Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Fri, 21 Nov 2008 10:59:49 GMT

The Great Lakes Society, a Michigan ecclesiastical corporation and an IRS recognized religious organization, describes itself as ministering to persons having varying degrees of chemical sensitivities to common environmental pollutants. It sought to construct a two-story building on a six-acre parcel located in a low-density residential district. The zoning ordinance permitted construction of a “church” in a residential district subject to a special use permit. The proposed building was to include: a 2,400 square foot sanctuary for up to 60 people to participate in Sunday worship services; a 1,600 square foot counseling ministry area; a 1,500 square foot tape/publication ministry area including a recording studio and publishing equipment; an 1,800 square foot ministerial training ministry area including classrooms, a library, a study area, an exercise room a kitchen and a bathroom; a 1,200 square foot administration area; a 375 square foot health ministry area(a food cooperative or nutritional service that provides specialty food items in a fragrance free environment); a youth center (to also be used for weddings, funerals, Bible forums and other religious worship services); and a large garage. The ministry does not charge for its services, and there are no membership fees. Revenue is derived from purely voluntary contributions. As a result, the zoning board of appeals concluded that the principal purpose of the proposed building was not for public worship, and that it therefore did not constitute a “church” within the meaning of the zoning ordinance. The zoning board subsequently denied both the requested special use permit and an area variance that would have been needed to meet setback requirements. Great Lakes filed two separate complaints alleging violations of the Religious Land Use and Institutionalized Persons Act and the state and federal constitutions.

The Trial Court concluded that under Michigan law to determine whether a building is a church, the principal use to which it is put is controlling. In upholding the zoning board’s determination, based on the evidence in the record about all of the other uses to which the building would be put, the Court did not consider the variance denial since the applicant would not have been eligible to apply given its status. In response to later cross-motions, the trial court did conclude that the proposed structure would constitute “religious exercise” under RLUIPA, and that the determination that the building was not a church and the denial of the variance amounted to a substantial burden on the exercise of religion in violation of RLUIPA and constitutional rights to freely associate and to equal protection.

The Appeals Court concluded that the Trial Court erred in finding that the proposed building was not a “church” for zoning purposes, since the proper standard for this determination is not whether the “principal use” is public worship but rather “whether the building is used for public worship and reasonably closely related activities or uses.” The Appeals Court found that evidence in the record substantiated both public worship and related activities would take place in the proposed building. Further supporting the broader interpretation of church building, the Court also noted that churches are generally afforded favored status and that courts have held that zoning authorities should be flexible and accommodating in reviewing permits for church buildings.

With respect t the denial of the variance, which was not reviewed by the Trial Court, the Appeals Court held that the zoning board’s decision not to grant the variance was based upon the large deviation requested, the purpose of the road frontage requirement, as well as traffic and safety issues that could result from locating the church on the particular parcel. As such, the Court determined that the decision was based on competent, material and substantial evidence and the denial was affirmed.

With respect to the RLUIPA claim, the Appeals Court disagreed with the Trial Court’s conclusion that the township violated RLIUPA, noting that since the trial court decision was rendered, the Appeals Court had decided Shepherd Montessori Center Milan v. Ann Arbor Charter Twp, 2008 WL 3914605(2008), which was dispositive here. The Court concluded that the church could locate at some other site within the Township so long as the property selected complied with the applicable regulations or a variance was obtained. The Court noted that Great Lakes Society “makes no argument whatsoever that the particular parcel of property upon which it would like to place the facility has any religious significance or that it is unique in any way.” Therefore, the application of the zoning regulations leading to a denial of the use of this particular property by the church does not constitute a “substantial burden” under RLUIPA.

As to the remaining constitutional claims, the Court held that the zoning regulations, which were neutral laws of general applicability, did not run afoul of the free exercise clause. Since there were other channels for the Great Lakes Society to exercise its right to associate on other parcels within the Township, its freedom of association rights were not violates. Lastly, its Equal Protection claim failed because Great Lakes Society failed to show that it had been treated differently from any other similarly situated church.

Great Lakes Society v. Georgetown Charter Township, 2008 WL 4823972 (MI App. 10/30/2008).

The opinion can be accessed at: http://coa.courts.mi.gov/documents/OPINIONS/FINAL/COA/20081030_C270031_63_270031.OPN.PDF

Posted in Current Caselaw, RLUIPA

Bulldozed- A must read

aackerman@sbcglobal.net (Alan Ackerman) — Thu, 20 Nov 2008 23:18:42 GMT

The Facts

The ULTIMATE. Carla Main, an investigative reporter, wrote a riveting book
about the abuse of eminent domain power in Freeport, Texas. Any reasoanble reader would find nothing defamatory as to any individual. The book, Bulldozed, dealt with the Texas oil baron who came back to 'redevelop' in his hometown (for profit). The writer (likely correctly) perceived this to misuse of the eminent domain power to be an attempt to ‘make a buck'. So now, after he uses the condemnation power for his personal public use, the oilman sues the writer, Carla Main, and a brilliant legal scholar, Professor Richard Epstein of the University of Chicago Law School, for besmirching his reputation.

Honestly, the First Amendment still does allow Freedom of Speech, no? But
if the Fifth Amendment protection that private property should be taken for
public use no longer has validity in Texas, maybe we should all throw in the
towel and forget about the First Amendment too! Realistically, we should all hope the courts make short decision dismissing the vexatious lawsuit against the writer of an outstanding book, which allows truth to be more interesting than fiction.
Bulldozed, by Carla Main, is a great Xmas buy.

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Thu, 20 Nov 2008 13:46:10 GMT

New York Town Law sec. 268(2) permits a town to institute appropriate actions or proceedings to restrain, correct or abate a zoning violation or to prevent illegal uses of land. The statute provides that where the town fails to institute such action for a period of ten days after a written request of a resident taxpayer of the town, then “any three taxpayers of the town residing in the district where such violation exists, who are jointly or severally aggrieved by such violation, may institute such appropriate action or proceeding in like manner as such local officer, board or body of the town is authorized to do.” Where as in this case, the plaintiff taxpayers commenced an action more than 10 days after the Town was served with notice of the alleged violation, the plaintiffs were entitled to bring initiate the proceeding. The fact that subsequent to the plaintiffs’ action, the Town commenced a criminal action in the local Justice Court is not a sufficient basis to dismiss the taxpayers’ lawsuit. Furthermore, the Court held that the criminal prosecution initiated by the Town was not an “appropriate action or proceeding” as envisioned by the statute since the result of the criminal proceeding is likely to amount to punishment for alleged wrongful acts, where the plaintiff taxpayers have requested a restraint, abatement or correction of the offending use. The appellate court remanded the matter to the trial court.

Phair v. Sand Lake Corporation, 2008 WL 4820246 (N.Y. A.D. 2 Dept. 11/5/2008).

