future of these rules could also be determined by the ongoing litigation discussed above.
Another tool that already has been used by the new Trump administration to direct regulatory action in numerous substantive areas is the issuance of executive orders (EOs). On the first day of his second term, President Trump signed several EOs affecting environmental policy established by the Biden administration, including an EO entitled “Initial Rescissions of Harmful Executive Orders and Actions,” which expressly rescinds a number of Biden administration EOs, including those addressing climate change and environmental justice. Proposed rules and guidance documents, such as the RCRA proposal discussed above, are now subject to President Trump’s EO entitled “Regulatory Freeze Pending Review” which requires that (1) no federal agency propose or issue any rule without review and approval of an agency head appointed or designated by President Trump, and (2) any rule submitted to the Federal Register that is not yet published must be withdrawn pending review. It is also possible that EOs will be issued to withdraw specific guidance documents inconsistent with the new administration’s goals and policies. For example, the EPA’s PFAS Strategic Roadmap could be shelved or rescinded.
These anticipated Trump administration regulatory actions could impact the trajectory of litigation challenging the Safe Drinking Water Act and CERCLA rules, especially if the EPA signals that it intends to withdraw or modify those actions. The private civil litigation, however, is expected to continue unabated.
Treasury Issues Final Guidance on Clean Hydrogen Production Tax Credit
Go-To Guide:
Treasury finalizes clean hydrogen tax credit rules, clarifying Carbon Intensity calculations.
New regulations address additionality, hourly matching, and deliverability for zero-carbon electricity.
Annual matching allowed until 2030, with hourly matching required thereafter.
Renewable Natural Gas treated similarly to electricity, with monthly matching and single-region deliverability.
Potential impacts of new administration and Congress on 45V regulations remain uncertain.
The U.S. Treasury Department has issued final regulations for clean hydrogen production tax credits, which may significantly impact the renewable energy sector. These regulations implement the Section 45V clean hydrogen tax credit. Critical to developers of hydrogen production projects, they determine the requirements to qualify for the Section 45V credit and resolve disagreements over how to calculate the Carbon Intensity (CI), or life cycle greenhouse gas emissions, for clean hydrogen production projects.
The CI is a key factor in determining whether hydrogen produced by a clean hydrogen project qualifies for a 45V credit, as well as the amount of that credit. The regulations also cover other important aspects, such as:
the petitioning process for provisional emissions rates,
rules for verifying clean hydrogen production, sale, or use,
rules for modifying or retrofitting existing qualified clean hydrogen production facilities,
rules for using electricity from certain renewable or zero-emissions sources to produce qualified clean hydrogen, and
options for treating part of a clean hydrogen production facility as energy property eligible for the Section 48 energy credit.
I.
How the Carbon Intensity that Dictates Section 45V Credit Value is Determined
Under the final regulations, the CI of hydrogen will be determined based on life cycle emissions through the point of production, known as “well-to-gate.” This determination will use the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model developed by Argonne National Laboratory. The well-to-gate system boundary includes several types of emissions. It covers emissions associated with feedstock growth, gathering, extraction, processing, and delivery to a hydrogen production facility. It also includes all emissions resulting from the facility’s hydrogen production process. This encompasses the production of mixed gas or impurities, electricity used by the hydrogen production facility, and any capture and sequestration of carbon dioxide generated by the facility. Emissions from activities that occur after the facility’s hydrogen production process is complete, such as liquefaction, storage, or transport, are generally beyond the well-to-gate system boundary. However, there is an exception: emissions from certain purification activities that occur downstream of the facility’s qualified clean hydrogen production process are considered within the well-to-gate system boundary.
II.
Treasury Resolves Issues Over ‘The Three Pillars’
In the case of clean hydrogen produced from zero carbon electricity, three issues critical to measuring CI have emerged: (1) additionality – whether the electricity must be produced by newly constructed renewable generation facilities; (2) hourly matching – whether the electricity must be produced in the same hour, or under a more lenient standard, the same year in which it is consumed to produce hydrogen; and (3) deliverability – whether the electricity must be generated in the same region where the hydrogen is produced. The final rules adopt less restrictive standards than initially proposed on many of these issues.
Additionality
The final rules address additionality by finding that the newly constructed renewable generation facility’s generation must begin commercial operations within 36 months of the facility being placed into service. However, Treasury also adopted an exception to this general rule that will allow up to 200 MW of nuclear generation capacity at risk of retirement to be considered incremental. In addition, when clean power is sourced from states with stringent emissions caps, such as California and Washington, that ensure continued growth in renewable generation capacity, the electricity will be considered incremental. Finally, electricity produced by a generation facility that has added carbon capture and sequestration within 36 months will be considered incremental.
Hourly Matching
The regulations on Hourly Matching give hydrogen producers more time to adapt. They can use annual matching until 2029, with hourly matching required in 2030. This extends the transition period by two years.
After 2030, when hourly matching is mandatory, any electricity use not covered by a qualifying Energy Attribute Certificate (EAC) will be assessed based on the regional electricity grid’s default emissions intensity. The Section 45V credit amount varies based on the produced hydrogen’s CI. To qualify, hydrogen must have an annual average CI below 4 kilograms of CO2 per kilogram of hydrogen. The credit value increases as CI decreases: $0.60 for CI between 2.5 and 4.0, $0.75 for CI between 1.5 and 2.5, $1.00 for CI between 0.45 and 1.5, and $3.00 for CI below 0.45.
The final rules allow taxpayers to optimize their credit value. If the annual average CI is below 4.0 for all hydrogen produced in a calendar year, they can choose to calculate emissions from electricity use on an hourly basis to potentially increase their 45V credit.
