Month: June 2020

Virginia Prioritizes “Living Shorelines” for Shoreline Development and Management

Development projects that affect shorelines in Virginia will soon need to plan for the use of living shorelines as the preferred method for shoreline management in their development plans. 

During the 2020 Legislative Session, the Virginia General Assembly amended Title 28.2 of the Virginia Code to strengthen Virginia Marine Resources Commission’s (VMRC) mandate to protect sensitive shorelines and wetlands.  Where the law previously encouraged the use of living shorelines, the law now requires it by requiring VMRC to permit “only living shoreline approaches to shoreline management unless the best available science shows that such approaches are not suitable.”  Further, even if the best available science shows a living shoreline is not suitable, the VMRC must still require applicants to incorporate elements of living shorelines into the permitted project “to the maximum extent possible.”  The amendments require VMRC to develop new minimum standards for shoreline and coastal habitat protection that account for sea-level rise, and minimum standards for the protection and conservation of wetlands.  Once created, the VMRC must consider these new standards when reviewing permit applications for activities that impact shorelines and wetlands. 

The General Assembly incorporated these amendments into the statutory wetlands zoning ordinance used by Virginia municipalities.  City, county, and town wetlands boards will be required to consider VMRC’s minimum wetlands protection standards, once promulgated, during adjudication of permit applications.  The amendments also require that applications to municipal wetlands boards contain a statement indicating whether the use of a living shoreline is not suitable, including reasons for the determination. 

These changes will make it more difficult for project planners to use traditional defensive structures, such as seawalls or bulkheads, on some or all portions of a shoreline.  This is particularly true in areas that are good candidates for living shorelines, such as inshore areas that experience less wave or vessel-wake action.  In addition, project planners may need to consider the potential increased costs associated with the establishment of a living shoreline, particularly if the property currently experiences shoreline management problems.  This includes properties that have older, failing defensive structures, or properties that are suffering from significant shoreline erosion and may require installation of breakwaters or other structures to help rebuild the shoreline.  Alternatively, planners will have to consider the additional costs needed to prepare a detailed justification explaining why a living shoreline is not feasible as part of the application.   These costs, however, may be offset by a more simplified or expedited permitting process.  In addition, owners may benefit from favorable property tax treatment that exempts living shorelines from taxation.  Owners may see a decrease in long-term shoreline management costs if a healthy living shoreline can be established, as opposed to a defensive structure that requires maintenance, repair, and eventual replacement.    

Project planners, owners, or contractors with any questions regarding this topic can contact jromero@vanblacklaw.com.

When to Apply for Forgiveness of a PPP Loan

This Article is based on information available as of June 22, 2020.  The information is subject to change as additional guidance is provided.


NOTE—This article updates the information in the following Articles previously published:


The Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) became law on Friday, June 3, 2020, modifying critical provisions of the CARES Act and the Interim Final Rules implementing the CARES Act, adopted by the Small Business Administration (“SBA”) regarding loan forgiveness.   Subsequently, the SBA published two new PPP Loan Forgiveness Applications, SBA Form 3508 (06/20), which can be downloaded here, and SBA Form 3508EZ (06/20), which can be downloaded here.  Instructions for SBA Form 3508 are located here, and instructions for SBA Form 3508EZ are located here

As enacted, the CARES Act required that loan proceeds be expended on Payroll Costs and other approved non-payroll expenses during an 8-week “Covered Period.”  The PPPFA changed the definition of the Covered Period to begin on the date of the origination of the PPP Loan and ending on the earlier of 24 weeks after origination or December 31, 2020.[1]  This lengthening of the Covered Period provides borrowers with greater flexibility as to when to spend the proceeds of a PPP Loan and ensures that Borrowers will be able to expend all of the proceeds of a PPP Loan on allowed Payroll Costs and non-payroll expenses. 

With the longer Covered Period, Borrowers have been asking when can an application for loan forgiveness be submitted.  For example, if a Borrower has expended all of the PPP Loan proceeds by the 15th week of the Covered Period, can the Borrower apply for loan forgiveness then or must the Borrower wait until the expiration of the Covered Period?  On June 22, 2020, the SBA issued an Interim Final Rule (the “Rule”) that answers this question.

The Rule confirms that a Borrower may submit an application for forgiveness of a PPP Loan at anytime on or before the maturity date of the loan (either 2 years or 5 years after the origination date of the loan, depending on whether the loan was made prior to June 5, 2020).  If the Borrower has used all of the proceeds of its PPP Loan before the end of the Covered Period, the Borrower is permitted to apply for forgiveness then—the Borrower does not need to wait for the expiration of the Covered Period to apply for loan forgiveness.  Note,  if the Borrower applies for forgiveness before the end of the Covered Period, adjustments to  the loan forgiveness due to a reduction in the number of full time equivalent employees (“FTEEs”), or a reduction in employee salaries, wages or work hours in excess of 25%, is still required.  The Borrower presumptively loses the ability to avoid these reductions by restoring salaries, wages or work hours or increasing the number of FTEEs after the application for loan forgiveness is submitted if submitted prior to December 31, 2020.

