“The Terminator a Trendsetter? How California’s Global Warming Solutions Act Will Impact California, the United States, and the World.”

Appearing in JNREL Vol. 21, No. 2 this Note was written by former JNREL Technical Editor Keeana Sajadi. Staff member Jessica Drake wrote the following abstract.

In September of 2006, Arnold Schwarzenegger, Governor of the state of California, signed into law the most comprehensive greenhouse emission reduction program in the United States at that time, the Global Warming Solutions Act (GWSA). The Act would require reporting of the current emissions and a detailed timeline to reduce pollution rates in California to 1990 levels by the year 2020. The state established itself as a leader who would, through their efforts and projected success in such reductions as well as increases in overall energy expenses and job creations, gain governmental following by the United States and the world.

Because California is the twelfth largest emitter in the world of this pollution, it will use GWSA to reduce the associated stigma with that status and minimize its role in the harsh effects resulting from greenhouse emissions made by the state itself, other states of America, and counties around the world. Besides GWSA's establishment of short-term goals for reductions, it also allows the California Air Resources Board, created by GWSA to implement a specific reduction plan and timeline, to provide future guidance to the Governor once the 2020 goal is attained. Further, it applies the program with an eye toward creating a workable market-based compliance mechanism, limiting emissions through automobiles, and minimizing leakage of emission to surrounding areas because of reductions in California.

The implementation of such a bold step in environmental protection incites opposition from individuals and industries that will be currently affected. Farmers, power companies, and car manufacturers argue against this drastic plan that will require major changes for their operations. However, the benefits for the state, country and world-at-large overshadow those concerns. Because the program indirectly provides lower long-term energy costs, major increases in employment opportunities, better economic spending and saving, and progression in innovative technology that should ensure a better future for our natural environment, it is well worth the short-term discomfort for such industries today. Although there are critics with legitimate concerns, the GWSA benefits will outweigh any burdens imposed.

For a more specific and thorough analysis of California's monumental effort to reduce these emissions and encourage others to follow its lead, read Keeana Sajadi's "The Terminator a Trendsetter? How California's Global Warming Solutions Act will Impact California, the United States and the World," JNREL Vol. 21, No. 2.

“Parental Control: The Impact of the Sarbanes-Oxley Act Upon Environmental Disclosure Requirements of Public Companies”

This Note was written by former staff member Dawn R. Franklin. The abstract was written by staff member Tanner James.

A law is only as good as its enforcement, and in the world of publicly-traded corporations, poor enforcement invites exploitation and noncompliance. In the context of the environment, this creates one unsuspecting loser: the shareholders. Through delayed, misleading, or simply nonexistent reports, companies dupe shareholders in to paying premium prices per share while hiding environmental violations that, once made public, will result in plummeting share value.

As protection, shareholders must rely on regulatory statutes and policies that are often more bark than bite. Regulation S-K and Financial Accounting Standard No. 5 ("FAS 5") both explicitly require routine environmental status reports, especially if a liability may reasonably exist. Furthermore, there are also implied disclosure requirements in the Securities Exchange Acts of 1933 and 1934, as well as Environmental Protection Agency policies that exist to stimulate more frequent, honest, and accurate environmental reporting. Unfortunately, although the guidelines and requirements are well-established, the incentive to break or circumvent the rules (e.g., more investors) has long outweighed the risk of violation.

Times have changed, however. The adoption of the Sarbanes-Oxley Act of 2002 ("SOX") heralded a new era of corporate disclosure. The rules remain the same—Regulation S-K, FAS 5, etc., all exist unchanged. The key difference is in the enforcement. Specifically, SOX gave the old rules new teeth.

To encourage compliance, SOX introduced a new element of accountability: the consequences of failure to comply are shared by the company and their senior officers. For instance, willful false certification of required reports could result in a $5 million dollar fine and 20 years in prison for a guilty officer. Few CEOs are willing to risk their money and freedom in exchange for temporarily-misled stockholders.