Deliverability
The final regulations largely adopt the proposed rules for EACs and deliverability. An EAC meets the deliverability requirement if the associated electricity is generated by a facility in the same grid region as the hydrogen production facility. The National Transmission Needs Study (DOE Needs Study), which the DOE released on Oct. 30, 2023, defines these regions. Alaska and Hawaii, as well as each U.S. territory, are considered separate regions.
The final regulations amend the proposed regulations to allow an eligible EAC to meet the deliverability requirement in cross-region deliveries where the generation’s deliverability can be tracked and verified.
Hydrogen Produced from Renewable Natural Gas
The adopted regulations seek to treat methane similarly to hydrogen produced from electricity. They introduce gas EACs to track emissions from RNG used in methane production. Qualified EAC registries will manage these EACs.
The regulations also require monthly matching and treat the contiguous United States as a single region for deliverability purposes. However, the regulations do not adopt a “first productive use” requirement to address incrementality. A first productive use requirement would have required the taxpayer to establish that the biogas has not been previously used for another productive application, such as electricity generation or transportation.
III.
Potential Impacts of a New Administration and Congress
It is uncertain how the new administration and Congress may impact the 45V regulations. The incoming administration and Republican Congressional majority have expressed opposition to various grants and tax credits adopted under the Inflation Reduction Act, such as those relating to electric vehicles and offshore wind facilities. But they may also be aware of the substantial U.S. investments that have already been made, additional investments and employment that might be unleashed, and support for hydrogen some Republicans, Democrats, and fossil fuel companies have expressed. Additionally, while the final regulations could also be revised by the incoming administration, this would require a lengthy regulatory process.
Breaking Down the Good Samaritan Act: What It Means for Hardrock Mine Remediation
In December 2024, the Good Samaritan Remediation of Abandoned Hardrock Mines Act became law. Lauded by the National Mining Association as “the final step in securing a key solution to tackle the long-overdue cleanup of legacy abandoned mine sites,” the Good Samaritan Act is the culmination of 25 years of effort and interest in addressing these legacy sites.
But as much as it may be a final step, it is also just the beginning. In an effort to incentivize cleanups long discouraged by potential Clean Water Act and CERCLA liability and to streamline the complex and time-consuming bureaucratic process to address abandoned mine sites, the Act establishes a pilot program for permitting cleanup in carefully delineated circumstances. Whether the Act’s testing grounds prove a broader, and perhaps even more streamlined, Good Samaritan program can be effective remains to be seen.
Sites Eligible for Cleanup
The Act limits “abandoned hardrock mine sites” eligible for Good Samaritan permits to sites:
On federal or non-federal land used for the production of minerals other than coal; and
Where no responsible owner or operator has been identified who is potentially liable for remediation activities under applicable law.
Sites that were previously subject to a completed response action under CERCLA or similar Federal or state cleanup and reclamation program are eligible, but sites with planned or ongoing response actions are excluded. Also excluded are mines sites:
In temporary shutdown or cessation;
Listed on the CERCLA National Priorities List;
Where there is a responsible owner or operator; or
Where active mining or mineral processing occurred after December 11, 1980.
Good Samaritan Defined
A “Good Samaritan” under the Act means a person who is not a past or current owner or operator of the abandoned hardrock mine site (or a portion of the site) and had no role in the creation of the historic mine residue. Anyone potentially liable under federal, state, tribal, or local law for remediation, treatment, or control of the historic mine residue is not eligible for a Good Samaritan permit.
Permit Mechanics
The Act establishes a pilot program that allows for the issuance of 15 Good Samaritan permits and sunsets in 7 years from the date of the law’s enactment. Permit applications are submitted to the EPA and must include (among other things) a description of baseline conditions caused by historic mine residue, a remediation plan, detailed engineering plans, and plans for monitoring to determine the success of the remediation activities. Applicants must be able to demonstrate that they have the financial resources to carry out the remediation, or are able to secure third-party financial assurance, to ensure the work is completed and carry out any long-term operations and maintenance of remediation activities.
Benefits of a Good Samaritan Permit
To incentivize Good Samaritan cleanups, the Act provides important benefits to permittees:
No Clean Water Act permitting. Permittees do not need to obtain certain Clean Water Act permits, including discharge permits under Sections 402 or 404 of the Clean Water Act. Permitting can be a lengthy and complex process. This provision will save permittees considerable time and process in pursuing cleanup activities.
CWA and CERCLA liability protections. During the life of a Good Samaritan permit and after the permit’s termination, Good Samaritans are considered to be in compliance with the Clean Water Act and CERCLA for remediation activities authorized by the permit. These protections also extend to any past, present, or future releases or discharges from the permitted site. These protections do not apply if a permittee fails to comply with the permit and makes environmental conditions worse than baseline conditions at the site.
Grant funding. Good Samaritans are eligible for grant funding under the Clean Water Act and CERCLA for permitted remediation activities.
Practical Considerations
The Act doesn’t remove all practical difficulties in pursuing cleanups at abandoned hardrock mine sites. A Good Samaritan must still put in the effort to identify any responsible owners or operators and make a demonstration to the EPA that no such entity exists. Additionally, the issuance of a Good Samaritan permit is considered a major federal action under the National Environmental Policy Act (“NEPA”). That means EPA will need to go through the steps of preparing an environmental assessment under NEPA and determining if the action requires an environmental impact statement.
It is also worth noting that Good Samaritan permits do not allow mining or exploration at the site. A permittee can reprocess materials recovered only if the land is owned by the U.S. and proceeds from reprocessing are used to defray costs of remediation with the remainder going into the Good Samaritan Mine Remediation Fund established by the Act (for use by federal land management agencies and the EPA).