Even though a Borrower need only apply for forgiveness of a PPP Loan prior to the maturity date of the loan, the payment deferral period will expire 10 months after the Covered Period.  Thus, if the Borrower does not apply for forgiveness within the 10 months after the last day of the Covered Period, the PPP Loan is no longer deferred and the Borrower must begin making principal and interest payments.  The Borrower’s lender is required to notify the Borrower of the date on which the fist payment is due.

The Rule does not address whether the Borrower will receive a refund of principal and interest payments made on a PPP Loan should the Borrower be granted forgiveness of the full amount of the PPP Loan after the Borrower begins making payments.


[1] For PPP Loans made before June 5, 2020, the Borrower can elect to use the original 8-week Covered Period.

PPP Loan Forgiveness Application, After the Payroll Protection Program Flexibility Act of 2020

This Article is based on information available as of June 18, 2020.  The information is subject to change as additional guidance is provided. 


In mid-May the SBA published the PPP Loan Forgiveness Application (SBA Form 3508).  Following the Paycheck Protection Program Flexibility Act of 2020 becoming law, the SBA published two new PPP Loan Forgiveness Applications, SBA Form 3508 (06/20), which can be downloaded here, and SBA Form 3508EZ (06/20), which can be downloaded here.  Instructions for SBA Form 3508 are located here, and instructions for SBA Form 3508EZ are located here.

The two steps borrowers need to take to ensure that a PPP Loan is forgiven in full are to spend the PPP Loan proceeds only on approved costs and scrupulously document their spending during the Covered Period or Alternate Payroll Covered Period (each defined below).  The basic requirements for PPP Loan forgiveness are:

    1. At least 60%[1] of the loan proceeds must be spent on eligible payroll costs;
    2. The company must maintain the average number of full-time equivalent employees (“FTEEs”) for each pay period falling within the Covered Period (at the same level experienced by the employer during the FTEE Measuring Period); and
    3. The company must maintain employee salaries for employees making under $100,000 annually at a level equal to 75% or greater than their previous salary, but for the employees with an annual salary of over $100,000, salaries can be reduced to $100,000.

SBA Form 3508 is made up of several parts including (1) a Loan Forgiveness Calculation Form, (2) a PPP Schedule A, (3) a PPP Schedule A Worksheet, (4) a list of documents and information that must be submitted with the completed Application and a list of documents that must be maintained by the Borrower for a period of 6-years, and (5) a PPP Borrower Demographic Information Form.

SBA Form 3508EZ is a shorter-simplified application that can be used, if the Borrower meets any one of the following three criteria:

    1. The Borrower is a self-employed individual, independent contractor or sole proprietor who did not have any employees; or
    2. The Borrower did not reduce the annual salary or hourly wages of any employees earning on an annualized basing $100,000 or less, by more than 25% during the Covered Period or Alternative Payroll Covered Period and the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (subject to applicable FTEE exemptions); or
    3. The Borrower did not reduce the annual salary or hourly wages of any employees earning on an annualized basing $100,000 or less, by more than 25% during the Covered Period or Alternative Payroll Covered Period and the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements related to the maintenance of standards of sanitation, social distancing, or other work or customer safety requirement related to COVID-19.

Covered Period.  For each Form, the Borrower must identify the “Covered Period”, which is defined as either (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) Covered Period. For example, if the Borrower is using a 24-week Covered Period and received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, October 4.  In no event may the Covered Period extend beyond December 31, 2020.  Alternatively, for administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using an “Alternate Payroll Covered Period, being the 24-week (168-day) period (or for loans received before June 5, 2020 at the election of the Borrower, the eight-week (56-day) period) that begins on the first day of their first pay period following their PPP Loan Disbursement Date.  In no event may the Alternative Payroll Covered Period extend beyond December 31, 2020.  Borrowers that elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in the application to “the Covered Period or the Alternative Payroll Covered Period.”

Payroll Costs.  Payroll Costs that are eligible for forgiveness include both Payroll Costs paid and Payroll Costs that are incurred during the Covered Period or the Alternative Payroll Covered Period.  For Payroll Costs that are incurred, such costs must be paid on the next pay day following the Covered Period or Alternative Payroll Covered Period for those Payroll Costs to be forgiven.  Forgivable Payroll Costs include the sum of:

  1. For Employees, the sum of gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the Covered Period or the Alternative Payroll Covered Period. For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the Covered Period. For an 8-week Covered Period, that total is $15,385. For a 24-week Covered Period, that total is $46,154 for purposes of this 3508EZ. You can only include compensation of employees who were employed by the Borrower at any point during the Covered Period or Alternative Payroll Covered Period and whose principal place of residence is in the United States.
  2. The total amount paid by the Borrower for:
    1. Employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees. Do not add employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation, because such payments are already included in their compensation.
    2. Employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees, but excluding any employer retirement contributions made on behalf of a self-employed individual or general partners (such payments are already included in their compensation, and contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount).
    3. Employer state and local taxes paid by the Borrower and assessed on employee compensation (e.g., state unemployment insurance tax), excluding any taxes withheld from employee earnings.