While the incentive for better reporting is a key benefit to SOX, the trickle-down effect is just as important. More accountability at the top turns in to more accountability throughout, and, in turn, better organization. Ultimately everything comes together to paint a much happier, fairer picture for both shareholders and the environment, alike. No longer do shareholders have to rely on illusory protection from unenforced regulations. With corporate officers finding themselves under the intense heat of the SOX spotlight, shareholders can invest with confidence, knowing that there are not any hidden environmental catastrophes looming.

“When Parents Act Like Children: CERCLA Liability of a Parent Corporation for its Subsidiary Corporation”

This comment was written by former staff member Griffin Farris and appeared in JNREL Vol. 22 No. 1. The abstract was written by staff member Brandon Wells.

The modern corporation form often allows business owners to maintain limited liability for actions of the corporation by setting up subsidiaries. This insulation came under review in the context of pollution and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in the Supreme Court case, United States v. Bestfoods, 524 U.S. 51 (1998). In Bestfoods, the Supreme Court was concerned with the liability of two different parent corporations that had at one time owned a polluting Michigan chemical manufacturing plant. The district court had found the parent companies liable as operators, and the Sixth Circuit had overturned that decision, finding that parent liability could only be established by showing a piercing of the corporate veil.

The Supreme Court's analysis began by noting two competing principles of corporate law. These are 1) that parent companies may protect themselves from liability by establishing subsidiaries, and 2) that there are instances that warrant "piercing the corporate veil" and holding the parent company liable for the actions of the subsidiary. The Court noted that these issues seem to be wholly irrelevant when discussing liability under CERCLA, as the statute is only concerned with whether the parent corporation is acting as an "operator" of a subsidiary polluting facility. The Court devised a definition for the term "operator" as "someone who directs the workings of, manages, or conducts the affairs of a facility." Bestfoods, 524 U.S.
at 66.

In the context of pollution, the court said that "an operator must manage, direct, or conduct operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations." Id. at 66-67. The Supreme Court then remanded the case to the district court, where the court found that the parent companies were not liable, even when focusing on the Supreme Court's definition of an "operator".

In cases that followed the Supreme Court's decision in Bestfoods, courts were more willing to find liability on the part of the parent company. Findings of liability were often based on evidence that the parent company was an "operator" of the subsidiary. Notable facts included a coordinator of the parent company taking part in the subsidiary plant's waste management designs; a requirement that the subsidiary notify the parent of any environmental communications; and active involvement by officers in disposal arrangements.

Based on subsequent consistent findings of liability for parent companies, the district court in Bestfoods was erroneous in its findings. In Bestfoods, many of the officers of the parent company held board positions in the subsidiary, and meetings often took place at both the parent and the subsidiary. Also, the parent company made many recommendations to the subsidiary as to how they should handle specific environmental matters. Although the district court rejected this argument because the subsidiary didn't follow the recommendations, it ignored the fact that the parent was still trying to control the subsidiary through management, albeit rather ineffective management. The factual scenario in Bestfoods was similar to cases finding liability, the only real distinction being that control from the parent was followed to a lesser extent. Although the district court found for no liability, based on the actions of the parent, it should have followed later cases that found liability on the part of the parent corporation.

In Bestfoods, the Supreme Court struck a balance between the two competing corporate law principles. Bestfoods recognized that while the corporate form is in place to allow for limited liability in many circumstances, it is not an absolute limitation on liability and there are situations where liability will still be found. Balancing these principles only makes sense when the entire factual account is taken into consideration. When only focusing on a single act, it may not establish liability on the parent as an "operator". But in order to best effectuate the ruling of Bestfoods, continuous acts of the parent as an "operator" of the subsidiary may give rise to parent liability.

“In States We Trust? The Effect of Canandyne-Georgia v. Nationsbank, N.A. (South) on Liability Under the CERCLA Superfund.”

