Force Majeure Probably Doesn’t Permit Smoke Taint Rejection

A force majeure clause in a contract permits the suspension, or in some cases, the termination, of performance by a party to the contract upon the occurrence of a force majeure event. Traditionally, a force majeure event is a matter outside of the control of the obligated party that makes it impossible or impracticable for that party to perform one or more of its obligations under the contract. For example, depending on the specific language of the force majeure provision, a labor strike might excuse a party from performing its obligation to manufacture and deliver goods purchased by a buyer.

A typical force majeure provision from a grape purchase agreement is set forth below:

Force Majeure.    Neither Seller nor Buyer shall be liable to the other party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in performing any term of this Agreement, when and to the extent such failure or delay results from acts beyond the affected party’s reasonable control, including, without limitation: (a) acts of God; (b) flood, fire, earthquake or explosion; (c) war, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot, or other civil unrest; (d) epidemic or pandemic; (e) actions, embargoes or blockades; (f) action by any governmental authority; (g) national or regional emergency; (h) strikes, labor stoppages, or slowdowns or other industrial disturbances; and (i) shortage of adequate power or transportation facilities.

Here, upon a force majeure event, if either Seller or Buyer is unable to perform its obligations under the grape purchase agreement because of an event beyond its reasonable control, that party can claim force majeure and will be excused from performance during the continuance of the force majeure event. So, for instance, if the Seller’s crop is affected by floods that it could not have reasonably foreseen and it can only deliver 50% of its promised crop to its Buyer, it would have a reasonable defense against its obligation to deliver the entirety of the crop.

Okay, the Buyer says, I see “fire” listed above, so does the force majeure provision permit me to avoid purchasing grapes that may be tainted by smoke? Probably not. To understand why, it’s important to understand the Buyer’s obligations under a grape purchase agreement.  Those obligations are actually fairly limited.  First, and most obviously, the Buyer is obligated to pay for the grapes, and second, the Buyer is obligated to physically accept delivery of the grapes.  A buyer may have other obligations as well, depending on the specific language in the agreement, such as directing the timing of harvest, providing bins, and providing wine samples.

Which of the Buyer’s obligations listed above is the Buyer unable to perform because of fire?  If active fires exist in the Buyer’s immediate vicinity so that it is temporarily impossible or impracticable to operate, the Buyer may be able to invoke force majeure to delay accepting grapes until it is safe to reopen.  But what about a winery in an area generally affected by smoke that is able to remain open, and that has a concern about the quality of the grapes it is receiving?  That Buyer is still able to perform:  it can pay for the grapes as long as banks remain able to process transactions, and it can accept the grapes as long as it is safe to remain open.  Of course, a Buyer may not want to accept potentially smoke tainted grapes, but that does not mean that it is impossible or impracticable for it to do so.  Typical force majeure clauses address when a party can’t perform its obligations, not when it might not want to perform its obligations.

Often, grape purchase contracts also include specific quality warranties, including MOG, mold, rot, brix, and perhaps smoke-related metrics, which a Seller is obligated to meet, and which can serve as a basis for rejection by the Buyer if not satisfied.  Whether or not those kinds of quality-related warranties can be used as the basis for the Buyer to reject potentially smoke tainted grapes depends on the specifics of the provision and the facts at hand.  But we believe, based on the language commonly used in grape purchase agreements, that Buyers wondering whether they have the right to reject potentially smoke tainted fruit would be better served looking to their quality warranties rather than to their force majeure provision.

CDFW Proposes New Regulations for Oil Spill Management Team Certification with a September 14 Comment Deadline

Last week, the California Department of Fish and Wildlife (“CDFW”) Office of Spill Prevention and Response (“OSPR”) issued notice that it proposes to add ten new regulations (sections 830.1 through 830.11 to Title 14 of the California Code of Regulations) to implement statutory changes resulting from Assembly Bill (“AB”) 1197.  AB 1197 establishes criteria and a process for the certification of oil spill management teams. Continue Reading

California Wineries Take Note, Part Two: State Water Board Notices Stakeholder Meeting Regarding Winery General Order Fees

As a follow-up to our July 15, 2020 blog post regarding the State Water Resources Control Board’s (State Water Board) release of proposed General Waste Discharge Requirements for Winery Process Water Treatment Systems (proposed General Order), today the State Water Board issued a public notice regarding the first stakeholder meeting to discuss fees associated with the proposed General Order.