The opinion can be accessed at: http://www.courts.state.ny.us/courts/ad2/calendar/webcal/decisions/2008/D20530.pdf

Posted in Current Caselaw - New York, Procedural Issues

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Thu, 20 Nov 2008 13:45:35 GMT

Through the Bloustein On-Line Continuing Education Program of Rutgers University, produced by the Professional Development Institute, at the Edward J. Bloustein School of Planning and Public Policy, a menu of on-line professional development courses for land use professionals are available. Coming up next month is an on-line course on trends in land use law that, in the interests of full disclosure, this blogger has been asked to develop. The five week course, which can be completed at your desk at work or in the comfort of your own home, will examine a number of hot topics including RLUIPA, regulating adult business uses, workforce housing, climate change, takings and eminent domain. All required reading is posted to the course web site so there are no books to buy. The on-line training notion captured my attention as a cost-effective way to network and get up to speed on developing trends without the expense of airfare, hotels and incidentals. The course, which begins December 3, 2008, is eligible for up to 14 AICP continuing education credits including the law credit. Check out the link if you are interested in learning more about the opportunity. https://catalog.cerkit.rutgers.edu/course/display/8071

Posted in Uncategorized

Utility Control

aackerman@sbcglobal.net (Alan Ackerman) — Wed, 19 Nov 2008 21:54:28 GMT

Wayne Independent

The Upper Delaware Council, Inc. (UDC) delivered testimony at a November 5 public hearing convened by the New York State Department of Public Service in Hancock to gather input on the application by New York Regional Interconnect, Inc. (NYRI) to construct a high voltage direct current transmission line on a 190-mile path between Marcy and Rock Tavern, NY.
The New York State Public Service Commission (PSC) will determine by August of 2009 whether to grant NYRI a Certificate of Environmental Compatibility and Public Need for its proposed $2.1 billion power line.
The two Administrative Law Judges assigned to the case, Jeffrey Stockholm and Michelle Phillips, agreed to hold 13 public information forums between October 20 and November 6 in the seven New York State counties affected by the proposed route to personally hear statements and create a record for their review.
The UDC was represented at three of the hearings which took place on Oct. 29 at the Delaware Community Center in Callicoon and Sullivan West Central High School in Lake Huntington, and on Nov. 5 at Hancock Central School in Hancock.

-A valid claim of a power line being the cause of substantial environmental damage may be the only defense to the overwhelming control of utility project routing. The Congressional delegation is clear in the public policy support for utility expansion to improve the power grid. We can only hope that the profit making endeavors of the utilities will recognize the damage they cause to individual owners and the dangers to the environmental well being of the community.

When Settling Easement Disputes, Don't Skimp on the Details

blog@aklandlaw.com (Abbott & Kindermann LLP) — Wed, 19 Nov 2008 19:17:38 GMT

By Glen C. Hansen

The recent decision by the Court of Appeal, Second Appellate District, Division Three in Hines v. Lukes (2008) 167 Cal.App.4th 1174 describes how a judgment entered pursuant to a settlement agreement under Code of Civil Procedure section 664.6 must include all of the material terms of the settlement.

Plaintiff Noel Hines and Defendant Pat Lukes owned and resided on contiguous lots in the City of Los Angeles. Lukes also owned an easement over a portion of the Hines property. The parties disputed the scope of that easement. Hines filed a complaint against Lukes alleging that the easement is “solely for ingress, egress and drainage,” as stated in an easement recorded on May 14, 1979. Hines also alleged that Lukes had exceeded the scope of permissible uses of the easement by “permanently parking vehicles” in the easement area, and by placing trash bins, a dumpster, and waste in the easement area. In a cross-complaint, Lukes alleged that the easement is not only for ingress, egress, and drainage, but also for “general driveway purposes,” as stated in a recorded easement dated February 7, 1980.

In the litigation, the parties participated in a mandatory settlement conference. At the conclusion of the conference, the parties orally, before the court, agreed to a settlement on stated terms. The settlement provided that: 1) Lukes would resurface the portion of the driveway in front of her garage, including the easement area; 2) Hines would resurface the portion of the driveway on his property, excluding the easement area; 3) Lukes's insurance carriers would pay one-half of the cost of the resurfacing to be done by Hines, not to exceed $4,000; 4) both parties would “use concrete materials” for the resurfacing and would resurface the driveway in “a neutral color”; 5) the work would be done at the same time, but not necessarily by the same contractor; 6) the work would be completed within one year after the date of the oral settlement; 7) Lukes would keep her garbage cans on her own property and not in the easement area; and 8) Lukes would park no more than two vehicles in the driveway in front of her garage, including one of her own and one of a visitor, and neither she nor her visitors would park on the Hines property outside the easement area. The settlement also provided that the court would retain jurisdiction to enforce the terms of the settlement and that the parties would participate in a mediation before applying to the court to enforce the settlement.

Two years later, Hines filed a motion for entry of judgment settlement under section 664.6 based on the settlement orally read into the record. The parties strenuously disagreed as to whether both of the parties were in breach of the terms of the settlement. After giving the parties opportunity to mediate the dispute pursuant to the terms of the settlement, the trial court granted the motion. In the tentative ruling, the trial court quoted some, but not all, of the settlement terms from the reporter's transcript of the mandatory settlement conference. A minute order granting the motion attached the tentative ruling, but no formal judgment was entered by the trial court. Lukes appealed from that order. The court of appeal reversed.

Initially, the court of appeal amended the trial court’s minute order to include an appealable judgment.

Then, the court of appeal focused on the requirement that a settlement is enforceable only if the parties agreed to all material settlement terms. In the context of a section 664.6 motion, a court must determine whether the parties entered into a valid and binding settlement. To make that determination, the court may consider the parties’ declarations and other evidence in deciding what terms the parties agreed to. If the court determines that the parties entered into an enforceable settlement, it should grant the motion and enter a formal judgment pursuant to the terms of the settlement. (The court of appeal disregarded the hotly disputed issues of whether either one of the parties breached the settlement terms, or whether their nonperformance was excused, because “a party moving for the entry of judgment pursuant to a settlement under Code of Civil Procedure section 664.6 need not establish a breach of contact to support relief under the statute.”)

The court of appeal held that the trial court’s order failed to comply with section 664.6 because it failed to accurately reflect the parties’ agreement. The minute order stated some of the settlement terms, but omitted others. For example, the minute order did not include the terms relating to resurfacing by Hines, the insurers' payment for that work, the placement of Lukes’s garbage cans, the parking of Lukes’s and her visitors’ vehicles, or the mutual release. Thus, the court of appeal reversed the trial court’s judgment with directions to either: 1) enter a new judgment pursuant to the terms of the settlement, setting forth all of the material terms that have yet to be fully performed (the terms must be stated “clearly and concisely, rather than quote an extended colloquy from the reporter's transcript”), or 2) if the trial court finds that the parties failed to agree to all material terms, deny the motion for entry of judgment pursuant to a settlement because there is no enforceable settlement.

Thus, the Hines decision demonstrates the importance of clearly setting forth all of the material terms of the settlement in a judgment under Code of Civil Procedure section 664.6. As the court of appeal reasoned, the failure to enter a judgment reflecting all of the material terms of settlement that have yet to be fully performed could defeat the purposes of the settlement and spawn further litigation. The case also illustrates why counsel should make sure that every material term of a settlement is carefully read into the record when the settlement is orally presented to a court at the conclusion of a settlement conference.

Glen Hansen is a senior associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Wed, 19 Nov 2008 11:06:49 GMT

The zoning rules and regulations of the City of Syracuse explain that the purpose of project site review is to “[p]rotect streetscapes from projects that are out of character with existing development,” and they further provide that where buildings have been designated as architecturally significant, applications relating thereto must be referred to the City’s Landmark Preservation Board. Since the petitioner’s apartment building was designated as architecturally significant, it was appropriately referred to the Board. The Court found that the Board’s determination that the project was out of character with existing development based on height and parking provisions was neither arbitrary nor capricious nor an abuse of discretion as the Board conducted a point by point analysis of the project and comparison to other buildings in the area. As to the Petitioner’s allegation that the Commission’s decision was based upon community opposition, the Court found nothing in the record to support the claim.

Osuchowski v. City of Syracuse, 2008 WL 4891736 (N.Y.A.D. 4 Dept. 11/14/2008).

The opinion can be accessed at: http://www.courts.state.ny.us/ad4/Court/Decisions/2008/11-14-08/PDF/1293.pdf

Posted in Current Caselaw - New York, Historic Preservation, Site Plan Review

Texas Veterinarian Legislator Goes on Anti-Salvia Media Tour, Calling Himself "Doc"

druglawblog@gmail.com (Alex Coolman) — Wed, 19 Nov 2008 00:23:37 GMT

When a man calls himself "doc" and appears on television wearing a stethoscope around his neck while talking about the health risks of the drug salvia divinorum and asserting that "there is no known medical use" for salvia, people are going to take him seriously. That's why it's problematic that Texas state Representative Charles Anderson fails to disclose in these media junkets that, according to his own biography, he is a "small animal veterinarian," a man who has no particular insight into the health risks or health benefits of salvia for humans.