This comment was written by former staff member Jonathan Gray and appeared in JNREL Vol. 21 No. 1. This abstract was written by staff member Stephanie Wurdock.

In 1980, Congress passed the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as a response to the Love Canal Disaster and its fallout. CERCLA provides the government with the tools to enforce cleanup of hazardous waste by imposing strict liability against any "owner or operator" of a facility that releases such materials. This begs the question: How does one define "owner or operator" and how does one apply the strict liability statute to a trust?

Because an inherent and indispensable characteristic of a trust is the division of legal and equitable interests, CERCLA presents the daunting possibility that a trustee, holding nothing more than a bare title in a violator's property, may find himself subject to liability. Often, it is a liability that that far exceeds the trust assets.

The 1999 case Canandyne-Georgia v. Nationsbank, N.A. (South), 183 F.3d 1269 (11th Cir. 1999) illustrates this concern. In Canandyne, the plaintiff corporation acquired a hazardous waste-generating pesticide business which it promptly sold. Several years later, the Environmental Protection Agency ("EPA") ordered Canandyne to undertake major steps toward cleaning up the surrounding property. After expending considerable time and resources in this effort, Canandyne sued Nationsbank, claiming that it had served as trustee at the time the property released the hazardous substances.

The Eleventh Circuit Court of Appeals in Canandyne determined that whether or not a party, specifically a trustee, is an "owner" for the purposes of CERCLA is a matter to be determined by state law. It logically follows that a trustee's liability will hinge on the jurisdiction's treatment of trustees as "owners" of property. This is problematic because it creates uncertainty for trustees, particularly when they have properties in multiple jurisdictions, subjecting them to liability under varying standards. It is a valid concern for conservators and executors, as well, who serve much the same role as trustees.

The Canandyne decision provides a frustrating answer to our initial query. The fact of the matter is that there is no clear, resolved definition of the word "owner." The use of differing standards creates uncertainty that must be remedied either by legislative amendment or judicial agreement. Without this needed change, there is simply too much uncertainty for efficient management of trusts and other estate planning devises.

Protecting the Roads Not Traveled: The Continued Conflict Around the “Roadless Rule” of 2001

This post was written by Assistant Online Editor Zach Becker.

On August 3, 2009, the State of Colorado proposed a petition to send to the USDA as to the management of the national forest "roadless areas" within the State of Colorado. On that same day, began a 60 day public comment period as to the proposed petition, which has provided an opportunity for the general public to critique and/or praise the proposals by Colorado before the state forwards its roadless rule petition to the USDA for approval. As one can imagine, this 60 day period has been filed with emotional pleas from environmental groups and surprisingly sportsmen. Pleas that point out legitimate and critical flaws in the proposed plan's ability to effectively protect some of the majestic, and largely untouched natural forests of Colorado and the fish and wildlife that call these habitats home. One of the areas of highest concern is the Currant Creek area, located of the North Fork of the Gunnison River, which is of interest for its coal mining potential. This area of undisturbed and pristine aspen and oak forests is a key location for elk and mule deer rearing, migration and hunting and would be immensely impacted by an allowance of mining in this pristine and remote habitat, high in the Colorado Rockies.

The U.S. National Forest Service divides each of its "management area" into different units. Each unit is provided with a different "forest plan" in order to achieve desires objectives, goals and management prescriptions for that unit. "Activities proposed to occur within a management area must be consistent with the management-area prescriptions as well as with the prescriptions applicable to the entire forest unit." Cal. ex. rel. Lockyer v. USDA, 2009 U.S. App. LEXIS 19219 at *6 (9th Cir. 2009). One such national forest unit distinction is the "roadless area." The roadless areas are largely undeveloped areas of wilderness, generally without roads. Before the promulgation of the "Roadless Rule" in 2001, "most forest plans provided for the extraction uses, including logging, mining, oil and gas development, and construction of off-road vehicle routes, on at least some portion of what are classified as inventoried roadless areas." Id at *7-8. In 1999, President Clinton asked the National Forest Service to devise a rule that would provide permanent protection to roadless areas in the national forests. Within a week, the Forest Service had begun work on the "Roadless Rule" and the rule was promulgated on January 5, 2001, just prior to Clinton leaving office, and went into effect on May 12, 2001. This provided the requested protection to all of the nation's roadless areas, other than select areas in Alaska and Idaho. The "Roadless Rule" was met almost immediately with opposition, with several cases calling into question the validity of such a blank rule throughout the US with little concern for state economies and objectives.

