Alerts and Updates
Energy, Environment and Resources Update
Issue 19 | February 2017
Reliance on Environmental Consultants’ Reports–Privity
In what serves more as a reminder than as groundbreaking new law, a recent decision of the Court of Appeals of California, Sixth Appellate District, held that a borrower was not entitled to rely on Phase I and Phase II environmental site assessment reports prepared by a consultant to the borrower’s lender, and therefore had no claim against the consulting firm that was allegedly negligent in its preparation of the reports.
In Mao v. Piers Environmental Services, Inc. (H041214, February 8, 2017), the court cited uncontroverted evidence that the consultant's contract to perform the site assessments was with the lender, not the borrower; that the reports were provided to the lender for purposes of its due diligence; and that the borrower hired the consultant for the first time only after the site assessment reports had been prepared for the lender. In short, the court found that the evidence established no privity of contract between the consultant and the borrower at the time the reports were prepared.
In reaching its conclusion, the Mao court rejected the borrower's argument that it was readily foreseeable that negligence in the performance of the site assessments would harm the borrower as the prospective purchaser and eventual owner. The court distinguished the case from an earlier one in which the court had held that an architect owes a duty of care to future homeowners where the architect is a principal architect on the project, finding that the "end and aim" of the architect's engagement had been to provide safe and habitable residences for future homeowners. The Mao court found that any intent of the environmental consulting services to affect or protect the borrower as a prospective purchaser or future owner was at best secondary; the primary intent, the court found, was to provide the lender with diligence information on the basis of which it could make a lending decision.
In our experience, lenders and borrowers too often look to rely on shared site assessment reports, without paying close attention to privity considerations. Mao is a reminder about the importance of privity, along with a number of other concerns relating to limitations on consultants' contractual liability, when purchasing or leasing commercial property.
Trump Administration Crackdown on Immigration Worries Some California Farmers
California farmers rely on workers largely from Mexico to harvest crops. Many farmers will only hire legal immigrants, but a substantial portion of California's farming industry relies on workers without the proper authorizations. The Trump administration has indicated that it plans to crack down on workers who are in the country illegally. During the George W. Bush administration, in an attempt to strengthen enforcement of U.S. immigration laws, a regulation was enacted that required employers who received a "No-Match Letter" from the Social Security Administration not to hire the prospective employee whose Social Security Number did not correspond with the employee's name. The Obama administration relaxed and eventually rescinded the rule. The concern now is that the Trump administration will bring the rule back. This would have a huge impact on agriculture and service industries. The hope of many farmers is that the administration will only seek to go after undocumented workers with criminal records.
Woodrow Wilson School Recommends Community Solar in New Jersey
The Woodrow Wilson School at Princeton University issued a report, titled "Solar Gardens in the Garden State: Community Solar Recommendations for New Jersey." The proposal is intended to allow customers that reside in rented or multi-tenant buildings, or those who cannot take advantage of solar for other reasons, including shady roofs, to participate in shared solar projects, and enabling further development of clean energy generation in New Jersey. The report is targeted at policymakers in New Jersey and recommends policies for guiding community solar legislation in New Jersey, while recommending that the details and technical specifications be left to the New Jersey Board of Public Utilities ("BPU"). The report proposes an initial pilot project stage, implemented through a request for proposal process, that will enable the participants to refine requirements after resolving any problems that arise. Thereafter, full implementation of the community solar program should be approved.
In order to implement community solar, the report proposes that the BPU:
- establish transparent cost-sharing procedures if grid improvements are needed;
- create a simple, standardized permitting process;
- use virtual net metering to credit participating customers with power usage, ultimately transitioning to value of solar rate design;
- establish floor prices for solar renewable energy credits (SRECs);
- limit the size of a solar project to 5 MW;
- encourage development of projects on low value land;
- use on-bill financing to ensure that developers are paid;
- allow small businesses to participate and limit individual subscription of a project to 40 percent of the size;
- require developers to allocate 10 percent of the project to low-income households; and
- create and implement consumer protections.
Community solar projects will be beneficial to New Jersey in several ways. In addition to enabling a greater number of residences to procure clean energy, they can enhance overall system reliability by providing distributed generation in different locations on the electric grid, lower price spikes at peak hours and improve health and the environment. The solar industry has also been an important driver of job growth in New Jersey, and the development of community solar projects can continue that trend.
California State Water Board Declares Continuation of Drought in Emergency
Despite numerous water agencies requesting that the California State Water Resources Control Board ("Water Board") declare that the drought emergency has ended, the Water Board has decided to continue the state of emergency. Many California water agencies have argued that it was difficult to maintain their credibility with their customers regarding water availability when it is common knowledge that state reservoirs are, for the most part, brimful. According to the National Oceanic and Atmospheric Administration, California is now considered to be out of the drought, with the exception of the Santa Barbara area. The logic of the Water Board was that the torrential rains that the state has been having, which in many areas has already delivered double what would be normal, could stop at any minute and signal the start of a new drought. The Water Board did not address the obvious facts that the state has full reservoirs and that there is snow in the Sierra Nevada mountains equivalent to the annual flow of the Colorado River. Despite the pleas of several water agencies to end the drought declaration, some water agencies saw it differently and asked the Water Board to continue the drought declaration.
The Water Board issued a requirement during the drought that urban areas pass a stress test. This would require urban water suppliers to demonstrate that they had sufficient supplies to meet needs during a three-year dry cycle. Most urban water agencies have satisfied the stress test. Despite torrential rains, which have been enough that an order was given to evacuate several towns in the Sacramento Valley, it will take several years of wet weather to restore depleted groundwater aquifers. These aquifers are restored through the natural percolation of water underground. Water can be removed faster than it can be replaced. The percolation into the ground occurs largely in the agricultural areas, but some urban areas in the Bay Area and Southern California have substantial aquifers. There is an active groundwater recharge program in these locales.
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