Inflation Reduction Act Domestic Content Bonus Update: IRS Issues Updated Guidance with First Updated Elective Safe Harbor
On January 16, 2025, the IRS released Notice 2025-08, modifying its prior guidance issued as Notice 2023-38 and Notice 2024-41, for taxpayers seeking to qualify for the domestic content bonus tax credit amounts under the Inflation Reduction Act of 2022 (IRA). The IRA amended §§ 45 and 48 of the Internal Revenue Code and enacted §§ 45Y and 48E of the Internal Revenue Code to provide domestic content bonus tax credits for certain qualified energy facilities or projects.
Notice 2025-08 introduces the First Updated Elective Safe Harbor, providing new tables for solar photovoltaic, land-based wind, and battery energy storage system projects that modify the New Elective Safe Harbor tables provided in Notice 2024-41. Our initial post on the New Elective Safe Harbor is available here.
A summary of many of the modifications introduced by the notice is provided below:
The safe harbor table for solar PV systems has been split into two separate tables: one for ground-mount and one for rooftop. The Assigned Cost Percentages for module and inverter Manufactured Product Components (MPCs) have generally increased, but the Assigned Cost Percentages for production have generally decreased or remain unchanged. Notably, the Assigned Cost Percentage for production for a ground-mounted system with tracking decreased from 11.5 to 4.7.
Solar PV projects that install modules with domestic crystalline silicon cells and wafers (only applicable to modules) are valued higher (e.g., with an Assigned Cost Percentage of 51.6 for ground-mounted projects with tracking technology and 66.6 for ground-mounted fixed-tilt projects) than solar PV projects with only domestic cells (e.g., with an Assigned Cost Percentage of 38 for ground-mounted projects with tracking technology and 53.2 for ground-mounted fixed-tilt projects).
The First Updated Elective Safe Harbor table is significantly restructured for BESS projects, notably with a much higher Assigned Cost Percentage of 52 for cells for grid-scale projects (up from 38).
The notice adjusts various MPCs and Applicable Project Components (APCs):
“Steel or iron rebar in foundation” is modified to be “steel or iron reinforcing products in foundation.”
For PV modules, “Adhesives” have been removed as an MPC, intended to be covered by Edge Seals and Pottants.
For inverters, the former “Climate Control” is modified to be “Thermal Management System,” and “Enclosure” is modified to be “Enclosure & Skids.”
For trackers, the former “Slew Drive” is modified to be “Drive System,” and “Motor” is modified to be “Actuator.”
For wind projects, “Material” is modified to be “Preform.”
For BESS, “Battery Pack” has been narrowed to “Battery Pack/Module,” now containing only “Cells and Packaging.”
For BESS, “Inverter” is modified to be “Inverter/Converter.”
For BESS, the “Battery Container/Housing” APC remains, but is expanded to include what has been excluded from the original “Battery Pack” APC (Battery Management System and Thermal Management System for Battery Container/Housing).
The notice provides definitions for MPCs and APCs that clarify the classification of equipment and components, providing more certainty for taxpayers seeking to use the safe harbor.
The notice also expressly permits projects subject to the 80/20 Rule (allowing certain qualified facilities or energy property to be treated as originally placed in service even with some used components) to qualify for the domestic content bonus using the First Updated Elective Safe Harbor.
Taxpayers may rely on the notice for any applicable project beginning construction before the date that is 90 days after any future modification, update, or withdrawal of the notice.
Overall, the First Updated Elective Safe Harbor is likely to provide greater clarity in the interpretation of requirements necessary to obtain the domestic content bonus tax credit pursuant to the IRA.
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PFAS Personal Injury Lawsuits: Warning Bells for Users of PFAS
Two recent PFAS personal injury lawsuits have grabbed headlines, as the plaintiffs in the respective lawsuits allege that they developed cancer from public drinking water supplies that were contaminated with PFAS. These are not the only examples of such lawsuits, and while the cases to date target PFAS manufacturers, AFFF manufacturers, the cases are notable because of the allegations that drinking water caused the plaintiffs’ cancers and also, in one lawsuit, that one of the named defendants is a public water utility.
It is not farfetched to imagine a future in the not distant future where PFAS personal injuries expand the scope of defendants to include companies that used PFAS and discharged effluent into waterways that fed public water supplies. It is also not unrealistic to imagine water utilities brought into lawsuits such as the ones described in this article seeking contribution for alleged liability from upstream (literally) companies that discharged PFAS-containing effluent into waterways that the utility had no choice but to accept and send to customers for drinking water.
PFAS Personal Injury Lawsuits and Drinking Water
The two most recent lawsuits alleging cancer as a direct result of ingesting drinking water are Robert Stanfield v. 3M, et al filed in Martin County, Florida and Freeman and Barbara Thompson v. 3M, et al filed in the federal court for Washington state. Both are similar in nature in that they allege that their drinking water sources (private drinking wells in the Thompson case, and a public water supply in the Stanfield case) caused thyroid, prostate and other cancers. Both cases bring claims for compensation against various manufacturers of PFAS and AFFF (firefighting foam) manufacturers, with the Stanfield case adding the Martin County Utilities as a defendant to the lawsuit. In short, the lawsuits allege that the manufacturers of PFAS and AFFF knew of the potential harms to human health associated with PFAS, specifically from contamination to drinking water. The claim against the Martin Cunty Utilities alleges that the water utility knew of the presence and harms of PFAS in drinking water in 2016, yet continued to supply PFAS-contaminated drinking water to customers.
Current and Future Implications To Companies
The current lawsuits present interesting trends in the PFAS personal injury legal space, as they represent a growing trend of personal injury claims alleging drinking water as the cause. The cases are narrowly focused on PFAS manufacturers, AFFF makers, and in some instances, water utilities. This is a trend that will continue in the short term. However, companies must be aware that the future, in my view, the trajectory will look quite different. Plaintiffs will broaden the number of defendants they bring into lawsuits alleging injury from drinking water, to include companies that historically discharged or continue to discharge PFAS-containing effluent into waterways that ultimately feed into drinking water sources. With the ever-increasing reporting obligations for companies under federal and state regulations (including TRI and NPDES permit reporting requirements), the evidence that plaintiffs need to develop cases such as the ones that I predict will be easier to develop.
