Law and the Environment

Suit against Company Sued for Allegedly Misrepreseting Sustainable Harvesting Plan Halted by Bankruptcy Proceeding

June 28 (Bloomberg) -- Timberland owner Pacific Lumber Co. and its subsidiary Scotia Pacific Co. will be in court today to halt prosecution of a lawsuit against their affiliate Maxxam Inc. and Charles Hurtitz who heads the companies.

     The lawsuit in question was filed in California by two individuals suing in the names of the State of California and the U.S. government under laws allowing citizens to prove in court that someone made a false claim against the government.  The suit rests on an arrangement that Palco made with California to swap 7,000 acres of old-growth forests for $390 million cash, other timber acreage, and approval of a plan for sustainable timber harvesting.  The plaintiffs say that Palco is liable for not disclosing faulty methodology in the sustainable harvesting plan. Both the U.S. and California governments declined to join the lawsuit.

     The Chapter 11 filing by Palco stopped the lawsuit automatically. In papers filed in the U.S. Bankruptcy Court in Corpus Christi, Texas, Palco is asking Bankruptcy Judge Richard Schmidt today to stop the lawsuit against Maxxam and Hurwitz.  Palco says that proceeding with the suit against Maxxam and Hurwitz will have the practical effect of deciding the entire case, even though the companies in Chapter 11 would not technically be taking part.

     Palco, Scotia Pacific and four affiliates filed Chapter 11 petitions January 18 just before a $27 million payment came due on $714 million in notes secured by timber acreage in Humboldt County, California. Maxxam acquired the companies in a 1986 leveraged buyout.

     The case is Scotia Pacific Co. LLC, No. 07-20027, Bankruptcy Court, Southern District Texas (Corpus Christi).

Citgo Convicted in Clean Air Act Case and Set for Trial in Migratory Bird Case

By Shannon Henson, shannon.henson@portfoliomedia.com

Wednesday, Jun 27, 2007 --- A jury found Citgo Petroleum Corp. and its subsidiary guilty Wednesday of two felony criminal counts of violating the Clean Air Act at its Corpus Christi refinery, while exonerating the company of allegations that it violated limits for the amount of benzene in open water streams.

Before reaching its verdict, the jury in the U.S. District Court for the Southern District of Texas deliberated for three days. Citgo is scheduled to be sentenced in October, and faces fines of up to $500,000 per count or twice the gross economic gain and five years of probation.

“Citgo failed to install required emissions controls, which emitted benzene, a known carcinogen, into the air. Today’s jury conviction sends a clear message that neither the public nor the government will allow corporations to knowingly break the law and pose a risk to the local community and the environment,”said Granta Y. Nakayama, the EPA’s assistant administrator for the Office of Enforcement and Compliance Assurance.

Citgo and Citgo Refining and Chemical Co. were convicted on two counts of operating two open top tanks without installing the proper emission controls required by federal law at the Corpus Christi East Plant Refinery.  The tanks were used as oil water separators, but the U.S. Department of Justice said they were not equipped with either a fixed-roof, vented to a control device, or a floating-roof.

Citgo fixed one tank before the government brought its case, said Citgo's attorney. The company is in the process of fixing the other, he “We spent a lot of money remedying the problem that we reported to the government that we had,” he said. “We were charged only after we fixed everything. I believe that sends a bad message to the industry that even if you fix things, they're going to come after you.”

However, Citgo was pleased that it was exonerated of the allegations that it operated a refinery with more than 6 megagrams of benzene in uncontrolled waste streams. Benzene is a hazardous air pollutant found to cause cancer in people exposed to small amounts of the chemical. The company and its environmental manager, Philip Vrazel, were indicted by a federal grand jury in August 2006. Some of the other allegations in the case, including violations of the Migratory Bird Treaty Act, have been severed.

The DOJ said a trial regarding the bird charges was set for July. Citgo is willing to discuss a settlement, but the government is unwilling.