For owners (owner-employees, self-employed individual, or general partners) Payroll Costs are capped.  For a 24-week Covered Period, Payroll Costs are capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For an 8-week Covered Period, this amount is capped at 8/52 of 2019 compensation (up to $15,385).

SBA Form 3508EZ includes a very simple “Forgiveness Amount Calculation” requiring the entry of only five amounts and one simple calculation to arrive at the amount of requested PPP Loan forgiveness:

    1. Payroll Costs;
    2. Business Mortgage Interest Payments;
    3. Business Rent or Lease Payments (for real property or personal business property);
    4. Business Utility Payments;
    5. Total of Items 1, 2, 3, and 4;
    6. PPP Loan Amount; and
    7. Payroll Costs (Line 1) divided by 0.60

The amount of the PPP Loan that can be forgiven is the smallest of the figures entered for Items 5, 6 and 7.

SBA Form 3508 is longer because it requires calculations for and reduction in the loan forgiveness amount due to a decrease in the FTEE during the Covered Period or the Alternative Payroll Covered Period and any salary or hourly wage reduction in excess of 25% during the Covered Period or the Alternative Covered Period.  The Instructions to SBA Form 3508 include work sheets to determine whether an adjustment is required.  The PPP Schedule A Worksheet walks the Borrower through the necessary calculations to determine whether the entire amount of the PPP Loan is eligible for forgiveness, and if not, calculates the amount of necessary reductions.

Both forms include certifications that are to be made by an authorized representative of the Borrower, confirming the conditions for PPP Loan forgiveness required by the CARES Act.

The instructions for each Form list the supporting documentation that must be submitted with the completed application, including:

  1. Documentation verifying the Payroll Costs paid during the Covered Period or Alternate Payroll Covered Period, including bank account statements, payroll reports documenting the amount of cash compensation paid to employees which may be a report from a payroll service provider, payroll tax filings and state quarterly wage reporting and unemployment insurance tax filings, documentation showing employer contributions to employee health insurance and retirement plans.
  2. Documentation verifying the non-payroll obligations and the amounts paid during the Covered Period, including the following:
    1. For business mortgage interest payments, the lender amortization schedule or account statements for February 2020 and the months of the Covered Period and evidence of payments made;
    2. For business rent and lease payments, copies of the lease agreements or lessor account statements for February 2020 and the months of the Covered Period and evidence of payments made; and
    3. For utility payments copies of the utility invoices for February 2020 and the months of the Covered Period and evidence of payments made.
  1. If filing SBA Form 3508, documentation showing the average number of FTEE during the selected measuring period, including payroll tax filings and state quarterly wage reporting and unemployment insurance tax filings.

Each Borrower is also required to maintain supporting documentation and/or information for a period of 6-years after the date the loan is either forgiven or paid in full.

If filing SBA Form 3508 the Borrower is required to maintain the following:

      1. PPP Schedule A Worksheet or its equivalent.
      2. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
      3. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
      4. Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
      5. Documentation supporting the certification, if made, that the Borrower was unable to operated between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements related to the maintenance of standards of sanitation, social distancing, or other work or customer safety requirement related to COVID-19.
      6. Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”
      7. All records relating to the Borrower’s PPP loan, including:
          1. documentation submitted with its PPP loan application,
          2. documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan,
          3. documentation necessary to support the Borrower’s loan forgiveness application, and
          4. documentation demonstrating the Borrower’s material compliance with PPP requirements.

If filing SBA Form 3508EZ the Borrower is required to maintain the following:

      1. Documentation supporting each of the certifications given by Borrower qualifying the Borrower to file SBA Form 3508EZ;
      2. Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
      3. All records relating to the Borrower’s PPP loan, including:
          1. documentation submitted with its PPP loan application,
          2. documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan,
          3. documentation necessary to support the Borrower’s loan forgiveness application, and
          4. documentation demonstrating the Borrower’s material compliance with PPP requirements.

Finally, the Borrower is also required to permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.


[1] The SBA had originally set the requirement at 75%, which was reduced by the Paycheck Protection Program Flexibility Act to 60%.

Lease Issues in the COVID-19 Environment [Part 2]

The COVID-19 crisis has significantly impacted the ability of parties to satisfy their respective obligations under their commercial leases.  As mentioned in Part 1 of this series, many parties are discovering that the language of force majeure clauses often lacks the specificity to adequately address this unique situation.  Part 2 of this series explores the approaches being taken by parties to resolve the practical issues in leases caused by COVID-19.

While remedies provisions tend to favor the rights of landlords, many landlords are realizing that being “legally right” may not be the optimal solution.  For the most part, tenants and landlords have been taking a collaborative approach with lease workouts in this unprecedented time. 

Many landlords may be disinclined to use their remedies, and courts may be unavailable to grant relief, due to current suspension of non-essential proceedings and shortage of personnel to file claims. In other words, it may take a long time to obtain judgments, and recovery under such judgments may be impractical in the current environment.  Accordingly, many landlords have been taking a pragmatic approach, rather than digging through lease provisions and making arguments regarding the parties’ respective responsibility.  In general, landlords are recognizing that responsiveness, flexibility, and collaboration will be appreciated once the crisis has passed and will better serve the landlords’ interests in the long run.