A head-in-the-sand approach to these issues is unwise for companies. Understandably, companies face significant business interruption issues every day that demand the “here and now” attention of its professionals. Of course, there is always the hope that the day never comes that the company will be brought into a PFAS lawsuit and it is difficult to provide a percent prediction that Board members crave before investing in risk deterrence programs. However, attorneys in the environmental law space and toxic torts space have seen trends like this before. One need not look any further than the asbestos litigation for support of the predicted trend I speak of. More pointedly, in the 1970s and 1980s, the asbestos litigation focused almost entirely on the suppliers of raw asbestos fiber and the companies that manufactured thermal insulation (seen as one of the products with the highest levels of potential exposure, akin to AFFF in the current PFAS litigation). Yet, today, the litigation focuses exclusively on a wide variety of industry and product types that used asbestos as one component of materials such as gaskets, electrical wire, floor tiles, and cosmetics. As the asbestos litigation evolved and a broader and broader net was cast, so too, i believe, will the course of PFAS litigation follow in the footsteps of asbestos litigation. It is for this reason that companies absolutely must prepare now for what is to come.
CMBG3 Law is following judicial, legislative, administrative, and scientific developments relating to PFAS. We represent companies of all sizes on PFAS compliance, litigation, and risk management issues, as well as consult with insurers and financial world firms on PFAS issues. We are recognized thought leaders on the subject of PFAS and are regularly contacted by media – including Bloomberg, Wall Street Journal, Washington Post – for our opinions on PFAS issues.
PFAS Sewer Sludge Risks Exist Says EPA…But Will It Matter After Today?
Last week, there was significant news in the PFAS realm when the EPA announced its long-awaited draft risk assessment with respect to PFOA and PFOS in sewer sludge from two popular methods of disposing of such sludge – landfilling and land application. Although the draft risk assessment is now set for public comment, the new EPA under the Trump administration will have to determine what to do with the risk assessment findings after the comment period ends. Options of course range from utilizing the risk assessment to create enforceable regulations to…..nothing at all. Given the push already for renewed efforts to create CERCLA exemptions for certain industries, including wastewater treatment facilities, my view is that while neither option on the ends of the possibility spectrum will be the resulting action of the new EPA, the EPA’s actions will not favor a rush to create regulations.
PFAS Sewer Sludge Risks
The EPA’s draft risk assessment finds that PFOA and PFOS from landfilling or land application of sewer sludge “…exceed the agency’s acceptable human health risk thresholds for some pasture farm, food crop farm, and reclamation scenarios when assuming that the land-applied sewage sludge contains 1 part per billion (ppb) of PFOA or PFOS.” EPA also found that “there may be human health risks associated with drinking contaminated groundwater sourced near a surface disposal site when sewage sludge containing 1 ppb of PFOA or sewage sludge containing 4 to 5 ppb of PFOS is disposed in an unlined or clay-lined surface disposal unit.” The EPA did caution that its findings were less conservative that it wished due in part to factoring in non-sludge exposures to PFOA / PFOS, and that its risk assessment did not take into consideration transformation of other PFAS chemicals into PFOA or PFOS.
Once published int he Federal Register, public comment will be open for 60 days.
Likely Action Stemming From Risk Assessment
The timing of the publication of the draft risk assessment if both critical and entirely deliberate. The new EPA will have to allow the public comment period to take its course, and at some point, may have to finalize the risk assessment. However, it is possible that the new EPA will seek ways to either stall doing so or release a statement that after considering public comment, it has decided that a less conservative PFOA / PFOS risk number is appropriate. The latter would in effect allow the EPA to go back to the drawing board in terms of conducting further assessment and comment periods.
I believe that this is precisely what the new administration will seek to do, primarily because of the likely related push to work out a CERCLA exemption carve out for the wastewater treatment industry. It makes little sense, after all, to finalize a risk assessment for sewer sludge, which would then have Clean Water Act and RCRA impacts and obligations for potential enforcement, if enforcement against the industries responsible for managing sewer sludge are to gain CERCLA exemptions.
Further, do not expect the new EPA to be in any rush whatsoever to finalize regulations related to PFOA / PFOS under either the Clean Water Act or RCRA based on the risk assessment, even if finalized in its current form. Even the Biden Administration’s EPA indicated that the risk assessment is but a first step in the process, and that is legally correct. EPA would need to undertake a cost/benefit analysis and feasibility assessment before it could successfully implement regulations under RCRA or the Clean Water Act. I would not expect the new EPA to be in any rush to finalize either assessment.
Looking Beyond Four Years
The longer term impact of the PFAS sewer sludge risk assessment, though, may be more impactful, but likely will be determined based on political party shifts. The draft risk assessment lays the foundation for sludge-related regulations. I believe that given the citizen awareness of the sludge land application issues, it will be difficult for the new EPA to simply ignore or entirely reject the risk assessment. It will have to take some action, but such action will not be rapid. Thus, if in 2029, we see another party shift with more interest in accelerating environmental and PFAS regulations, the foundational framework for what is needed will already be accomplished. I therefore believe that the sludge risk assessment’s legacy will not be felt prior to 2029, but at some point beyond that, it will become incredibly significant as an enforcement tool for the EPA against alleged polluters, as well as a civil litigation tool for plaintiffs’ attorneys seeking to bolster their lawsuits related to sludge contamination.
CMBG3 Law is following judicial, legislative, administrative, and scientific developments relating to PFAS. We represent companies of all sizes on PFAS compliance, litigation, and risk management issues, as well as consult with insurers and financial world firms on PFAS issues. We are recognized thought leaders on the subject of PFAS and are regularly contacted by media – including Bloomberg, Wall Street Journal, Washington Post – for our opinions on PFAS issues.