Thompson & Knight's Climate Change and Renewable Energy Practice Group Discussed in Dallas Morning News Article and Wall Street Journal

Thompson & Knight LLP's Climate Change and Renewable Energy Practice Group was discussed in a front page article in the Dallas Morning News and in the Wall Street Journal's Law Blog.   The article and blog discuss the development of climate change practice groups in law firms and how expected climate change regulation will effect the companies that will be regulated and how the legislation will establish markets for carbon credits that will serve as a part of a cap-and-trade system.  Such legislation would be designed to limit the emission of carbon dioxide and other greenhouse gases to attempt to reduce global warming.  Several bills have been filed in both the House and Senate.  Several western and northeastern states have already established frameworks for regulating greenhouse gases even if the federal government does not act. 

The other issue the article and blog discuss is the potential for litigation to be filed by plaintiff's attorneys seeking to recover damages allegedly resulting from climate change, whether storm-related or related to rising sea levels.  Some of these plaintiff's  attorneys believe climate change litigation has the potential to be bigger than tobacco litigation.

More CFOs Taking on Responsibility for Managing Non-Financial Risk

A report published by IBM Business Services entitled "Thinking Through Uncertainty:  CFOs Scrutinized Non-Financial Risk," a trend is identified showing that CFOs are taking on more and more responsibility to evaluate company non-financial risk.

The report concludes as follows:

"At the large U.S. companies interviewed for this research, the traditional wall between financial and non-financial risk is breaking down. These companies have begun to take a broader view of risk, and are creating an ongoing, unified internal discourse about all forms of risk, both financial and non-financial.

In the process, the finance function is often tasked with finding new ways to assess the impact of events in non-financial areas on business performance. The finance function typically has the best resources with which to view and assess the entire company, and so is naturally positioned to orchestrate if not lead these enterprise-wide efforts. CFOs are adding risk assessment and management responsibilities to their already expanding portfolio of strategic tools they contribute to successful business performance."

As environmental risk management and environmental disclosure converge as related risks companies must address, the CFO may become increasingly involved in managing or evaluating environmental risks companies face and, thus, may have a better understanding of the need to account more completely for and disclose environmental risks and liabilities.  Climate change risks and potential disclosure obligations raise complex risk issues CFOs may be required to manage.

Former CFO of Safety-Kleen Pleads Guilty to Securities and Fraud Charges

Paul Humphreys, the former CFO of Safety-Kleen, has pleaded guilty in federal court on today to securities and bank fraud charges arising from a scheme to overstate earnings from 1998 through 2000.  He faces up to 45 years in prison and $2.25 million in fines. The fraud was part of an attempt to meet earnings targets the company had predicted at the time Safety-Kleen was acquired by Rollins Environmental Services in 1998. 

For the more complete story see CFO.com and the complaint filed by the SEC in the United States District Court for the Southern District of New York.

Australian Article Reports Company Frustration That Investors Are Not Valuing Their Reductions in Carbon Emissions

The article below from the Herald Sun discusses concern of certain Australian companies that their actions ahead of a carbon cap-and-trade system in Australia to reduce their carbon emissions has not been recognized by the markets and investors.  The article suggest not only the potential of the market to not fully recognize and appreciate the risk from carbon or greenhouse gas emission limitations, but suggests actions take to reduce carbon emissions in preparation for climate change legislation may not be appreciated by the market as yet.  This throws a new wrinkle in the issues relating to environmental governance and disclosure in the sense that companies are usually worried about the need and effect of disclosing risks from carbon emissions and climate change regulation.  Here the issue is not the failure to disclose or the concern of a reduction in stock price because of carbon exposure, but the concern that proactive steps have not been reflected in an increase in stock prices.

The global warming debate may be in from the cold in Australia, but some companies are accusing the share market of freezing them out with sluggish attitudes to climate change liabilities.

More than a fortnight after the Federal Government gave carbon emissions trading the nod, brokers and fund managers are being described as too slow to value the upside of listed companies that have taken steps to minimise climate change risks to their earnings.

