Sidley Austin LLP
Justin A. Savage, Timothy K. Webster and Samina M. Bharmal
March 13, 2020
This article was originally posted here
Environmental settlements — including everything from judicial consent decrees with the U.S. Environmental Protection Agency (EPA) to administrative consent orders with state environmental agencies — typically contain force majeure clauses, especially where the settlements require performance of work with timing requirements, not just payment of penalties or reimbursement of government costs. Thousands of such settlements are in effect around the United States in all areas and media — site remediation, air, water, waste and natural resources. Given the substantial business disruption being caused by COVID-19 worldwide, companies that are parties to environmental settlements should review those settlements now to understand the circumstances under which force majeure claims may be raised.
Force majeure in environmental settlements. Environmental force majeure provisions typically track commercial force majeure provisions, focusing on whether events beyond the control of a company may contribute or has contributed to a delay in performance. Environmental settlements can depart from the commercial world in that they often impose a litany of process hurdles for invoking force majeure.
These process hurdles include detailed early notification requirements. The settling party typically has a limited period of time (a few days) to invoke force majeure that runs not from the date of the force majeure event but often from when the settling party first knew or should have known of the likely delay. The force majeure notification often must contain significant detail and documentation regarding the causes of the delay and what could be done to minimize the delay. In turn, the enforcing agency must affirmatively agree that a delay is due to a force majeure event and determine the length of the delay it will permit. Any disagreements are typically subject to dispute resolution provisions in the settlement agreement.
Invoking force majeure for COVID-19. These hurdles become particularly problematic in the current climate of COVID-19, where delays in meeting settlement requirements might occur due to workforce reductions or other disruptions that are difficult to predict and evolving rapidly. For a typical force majeure event such as a hurricane or labor disruption, force majeure provisions, while onerous, may be manageable. But how do these procedural terms apply to a well-known contagion in its early stages, particularly where reliable methods of detection are only now emerging? These questions are of vital importance because several strategically important industries remain subject to numerous environmental settlement agreements. Petroleum refiners, for example, have 95 percent of their capacity under EPA consent decrees.
Companies should thus consider preparing if they believe there is a reasonable chance that COVID-19-related business interruption could delay performance of any obligations under any of their environmental settlements. Preparation could involve reviewing the force majeure provisions in their in-effect settlements, assessing the risk of business interruption to their settlement obligations, establishing internal communication plans to stay timely apprised of delays or escalating risks and considering plans to timely inform relevant agencies in accordance with any force majeure process requirements. Finally, record retention of all information potentially relevant to a force majeure claim may be beneficial in the event of a dispute.
Other considerations. In addition to invoking force majeure, companies must consider how they treat invocation of force majeure by other companies. For example, companies may have suppliers that are claiming force majeure against the company at the same time that the company is claiming force majeure against the government.
COVID-19-related disruptions could affect companies’ compliance with environmental obligations beyond settlements, such as day-to-day compliance with permits and other environmental regulatory requirements. Most environmental regulations do not have force majeure provisions that can be used by agencies to excuse noncompliance or extend deadlines, but nonetheless defenses such as “Act of God” can often be defense to liability. Notifying agencies of potential COVID-19-related delays in performance or noncompliance with permits and other environmental regulatory requirements may support such a defense.
Other agencies have already recognized that COVID-19 may be grounds for limited relief. On March 4, 2020, the Securities and Exchange Commission issued an order providing publicly traded companies an additional 45 days to file disclosure reports, provided certain conditions are met, such as explaining the impact the virus might have on a company. It is possible that EPA and even some state agencies may consider issuing guidance on these topics.
This article is being provided for informational purposes only and not for the purposes of providing legal advice or creating an attorney-client relationship. You should contact an attorney to obtain advice with respect to any particular issue or problem you may have. In addition, the opinions expressed herein are the opinions of Mr. Savage, Mr. Webster and Ms. Bharmal and may not reflect the opinions of Synergy Environmental, Inc., Sidley Austin LLP or either of those firms’ clients.