Entergy Sues US Over Breached Nuclear Waste Contract

By Dietrich Knauth

Law360, New York (September 27, 2012, 10:22 PM EDT) — An Entergy Co. unit sued the U.S. government Wednesday, seeking damages for what it calls the government’s decadelong, ongoing failure to dispose of spent nuclear fuel at two power plants in Michigan, which it says breaches a waste disposal contract.

Entergy Nuclear Palisades LLC filed its suit in the U.S. Court of Federal Claims, saying it and the plants’ previous owner have paid the Department of Energy $274 million in fees under the 1983 waste disposal contract, as a contribution toward building a long-term waste depository.

Under the terms of the plants’ contract with the government, the U.S. agreed to begin picking up the spent nuclear fuel and high-level radioactive waste no later than January 1998, according to the complaint. But it has not done so, in part because political battles have scuttled every plan to build a long-term disposal site, the complaint says.

While the complaint did not mention specific damages, the court’s docket sheet lists Entergy’s demand as $100 million.

Entergy bought the Palisades Nuclear Plant and the Big Rock Point plant from Consumers Energy Co. in 2007. Entergy continues to pay roughly $6 million a year in fees relating to the plant, the complaint said.

But the government still has no plan to begin disposal of the waste, despite several breach of contract judgments and court orders against it in similar lawsuits, according to the complaint.

“Consumers and [Entergy] have fully complied with all their fee payment obligations under the contract,” the complaint said. “The government, however, has failed to perform its reciprocal obligation to dispose of the spent nuclear fuel, and currently has no plan to meet these obligations.”

Entergy says the government’s foot-dragging has caused it to rack up other costs, including regulatory costs, taxes and fees associated with efforts to ensure sufficient on-site storage or find off-site alternatives, and has delayed Entergy’s plans to decommission the shuttered Big Rock Point.

“As a direct consequence of the government’s disregard of its contractual obligations and defiance of the D.C. Circuit’s rulings, [Entergy] has been incurring and will be forced to incur substantial additional costs to provide for extended on-site storage of its spent nuclear fuel,” the complaint said.

These expenses include buying, loading and maintaining storage casks and related equipment; monitoring storage facilities; and making necessary changes to the plants, according to the complaint.

The DOE is fighting dozens of lawsuits by utilities that had contracted with the agency over the past 20 years to send their spent fuel to the planned Yucca Mountain nuclear waste repository.

The project has been beset by delays and legal challenges, and in the past two years the DOE and the Nuclear Regulatory Commission have suspended their licensing on Yucca Mountain, leaving operators to deal with spent fuel themselves.

Taxpayers could face $19 billion in liabilities by 2020, as the U.S. Department of Energy reneges on contracts with nuclear operators to dispose of thousands of tons of spent fuel accumulating at their plants, the U.S. Government Accountability Office reported in September.

The GAO found that spent fuel stored on-site at nuclear plants will likely increase by about 2,000 tons annually before the DOE can open a new centralized storage facility, which could take as many as four decades. In addition to the $19.1 billion in liabilities racked up by 2020, the DOE could be on the hook for an additional $500 million annually thereafter.

ENP is represented by Layton Jager Smith Jr. of Jager Smith LLC.

The case is Entergy Nuclear Palisades LLC v. U.S., case number 12-cv-01641, in the U.S. Court of Federal Claims.

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Recent Rulings Back OFCCP’s Deep-Digging Audits

By Dietrich Knauth

Law360, New York (September 6, 2012, 8:48 PM EDT) — Recent court cases have rubber-stamped more aggressive data requests made by the Office of Federal Contractor Compliance Programs during audits of contractors’ affirmative-action programs, making it more difficult for companies to fight requests that they feel are unduly burdensome or irrelevant, experts say.

Contractors were handed losses in United Space Alliance LLC v. Solis — decided in Washington federal court in November — and in an OFCCP Administrative Review Board decision involving Frito-Lay Inc. in May. In both cases, contractors had resisted OFCCP data requests during audits of their compliance with affirmative action and nondiscrimination rules, and both the D.C. federal court and the ARB came down firmly on the side of the OFCCP.

Jeffrey Norris of the Equal Employment Advisory Council, speaking at the 2012 National Industrial Liason Group meeting between OFCCP regulators and contractors, said the decisions gave the OFCCP open-ended authority to ask “virtually anything” in compliance audits.

“It’s going to be very difficult to argue that OFCCP is not entitled to data that it asks for,” Norris said. “Instead, you’ll be forced to argue that the information isn’t relevant.”

Both United Space and Frito-Lay involved audits over potential pay disparities between male and female employees, which has been a particular focus for the OFCCP under President Barack Obama. The OFCCP has recently proposed rules that would give it more authority to ask for compensation data from contractors and has delved more deeply into pay disparity during its compliance audits.