In response to this opposition and now within the Bush era, the National Forest Service devised and announced in 2005, the "State Petition Rule", which was thought to replace the "Roadless Rule." The "State Petition Rule" provided that a state could petition the Forest Service to make state-specific considerations for projects and treatment schemes for the roadless areas within that state's borders.

On August 25, 2009, The Ninth Circuit Court of Appeals ruled that the "State Petition Rule", was promulgated incorrectly, having violated the statutory requirements for promulgation of both the National Environmental Policy Act and the Endangered Species Act. Cal. ex. rel. Lockyer v. USDA, 2009 U.S. App. LEXIS 19219 (9th Cir. 2009). The Court then reinstated the Clinton era "Roadless Rule", which provides greater protection to the wildlife and environment found within the roadless areas of the nation's federal forests, and permanently enjoined the "State Petition Rule".

The state petition that may be forwarded by Colorado depending on the public comment period's reaction, is a petition as would be compliant with the "State Petition Rule", which would not be possible under the "Roadless Rule." There have been U.S. District Court decisions that have come to the opposite conclusion of the Ninth Circuit as to the validity of the two rules in question, in fact actually permanently enjoining the "Roadless Rule" throughout the U.S. Wyoming v. United States Dep't of Agric., 570 F. Supp. 2d 1309 (D. Wyo. 2008). Nevertheless, the Ninth Circuit opinion followed in 2009. The situation in Colorado presents a fork in the road for both the State of Colorado and the USDA. If the state chooses to forward its petition for consideration as allowed by the "State Petition Rule", then the USDA will have to directly address the question that has provided a split within authorities throughout the U.S. Without such action by the USDA, the only way for the roadless areas to be totally protected is by express action of President Obama to uphold the 2001 national rule, asking for the USDA to reinstate the "Roadless Rule", so as to pursue the same direction and objective as Clinton had in mind when he first asked for the rule to be created in 1999. With such explicit action, the roadless areas of our nation's forests can once again be guaranteed permanent and effective protection, thus ensuring that these areas and the wildlife that are contained within them, may be present for future generation within this country.

KJEANRL Blog welcomes two new editors and a new posting schedule

In it's inaugural run the KJEANRL blog has hit the ground running! Every school day since the beginning of the fall semester we've either had an abstract or blog post on the blog, Monday through Friday . Needless to say this has taken a great amount of commitment from the KJEANRL staff and especially Production Editor Mark Rouse who has had to review every abstract and post. In an effort to lessen the burden of the Production Editor and increase the quality and time in which articles are posted the KJEANRL Editorial Board has decided to add two Assistant Editor positions from the second year class solely to work on the blog.

Zach Becker will be the Assistant Online Editor of Abstracts and Kim Coghill will be the Assistant Online Editor of Blog Postings. With the addition of two staff members committing their time to the blog we expect the blog to operate on a new schedule.

As soon as next week we hope to have a blog post three times a week, every Monday, Wednesday and Friday. In addition we hope to post an abstract of former Articles, Notes and Comments from our past print issues Monday through Friday. If you have any suggestions on our production schedule please let us know!

Thanks,
Mark Rouse
KJEANRL Production Editor

“Would the Commonwealth Benefit from a Tax on Marijuana?” gaining publicity across the Bluegrass

Today staff member Zach Greer's post "Would the Commonwealth Benefit from a Tax on Marijuana" is the subject of a poll on the Northern Kentucky Enquirer's website.