Latest PFAS Consumer Fraud Lawsuit Re-Raises Important Considerations For Companies
On several instances, we have written regarding consumer fraud PFAS class action lawsuits filed in several states. The number of product types targeted for these lawsuits are growing and diverse in terms of the industries targeted. While there has been at least one significant settlement in these lawsuits to date, recently a few of the lawsuits that we previously reported on related to PFAS consumer fraud allegations were dismissed by separate courts.
However, this has not deterred plaintiffs from filing these types of cases, and in fact there are other lawsuits that successfully defeated Motions to Dismiss. The latest PFAS consumer fraud lawsuit targets Samsung this time for PFAS allegedly used in its smart watched. The new lawsuit shows that the number of consumer fraud lawsuits is likely to continue, and consumer goods industries, insurers, and investment companies interested in the consumer goods vertical must pay careful attention to these lawsuits.
Consumer Fraud PFAS Lawsuits – Overview
The consumer fraud PFAS lawsuits filed to date follow a very similar pattern: various plaintiffs bringing suit on behalf of a proposed class allege that companies market consumer goods as safe, healthy, environmentally friendly, etc., or that the companies themselves market their corporate practices as such, yet it is allegedly discovered that certain products marketed with these buzzwords contain PFAS. The lawsuits allege that since certain PFAS may be harmful to human health and PFAS are biopersistent (and therefore environmentally unfriendly), the companies making the good engaged in fraud against consumers to entice them to purchase the products in question.
In the Complaints, plaintiffs typically allege the following counts:
Violation of state consumer protection laws and the federal Magnuson-Moss Warranty Act
Violations of various state consumer protection laws
Breach of warranty
Fraud
Constructive fraud
Unjust enrichment
The plaintiffs seek certification of nationwide class action lawsuits, with a subclass defined as consumers in the state in which the lawsuits are filed. In addition, the lawsuits seeks damages, fees, costs, and a jury trial. Representative industries and cases that have recently been filed include:
Cosmetics industry:
Brown v. Cover Girl, New York (April 1, 2022)
Anderson v. Almay, New York (April 1, 2022)
Rebecca Vega v. L’Oreal, New Jersey (April 8, 2022)
Spindel v. Burt’s Bees, California (March 25, 2022)
Hicks and Vargas v. L’Oreal, New York (March 9, 2022)
Davenport v. L’Oreal, California (February 22, 2022)
Food packaging industry:
Richburg v. Conagra Brands, Illinois (May 6, 2022)
Ruiz v. Conagra Brands, Illinois (May 6, 2022)
Hamman v. Cava Group, California (April 27, 2022)
Azman Hussain v. Burger King, California (April 11, 2022)
Little v. NatureStar, California (April 8, 2022)
Larry Clark v. McDonald’s, Illinois (March 28, 2022)
Food and drink products:
Bedson v. Biosteel, New York (January 27, 2023)
Lorenz v. Coca-Cola, New York (December 28, 2022)
Toribio v. Kraft Heinz, Illinois (November 29, 2022)
Apparel products:
Krakauer v. REI, Washington (October 28, 2022)
Hygiene products:
Esquibel v. Colgate-Palmolive Co., New York (January 27, 2023)
Dalewitz v. Proctor & Gamble, New York (August 26, 2022)
Feminine hygiene products:
Gemma Rivera v. Knix Wear Inc., California (April 4, 2022)
Blenis v. Thinx, Inc., Massachusetts (June 18, 2021)
Destini Canan v. Thinx Inc., California (November 12, 2020)
Latest PFAS Consumer Fraud Case
In Anthony Gonzalez v. Samsung Electronics, the plaintiff alleges that he purchased a Samsung Galaxy Watch to track his fitness goals. The products, plaintiffs argue, were marketed as promoting human health, environmentally sustainable, and suitable for everyday use and wear. Upon testing, the watches were found to have various types of PFAS. Plaintiff alleges that he was therefore deceived by Samsung, and never would have purchased the product if he knew that it contained PFAS. Plaintiff seeks a class certification of all purchasers of the products in question for the time period in question, with a subclass of all purchasers of the products from California.
Recent Rulings In Consumer Fraud PFAS Cases
In California, the Yeraldinne Solis v. CoverGirl Cosmetics et al. case made allegations that cosmetics were marketed as safe and sustainable, yet were found to contain PFAS. The defendants in the lawsuit filed a Motion to Dismiss, arguing in relevant part that the plaintiff had no standing to file the lawsuit because she did not sufficiently allege that she suffered any economic harm from purchasing the product. The plaintiff put forth two theories to counter this argument: (1) the “benefit of the bargain” theory, under which the plaintiff alleged that she bargained for a product that was “safe”, but received the opposite. The court dismissed this argument because the product packaging did not market the product as safe, and the ingredient list explicitly named the type of PFAS found in testing; and (2) an overpayment theory, under which plaintiff alleged that if she knew the product contained PFAS, she would not have paid as much for it as she did. The Court dismissed this argument because the product packaging specifically listed the type of PFAS at issue in the case.
In Illinois, the Richburg v. Conagra Brands, Inc. alleged that popcorn packaging was marketed as containing “only real ingredients” and ingredients from “natural sources”, yet the popcorn contained PFAS (likely from the packaging itself), which was allegedly false and misleading to consumers. The defendant moved to dismiss the lawsuit on several grounds and the Court found in defendant’s favor on one important ground. The Court held that the statements on the popcorn packaging would not mislead an ordinary and reasonable consumer because a consumer would understand “ingredients” to mean those items that are required to be disclosed by the FDA and not materials that may have migrated to the food from the product packaging. In fact, the Court ruled that the FDA “exempts substances migrating to food from equipment or packaging;” and those “do not need to be included in the ingredients list.” The defendant argued that reasonable consumers would not consider PFAS to be an “ingredient” under this regime. In other words, whether or not PFAS migrated into the popcorn, the representations that the popcorn contained “only real ingredients” and “100% ingredients from natural sources” were “correct as a matter of law.” The court dismissed plaintiffs claims on this basis.