United Space, which is owned by Lockheed Martin Corp. and The Boeing Co., sued to fight a sex discrimination audit by the OFCCP, which ordered the company to provide detailed pay records within 30 days or face termination of its current government contracts and face ineligibility for future procurements. According to the DOL, United Space holds contracts with NASA that are worth at least $8 billion.

While United Space claimed that initial data provided to the OFCCP had met the department’s initial tests for pay fairness and that a demand for further documents and an inspection was unfair and intrusive, U.S. District Judge Royce Lamberth concluded that the OFCCP had full authority to perform other analyses to determine whether pay discrimination existed and to base document requests on those other tests.

In his order, Judge Lambert said he preferred United Space’s interpretation of OFCCP’s regulatory authority, but he ruled that courts must give considerable deference to agency interpretations of their own regulations as long as they are not plainly erroneous.

“Submission to such lawful investigations is the price of working as a federal contractor,” Lamberth wrote.

OFCCP Director Patricia Shiu has said that the decision will ensure that her office has the tools it needs to protect workers from discrimination, but contractors hoping for a legal check on the OFCCP’s increasingly aggressive audits were disappointed by the result.

“United Space is a disaster for the contractor community,” said David Fortney, co-founder of Fortney & Scott LLC.

The Frito-Lay case, which the contractor has appealed in Texas federal court, also has the potential to limit contractors’ ability to push back against data requests, according to Fortney and John Fox of Fox Wang Morgan PC.

Frito-Lay actually won the first round of litigation in its dispute with the OFCCP, when a U.S. Department of Labor administrative law judge agreed that the agency had unlawfully expanded the scope of a pay disparity investigation by trying to reach back for another two years of pay records long after it began its initial review. But the DOL’s Administrative Review Board, the highest appeals body within the agency, reversed the decision in May, ruling that the OFCCP had regulatory authority to request data from years before and after the period it initially began auditing.

With the Frito-Lay decision, the ARB showed that it had transitioned from a neutral body willing to take a skeptical look at OFCCP practices to one firmly in OFCCP’s favor, Fox said. The decision contributes to contractors’ complaints of being “bullied” in OFCCP audits, he added.

In looking for recent cases that contractors could use to defend against audit requests, Fortney said that contractors could take some heart in the U.S. Supreme Court’s decision this year in Dukes v. Wal-Mart Stores Inc. and Christopher v. SmithKline Beecham.

The Dukes ruling, which shot down a discrimination suit brought on behalf of a nationwide class of 1.5 million female Wal-Mart employees, could help contractors defend themselves when OFCCP tries to establish a pattern and practice of discrimination, Fortney said. The Supreme Court’s focus on the influence and discretion of local managers in pay and promotions decisions could be brought up as a shield against OFCCP attempts to find discrimination patterns by pooling data from several locations and divisions within a contractor company.

And the Christopher decision — in which the Supreme Court ruled that pharmacecutical sales representatives are outside employees and thus exempt from federal overtime pay requirements — was sharply critical of the DOL’s attempt to informally reinterpret ambiguous regulations, both in the majority and dissenting opinions. While the DOL cited its own previous court filings to argue that drug representatives were not exempt, the position was a change from a decades-long policy of allowing drug companies to classify the reps as exempt, creating an “unfair surprise” for an industry that had not been given notice or a chance to comment on the new interpretation.

That rationale could be used against OFCCP during some of its audits, preventing the agency from greatly pushing the boundaries of its audit authority or of relying on posthoc rationalizations of its requests, according to Fortney. Indeed, in its appeal to the Texas federal court, Frito-Lay argues that the OFCCP’s tactics were a “marked departure from how the agency has historically interpreted its regulations and conducted compliance evaluations.”

Despite those defenses, contractors still must deal with an aggressive OFCCP, and the United Space and Frito-Lay cases could have contractors facing an uphill battle against expansive data requests during audits, particularly with increased pressure on the OFCCP to get settlements in pay disparity cases.

“There’s a long haul to get litigation relief if the Obama administration is re-elected,” Fox said.

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OFCCP’s Regulatory Agenda Has Contractors Seething

By Dietrich Knauth

Law360, New York (September 5, 2012, 5:52 PM EDT) — An ambitious but stalled effort to revamp affirmative action rules for contractors has put President Barack Obama’s Office of Federal Contractor Compliance Programs at loggerheads with federal contractors, and the worsening relationship has bogged down audits and added to the financial strain on both private companies and the agency.

Obama’s OFCCP has proposed 10 major rule changes — far more than the four changes the regulator pushed during the Bush administration — that include widely criticized new rules aimed at boosting affirmative action hires of veterans and disabled workers, and a revised audit policy that seeks more detailed data on employee compensation. But contractors say the regulatory overload and the OFCCP’s combative attitude have hindered real progress.