Check it out at: http://nky.cincinnati.com/article/AB/20091009/NEWS0103/310090034/Poll++Legalize+pot+in+Ky

Also, yesterday Zach's post was featured on Lu-Ann Farrar's Kentucky News Review.

Check it out at:

http://www.kentucky.com/latest_news/story/968865.html

Haven't read the post yet? Here it is: http://www.kjeanrl.com/2009/10/would-commonwealth-benefit-from-tax-on.html

Congrats Zach!

Industry horsemen’s groups have the power to prevent off-site betting at Horsetracks

This post was written by staff member Nick Kloiber.

Racetracks in Kentucky have been in the news due to their place in the recent legislative battle over slot machines. Some tracks have said that, because of the dire financial times, they might have to close without the added draw of slot machines on site. Other tracks have threatened to reduce purses in an effort to cut costs. Turfway Park is one such racetrack, and it seems their solution might actually hurt them more than they originally thought, quickening a rush to closure.

The racetrack has proposed a 5% cut in all purses for the upcoming year compared to 2008, a total cut of about $700,000. Gregory Hall & Jenny Reese, Turfway, Horsemen dispute purse cut, THE COURIER-JOURNAL, Aug. 26, 2009, available at http://www.courier-journal.com/apps/pbcs.dll/article?AID=2009908250345. Without an agreement with the horsemen's group, simulcast betting on Turfway's races at other tracks nationwide could be prevented by those state's horsemen's groups. Id. The law that gives these groups this power is called the Interstate Horseracing Act of 1978. Congress decided that the Federal Government needed to ensure interstate cooperation in the area of horserace simulcasting, "in order to further the horseracing and legal off-track betting industries in the United States." 15 U.S.C.S. § 3001 (LexisNexis 2009). That is a straightforward proclamation of Congress's intent and position on regulation in the industry. The way they decided to regulate, however, reveals many questions.

Racetracks must get, among other things, consent from the host racing association in order to accept off-site betting. 15 U.S.C.S. § 3004 (LexisNexis 2009). As "a condition precedent to such consent, said racing association . . . must have a written agreement with the horsemen's group, under which said racing association may give such consent, setting forth the terms and conditions relating thereto." Id. Why did Congress give such a power to industry groups? Is it a legislative form of a collective bargaining grant? State's horsemen's groups can effectively band together and say they won't accept simulcasting from a track unless a contract is in place between that racetrack and its horsemen's group. With such a group effort, these groups have the power to prevent tracks from changing purse payouts or other contract issues with their local group, for fear that the changes will be rejected and their simulcast business will also be blocked.

For a track in Turfway's predicament, their efforts to reduce costs to try and stay in business could very well cost them even more money due to no simulcast business, tightening what was already a precarious financial situation even more. Everyone is allowed to bargain for what they think they can get, but Congress giving these industry groups a one-handed bargaining chip doesn't help struggling racetracks trying to stay competitive and in business.

Would the Commonwealth Benefit from a Tax on Marijuana?

This post was written by staff member Zach Greer.

These bad economic times have forced many people to find additional sources of income. For some, growing marijuana has been a popular solution to their economic needs. In 2008, more than 1 million marijuana plants were confiscated in east Tennessee, Eastern Kentucky and West Virginia. Roger Alford, Marijuana farming rebounds in economic hard times, LEXINGTON HERALD-LEADER, Sep. 10, 2009, available at http://www.kentucky.com/news/state/story/929103.html.

