Affects:
- Future civil enforcement matters handled by ENRD
- Civil enforcement matters currently pending in ENRD
Does not affect:
- Congressionally sanctioned SEPs
- Existing SEPs
- Criminal environmental prosecutions
- SEPs to resolve violations of state environmental law
ENRD plays a major role in enforcing the nation’s environmental laws, many of which have criminal, civil, and administrative penalties and sanctions. While the policy technically applies only to cases handled by ENRD, its impact is likely to be broader. Going forward, this change in policy is likely to have a meaningful impact on the resolution of non-criminal violations of federal environmental laws. Businesses should not assume that old settlement models will continue to serve as useful benchmarks for the likely outcome of future cases.
What are SEPs and what role did they play in environmental enforcement?
EPA is responsible for enforcing federal environmental laws. EPA can bring civil administrative enforcement cases against companies and individuals on its own, but if it wants to seek civil judicial penalties or criminal sanctions against a company, it refers the matter to DOJ. In certain cases, EPA lacks discretion to keep cases and must refer them to DOJ — for example, EPA must refer cases involving penalty amounts in excess of $356,312 for Clean Air Act mobile sources cases under 42 U.S.C. § 7524(c)(1) or secure a waiver from DOJ for the particular matter.
In most cases, both civil and criminal environmental cases are handled by DOJ’s Environment Division, also known as ENRD. In some cases, the U.S. Attorney’s Office in the location where the violation occurred will handle the case alongside ENRD, or on its own. Many states have state environmental laws that overlap with the federal laws. If a company is alleged to have violated state laws, then the state’s Attorney General’s Office or environmental agency may also join the federal case or file their own separate case.
In such cases, businesses often decide to settle a case with the government rather than go to trial. The defendant will then negotiate the terms of that settlement, which will usually include paying a penalty, and performing injunctive relief to “fix” the violation. In the past, defendants who wanted to settle in a civil case could propose including a SEP alongside the penalties and other injunctive measures. In the new policy, ENRD has indicated that it will no longer include SEPs in settlements going forward.
SEPs are projects that defendants agree to undertake to improve the environment but are not required for ongoing compliance with existing regulatory requirements. Under EPA’s SEP policy, SEPs must have a relationship (or nexus) to the alleged violation, by, for example, lessening the same negative impact to public health and/or the environment that the alleged violation was causing.1
DOJ and EPA have historically included SEPs in negotiated settlements in exchange for a reduced penalty. Under EPA’s SEP policy, the value of the SEP can reduce the penalty amount by up to 80%.2 As the memo introducing the new policy recognizes, SEPs have been popular with “the regulated community (both state and local governments and businesses alike) and many within the Executive Branch.”3 As the policy explains,
In contrast to the cold reality of paying a monetary fine to the Treasury, SEPs allow defendants in enforcement actions to generate goodwill by funding projects benefitting some portion of the communities negatively affected by their legal violations. This goodwill makes it easier to “sell” the settlement to a corporate board of directors, which, in turn, makes settlement easier for all parties involved, including for the United States. SEPs, of course, also benefit the constituencies fortunate enough to be blessed as beneficiaries of the SEP monies and their related projects. These constituencies thus have their own form of vested interest in not seeing SEPs as a device prohibited.4
But SEPs have also been a source of controversy dating back to long before the Trump Administration. As the new policy notes, DOJ and legislators have previously expressed concern that SEPs undermine Congress’s and states’ appropriation processes and, thus, violate the separation of powers. EPA and DOJ have both worked over the years to place limits and sideboards around the use of SEPs and other actions that defendants could historically take in the settlement context that fall outside of the penalties and injunctive relief that a court could order. For example, in 2009 then-ENRD Assistant Attorney General Ron Tenpas put in place a policy that curtailed the use of certain practices in environmental criminal cases,5 in 2015 EPA updated its own SEP policy with a number of additional requirements,6 and in 2017 Attorney General Sessions issued a DOJ-wide prohibition on settlement payments to third parties.7
Under the new policy, SEPs “will no longer be part of the suite of relief [ENRD] seeks in its cases (unless specifically authorized by Congress), both in light of their inconsistency with law and their departure from sound enforcement practices.”8
What does this mean for businesses going forward?
Cases Handled by ENRD
Under the new March 12, 2020 policy, ENRD attorneys will no longer accept settlement packages that include SEPs in civil environmental enforcement cases — even for existing cases that are currently in the final stages of negotiation. This means that businesses will no longer have the benefit of the reduction in penalties and community goodwill that SEPs often generated. For environmental enforcement cases, the new policy could lead to settlements involving higher penalties or more expensive forms of injunctive relief (for example, new pollution controls at defendants’ facilities). However, the new policy is not retroactive — SEPs that are already in place are unaffected by the new policy.