Conclusion
Several major companies now find themselves embroiled in litigation focused on PFAS false advertising, consumer protection violations, and deceptive statements made in marketing and ESG reports. The lawsuits may well serve as test cases for plaintiffs’ bar to determine whether similar lawsuits will be successful in any (or all) of the fifty states in this country. Companies must consider the possibility of needing to defend lawsuits involving plaintiffs in numerous states for products that contain PFAS. It should be noted that these lawsuits would only touch on the marketing, advertising, ESG reporting, and consumer protection type of issues. Separate products lawsuits could follow that take direct aim at obtaining damages for personal injury for plaintiffs from consumer products. In addition, environmental pollution lawsuits could seek damage for diminution of property value, cleanup costs, and PFAS filtration systems if drinking water cleanup is required.
While the above rulings are encouraging for companies facing consumer fraud PFAS lawsuits, it is far too early to tell if the trend will continue nationally. As the recent California case shows, plaintiffs continue to file PFAS consumer fraud cases despite the recent dismissals. Different courts apply legal standards differently and these cases are very fact specific, which could lead to differing results. This has been the case in several jurisdictions, where PFAS consumer fraud cases have been permitted to proceed to litigation after initial challenges were made.
It is of the utmost importance that businesses along the whole supply chain in the consumer products industry evaluate their PFAS risk. Public health and environmental groups urge legislators to regulate PFAS at an ever-increasing pace. Similarly, state level EPA enforcement action is increasing at a several-fold rate every year. Now, the first wave of lawsuits take direct aim at the consumer products industry. Companies that did not manufacture PFAS, but merely utilized PFAS in their manufacturing processes, are therefore becoming targets of costly enforcement actions at rates that continue to multiply year over year. Lawsuits are also filed monthly by citizens or municipalities against companies that are increasingly not PFAS chemical manufacturers.
EPA Releases Final Risk Evaluation for DINP, Finding Unreasonable Risk of Injury to Human Health When Workers Are Exposed under Four COUs
On January 14, 2025, the U.S. Environmental Protection Agency (EPA) released the final risk evaluation for diisononyl phthalate (DINP) conducted under the Toxic Substances Control Act (TSCA). EPA states that it has determined that DINP presents an unreasonable risk of injury to human health because workers could be exposed to high concentrations of DINP in mist when spraying adhesive, sealant, paint, and coating products that contain DINP. According to EPA, DINP can cause developmental toxicity and harm the liver and can cause cancer at higher rates of exposure. EPA notes that DINP can also harm the developing male reproductive system, known as “phthalate syndrome,” and that it is including DINP in its cumulative risk analysis for six phthalates that demonstrate effects consistent with phthalate syndrome. EPA released this draft risk analysis on January 6, 2025.
According to EPA, DINP is used as a plasticizer to make flexible polyvinyl chloride (PVC) and to make building and construction materials; automotive articles; and other commercial and consumer products, including adhesives and sealants, paints and coatings, and electrical and electronic products. EPA notes that it conducted the risk evaluation for DINP at the manufacturer’s request.
EPA states that workers may be exposed to DINP when making products or otherwise using DINP in the workplace. According to EPA, when DINP is manufactured or used to make products, it can be released into the water where most will end up in the sediment at the bottom of lakes and rivers. If released into the air, DINP will attach to dust particles and be deposited on land or into water. Indoors, DINP has the potential over time to come out of products and adhere to dust particles that could be inhaled or ingested.
In the risk evaluation, EPA determined that DINP poses unreasonable risk of injury to human health when workers are exposed to the chemical under four conditions of use (COU) that represent approximately three percent of the DINP production volume in the United States. EPA states that it found that workers are at risk if they are unprotected from the DINP contained in spray-applied adhesives and sealants and paints and coatings. Spraying these products could create high concentrations of DINP in mist that an unprotected worker could inhale. EPA did not identify risk of injury to human health for consumers or the general population or the environment that would contribute to the unreasonable risk of DINP.
EPA notes that it did not evaluate uses and potential exposure pathways that are excluded by statute from TSCA, such as food additives or cosmetics. Past assessments, including the U.S. Consumer Product Safety Commission’s (CPSC) risk assessment, found that DINP exposure comes primarily from diet for women, infants, toddlers, and children. According to EPA, while it is possible that DINP could pose risks to human health through uses or exposure pathways that are not regulated under TSCA, EPA’s risk evaluation and unreasonable risk determination cannot be extrapolated to form conclusions about uses of DINP that are not subject to TSCA and that EPA did not evaluate.
Next Steps
EPA states that it will now begin the risk management process to address the unreasonable risk presented by DINP. EPA will release a proposed rule under TSCA Section 6 to protect workers from the identified risks.
Commentary
Bergeson & Campbell, P.C. (B&C®) is pleased that EPA has made progress on the risk evaluation for DINP. EPA’s evaluation efforts, however, fall short. In the summary statement of the Federal Register notice, EPA states “EPA used the best available science to prepare this final risk evaluation and determined, based on the weight of scientific evidence, that DINP poses unreasonable risk to human health.” EPA makes this conclusion presumably because of its “single determination” (formerly referred to as the whole chemical approach) construction. What concerns us is that this statement condemns DINP; it is a characterization of blunt force, and a reasonable reader would conclude that any COU poses an unreasonable risk to industrial and commercial workers, consumers, and the general population. EPA did a better job on its website for the final risk evaluation for DINP, where EPA states “EPA has determined that DINP presents an unreasonable risk of injury to human health, because workers could be exposed to high concentrations of DINP in mist when spraying adhesive, sealant, paint, and coating products that contain DINP.” EPA, however, does not explain that its conclusion is based on its assumption that workers are not protected. Taken literally, EPA’s statement is that all such workers are at risk, not just unprotected workers. This may seem trivial, but words matter, especially those written by EPA. EPA may wish going forward to be a bit more deliberate in framing its bottom line conclusion and clearly communicate to the public, especially workers, what the risks are and the importance of following the hierarchy of controls, including using respiratory protection, all without unduly alarming workers or the public.
