On February 5, 2021, the acting head of the U.S. Department of Justice (“DOJ”) division that brings environmental enforcement cases issued a memo revoking nine policy directives from the prior administration, including directives stating the division’s priorities and key enforcement principles. The memo indicates a shift in enforcement practices and a return to practices the previous administration banned, such as the use of Supplemental Environmental Projects (“SEPs”) and Third-Party Payments in settlements.
Settlements for Violating Federal Environmental Law: The Basics
The Environmental Protection Agency (“EPA”) is responsible for investigating and enforcing federal environmental laws, including investigating companies and individuals. EPA can bring civil administrative enforcement cases against such companies and individuals on its own, but if it wants to bring a more serious case in federal court that seeks civil judicial penalties or criminal sanctions, or seeks penalty amounts in excess of a certain amount,1 or long-term injunctive relief that may constrain a company’s future conduct, it refers the matter to DOJ. Both civil and criminal environmental cases are mostly handled by DOJ’s Environment and Natural Resources Division, also known as ENRD. Businesses often decide to settle a case with the government rather than go to trial, through negotiated settlement terms. Historically, those terms have usually included paying a financial penalty and performing injunctive relief (or in the case of criminal cases, performing certain remedial actions as a condition of probation) to “fix” the violation.
Supplemental Environmental Projects: What are they and how do they impact settlements?
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 most recent (2015) SEP policy that governed in matters the agency settled administratively, SEPs were required to have a relationship (or nexus) to the alleged violation. A nexus could include, for example, lessening the same negative impact to public health and/or the environment that the alleged violation had caused. DOJ and EPA have historically included SEPs in negotiated settlements in exchange for a reduced penalty. Under EPA’s 2015 SEP policy, the value of the SEP could reduce the penalty amount by up to 80% of the estimated cost to implement the SEP. SEPs have been popular with “the regulated community (both state and local governments and businesses alike) and many within the Executive Branch.”2
The vast majority of SEPs that might be used met their official demise under the Trump administration on March 12, 2020, when the then-head of ENRD issued a directive preventing the use of SEPs in most future civil enforcement matters handled by ENRD. The directive’s rational was justified through arguments that SEPs undermined Congress’s and states’ appropriation processes, essentially taking “fines” that would end in the public purse and redirecting them to spending not officially sanctioned, and, thus, violated the separation of powers. The policy did not apply to congressionally sanctioned SEPs, existing SEPs, or criminal prosecutions.3 Shortly afterwards, EPA likewise announced that it would no longer be approving settlements containing SEPs due to the ENRD policy. This prohibition on SEPs, as well as additional guidance memos on the use of SEPs in specific contexts, have now been revoked by DOJ.
Third-Party Payments: What are they and how do they impact settlements?
In contrast to a SEP, where the defendant directly undertakes the project, a third-party payment involves a defendant simply cutting a check to another (non-governmental) organization. These payments differ from penalties in that they do not go to the U.S. Treasury, and differ from restitution payments because they do not go to compensate the victim of the alleged violation or parties to a lawsuit. In 2017, Attorney General Sessions issued a DOJ-wide prohibition on settlement payments to third parties, which was then incorporated into the DOJ regulations.4 This was followed by ENRD memos in 2018 and 2021 providing further guidance on implementing the DOJ’s prohibition in environmental cases. These ENRD memos have now been revoked, although the DOJ-wide prohibition remains on the books.
Revoking Priority-Setting Memos: Where will the Biden Administration Focus?
In 2018 and 2021, ENRD leadership also issued two memos outlining the Division’s environmental principles and priorities. These memos outlined broad principles, such as a focus on bringing cases based on violations of laws and regulations, rather than informal guidance documents, and focused on types of violations, rather than categories of violators (such as by singling out a particular industry). They also encouraged the use of the full range of enforcement tools: from administrative enforcement and compliance to civil penalties and criminal prosecution, when appropriate. The memos both prioritized cases involving concrete benefits in clean water, air, and land, such as in CERCLA cleanups; maintaining the integrity of environmental programs by going after instances of fraud; recovering money to the U.S. Treasury; and protecting American workers and infrastructure. These memos have now been revoked. While it is not unusual for a new administration to announce a new focus in priorities, revoking these memos leaves a vacuum without providing any express replacement telling ENRD attorneys or us where the Biden administration intends to focus its enforcement energies. We do know, however, from statements made on the campaign trail, during the transition, and in executive orders, that the new administration intends to focus heavily on climate change and environmental justice issues, which we have discussed in previous posts.
What does this mean for the regulated community?
The new administration’s swift action to revoke the prior environmental enforcement policies, even before the new political leadership for ENRD has arrived, is a strong signal that the Biden administration is looking for a clean slate and a fresh start on setting environmental enforcement policies. For example, as noted above, the Trump administration adopted policies to limit certain settlement practices and focus environmental enforcement efforts. While the prior administration focused on settlements with high penalties paid directly to the U.S. Treasury, the new administration appears more interested in alternative settlement provisions, such as SEPs and Third-Party Payments. We are still waiting to learn specifics about the Biden administration’s enforcement policies, but industry should expect to see different approaches and new focuses in the upcoming months and years.
1 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 under 42 U.S.C. § 7524(c)(1) or secure a waiver from DOJ for the particular matter.
2 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).
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 (March 12, 2020).
4 See Memorandum from the Attorney General, to All Component Heads and United States Attorneys, Prohibition on Settlement Payments to Third Parties (June 5, 2017), available at https://www.justice.gov/opa/pr/attorney-general-jeff-sessions-ends-third-party-settlement-practice; 28 C.F.R. § 50.28.