(Above and Below: Texas state Representative Charles Anderson appears on television wearing a stethoscope, accompanied by a caption that refers to him as "Doc.")

Anderson is supposed to be on "Dr. Phil" today, using that show as a platform to promote Anderson's just-introduced Texas anti-salvia legislation. I wonder if he'll make clear what his medical background is?

Below is the full clip of the NBC segment on which Anderson appeared. After that I've re-posted my own video about the way YouTube clips are being used by politicians such as Anderson to advance prohibitionist policies around salvia.

Court Discusses Improper Deferral of CEQA Mitigation and Provides Definition for "Probable Future Projects"

blog@aklandlaw.com (Abbott & Kindermann LLP) — Tue, 18 Nov 2008 20:08:25 GMT

By Cori Badgley

In Gray v. County of Madera (2008) 167 Cal.App.4th 1099, the Court of Appeal, Fifth Appellate District grappled with several issues related to the California Environmental Quality Act (“CEQA”) along with the Senate Bill 610 water supply analysis, the Surface Mining and Reclamation Act, and general plan consistency. Among the court’s various holdings, the court found examples of improper deferral of mitigation under CEQA. Additionally, the court refined the definition of a “probable future project” for purposes of cumulative impacts. The project at issue involved the development of an aggregate mining operation in the unincorporated area of Madera County ("County").

CEQA

Impacts to Surface Water and Groundwater

In challenging an EIR, petitioners made the following arguments in relation to impacts to surface water and groundwater: 1) the EIR improperly relied on a groundwater analysis prepared by a consultant, and 2) the mitigation measures were inadequate.

On the issue relating to the groundwater report, petitioners attempted to undermine the report by showing a difference in pumping rates from those proposed by the applicant and those alleged in the report. Since the project’s water supply would be drawn from wells on the property, the report identified the various wells and provided recommendations on the pumping rates for the wells. Instead of following these recommendations, the applicant identified higher pumping rates at two of the wells. These two wells were less likely to impact the neighbors’ drinking water supply, and although the report did not recommend these pumping rates, it had analyzed the wells at the applicant’s desired rates.

The court found that although the numbers differed, the report still supported the County’s finding that the wells would be sufficient to provide the necessary water to the project. Additionally, the court found that petitioners misstated the contents of the report. Under these circumstances, the court held that no further investigation was necessary and certain inconsistencies between the report and data from the project proponent relating to the amount of water to be produced from each well did not constitute an abuse of discretion.

As to the challenge to the mitigation measures, petitioners argued that the mitigation measures failed to properly mitigate the impacts to groundwater. Mitigation Measure 3.9-1a provided three options to the project proponent in the event that the neighboring private wells were adversely impacted: 1) “rehabilitate or deepen the private wells;” 2) “provide incremental replacement water by providing a connection to the water system of the Project;” or 3) “provide full replacement water by providing a connection to the water system of the Project.” Mitigation Measure 3.9-1b must be implemented if Measure 3.9-1a fails to provide enough consumptive water. Measure 3.9-1b requires a “hydrology study” and provides the following options: 1) “supply replacement water for consumptive use in the form of bottled water or potable water from some other source;” or 2) build a “water system constructed under federal, state, and county guidelines to supply potable water to affected neighbors.”

In holding that the mitigation measures were inadequate, the court focused on three aspects of the mitigation measures. First, the court found that none of the mitigation measures would “provide neighboring residents with the ability to use water in substantially the same manner that they were accustomed to doing if the Project had not existed.[1]” Not only would this be an inconvenience, but it might result in certain regulatory oversight that was not necessary under the neighbors’ original source of water due to connections that may be created between the various well systems. As to the bottled water, the court pointed out that the landowners will have fluctuating water usage, and it would not be feasible to predict the amount of water needs in advance.

Second, the “EIR does not address the potentially significant impacts associated” with the mitigation measures. What impact would the use of non-potable water to irrigate have on livestock, wildlife and habitats? How would the bottled water be replaced and recycled? What would the impacts of a new water system be? The EIR failed to address any of these issues.

Third, the court found that Measure 3.9-1b improperly deferred mitigation to a later date. Although mitigation may be deferred if there is a specific performance standard associated with the deferred mitigation, the court found that no such performance standard had been adopted. Instead, the County “had committed itself to a specific mitigation goal,” not a specific standard. The court held that this was insufficient.

On these grounds, the court agreed with petitioners and held that the mitigation measures were inadequate.

Economic Impacts

Petitioners attempted to allege that the County had failed to adequately address economic impacts in its EIR. However, as the court curtly pointed out, CEQA does not require an analysis of economic impacts unless those impacts are tied to a physical environmental impact.

Impacts to Traffic

Similar to petitioners’ argument relating to surface and groundwater, petitioners claimed that the mitigation measures improperly deferred mitigation. The court again agreed with petitioners. Although petitioners challenged several mitigation measures, the court found that only one mitigation measure was inadequate. This mitigation measure required the project proponent “to pay a long-term maintenance fee based upon annual aggregate tonnage mined.” However, the measure failed to provide a formula for calculating the fee and there was no specific plan for the improvements the fee would pay for. The court found that without a specific improvement plan, there was no definite commitment to make the improvements. Additionally, without a specific improvement plan or other evidence of when the improvements would take place, the improvements may be instituted long after the negative impacts of the project occurred. Therefore, the court held that the mitigation measures were inadequate.

Impacts to Noise

Petitioners’ argument in relation to noise impacts focused not on the mitigation measures, but on the level of significance used by the County in finding that the impacts to noise were less than significant. In agreeing with petitioners, the court found that the EIR failed to take the cumulative noise impacts into account. Although a 2.1 dBA increase may not be significant by itself, the traffic noise already exceeded the County’s maximum acceptable noise level for the area. Thus, it is possible that a 2.1 dBA could be a significant impact. Because the EIR ignored the cumulative impacts, the court held that the noise impact analysis was inadequate.

Impacts to Biological Resources and Wildlife Habitat

Petitioners claimed that the County used an incorrect methodology in evaluating the impacts to biological resources and wildlife habitat, and the County should have used the guidance promulgated by California Department of Fish and Game in cooperation with the United States Fish and Wildlife Service. The court held that CEQA does not require the County to use a specific methodology or perform countless studies, as long as its decision is supported by substantial evidence. In this case, the court found that the studies performed by the County constituted substantial evidence, and therefore, the biological resources impact analysis was adequate.

Impacts to Air Quality

Petitioners attempted to make the same argument as to air quality impacts as it had to biological resources impacts. The court again disagreed with petitioners and held that the studies performed supported the County’s decision.

Impacts to Aesthetics

Similar to the claims relating to water and traffic, petitioners argued that mitigation of lighting and glare had been improperly deferred. Unlike petitioners’ previous arguments on deferred mitigation, the court held that the mitigation was adequate. The mitigation measure stated:

Exterior lighting shall be designed and maintained in a manner such that glare and reflections are contained within the boundaries of the parcel, and shall be hooded and directed downward and away from adjoining properties and public rights-of-way. The use of blinking, flashing or unusually high intensity or bright lights shall not be allowed. All lighting fixtures shall be appropriate to the use they are serving, in scale, intensity and height. Further, all exterior lighting will be designed, installed and operated as required by the Planning Director.

The court found that this mitigation sufficiently committed the project proponent to future mitigation by detailing specific performance standards. Although the specifics of how the specific performance standards would be met was lacking, this aspect of the mitigation could be properly deferred as long as a specific performance standard was in place. Therefore, the court held that the mitigation was adequate.