The stakeholder meeting is scheduled to occur remotely via webcast on Thursday, August 6, 2020 from 1:30-3:30 PM.  According to the notice, the meeting agenda will be available approximately one week prior to the meeting.  If you wish to ask questions or provide comments during the workshop, please complete the instructions outlined in the public notice prior to 5:00 PM on August 5, 2020.

Please refer to the public notice for additional details.

California Wineries Take Note: State Water Board Releases Draft General Order for Winery Process Water for Public Comment

On July 3, 2020, the State Water Resources Control Board (State Water Board) released proposed General Waste Discharge Requirements for Winery Process Water Treatment Systems (proposed General Order) along with the draft California Environmental Quality Act (CEQA) Initial Study and Mitigated Declaration for public comment.  The proposed General Order will apply statewide, and includes requirements to ensure winery operations will not adversely impact water quality. The State Water Board also noticed a July 22, 2020 public workshop and future proposed adoption of the proposed General Order.  The July 22, 2020 public workshop will begin at 9:30 a.m. via remote attendance only.  Although a quorum of the State Water Board will be present at the public workshop, no final action will be taken at the workshop. Continue Reading

CDFW Moves Notifications for Lake and Streambed Alteration Standard Agreements Online

Last month, the California Department of Fish and Wildlife (“CDFW”) issued notice that it will begin accepting electronic notifications for all Lake and Streambed Alteration Standard Agreements (Cal. Fish & Game Code § 1600 et seq.) effective August 1, 2020.  This move to online applications is part of a broader effort by CDFW to go paperless.

CDFW will accept notifications for Standard Agreements through its new online Environmental Permit Information Management System (“EPIMS”).  CDFW will continue to accept paper notifications through August 2020, but all applications received on or after September 1, 2020 will be processed via EPIMS.  CDFW believes that using EPIMS will streamline the permitting process and make it more efficient by providing access anywhere internet is available, for submittal of supplemental information, calculation of permit fees, electronic signatures, automated email alerts and reminders, and applicant tracking of permit progress.

CDFW will continue to accept paper notifications for other agreement types, such as Master, Gravel/Sand/Rock Extraction, Routine Maintenance, and Timber Harvesting) until further notice.

How California’s Oil Industry May Help Preserve Agriculture in California’s Southern San Joaquin Valley – Recycled, Oil Field Produced Water Found Safe for Crop Irrigation

A study conducted by researchers at Duke University and RTI International found that reusing oil field produced water that has been mixed with surface water to irrigate crops in Kern County’s Cawelo Water District does not pose any major health risks. To cope with droughts and water shortages, some farmers in the Cawelo district have used diluted produced water to irrigate their crops for over two decades. Though the diluted produced water does contain slightly elevated levels of salts and boron as compared to the local groundwater, those levels are below applicable state standards for drinking and irrigation water. Avner Vengosh, professor of water quality and geochemistry at Duke’s Nicholas School of the Environment, stated that the study “did not find any major water quality issues, nor metals and radioactivity accumulation in soil and crops that might cause health concerns.”

California’s own groundwater regulatory agency is on the brink of coming to the same conclusion. For nearly five years, the Central Valley Regional Water Quality Control Board (“Regional Board”) has been conducting its own investigation into the safety of using produced water to irrigate crops. As part of this effort, the Regional Board assembled a Food Safety Expert Panel, which commissioned various, wide-ranging studies. Regional Board Chair Karl Longley stated that the findings from these studies showed no red flags in crops grown with the recycled produced water. Regional Board staff is currently preparing a white paper summarizing the Food Safety Expert Panel’s findings and recommendations. We are monitoring the Regional Board’s work and will report on its conclusions in future posts.