ENRD’s new prohibition on SEPs does not apply to SEPs that were authorized by Congress. For example, in certain mobile source cases under the Clean Air Act, DOJ and EPA will still negotiate diesel emissions reduction SEPs to encourage the retrofitting or replacing of diesel engines in school buses and other mobile sources of pollution under 42 U.S.C. § 16138. In addition, the Army and Navy may still fund certain SEPs under the 2001 National Defense Authorization Act, P.L. 106-398, § 315 (2001).
Cases Involving Criminal Prosecution
In its March 12, 2020 Memorandum, ENRD stated that it will “review of the use of SEP-like devices in the criminal sphere.” It remains to be seen whether ENRD will reject the application of SEP-like terms in criminal enforcement settlements, such as plea agreements that contain environmental projects adopted as a form of criminal community restitution.
Cases Handled by the U.S. Attorneys’ Offices
The new policy applies to ENRD attorneys, but not attorneys in U.S. Attorneys Offices. Where an environmental case is solely being handled by a U.S. Assistant Attorney at a U.S. Attorney’s Office (rather than ENRD), an SEP may still technically be possible. However, the memo will likely be influential in how these offices review settlements including SEPs.
EPA Administrative Cases
By its terms, the ENRD policy does not apply to EPA’s administrative settlements. However, it is unlikely that EPA will approve SEPs in such settlements going forward. While EPA has not yet released any new policies, it did announce through a spokeswoman that in “light of DOJ’s new memorandum, EPA will no longer include SEPs in settlement agreements.”
Cases Involving State Environmental Law
SEPs may still be available to settle violations of state environmental law. However, businesses will no longer be able to use the same SEP to mitigate their penalty for violating federal environmental laws, even when the same case is brought together by the state and the DOJ.
Citizen Suit Cases Brought by Private Parties
Under many environmental laws, private individuals or groups can file suit against a defendant for violating the law when EPA or DOJ has not otherwise taken action. The ENRD policy does not apply to settlements in these cases, but Assistant Attorney General Clark has indicated that he is currently looking at “what should be permissible in citizen suits.”
Conclusion
The new policy will eliminate SEPs as a tool for generating goodwill as part of a settlement, and may complicate settlement negotiations by narrowing the range of options and the flexibility of EPA and DOJ attorneys to agree to terms that might be more palatable to defendants. This may be especially true in multi-party negotiations involving both a state and the federal government, particularly when the state would prefer to include a SEP in the settlement. Businesses should not assume that old settlement models that they have relied on in the past or that they are using as benchmarks for the likely outcome in their own case will continue to be a meaningful guide.
1 See Memorandum from Cynthia Giles, Asst. Administrator, to Regional Administrators, Issuance of the 2015 Update to the 1998 U.S. Environmental Protection Agency Supplemental Environmental Projects Policy, at 8-9 (Mar. 10, 2015) (“2015 SEP Policy”), available at https://www.epa.gov/sites/production/files/2015-04/documents/sepupdatedpolicy15.pdf.
2 See Memorandum from Cynthia Giles, Asst. Administrator, to Regional Administrators, Issuance of the 2015 Update to the 1998 U.S. Environmental Protection Agency Supplemental Environmental Projects Policy, at 23-24 (Mar. 10, 2015) (“2015 SEP Policy”), available at https://www.epa.gov/sites/production/files/2015-04/documents/sepupdatedpolicy15.pdf.
3 Memorandum from Jeffrey Bossert Clark, Asst. Att’y Gen., U.S. Dep’t of Justice, to ENRD Deputy Assistant Attorney Generals and Section Chiefs Regarding Supplemental Environmental Projects (“SEPs”) in Civil Settlements with Private Defendants, at 16 (March 12, 2020).
4 Id.
5 Memorandum from Ronald J. Tenpas, Asst. Att’y Gen., U.S. Dep’t of Justice, to Environmental Crimes Section Attorneys, Guidance on Restitution, Community Service and Other Sentencing Measures Imposed in Environmental Crimes Cases (Jan. 16, 2009), available at https://www.justice.gov/file/1046141/download.
6 See U.S. Environmental Protection Agency Supplemental Environmental Projects Policy 2015
Update, at 23-24 (Mar. 10, 2015) (“2015 SEP Policy”), available at https://www.epa.gov/sites/production/files/2015-04/documents/sepupdatedpolicy15.pdf.
7 See Memorandum from the Attorney General, Prohibition on Settlement Payments to Third Parties (April 20, 2017), available at https://www.justice.gov/opa/pr/attorney-general-jeff-sessions-ends-third-party-settlementpractice.
8 Memorandum from Jeffrey Bossert Clark, Asst. Att’y Gen., U.S. Dep’t of Justice, to ENRD Deputy Assistant Attorney Generals and Section Chiefs Regarding Supplemental Environmental Projects (“SEPs”) in Civil Settlements with Private Defendants, at 2 (March 12, 2020).