Cumulative Impacts

Petitioners argued that the EIR failed to adequately analyze the cumulative impacts by ignoring the impacts of other proposed projects and failing to provide information on where the documents relied upon in the EIR could be found.

The court began by clarifying that only “probable future projects” must be analyzed under the cumulative impacts analysis. The court held that “any future project where the applicant has devoted significant time and financial resources to prepare for any regulatory review should be considered as probable future projects for the purposes of cumulative impact.” This new rule announced by the court may have significant repercussions on the number of projects an EIR must account for.

In this case, the County could not locate any probable future projects that had been filed for review with the County Planning Department. Therefore, substantial evidence supported the DEIR’s exclusion of these purported future projects. The court also clarified that the County “had the discretion to set the date of the application for the current Project as the cutoff date to determine which projects should be included in the cumulative impacts analysis.”

Although the court found for the respondents on the substantive issues, the court held that the cumulative impacts analysis was inadequate because it failed to identify the planning documents used to conduct the analysis and state where those documents could be viewed by the public. Because of this failure, the court found that there was no substantial evidence supporting the EIR’s analysis of cumulative impacts.

Growth Inducing Impacts

Petitioners claimed that the growth inducing impacts were not adequately analyzed because the EIR failed to conclude that the reduced cost of aggregate in the area would be a growth-inducing impact. In disagreeing with petitioners, the court found that although reducing the cost of aggregate might lower one of the barriers to growth, there were other barriers that the DEIR could reasonably conclude still existed. Therefore, the County adequately analyzed the growth inducing impacts.

Non-CEQA Issues

General Plan Consistency

The court emphasized that “the County is entitled to considerable deference in the interpretation of its own General Plan.” The DEIR concluded that the project was consistent with the general plan except in relation to air quality and noise. As the court invalidated the noise analysis in a prior portion of its opinion, the court found that the “Statement of Overriding Considerations did not properly consider the inconsistency of the Project’s cumulative noise impacts,” and therefore, the County improperly approved the project.

Surface Mining and Reclamation Act (“SMARA”)

Petitioners attempted to argue that the Reclamation Plan failed to meet the requirements of SMARA, but petitioners based their argument on a previous version of the Reclamation Plan. The court held that in light of petitioners’ failure to attack the new plan, petitioners’ writ of mandate in relation to this claim was denied.

Senate Bill 610 (“SB 610”)

The court began by noting that the project, by itself, did not impact a “public water system,” and therefore, it was not required to conduct a water supply assessment pursuant to SB 610. However, the court looked back to its discussion under surface and groundwater impacts and found that the inadequate mitigation measure that may result in construction of a water system brought the project under SB 610. Therefore, a water supply assessment must be conducted to evaluate the potential construction of a water system, or the County must provide an explanation as to why it does not have to comply with SB 610.

Although the court may have reached the proper conclusion, its analysis appears to conflict with the actual requirements under SB 610. SB 610 begins by explaining that a water supply assessment must be done for every project and then goes on to define what a project is. SB 610 then identifies who will prepare the SB 610 assessment. According to the SB 610 Implementation Guidebook, “[i]f the lead agency is unable to identify a water supplier (public water system as defined in SB 610), the lead agency is responsible for compliance with the requirements of SB 610.”

Here, the court stated that “SB 610 . . . requires a water supply assessment only if a ‘public water system’ is impacted by the project.” On the contrary, SB 610 requires a water supply assessment, but it is to be conducted by the lead agency and not the water supplier. Because the court’s analysis is based on the faulty premise that the impact on a public water system is determinative, it is unclear whether the court’s conclusion is correct. If the mine does not qualify as a project, then no water supply assessment is necessary, regardless of any potential future water system. On the other hand, if the mine does qualify as a project, a water supply assessment is necessary, regardless of whether or not a public water system will be impacted in the future.

Conclusion

In spite of finding the majority of the EIR adequate, the court invalidated the EIR based on improper deferral of mitigation measures relating to water supply and traffic and inadequate analyses of noise and cumulative impacts. This case illustrates the importance of a specific standard of performance if the details on how an impact will be mitigated must be deferred. Additionally, this case announced a high standard for what constitutes a “probable future project” for purposes of conducting a cumulative impact analysis – “any future project where the applicant has devoted significant time and financial resources to prepare for any regulatory review.”

Cori Badgley is an associate with Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

[1] This appears to be a court manufactured standard. The court cites no statutory or case law reference to support this standard. Appendix G of the CEQA Guidelines provides a sample checklist for determining whether there will be potential impacts to certain resources and what the probable level of impact will be. If the questions listed in the checklist are answered affirmatively, the impact is potentially significant. Section VIII(b) states: “Substantially deplete groundwater supplies or interfere substantially with groundwater recharge such that there would be a net deficit in aquifer volume or a lowering of the local groundwater table level (e.g., the production rate of pre-existing nearby wells would drop to a level which would not support existing land uses or planned uses for which permits have been granted)?” Section XVI(b) states: “Require or result in construction of new water or waste water treatment facilities or expansion of existing facilities, the construction of which could cause significant environmental effects?” The standard pronounced by the court requiring that the mitigation provide water in “substantially the same manner” does not logically connect with the standards presented in Appendix G.

New FMLA Regulations

eoverton@sullivan-ward.com (Liz Overton) — Tue, 18 Nov 2008 15:17:37 GMT

New FMLA Regulations have been published and will become effective January 16, 2009. Daniel Schwartz of the Connecticut Employment Law Blog identifies things employers need to be aware of. I encourage you to read his article which is the first of a series outlining what changes employers need to make or be aware of by January 16 2009.

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Tue, 18 Nov 2008 11:27:49 GMT

Following the passage of Oregon Ballot Measure 49 in 2007, Jackson county, OR announced that it would not honor certain waivers it granted to plaintiffs under earlier Ballot Measure 37. The waivers from certain zoning requirements were granted to the plaintiffs since the county could not pay the monetary compensation that would have been required [...]

The federal district court concluded that Measure 37 waivers are binding, constitutionally protected contracts between the plaintiffs and Jackson County, amounting to essentially settlement agreements allowing the parties to avoid costly and protracted litigation. The Court also determined that the decision whether to grant Measure 37 waivers is a quasi-judicial action, and that while a party may seek judicial review of such a decision, none was sought here. Rather, the County sought to unilaterally chose to not honor the waivers following the passage of Measure 49 which was a legislative act. The Court stated that separation of powers does not allow legislation to set aside a judicial (or quasi-judicial) decision as was made here.

Citizens for Constitutional Fairness v. Jackson County, 2008 WL 4890585 (D. Or. 11/12/2008).

The opinion can be accessed here.

Read what Dwight Merriam, Esq. of Robinson & Cole had to say about this case on the IMLA Blog.

Posted in Current Caselaw, Referenda, Takings

Mentch Oral Argument Highlights

druglawblog@gmail.com (Alex Coolman) — Tue, 18 Nov 2008 10:31:13 GMT

I made a little four-minute YouTube video that captures some of the interesting bits of last month's oral argument in People v. Mentch, the California Supreme Court case that will define which criminal defendants are entitled to get a jury...

I made a little four-minute YouTube video that captures some of the interesting bits of last month's oral argument in People v. Mentch, the California Supreme Court case that will define which criminal defendants are entitled to get a jury instruction on acting as a "primary caregiver" to a medical marijuana patient.

The striking thing is that what Gibbs claims is the AG's position, right at the start of this clip, is actually asserted by Swanson at the end of the clip in the most extreme terms possible: that the provision of medical marijuana to an individual is literally meaningless in terms of whether a person is a "caregiver" to a patient. It's hard to imagine that that's what California voters meant when they voted for the statute allowing people to be "primary caregivers" to medical marijuana patients, but we'll see what the Supremes say about it.