It is critically important that the final risk evaluation accurately represent the COUs that are an unreasonable risk because that final determination provides the basis for any risk management rule. The very limited scope of the COUs that are an unreasonable risk suggests that any risk management rule would also be narrowly tailored. It remains to be seen if EPA will seek to issue bans for DINP for any COU or if EPA will impose a Workplace Chemical Protection Program (WCPP) that addresses the specific COUs for which EPA identifies unreasonable risk.
401(k) Plan Fiduciaries Breached ERISA’s Duty of Loyalty By Allowing ESG Interests To Influence Management Of The Plan
Last week, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas, issued the first-of-its-kind ruling on the merits pertaining to environmental, social, and corporate governance (“ESG”) investing in ERISA-covered retirement plans. In his 70-page Opinion, Judge O’Connor concluded that the plan fiduciaries of American Airlines’ (the “Plan Sponsor’s”) 401(k) plans breached their duty of loyalty, but not their duty of prudence, by allowing their corporate ESG interests, as well as the plan investment manager’s ESG interests, to influence management of the plans. The case is Spence v. American Airlines, Inc., No. 4:23-cv-552 (N.D. Tex. Jan. 10, 2025).
There have been numerous media reports on the Opinion which, as one may expect, have reached a wide array of views about its implications. On the one hand, some have viewed the Opinion as being limited to the specific facts of the case. On the other hand, some have viewed the Opinion as having far reaching consequences because (i) its undertone suggests it is yet another attack on the controversial practice of ESG investing, and (ii) it seeks to upend the common practice of plan fiduciaries delegating authority for proxy voting to investment managers.
Plan sponsors and fiduciaries will want to monitor developments in this action, including how Judge O’Connor addresses the issue of damages and what is likely to become a hotly contested appeal to the Fifth Circuit. In addition, a watchful eye should be kept on another case in this District recently remanded by the Fifth Circuit, where another judge is being asked to consider a legal challenge to ERISA’s ESG investing-related regulations.
Background
Bryan Spence, a participant in one of the Plan Sponsor’s two 401(k) plans, sued the plans’ fiduciaries under ERISA, alleging that they breached their fiduciary duties of prudence and loyalty by mismanaging certain funds in the plans’ investment menus that were managed by firms that pursued non-financial and non-pecuniary ESG policy goals through proxy voting and shareholder activism. Spence contended that such mismanagement harmed the financial interests of the plans’ participants and beneficiaries by pursuing ESG policy goals rather than exclusively financial returns.
The Court’s Opinion
After considering the evidence presented at trial, the court concluded that the plans’ fiduciaries did not breach their fiduciary duty of prudence, but that they did breach their duty of loyalty.
The court concluded that Spence did not prove that the plans’ fiduciaries acted imprudently because their process was consistent with, and in some ways better than, prevailing industry standards. While the court criticized the plans’ fiduciaries for failing to probe the investment manager’s ESG strategy, it concluded that the plans’ fiduciaries maintained a “robust process” for monitoring, selecting, and retaining investment managers, which included the following:
The plans’ fiduciaries held quarterly meetings, which included reporting from internal and external experts responsible for evaluating the plans’ investment managers;
The plans’ fiduciaries hired a well-qualified, independent investment advisor through a competitive bidding process;
The plans’ fiduciaries relied on in-house investment professionals to supplement the third-party advisor’s analysis, “another layer of review that few large-plan fiduciaries replicate”; and
The plans’ fiduciaries met industry standards regarding delegation and oversight of the plans’ investment manager’s proxy voting guidelines and practices.
Notably, the court lamented that “the ‘incestuous’ nature of the retirement industry” means that fiduciaries could escape liability for imprudence by following the prevailing practices of fiduciaries who set the industry standard, even where, in its view, those practices have shortcomings. The court concluded, however, that an act of Congress would be required “to avoid future unconscionable results like those here.”
The court next concluded that the plans’ fiduciaries violated their duty of loyalty “by doing nothing” to ensure that the plans’ investment manager acted in the best financial interests of the plans. In the court’s view, the following facts, taken together, proved that the plans’ fiduciaries failed to act with an “eye single” toward the plans and their participants and beneficiaries:
The investment manager was one of the Plan Sponsor’s largest shareholders and held more than $400 million of the Plan Sponsor’s debt;
A member of the plans’ fiduciary committee was responsible for the Plan Sponsor’s relationship with the investment manager, and the record included emails among fiduciaries referencing the importance to the Plan Sponsor of its relationship with the investment manager;
As a large consumer of fossil fuels, the Plan Sponsor had a corporate reason to be concerned about the investment manager’s ESG focus, which impermissibly clouded the fiduciaries’ judgment; and
The plans’ fiduciaries allowed the Plan Sponsor’s corporate commitment to ESG goals to influence their oversight and management of the plans; in other words, they failed to maintain the necessary divide between their corporate interests and the investment manager’s use of plan assets in the pursuit of ESG policy goals with little fiduciary oversight.