The disconnect between the regulator and government contractors was on display at the 2012 National Industrial Liaison Group conference in Hawaii, where OFCCP officials including Director Patricia Shiu and Policy Director Debra Carr spoke via teleconference to companies about proposed and pending regulations.

The distance was more than simply physical — while Carr and Shiu both emphasized the importance of communication and outreach, contractors at the conference said they felt ignored, bullied or even lied to by the OFCCP.

“I’ve never seen so much acrimony,” said John Fox of Fox Wang & Morgan PC, who added that the OFCCP had put itself on “war footing” with contractors. “I’ve frankly never seen the contractor community so active and mobilized against a common threat.”

At the ILG conference, Fox characterized the OFCCP as a “broken” agency, and one company representative raised the possibility of “civil disobedience” as a corrective against what he saw as agency overreach during audits.

Valerie Hoffman, head of Seyfarth Shaw LLP’s OFCCP and affirmative action compliance group, said a lack of private sector experience within the OFCCP and the agency’s failure to reach out to contractors had led it to greatly underestimate the costs of compliance with its proposed rules. And the sheer number of proposed reforms has helped slow the pace with which new regulations are enacted, and left contractors nervous and uncertain about delayed changes, she said.

“This administration has the most ambitious regulatory agenda of any recent administration,” Hoffman said. “It looks like they’ve bitten off more than they can chew, and the contractor community is rightly concerned about the breadth of the new regulations and the burdens associated with them.”

The OFCCP has also pursued audits more aggressively than it did during the Bush administration, when it would commonly shut down audits if it didn’t find systematic discrimination that affected 10 or more employees, according to David Cohen of DCI Consulting. Cohen dates the change in attitude to 2010, when the OFCCP renamed its approach from Active Case Management to Active Case Enforcement.

“And OFCCP is wondering why we’re all feeling so anxious?” Cohen said. “I call it the ‘No Lawyer Left Behind Act,’” he said of the OFCCP’s package of proposed reforms.

Making matters worse for both OFCCP and the contractors it oversees, data from the OFCCP’s public enforcement database shows that the OFCCP is burying itself in technical violations that require reporting and burden both the agency and contractors, without bringing any settlement money back to OFCCP, Cohen said.

While the number of audits that resulted in financial remedies rose slightly between 2004 to 2011, from 1.12 percent of audits to 2.5 percent, the percentage of audits that ended in conciliation agreements, without payment to OFCCP or individuals, rose much more sharply, from 5.25 percent to 24.9 percent.

Carr acknowledged that federal budget pressures are weighing on the agency, saying she’s “doing more with less,” and estimating the number of employees in the policy office as “in the mid-20s.”

Fox said the OFCCP is “starving to death” for lack of funds and argued that Carr needs three times as many employees to get the regulations right.

“She can’t do a big job like that with 20 people,” Fox said. “No one can.”

Near the close of the ILG conference, Fox suggested that contractors step up and do the OFCCP’s work for it, writing proposed regulations themselves and submitting them to OFCCP for editing. Everyone agrees that the regulations are out of date, he said, citing the OFCCP’s obsolete sex discrimination rules that don’t even allow the agency to prevent contractors from firing women who become pregnant.

“OFCCP is broken. We all know that,” Fox said, saying contractors should not only write rules, but lend managers to the OFCCP to give guidance and assistance. “Don’t whine any more; just do it. It’s a classic partnership — you fill in where they’re weak, and they fill in where you’re strong.”

Hoffman called Fox’s proposal interesting but said most contractors are “overwhelmed” with their own responsibilities and would likely have few resources to devote to assisting the OFCCP’s policymaking. Sandy Zeigler, a retired OFCCP regional director, added that it would be tough to convince contractors to go through the effort and expense of rewriting regulations without any guarantee that the OFCCP would listen.

Zeigler said the OFCCP should listen more to contractors, rather than “regulate without even thinking about it.”

The agency’s plan to have contractors give veterans and disabled applicants written letters of denial when they are not hired, including a reminder that they are protected classes that can sue for discriminatory hiring practices, was one example of a poorly thought-out requirement Zeigler cited. The change would create recordkeeping burdens, while encouraging contractors to keep the denial letters as bland and uninformative as possible to prevent applicants from getting ideas for lawsuits.

“You’re going to send out a lot of pabulum to a lot of people. That’s a waste of your time, that’s a waste of paper,” Zeigler said. “Why regulate to have a bland statement like that?”

The new recordkeeping burdens and a “gotcha” mentality that focuses on technical violations during audits has damaged the relationship between the agency and federal contractors, and the hostile environment can distract from affirmative action programs that actually work, Zeigler said.

“I don’t want to civil rights to be hurt by people who are intending to help it,” Zeigler said.

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