"A number of organisations cannot understand why the market is refusing to factor these initiatives into share prices," Joanne Saleeba, chief executive of Investor Group on Climate Change, told BusinessDaily. ASX rules prevent these companies from speaking on the record about some aspects of their share prices. But Ms Saleeba said behind the scenes there was a growing frustration among companies that have implemented carbon reduction programs in recognition that global warming carries risks to investor returns.

Origin Energy communications chief Tony Wood told BusinessDaily that he had seen no evidence of the market factoring in the $40 million worth of investments Origin has made in solar sliver technology.

Origin, whose other investments include gas-fired generators, geothermal technology and some hydro-electric interests in New Zealand, believes the Australian share market has proved it is sceptical about the earnings potential of clean energy.

Greg Pritchard, finance director at Energy Developments - one of the largest listed renewables companies - said the group's power generation from coal mine, methane and landfill gas sites around the world had helped it offset about nine million tonnes of emissions.

"When carbon trading starts here in 2012, this will become a valuable part of our balance sheet," Mr Pritchard said.

But not everyone believes the market should wait four years to put a value on abatement.

"These efforts are being overlooked by the market and it is very frustrating for companies leading the charge into an era of carbon restraint," said Ms Saleeba, whose organisation represents institutions with $225 billion of funds under management.

The group's membership includes AMP Capital Investors, Babcock & Brown, BT Financial Group, Colonial First State and Goldman Sachs JBWere.  It was established two years ago to bring to the market's attention the fact that big investors viewed climate change liabilities as a serious risk to the earnings of companies.  Those risks are divided into five categories: regulatory, physical, litigation, competitiveness and reputation.

Goldman Sachs JBWere head of quantitative research Andrew Gray said there was a "disconnect" between companies that had advanced their business strategies to address these risks and stockbrokers and fund managers that were not reflecting this in their analysis.

"When you consider that many institutional investors have for years taken climate change risk seriously, the disconnect becomes more pronounced," Mr Gray said.

Part of the problem lies in the fact that the federal government is yet to set carbon emissions targets and decide how permits will be distributed.

The uncertainty makes it too difficult for researchers to make a call, according to Dr Ian Woods, senior research analyst at AMP Capital Investors.

He acknowledged that institutions were years ahead of the market on the issue.

"We have been looking at how well companies plan for climate risk for five years because it gives us a good idea of how they plan for risk generally," Dr Woods told BusinessDaily.

Scott Marshall, head of industrial research at Shaw Stockbroking, confirmed that "clean" initiatives were not being factored into valuations by most analysts.

"Being green may be good for the environment, but the only way it is going to be good for the share price is if companies can show it saves money," Mr Marshall said.

"Until we know more about emissions trading, there's no value assigned to stocks for being green.

"It is just too hard to value at the moment."

Mr Shaw said there was "a lot of paperwork estimating the cost of emissions going around between stock brokers and a lot of office commentary on carbon trading", but at this stage this information was not being used to assess risk profile, despite client concerns.

A number of brokers have admitted that big clients and institutions are leaning on advisers for more clarity on how portfolios are likely to be affected when carbon trading starts.

BusinessDaily is aware that numerous organisations have already conducted extensive modelling under different scenarios to assess the impact of carbon trading on different sectors and even individual companies.

But for a number of reasons, the view is that it is premature to reveal this information until the government releases more details on how emissions trading will work.

One organisation that refused to be named said it had already done thorough economic modelling but had been pressured by a government department to not release its findings.

"We used a grant to do the research and now that we have finished, some people are dragging their feet about making it public," the unnamed source said.

But the lid is likely to lift in coming weeks as a number of reports are released in answer to rising demands from institutions for information.

The Climate Institute, which published a climate change report on the electricity sector last month, is expected to produce more detailed analysis at the end of this month on how other sectors are likely to be affected by carbon pricing.

Also at the end of June, institutional investors will begin to have a better idea of how much carbon most of Australia's top 100 companies are emitting thanks to a voluntary reporting exercise.