The court found that the evidentiary combination of the (i) Plan Sponsor’s corporate commitment to ESG, (ii) endorsement of ESG policy goals by the plans’ fiduciaries, (iii) influence of, and conflicts of interests related to, the plans’ investment manager that had emphasized ESG, plus the (iv) lack of separation between the defendants’ corporate and fiduciary roles, together established a convincing picture that the defendants had breached their duty of loyalty under ERISA. Whether that disloyalty was in service of the investment manager’s objectives or the Plan Sponsor’s own corporate goals, or both, did not matter. According to the court, the defendants did not act solely in the interests of the plans’ participants and beneficiaries and thus breached their fiduciary duty of loyalty to the plans.
The court ordered the parties to submit cross-supplemental briefing within three weeks on the question of whether the plans suffered any losses and other outstanding issues.
Proskauer’s Perspective
Only time will tell whether the Opinion is limited to its facts or, as some believe, will have broad consequences for the retirement plan industry. Regardless, the court’s decision is notable for several reasons.
To begin with, the premise of the court’s analysis was that the investment manager’s ESG focus was non-pecuniary. Consistent with the Department of Labor’s most recent ESG-related guidance (described here), the court acknowledged that ESG factors could be relevant to a pecuniary risk-and-return analysis where there is a “sole focus on [the] ESG factor’s economic relevance.” For example,the court explained that an investment manager would not be permitted to decide to divest from a company because the company lacks diversity in its leadership, but could consider the lack of leadership diversity if the investment manager believes, based on sound analysis, that it materially risks financial harm to shareholders.
The court drew consequential conclusions based on what it characterized as significant holdings by the investment manager of the Plan Sponsor’s equity and debt. The case illustrates the importance of maintaining clear separation between company considerations and plan fiduciaries’ deliberations. Because many large investment managers have significant holdings in major companies, the court’s analysis opens the door for increased scrutiny of whether an investment manager’s holdings might cloud fiduciaries’ judgment. In fact, it could be argued that the very same conduct the court found was consistent with industry norms and established that the plan fiduciaries acted prudently also established that the plan fiduciaries acted disloyally.
Key Considerations for the Construction Industry in 2025 Under President-Elect Trump
As President-elect Trump prepares to take office on January 20, the construction industry must anticipate shifts in trade policy, particularly concerning tariffs. These changes are expected to have significant implications for various sectors, including energy and clean technology.
The industry’s growing reliance on energy-efficient and clean technology components is driven by sustainability goals and regulatory requirements. For example, the US Department of Energy (DOE) guidelines on “Zero Emissions Building” provide a framework for sustainable practices, offering benchmarks for energy efficiency, zero on-site emissions, and clean energy use. Similarly, New York City’s Local Law 97 (LL97) sets ambitious emissions reduction targets for buildings, focusing on energy efficiency and renewable energy.
However, potential tariffs on imported clean technology materials could lead to increased costs, hindering compliance with regulations that rely on the imports of energy-efficient materials, and posing challenges to the adoption of sustainable building practices.
As these developments unfold, the construction sector must remain vigilant in monitoring policy changes that could affect the availability and cost of clean technology components in 2025.
Key Points to Watch in 2025
1. Evolving Tariff Policies:
The topic of tariffs under Trump’s second Administration has been a source of concern as President-elect Trump has already threatened to impose universal tariffs in addition to other country-specific tariffs.
At this juncture, we can anticipate an increase in tariff measures, but the specific measures are still unknown in part due to the uncertainty surrounding the rate of potential new tariffs, the countries they may affect, and the mechanisms that will be used to impose them, which will impact the timing any tariffs will take effect.
Because the Trump Administration’s trade policies have particularly focused on imports from Mexico, Canada, and China, such targets could significantly impact the import of construction materials, such as steel, aluminum, softwood lumber, concrete, glass, and binding materials.
For example, tariffs could benefit domestic manufacturers by increasing demand for locally produced materials, such as mass timber, but could create vulnerabilities for the construction sector that relies on imports raw materials used for energy efficiency and sustainable buildings that are sourced from Canada, Mexico, or China.
2. Material Cost Fluctuations:
Be prepared for possible increases in material costs due to tariff adjustments. This could lead to higher project expenses and necessitate budget recalibrations.
Contractors may face challenges in predicting material costs and securing project financing due to economic uncertainty and potential price volatility.
3. Supply Chain Adjustments:
Anticipate disruptions in supply chains as suppliers adapt to new trade regulations. This may result in delays and increased lead times for material availability.
Evaluate current supply chain dependencies and explore alternative sourcing options to mitigate risks.
How Can We Help?
As the new administration takes office, the construction industry must remain vigilant and proactive in addressing potential challenges posed by evolving tariff measures. Companies may need to adjust their project plans to account for potential cost increases and supply chain disruptions. Strategies such as seeking alternative suppliers, exploring domestic options, and reevaluating project budgets and timelines will be crucial in navigating these challenges.
Strategic planning and collaboration with trade experts and legal advisors will be crucial in navigating these changes. Here are some strategic ideas to consider:
Diversify Suppliers: Consider expanding your supplier base to reduce reliance on any single source, particularly those affected by tariffs.
Explore Alternative Materials: Investigate the use of alternative materials that may offer cost advantages or are less impacted by tariffs.
Contractual Safeguards: Review and update contracts to address “escalation,” “force majeure,” or other potential political risks, trade restrictions, and cost fluctuations.
Engage in Advocacy: Participate in industry advocacy efforts to influence policy decisions and promote favorable outcomes for the construction sector.
Monitor Trade Policy Developments: Monitor announcements from the new administration regarding free trade agreements (FTAs) and tariff adjustments that could affect material costs. These could include benefits from the United States-Mexico-Canada Agreement (USMCA) and exclusions from tariffs, such as the Section 301 tariffs on products from China.
Industry members seeking detailed analysis and guidance are encouraged to consult with trade experts and legal advisors specializing in construction and trade policy.