Many landlords have indicated their willingness to grant said relief largely depends on how tenants conduct themselves.  It is best for tenants to have a well-planned, realistic strategy when requesting rent relief.  In general, the strength of the need for rent relief needs to mirror the magnitude of the “ask.”   An informed, well-supported approach is more likely to render a favorable result than simply a blind request.

Any procedures required by landlords for rent reduction request must be satisfied, which may include tenants disclosing (i) how COVID-19 has impacted their business, (ii) what steps have been taken to adjust operations and manage their income stream, (iii) financial records for the past several years, and (iv) whether small business loan assistance has been requested or provided.  Notwithstanding the foregoing, many landlords have complained that many tenants are asking for rent reductions without even providing the most basic or salient information requested by landlords to make this determination.

Many landlords have been more willing to work with local tenants, whereas many national tenants have taken a less cooperative and more unilateral approach.  Many national tenants have sent notices affirmatively stating that they intend not to pay rent and insisting on rent reduction.  It is generally not recommended to send a notice of anticipatory default, particularly with no supporting information, as to how COVID-19 has adversely impacted the tenant’s operations.

It would also be helpful for tenants to understand the landlord’s structure, incentives, and position, so that the parties can creatively collaborate to arrive at the best solution.  For example, many landlords cannot grant lease modifications without obtaining the lender’s approval and/or investors’ approval for any lease modifications. Therefore, it is important that any modification remain subject to the approval of the landlord’s lender.  It is worth noting that if a landlord is dealing with a CMBS lender, the process will be more protracted and difficult than if dealing with a conventional lender, and, in most cases, the process will not even begin until the borrower/landlord signs a pre-negotiation letter with its lender.  

Tenant should also review their insurance policy to explore what coverage may apply. Many tenants have encountered the issue that business interruption insurance tends to only apply to losses due to physical damage (or there may be an express exclusion to pandemics under the tenant’s insurance policy).  It is important that tenants discuss insurance coverage with their insurance advisors as soon as possible, to determine whether coverage may exist, so that timely claims can be filed.

One common solution that parties have been implementing is to defer payments for 90 to 120 days, with the understanding that deferred rent payments will be paid within 12 months thereafter. To demonstrate good faith, tenants should be willing to continue to pay operating expenses during the deferred payment period.  In general, tenants should expect trade-offs and concessions for any deferral of payments under the lease.  Landlords may require lease extensions by tenants and/or waivers of tenant-friendly provisions, such as rights of first refusal and rights to expand, in connection with the forbearance of rent payments.

As a rule of thumb, the language of the lease should shape the discussion and facilitate a reasonable outcome between the parties.   Prior to entering lease workout discussions, parties should first consult with their attorneys, to determine their rights, obligations, and alternatives. 

Lease Issues in the COVID-19 Environment [Part 1]

In the current COVID-19 crisis, attorneys are receiving numerous questions from landlords and tenants, as to their respective contractual obligations under their commercial leases.  Tenants are carefully analyzing the provisions of the lease to determine if any provisions therein could excuse or delay performance, particularly as it relates to the obligation to pay rent.  This article is Part 1 of a 2-article series and summarizes the impact of COVID-19 on commercial leases and parties’ respective responsibilities thereunder.  Part 2 of this series will explore the approaches parties are utilizing to negotiate lease workouts in this unique environment.

Many tenants wonder if government intervention will excuse or delay their obligations to pay rent, considering decreased cash flow. Leases are generally a contractual obligation to pay rent, and there is a reluctance of government entities to interfere with private contracts.  Subject to any cure periods, in most cases, the landlord can lawfully terminate the lease for the tenant’s failure to perform.  Even a bankruptcy filing may not be able to revive a lease if the landlord has already terminated the lease. However, if a bankruptcy petition is filed before the lease is terminated, the automatic stay could prevent the landlord from terminating the lease.

In general, the express language of the lease should drive the lease workout discussions.  Accordingly, the parties should first study the language of the lease to better understand their respective obligations under the lease.  “Force Majeure” is a term with which many real estate professionals have rapidly become familiar in the last several months.  Many tenants have been hopeful that such provisions will excuse or delay their obligations to pay under the lease, due to certain extreme and unforeseen circumstances.  However, under Virginia law, the applicability of force majeure clauses depends on the specific facts and circumstances, as more particularly described within the express language of the lease. 

Many tenants do not realize that force majeure provisions are narrowly construed in scope and invoking the protection of such provisions is a higher bar than one might expect. Courts are generally reluctant to infer too much meaning into force majeure provisions.  If such events are not to specifically contemplated, courts will often not assume certain events should be implicitly included therein. Virginia courts will examine whether (i) language in the lease specifically addresses the event in question and (ii) such event prevents fulfillment of the specific contractual obligation. 