Sorry about the crummy audio sync, by the way. I'm not sure why it came out that way.

Federal Circuit Strikes Down DOD Preferences For Minority Contractors As Unconstitutional; Consequences Uncertain

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 17 Nov 2008 20:16:30 GMT

On November 4, 2008, the U.S. Court of Appeals for the Federal Circuit issued an opinion in Rothe Development Corporation v. Department of Defense, No. 2008-1017, 2008 WL 4779586, holding that:

Congress lacked a "strong basis in evidence" of discrimination by the Department of Defense ("DOD") against socially and economically disadvantaged individuals and businesses (referred to collectively as "socially disadvantaged businesses" or "SDBs");
Lacking a "strong basis in evidence," the race-conscious remedial measures at 10 U.S.C. § 2323 (setting a goal to award at least 5% of annual contracting dollars to small disadvantaged businesses and authorizing certain set-asides for SDBs) were unconstitutional, violating the Fifth and Fourteenth Amendments to the U.S. Constitution guaranteeing equal protection to all citizens under the law; and
The District Court hearing the case should enter an order declaring that the current 10 U.S.C. § 2323 is facially unconstitutional, and that its further application should be enjoined.

Since federal procurement includes a hodgepodge of "preferences" for small businesses, minority-owned businesses, women-owned business, veteran-owned businesses, service-disabled-veteran-owned businesses, historically underutilized business zone ("HUBZone") businesses, and other small disadvantaged business concerns, the Rothe decision has the potential for a significant ripple effect. Already the "splash" of the Rothe decision is obvious, with news of the recent decision being picked up by bloggers and newspapers alike. However, its ultimate impact remains to be seen and may be overstated by some recent analyses.

Background and Discussion

The Rothe case concerns the constitutionality of 10 U.S.C. § 2323, which, in relevant part:

sets a “goal” that 5% of federal defense contracting dollars for each fiscal year be awarded to certain entities including small business concerns owned and controlled by “socially and economically disadvantaged individuals;”
incorporates the Small Business Act’s presumption that Black Americans, Asian Americans, Hispanic Americans, and Native Americans are socially disadvantaged individuals; and
provides that the Department of Defense shall give specific forms of assistance to the listed entities and may, when practicable and necessary to achieve the 5% goal, make advance payments to those entities and award contracts to them at prices up to 10% percent above fair market cost.

Rothe has a long litigative history dating back to the mid-1990s, when (a) Rothe, owned by a Caucasian female, submitted the low bid of $5.57 million for a contract, (b) another company owned by a Korean-American couple and certified as an SDB bid $5.75 million, (c) Rothe's bid was inflated to $6.1 million using the stated price evaluation adjustment, and (d) the adjustment displaced Rothe as the low bidder.

After serial district and appellate court proceedings, the constitutionality of 10 U.S.C. § 2323 was finally addressed in 2007 when the district court granted summary judgment to DOD. Rothe appealed to the Federal Circuit, which ruled as follows:

[W]e must decide whether [10 U.S.C. § 2323], on its face, as reenacted in 2006, violates the right to equal protection (as incorporated against the federal government by the Due Process Clause of the Fifth Amendment). Because we will hold that Congress did not have a “strong basis in evidence” before it in 2006, upon which to conclude that DOD was a passive participant in racial discrimination in relevant markets across the country and that therefore race-conscious remedial measures were necessary, we will reverse the district court’s judgment in part, and will hold that … 10 U.S.C. § 2323 [ ] is unconstitutional on its face.

Because 10 U.S.C. § 2323 incorporates an explicit racial classification – the presumption that members of certain minority groups are "socially disadvantaged" for purposes of obtaining SDB status and the benefits that flow from that status – the Federal Circuit emphasized that the statute must be narrowly tailored to meet governmental objectives, and that the statute is subject to strict scrutiny by the courts.

According to the Federal Circuit, the key flaw with the factual basis for the statute was that the studies relied upon by DOD demonstrating prior discrimination were fundamentally flawed – the studies purporting to measure the disparity between actual and expected contracts for firms owned by socially and economically disadvantaged individuals adopted a faulty benchmark, because they failed to control for firm size and relative capacity.

Potential Impact of the Rothe Decision

While it is obviously difficult to predict exactly how the Rothe decision will play out in the federal contracting world, we think that there are certain observations that can be safely made:

Race-based preferences in federal contracting will continue. While the Federal Circuit struck down this particular statute as unconstitutional, the U.S. Supreme Court has never completely prohibited race-based preferences in federal contracting. In fact, the U.S. Supreme Court most recently addressed the issue in Richmond v. J.A. Croson Co., 488 U.S. 469 (1989) and Adarand Constructors v. Peña, 515 U.S. 200 (1995), indicating that while race-based classifications are subject to strict scrutiny by the courts, if the statute is sufficiently justified with a "strong basis in evidence" and is also narrowly tailored to achieve the government objective, the race-based preference will pass constitutional scrutiny. In light of the fact that the statute in question was enacted in 1998 – years after the Croson and Adarand decisions – Congress clearly does not feel that race-based preferences are something that must or should be avoided. We doubt that it has changed its mind, in light of the fact that 10 U.S.C. § 2323 was reauthorized as recently as 2006.
Congress will, more than likely, rework 10 U.S.C. § 2323 and support it with a "strong basis in evidence." The Federal Circuit was open to the fact that discrimination might exist and that some statistical and anecdotal evidence might require some sort of remedy, but the Federal Circuit emphasized that there was not a sufficiently robust record on which Congress could have reached a reasoned conclusion. To the extent Congress creates a more robust record, courts will likely defer to Congress.
The Rothe decision does not call into question all set-asides, simply those based on racial definitions. While some commentators on the Rothe decision speculate that the decision calls into question all small business set-asides, such a conclusion probably overreaches. The Federal Circuit's strict scrutiny analysis was mandated by the express race-based preference in 10 U.S.C. § 2323 and the inadequate factual record developed in support of that preference.
Definitive guidance from the courts will not be coming any time soon. The Government has 90 days to request review of the Federal Circuit's decision by the U.S. Supreme Court. Even if there is no High Court review, the District Court may take additional time to consider the opinion before issuing a final injunctive order. Given these facts any abandonment of existing SDB contract obligations might well prove to be premature.

Authored by:

John W. Chierichella

(202) 218-6878

jchierichella@sheppardmullin.com

and

W. Bruce Shirk

(202) 741-8426

bshirk@sheppardmullin.com

and

David S. Gallacher

(202) 218-0033

dgallacher@sheppardmullin.com

Enhanced Competition For Task and Delivery Order Contracts

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 17 Nov 2008 18:53:53 GMT

With the enactment of the Federal Acquisition Streamlining Act (FASA) in 1994, Multiple Award task and delivery order contracts were given a significant boost. As part of that legislation came an almost ironclad bar to bid protests against the award of individual task or delivery orders. Disappointed offerors were prohibited from protesting the award of task or delivery orders except if such orders increased the scope, period, or maximum value of the underlying contract. Several exceptions subsequently were carved-out from the general prohibition, including protests of “down-selections” as well as task and delivery orders awarded under the GSA FSS program. Otherwise, however, disappointed offerors could either air their grievances with the agency ombudsman (an individual who possesses no binding authority) or could take the road seldom traveled and file a CDA claim with the contracting officer alleging a breach of the "fair opportunity to compete" required by FASA, implementing regulations, and contract clauses. Only recently was there any indication that damages could be awarded under the latter approach and, as expected, the standard for recovery is a difficult one for any contractor to meet. The circumscribed recourse available to disappointed task or delivery order offerors did not occur by happenstance – it was the result of deliberate efforts by reformers to streamline the acquisition process and to avoid the delays and increased costs they attributed to the numerous, routine and purportedly needless protests encumbering the procurement system.