The investors hope to be able to assess and compare strategies the companies are using to protect shareholder returns from global warming liabilities.

The information will be collated by the London-based Carbon Disclosure Project into a global report and publicly released in September.

Among the project's Australian signatories are AMP Capital Investors, ANZ Bank, BT Financial Group, National Australia Bank, Hastings Funds Management, Portfolio Partners and a number of the biggest superannuation funds.

Last year, just 10 per cent of companies surveyed provided sufficient information for the institutions to gain an insight into how they will manage environmental liabilities.

This year, the response rate from top 100 companies is greater.

The Australian end of the disclosure project is being organised by Goldman Sachs JB Were and the Investor Group on Climate Change.

Mr Gray said responses reveal which companies are fully integrating global warming issues into their planning and are likely to be "better able to turn the climate change issue into a source of competitive advantage and therefore shareholder value".

In a report on the project last year, Mr Gray named 20 Top-100 companies that produced the strongest inclination to embrace environmental risks.

Mainstream investors want to, and need to, consider how exposed they are to climate change liabilities, Mr Gray wrote.

Supreme Court Decision Expands Cost Recovery Actions under CERCLA

On June 11th, the U.S. Supreme Court decided a closely watched environmental case that may have significant financial implications for both the federal government and private industry. The case, United States v. Atl. Research Corp., is the second of two cases that have considered whether private parties can recover costs incurred to cleanup contaminated sites under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) when the cleanup effort was voluntarily carried out, rather than compelled by a lawsuit or government order. These two cases are extremely important for parties who pay more than their fair share to cleanup contaminated sites, as they set forth how parties can recover from others who are also liable, but have not taken action to address environmental contamination of the relevant site. The ability of parties to recover costs from other potentially responsible parties or “PRPs" is a critical public policy issue in terms of encouraging parties to take action to remediate contaminated sites.

 

In the first of the two cases, Cooper Indus., Inc. v. Aviall Serv., Inc., the Court held that private parties who voluntarily clean up sites could seek contribution under § 113 of CERCLA only after having been sued under CERCLA or entering into a settlement agreement with the government resolving CERCLA liability. The upshot of the Aviall case is that a party thatconducts a purely voluntary cleanup will typically not be able to recover under § 113 against other PRPs.

 

In Atlantic Research, however, the Supreme Court reviewed the general cost recovery provision in § 107 of CERCLA. Prior to Aviall, § 107 was typically used only by a governmental body or a private party to sue for cleanup costs when the plaintiff was not otherwise liable for the cleanup, i.e. when the plaintiff was “innocent.” Before Aviall, the weight of authority held that no private cost recovery or contribution action was available under § 107 for parties who themselves were PRPs. After Aviall, the lower courts were divided on the issue.

 

The Supreme Court’s decision in Atlantic Research allows parties that engage in voluntary cleanup actions to recover their costs from other liable parties under CERCLA § 107 even if they have not been sued by other parties and even if they themselves are liable for cleanup costs. This outcome is a welcome one because private parties will no longer be deterred from cleaning up contaminated sites.

 

A more in depth analysis of the Atlantic Research case will be forthcoming.

Thompson & Knight Ranks Among Top Law Firms

DALLAS --- In a new study, the international law firm of Thompson & Knight LLP is named as one of the top 40 firms in the U.S. based on growth in three key financial performance measures.

Applying similar principles to those used to evaluate the performance of public corporations, The American Lawyer’s editorial staff tracked law firms’ growth in financial returns and earnings during the past four years based on three categories: revenue per lawyer; profits per partner, and compensation for all partners. The study computed the average growth in each category for the time period of 2002-2006 for each of the nation’s largest 200 firms and arrived at a comprehensive numerical score, which was then ranked on the "Growth Index" chart published in the June issue.