If the words pandemic or epidemic are not specifically referenced in a force majeure clause, courts are unlikely to infer that COVID-19 is a force majeure event that will excuse or delay performance, particularly as it relates to the payment of rent.   Notwithstanding the foregoing, some tenants have been asserting that “governmental restrictions” or “emergency government action”, when referenced in such clause, can excuse or delay performance. However, it is important to note that many commercial leases specifically provide that payment is not excused by a force majeure event. It is anticipated that, in the future, force majeure provisions will no longer be viewed as trivial boilerplate to be marginalized in the negotiation phase.  Going forward, most clauses will probably include pandemic, epidemic, and/or contagion among the list of force majeure events, and more tenants will seek to negotiate that payment should be among the list of excused performance obligations in such an event.  

Force majeure clauses are not the only provisions being argued to excuse or delay performance under leases.  Tenants have also asserted that frustration of purpose or impossibility of performance may excuse or delay obligations under the lease.  This argument asserts that the fundamental purpose of the lease cannot be achieved due to unforeseen events beyond the parties’ control.  However, courts will still examine whether some of the purposes of the underlying lease can still be fulfilled.  If so, it is less likely that the tenants can avoid payment obligations under the lease or terminate the lease.  One such example would be restaurants, which have been heavily impacted by governmental restrictions related to in-house dining.  However, the ability to provide take-out orders still allows restaurants to fulfill other purposes of their lease, precluding them from necessarily terminating their lease or an abatement of rent.

Retail leases often contain some unique provisions to possibly excuse or delay performance.  Some tenants have raised certain co-tenancy clauses, whereby, if a tenant terminates their lease or vacates the premises, other tenants may have the right to reduce rent and/or terminate their lease.  The co-tenancy clause presents an objective basis under which tenants can reduce rent or terminate their lease, based on a clear, triggering event.

Failure of the landlord to perform its duties are another basis being asserted by tenants, as grounds for rent abatement or lease termination.  Some tenants have asserted that interruption of service or denial of access, as a landlord obligation, should excuse or delay performance.  However, such failures generally must be due to the fault of the landlord, which is generally not the case in the COVID-19 environment.

Some tenants have been asserting provisions related to casualty or condemnation to excuse or delay performance. One challenge in arguing casualty is that it typically pertains to physical destruction rather than contagion.  However, condemnation has been a more viable basis, due to forced closures as a temporary taking, if the lease language so provides.

In general, it is recommended that tenants continue to affirmatively satisfy their obligations under the lease, rather than rely on one of these provisions to excuse their obligation to perform.  If needed, eligible tenants should apply for small business loan assistance, under which rental payments for a specified period may be an eligible expense.  Part 2 of this series will review the practical approaches being taken by the parties to address and work through the issues in the leases presented by COVID-19.

EPA Finalizes Amendments to Clean Water Act 401 Certification Process

On June 1, 2020, EPA finalized amendments to the Clean Water Act section 401 certification process.  The amendments update the substantive and procedural requirements for state water quality certifications.  The rule is almost certainly going to be challenged in court by states and special interest groups.  If it survives, however, the new rule could provide companies with greater planning certainty by reducing project permitting delays, although the danger is that states may deny more certification applications.

Section 401 authorizes States and Tribes to certify that a discharge into waters of the United States that may result from a proposed activity will comply with certain enumerated sections of the CWA, including the effluent limitations and standards of performance for new and existing discharge sources (sections 301, 302, and 306 of the CWA), water quality standards and implementation plans (section 303), and toxic pretreatment effluent standards (section 307).  States have significant authority under section 401.  A state can deny certification, or a state can impose extensive conditions on its certification to ensure compliance with state water quality standards.  In addition, states can impose conditions on the project as whole, and not just its discharges.

The rule was partially in response to state actions in recent years that have blocked or extensively delayed interstate energy infrastructure projects.

Among other things, the amendments to the final rule will require certifying agencies take action on a certification request “within a reasonable time…which shall not exceed 1 year of receipt” of the request.  Additionally, the final rule narrows the scope of the state certification to “considerations of water quality” from point source discharges. 

The pre-publication version is available here.  The amendments will take effect 60 days after publication of the final rule in the Federal Register.

Businesses with questions regarding the changes to the 401 Certification Process can contact jromero@vanblacklaw.com

EPA Formally Adds PFAS to the TRI Pursuant to Congressional Mandate

On May 18, 2020, EPA published its final rule adding 172 per-and polyfluoroalkyl substances (“PFAS”) to the list of chemicals requiring reporting on the Toxics Release Inventory (TRI), which heightens the importance of understanding whether your business processes, manufactures, or uses PFAS.   As explained at EPA’s website, PFAS are a group of man-made chemicals that includes PFOA, PFOS, GenX, and many other chemicals. PFOA and PFOS have been the most extensively produced and studied of these chemicals.  Both chemicals are very persistent in the environment and in the human body – meaning they don’t break down and they can accumulate over time.  There is evidence that exposure to PFAS can lead to adverse human health effects.

The Fiscal Year 2020 National Defense Authorization Act required EPA to add these PFAS chemicals to the TRI effective as of January 1, 2020.  Reporting to EPA will be due by July 1, 2021 for calendar year 2020.  The NDAA’s requirement accelerated an action EPA had already begun when EPA published its Advanced Notice of Proposed Rulemaking (ANPRM) on December 4, 2019 seeking comment on proposed PFAS TRI reporting.