Multiple award contracts, as redefined by FASA, gained popularity because they afforded government agencies flexibility to rapidly procure goods and services as their needs materialized or changed. By insulating the Multiple Award IDIQ procurement process from bid protests, the reformers established an environment that further facilitated the use of such contract vehicles. Unconstrained by the prospect of threatened litigation, some procurement officials took advantage of the minimal competition rules applicable to the award of orders under Multiple Award contracts. Not surprisingly, the increased use of IDIQ contracts, coupled with limited oversight, led inevitably to abuse. Protests of awards of Multiple Award contracts could be reduced or eliminated by making numerous awards. Task and delivery orders for "real work" could then be made to favored sources with little or no threat of challenge.

Criticism began to surface that the bar to bid protests stifled competition, obscured transparency, and shielded government agencies from accountability. At the same time, the awards of extremely large IDIQ contracts during the Iraq war brought further scrutiny to the IDIQ procurement process in general. As a result, a counter-reform movement took root. Arguments were raised that the bar against bid protests should be scaled-back to allow for some form of bid protest and that additional rules or guidelines should be enacted to interject uniform competitive rights into the IDIQ acquisition process. Proponents of such reform, however, encountered opposition as they attempted to alter the regulatory landscape. Fears remained that the speed and flexibility needed in modern procurements would be jeopardized.

Section 843 of the National Defense Authorization Act of 2008 (the Act), entitled “Enhanced Competition Requirements for Task and Delivery Order Contracts,” constituted a compromise of these competing viewpoints. The provisions contained therein went into effect on May 27, 2008. Subsequently, on September 17, 2008, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council issued an interim rule with request for comments that essentially mirrored Section 843 of the Act and revised three provisions of the Federal Acquisition Regulation (FAR 16.503 – 16.505) to incorporate the Act’s enhanced competition requirements. See 73 Fed. Reg. 54008 (Sept. 17, 2008). The interim rules target three primary areas:

Authorization of protests at the GAO on any ground in connection with the award of Multiple Award contract task and delivery orders valued at over $10 million;
Enhanced competition requirements for the award of Multiple Award contract task and delivery orders valued at over $5 million; and
Prohibition against single award task or delivery order contract valued at over $100 million (including options) unless the agency head determines in writing that certain criteria are present.

Protests Authorized In Connection With TOs and DOs Valued Over $10 Million

The interim rules allow for the filing of a protest in connection with the award of a Multiple Award contract task or delivery order valued in excess of $10 million. The interim rules do not circumscribe the universe of grounds for protest and, thus, protesters would not only be able to challenge agency action based on the enhanced competition requirements (discussed below), but also on the vast variety of protest grounds commonly associated with FAR Part 15 procurements. GAO has been granted exclusive jurisdiction to entertain these protests. Congress was not convinced apparently that these changes would cure the ailments afflicting IDIQ contracts or that they had struck the proper balance between competing and divergent interests in fashioning its grant of bid protest jurisdiction because the new law contains a sunset provision that extinguishes a contractor’s ability to file protests in connection with task or delivery orders valued at over $10 million in three years (i.e., May 27, 2011). Congress adopted the three year test period to allow time to consider the implementation and impact of the new law. See House Conference Report 110-477.

While GAO has concluded that changes to its regulations are not necessary to implement this new grant of jurisdiction, several issues nevertheless warrant attention. By way of example, it is unclear whether a CICA stay will automatically stay contract performance of a newly awarded task or delivery order. It also is uncertain whether the debriefing referenced in the interim rules qualifies as a "requested and required debriefing" as that term is used in the award of contracts – although the interim rules’ specific reference to FAR 15.506, when read in conjunction with FAR 33.104(c)(1), lends support for this proposition. Moreover, the interim rules do not establish how GAO should value task and delivery orders for purposes of jurisdiction, which could impact whether a particular procurement meets the $10 million threshold. It remains to be seen whether GAO will use the Government's estimate or the protester's or awardee's proposed price in making its determination. Lastly, it is unclear if GAO’s exclusive grant of jurisdiction forecloses completely agency level protests. In this regard, the interim rules’ grant of exclusive jurisdiction to GAO does not appear to apply to protests of scope, period, or maximum value and these protests potentially could still be brought at the agency level or the Court of Federal Claims.

In sum, these and other issues certainly will be ventilated as cases invoking Section 843 of the Act and the interim FAR rules make their way through the GAO bid protest process.

Enhanced Competition Requirements For TOs and DOs Valued in Excess of $5 Million

The interim rules also impose specific procedures that an agency must implement to satisfy its obligation to provide contractors under a Multiple Award contract with a fair opportunity to compete. Specifically, with respect to task and delivery orders valued at over $5 million, an agency must provide (a) notice to contract holders of the proposed task or delivery order that includes a clear statement of requirements; (b) a reasonable proposal response period; (c) the significant evaluation factors and subfactors as well as their relative importance; (d) where award is made on a best value basis, a written statement documenting the basis for award; and (e) an opportunity for a post-award debriefing.

Notably, while these requirements, particularly the post-task or delivery order award debriefing, may alert a contractor to evidence of prejudicial agency error tainting a procurement, a contractor still would not be permitted to protest the award under the new law and interim FAR rules. In addition, since FAR 16.505(b)(5), which contains the provision referencing agency ombudsmen, remains substantively unchanged under the interim FAR rules, it does not appear that the agency ombudsman would be able to take any binding action, even in the face of clear agency error.

What contractors in this predicament should not overlook is the availability of seeking redress by filing a CDA claim for breach of the statutorily based "fair opportunity to compete." Prior to the enactment of Section 843 and the interim FAR rules, a contractor would simply allege, in a more general fashion, that the agency breached the "fair opportunity to compete" clause in the contract. Now, however, a contractor can point to an enhanced list of specific statutory and regulatory requirements that the Agency failed to follow. Therefore, although offerors seeking to challenge agency action in connection with the issuance of task or delivery orders valued between $5 million and $9.99 million may not be able to protest the award decision, they may nevertheless have an enhanced opportunity to recover damages – whether it be B&P costs or, far less likely, lost profits – by filing a CDA claim based on a breach of the enhanced competition requirements.

Limitations On Single Award Task Or Delivery Order Contracts

The interim rules prohibit single award task or delivery order contracts valued at over $100 million (including options) unless the head of the agency authorizes the award. The agency head may only do so upon a determination in writing that: (a) the expected task or delivery orders are so integrally related that only a single contractor can perform the work; (b) the contract provides only for firm-fixed price task or delivery orders; (c) only one source is qualified and capable of performing the work at a reasonable price; or (d) exceptional circumstances justify the public’s interest in awarding the contract to a single source. In the event the agency head relies on the “public interest” exception, Congress must be notified within 30 days. As evident, this prohibition against single award contracts valued in excess of $100 million is designed to encourage the use of Multiple Award contracts and to foster further competition at the task and delivery order level.

Conclusion

The enhanced competition requirements of Section 843 of the National Defense Authorization Act of 2008 are designed to increase oversight, transparency and accountability in the award of task and delivery orders and, in particular, the Multiple Award IDIQ acquisition process. What made Multiple Award IDIQ contracts so popular in the first place was the flexibility and relative ease through which government agencies could issue task or delivery orders as they defined their actual requirements. Now, government agencies will be required to implement additional competitive procedures in connection with the issuance of task and delivery orders valued at over $5 million and also will be vulnerable to bid protests when issuing task and delivery orders valued at over $10 million. The government’s additional responsibilities and its increased exposure, however, must be balanced against the fact that contractors will be afforded with a meaningful “fair opportunity to be considered,” which should also provide the government with a broader range of high quality products and services at a lower cost. Nevertheless, the FAR Councils will be placed on notice shortly about whether the interim rules implementing Section 843 properly balance the government’s and industry’s competing interests. Comments on the interim rules are due November 17, 2008.