Supreme Court Holds Clean Water Act Permit Required for Some Discharges to Groundwater

Last Thursday, the U.S. Supreme Court held that the Clean Water Act (“CWA”) requires a permit to discharge pollutants that reach “navigable waters” through groundwater, but only if the discharge is the “functional equivalent of a direct discharge” to the navigable water.1 In reaching this decision, the Court took the middle ground. It rejected both the Ninth Circuit’s interpretation that the CWA requires a source to obtain a permit whenever pollutants found in a navigable water are “fairly traceable” to that source, and arguments by Environmental Protection Agency (“EPA”) and others that a permit is never required for discharges of pollutants that reach a navigable water through groundwater. Continue Reading

U.S. Supreme Court Holds that CERCLA Does Not Block State Law Claims Seeking Restoration, Subject to EPA Approval

In a split decision in which Chief Justice John Roberts authored the majority opinion, the United States Supreme Court held yesterday in Atlantic Richfield Co. v. Christian that the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) does not bar a plaintiff’s ability to bring state law claims in state court for property damage, such as nuisance and trespass claims, that do not arise under CERCLA.  The Supreme Court further held that plaintiffs can bring restoration claims against potentially responsible parties (“PRPs”) for remediation beyond what the Environmental Protection Agency (“EPA”) requires under CERCLA, but any additional remedial action must be approved by the agency. Continue Reading

State Water Agencies Expect Water Use Reporting to Continue as Normal as California Shelters in Place

On March 19, 2020, California issued Executive Order N-25-20, a statewide shelter in place order in response to the COVID-19 pandemic, significantly altering operations of both state agencies and private businesses.  However, California’s water regulators, including the State Water Resources Control Board (SWRCB), the Regional Water Quality Control Boards, and the Department of Water Resources (DWR), have committed to maintaining critical deadlines, compliance requirements, and agency operations in the interest of public health and safety.

Importantly, the SWRCB’s Division of Water Rights continues to require all surface water users to submit annual reports to meet the April 1, 2020 deadline for reporting 2019 water use.  As of the publication of this alert, although the Division of Water Rights has postponed non-essential file review, the Division of Water Rights is maintaining limited hours to view essential records, by appointment only.

Additionally, the SWRCB and the nine Regional Water Quality Control Boards (collectively “Water Boards”) issued a guidance statement providing that in the interest of protecting public health, safety, and the environment, timely compliance with all Water Board orders and requirements is required. This includes compliance with regulations, permits, contractual obligations, primacy delegations, and funding conditions that are in effect.

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Reversing 30-Year Policy, U.S. DOJ Says Settlements Can No Longer Include Supplemental Environmental Projects (SEPs)

This post was co-authored by Beth Ginsberg & Krista McIntyre.

The U.S. Department of Justice (U.S. DOJ) recently issued a memorandum stating that settlements, including consent decrees, entered by the Environmental Protection Agency (EPA) and other federal agencies can no longer include a Supplemental Environmental Project (SEP), unless the SEP is expressly authorized by Congress. Companies and individuals accused of violating environmental laws and permits, like Clean Air Act and Clean Water Act permits, commonly agree to perform SEPs to fund projects that go beyond compliance instead of paying a higher cash penalty to the U.S. Treasury. Going forward, companies, individuals, and local governments will no longer have SEPs as a settlement option.

To support this policy reversal after more than 30 years, U.S. DOJ cites to the Miscellaneous Receipts Act, which grants only Congress the authority to decide how to appropriate federal funds. The U.S. DOJ views SEPs as federal funds, and, in U.S. DOJ’s opinion, the EPA and other federal agencies lack the authority to divert those funds to third party recipients and to select the projects that should receive the funds. The power of the purse rests squarely with Congress. “[W]ith SEPs, money otherwise destined for the Treasury finds its way to another destination, not at the insistence of Congress, where the Constitution puts that authority, but instead at the insistence of an administrative agency, or a non-federal entity, or some combination thereof.” Continue Reading