Reporting will, however, have challenges.  Among the challenges is that testing methodologies for many PFAS are not entirely consistent or fully developed. Indeed, EPA will not even be validating many testing methodologies for media other than drinking water until sometime in 2021 at the earliest.  This is particularly true for air emissions where accepted source and ambient air measurement methods simply do not exist, and what methods are available only target a small number of PFAS compounds.  Additionally, some businesses may not realize PFAS are present in a chemical mixture when, for example, very low levels may not be listed on safety data sheets (even if they should be), but nonetheless exceed de minimis concentrations, or where certain PFAS information is withheld as a trade secret. 

The lack of technical information regarding product concentrations adversely impacts developing accurate release estimates.  Entities that engage in waste management may not appreciate the level of PFAS in the material they process, especially where the originating source may have little understanding as to the level and type of PFAS present in the generated waste.  All of this increases the chances of both significant under- and overreporting. 

These challenges will increase with the inevitable expansion of reportable PFAS through procedures established in the NDAA.  For example, new PFAS will automatically be included within one year after EPA establishes toxicity values for a PFAS chemical, or when EPA either amends or issues a new “significant new use” rule (SNUR).  For example, EPA has issued a proposed ruled supplementing a SNUR involving certain long-chain PFAS used in surface coatings.

When considering these challenges, entities should consider that their reporting obligations require knowledge that the chemicals are present and are being used in excess of reporting thresholds (40 C.F.R. 372.30).  While owners and operators have a duty to make reasonable efforts to determine the nature of the substance in question, that duty is not unlimited.  The inclusion of PFAS in the TRI, and the potential for negative public reaction and regulator attention, may drive increased efforts to find chemical substitutes that are fluorine free, although substitutes may not be readily available. 

The attorneys at Vandeventer Black are available to assist regulated entities with questions regarding this subject, or other questions regarding environmental compliance.

Supreme Court Extends Title VII Protections to LGBTQ Workers

On June 15, 2020, the United States Supreme Court officially declared that LGBTQ persons are protected from discharge or discipline because of sex under the anti-discrimination provisions of Title VII of the Civil Rights Act of 1964.  The Court’s landmark decision came as somewhat of a surprise considering that the Court’s current conservative majority was expected to move in the opposite direction.

The Court unequivocally stated that firing a person for being homosexual or transgender is “exactly what Title VII forbids,” because in making such a decision “sex plays a necessary and undisguisable role.” For the past 50 years, the phrase “because of sex” in Title VII had been limited to issues of men and women being treated differently based on gender or a failure to conform to stereotypical gender norms.  The June 15 opinion marked the demise of this limited interpretation and the dawn of an expanded reading of this key phrase.

The Court plainly articulated that “[a]n employer violates Title VII when it intentionally fires an individual employee based in part on sex.” Employers cannot avoid this liability merely by showing that other reasons existed for an LGBTQ employee’s termination or that, on the whole, female employees were treated the same as male employees.  The employer’s intent is highly relevant because any time an employer relies on sex in arriving at its decision to discharge an employee it has violated federal law.  Of course, this is true even in discrimination cases that do not involve LGBTQ employees.

The Court tied its reasoning to several well-established Title VII cases including Price Waterhouse v. Hopkins and Oncale v. Sundowner Offshore Services, Inc.  The Price Waterhouse case, decided in 1989, held that an employer violates Title VII when it engages in sex stereotyping, i.e., discriminating against an employee for not conforming to traditional gender norms.  The Court drew a clear parallel to the Price Waterhouse sex stereotyping prohibitions and the employers’ terminations of the LGBTQ employees.  The Court also invoked the 1998 holding from Oncale, where it first acknowledged that men were equally as susceptible as women to harassment and discriminatory treatment by male employees. In either circumstance the inquiry remains the same: would the employee have been treated differently for the same conduct if he or she were a different sex? If the answer is yes, then the employer has discriminated against the employee “because of sex” in violation of Title VII.

Notably, the Court left open for further discussion the issues of whether and to what extent this decision impacts religious employers such as religious educational institutions and non-profit organizations.

The decision came as a result of appeals in three cases from around the country, two of which centered on discrimination against gay persons and one that involved the unlawful termination of a transgender employee.  One of those cases, Altitude Express, Inc. v. Zarda, involved Donald Zarda, a skydiving instructor who was terminated after a female customer complained that he told her he was “100 percent gay.”  Zarda had been strapped to the customer’s back during a tandem dive.  In another of those cases, Bostock v. Clayton County, Georgia, Gerald Bostock was fired from his position as a child welfare advocate after news surfaced that he was a member of a gay recreational softball league. The employer claimed his discharge was for conduct unbecoming of a county employee.  The third case, R.G. & G.R. Harris Funeral Homes, Inc. v. EEOC, arose after Aimee Stephens, who presented as a male for the first two years of her employment, began identifying as a female and informed her employer that she intended to “live and work full-time as a woman.”  Shortly before a planned vacation, Stephens was fired in a manner that clearly implicated her decision to live as a woman.