In a recent statement, State Budget Director Mary Lassiter said: "The state finished fiscal year 2009 on June 30 with 2.7 percent less revenue than it received in 2008. Things are getting worse, not better." Ronnie Ellis, Kentucky budget picture 'getting worse, not better', RICHMOND REGISTER, Aug. 27, 2009, available at http://www.richmondregister.com/statenews/local_story_239210926.html. Moreover, it is predicted that Kentucky revenues will drop another 2.5 percent this year. Id. Furthermore, the Commonwealth's unemployment rate remained above 11 percent for August 2009. Ky. Unemployment rate steady at 11.1%, LEXINGTON HERALD-LEADER, Sept. 18, 2009, available at http://www.kentucky.com/101/story/939767.html.

An in-depth analysis of the advantages and disadvantages of legalizing marijuana is beyond the scope of this blog posting. Instead, this posting merely poses a question to its readers, instead of funding eradication efforts to destroy this recession-proof crop, could the Commonwealth and its residents benefit from the legalization of marijuana? Ed Shemelya, head of marijuana eradication for the Office of Drug Control Policy's Appalachian High Intensity Drug Trafficking Area, said: "I've never seen any decline in demand for marijuana in bad economic times. If anything, it's the opposite." Roger Alford, Marijuana farming rebounds in economic hard times, LEXINGTON HERALD-LEADER, Sep. 10, 2009, available at http://www.kentucky.com/news/state/story/929103.html. As one of the largest marijuana producing states in the country, the Commonwealth of Kentucky will continue to be a forum for this highly debated political topic.

According to officials at the Office of National Drug Policy's Appalachia High Intensity Drug Trafficking Area Program (HIDTA), Kentucky produces more marijuana than any other state except California, making it home to one of the nation's more intensive eradication efforts — a yearly game of harvest-time cat and mouse in national forests, abandoned farms, shady hollows, backyards and mountainsides.

Chris Kenning, Kentucky goes after 'Marijuana Belt' growers, LOUISVILLE COURIER-JOURNAL, Sep. 30, 2007, available at http://www.usatoday.com/news/nation/2007-09-30-kentucky_N.htm.

Empirical evidence suggests that there could be significant financial incentives to legalizing marijuana. Nitya Venkataraman, Marijuana Called Top U.S. Cash Crop, ABC NEWS, Dec. 18, 2006, available at http://abcnews.go.com/Business/Story?id=2735017&page=1. In 2005, a study by Jeffrey Miron (a visiting professor at Harvard) projected that if the "United States legalized marijuana, the country would save $7.7 billion in law enforcement costs and could generate as much as $6.2 billion annually if marijuana were taxed like alcohol and tobacco." Id.

However, others argue that such large financial gains are unlikely. Rosalie Pacula, a senior economist at the Rand Corp. and co-director of its drug policy research center, said:

First, you have to consider that legalizing it [marijuana] would have its own costs. Recent research . . . shows marijuana to be more addictive than was thought. Because marijuana is illegal, and because its users often smoke tobacco or use other drugs, teasing out marijuana's health effects and associated costs is almost impossible. And more people would smoke it regularly if it were legal -- Pacula estimates 60% to 70% of the population as opposed to 20% to 30% now -- and the social costs would rise. She takes issue with figures from Harvard's Jeffrey Miron, among others, who says that billions spent on enforcing marijuana laws could all be saved by legalization. Rand's research, Pacula says, finds that many marijuana arrests are collateral -- say, part of DUI checks or curfew arrests -- and many arrestees already have criminal records, meaning they might wind up behind bars for something else even if marijuana were legal.

Patt Morrison, Should we tax pot?, LOS ANGELES TIMES, Dec. 4, 2008, available at http://www.latimes.com/news/opinion/la-oe-morrison4-2008dec04,1,2468640.column. This excerpt shows that a tax on marijuana might not result in the economic windfall that many predict.

The fact remains that Kentucky is a major producer of marijuana, a crop that, if taxed, could result in large revenues for the Commonwealth. However, some people have doubts that a "tax revenue [from marijuana] would offset the full cost of regulating and enforcing the legal market." Id. Although economic incentives alone might not be enough to justify the legalization of marijuana, it remains a topic for discussion.