Department of Justice Eliminates Use of Supplemental Environmental Projects in Civil Settlements

Faegre Drinker Biddle & Reath LLP

Faegre Drinker Biddle & Reath LLP

Most enforcement actions for violations of environmental law are resolved through settlement agreements or consent decrees. A March 12, 2020, memo issued by U.S. Department of Justice (DOJ) Environment and Natural Resources Division Chief Jeffrey Bossert Clark eliminates one of the tools that companies and the federal government have often relied on to reach environmental settlements.

The memo ends the use of Supplemental Environmental Projects (SEPs) in civil settlement agreements where the DOJ is a party. SEPs are “environmentally beneficial” projects that an alleged violator voluntarily agrees to complete to offset a portion of its penalty liability. Past SEPs have included commitments to fund environmental restoration projects, construction of mobile health clinics or the installation of pollution prevention equipment. Companies frequently use SEPs as a cost-effective and positive tool to resolve violations.

In the memo, Clark concluded that SEPs violate the Miscellaneous Receipts Act. This law requires federal officials receiving funds on behalf of the United States, such as civil penalties, to deposit the funds with the U.S. Treasury. Because SEPs permit alleged violators to expend funds on projects benefiting third-parties that would have otherwise gone to the Treasury, the DOJ concluded SEPs contravene the statutory directive.

Notably, the memo does not apply retroactively to settlements already approved by the DOJ, nor is the policy intended to interfere with the implementation of SEPs in existing settlements. However, looking forward, DOJ attorneys negotiating consent decrees or settlement agreements are directed not to include SEPs. The DOJ has determined that it lacks the authority to grant exceptions. However, the memo leaves the door open for Congress to allow SEPs.

The DOJ memo expressly states that it is “intended to govern the staff of the United States Department of Justice.” Thus, it does not govern Environmental Protection Agency (EPA) settlements that do not require DOJ approval. The DOJ’s decision to eliminate SEPs will present an added challenge for companies seeking to resolve their environmental liability in enforcement matters where the DOJ is involved. It remains to be seen whether the EPA will adopt a similar policy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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