Prior to arriving before the Supreme Court, the Zarda and Bostock cases, were decided in favor of the employees.  Although Zarda was decided by the Second Circuit and Bostock was decided by the Sixth Circuit, both courts agreed that the employers had violated Title VII and discriminated against the employees “because of sex.”  By contrast, the Eleventh Circuit held in R.G. & G.R. Harris Funeral Homes that the employer’s decision to terminate Stephens did not implicate or violate Title VII.   Along with these opposing outcomes, several other federal courts throughout the country had come to conflicting conclusions on the issue of whether Title VII’s protections extended to LGBTQ employees.  For example, the Fourth Circuit, whose jurisdiction includes appeals of federal cases from Virginia, had maintained that LGBTQ employees were not protected from discrimination by Title VII. The Supreme Court’s June 15 opinion finally sets a single nationwide standard for all future matters involving discrimination against LGBTQ employees under Title VII.  To be clear, this new Court decision means that LGBTQ employees are protected from any form of employee discipline, including termination, if the discipline is motivated in part by the employee’s LGBTQ status.

Practically, the Court’s holding will not drastically change things for Virginia employers as the recently enacted Virginia Values Act was going to usher in similar employment protections for LGBTQ employees as of July 1, 2020.  However, the Supreme Court’s opinion has immediate effect as to federal law. This means that as of today LGBTQ employees may confidently file federal employment discrimination suits under Title VII with clear precedent in their favor, provided that they have exhausted all administrative remedies. 

Employers should take note of the court’s decision and plan accordingly.  To the extent they have not already made updates, employers should immediately make the necessary revisions to their internal policies and their employee handbooks to reflect the changed state of the law.  It may also be needful to conduct new anti-harassment or anti-discrimination training and review hiring and performance protocols to ensure all criteria are relevant and objective.

For more information on this or other employment issues, please contact the author or any other member of the Vandeventer Black Labor & Employment team.

“Zone of Reasonableness” Test Prerequisite Addressed by the Federal Circuit

The so-called “zone of reasonableness” standard has been long applied by federal courts and boards of contract appeals in evaluating contract interpretation when the contract is deemed ambiguous – meaning that it is susceptible to more than one reasonable interpretation. Ambiguity does not exist merely because the parties differ in their respective interpretations of the contract; rather, the parties’ interpretation must be reasonable, with that “zone” being referred to as the zone of reasonableness.

Recently, in U.S. Army Corps of Engineers v. John C. Grimberg Co., Inc., Case No. 2019-1608, decided June 9, 2020, the Federal Circuit overturned the Armed Services Board of Contract Appeals decision that a contractor was entitled to an equitable adjustment for what the Board had held was a Type I Differing Site Condition. The Board had found that the contractor had met the standard for a Type I DSC because the contractor had encountered quantities (of incompetent rock unfit for the deep foundation system) that “greatly exceeded the quantity reasonably foreseeable based on a fair reading of the contractual indications.” In so finding, the Board had explained in its decision that the contractor’s reliance on certain borings was “more reasonable” than the government’s position regarding the borings the government argued the contractor should have relied upon.

The Board decision further expanded upon that by expressing the Board’s opinion that neither the contractor’s nor the government’s estimates was a reasonable estimate and so applied what is referred to as a “jury verdict” analysis in developing what the Board determined, from an equitable viewpoint, was reasonably indicated by the contract documents. Further explaining its decision, the Board stated that “[a]n ‘all or nothing’ resolution of this case would have been overly legalistic and unjust.”

The Corps appealed the Board’s decision, arguing that, contrary to that latter statement, the Board was required to address the issue on an “all or nothing basis, and that, accordingly, the Board erred in permitting equitable adjustment in any amount because, foundationally, the Board had repeatedly stated in its determination that the contractor’s interpretation of the contract was unreasonable and, moreover, the contractor failed to even address the governing legal standard in its briefing. The Federal Circuit agreed with the Corps, holding that the contractor’s “failure to contend with the required legal test is fatal to its claim.”

Expanding upon that, the Federal Circuit reiterated its precedent that, to receive equitable adjustments, a contractor must prove reasonable reliance on its interpretation of the contract. Because the Board had found in Grimberg that the contractor had not proven it reasonably relied on its interpretation of the contract, the Federal Circuit was “left with the inescapable conclusion that [the contractor, Grimberg] has failed to prove its entitlement to an adjustment” and, accordingly, the Board erred as a matter of law.

Addressing specifically, the argument that the government’s interpretation was “less reasonable than the contractors,” the Federal Circuit noted that despite the moniker of “equitable adjustment” the case law simply did not permit the Board or Federal Circuit to balance the government’s reasonableness against that of the contractor and that the sole focus was required to be whether the contractor’s interpretation was reasonable; noting that focus “serves the purpose of incentivizing contractors to carefully and reasonably interpret contract documents.” As such, the Federal Circuit held that the contractor, Grimberg, alone must bear the risk of bidding on a contract without reasonably interpreting what that contract disclosed.

For more information about this subject or regarding construction and government contracts matters otherwise, please contact the author or any other member of Vandeventer Black Construction and Government Contracts Practice Group.

Amendments to CARES Act – Paycheck Protection Program Flexibility Act

This Article is based on information available as of June 11, 2020.  The information is subject to change as additional guidance is provided.