Authored by:

Marko W. Kipa

(202) 772-5302

mkipa@sheppardmullin.com

Encryption Export Restrictions Loosened Under New Rules That Reduce Pre-Review And Reporting Requirements

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 17 Nov 2008 18:29:37 GMT

On October 3, 2008, the U.S. Department of Commerce, Bureau of Industry and Security ("BIS") published new interim rules, effective immediately, rewriting and altering the export regulations on encryption items (specifically, the encryption restrictions at EAR 742.15 and the ENC license exception at EAR 740.17). 73 Federal Register 54795. BIS hopes that the new rules will streamline the existing encryption review process, expand the availability of the ENC license exception, and more fully harmonize the encryption restrictions with the rest of the Export Administration Regulations ("EAR").

Under the EAR, encryption items, which includes software, technology, and hardware incorporating encryption technology, generally fall into two categories:

Ø Export Commodity Classification Number ("ECCN") 5A002/5D002, for certain enumerated, high-functioning encryption products and software; and

Ø ECCN 5A992/5D992, for all other encryption items.

Generally speaking, 5A992/5D992 products can be shipped without delay anywhere in the world (except for Cuba, Iran, North Korea, Sudan, and Syria) as No License Required ("NLR"). 5A002/5D002 products also generally may be shipped around the world under license exception ENC, provided certain restrictions are met (including, for example, restrictions on certain high-end products and end-users in certain restricted countries). Further, there are generally three requirements for most such exports, including restrictions that:

Ø The ENC Encryption Request Coordinator at BIS pre-reviews the encryption item in question;

Ø A company waits at least 30 days for BIS to process the pre-review; and

Ø A company submits semi-annual sales reports to BIS for those sales.

While the new encryption rules do not disturb the existing broad formulation between 5A992/5D992 and 5A002/5D002 products, the new rules try to further delineate the requirements between the two ECCN categories. In particular, the new rules update technology levels to further clarify the differences. Additionally, the new rules help to streamline the processes by which 5A002/5D002 products shipped under license exception ENC are reviewed, exported, and subsequently reported to BIS. Following are three key highlights of the new rules.

1. The New Rules Reduce The BIS Pre-Review Requirements

Ø Under the old rules, companies were required to submit the vast majority of their encryption items to the ENC Encryption Request Coordinator at BIS for pre-review and approval before being able to take advantage of the ENC license exception or export their product broadly. In practice, this meant that nearly all encryption items were submitted for pre-review. Companies could then begin shipping encryption items NLR or under the ENC license exception almost immediately to a host of friendly countries, and to most other countries with limited restriction after 30 days.

Ø Under the new rules, the types of encryption items subject to the mandatory review process have been substantially limited.

o With regard to 5A992/5D992 products, the pre-review requirement has been completely eliminated.

o With regard to 5A002/5D002 products, the pre-review requirement has been limited. In particular, the license exception at EAR 740.17 has been restructured and reorganized, focusing on whether pre-review is required or exempted. The following types of 5A002/5D002 encryption items are exempt from the pre-review requirement:

a. Foreign Subsidiaries of U.S. Companies. Certain listed encryption items are exempt from the pre-review requirement when they are transferred to foreign subsidiaries of U.S. companies, provided the encryption items are used exclusively for internal company use (EAR 740.17(a)(2)). In addition to foreign subsidiaries, this exemption also applies to foreign national employees of the foreign subsidiary. While these types of products were previously exempt from the semi-annual reporting requirement, the pre-review exemption has also been added under these new rules.

b. Internal Development or Production of New Products. Certain listed encryption items are exempt from the pre-review requirement when they are exported to certain eligible private sector end-users for internal development or production of new products by those same end-users (EAR 740.17(a)(1)). Note that this new exception does not remove the pre-review requirement for products that will be used by foreign governments to develop new products; in such a situation, the exemption would not apply.

c. Short-Range Wireless Encryption Functions. Products that include encryption technology providing short-range wireless encryption functions are exempted from the pre-review requirement (EAR 740.17(b)(4)(i)).

d. Foreign-Manufactured Products. Products that are foreign-manufactured products developed with or incorporating U.S.-origin encryption source code, components, or tool kits are exempted from the pre-review requirements (EAR 740.17(b)(4)(ii)). While a newly manufactured foreign product is exempt from the pre-review requirement, it does not exempt the U.S.-origin encryption items that are incorporated in the foreign-manufactured product. The U.S.-origin encryption item must have been pre-reviewed by BIS, and the encryption functionality cannot have changed. Essentially, this new exception allows foreign manufacturers to avoid the mandatory pre-review requirement, but the obligation on U.S. companies in the first place remains.

e. Wireless Personal Area Network Items. A new exception under the new rules relates to wireless personal area network items (with a very limited range of 30 meters) that implement only published or commercial cryptographic standards (EAR 740.17(b)(4)(iii)). It applies to products such as hands-free headsets, wireless networks between personal computers, wireless mice, wireless keyboards, wireless printers, GPS receivers, and game controllers.

f. Ancillary Cryptography. Another new exception under the rules relates to commodities and software that perform ancillary cryptography (EAR 740.17(b)(4)(iv)). This exception covers products that incorporate cryptography technology, even though the products are not particularly useful for computing, communications, networking, or information security. This includes products incidentally incorporating cryptography, such as music or entertainment products, household utilities, video recording or playback, business process modeling (supply chain management, inventory control), industrial and manufacturing systems, and transportation systems.

o Functionally, in all relevant respects, this means that 5A002/5D002 products that meet any of the foregoing criteria are essentially treated as 5A992/5D992 products. The only major difference is the licensing authority listed on the export documentation – 5A992 products would be listed as "NLR," while these specific 5A002 products would be listed as "ENC." All other licensing restrictions would be essentially identical.

Ø For those remaining 5A002/5D002 products that are submitted for ENC pre-review, BIS will continue to process those reviews as they have done in the past. The new rules attempt to simplify the pre-review application process, specifying additional information for electronic submissions, and modifying the types of information required in the application packets (EAR Part 742, Supplement 6). Most notably, the new rules note that submissions via fax will no longer be accepted – only electronic or hard-copy submissions.

Ø Additionally, in issuing an ENC approval, BIS will state whether the encryption item qualifies as "ENC Restricted" or "ENC Unrestricted" under EAR 740.17(b)(2) or (b)(3), which identify restrictions on the sale of the product to certain government end-users.

2. The New Rules Reduce A Company's Ongoing Reporting Requirements

Ø Under the old rules, companies were required to submit semi-annual reports to BIS for virtually all products shipped under license exception ENC.

Ø Under the new rules, the ongoing reporting requirement is reduced.

o The new rules clarify that no reporting is required for sales of 5A992/5D992 products.

o Additionally, the new rules continue the old policy of exempting certain types of 5A002/5D002 transactions from the reporting requirement (EAR 740.17(e)(1)(iii)), as well as exempting the types of products described above where pre-review by ENC is not required. Finally, BIS has included a new generic "other" category exempting encryption items that BIS feels are unnecessary to include in the semi-annual reports.

Ø Reports should identify, in addition to a product's ECCN, the corresponding CCATS number assigning that ECCN.

3. The New Rules Elaborate On And Clarify The "Mass Market" Classification

Ø Another highlight of the new rules is that they clarify the relationship between 5A002/5D002 and 5A992/5D992 products when the product qualifies for "mass market" treatment. Regardless of a product's technical capability, it qualifies for "mass market" treatment and reduced export restrictions if:

o it is generally available to the public without restriction;

o its cryptographic functionality cannot be easily changed by the user; and

o it is designed for installation by the user without further substantial support from the supplier.

Ø While implicit in the prior rules, the new rules expressly clarify that "mass market" products are classified as ECCN 5A992/5D992. Additionally, the new rules provide additional descriptions of the "mass market" classification, including examples of "mass market" encryption products.