"We’re pleased to be recognized for our consistent performance in recent years based on this type of objective criteria," said Pete Riley, managing partner of the Firm. "Continued growth is important in attracting and retaining the very best attorneys, and as a result providing high-quality and value-oriented service to our clients."

Internal Investigation Launched into Oil Company's Potential Environmental Criminal Violations

Having been engaged to conduct internal environmental investigations by companies into various potential or alleged civil and criminal violations of companies, I took particular notice of the press release issued by Energy Partners, Ltd., set forth below, of the state and federal criminal investigation of the entity's potential criminal violations and the engagement of a law firm to conduct an internal investigation of the facts relating to any allegations of potential violations.  It is critical in these situations to engage a firm with significant environmental expertise and experience in conducting internal investigations.

As environmental financial disclosure issues continue to grow in significance and corporate environmental compliance and performance become ever more important to shareholders and other stakeholders, along with the duty of directors to understand the environmental corporate governance of their company, we expect these environmental internal investigations to increase in frequency.

NEW ORLEANS--(BUSINESS WIRE)--June 08, 2007 Energy Partners, Ltd. ("EPL" or the "Company") NYSE:EPL) today announced that it has retained the law firm of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. to conduct an independent investigation into possible environmental violations at the Company's East Bay field arising out of on-site governmental agency inspections conducted in the field in late 2005 and early 2006. Earlier this week, the Company met with representatives of the U.S. Attorney for the Eastern District of Louisiana in New Orleans, the U.S. Environmental Protection Agency and the U.S. Coast Guard and was informed that they are conducting an investigation into possible  criminal violations arising out of those on-site inspections. The Company intends to cooperate fully with the government's investigation and said that operations in the field remain unaffected by the nvestigation.

Founded in 1998, EPL is an independent oil and natural gas exploration and production company based in New Orleans, Louisiana. The Company's operations are focused along the U.S. Gulf Coast, both

onshore in south Louisiana and offshore in the Gulf of Mexico.

Thompson & Knight Announces New Climate Change and Renewable Energy Practice

DALLAS

— The international law firm of Thompson & Knight LLP is continuing its role as one of the top energy law firms in the world with the launch of the firm’s Climate Change and Renewable Energy Practice Group.

The potential impact of the recent announcement from President George Bush about the administration’s new stance on global climate change already is raising questions from businesses nationwide.

 

Firm partner Scott Deatherage will lead the group, which is made up of 26 attorneys with broad experience in handling renewable energy projects and regulatory issues.  The group includes attorneys from the Firm’s environmental regulation and emissions trading, project development, finance, corporate, and national and international energy practices.

 

The Climate Change and Renewable Energy Practice Group includes attorneys from Thompson & Knight’s U.S. offices and international offices in in Mexico, Brazil, Algeria and England. Members of the group will assist clients in the development of business opportunities related to greenhouse gas emission reduction credit projects and credit trading markets, as well as helping companies in the growing renewable energy markets, including firms involved in wind, solar and biofuel technology.

 

"This initiative will allow our Firm to combine its significant energy, project development, tax and finance experience with our experience in wind energy projects, biofuels such as ethanol and biodiesel, and landfill gas capture," says Pete Riley, managing partner of Thompson & Knight.

 

Mr. Deatherage, the practice group leader, says regulation of greenhouse gases and trading in emission reduction credits have created significant opportunities in new markets. “This is a new era for business in terms of environmental risks and regulations, but also environmental opportunities,” says Mr. Deatherage. “Limits on greenhouse gas emissions, energy efficiency requirements, renewable energy mandates and trading in renewable energy credits are just a few of the many issues that corporate America will be facing in the coming years.”

 

About Thompson & Knight

 

Since 1887, Thompson & Knight LLP has consistently made a positive impact on its clients’ successes. With its practice focused on the energy industry, the Firm has extensive resources in litigation, tax, insolvency, and international energy matters. The Firm has approximately 420 attorneys, and has offices and alliances in North America, South America, Europe, and Africa. Thompson & Knight represents companies, government entities, and individuals in local, regional, and national markets around the world.