NOTE—The Paycheck Protection Program Flexibility Act of 2020 amends the CARES Act, and this Article updates the information in the following Articles previously published:


The Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) become law on Friday, June 5, 2020, after having been unanimously passed by the House of Representatives on May 28, 2020, unanimously approved by the Senate on June 3, 2020, and signed by the President on June 5, 2020.  This Act modifies critical provisions of the CARES Act and the Interim Final Rules implementing the CARES Act, adopted by the Small Business Administration (“SBA”) regarding loan forgiveness.   On June 11, 2020, the SBA issued an Interim Final Rule (the “Revised Final Rule”) revising the First Interim Final Rule that it posted on April 2, 2020, to conform with the PPPFA.  The Revised Final Rule can be located here.

  1. New minimum repayment term. The PPPFA establishes a minimum loan term for PPP Loans of 5 years for any PPP Loan made on or after June 5, 2020.  Thus, this specific amendment does not apply to existing PPP Loans.  But there is allowance for existing PPP Loans by providing that the PPPFA shall not be construed to prohibit lenders and borrowers from modifying the terms of existing PPP Loans to conform with the new minimum loan term requirements.
  2. Covered Period extended to 24 weeks. As enacted, the CARES Act required that loan proceeds be expended on Payroll Costs and other approved non-payroll expenses during an 8-week “Covered Period.”  The PPPFA changes the definition of the Covered Period to begin on the date of the origination of the PPP Loan and ending on the earlier of 24 weeks after origination or December 31, 2020.  This lengthening of the Covered Period provides borrowers with greater flexibility to conserve the PPP Loan proceeds until reopening its business and not having to pay idle employees.  In addition, with a longer Covered Period, borrowers will be able to expend all of the PPP Loan proceeds on approved expenditures and therefore have greater likelihood of getting the entire PPP Loan forgiven.  For PPP Loans that were made before the PPPFA was enacted borrowers have the option of electing to use the original 8-week Covered Period.
  3. Minimum expenditure on Payroll Costs set at 60%. The SBA had established that a minimum of 75% of PPP Loan Proceeds had to be expended on Payroll Costs and, if the borrower did not meet this requirement, loan forgiveness would be reduced.  The PPPFA changed the requirement, now mandating that at least 60% of PPP Loan proceeds be used for Payroll Costs and up to 40% may be used for allowed non-payroll expenses (mortgage interest payments, rent and utility payments).  In the Revised Final Rule the SBA confims its interpretation of this requirement in the PPPFA that the requirement is a proportional limit on payroll costs as a share of the borrower’s loan forgiveness amount and is not a threshold for receiving loan forgiveness.  Thus, the prior guidance on the reduction in loan forgiveness had the 75% threshold not been met, should remain applicable, with the substitution of 60% for 75%.
  4. Deadline to rehire employees pushed to December 31, 2020. In addition to extending the Covered Period, the PPPFA gives borrowers until December 31, 2020, to rehire employees extending the rehire deadline from June 30, 2020.  Borrowers now have until the end of the year to rehire furloughed employees and not adversely affect PPP Loan forgiveness.  The PPPFA did not change the “Payroll Costs” calculation, thus salaries are still capped at $100,000 annualized.
  5. Additional FTEE exceptions. Under the CARES Act and the SBA Rules, borrowers were required to rehire the same number of employees on their payroll by June 30, 2020 and failure to do so would result in a proportional reduction in loan forgiveness.  The PPPFA extends the period to rehire employees to December 31, 2020 and adds two new exceptions, bringing the total to three exceptions that do not adversely affect loan forgiveness resulting from a reduced number of employees:
      1. Inability to rehire employees who were on the payroll on February 15, 2020 (e.g., the furloughed employee who refuses to return to work);
      2. Inability to hire similarly qualified employees on or before December 31, 2020; and
      3. Inability to return to a pre-February 15, 2020 level of business by December 31, 2020 because of requirements for sanitation, social distancing, or any other customer safety requirement related to COVID-19.

For each category of inability to hire employees the Borrower must document the reasons and the good faith effort by the Borrower.  The SBA previously issued guidance on what was required to document the refusal of a former employee to return to work.  At this point there is no guidance on what a business must do to demonstrate the inability to rehire similarly qualified employees or demonstrate the inability to return to previous levels of business activity.

  1. Payment deferral period extended. The deferral of the obligation to make principal and interest payments on a PPP Loan was extended from the original 6 months until the date on which the SBA purchases the forgiven PPP Loan from the lender.  For borrowers who do not apply for loan forgiveness the deferral period is extended until the end of the 10th month following the end of the Covered Period.
  2. Deferral of payment of payroll taxes. The PPPFA deleted the prohibition on deferring the payment of payroll taxes imposed on borrowers that obtained a PPP loan.

The PPPFA eases many of the limitations on businesses that receive PPP Loans making it easier for a borrower to receive forgiveness for the full amount of its PPP Loan.  With these changes to the CARES Act we should expect the SBA to issue additional rules implementing the amendments and a new PPP Loan Forgiveness Application.

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