Ø Different from prior policy, the new rules clarify that all products that are submitted for pre-review to BIS for "mass market" treatment should be treated as 5A002/5D002 products, until formally approved as "mass market" and classified as 5A992/5D992. The new rules clarify that once an ENC pre-review application has been submitted to BIS, the product can be shipped under the ENC license exception, including immediate shipment to a long list of "friendly" countries (which has been expanded to include Bulgaria, Canada, Iceland, Romania, and Turkey under the new rules), and a number of other countries after 30 days, provided the ENC license exception requirements are satisfied. While BIS claims in the new rules that this is a major change from its prior policy, careful companies have long been treating their products as 5A002/5D002 until the formal "mass market" CCATS approval was issued by BIS.

Ø Another welcome feature of the new "mass market" classification is that company's can self-classify as "mass market" products short-range wireless encryption items, wireless personal area network items, and items incorporating ancillary cryptography (EAR 742.15(b)(3)). Companies were not permitted to self-classify any product as "mass market" under the old rules, but the language in the new rules appears to permit self-classification.

Conclusion

We encourage everyone to examine the new rules in their entirety to consider specifically how the new rules will effect your business and your product lines.

The new rules are a welcome change to the encryption controls, reducing the pre-review and subsequent reporting requirements with BIS, and expanding the scope of the ENC license exception. Christopher Wall, Assistant Secretary of Commerce for Export Administration, stated that these new rule changes were "not fundamental, but they are a start." He further stated that these new rules were the beginning of a more comprehensive approach to simplifying encryption controls and that BIS was "already beginning that process." We welcome such simplification, especially considering that the encryption restrictions have long been among the most confusing sections of the EAR.

Authored by:

David S. Gallacher

(202) 218-0033

dgallacher@sheppardmullin.com

New Export Rules Revise De Minimis Provisions, Allowing Bundled Software To Be Included In Commodity Valuation, Clarifying Terms, And Reducing Reporting Requirements

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 17 Nov 2008 18:21:21 GMT

On October 1, 2008, the U.S. Department of Commerce, Bureau of Industry and Security ("BIS") published a new interim rule, effective immediately, modifying the provisions by which companies calculate the de minimis value of U.S. components, materials, or technologies incorporated in foreign-manufactured products. 73 Federal Register 56964. While the new rules do not substantively modify current export policy, they do effect some changes that could benefit foreign companies in determining whether their foreign-manufactured products are beyond the scope of the Export Administration Regulations ("EAR") (15 CFR Parts 730-772).

Background

The EAR has a long jurisdictional reach. Practically all products or technologies that were developed or manufactured in the U.S., move in commerce through the U.S., or incorporate U.S. components, materials, or technologies are subject to U.S. export laws. The EAR recognizes, however, that certain products containing de minimis levels of U.S. content are not subject to the EAR. See EAR 734.4.

As a general rule, all foreign-developed technology or software, and foreign-manufactured products containing 10% or less in value of U.S.-origin controlled content is not subject to the EAR.
Even more broadly, so long as a foreign-manufactured product, software or technology is not exported to certain sanctioned countries (currently Cuba, Iran, North Korea, Sudan, and Syria), the product, software or technology is not subject to the EAR if it contains 25% or less in value of U.S.-origin controlled content.

Foreign-manufactured products or foreign-developed technologies that do not meet these de minimis thresholds are subject to the EAR and may require an export license when exported or re-exported to certain countries, to certain end-users, or for certain end-uses.

Discussion

Historically, companies have struggled with calculating the value of U.S.-origin controlled content for purposes of determining whether a product is subject to the EAR. Companies have also been required to calculate U.S. content separately for commodities, software and technology. Following are five features of the new rule:

1.   Clarifies Recordkeeping Requirement for De Minimis Calculations. Companies are required to maintain internal documentation as to how the company calculates the de minimis percentage of U.S.-origin controlled content in foreign technology and software, specifying whether the relative values are derived from actual market prices, comparable transactions, or internal values (such as, for example, production costs, overhead, profit).

2.   Allows "Bundled" Software to be Included in the Valuation of the Associated Commodity. Previously, U.S.-origin software that was "bundled" with a foreign commodity – software reexported together with the commodity and configured for the commodity, but not necessarily physically integrated into the product – was required to be separately calculated. The new rules allow "bundled" software to be included as part of the commodity for valuation purposes, reflecting the fact that many modern hardware items include critical operational software that may not necessarily be fully integrated with the commodity. Under the new rules, a single calculation based on the value of the U.S.-origin controlled "bundled" software and the foreign-made product will be used to determine whether the U.S.-origin controlled content exceeds the de minimis thresholds under the EAR.

3.   Clarifies Definition of "U.S.-Origin Controlled Content." The new rules also clarify that the de minimis rules apply only to U.S.-origin controlled content. This means that even though a product, software, or technology may incorporate U.S. content, if export of that content would not be otherwise restricted to a specific country, then it is not considered "controlled content" for purposes of this calculation. BIS has emphasized that "in identifying U.S.-origin controlled content, do not take account of commodities, software, or technology that could be exported or reexported to the country of destination without a license (designated as 'NLR' [No License Required]) or under License Exception GBS." EAR Part 734, Supplement 2. Non-controlled U.S. content is included in the overall "value" of the product or technology, but not as part of the U.S.-origin controlled content that must meet the de minimis threshold.

4.   Clarifies Definition of "Incorporated." The new rules also clarify when U.S.-origin controlled content is considered incorporated in a foreign product. U.S.-origin controlled content is considered "incorporated" when it is: (i) essential to the functioning of the foreign equipment; (ii) customarily included in sales of the foreign equipment; and (iii) reexported with the foreign produced item. Technology and source code used to design or produce the foreign-made commodities or software are not considered "incorporated" into the foreign-made products or software, and should not be included in determining the relative de minimis value.

5.   Removes the Requirement to Submit a One-Time Report for Foreign-Made Software Incorporating U.S.-Origin Software. The new rules remove the requirement to submit a one-time report to BIS for foreign-made software that incorporates U.S.-origin software. Note, however, that the rule does not remove the requirement to submit a one-time report for foreign technology incorporating U.S.-origin technology. The content of the one-time report for foreign technology remains the same as under the old rules. The report does not require information regarding the end-use or end-users of the reexported foreign technology.

Conclusion

BIS hopes that the new rules will help facilitate compliance with the EAR by making it easier for foreign manufacturers to calculate de minimis levels of U.S.-origin controlled content. Time will tell whether these new rules actually streamline the process. Based on our reading of these rules, we do not think that these changes will significantly reduce the burden on industry. Companies are encouraged to continue to alert BIS of ways in which the de minimis rules can be improved. BIS is receiving comments on this new rule until December 1, 2008.

Authored by:

Anne B. Perry

(202) 218-6875

aperry@sheppardmullin.com

and

David S. Gallacher

(202) 218-0033

dgallacher@sheppardmullin.com

The FCPA: What Our Clients Need to Know and Why They Need to Know it?

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 17 Nov 2008 18:12:48 GMT

The Foreign Corrupt Practices Act (FCPA) is a federal law which prohibits companies from obtaining or directing business through the payment of bribes to foreign governmental officials and political figures. The renewed focus on corporate accountability in recent years has led to a dramatic increase in the number of FCPA enforcement actions -- from 5 in 2004 to 38 in 2007. The attached presentation, utilized in connection with a recent in-house presentation, summarizes the FCPA and why it is imperative that every company doing business in the global marketplace be aware of its provisions and serious penalties, including civil penalties, criminal fines, and imprisonment, in the event of a violation.

Click here to view the presentation.

Presented by:

Bethany Hengsbach

(213) 617-4125

bhengsbach@sheppardmullin.com

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